Category: Recession

Economics Update

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Well, out in the real world, housing starts and housing permits both fell unexpectedly, and industrial production fell ½%, which looks bad, while the Baltic Dry Index, an index of ship activity, hit a 7 month high, mostly on Chinese demand for iron ore.

Note that the fall in housing starts and building premits was almost entirely related to a drop in construction of condominiums and apartments.

In the long run, this may be good news, as it means that the supply of new housing units is finally being outstripped by demand, as anemic as it is, which is a first step to recovery.

Note also, however, that housing starts is a leading indicator, and as such this does not speak well for “green shoots” in the economy.

My guess would be that that condos are driving this, as they used to be a step up to a stand alone house, but now people realize that a condo is as hard to get rid of as a case of herpes.

In the delusional world of bankers the news is fairly good, with the LIBOR hitting a to a 4 month low, the Volatility Index (VIX) below 30 for the first time since Lehman imploded, and >Barry Ritholtz’s semi regular credit crisis watch is showing signs of thawing in a number of metrics.

So at this point, the problem may be more the real economy than it is the banks, and the fact that Norway, the outlier in so many good ways, like its lack of corruption in a petro state, has finally joined the rest of Europe in a recession.

Meanwhile, it looks like Allstate and Ameriprise will not be among insurance companies taking TARP money.

I’m not sure if it’s the potential for pay limits, or the stigma, or the fact that they think that Geithner is a turd.

Meanwhile, in currency, the good news in the credit market pushed the dollar down on reduced demand for a safe haven.

Oil broke the $60/bbl barrier in interday trading, before settling at $59.65/bbl, largely on yet another refinery fire….Is it me, or is this beginning to sound awfully convenient?

I’m wondering if they timed it so that deferred maintenance would kick in just before the start of the Summer driving season.

Economics Update

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Grim news out of Europe, with Euro zone GDP collapsing by 2.5% in the first quarter…That’s a quarterly decline, not a year over year decline, and largest decline for the Euro zone in at least 13 years. Before that there were no Euro zone statistics. (It should be noted that the YoY number is 4.6%, which is merely scary, as opposed to a terrifying double digit annual decline)

Not surprisingly, this pushed the dollar up relative to the Euro.

As bad as this was, it was even worse in Eastern Europe, because their recent growth was driven by exports and foreign investments looking for high returns, which are both gone.

Again using the quarterly numbers, Hungary -6.4%, Slovakia -5.4%, the Czech Republic -3.4, and Romania -6.4%.

A lot of this was driven by Germany’s contraction, which was among the largest in Western Europe, because they have a Hooverite as Chancellor, which was -3.8%, the biggest decline in Germany since the end of WWII.

Seriously we are talking end of the world numbers, he said, citing experts:

Dr Ray Stantz: What he means is Old Testament, Mr. Mayor, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes…
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together… mass hysteria!

Of course you have to go to Russia for a really scary number, -9.5% in the first quarter….Annualize that.

The news from the US was relatively mild, with the Empire State Manufacturing Survey showing only a modest decline. The index was up, but still below zero, so it still indicates contraction, and the Fed’s report on capacity utilization showed a marked decline.

We are still seeing the largest year over year decline in consumer prices since June 1955, but month to month indicates that there was no change, which eases deflationary concerns…A bit.

In banking, we are seeing further signs of easing with both the LIBOR and TED spread falling.

The easing of credit may be why the FDIC is walking away from its plan to guarantee 10 year bank bonds, though there are also indications of push-back from Treasury.

Meanwhile, the horrible GDP numbers from Europe, and the stronger dollar drove oil down, though retail gasoline is moving in the opposite direction, up 12% over the past 17 days.

Economics Update

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So, initial jobless claims rose 32,000 637,000 (seasonally adjusted) worse than expected, the four-week moving average rose by 6,000 to 630,500, and continuing claims rose by 202,000 to a record 6.56 million.

Meanwhile producer prices rose unexpectedly by 0.3%, indicating that, perhaps, the inflation genie is not as firmly in the bottle as one would hope.

Meanwhile, in real estate, office rents in London have fallen to 1991 levels, as a combination of overbuilding and the implosion of “The City”, the UK Wall Street have driven down rents.

We are seeing the same thing in retail space, with rents falling and concessions increasing, at such high profile locations as Rodeo Drive, 5th Avenue, Bond Street, and the Champs Elysees.

