Category: Recession

Economics Update

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Well, the obvious lede is the unemployment numbers, with the weekly new unemployment claims, which are a very noisy metric, and continuing claims, which are not, beinb positively ghastly.

Weekly numbers rose to 542,000, whichn is the highest since mid 1992, and well above the estimate of 502,000 and continuing unemployment claims hit 4,012,000, up 109,000, the highest level since 1982.

Therefore, it is no surprise that the index of leading economic indicators fell in October, as die the Philadelphia Federal Reserve’s business activity index, to an 18 year low, and the Architecture Billings Index, an indicator of future construction activity, fell to an all time low.

Meanwhile in the bond market, so many people are fleeing to US treasuries that rates have been driven to historic, and near historic lows, while the costs of insuring private bonds has returned to the stratosphere.

For what it’s worth, we have some good news for a bond insurer, specifically Ambac, which has managed to negotiate a cancellation of $3.5 billion in insurance contracts, which is obviously a serious reduction in liabilities.

In energy, oil briefly fell under $50/bbl, and retail gasoline prices seem to be heading below $2/gallon.

In currency, the dollar is mixed.

Economics Update

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Well, it looks like the deflationary trap may be here, with the CPI down 1% last month, and core CPI falling 0.1%, the first drop since 1982.

The fact that housing starts and requests for building permits are falling off reinforces the idea that we are heading towards a major downturn.

Of course, it’s not just residential real estate. We are now seeing that mortgage backed securities for commercial properties are seeing increasing insurance costs and delinquencies.

In the larger world of the credit crunch, Calculated Risk’s Credit Crisis Indicators are largely unchanged.

BTW, S&P has downgraded monoliner bond insurer Ambac again.

In energy, oil fell again, on high inventory reports.

In currency, the dollar fell in response to continued news of a recession.

Let’s see…Anything else??? Oh…Yeah, the Dow closed below 8,000 for the first time in 5 years, 7,997.28.

Economics Update

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Well, I’ll be referencing some mora alarming economic data in another post, but let’s have at the routine stuff, shall we?

First, the U.S. Producer Prices Index fell by 2.8%, the most on record. Note: this is not a, “low inflation, hurray,” thing. This is a, “prices are falling off a cliff like they were in 1932,” thing.

Part of this, of course is falling oil prices, so it’s no surprise that oil hit 21-month low today.

Not unsurprisingly, we also see the home builders’ sentiment index falling to a 9 month low.

Honestly, if I were surveying home builder sentiment, my worry would be them tossing themselves out of windows.

Out of force of habit, because the fundamentals of the U.S. economy do not merit it any more, people continue to flee to the dollar in times of uncertainty, so the dollar strengthened today.

Oh, and if you follow stock prices, Fannie Mae is facing delisting from the New York Stock Exchange.

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.

Well, This Sucks

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American Research Group has a survey on 2008 Holiday Shopping, and it has the predicting a 50% drop in sales vs 2007.

Year Average Spending Percent Change
2008 $431 – 50%
2007 $859 – 5%
2006 $907 – 4%
2005 $942 – 6%
2004 $1,004 + 3%
2003 $976 – 6%
2002 $1,037 -1%
2001 $1,052 + 9%
2000 $968 + 3%
1999 $939 + 1%
1998 $928 + 34%

Considering the fact that 70% of the US economy is consumer driven, this is mind boggling.

Economics Update

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Retail sales are imploding Down 2.8% from September, and down 4.1% year over year,

Here is a historical data, courtesy of Calculated Risk, just so you know how bad these numbers look.

Of course, the financial press always has to find a silver lining, so they make note of the fact that consumer confidence rose from to 57.9 from 57.6, the article attributes this to falling gas prices, but I ascribe it to three words, “Buh Bye Bush.” With the election, they realize that Bush will soon be gone, and so the number goes, though the number still reflects major suckage.

In the overseas economy, yesterday, it was Germany, well today, it’s been confirmed that it’s actually the whole Euro Zone that is in recession.

Also, we have automotive news from that side of the pond, with the three major credit insurers in Europe pulling insurance coverage to suppliers of Ford and GM. Basically this means that if either of the auto makers default, the suppliers are on their own.

They have basically decided that the risk of a default is too much for them to cover.

And in domestic bad news cast as good news, we make note of the fact that banks and bank like institutions borrowed less from the Fed this week. Only an average daily borrowing rate of 95.4 billion, down from $110 billion.

Down to an average of 95.4 average daily borrowing list week. Let’s run the numbers 95.4 billion/business days * 250 days a year = 28.85 trillion…$23,850,000,000,000.00…By comparison, the US GDP in 2006 was 13.6 trillion.

