Category: Japan

Economics Update

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Initial and Continuing Claims, Courtesy of
Calculated Risk

So, the new unemployment claims numbers are out, and they are still bad, though a bit better, 623,000, down 13,000 from the last week, and the 4-week moving average fell 3K to 626,750.

That being said, the continuing claims were 6,788,000, up 110K, to yet another record, so layoffs may be slowing, but so is hiring.

My take: this is more businesses are running out of people to lay off than it is the economy improving.

On the other side of the pacific, Japanese retail sales rose, but the consensus is that this is a temporary blip, not a trend.

Reinforcing my “dead cat bounce” view is the fact that durable goods orders remain near a 13 year low. (There is also some very bad financial journalism around this story, which I will get to separately)

Meanwhile, in real estate new home sales rose even as prices continued their fall, and if you look at the sales there is a huge portion which are distressed properties, short sales or foreclosures.

It’s why we are seeing more stories about how there are No “move-up” buyers, selling their old house and upgrading.

There is very little equity for such a move currently, and with mortgage rates continuing their upward path, and delinquencies and foreclosures rising sharply, they broke another record in first quarter, I don’t see any signs of a real rebound in the sector.

Meanwhile, I wonder how much the relaxation of the credit crunch involves the rest of our economy. The metrics involving inter-bank lending show signs of a thaw, but US commercial paper fell to its lowest level in 8 years.

This is largely non-bank lending, and it’s absolutely comatose.

Menqhile in currency and energy, the dollar dropped, and the Yen dropped more/a>, on the (not really that) good durable goods numbers and unemployment figures, while oil was up on OPEC’s announcement of no production boosts.

Economics Update

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Well, we have good news to start, with the Institute for Supply Manufacturing Index rising to 41, beating expectations, and the University of Michigan Consumer Sentiment Index rising to 65.1.

I’m not sure if this is a turn around or just a pause, since 41 is still contraction (50 being neutral for the ISM Manufacturing Index), and 65.1 for consumer confidence is well below the baseline of 100 which was set in December 1964.

Additionally, U.S. March factory orders fell 0.9%, and Japanese prices are showing deflation again, both of which mitigate against a prompt recovery.

Still, optimism on the economy drove oil to above $53/bbl.

As to the dollar, it was up vs. the Yen, and down vs. the Euro, I think largely on the bad news from Japan and the “good” news on orders and consumer confidence.

Economics Update

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Well, the IMF has updated its recession forecast for 2009, and their estimate has become much more pessimistic, with their estimate for contraction at -1.3%, down from -0.5%, they are also anticipating credit losses on the order of $4.1 trillion, and that the financial system will not stabilize until sometime in 2010.

Honestly, I still think that the new estimate is overly optimistic, but I’m a born bear.

This is born out by the fact that official UK economic predictions are that the British Isles will experience their fastest contraction since the end of the WW II, and Japanese exports are down year over year by almost ½.

That being said, we have some good news in real estate, with the Architecture billings index rising last month, and home were up 0.7%month to month in February, though prices are still down 6.5% year over year, but it’s the first two month price gain in about 2 years.

Additionally, mortgage applications are up, though this is largely refi activity, and the delay in foreclosures in California have returned with a vengeance, now that the little “holiday” created by the law changes that lengthened the time line from default to eviction has passed.

Banking still sucks though with Fannie and Freddie losses from defaults rising, Capital One’s losses on credit card defaults were worse than expected, as were Morgan Stanley’s losses (the cut dividends too), though Wells Fargo, who largely eschewed the high flying ways of the other large banks, had record profit and displaced Bank of America as the nation’s top lender.

In energy, oil rose slightly, despite reports of a growing inventory, and in currency, the dollar fell on reduced investor worries.

Economics Update

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So, we have some mixed news on the state of consumers, consumer sentiment improved slightly, though it is still near historic lows, and incomes have fallen.

Since consumers are generally deleveraging, I would place more importance on the latter, case in point, is February automobile sales continuing to drop, with the replacement for the US auto fleet, fleet size divided by monthly sales, hitting 27 years.

