Tuesday, March 31, 2009

Evening Summary and Open Thread

by Calculated Risk on 3/31/2009 10:59:00 PM

Here is an open thread for discussion.

Case-Shiller reported house prices fell sharply in January.

The Philly Fed State indexes showed all 50 states in recession (check out the map!).

The Restaurant Performance Index showed continued contraction.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets.

Best to all.

Report: Obama believes automaker BK appears inevitable

by Calculated Risk on 3/31/2009 09:06:00 PM

Update from Reuters: Obama thinking on GM, Chrysler unchanged -official

"Nothing has changed on this," the official said when asked about a Bloomberg report that the president has determined that a prepackaged bankruptcy is the best way for GM to restructure and become competitive. "This report is not accurate."
From Bloomberg: Obama Said to Conclude Bankruptcy Best Option for GM, Chrysler
President Barack Obama has determined that a prepackaged bankruptcy is the best way for General Motors Corp. to restructure ...

Obama also is prepared to let Chrysler LLC go bankrupt ...

“quick and surgical” bankruptcy ... appears to be inevitable ...
This seems like the end for Chrysler. Hopefully GM will emerge as an efficient and competitive (and smaller) automaker.

Comparison: OECD and "More Adverse" Scenarios

by Calculated Risk on 3/31/2009 06:50:00 PM

The Organisation for Economic Co-operation and Development (OECD) released an Interim Economic Outlook today. I thought it would be interesting to compare their forecast with the "more adverse" scenario from the Stress Test.

Stress Test and OECD GDP Forecasts Click on graph for larger image in new window.

The first graph compares the quarterly OECD U.S. GDP forecast with the quarterly stress test scenario (more adverse).

Clearly the OECD is more pessimistic than the more severe stress test scenario for the U.S. banks.

Stress Test and OECD Unemployment Rate ForecastsThe second graph compares the OECD unemployment rate forecast with the more severe scenario.

Once again, the OECD is slightly more pessimistic.

Earlier I compared both the baseline stress test scenario and the more adverse scenario with forecasts from Northern Trust and Goldman Sachs. At this point I think we can just ignore the old baseline scenario.

The "more adverse" scenario is the new baseline.

Market and Misc

by Calculated Risk on 3/31/2009 04:16:00 PM

First, the graph from Doug ...

Stock Market Crashes Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

And a few misc notes ...

Almost a 'Half Off' sale (the auction has closed): Hancock Tower sells for $660m at auction

The John Hancock Tower was sold today for $660.6 million at a foreclosure auction in New York City. ... the Hancock's previous owner, Broadway Partners of New York, defaulted on some of the loans it used to buy property for $1.3 billion in late 2006.
More Vegas disaster: Riviera misses interest payment, warns of possible bankruptcy (ht Howard)
"The deteriorating trends in revenue and earnings experienced during the first three quarters of 2008 continued as evidenced by our fourth quarter results and accelerated during the first quarter of 2009. We expect this situation to continue as long as competitors in the Las Vegas market follow a strategy of sacrificing ADR (average daily room rate) to maximize room occupancy and the decline in convention business is unabated."
Yeah, blame your competitors for cutting prices!

And from an analyst on Case-Shiller and housing:
The acceleration in the rate of decline in the US Case-Shiller 20-city house price index is a bit disappointing given that other evidence suggested conditions in the housing market may have stabilised since the turn of the year. The annual growth rate fell from 18.6% in December to a new record low of 19.0% in January. Although the monthly data need to be treated with a great deal of caution (this series is not seasonally adjusted) ...
I forgot to mention CS is not seasonally adjusted (an important point), but I think the first sentence is incorrect. There will probably be two bottoms for housing - the first for single family starts and new home sales, and the 2nd - later, perhaps much later - for existing home prices. The Case-Shiller price declines are not "disappointing" with regards to the other data. Even if starts bottom sometime this year, I expect house prices to continue to fall. See More on Housing Bottoms.

Tiered House Price Indices

by Calculated Risk on 3/31/2009 02:52:00 PM

The following graph is based on the Case-Shiller Tiered Price Indices for San Francisco. Case-Shiller has data for all 20 cities in the Composite 20 index.

Case-Shiller Tier House Prices Click on graph for larger image in new window.

This shows that prices increased faster for lower priced homes than higher priced homes. And prices have also fallen faster too.

It now appears mid-to-high priced homes are overpriced compared to lower priced homes - although prices will probably continue to fall for all three tiers.

Distressed properties - foreclosures and short sales - have dominated sales in the lower priced areas. This has pushed the prices down quicker than in the higher priced areas.

As an example, DataQuick reported this month:

[F]oreclosure resales last month ranged from 12.1 percent of resales in San Francisco to 69.5 percent in Solano County.
With so many foreclosures, prices have fallen quicker in Solano County than in San Francisco.

But over time, prices will probably equilibrate between the low and high priced areas. It will take longer for prices to fall in San Francisco, and I expect the lower priced areas to bottom (especially in real terms) before the higher priced areas.

March Economic Summary in Graphs

by Calculated Risk on 3/31/2009 01:30:00 PM

Here is a collection of 20 real estate and economic graphs for data released in March ...

Click on graphs for larger image in new window.


New Home Sales Monthly Not Seasonally Adjusted New Home Sales in February

The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted).

Note the Red column for 2009. This is the lowest sales for February since the Census Bureau started tracking sales in 1963. (NSA, 27 thousand new homes were sold in February 2009; the previous low was 29 thousand in February 1982).

From: New Home Sales: Just above Record Low


Total Housing Starts and Single Family Housing Starts Housing Starts in February

Total housing starts were at 583 thousand (SAAR) in February, well off the record low of 477 thousand in January (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 357 thousand in February; just above the record low in January (353 thousand).

Permits for single-family units increased in February to 373 thousand, suggesting single-family starts could increase in March.

From: Housing Starts Rebound


Construction Spending Construction Spending in January

This graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential construction spending is still declining, and now nonresidential spending has peaked and will probably decline sharply over the next 18 months to two years.

From: Construction Spending: Non-Residential Cliff Diving


Employment Measures and Recessions February Employment Report

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 651,000 in February. The economy has lost almost 2.6 million jobs over the last 4 months!

The unemployment rate rose to 8.1 percent; the highest level since June 1983.

