by Calculated Risk on 11/10/2007 12:39:00 AM

Dow Is Down

Hat tip to lumpeninvestor who noted that this song was recorded in 2000, but the lyrics seem to fit today.

Enjoy!

by Calculated Risk on 11/09/2007 11:50:00 PM

From the Charlotte Observer: Beazer to delay paying subcontractors (hat tip idoc)

Beazer Homes USA is delaying payments to subcontractors in Nashville ...

The Observer obtained a letter dated Nov. 5 and signed by Beazer's Nashville division President David Hughes, who said, "It is unfortunate, but we cannot continue the prompt payments you have received in past years."

Not BK, but this doesn't sound good. Beazer is the 7th largest home builder in the U.S. according to BuilderOnline.

by Calculated Risk on 11/09/2007 09:04:00 PM

From Reuters: Levitt & Sons files for bankruptcy protection

Levitt Corp home-building unit Levitt & Sons said on Friday that it had filed for bankruptcy protection ..
...
Levitt & Sons is ranked as the 50th-largest U.S. home builder by trade publication BuilderOnline.

Here are the BuilderOnline top 100.

by Calculated Risk on 11/09/2007 06:29:00 PM

From AP: S&P Lowers Credit Outlook on Three Banks (hat tip 4wards, dotcommunist)

S&P downgraded its outlook for Washington Mutual Inc. and IndyMac Bancorp Inc. to "Negative" from "Stable," and for Capital One Financial Corp. to "Stable" from "Positive.

It must be Friday!

by Calculated Risk on 11/09/2007 05:54:00 PM

From MarketWatch: E-Trade backs off earnings forecast

E-Trade said the fair value of its $3 billion asset-backed securities portfolio has continued to decline since the end of the third quarter. ...

The drop in value will result in further write-downs in the fourth quarter ... Those extra write-downs weren't expected when E-Trade updated its 2007 earnings outlook on Oct. 17.

"Investors should no longer expect these earnings levels to be achieved," the broker said in a statement.

The beat goes on ...

by Calculated Risk on 11/09/2007 05:42:00 PM

From the Sacramento Bee: Dunmore Homes files for bankruptcy protection (hat tip JR)

Seeking protection from creditors, Granite Bay home builder Dunmore Homes filed for bankruptcy late Thursday as it tries to restructure its tangled finances.
...
The company, which claims to have built 22,000 homes since 1953 in California and Nevada, listed assets and liabilities of more than $100 million. It claimed between 5,000 and 10,000 creditors.

The largest is JPMorgan Chase Bank, which is owed $20 million, according to the filing. Many of the largest creditors are local construction firms.

This is just the beginning. As noted earlier, Neumann Homes filed for bankruptcy two weeks ago. Is there a home builder Implode-a-meter?

by Calculated Risk on 11/09/2007 03:17:00 PM

From MarketWatch: Bank of America: CDO dislocations may knock Q4 results

Bank of America Corp. said .. that dislocations in the market for ... (CDOs) will knock the bank's fourth-quarter results.

Here is the SEC 10-Q filing.

We expect these significant dislocations in the CDO market to continue, and it is unclear what impacts these dislocations will have on other markets in which we operate or maintain positions. ... We anticipate that these developments will adversely impact our results during the fourth quarter.

by Calculated Risk on 11/09/2007 02:45:00 PM

Here is the list of Alt-A residential mortgage-backed securities (RMBS) and U.S. net interest margin securities (NIMS) affected by the S&P negative CreditWatch actions today:

U.S. Alt-A RMBS And Related NIMS Classes Affected By Nov. 9, 2007, CreditWatch Actions (hat tip bacon dreamz)

by Calculated Risk on 11/09/2007 12:51:00 PM

The Census Bureau reported today for September 2007:

"a goods and services deficit of $56.5 billion, compared
with $56.8 billion in August"

Click on graph for larger image.

The red line is the trade deficit excluding petroleum products. (Blue is the total deficit, and black is the petroleum deficit).

The ex-petroleum deficit is falling fairly rapidly, almost entirely because of weak imports (export growth is still strong). But unlike the previous decline in the trade deficit (during the '01 recession), petroleum imports are still strong.

UPDATE: Petroleum imports are strong in dollar terms, but they appear to be declining in BBLs, see exhibit 17. Imports are noisy month to month, but BBLs imported has declined year over year for the last several months. Also note the price per barrel. This will increase sharply over the next few months (but not to the spot level). Hat tip dryfly.

Normally oil prices would now be falling as the U.S. economy weakens - instead we are seeing margins shrinks for U.S. refiners and record high oil prices. This would imply that global demand for oil is strong, while domestic consumption is weak. This evidence supports the "decoupling" argument: that the U.S. economy could slow, but economic growth in the rest of the World would stay strong. I'm not convinced by the decoupling argument, and my view is that there is simply a lag between a slowing U.S. economy and a slowdown for the rest of the world.

Looking at the trade balance, excluding petroleum products, it appears the deficit peaked at about the same time as the housing market / mortgage equity withdrawal in the U.S. This is an interesting correlation (but not does imply causation).

"Interestingly, the change in U.S. home mortgage debt over the past half-century correlates significantly with our current account deficit. To be sure, correlation is not causation, and there have been many influences on both mortgage debt and the current account."
Alan Greenspan, Feb, 2005

The second graph shows the trade deficit and mortgage equity withdrawal as a percent of GDP.

Declining MEW is one of the reasons I forecast the trade deficit to decline in '07. And a declining trade deficit also has possible implications for U.S. interest rates; as the trade deficit declines, rates may rise in the U.S. because foreign CBs will have less to invest in the U.S..

Note also that import prices are surging. From Greg Ip at the WSJ:

Import prices jumped 1.8% in October from September and are up 9.6% from the previous year. To be sure, most of that was due to rising oil and natural-gas prices. But even excluding fuels, prices were 0.3% higher from September and up 2.4% from a year earlier.

The import prices problem will only get worse in October and November with surging oil prices and the falling dollar.

by Anonymous on 11/09/2007 11:55:00 AM

Thanks to bacon dreamz.

Remember that, as CR says, Up is Down.