We also have Freddie Mac tapping a $100 billion bailout fund that was not counted in the above.

As Calculated Risk notes, “Remember Fannie and Freddie have much lower default rates than the loans packaged by Wall Street. If conditions worsened dramatically for Freddie and Fannie, imagine how bad it is for Wall Street MBS and loans held by lenders like Wachovia (Wells Fargo) and WaMu (JPMorgan Chase).”

As to energy, oil is down on demand concerns, and and retail gasoline is down almost $2/gallon from peak.

There is a part of me that wonders if the swing in oil/gas was some sort of electioneering, but it clearly did not work.
In currency, the dollar rose, because when people are frightened, they still flee to the dollar for safety…for a while at least.

Economics Update

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Weekly initial unemployment claims are at 516,000, up from 484,000, well above the estimate of 479,000, and the highest number since 2 weeks after the 911 attacks.

With the caveat that weekly unemployment figures have a lot of noise, I would like to segue to a much noisier indicator, the Dow Jones Industrial Average, when fell below 8,000, though it rallied and ended up for the day.

Yean, I know, stock gyrations are really completely noise, but crossing 8K is a big deal for the markets, even if the Dow ended the day up 500+ points.

A better indicator of what is going on in the world is the fact that Germany is now officially in a recession, having experience two consecutive quarters of negative growth.

Calculated Risk’s regular post of credit crisis indicators, a very useful collection of interest rates and interest rate spreads really did not do much today.

That being days, CR does have a nice chart of spreads between 30 Year corporate bonds and treasuries, and it is not pretty:

Of course if you want to be scared, the fact that foreclosures are up 25% year over year, and that Ranieri’s Franklin Bank has filed chapter 7 (liquidation).

They are the 3rd largest lender to fail this year.

Speaking of failures, there is already General Motors, and Goldman Sachs has suspended its rating of the auto maker, which is a polite way of saying, “Absent a bailout, it’s done.”

In the meantime, oil rose at the end of the day, along with the rising Dow, which indicates that oil traders are complete morons who trade on chicken entrails and other spooky omens.

The dollar was mixed today.

Economics Update

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Well, Calculated Risk has your daily inventory of interest ratescredit crisis indicators, and today, they are pretty neutral.

In Hank Paulson and His Evil Minions™ news, he has finally publicly eschewed the idea of buying distressed assets.

I think that the reason for this is that the sales price would either be so low that all of his Wall Street friends would be technically insolvent, or so high as to land his corrupt ass in jail, because the big sh$#pile is near worthless. That’s why there is no market. Wall street cannot handle the truth.

It also looks like he will start requiring some level of private capital to match any bailout money. My translation is that now that he’s bailed out his Wall Street friends, anyone else who wants money needs to work for it.

Of course none of this will do much for the economy, with estimates that holiday sales will drop 1%, the first decrease since 1985, and home values falling for the 7th straight quarter.

What we should be thinking about is not how to rescue Wall Street, but rather how to amputate it from out economy, because these parasites are on a path to destroy more than 10% of US GDP.

Speaking of parasites, it looks like GE capital just got the FDIC to insure $139 billion of their debt. It appears that, “GE’s finance businesses are able to seek FDIC debt coverage because its GE Capital subsidiary also owns a federal savings bank and an industrial loan company, both of which already qualify.”

Like I said, parasites.

In the mean time, recession worries drove oil down again today, to a 21 month low, and it appears that the world thinks that the UK is in worse shape than the US, because not only was the dollar up today, it hit a 6-year high vs. the pound.

If you are worried about a resurgent Russia though, you have less to worry about, with Russia easing up support on the Ruble, which promptly fell.

Economics Update

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Well, it’s a bank holiday, so it’s a little bit slow, but the fact that American Express is filing to become a bank holding company, so that it can take part in the Federal Reserve’s sh&%pile for cash program.

My guess would be that they are seeing their default rate going up, and that they can’t find anyone to buy the debt.

In retail, General Growth Properties, the 2nd largest mall operator in the US, said that it may file for bankruptcy protection, and National Wholesale Liquidators filed for bankruptcy.

In other impending bankruptcies, option ARM lender Downey Savings and Loan just said in it’s 10Q that it cannot see a way to avoid being taken over by the Office of Thrift Supervision.

Most of the interest rate indicators were unavailable today because of the holiday, but the LIBOR (the L stands for London) was down a bit again today.

Also from that little island off the coast of France, retail and home sales are heading south quickly there too.

The joys of Anglo-Saxon capitalism, I guess.