It’s no wonder then, that commercial and multi-residential mortgage loan originations have fallen sharply. (top pic)

Also, the HousingWire has a good picture on the surge in foreclosures that I noted yesterday. (bottom pic)

Neanwhile, energy and the dollar seem to be at odds with each other, with oil up today, it appears on the belief of a recovery, and the dollar also up, on economic insecurity.

Go figure.

Economics Update

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With all this talk of green shoots, its worth noting that the evidence in the underlying economy does not really indicate much in the way of a recovery, which is why the decline in retail sales in April should come as no surprise.

That’s a big portion of the US economy right there, and what’s not is real estate, which is showing little in the way or recovery either, with foreclosures at a new record in April, though actual repossession of property fell, because the banks are worried about the costs of actually having to take care of the property when they finally assume ownership, along with changes in laws that have drawn out the process in many of the hardest hit states.

The number of foreclosures were up 1% over an already record March, and up 32% year over year.

We also saw a drop in mortgage applications as refinancing slowed with the increase in interest rates.

There is not a whole bunch of economic recovery in the Euro zone either, with industrial output falling more than 20% year over year.

We are seeing some good news on the credit front again though, because LIBOR hit a 2 month low, though in the real world, where it’s lending to real businesses, as opposed to banks, real interest rates, interest minus inflation, are at a 25 year high and it is curtailing all sorts of capital activity.

It also looks like BankUnited may be heading to a headline on Friday Night Bank failures, with a late filing with the SEC saying that they need to raise over $1 billion in capital, because, “the Board of Directors of the Bank entered into a Stipulation and Consent to Prompt Corrective Action Directive (the “PCA Agreements”) with the OTS.” (Office of Thrift Supervision).

In any case, the bad consumer spending figures pushed oil down on demand concerns, and pushed the dollar up as investors fled to safety.

Suckers Rally

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So, we have Nobel Prize winning economist Paul Krugman saying that a rapid recovery is highly unlikely, and we have Andy Kessler, in the (web) pages of the Wall Street Journal noting the obvious, that, “You can have a jobless recovery but you can’t have a profitless one,” and saying that this sounds like a suckers rally.

One more bit of confirming data to support this is the fact that the main stream media, in the personage of ABC is writing stories saying that, “There is a growing belief among financial experts that the recession is over.”

It’s not just that these “financial experts” were generally the ones who were wrong about deregulation of the markets and the housing bubble. It’s that these “financial experts” are always wrong.

The cause of this recession is a rot at the core of our financial institutions, and I haven’t seen anyone chopping down trees to prevent “Wall Street Elm Disease” from spreading yet.

I’m not looking for a real turnaround until we start seeing “no end in sight” stories from these “financial experts,” so I call suckers rally.

Economics Update

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The US trade deficit rose in March, to 27.6 billion, on falling exports and the recent increases in oil prices.

Imports fell by $1.6 billion, but exports fell by $3 billion.

We will not be, as the Japanese did, exporting our way out of this trade deficit.

This is one reason why the American Express/CFO Research Services survey has 59% of CFOs seeing more layoffs.

Of course, the fact that nationwide, US home prices fell the most on record, 14% year over year, and the only markets where home sales are rising are where vultures are sweeping in to buy cheap foreclosure properties.

On the bright side, the National Federation of Independent Business’ monthly index of small business sentiment was up for the first time in 4 months.

It appears, however, that credit card company Advanta is not so optimistic. The company, which specializes in credit cards for small businesses, is shutting down its lending operations on June 10, after uncollectible debt exceeded 20%.

They are not shutting down, they are just shutting down all their credit lines, and just taking payments, which is awfully close to shutting down, so the credit cards just become so much plastic.

The deficit is not looking good either, with tax receipts so low that the federal government ran its first April deficit since 1983.

In energy, oil was up today, briefly breaking $60/bbl for the first time since November, before settling at $58.85/bbl.

This, along with banking changes and interest rate increases, is why the ruble is on a tear right now, and the US dollar fell to a 4 month low on comments by a number of experts that the recession is bottoming….Yeah….sure…

Economics Update

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So, the Bureau of Labor Statistics has its April employment report out, and non-farm payroll employment continued to decline in down 539,000, though this is a slower decline, and beat expectations though the unemployment rate rose to 0.4% to8.9%, a 25 year high.

Under the less restrictive, and to my mind more accurate U6, unemployment rose to 15.8%.

The picture (click for full size) shows the employment fall from peak compared with other recessions.

Meanwhile, wholesale inventories fell by 1.76%, more than the forecast of 1%, as retailers and manufacturers tried to adjust for reduced demand.