From: Employment Report: 651K Jobs Lost, 8.1% Unemployment Rate


Year-over-year change in Retail Sales February Retail Sales

This graph shows the year-over-year change in nominal and real retail sales since 1993.

On a monthly basis, retail sales decreased slightly from January to February (seasonally adjusted), but sales are off 9.5% from February 2008 (retail and food services decreased 8.6%). Automobile and parts sales decline sharply 4.3% in February (compared to January), but excluding autos, all other sales climbed 0.7%.

From: Retail Sales: Some Possible Stabilization


LA Area Port TrafficLA Port Traffic in February

This graph shows the loaded inbound and outbound traffic at the port of Los Angeles in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Inbound traffic was 35% below last February and 35% below last month.

From: LA Port Import Traffic Collapses in February


U.S. Trade Deficit U.S. Imports and Exports Through January

This graph shows the monthly U.S. exports and imports in dollars through January 2009. The recent rapid decline in foreign trade continued in January. Note that a large portion of the decline in imports is related to the fall in oil prices - but not all.

The graph includes both goods and services. The import and export of services has held up pretty well; most of the collapse in trade has been in goods. Imports of goods has declined by one third from the peak of last July!

From: U.S. Trade: Exports and Imports Decline Sharply in January


Capacity Utilization February Capacity Utilization

The Federal Reserve reported that industrial production fell 1.4% in February, and output in February was 11.2% below February 2008. The capacity utilization rate for total industry fell to 70.9%, matching the historical low set in December 1982.

This is a very sharp decline in industrial output.

From: Industrial Production and Capacity Utilization: Cliff Diving


Residential NAHB Housing Market Index NAHB Builder Confidence Index in March

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) was flat at 9 in March (same as February). The record low was 8 set in January.

This is the fifth month in a row at either 8 or 9.

From: NAHB Housing Market Index Still Near Record Low


AIA Architecture Billing Index Architecture Billings Index for February

"Following another historic low score in January, the Architecture Billings Index (ABI) was up two points in February. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the February ABI rating was 35.3, up from the 33.3 mark in January, but still pointing to a general lack of demand for design services (any score above 50 indicates an increase in billings)."

From: Architecture Billings Index Near Record Low


Vehicle Miles Driven Vehicle Miles driven in January

By this measure, vehicle miles driven are off 3.6% Year-over-year (YoY); the decline in miles driven is worse than during the early '70s and 1979-1980 oil crisis.

As the DOT noted, miles driven in January 2009 were 3.1% less than January 2008.

From: DOT: U.S. Vehicle Miles Off 3.1% in January


Existing Home Sales Existing Home Sales in February

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in February 2009 (4.72 million SAAR) were 5.1% higher than last month, and were 4.6% lower than January 2008 (4.95 million SAAR).

It's important to note that about 45% of these sales were foreclosure resales or short sales. Although these are real transactions, this means activity (ex-distressed sales) is under 3 million units SAAR.

From: Existing Home Sales Increase Slightly in February


Existing Home Inventory Existing Home Inventory February

This graph shows nationwide inventory for existing homes. According to the NAR, inventory increased to 3.8 million in February. The all time record was 4.57 million homes for sale in July 2008. This is not seasonally adjusted.

Usually most REOs (bank owned properties) are included in the inventory because they are listed - but not all. Recently there have been stories about a substantial number of unlisted REOs - this is possible, but not confirmed.

From: Existing Home Sales Increase Slightly in February


Case-Shiller House Prices Indices Case Shiller House Prices for January

This graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 30.2% from the peak, and off 2.5% in January.

The Composite 20 index is off 29.1% from the peak, and off 2.8% in January.

From: Case-Shiller: Prices Fall Sharply in January


Kennedy Greenspan Mortgage Equity Withdrawal Mortgage Equity Extraction for Q4

Here are the Kennedy-Greenspan estimates (NSA - not seasonally adjusted) of home equity extraction for Q4 2008, provided by Jim Kennedy based on the mortgage system presented in "Estimates of Home Mortgage Originations, Repayments, and Debt On One-to-Four-Family Residences," Alan Greenspan and James Kennedy, Federal Reserve Board FEDS working paper no. 2005-41.

For Q4 2008, Dr. Kennedy has calculated Net Equity Extraction as minus $77 billion, or negative 2.9% of Disposable Personal Income (DPI).

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, both in billions of dollars quarterly (not annual rate), and as a percent of personal disposable income.

From: Q4 Mortgage Equity Extraction Strongly Negative


Weekly Unemployment Claims Unemployment Claims

The first graph shows weekly claims and continued claims since 1971.

The four week moving average is at 649,000.

Continued claims are now at 5.56 million - the all time record.

From: Unemployment Insurance: Continued Claims Over 5.5 Million


Restaurant Performance Index Restaurant Performance Index for February

"Restaurant industry performance remained soft in February, as the National Restaurant Association’s comprehensive index of restaurant activity stood below 100 for the 16th consecutive month. The Association’s Restaurant Performance Index (RPI) ... stood at 97.5 in February, up 0.1 percent from its January level."

From: Restaurant Peformance Index: 16th Consecutive Month of Contraction


New Home Sales and Recessions New Home Sales: February

This graph shows New Home Sales vs. recessions for the last 45 years. New Home sales have fallen off a cliff.
Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

This is 4.7 percent (±18.3%) above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.
From: New Home Sales: Just above Record Low


Philly Fed State Conincident Map Philly Fed State Indexes February

Here is a map of the three month change in the Philly Fed state coincident indicators. All 50 states are showing declining activity.

This is the new definition of "Red states".

This is what a widespread recession looks like based on the Philly Fed states indexes.

From: Philly Fed State Indexes: We're all Red States now!


New Home Months of Supply and Recessions New Home Months of Supply: February

There were 12.2 months of supply in February - just below the all time record of 12.9 months of supply set in January.
The seasonally adjusted estimate of new houses for sale at the end of February was 330,000. This represents a supply of 12.2 months at the current sales rate.
From: New Home Sales: Just above Record Low


Restaurant Peformance Index: 16th Consecutive Month of Contraction

by Calculated Risk on 3/31/2009 11:55:00 AM

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remains Uncertain as Restaurant Performance Index Stood Below 100 for 16th Consecutive Month

Restaurant industry performance remained soft in February, as the National Restaurant Association’s comprehensive index of restaurant activity stood below 100 for the 16th consecutive month. The Association’s Restaurant Performance Index (RPI) ... stood at 97.5 in February, up 0.1 percent from its January level.