Obviously, this is not a sustainable number, and I would expect car sales to improve at some point, though whether this in time for the Big 3 (Big 2½) is anyone’s guess.

In any case, it apperas that Japan is heading back toward a deflationary situation, with their January CPI figures showing no change.

In energy and currency, the dollar is up and oil and other commodities are down.

Economics Update

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Calculated Risk’s semi regular review of credit conditions is showing a bit of a tightening. Nothing major, but when you start with awful, it’s worse.

That being said, it sucks to be Japan, as they just swung to their first trade deficit in a decade, and it’s a record too.

Meanwhile, the impending wave of impending loan defaults on commercial real estate appears to be starting in Cleveland and Detroit.

It is also looking like treasury bonds are falling, which means that yields are rising, implying that the markets are expecting interest rates to climb.

In energy, it appears that OPEC is looking at cutting production again, and it’s member states are not cheating on production quotas, or at least cheating on them less than is expected, so oil is up today.

In addition, the upward trend in gasoline prices over the past few months continues unabated.

In currency, we continue to see a flight to safety, which is driving the dollar up, and the Canadian dollar hit a 4½ year low against the USD.

Economics Update

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Well, the revised GDP numbers are in for Q4 of 2008, and they are a horror-show, with GDP declining 6.2%, when the initial numbers had been -3.8%.

With numbers like this it’s no wonder that the FDIC is reporting that the banking industry posted an aggregate net loss for a quarter for the first time since 1990.

If we are expecting real estate to rebound any time soon and save us, I wouldn’t hold my breath with condo developers trying auctions to move properties, and And apartment buyers walking away from deposits….Six and seven figure deposits….in Manhattan.

I would also note that the consumer does not appear to be their either, with the finally tally for the Consumer Confidence Index falling to a 29 year low.

With numbers like this, it’s no surprise that S&P is considering downgrading the ratings on $140 billion of prime jumbo mortgage CDOs, and non-prime mortgage origination hit a 17-year low last year.

Real estate, and hence banking, is in a sad enough condition that the FDIC has instituted a temporary emergency rate hike in order to bolster its reserves.

More generally, we have The Institute for Supply Management’s Chicago Purchasers’ Index showing continued contraction. It rose to 34.2 from 33.3, but anything under 50 means contraction, and the 30s are significant contraction.

The fact that GE cut its dividend to 10 cents from 31 cents indicates that no one is doing well here.

The same is going on overseas, with most of eastern Europe in dire straits, getting emergency loans totaling about $31 billion, and Japanese factory output falling, and new jobs drying up.

The revised GDP figures drove both oil and the dollar down.

Economics Update

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I’m not going to be writing about Geithner’s bank bailout plan here, it needs it’s own post, but I have some graph pr0n, a little update from last night’s Pelosi scary employment graph courtesy of Justin Fox (top) and William Polley.

The first goes back 6 recessions, and the 2nd covers all of the recessions since WWII, which makes a bit busy, but they are at least as scary as last night’s graph.

On to the update:

It appears that the Asian economies are melt down down, with Japan’s economy is deteriorating in a way that has not been seen in 50 years, China’s exports falling by double digits, the Taiwan dollar and Malaysian Ringgit falling, and the IMF predicting a 4% contraction in the South Korean economy in 2009.

Meanwhile, there is a report that Russia is attempting to restructure its debts, which is a polite way of saying that they are threatening to default.

Meanwhile, Geithner’s plan, and the Senate’s approval of a stimulus, does appear to be having an effect on the markets, with oil falling, which indicates that the oil traders do not expect to see a rapid economic turn around, and the dollar rising, on the same information.

In this case it appears to be cross purposes, but I think that the reason that the dollar is up is because people realize that the bailout makes US investments more attractive, albeit at taxpayer expense, but that is another post.

Economics Update

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To no one’s surprise, the Federal Reserve has extended its multi-trillion dollar so called liquidity facilities another 6 months, better known as the sh$tpile for cash program:

In addition to prolonging the currency swap lines that were due to expire on April 30, the U.S. central bank said it would extend through October 30 a host of other programs providing liquidity to the U.S. commercial paper and money markets, and to large Wall Street firms.