In any case, there is no joy in Mudville, if by Mudville you mean the real estate market, so Fannie Mae and Freddie Mac have instituted a new program to modify mortgages to minimize foreclosures.

I still think that bankruptcy changes are the best solution here.

In any case, the impending recession drove oil to a 19 month low, and drove the dollar up, as people tend to flee to the dollar in bad times.

Falling oil is also absolutely killing the Ruble, which appears to be on the brink a devaluation.

Economics Update

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Let’s start with retail, where the inestimable Barry Ritholtz points us to a pretty picture on the retail collapse from the NY Times (click on image for the NY times article):

I would note that the 4 weeks before November 1 are now firmly part of the Christmas season, and the Christmas season is typically 40% of revenue, and 80% of profits.

In related news Circuit City files chapter 11, this should come as no surprise for the people who have followed this sad tale, as was predicted when they laid off senior sales staff and replaced them with clueless low wage drones while issuing large executive bonuses: (Story dated December 22, 2007)

Circuit City laid off 3,400 workers in March to replace them with lower-paid new hires. This week, it announced the approval of millions of dollars in cash incentives to retain its top talent after the departure of several key executives over the past year. Executive vice presidents could claim retention awards of $1 million each, and senior vice presidents could get $600,000, provided they stay with the company until 2011, according to a filing with the Securities and Exchange Commission.

If you don’t have competent sales staff, then why won’t your customers go to the Amazon and Walmart?

Karma, Neh?

In the world of mortgages, we have Fannie Mae Posting a ecord $29 billion loss for the quarter, which is actually worse than it seems, since the last quarter’s profits were largely from banking losses as tax breaks.

It will likely never see those tax breaks, because a profitable year is so far off.

Yesterday, it was monoliner Ambac, today, Moody’s cuts MBIA. No surprise….dead insurers walking.

Meanwhile, in energy, it appears that the House of Saud is actually adhering to the OPEC oil production cuts, which along with China’s announcement of a $586 billion stimulus package should drive commodities up.

The Russians are hoping that it will work, as falling oil prices seems to indicate a devaluation in the Ruble.

So far, it appears to be working, oil finished the day up $4.52/bbl….Good for them, bad for us.

In any case the Chinese stimulus package has had the effect of driving the dollar down, though I’m not sure why…I just don’t know the underlying theory.

Carnegie Taken Over by Swedish Government, to Be Sold

Finally, we have a report from Calculated Risk on credit crisis indicators:

  • Libor down (good)
  • 3 month treasury yields down (bad)
  • TED spread up a smidgen (a smidgen bad)

They also have a nice scare picture of the Federal reserve balance sheet here:

Basically, it’s how much of the sh%$pile that the Fed owns, and this is fracking terrifying.

Economics Update

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Unemployment rose to 6.5% from 6.1%, a 14 year high, and total non farm employment fell by 240 thousand.

Can we call it a recession already?

If not, how about I draw you a picture:

Meanwhile, the Institute for Supply Management’s manufacturing report fell to 38.9%, the worst number since September 1983.

And, just so now, the real estate recovery ain’t coming soon, not with Property & Portfolio Research Inc. the New York City metro commercial property vacancy rate hitting 17.6%.

FWIW, they had predicted a peak of 13% 3 months ago, but it’s already at 12%.

Meanwhile the National Association of Realtors® says that pending home sales fell 4.6% in Septmeber.

At least we are not in the UK, where house prices fell 15% year over year.

That being said, some of the indicators for the finance market appear to be moderating, with spreads edging down, and money flowing back into mutual funds for the first time in 3½ months.

Additionally, it looks like consumers are using their credit cards a bit more.

The bad economic news news has driven the dollar down, and the weak dollar appears to have beaten recession today on the oil markets, where crude is up a smidgen.

Not surprisingly, Gasoline is down at the pump, the 51st day in a row.

Economics Update

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Jeebus! The Bank of England cut it’s benchmark interest rate 150 basis points (1.5%)…To 3%.

That’s not strong action, that is TEOTWAWKI panic.

The ECB and the Swiss central bank also cut rates, by 50 basis points…The central banks think that we are in end of the world territory.

As further evidence, we have the ECB’s president saying that there may be more rate cuts.

This from an institution that’s only charter is to fight inflation.

Not surprisingly, all these rate cuts had the effect of sending the Dollar and Yen skyrocketing.

Meanwhile, jobless claims dropped a bit, but only through “Jedi Mind Trick” statistics:

The number of U.S. workers filing new claims for jobless benefits fell by 4,000 last week to 481,000, ….