“Although the index registered its second consecutive monthly gain, each of the RPI’s eight indicators stood below 100 in February, which signifies continued contraction,” said Hudson Riehle, senior vice president of Research and Information Services for the Association. “A majority of restaurant operators reported negative same-store sales and customer traffic levels in February, and their outlook for sales growth in the months ahead remains uncertain.”
emphasis added
Restaurant Performance Index Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

The index values above 100 indicate a period of expansion; index values below 100 indicate a period of contraction.

Based on this indicator, the restaurant industry has been contracting since November 2007.

Philly Fed State Indexes: We're all Red States now!

by Calculated Risk on 3/31/2009 11:00:00 AM

Philly Fed State Conincident Map Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. All 50 states are showing declining activity.

This is the new definition of "Red states".

This is what a widespread recession looks like based on the Philly Fed states indexes.

On a one month basis, activity decreased in all 50 states in February. Here is the Philadelphia Fed state coincident index release for February.

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for February 2009. The indexes decreased in all 50 states both for the month and for the past three months (one-month and three-month diffusion indexes of -100).
Philly Fed Number of States with Increasing ActivityThe second graph is of the monthly Philly Fed data of the number of states with one month increasing activity. Most of the U.S. was has been in recession since December 2007 based on this indicator.

All states showed declining activity. A widespread recession ...

House Prices: Tracking More Adverse Stress Test Scenario

by Calculated Risk on 3/31/2009 09:21:00 AM

For more on house prices, please see: Case-Shilller: Prices Fall Sharply in January

Case-Shiller Stress Test Comparison Click on graph for larger image in new window.

The first graph compares the Case-Shiller Composite 10 index with the Stress Test scenarios from the Treasury (stress test data is estimated from quarterly forecasts).

The Stress Test scenarios use the Composite 10 index and start in December. This is the first month and it is difficult to see the track on the graph. Here are the numbers:

Case-Shiller Composite 10 Index, January: 158.04

Stress Test Baseline Scenario, January: 159.69

Stress Test More Adverse Scenario, January: 158.07

It is only one month, but prices tracked the More Adverse scenario in January.

And some more data on selected cities ...

Case-Shiller House Prices Indices Selected CitiesThis graph shows the Case-Shiller house price indices for five cities. These are nominal graphs (not adjusted for inflation).

This shows the incredible bubbles in Los Angeles and Miami (other cities like Las Vegas, Phoenix, San Diego had similar price bubbles). Now the prices in these cities are falling quickly.

I included Denver and Cleveland as examples of cities with smaller price bubbles - and prices are falling in those cities too. New York was a special case. Prices held up longer, but are now starting to fall rapidly.

Price to Rent Ratio, selected cities The third graph shows the price-to-rent ratio for Miami, Los Angeles and New York. This is similar to the national price-to-rent ratio, but uses local prices and local Owners' equivalent rent.

This ratio is getting close to normal for LA and Miami (although rents are now falling!), but still has further to go in NY.

Case-Shiller: Prices Fall Sharply in January

by Calculated Risk on 3/31/2009 09:00:00 AM

S&P/Case-Shiller released their monthly Home Price Indices for January this morning. This includes prices for 20 individual cities, and two composite indices (10 cities and 20 cities). Note: This is not the quarterly national house price index.

Case-Shiller House Prices Indices Click on graph for larger image in new window.

The first graph shows the nominal Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 30.2% from the peak, and off 2.5% in January.

The Composite 20 index is off 29.1% from the peak, and off 2.8% in January.

Prices are still falling and will probably decline for some time.

Case-Shiller House Prices Indices The second graph shows the Year over year change in both indices.

The Composite 10 is off 19.4% over the last year.

The Composite 20 is off 19.0% over the last year.

These are the worst year-over-year price declines for the Composite indices since the housing bubble burst started.

The following graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Case-Shiller Price Declines In Phoenix, house prices have declined more almost 50% from the peak. At the other end of the spectrum, prices in Charlotte and Dallas are off about 11% from the peak. Prices have declined by double digits everywhere.

Prices fell at least 1% in all Case-Shiller cities in January, with Phoenix off 5.5% for the month alone. Chicago and Minneapolis were off close to 5% for the month.

I'll have more on house prices including a comparison to the stress test scenarios.

Monday, March 30, 2009

The End of the GM Hummer on Tuesday?

by Calculated Risk on 3/30/2009 10:28:00 PM

From the NY Times: A Dealer’s Big Bet Is on the Line as the Hummer Falls From Favor

Sales of Hummers over all have fallen so far — 51 percent last year, the worst drop in the industry — that General Motors is trying to find a buyer for the brand. Without one, the company might close Hummer. An announcement about Hummer’s fate may be made Tuesday.

“It’s a brand that represents a lot of what people want to get away from,” said Rebecca Lindland, an analyst with the research firm I.H.S. Global Insight.
If Hummer is closed, it would be phased out “rather quickly,” G.M.’s president, Frederick A. Henderson, said last month.
And from: Humbling a Giant
For too long, [GM] sold too many models, under too many brands, in too many markets — with too few customers.
The task force ... said Monday that G.M. had to drastically pare the broadest lineup of products offered by any car company.

“G.M. has retained too many unprofitable nameplates that tarnish its brands, distract the focus of its management team, demand increasingly scarce marketing dollars, and are a lingering drag on consumer perception, market share and margin,” the task force said in its report.
Instead of cutting eight brands down to four in the United States, G.M. may be left with Chevrolet and Cadillac.
There is much more in the 2nd article about the downsizing of GM. The Hummer will probably be history tomorrow.

How Iceland Went Mad

by Calculated Risk on 3/30/2009 08:06:00 PM

Most of the news today was about GM and Chrysler. See WSJ: Obama Favors Bankruptcy for GM, Chrysler and NY Times: Obama Issues Ultimatum to Struggling Automakers

Bankruptcy is likely.