We also have some bad news in the financial industry, with Royal Bank of Scotland posting a loss after writing down risky assets, Commerzbank, Germany’s 2nd largest bank, reporting an €861 million loss, and our old friend AIG posted a loss of $4.5 billion. (AIG is the gift that keeps on giving.)

Meanwhile, all the optimism over the jobs report (Whee! !he 2nd derivative is positive!)has driven the dollar down and driven oil above $58.bbl.

Economics Update

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I think that we have some promising news here, though, eternal bear that I am, believe it to be a pause rather than the start of a turn around.

That being said, first time jobless claims fell, as did the less noisy 4 week moving average (see pic), which makes 4 weeks for the 4 week moving average, though continuing claims rose 56K to 6.351 million, indicating that this might more that businesses are running out of people to lay off than people are being rehired.

That being said, the fact that the April retail sales numbers beat expectations is just generally good news.

I’m not sure, however, how they managed to beat expectations, what with consumer credit dropping a record $11.1 billion in March, which indicates that the consumer is retrenching.

My guess is that this is an artifact of tax refunds.

In Europe, we have the Bank of England holding rates steady and the ECB cutting rates by 250 basis points (¼%), and both have expanded their programs of “quantitative easing” (printing money).

These actions were not particularly aggressive, which meant that the dollar Euro, because they are simply less likely to debase the currency as much as Uncle Ben (Bernanke).

The concerns about the US money supply are also finding their way into the US Treasuries market, with interest rates on the latest bond sales exceeding expectations, because investors are worried about monetarily driven inflation.

Still, reading the tea leaves on real estate, things are not going well, with delinquencies on dues to homeowners associations, which tend to foreshadow mortgage defaults, growing rapidly from 2.8% last June to 5.3% today.

Additionally, you have condo and apartment sales in Manhattan declining precipitously, with sales falling 48% year over year. (!)

The fact that mortgage rates are trending higher is not a help here.

In the world outside of real estate, the transportation based indicators are not showing any sign of recovery either, with Suez Canal April revenues falling 22.7% YoY.

Still, oil traders are betting on increased demand for oil, which translates into increased economic activity, and so crude rose today.

Economics Update

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Surprise, surprise, the press is noticing that foreclosures are no longer just some sort of phenomenon effecting poor people who got subprime loans:

Chuck Dayton put down a quarter of the $950,000 purchase price when he bought his house in Newport Beach, Calif., in 2004. He was making $500,000 a year with his drywall company and he expected home values to keep rising.

Then the mortgage market collapsed, new construction stopped and builders no longer needed his services. Dayton, 43, went into default four months ago because he couldn’t afford payments on the three-bedroom home, located within a block of the Pacific Ocean. He hopes his lender will agree to sell the seven-year-old house for less than he owes to avoid a foreclosure.

This is then followed by a a number of refis to take out equity, and a negative amortization loan.

A bubble market, with toxic products feeding the frenzy. No wonder Zillow dot com just completed a survey showing that ¼ of home owners are under water.

Even those who followed the old rules, 20% down and 30 year fixed, ended up buying into the appreciation story, with refinancing and exotic mortgages creeping into their home values.

And while fear fear has temporarily put a halt to the worst excesses, the declining job market, continues to mean that these people will stay under water.

The most recent reports, private ones from payroll check processor ADP, and the rather Dickensianly named outplacement firm Challenger, Gray & Christmas, don’t show a turnaround, though in a classic bit of journamalism, the fact that private sector employment fell by 491,000 is somehow good news.

Meanwhile in currency, the dollar weakened slightly, largely on uncertainty about both what the ECB will do the Euro rate, and the results of the banking stress test (more on that later).

In energy, both oil and natural gas were up, oil to a 5 month high, and the largest single day increase for natural gas in 2 months.

Economics Update

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Well, here’s a big surprise, credit card delinquencies are up.

Truth be told, this is a lagging indicator, seeing as how closely it is tied to unemployment.

I would note that so called “marginally attached workers,” which is workers who are still looking for work, but are no longer looking hard enough to be counted, has risen significantly, see pic.

Then again, remember the increase in construction spending I mentioned yesterday?

Private construction spending actually fell slightly in March so the increase I was stimulus spending.

Also, note that the Institute for Supply Management’s index of non- manufacturing businesses, basically a measure of activities in the services, fell in April, albeit at a slower pace than the past few months, so you can decide whether the glass is half full or half empty.

We have another retailer filing bankruptcy, this time Chapter 11 reorg,
Filene’s Basement.

