Category: Real Estate

Economics Update

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Not unexpected, but the budget deficit jumped 10% because taxes have fallen to a 14 year low.

Like I said, the solution here is inflation to wipe out bad debts, and the deficits are going to do that sooner rather than later, because we’re not going to see a this resolve itself in the US, or overseas in the near future, as evidence by the cratering confidence numbers globally.

With Chinese exports falling sharply, 25.7% year over year, and the rest of the world seeing similar numbers, they are in no position to drive a recovery either.

Consumers are vanishing worldwide, and there is no sign of a recovery in the US, particularly in real estate, where S&P is warning of downgrades of, “9,430 classes from 1,077 U.S. first-lien Alt-A RMBS transactions issued in 2005, 2006, and 2007”, and builder loans threatening to take down banks that weren’t playing with funky financial instruments.

On the brighter side, it looks like the SEC might reinstitute the ‘Uptick Rule’ on short selling.

I’d like to see aggressive prosecution of market manipulation techniques like “naked” short selling too, but I am not holding my breath.

If Wall Street were investigated by Patrick Fitzgerald, I’m pretty sure that you would see tens of thousands of prosecutions.

In energy, the week economy has driven oil down.

Also, it appears that there are more stupid people than I thought, because the dollar fell as people left its safe haven, it appears that this was largely a result of Pandit’s delusional memo saying that Citi is going to rake in the bucks this quarter.

Economics Update

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The Manpower hiring survey has fallen to its lowest level in its history, and the survey started in 1962.

Meanwhile, a survey of economists say that the U.S. economy set should start to recover in the 2nd half of the 2009:

“Consumer spending and residential investment are expected to turn positive and begin boosting GDP growth in the third quarter of this year,” the newsletter Blue Chip Economic Indicators said, summarizing its survey of private economists.

I want what the economists are smoking, because we are seeing no signs of either right now.

The fact the even previously overheated China saw deflation in January indicates to me that this will be longer and deeper than they think.

Additionally, while wholesale inventories fell in January, wholesale sales fell faster, and house prices fell 3.5% in January, according to the Integrated Asset Services index, indicating that the contraction is accelerating.

There is also the fact that the meltdown of the US megabanks has gotten worse, with us regulators looking at more bailout money for Citi, and the notification that the Federal Home Loan Bank of Seattle said it has fallen short of one of its capital requirements.

Note that the FHLBs are where the mortgages are being written right now, so this means that things are going pear shaped in the mortgage market.

With all this going on, it’s no wonder that the 3-month LIBOR spread is up, indicating a tightening credit environment.

Some good news, though it means short term pain, which is that the Securities and Exchange Commission remains committed to reality based accounting, and so it will not abandon mark-to-market.

We also have oil rising on reports of OPEC production cuts, and the dollar falling on US bank worries.

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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Busy day, so let’s start with the central banks: The Bank of England cuts rates by 50 basis points (½%), and is engaging in quantitative easing (printing money) in the form of buying £75 billion ($US 106 B), and the European cut its benchmark rate by 50 basis points to 1.5%, and is also looking at “further non-standard measures” (see quantitative easing).

Considering that the ECB has no charge except to manage inflation, this is extraordinary.

Unsurprisingly, the rates cuts have driven the dollar up.

As Brad Delong Notes, “It is overwhelmingly likely that the current downturn-in-progress will then surpass the united 1979-1982 downturn as the worst downturn since the Great Depression itself.“

In employment, first time jobless claims fell to 639,000, but the less volatile 4 week moving average rose to 641,750, the “highest since October 1982,” and productivity dropped 0.4% in Q4 of 2008.

Bumpy ride, folks.

On the brighter side Bonddad’s credit indicators show a thaw in lending over the past few months, and February retail sales beat expectations, though the numbers are still pretty bad.

In autos, GM is saying that there is “substantial doubt” about whether it can survive in an SEC filing, not a surprise, and implies Chapter 11, which further implies liquidation for Chrysler.

Mortgage rates rose last week.

Oil, meanwhile fell in response to the generally anemic economic news.

Economics Update

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Scary Pic of the Day: Upcoming Mortgage Resets Courtesy of Dr. Housingbubble

ADP employment services has released its monthly report, and job cuts are way up with 697,000 jobs lost in February as compared to 614,000 jobs lost in January.

Note that the initial January figure was only 522,000, the the final February figures may very look even worse.

We also have the Institute for Supply Management February non-manufacturing numbers, and they are down from January’s already anemic figures, and the Federal Reserve’s business survey reporting “weaker conditions or declines” in 10 of the 12 regions.

In China, however, the purchasing managers’ index rose in February, to 49, which still shows contraction, but only barely, as 50 is neutral.

In real estate, we have mortgage demand falling last week, largely because borrowers are waiting to see what the Obama mortgage rescue plan is.