They’ve already spent in excess of 8 trillion dollars bailing out insolvent banks, but they think that more of the same will help.

The Federal Reserve is broken as an institution. It is run by and for the banks.

We also have aggressive stimulus programs ramping up in Australia and Japan.

Meanwhile, real estate and construction continues to be a disaster with US construction falling 1.4% in December and 5.1% for 2008, the largest drop since records began being kept in 1993, and the Homeownership rate has fallen to the 2000 level, so much for Bush’s “Ownership Society….In stead of owning, we got pwn3d.* With current equity losses of US home owner pegged at $3.3 trillion, a new record on vacant homes 19 million.

Even alleged good news in real estate, that the Pending Home Sales Index rose in December is pretty hollow, because, money quote from CR, “The biggest gains were in areas with the biggest improvements in affordability.”

So, if your house prices have dropped by 40+%, as they have in parts of California and Florida then homes might be moving…Otherwise, not so much.

Still real estate is not as bad off as the auto industry, with GM and Chrysler offering buyouts to all of their hourly workers, Ford posting 40.2% drop in January U.S. sales, and GM dropping 49%, Chrysler down 55% LLC, with the Japanese car makers seeing their sales dropping about 30% each

BTW, it appears that China may be headed for a period of economically induced social unrest, because more than one in seven rural migrant workers, more than 20 million, are unemployed.

In a nation that has systematically eliminated its safety net, 20 million pissed off unemployed people can make a lot of trouble.

In energy, I’m not sure if $40/bbl is the bottom, or if OPEC cuts are working, but oil was up today, and it appears that we have found a bottom there.

In currency, there dollar was down as there was less “flight to safety.”

*Leet speak for “owned”.

Economics Update

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The weekly new claims for unemployment jumped last week by 62,000 last week, to 589,000, the highest level since 1982, and more than predictions.

The 4 week average was flat, and continuing claims were worse than predictions too, at 4.607 million.

If that weren’t enough housing starts fell by 15.5% to 550,000, which, according to Calculated Risk,is, “by far the lowest level since the Census Bureau began tracking housing starts in 1959.”

Mortgage applications fell by 9.8% last week, because interest rates bumped by 0.37%, and most of the action right now is ReFi.

Over in Asia, the Bank of Japan is buying corporate bonds, because the credits markets have frozen there, and China’s economic growth fell to a 7 year low for the 4th quarter.

Meanwhile, it looks like the humongous loss phenomenon is moving from the banking giants to the regional banks, which may have a larger effect on business output, since they do a lot less of the high finance and a lot more lending to mom and pop businesses.

In commodities, steel production fell 1.2% in 2008, the first annual drop in a decade, while oil was up a few pennies today.

In currencies the dollar was down vs. the Euro and Yen, but up against the Pound…but then again, everything is up against the pound.

Economics Update

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Will the last home builder please turn off the lights?

Because existing home sales fell 8.6% from October, new home sales fell 2.9%, home prices fell by 13.2%, and foreclosures and short sales were 45% of all sales.

Consumer sentiment improved more than forecast last month though, driven largely by the expectation of lower prices.

In currency, the dollar was largely mixed, though both the Yen and Pound were down.

It should be noted that the Yen is off a historic high, and the pound is near a historic low, it’s about to reach parity with the Euro, so the dynamics are different.

As to why the Pound is falling, it might be that the U.K. economy is shrinking at a pace not seen in 17 years, 0.6%, which is worse than
the US figure of -0.5% for the quarter.

EVen more than the US, the UK bought into the idea of the finance industry as an engine for the economy, and they are reaping the whirlwind.

Oil is down again.

Also, here is a story that I think we will see more of in the next few months,* there has been a default by Global Investment House (GIH) in Kuwait on a $200 million loan, one of the larger investment houses in the Arab world.

They aren’t going under just yet, but I think that this is the first crack in the armor of the petro-Arab investment houses.

*Because I am just so good at making predictions.†
†Considering my record, this may actually be a sign to go the other way….Or not.‡
‡Disclaimer: Matthew G. Saroff disclaims any responsibility for any actions taken as a result of the information displayed on any pages of this website.