Here’s one for nostalgia’s sake, another monoliner insurer has been downgraded, Fitch cuts Assured Guaranty from AAA to AA, which means that their insurance, which basically leases out their credit rating, is done.

We have more evidence of credit loosening though, with the
LIBOR falling below 1% for the first time ever for overnight interbank loans.

I’m not sure if this is confidence in banks, or confidence in government bailouts though.

In currency, the dollar gained vs the Euro, largely on the expectation of an ECB rate cut, which in turn is based on the largest drop in European producer prices in over 20 years.

Oil is down on reports of large inventories.

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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To initial jobless claims fell to 631,000 this week, down 14,000 from the prior week, though continuing claims rose by 133,000 to 6.271 million, another new record.

More generally, both personal income and personal spending fell.

We also have the Institute for Supply Management’s Chicago Purchasers’ Index for April rising to 40.1, though this still indicates contraction, just slower contraction, as 50 is the neutral point.

Additionally, mortgage rates are essentially unchanged over the past week. remaining near historic lows.

The markets seem to be anticipating an improvement in the economy, which has pushed oil up and the dollar down, which I think means nothing, but the folks who run those predictive markets rather like.

Economics Update

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Great Googly Moogly, the new GDP numbers are in for the first quarter, and they show that the economy contracted at a 6.1% annual rate, which follows a 6.3% rate for Q4 of 2008, the worst contraction for a 6 month period in 50 years.

There is a bright spot, however. As Calculated Risk notes, is that sectors that have been traditionally leading are doing better than those that typically lag a recession, which might point toward a bit of a moderation.

At least we are not Lithuania, whose economy contracted by 12% year over year.

It’s news like this that makes the Federal Open Market Committee (FOMC) statement minor economic news.

Basically, they said, “We think that it’s getting worse more slowly, and we can’t cut rates any more, but we will keep shoveling money out the door, and we are watching inflation, really we are.”

If that means anything, it’s beyond me, but it appears that the
Fed’s aggressive asset purchase program will not be further expanded, which implies that they think that we are at/near bottom.

In other banking news, remember yesterday’s stress test update, which fingered BoA and Citi?

Well, there are now reports that at least 6 of the 19 banking giants are under capitalized, hoocoodanode?

Meanwhile, in real estate, we have mortgage applications falling by 18%, and it appears that there is a tidal wave of troubled commercial mortgages on the horizon, with, “volume of commercial mortgages at risk of default has quintupled since the beginning of 2008.”

One of the interesting things here is that commercial real estate loans are generally short term, 5 years or so, so people who have to refinance into the teeth of the recession and credit crisis may be up a certain creek without a paddle, even though they would be otherwise solvent.

Meanwhile, oil rose on the slightly positive Fed statement and reports of a drop in gasoline inventories, while the dollar fell on on optimism about the world economy.

Economics Update

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Graph courtesy of Wikipedia

Well, we have some legitimately good news, that the Conference Board’s Consumer Confidence Index rose to 39.2 in April, a 12.3 point gain from March, though with the rather neutral year of 1985 being indexed to 100, 39.2 still sucks, as is clear from the graph.

Additionally, while the home prices continued to fall, they are falling at a slightly slower rate, or as Atrios so amusingly notes, “Positive 2nd Derivative!!!“*

House prices are still falling, and the rate of decline is the noisiest metric, unless you want to do the change in rate of decline (unless you want to go to something like the 3rd derivative, called “jerk” when dealing with motion).

I would wait and see for a few months before jumping back into the market.

Meanwhile, the flu concerns continue to push oil down, though the positive economic data above has driven the dollar down too, because there is less of a flight to safety.

*If you don’t get the joke because you are not a math geek, don’t despair….At least you are not a math geek, which has to count for something.

Economics Update

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The British economy just posted its largest quarterly loss since 1979, 1.9 % for the quarter, and 4.1% year over year.

We had Moody’s downgrade American Express debt from A2 to A3, because of lower earnings from fewer purchases made with its cards, and more bad loans.

Unsurprisingly, the same thing is happening with the stress tested banks, where PNC Financial says that bad assets are expected to triple.

We do have some good news with Ford Motors beating expectations, though the numbers are still awful, and corporate borrowing costs falling below last October’s numbers.

In currency, the dollar weakened again, and this had traders bidding up the price of oil.

Fun and Games With Bad Financial Reporting

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I’ve included some graph pr0n to show just what the innumerate folks in the 4th estate have been doing.