In commercial real estate, we have a secondary indicator, with office furniture sales falling sharply.

It’s no wonder that FDIC Chair Sheila Bair is warning that its insurance fund could be insolvent by years end.

Bank failures, ignoring the biggest ones, is on a pace to close 100 banks this year, as compared to the 27 in 2008 or the 3 in 2007.

We are seeing a spike in consumer bankruptcy filings, up 29% year over year in February.

The Chinese economic news drove oil higher, and bad economic news in Japan drove the dollar up.

Economics Update

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Will the last entity leaving making cars in the US please turn off the lights?

Toyota’s U.S. sales are down 39.8% to 109,583 units in February – MarketWatch, Ford and GM fell 48.2% and 51.6%, and Chrysler fell 44%.

In real estate, pending home sales fell, but realtors are hawking “affordability,” because, well, otherwise they would have nothing to hawk at all.

Meanwhile, the Federal Reserve is rolling out its Term Asset-Backed Securities Loan Facility (TALF), a lending facility geared toward business, auto, and consumer loans.

It’s buying more more sh%$pile from desperate people, but they have decided that they will ignore the compensation limits, even though some of the money from the $700 billion dollar bailout fund.

Bastards.

We also have some mixed signals with recession indicators, with a record number of cargo ships idle, but over the road trucking showing a slight bump.

Oil is above $41/bbl, and the dollar is a bit weaker, largely on the fact that Australia has not dropped its rates.

Economics Update

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Yeah, I know, I don’t normally do the stock market indices, but the Dow fell to below 7000 today, and closed at 6,763.29, a 12 year low, and you can be sure that this spooks both the markets, and the regulators.

More significant is the fact that personal savings in the US are way up, and as the graph from Calculated Risk shows.

It’s been over a decade since personal savings were that high, and while generally this would be a good thing™, right now the fact that people are deleveraging means that the economy is driven even further down.

It makes sense personally, but in the aggregate, it makes things worse.

Interestingly enough, even with the increase in savings, consumer spending rose in January by 0.6%, which was unexpected, as did incomes, bu 0.4%, which was also a surprise.

I think that it is a one month thing, though it might be the “Obama Effect,” making people more willing to spend now that a Bush and His Evil Minions™ are no longer running things, but in either case the effect is small, and unless we see increases for the next few months, things won’t get better.

We also saw the Institute for Supply Management’s manufacturing index rise to 35.8 from 35.6, beating expectations of a fall to 33.8, but note that this means merely that it’s contracting slightly less implosively than it would otherwise: any number below 50 is a contraction, and this makes 13 straight months of contraction.

The full link to the ISM monthly report is here, and it should be noted that their employment index is at all time (since 1947) low.

In real estate, construction dropped to a 4½ year low.

Meanwhile, the AIG bailout, and the concerns that it raises has driven oil down on concerns of more turmoil in the banking system, and has driven the dollar up in a flight to safety.

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.

Because the Blue Dogs and the New Democrats are the Suck

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It looks like the corporate whore Blue Dog and New Democrat caucuses are doing their level best to kill the ability of bankruptcy judges to rewrite mortgages on primary residences. (Cram-downs)

Chairman of the New Democrat Caucus, Ellen Tauscher, that it’s not fair to people not in bankruptcy who are being screwed by their banks, which is complete bullsh$#.

If people have the stick of cram-downs to wave at the banks, it makes those banks much more likely to renegotiate loans.

What’s more, it only applies to loans already made, not those going forward, and, depending on draft, may only be limited to sub-prime mortgages…..It is very weak tea to begin with.

This is “I want donations from the banks” crap, and Ellen Tauscher is in a very safe Dem district, having won each election with more than 65% of the vote since redistricting.

She needs to be primaried, but according to Act Blue, she does not have a primary opponent right now…..Damn.

Economics Update

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So, the new unemployment numbers are out, and once again, they are brutal, with adjusted initial claims hitting 667,000, up 36,000 from last week, and the less noisy 4-week moving average hit 639,000, up 19,000, while the continuing claims are at 5,112,000.

As Calculated Risk notes, the 4-week moving average is the highest since 1982, and the continuing claims are the highest ever recorded, though both are somewhat better when normalized against total workforce size. (Graph at CR)

We also saw durable goods orders fall to a 6 year low, and new-home sales fell in January, the lowest number since records started to be kept in 1963.

We also have banks cratering with the FDIC list of problem banks up 50% in Q4 of 2008.

BTW, it’s hitting the export driven economies of Asia even harder, with Singapore’s Q4 GDP falling at a 16.4% annual rate.

We also have oil down following the announcement of production cuts by the UAE, and the dollar is down, for reasons that are not entirely clear to me.

Economics Update

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More brutal numbers on home sales, with sales of existing homes falling to a 12 year low.

Note also that existing home sales are becoming a bigger part of home sales in general, as foreclosures and other distressed sales make up a bigger part of the market.