The department revised up its estimate for jobless claims in the prior week to 485,000 from a previously reported 479,000.

So comparing initial estimates, it went up by 2,000, but after the “correction”, it was down by 4000.

In any case, the number sucks, and continuing unemployment claims are the highest that they have been since 1983, when unemployment topped 10%.

It won’t help that retail sales fell to their lowest levels in at least 39 years…..It may be longer, but they only started collecting the statistics in 1969!

Interest rates on interbank lending trending down, but considering all the interest rate cuts, that is pretty unavoidable.

I think that it is more significant that credit card companies were unable to sell bonds at all for the first time since 1993, and when you consider that they charge something north of 20% on carried balances, that is ugly.

BTW, y friends the monoliner bond insurers are back again, with Moody’s cutting Ambac to ‘Baa1’.

It should surprise no one that with massive indications of a deep recession, and the dollar up, oil fell again to $60.77/bbl.

Economics Update

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Calculated Risk: Fannie Mortgage Bond Spreads Decline

Well, we have payroll services firm ADP saying that job cuts in October totaled 157,000, above the 100,000 predicted, with September numbers up too, and Challenger, Gray & Christmas, the grim reapers of the corporate world reporting that more firms are planning to cut jobs.

Meanwhile the ISM’s non-manufacturing index, an index of the service economy, fell to 44.4 the worst number recorded since the index was created in 1997.

It’s not just the US either. U.K. factory output is dropping like a stone.

In the credit crunch, while gross interest are improving, the spreads between these interest rates and treasury notes remain high.

For example, the LIBOR rate has fallen to 2.51% from 4.82% on 10/10, but the spread remains 151 basis points (1.51%) over the Fed’s target rate

Prior to the credit crunch it averaged 22 basis points.

This may be mortgage applications are down, banks are still skittish, and costs are higher.

This is a normal response by banks when you consider that you have things like the bath that Glitnir swap sellers took. They look to being left with 3¢ on the dollar.

The swaps in question are a sort of bond insurance, so it’s no surprise that the two largest, monoliners Ambac and MBIA just posted big losses.

It appears that there are expectations of more rate cuts, as the dollar is down, though paradoxically, so is crude oil….Normally, they tend to move in opposite directions.

Economics Update

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Well, it looks like the credit crunch is thawing a bit, as the dollar LIBOR and the TED Spread have both dropped over the past few days.

Of course, banks are still not lending to anyone other than each other, though.

Yesterday, I mentioned the ISM’s manufacturing index falling. Well today, it’s the full report from the Commerce Department, with factory orders falling 2.5%, seasonally adjusted, which was more than 3 times the predicted number.

In the mean time, the dollar fell the most against the euro since 1999, 2.7%, which is kind of odd, since the stock market was up strongly, in what I call the “No More Bush Rally”.

I think that this is all election arbitrage, kind of a financial rain dance, as is today’s bump in oil prices.

In any case, I would expect that the ECB will be cutting rates soon, which should further buttress the dollar, as their producer price inflation numbers came in below expectations.

Still, we are not out of the woods, as evidenced by soaring bankruptcies in October.

Economics Update

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Well, the idea the economies have decoupled is once more giving the lie by the India central bank cutting its interest rate by 50 basis points, the Australia central bank cut its benchmark interest rate by 75 basis points, and South Korea announcing an $11 billion stimulus package.

Of course, those are just the official actions, on the level of the financial markets, we have a number of German property funds freezing redemptions, and because they are heavily into UK real estate, “German funds have been among the most active in snapping up City of London and West End properties this year,” this does not bode well for either the UK or German financial systems.

When we finally get to the United states, we have Institute for Supply Management’s its manufacturing index falling to 38.9 in from 43.5 last month, the lowest reading since . It was the lowest reading since September 1982.

Additionally, construction spending in September fell 0.3%, which is better than the 0.8% expected, but Lehman’s collapse probably came late enough not to move that number much.

The October construction number will be positively grim, because it runs on credit, which is still nearly non-existent.

Speaking of credit, it appears that the LIBOR and other interest rates are down, indicating some loosening of credit. (see also here)

On the other hand it appears that while banks are slightly less reticent to lend to each other, they are still tightening lending to everyone else, according to a Fed survey of lending practices.

I don’t blame them, after all Iceland Bank Swaps are losing 97¢ on the dollar.

All this news has pushed oil prices lower, which is no surprise.

Economics Update

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I guess the news from the central banks is as good a place to start as any.

It looks like the the Federal Reserve’s initiative to buy commercial paper is bearing fruit, to the tune of $145.7 billion between October 27 and October 31….Annualize it out, it’s about 7.6 trillion a year.