For some interesting reading, there was an excellent article in the NY Magazine today about a software programmer who wrote some of the software for securitizing mortgages: see: My Manhattan Project

And here is a story from Michael Lewis writing in Vanity Fair on Iceland: Wall Street on the Tundra Short excerpt:

Iceland’s de facto bankruptcy—its currency (the krona) is kaput, its debt is 850 percent of G.D.P., its people are hoarding food and cash and blowing up their new Range Rovers for the insurance—resulted from a stunning collective madness. What led a tiny fishing nation, population 300,000, to decide, around 2003, to re-invent itself as a global financial power? In Reykjav√≠k, where men are men, and the women seem to have completely given up on them, the author follows the peculiarly Icelandic logic behind the meltdown.
An entire nation without immediate experience or even distant memory of high finance had gazed upon the example of Wall Street and said, “We can do that.” For a brief moment it appeared that they could. In 2003, Iceland’s three biggest banks had assets of only a few billion dollars, about 100 percent of its gross domestic product. Over the next three and a half years they grew to over $140 billion and were so much greater than Iceland’s G.D.P. that it made no sense to calculate the percentage of it they accounted for. It was, as one economist put it to me, “the most rapid expansion of a banking system in the history of mankind.”

Autos: Cerberus Loses Equity, New GM CEO Says Bankruptcy "may be best option"

by Calculated Risk on 3/30/2009 05:59:00 PM

From the WSJ: Cerberus’s Equity in Chrysler’s Auto Company to Be Eliminated

Cerberus Capital Management will lose its equity stake in Chrysler ... as a condition of the Treasury Department’s bailout deal with the U.S. auto maker ...

The New York private-equity firm purchased an 80% stake in Chrysler in 2007 ... In term sheets released by the Treasury Department on Monday, the government said Chrysler’s restructuring “at a minimum will require extinguishing the vast majority of Chrysler’s outstanding secured debt and all of its unsecured debt and equity.”
I wonder if any banks still hold Chrysler debt?

And from CNBC: New GM CEO: Bankruptcy May Be Best Option for Automaker
General Motors's new chief executive told CNBC that filing for Bankruptcy may be the best option for the struggling automaker. ... Henderson told reporters that the company would still prefer to restructure outside of court, but the level of support Washington is offering would help the company quickly restructure through bankruptcy.
A bankruptcy sounds very likely.

Added: I think a reasonable role for government is to guarantee the warranties (so people keep buying cars) and provide DIP (debtor-in-possession) financing. There are many other issues too - like making sure the vendors don't all go bankrupt, and the U.S. Pension Benefit Guarantee Corp. (PBGC) will probably be taking significant losses on GM and Chrysler pensions.

Good thing the PBGC invested so wisely recently, see: Pension insurer shifted to stocks
Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.
Heckuva job.

"My Manhattan Project"

by Calculated Risk on 3/30/2009 05:02:00 PM

For your reading enjoyment ... here is an article about a software programmer who wrote some of the software for securitizing mortgages.

From Michael Osinski in New York Magazine: My Manhattan Project How I helped build the bomb that blew up Wall Street

I have been called the devil by strangers and “the Facilitator” by friends. It’s not uncommon for people, when I tell them what I used to do, to ask if I feel guilty. I do, somewhat, and it nags at me. When I put it out of mind, it inevitably resurfaces, like a shipwreck at low tide. It’s been eight years since I compiled a program, but the last one lived on, becoming the industry standard that seeded itself into every investment bank in the world.

I wrote the software that turned mortgages into bonds

Because of the news, you probably know more about this than you ever wanted to. The packaging of heterogeneous home mortgages into uniform securities that can be accurately priced and exchanged has been singled out by many critics as one of the root causes of the mess we’re in. I don’t completely disagree. But in my view, and of course I’m inescapably biased, there’s nothing inherently flawed about securitization. Done correctly and conservatively, it increases the efficiency with which banks can loan money and tailor risks to the needs of investors. Once upon a time, this seemed like a very good idea, and it might well again, provided banks don’t resume writing mortgages to people who can’t afford them. Here’s one thing that’s definitely true: The software proved to be more sophisticated than the people who used it, and that has caused the whole world a lot of problems.

Market Cliff Diving and More

by Calculated Risk on 3/30/2009 04:00:00 PM

These swings are wild ...

DOW down 3.3% (254 points)

S&P 500 down 3.5% (28 points)

NASDAQ down 2.8% (43 points)

Stock Market Crashes Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

This is the 2nd worst S&P 500 / DOW bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Stock Market Crashes Dow S&P500 NASDAQ Nikkei The second graph compares four significant bear markets: the Dow during the Great Depression, the NASDAQ, the Nikkei, and the current S&P 500.

See Doug's: "The Mega-Bear Quartet and L-Shaped Recoveries".

And since I haven't posted this for awhile, here are a few credit crisis indicators ...

The British Bankers' Association reported that the three-month dollar Libor rates were fixed at 1.2075%, down from Friday's 1.22%. The dollar LIBOR was at 1.31% just 10 days ago - so this is some improvement.

The LIBOR peaked at 4.81875% on Oct. 10th, and hit a cycle low of 1.0825% on Jan. 14th.

A2P2 Spread There has been improvement in the A2P2 spread. This has declined to 0.92. This is far below the record (for this cycle) of 5.86 after Thanksgiving, but still above the normal spread.

This is the spread between high and low quality 30 day nonfinancial commercial paper.

TED Spread Meanwhile the TED spread is holding steady at 108.7. This is the difference between the interbank rate for three month loans and the three month Treasury. The peak was 463 on Oct 10th and a normal spread is around 50 bps.

The TED spread has been relatively flat for months (and is being impacted by the Fed and other Central Banks).

House Prices: Round Trip to 1990

by Calculated Risk on 3/30/2009 02:52:00 PM

Zach Fox at the North County Times brings us another Deal of the Week: Riding the waves in Oceanside

Round Trip in Oceanside Click on graph for larger image in new window.

The featured 2 BR 2 BA condo sold for just under $100 thousand new in 1990. It went into foreclosure during the early '90s California housing bust, and was resold in 1995 for $33,000.

By 2000 the condo was above the original selling price. And then "rode the bubble" to an outrageous price. The condo went through foreclosure last year and sold in February for less than the original price in 1990! Adjust that return for inflation ...

Administration on GM, Chrysler

by Calculated Risk on 3/30/2009 12:16:00 PM

Update2: From MarketWatch: Corrected: Chrysler, Cerberus agree to Fiat deal framework

Update: The government is also backing warranties for GM and Chrysler. That is a key step towards bankruptcy. US backs warranties for GM, Chrysler (ht Stephen)

The US government Monday said it is guaranteeing the warranties of new vehicles bought from General Motors and Chrysler in a bid to boost consumer confidence and auto sales.