Japanese Company Developing Regional Jet Engine

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Japanese aero engine manufactuer IHI is working on a a low fuel consumption turbofan (paid subscription required) to compete with US and European engines on future regional jets.

One of the interesting features of the engine, IHI calls it the Eco turbofan, mockup shown is how the fan wraps around its hub, so as to cover more of the frontal area of the engine, which is intended to improve efficiency.

In its initial form, it should put out around 9,000 lbs of thrust with a 7:1 bypass ratio.

Why Japan May Not Buy the JSF

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It is increasingly looking like it will be impossible for Japan to have their own final assembly site for the F-35 JSF. (paid subscription required)

Japan has been manufacturing front line fighters locally since 191956, when it started taking deliveries of the Japanese assembled F-86 Sabers, and while aircraft in service have been foreign designs (F-4EJ, F-15J), or derivatives of foreign designs (The F-2 derivative of the F-16), this is a capability that the Japanese government and military see as important (otherwise they would not have flushed all that money down the toilet on the F-2 in the 1990s).

In addition to the F-35, the competitors for Japan’s next fighter requirement are the improved F-15FX and the F/A-18E/F from Boeing, or the Typhoon from Eurofighter:

Japan’s F-X fighter competition results will determine next year whether the national industry can sustain its tradition of domestic production of fast jets or instead be forced to accept a suspension and the risk of losing skills.

….

One Japanese official who has recently moved from the Defense Ministry to industry says that his former colleagues are inclined toward the Lockheed Martin F-35 Lightning to fill the F-X fighter requirement, but industry is lobbying for the Boeing F-15FX or F/A-18E/F Super Hornet or the Eurofighter Typhoon.

Simply put, the F-35 already has too many hard and fast contracts on work share for there to be any realistic opportunity for Japanese industry to participate.

What’s more, though this article does not discuss this, the aircraft is very tightly integrated, and so it becomes very difficult to involve local industry in upgrades.

There is the possibility that Japan could go it’s own way,with either something like their ADT-X stealth demonstrator, but the expense here would be enormous, particularly since the manufacturer would be prohibited from exporting the aircraft by the Japanese constitution.

Economics Update

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Well, retail sales numbers for November are grim, down 7.4% from November 2007, and that’s with an adjustment for a late Thanksgiving that is probably excessive, so it is likely worse.

Consumer sentiment rose, but is still at a pretty awful number.

We also saw wholesale prices fall, which can be either good news, moderating inflation, or bad news, deflation.

Overseas, we have the EU found agreement on an economic stimulus pack, with even Angela Merkel backing off Hoovernomics by a half step.

In Japan, a new economic stimulus package has been announced.

Russia, however, is being hammered by low oil prices, and senior officials are now saying that the nation is in recession.

As to currencies, the dollar was mixed, up versus the Pound, down a smidge versus the Euro, and at a 13 year low versus the Yen.

I’m not sure how much of this is all just a reaction to the Senate auto bailout follies, and the the same goes for the price of oil, which was down, but was likely driven by yesterday’s filibuster.

Additionally, retail gasoline is now below $2 a gallon in the lower 48, with New York State crossing that line today.

Economics Update

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We already knew that Japan was in a recession, but the updated data is worse than the initial data. The preliminary number was 0.1%, the prediction was 0.2%, and it came in at 0.5%.

Barry Ritholtz notes that the 4 Week T-Bill was paying 0%, down from 0.4%, and notes that the only reason to do this is if you expect that the next 4 week T-Bill will have a negative interest rate, i.e. that you pay the government money for the honor of lending them your money.

Turns out that he was a a little bit premature, because the 3 month T-Bills actually traded at negative interest rates, “If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.”

If you want to feel concerned note that this is the Lowest Rate Since 1929…1929….That year sounds familiar.

In the meantime, the Bank of Canada cut its key rate by 75 basis points to a 50-year low, because they are in recession too.

In real estate, the Pending Home Sales index fell, though not by much, and listing prices for homes have continued to fall.

Calculated Risk has a summary of the commercial real estate market, and it ain’t pretty.

In energy, oil is down a bit, likely spooked by the complications on a bailout deal.