Of course this can’t compare to the financial putrescence that is AIG, which just failed on an asset sale.

It wanted to use the proceeds to pay down some of its debt to the US government, but could not because of a lack of bidders. No one wants their crap.

BTW, Ken Lewis’s gift keeps on giving to Bank of America, because Merrill-Lynch lost $15.84 billion in Q4, about $500 million more than predicted.

There was an unexpected decline in gasoline stocks that drove oil higher today, while the poor housing news and the declines in the stock market have driven the dollar up as people look for safe havens.

Economics Update

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Well, the Conference Board’s consumer confidence report came out and it is starkly grim, dropping to a record low of 25, lower than had been predicted.

BTW, it’s not just us, German business confidence has fallen, and Standard & Poor’s lowered Latvia’s debt rating to junk.

This means that German businesses have no confidence in the new future, and no one has any confidence in Latvia.

Even the New York Stock Exchange is getting in the act, looking at temporarily suspending a requirement of a $1/share price in order to avoid delisting….I call it a Citi Special, though the two most prominent companies at risk of delisting right now are AIG and Ford.

The fact that the Case-Shiller numbers for the top 20 real estate markets show a price decline of 18.5% year over year, has a lot to do with that.

In currency, the dollar fell a bit, while in energy, oil rose.

The Mess That Greenspan Made: The Great Inflation Moderation that Wasn’t

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Tim at The Mess That Greenspan Made has a great post on how the Federal Reserve, and Alan “Bubbles” Greenspan, succeeded in making a laughing stock of inflation results through the use of imputed rent (owner’s equivalent rent) in the CPI data.

Not only is inflation higher, but the swings in inflation, driven as they are by the aggressive policies of the Federal Reserve to drive down wages manage inflation, are much more extreme.

In essence, as I’ve noted before the Fed has made itself look good.

BTW, you can get more information, in mind numbing detail, from Shadow Stats.

Economics Update

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The Federal Reserve Bank of Chicago’s National Activity Index showed a small bump in January, though it should be noted that December was an absolut disaster, so I’m callijng dead cat bounce, particularly since the 3 month moving average is at a record low.

It also appears that the gift that keeps on giving, AIG, is looking for more welfare from the government.

The US government already owns 70% of the company. How about giving all of senior management the boot….TODAY.

BTW, it appears that the rising levels of derfault on commercial real estate are giving Atlanta Federal Reserve Bank President Dennis Lockhart the willies. He says that it is keeping him up at night.

Meanwhile, the go-go free market capital of the Arab world, Dubai, has just gotten a bailout from the United Arab Emirates following the failure of its bond offering.

Dubai has done its level best to cast itself as the banking sector of the Arab petro-states in the region, and now it looks like things are going bad there too.

Not only are there problems with bond offerings, but thousands of expats are fleeing the country, because they have lost their jobs, and under the law there, they face debtors prison.

Meanwhile, it appears that oil spiked above $40 on Friday, but it’s below $40/bbl again.

In currency, the dollar gained against both the Yen and Euro.

The Yen is down largely on concerns about declining exports will effect Japan’s export driven economy.

The concern with the Euro is that the former Warsaw Pact and Soviet States that were absorbed (too soon) in the optimism that followed the fall of the Berlin Wall are beginning to resemble Iceland, or Ireland, or Argentina.

I will be posting on Citi, and “stress testing”, later.

Economics Update

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Well, I guess the lede is that the Federal Reserve is cutting its 2009 economic forecast….Reality has a way of doing that.

Real estate is ugly today, with housing starts and applications for building permits falling to record lows, which is not surprising as it’s clear that there is a significant overhang in inventory.

That overhang in inventory is why builder sentiment is at the staggering number 9, with 50 being neutral.

It’s not pessimism, it’s sanity.

We did get another jump in mortgage applications, but that’s just a refi surge when the numbers go below 5%.

We also saw a record slide in GDP for OECD nations in Q4 of 2008.

On the brighter side, I’m not in the Ukraine, where industrial output shrank by 34.1%, which is return to the stone age type numbers.

We also have record lows from Taiwan’s central bank, which cut its benchmark rate to 1.25%.

We also have some insurance news, including our friends the monoliner bond insurers.

First, we have MBIA splitting itself. It’s separating its municipal bond insurance from its mortgage backed securities interests, which is likely a good thing in the long run, though S&P downgraded them from AA to BBB+, which, while not junk bond status, is rather too close to junk bond status for comfort.

Additionally, Moodys cut ratings mortgage insurers MGIC, Radian, Republic, and Genwort.

We are actually seeing some indications that the price drops in commodities are dropping, most notably the Baltic Dry Index of shipping costs has doubled recently, which indicates more cargo, particularly in terms of raw material.

Obama’s housing rescue plan appears to have strengthened the dollar, and driven oil up today.