The Treasury Department said it had taken the temporary step to allay consumer worries about buying new cars from the two nearly bankrupt manufacturers that are on government life support. The new plan addresses fears that the new car warranties would be worthless if the companies collapse.
From the WSJ: Obama Outlines Plans for GM, Chrysler
Warning that they can't depend on unending taxpayer dollars, President Barack Obama on Monday gave General Motors Corp. and Chrysler LLC a brief window to craft plans that would justify fresh government loans.
The administration says a "surgical" structured bankruptcy may be the only way forward for GM and Chrysler, and President Obama held out that prospect Monday.

"I know that when people even hear the word 'bankruptcy,' it can be a bit unsettling, so let me explain what I mean," he said. "What I am talking about is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so they can get back on their feet and onto a path to success; a tool that we can use, even as workers are staying on the job building cars that are being sold."
MarketWatch has the Key White House findings Excerpt:
Viability of Existing Plans:

The plans submitted by GM and Chrysler on February 17, 2009 did not establish a credible path to viability. In their current form, they are not sufficient to justify a substantial new investment of taxpayer resources. Each will have a set period of time and an adequate amount of working capital to establish a new strategy for long-term economic viability.

General Motors:

While GM's current plan is not viable, the administration is confident that with a more fundamental restructuring, GM will emerge from this process as a stronger more competitive business. This process will include leadership changes at GM and an increased effort by the U.S. Treasury and outside advisors to assist with the company's restructuring effort. Rick Wagoner is stepping aside as Chairman and CEO. In this context, the Administration will provide GM with working capital for 60 days to develop a more aggressive restructuring plan and a credible strategy to implement such a plan. The Administration will stand behind GM's restructuring effort.


After extensive consultation with financial and industry experts, the Administration has reluctantly concluded that Chrysler is not viable as a stand-alone company. However, Chrysler has reached an understanding with Fiat that could be the basis of a path to viability. Fiat is prepared to transfer valuable technology to Chrysler and, after extensive consultation with the Administration, has committed to building new fuel efficient cars and engines in U.S. factories. At the same time, however, there are substantial hurdles to overcome before this deal can become a reality. Therefore, the Administration will provide Chrysler with working capital for 30 days to conclude a definitive agreement with Fiat and secure the support of necessary stakeholders. If successful, the government will consider investing up to the additional $6 billion requested by Chrysler to help this partnership succeed. If an agreement is not reached, the government will not invest any additional taxpayer funds in Chrysler.emphasis added

CRE: 'Half Off' Sale for Boston’s John Hancock Tower

by Calculated Risk on 3/30/2009 10:57:00 AM

From Bloomberg: Boston’s John Hancock Tower May Be Sold for Half of 2006 Price (ht Brian)

Boston’s John Hancock Tower, the tallest skyscraper in New England, may be sold to lenders led by Normandy Real Estate Partners for about half the $1.3 billion paid in 2006 by Broadway Partners, which defaulted on its loan.
This auction will give a good idea of how far commercial real estate prices have fallen.

Meanwhile, rents are falling too. From Bloomberg: Job cuts mean more office space available in Manhattan
The amount of Manhattan office space available for rent in the first quarter rose to 12 percent and rents fell as companies fired workers, FirstService Williams said.

The share of empty space plus occupied offices available for lease climbed from 10.9 percent at the end of 2008 ... The average rent sought by landlords fell to $65.18 a square foot from $74.49 in the fourth quarter, the company said.
So much for those $100 per sq ft pro forma projections ...

FHA Mortgage Defaults Increase

by Calculated Risk on 3/30/2009 09:23:00 AM

From the WSJ: Mortgage Defaults, Delinquencies Rise

... A spokesman for the FHA said 7.5% of FHA loans were "seriously delinquent" at the end of February, up from 6.2% a year earlier. Seriously delinquent includes loans that are 90 days or more overdue, in the foreclosure process or in bankruptcy.
The FHA's share of the U.S. mortgage market soared to nearly a third of loans originated in last year's fourth quarter from about 2% in 2006 as a whole, according to Inside Mortgage Finance, a trade publication. That is increasing the risk to taxpayers if the FHA's reserves prove inadequate to cover default losses.

Government: GM, Chrysler "may well require" Bankruptcy

by Calculated Risk on 3/30/2009 01:11:00 AM

From the WSJ: Government Forces Out Wagoner at GM

The administration's auto team announced the departure of [General Motors Corp. Chief Executive Rick Wagoner] on Sunday. In a summary of its findings, the task force added that it doesn't believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."
On Chrysler:
The government said it would provide Chrysler with capital for 30 days to cut a workable arrangement with Fiat SpA, the Italian auto maker that has a tentative alliance with Chrysler.
If the two reach a definitive alliance agreement, the government would consider investing up to $6 billion more in Chrysler. If the talks fail, the company would be allowed to collapse.
From the NY Times: U.S. Moves to Overhaul Ailing Carmakers
President Obama is scheduled to announce details of the auto package at the White House on Monday, but two senior officials, offering a preview on condition of anonymity, made clear that some form of bankruptcy — a quick, court-supervised restructuring, as they described it — could still be an option for one or both companies.
On GM:
G.M., on the other hand, has made considerable progress in developing new energy-efficient cars and could survive if it can cut costs sharply, the task force reported. The administration is giving G.M. 60 days to present a cost-cutting plan and will provide taxpayer assistance to keep it afloat during that time.
As expected, it sounds especially grim for Chrysler.

Sunday, March 29, 2009

Sunday Night Futures

by Calculated Risk on 3/29/2009 11:59:00 PM

Here is an open thread for discussion. I'm out for a few hours (if there is breaking news) ...

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets.

Best to all.

Cajas: The Pain in Spain

by Calculated Risk on 3/29/2009 08:25:00 PM

From Bloomberg: Spain Rescues Caja Castilla With EU9 Billion in Funds (ht Carlomagno, Bob_in_MA)

The Spanish government said it will provide as much as 9 billion euros ($12 billion) to Caja Castilla-La Mancha to shore up the regional lender’s finances and protect depositors in the first bank rescue since 1993.
Loan defaults in Spain have tripled since the global financial crisis began in 2007, ending the country’s real estate boom and boosting unemployment to a European-Union high of 14 percent. The economy is in the grip of its worst recession in half a century with the government forecasting a contraction of 1.6 percent this year.
To understand a "Caja", here is a Financial Times article on the Spanish banking system from last October: Cajas in the balance
... Half of Spain's financial system consists of 45 unlisted mutuals owned by local governments, called cajas. They are entirely domestically focused, therefore highly exposed to property, and also - because they cannot raise equity - potentially short of capital.