The dollar was mixed today, up a bit vs the Pound and Euro, and down a bit vs. the Yen.

Economics Update

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Well, in a case of stating the blatantly obvious, the Philadelphia Fed;s Survey of Professional Forecasters says that we are in a recession, and have been since Spring, though the Conference Board has not yet chimed in on this, so it’s not yet “official”.

In any case, Japan is officially in recession. I guess that they have better record keeping than we do.

In the mean time Calculated Risk’s Credit Crisis Indicator interest rate metrics are basically unchanged.

We also have some mixed numbers in industry, with post hurricane industrial production, but the New York Fed’s Empire State index of hitting its lowest level ever.

In the UK, they are seeing an explosion in jingle mail, where mortgage holders mail their keys back to the bank, either figuratively or literally.

In the US, pending sales are down from September to October, but up against last October, which Barry Ritholtz catches, it’s really a net up, who wants to buy a house in October, but the National Association of Realtors does not get.

In currency, then dollar is down on recession worries, though my guess is also that the G20 meeting being hosted by a drooling idiot did not help.

In energy, oil is at a 21-month low, and retail gasoline prices fell for 61st straight day, which does not surprise me, as I filled up for $1.979/gallon yesterday.

Japan Eying a Larger Stealth Aircraft Project

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I mean a physically larger aircraft than the F-5 sized ATD-X that I have written about before.

I had theorized that this was an attempt to pressure the US Congress to change the law forbidding exports of the F-22, but now It now appears that they are considering a stealth aircraft in the that is significantly larger. (paid subscription required)

They are talking about two engines in the 22,000 lb thrust range, which appears to put the new aircraft in the Superbug and Typhoon size range, though if it is a strike fighter, it could be larger still, as attack aircraft generally have lower thrust to weight.

It’s clear from the pictures above, that the Japanese are very serious about stealth, which is about attention to detail.

It’s clear that Japan’s immediate need, replacement of its F-4EJ, will not be filled by any such aircraft, the need is too immediate.

The leading candidates for an F-4 are the F/A-18 E/F, Typhoon, and Rafale.

If it weren’t so damn slow, I’d bet on the Japanese buying the Superbug, but I have no clue as to where they are going on this.

Economics Update

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While it’s generally known that the Fed will cut rates, it is news when European Central Bank President Jean-Claude Trichet says that it’s likely that they will do the same, it is a bit of a surprise.

In terms of interest rate spreads, it’s not looking good, with the spreads for Fannie Mae and Freddie Mac hitting the highest level since March.

In real estate we have Journalistic bullsh%$ good news, with reports that new home sales increased in September, but as Barry Ritholtz of the The Big Picture notes, these are bad numbers:

One other thing to note: Note the monthly 2.7% increase was based in part on last month’s being revised downwards, making the differential look bigger (this month is also likely to be revised downwards). Annualized sales for the month was 464k; Actual unadjusted monthly new home sales are about 35-45k, down from 100-120k (before they get annualized).

Year over year, house sales fell by 33%, and prices fell by 9%.

Meanwhile, it looks like the tax payers have already sent a significant chunk of change to the banks $63 billion to 15 banks:

  • PNC Financial Services ($7.7 billion)
  • Capital One Financial ($3.55 billion)
  • Regions Financial ($3.5 billion)
  • SunTrust Banks ($3.5 billion)
  • KeyCorp ($2.5 billion)
  • Comerica ($2.25 billion)
  • State Street ($2 billion)
  • Northern Trust ($1.5 billion)
  • Huntington Bancshares ($1.4 billion)
  • First Horizon National ($866 million)
  • City National ($395 million)
  • Valley National Bancorp ($330 million)
  • UCBH Holdings ($298 million)
  • Washington Federal ($200 million)

Oh…me bad…I forgot that BB&T is in for $3.1 billion too.

Well, at least gas prices and oil prices are continuing to fall.

In currency, we have
the dollar and yen pounding the Euro and Pound to the degree that the bank of Japan is considering an intervention to keep the Yen form spiking too high.

It also looks like the Australian dollar is at serious risk of falling off a cliff, see here and here.