I also must note that the Bank of Japan cut rates for the first time in 7 years.

It also looks like the ECB will be cutting rates at their next meeting, because Euro Zone inflation numbers were low.

I’m not sure that it’s going to help when consumer spending is falling, by 0.3% in September.

Remember, even though it seems a very long time ago, the Lehman collapse was on September 15, halfway through the month, so the October will likely be worse.

In real estate, one of the leading indicators, the Architecture Billings Index, which presages construction by 9-12 months just dropped off a cliff.

This ain’t no ‘V’ shaped recession.

In any case, the oncoming recession has significantly lowered commodities prices in October, even oil, which posted a record drop, though it was up yesterday to $67.81/bbl.

GMAC is looking at becoming a bank and restructuring extensively.

Finally some historical chart pr0n, graphs or recent market crashes:

VERY scary image courtesy of Calculated Risk.

Click image for full size graphic.

Economics Update

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First news is a question, can we please admit that we are in a recession? Please?

The economy contracted at an 0.3% annual rate last quarter, with a a 6.4% rate decline on purchases of non-durable goods, and a 3.1% rate decline on consumer spending.

This is not just a “recession”. This is a big MoFo.

There are predictions of a rate approaching 5% in the 4th quarter.

In any case, credit remains tight, though there appears to be some loosening, see here and here.

We are also seeing the first growth in commercial paper since the collapse of Lehman.

However, we also just saw 30 year mortgage rates spiked by 40 basis points, even though the Fed cut rates.

This ain’t over, and the Japanese have released details on a ¥ 5 trillion stimulus package, and the Germans have done so with a €30 billion stimulus package.

Still, the sounds of an oncoming train continue to drive oil prices down.

The dollar and Yen are both lower too.

Economics Update

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In energy, OPEC formally announces production cuts, though the price of oil continues to fall, as does the price of gasoline.

It should be noted that even with falling energy prices, the markets are so spooked that the futures contracts triggered so called circuit breakers for the S&P 500.

It’s not just the S%P that has gone into the twilight zone. The credit meltdown has pushed the interest rate of long term interest rate derivatives to negative numbers. Basically, it’s a “safe” way to lock in an interest rate, and the market is so uncertain, that people are willing do do worse than their mattresss.

Meanwhile currency is…well…confused, with the dollar gaining against the Pound and Euro, but the Yen hit a 13 year high. No clue as to what is going on there.

In any case, even if the recession isn’t official yet, it is in the UK, where GDP fell by 0.2%.

Economics Update

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Not a great day.

Consumer confidence had the largest plunge ever, from 70.3 to 57.5, and home construction fell to a 17½ year low.

There are some indications that the credit freeze is relaxing, at least temporarily, the short term spread between LIBOR and Treasuries has dropped a bit.

I’m not sure that there is a real thaw, as evidenced by the fact that hedge funds are hemorrhaging money and investors.

The dollar, meanwhile was largely static today.

In energy, oil is back above $70/bbl, but that is likely the result of OPEC holding an emergency meeting to cut production.

Economics Update

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We are all, as Bender is wont to say, “totally boned”, and you need to look no further than the fact that :NASCAR is experiencing cash flow problems because financially strapped sponsors are bailing.

About the only good news is that collapsing demand appears to be keeping inflation in check.

BTW, the crisis just hit Phil Gramm’s bosses, as the Swiss government was just forced to bail out UBS.

Don’t expect a turn around in the real estate martket, because mortgage rates just posted their largest increase since 1987.

This might explain why the National Association of Home Builders/Wells Fargo housing market index has fallen to an all time low, 14, where a neutral reading is 50.

In the real world of manufacturing, industrial production and the Fed Bank of Philadelphia’s general economic index both plummeted to levels not seen in over a decade.

With a very strong indicatrions of a recession, commodities, in particular oil ($69/84/bbl!!!) and gasoline, continued their falls.

What takes this from an economic down turn to an apocalypse are signs of the apocalypse, and one of the is when Americans consumers save, rather than spend their money.

If you want another sign of the apocalypse, how about banks cutting back on issuing credit cards, because they need to hold additional reserves against defaults.

When banks cut back on what is probably their most profitable business, you know something is up.

Jobless claims for the week aredown, but week to numbers are noisy, and the it’s an artifact of the fact that we’ve had a hurricane free few days.

The dollar strengthened a little. I think that there are two competing pulls here: the concern that the US is no longer the financial colossus striding the world, and the habit of going into the dollar when times are uncertain.