An estimated 70 per cent of cajas' combined €900bn loan portfolio is in real estate. Bad debts doubled last year and Credit Suisse expects them to double again to 5 per cent, twice the current European average. Add in the odd bankruptcy - such as property developer Martinsa Fedesa's recent collapse - and this could eliminate the cajas' provisioning cushions. That presents a problem. ...

... Rescue deals for some of the smaller, more opaque banks look inevitable. The financial fuse on Spain's property bomb is burning slowly. But the bang could still be big.
The Pain in Spain happens mainly in the - uh - Cajas.

GM CEO to Step Down as part of Bailout Agreement

by Calculated Risk on 3/29/2009 06:08:00 PM

From Bloomberg: General Motors Chief Rick Wagoner Said to Step Down

General Motors Corp. Chief Executive Officer Rick Wagoner will step down after more than eight years running the largest U.S. automaker ...

The departure of Wagoner comes as President Barack Obama prepares an address tomorrow morning on his plans for the future of the U.S. auto industry. GM is surviving on $13.4 billion in U.S. loans and is asking for as much as $16.6 billion in additional aid to survive.
It sounds like the next round of the auto bailout will be announced Monday.

Personal Saving and Mortgage Equity Withdrawal

by Calculated Risk on 3/29/2009 03:42:00 PM

Much has been made about the personal saving rate falling to zero during the housing bubble, and rising sharply in recent months. This decline in the saving rate was probably related to homeowner's borrowing against their homes.

During the housing bubble there was a huge surge in home equity borrowing or cash-out refinancing - commonly called mortgage equity withdrawal (MEW) - that led many people to spend more than their usually defined disposable personal income (DPI). (ht Professor Martha Olney)

However this didn't capture MEW. The following two graphs show the impact of MEW. Note: I used 50% of MEW, because that appears to be the amount consumed.

Personal Saving MEW Click on graph for larger image in new window.

The first graph shows disposal personal income (blue), disposal personal income plus MEW (green) and personal outlays (red). Note: Graph doesn't start at zero to better show the change.

The BEA defines personal saving as the difference between the blue and red lines:

Personal Savings = Disposable Personal Income - Personal Outlays

However many people acted as if MEW was income, and that would mean personal saving was the difference between the green and red lines.

Saving Rate MEW The second graph shows the same data except as a saving rate.

As Professor Olney mentioned to me, the aggregate saving rate captures the behavior of both savers (who probably didn't change their behavior) and "dissavers" (who borrowed heavily). The saving rate declined to zero, probably because the dissavers were using MEW as income.

Now that the Home ATM is closed, the saving rate is rising because of less borrowing - as dissavers are forced to live within their incomes.

Newsweek Cover Story on Krugman

by Calculated Risk on 3/29/2009 01:16:00 PM

Evan Thomas writes in Newsweek: Obama’s Nobel Headache. An excerpt:

If you are of the establishment persuasion (and I am), reading Krugman makes you uneasy. You hope he's wrong, and you sense he's being a little harsh (especially about Geithner), but you have a creeping feeling that he knows something that others cannot, or will not, see. By definition, establishments believe in propping up the existing order. Members of the ruling class have a vested interest in keeping things pretty much the way they are. Safeguarding the status quo, protecting traditional institutions, can be healthy and useful, stabilizing and reassuring. But sometimes, beneath the pleasant murmur and tinkle of cocktails, the old guard cannot hear the sound of ice cracking. The in crowd of any age can be deceived by self-confidence, as Liaquat Ahamed has shown in "Lords of Finance," his new book about the folly of central bankers before the Great Depression, and David Halberstam revealed in his Vietnam War classic, "The Best and the Brightest." Krugman may be exaggerating the decay of the financial system or the devotion of Obama's team to preserving it. But what if he's right, or part right? What if President Obama is squandering his only chance to step in and nationalize—well, maybe not nationalize, that loaded word—but restructure the banks before they collapse altogether?
emphasis added
Krugman is making the establishment nervous! Probably because they all missed the housing bubble - and Krugman called it correctly.

Krugman foreshadowed the Newsweek article yesterday: The magazine cover effect
I’ve long been a believer in the magazine cover indicator: when you see a corporate chieftain on the cover of a glossy magazine, short the stock. Or as I once put it (I’d actually forgotten I’d said that), “Whom the Gods would destroy, they first put on the cover of Business Week.”

There’s even empirical evidence supporting the proposition that celebrity ruins the performance of previously good chief executives.

Presumably the same effect applies to, say, economists.

You have been warned.

Washington State Banks Under Stress

by Calculated Risk on 3/29/2009 10:37:00 AM

From the Seattle Times: Washington's banks under stress (ht Lyle)

Ailing financial giants such as Citigroup, Bank of America and AIG have drawn most of the attention as the worst banking crisis since the Great Depression grinds on.

But several of Washington's community banks also are clearly straining under the weight of the crisis, a Seattle Times analysis shows.

At least a dozen of the 52 Washington-based banks examined are carrying heavy loads of past-due loans, defaults and foreclosed properties relative to their financial resources. ...

While banks big and small have been kneecapped by the collapse of the housing bubble, the crisis has played out differently for the big "money center" banks and the thousands of regional and community banks sprinkled across the country.

The main problem for the big banks and investment firms has been exotic instruments such as collateralized mortgage obligations, structured investment vehicles and credit-default swaps — all tied, one way or another, to pools of residential mortgages that were bought, sold, sliced up and repackaged like so much salami.
But at most community banks, residential mortgages were a relatively small part of their business. Instead, their troubles are tied directly to their heavy dependence on real-estate loans — mainly loans to local builders and developers.

"Many community banks found that (construction and development loans) was an area in which they could compete effectively against the big banks," Frontier's Fahey said.

At Frontier Bank, for example, construction and development loans made up 44.5 percent of all assets at year's end. City Bank had 53.3 percent of its assets in such loans, and at Seattle Bank (until recently Seattle Savings Bank), they constituted a full 54.2 percent of total assets.
Regulators can act to bring wobbly banks back into balance, short of seizing them outright. Four Washington banks — Horizon, Frontier, Westsound and Bank Reale of Pasco — are operating under FDIC "corrective action plans" that place tight restrictions on their lending practices, management and overall operations.