We have a rather good article by Diana Olick, who explains that the bump in house prices reported yesterday were a mirage.

Basically, at different times of the years, different people look for different homes, and these different people buy different sorts of houses:

All that said, the Realtors, in a twist, decided to give the month-to-month home price changes today, because it offered, as chief economist Lawrence Yun suggested, hope of a possible “green chute.” Existing home prices rose 4 percent from February to March, according to the Realtors. Now, if you were listening before, you would say, ok, that’s because the families are getting into the spring game. But Mr. Yun points out that the usual bump up in spring prices is about 1 percent, so the 4 percent monthly bump up should be a good sign. I’m not going to argue with that, because it makes sense to me

But still, we get crap like, “New home sales down, but show sign of revival“,and “Drop in new U.S. home inventories offers hope“, which ignore basic facts.

New home inventories are down because developers cannot compete against foreclosures and short sales, which are nearly half the market, and the fact that the numbers dropping, but “exceeding” forecasts generally ignores the fact that the forecasters have gotten the entire housing market wrong.

As Barry Righoltz notes, the real number is that new home sales fell 41% YoY in February 2009, though the margin of error is ±7.9%, it’s indisputably a drop.

The 4.7% month to month increase against an ±18.3% margin of error (!) means nothing. (link to the Census Bureau Data)

BTW, the top graph, the one that even the most mathematically inept person in journalism could use to figure this out, is in the Census Bureau report.

And then we have this report on durable goods orders, which again claims that, “Orders for U.S. Durable Goods Fall Less Than Forecast,” using a different set of data from the Census Bureau, but using a similarly clueless group of economists to show that it “beat expectations”

http://img141.imageshack.us/img141/7573/headsmashkeyboard112129.gifOnly, as you can see from the graph, new orders are down 27% year over year, (graph courtesy of Bonddad) but we still have to see that, “Prosperity is just around the corner.”

Gah!!!!!

Economics Update

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Well, we have the new jobless claims out, and again, they are grim, with initial claims raising from 613K to 640K, though the 4 week moving average, which is a better indicator, dropped to 646,750 from 651,000.

Continuing claims hit another record, up 93K to 6.137 million, worse than the forecast.

The fact that mass layoffs, more than 50 people, hit a record, with 2,933 in March, probably had something to do with this.

In world finance, we have Moody’s downgrading the debt of the Baltic Republics Lithuania and Latvia, indicating a bumpy way ahead.

In real estate March existing home sales fell, and with mortgage rates inching up, I would not expect a significant improvement in the situation.

Meanwhile, oil is up, and the dollar is down, for reasons not clear to me.

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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Well, let’s start with the good news, that the Conference Board’s consumer confidence index has risen to a 7 month high, I think largely on Obama being president more than anything else, seeing as how the manufacturing reports from the
New York and Philadelphia Federal Reserve Banks, continue to show contraction, though the press is still crowing about how these reports show that the rate of contraction is easing, despite the fact that manufacturing fell in March by the largest amount since VE day, almost 64 years ago.

Taking the rate of change month to month is stupid, it’s the noisiest way to measure things, but there is real pressure to report prosperity “just around the corner,” because the alternative is to make real systemic changes that would have to be to the disadvantage of people like bank and brokerage presidents.

The fact that housing starts fell again, (top pic) and the weekly jobless numbers remained at very high levels, they dropped a bit, but continuing claims (bottom pic) remained at scary numbers. (click pics to be taken to the Calculated Risk posts in question)

CRE is suffering too, with office vacancies rising to a 3 year high.

Citi actually reported better quarterly numbers than expected, losing about 18¢ a share, less than the forecast 32¢.

Part of the problem is that we are still seeing distressed bonds selling for 3.5¢ on the dollar:

Credit-default swaps traders set a value of 3.25 cents on the dollar for bonds of an AbitibiBowater Inc. unit to settle derivatives linked to the newsprint maker that’s now in bankruptcy protection.

The price means sellers of credit swaps guaranteeing as much as $1.1 billion against a default by the Abitibi- Consolidated unit would pay 96.75 cents on the dollar to settle the contracts. Eleven dealers, including JPMorgan Chase & Co., Barclays Plc and Morgan Stanley, bid in the auction, which was administered by Markit Group Ltd. and broker Creditex Group Inc.

Oh…..My…..Ghod!

This might explain why BankUnited has been given 20 days by regulators to find a buyer, or they will be shut down.

Meanwhile, oil rose slightly on the consumer confidence numbers, as did the US dollar and Pound Sterling.