But sometimes, such plans just delay the inevitable. Last year, for instance, the FDIC imposed corrective action plans on Pinnacle Bank and Silver Falls Bank, both of Oregon; in February, both were seized.
This article makes a couple of key points that we've been discussing: many community and regional banks sidestepped the residential mortgage debacle, and focused on local commercial real estate (CRE) and construction & development (C&D) lending. Now, with rapidly increasing defaults on C&D and CRE loans, the high concentrations of CRE and C&D loans at these banks will lead to many bank failures. And unlike the "too big to fail" banks, these community banks will just be seized by the FDIC.

Saturday, March 28, 2009

TARP Accounting

by Calculated Risk on 3/28/2009 10:32:00 PM

From the WSJ: US Treasury: $134.5 Billion Left in TARP

The U.S. Treasury Department estimates that it has about $134.5 billion left in its financial-rescue fund, which would mean that about 81% of the $700 billion program has been committed.

In its estimate, the Treasury projects that it will receive about $25 billion from banks that have participated in the department's Troubled Asset Relief Program, or TARP.
If you need a bailout, you'd better get in line soon!

G-20: "Obama Signals Flexibility"

by Calculated Risk on 3/28/2009 06:31:00 PM

From the WaPo: Obama Signals Flexibility Ahead of G-20 Summit

The Obama administration on Saturday appeared to back away from calls for other nations to mirror the United States in combating the financial crisis with ramped up government spending ...

U.S. officials yesterday dismissed any notion of a rift, saying they would not press nations to adopt specific spending targets. "Nobody is asking any country to come to London to commit to do more right now," said Deputy National Security Advisor for International Economic Affairs, Michael Froman. ...

Experts say the U.S. stance may reflect a recognition that the White House may simply not be able to convince their European counterparts to spend more. Some said it may herald a modest outcome for the summit.
Those expecting anything of substance from the G-20 meeting will probably be disappointed ...

Mauldin on Housing?

by Calculated Risk on 3/28/2009 03:30:00 PM

The following is a section on housing from John Mauldin's newsletter: Why Bother With Bonds?. I'd like to correct a few mistakes, not to embarrass Mr. Mauldin - we all make mistakes - but hopefully to illustrate a few points about the housing data.

From Mauldin:

Housing Sales Improve? Not Hardly

I opened the Wall Street Journal and read that new home sales were up in February. Bloomberg reported that sales were "unexpectedly" up by 4.7%. I was intrigued, so I went to the data. As it turns out, sales were down 41% year over year, but up slightly from January.

But if you look at the data series, there was nothing unexpected about it. For years on end, February sales are up over January. It seems we like to buy homes in the spring and summer and then sales fall off in the fall and winter. It is a very seasonal thing.
Uh, the numbers from the Census Bureau are seasonally adjusted. From the Census Bureau report:
Sales of new one-family houses in February 2009 were at a seasonally adjusted annual rate of 337,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±18.3%)* above the revised January rate of 322,000, but is 41.1 percent (±7.9%) below the February 2008 estimate of 572,000.
emphasis added
Mauldin continues with the error:
If you use the seasonally adjusted numbers, you find sales were down 2.9% instead of up 4.7%. But the media reports the positive number. Interestingly, they report the seasonally adjusted numbers for initial claims, which have been a lot better than the actual numbers. Not that they are looking to just report positive news, you understand.
As best I can tell, Mauldin is using the decline in inventory (from 340 thousand to 330 thousand) as the Seasonally Adjusted Annual Rate (SAAR) sales numbers. That shows a decline of 2.9%, but that is inventory - not sales.

The Not Seasonally Adjusted (NSA) monthly sales number are 27 thousand in February, compared to 23 thousand in January. An increase of 17.4%! If Mauldin is looking for an example of the media cherry picking SA vs. NSA, this isn't it.

Back to Mauldin:
Plus, as my friend Barry Ritholtz points out, the 4.7% rise was "plus or minus 18.3%". That means sales could have risen as much as 23% or dropped 13%. We won't know for awhile until we get real numbers and not estimates. Hanging your outlook for the economy or the housing market on one-month estimates is an exercise in futility, and could come back to embarrass you.
Barry is correct - this is the 90% confidence interval from the Census Bureau. And I agree we should always be cautious with just one month of data.

More Mauldin:
But that brings up my final point tonight, and that is how data gets revised by the various government agencies. Typically with these government statistics, you get a preliminary number, which is a guess based on past trends, and then as time goes along that data is revised. In recessions like we are in now the revisions are almost always negative.

There is no conspiracy here. The people who work in the government offices have to create a model to make estimates. Each data series, whether new home sales, employment, or durable goods sales, etc., has its own unique sets of characteristics. The estimates are based on past historical performance. There is really no other way to do it.

So, past performance in a recession suggests higher estimates than what really happens. Then, the numbers in the following months are revised downward as actual numbers are obtained. But the estimates in the current months are still too high. That makes the comparisons generally favorable, at least for one month. And the media and the bulls leap all over the "data," and some silly economist goes on TV or in the press and says something like, "This is a sign that things are stabilizing." It drives me nuts.
First, the preliminary estimate is not a "guess"; the esimate is based on a sample. As more data is received, the estimate is refined, and the confidence interval narrows - but it is always an estimate (it is never "real numbers" or a "guess").

Mauldin is correct about new home sales revisions being negative during the housing bust (something I've written about many times).

New Home Sales Revisions Click on graph for larger image in new window.

This graph shows the change from the preliminary release to the most recent release. Usually the revisions can be either positive or negative, but during the housing bust almost all the revisions were negative. For the two most recent months, the revisions have been positive, but there are more revisions to come.

Mauldin's conclusion is:
Ignore month-to-month estimated data. The key thing to look for is the direction of the revisions. If they are down, as they have been for over a year, then that is a bad sign. Further, one month's estimates are just noise. Look at the year-over-year numbers. When the direction of the revisions is positive and the year-over-year numbers are starting to stabilize, then we will know things are starting to turn around.
I agree with his comment on revisions, although it takes several months to know if the data is being revised up or down.

Looking at year-over-year numbers is useful, but I think we can also look cautiously at the monthly numbers too. We needn't do this in a vacuum. Here is what I wrote early this year: Looking for the Sun
New home sales is a little more difficult because of the huge overhang of excess inventory that needs to be worked off. But some people will always buy new homes, and we can be pretty sure that sales won't fall another 270 thousand in 2009 (like in 2008), because that would put sales at 60 thousand SAAR in December 2009. That is not going to happen.

So, at the least, the pace of decline in new home sales will slow in 2009. More likely sales will find a bottom - to the surprise of many.
And here was my take on the recent report: New Home Sales: Is this the bottom?. An excerpt:

New Home Sales and RecessionsThis graph shows the February "rebound".

You have to look closely - this is an eyesight test - and you will see the increase in sales (if you expand the graph).

Not only was this the worst February in the Census Bureau records, but this was the 2nd worst month ever on a seasonally adjusted annual rate basis (only January was worse).

Note: Once again, I'm not trying to embarrass Mr. Mauldin, but hopefully this helps in looking at the housing data.

The Mega-Bear Quartet

by Calculated Risk on 3/28/2009 11:44:00 AM

By popular request, here is a graph comparing four significant bear markets: the Dow during the Great Depression, the NASDAQ, the Nikkei, and the current S&P 500.

Stock Market Crashes Dow S&P500 NASDAQ Nikkei Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner):

"The Mega-Bear Quartet and L-Shaped Recoveries".

Note: updated today.

Forecast: Two-thirds of California banks to face Regulatory Action

by Calculated Risk on 3/28/2009 09:54:00 AM

From the LA Times: FDIC orders changes at six California banks

[T]he Federal Deposit Insurance Corp. disclosed Friday that it had ordered six more California banks to clean up their acts in February after the agency examined their books and operations.
The number of such regulatory actions has been increasing rapidly.
By the end of 2009, two-thirds of the state's banks will be operating under cease-and-desist orders or other regulatory actions, Anaheim-based banking consultant Gary S. Findley predicts.
Most banks targeted in such actions eventually tighten up operations and continue in business or merge with stronger institutions, but regulators are preparing for a major wave of failures.
In addition to public cease-and-desist orders, banks are subject to a variety of regulatory sanctions, including so-called memorandums of understanding, which are informal directives to correct problems. Regulators don't release those memos, but banks sometimes disclose them to shareholders.
So far 21 FDIC insured banks have failed this year, and 3 in California. There will probably be many more ...

Friday, March 27, 2009

Further Bailout of Automakers Expected on Monday

by Calculated Risk on 3/27/2009 10:18:00 PM

From the NY Times: U.S. Expected to Give More Financing to Automakers

The Obama administration will probably extend more short-term aid to General Motors and Chrysler on Monday ...

The administration is expected to set a short deadline — weeks rather than months — to compel the automakers, their lenders and the U.A.W. to reach agreement.

Both G.M. and Chrysler are close to exhausting the loans they received since December. ...

G.M.’s request for up to $16.6 billion more in federal loans will be treated separately from Chrysler’s request for an additional $5 billion ...

The announcement on Monday will usher in a more intensive period of oversight by the government of G.M. and Chrysler ...
Another week, another bailout.

Words of Advice: December 13, 2000

by Calculated Risk on 3/27/2009 07:20:00 PM

Just some quick words of advice from Jon Stewart (Dec 13, 2000): (ht Martin)

FDIC on Omni National Bank, Atlanta Failure

by Calculated Risk on 3/27/2009 05:17:00 PM

Update: from Soylent Green Is People

Bright, warm Spring Friday...
Bank failures blight like crab grass...
Spray Round-Up on all....

From the FDIC: SunTrust Bank, Atlanta, Georgia, Receives the Insured Deposits of Omni National Bank, Atlanta, Georgia
Omni National Bank, Atlanta, Georgia, was closed today by the Office of the Comptroller of the Currency, which then appointed the Federal Deposit Insurance Corporation (FDIC) as receiver.
As of March 9, 2009, Omni National Bank had total assets of $956.0 million and total deposits of $796.8 million. At the time of closing, there were approximately $2.0 million in uninsured deposits that potentially exceeded the insurance limits. ...
The cost to the FDIC's Deposit Insurance Fund is estimated to be $290 million. Omni National Bank is the twenty-first bank to fail this year. The last bank failure in Georgia was FirstCity Bank, Stockbridge, on March 20, 2009.
This is the follow-up to the earlier post.

Q1 GDP will be Ugly

by Calculated Risk on 3/27/2009 04:43:00 PM

Stock Market Crashes First, a quick market update ...

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

On Q1 GDP:

Earlier today the BEA released the February Personal Income and Outlays report. This report suggests Personal Consumption Expenditures (PCE) will probably be slightly positive in Q1 (caveat: this is before the March releases and revisions).

Since PCE is almost 70% of GDP, does this mean GDP will be OK in Q1?


I expect Q1 2009 GDP to be very negative, and possibly worse than in Q4 2008. Right now I'm looking at something like a 6% to 8% decline (annualized) in real GDP (there is significant uncertainty, especially with inventory and trade).

The problem is the 30% of non-PCE GDP, especially private fixed investment. There will probably be a significant inventory correction too, and some decline in local and state government spending. But it is private fixed investment that will cliff dive. This includes residential investment, non-residential investment in structures, and investment in equipment and software.

A little story ...

Imagine ACME widget company with a steadily growing sales volume (say 5% per year). In the first half of 2008 their sales were running at 100 widgets per year, but in the 2nd half sales fell to a 95 widget per year rate. Not too bad.

ACME's customers are telling the company that they expect to only buy 95 widgets this year, and 95 in 2010. Not good news, but still not too bad for ACME.

But this is a disaster for companies that manufacturer widget making equipment. ACME was steadily buying new widget making equipment over the years, but now they have all the equipment they need for the next two years or longer.

ACME sales fell 5%. But the widget equipment manufacturer's sales could fall to zero, except for replacements and repairs.

And this is what we will see in Q1 2009. Real investment in equipment and software has declined for four straight quarters, including a 28.1% decline (annualized) in Q4. And I expect another huge decline in Q1.

For non-residential investment in structures, the long awaited slump is here. I expect declining investment over a number of quarters (many of these projects are large and take a number of quarters to complete, so the decline in investment could be spread out over a couple of years). And once again, residential investment has declined sharply in Q1 too.

When you add it up, this looks like a significant investment slump in Q1.