by Calculated Risk on 4/08/2008 12:45:00 PM

Click on graph for larger image.

This graph shows the loaded containers per month - inbound and outbound - for the ports of Los Angeles and Long Beach combined.

Imports have been surging for years (not exactly new news), but have slowed recently. For the last two month, imports averaged a decrease of 8.8% year-over-year.

Recently exports have picked up (because of the weak dollar), and for the last two months imports have increased an average of 24.3% year-over-year.

Although this is just two Los Angeles area ports, this fits with the declining trade deficit (see 2nd graph). For export businesses in the U.S. these are good times - and a big part of the reason the U.S. has seen less manufacturing employment weakness than in earlier recessions.

Of course this is having a negative impact on Asian exporting companies.

Here is a graph of the trade deficit (January is the most recent data).

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).

And from the AP: Idle cars signal a downturn

This brings up several important topics: What will happen in China as their export economy slows? Just look at the dramatic decline in the Shanghai index. What will happen to petroleum prices as the global economy slows? Will the U.S. import inflation from China and Asia as they raise prices? And I'm sure there are more issues too.

by Calculated Risk on 4/08/2008 11:37:00 AM

From Bloomberg: IMF Says Financial Losses May Swell to $945 Billion

Falling U.S. house prices and rising delinquencies may lead to $565 billion in mortgage-market losses, the IMF said in its annual Global Financial Stability report, released today in Washington. Total losses, including the securities tied to commercial real estate and loans to consumers and companies, may reach $945 billion, the fund said.

The forecast signals the worst of the credit crunch may be yet to come ...

``The current turmoil is more than simply a liquidity event, reflecting deep-seated balance-sheet fragilities and weak capital bases, which means its effects are likely to be broader, deeper and more protracted,'' the report said. The fund warned of the risk of ``a serious funding and confidence crisis that threatens to continue for a significant period.''

The IMF has been playing catch up.

Roubini's forecast, in his recent testimony to Congress, were losses close to $1 trillion: The Current U.S. Recession and the Risks of a Systemic Financial Crisis

And Goldman Sachs is now projecting $1.2 trillion in losses:

Residential mortgage losses will represent about half the damage, with another 15%-20% coming from commercial mortgages. Credit card loans, auto loans, commercial and industrial lending, and nonfinancial corporate bonds make up the remainder.
...
The losses to leveraged US financial institutions make up only a part of total credit losses, which we expect to be $1.2 trillion.

And from the WSJ last December:

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

by Calculated Risk on 4/08/2008 10:23:00 AM

From the National Association of Realtors: Existing-Home Sales to Stablize Before Upturn in Second Half of 2008

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in February, slipped 1.9 percent to 84.6 from an upwardly revised reading of 86.2 in January, and was 21.4 percent lower than the February 2007 index of 107.6.

Contracts signed in February will result in closings in March and April (average time from signing the contract to closing is about 45 days). But if March is 21.4 percent below last year, then sales will be about 4.8 million (SAAR) in March 2008.

The press release includes another overly optimistic forecast from NAR chief economist Lawrence Yun:

Existing-home sales are likely to rise from an annual pace of 4.9 million in the first quarter to 5.9 million in the fourth quarter. With relatively weak activity in the first part of the year, existing-home sales for all of 2008 are forecast at 5.39 million, increasing 6.6 percent to 5.74 million in 2009.

Stablize? Hmmm ...

by Calculated Risk on 4/08/2008 09:58:00 AM

From the WSJ: WaMu to Get $7 Billion Infusion; Bank Slashes Dividend, Posts Loss

Washington Mutual Inc. entered into an agreement to sell $7 billion in equity securities to TPG Capital and other investors as part of a plan to strengthen its capital position.

Under the deal, the bank is selling 176 million shares of its common stock at a purchase price of $8.75 a share.
...
The company said it would also cut its quarterly dividend to one cent from 15 cents. Washington Mutual said the dividend cut will save the company $490 million a year.

In addition, the Seattle company expects a first-quarter loss of $1.1 billion, or $1.40 a share. ... It also said it had a provision for loan losses for the quarter of approximately $3.5 billion and expected first quarter net charge-offs of approximately $1.4 billion.

by Calculated Risk on 4/07/2008 10:41:00 PM

The WSJ has some excerpts from FDIC Chairwoman Sheila Bair's speech tonight: FDIC Chairwoman Calls for Activism.

“We’ve got a real problem. And I do think we need to have more activist approaches. And I think it will be something we need to be honest with the American public about. We do need more intervention. It probably will cost some money.”

On CRE and bank failures:

Regulators are “increasingly concerned” about the risks posed by high concentrations of commercial real estate loans at banks, especially at financial institutions with between $1 billion and $10 billion in assets.

And on lending standards:

“These internet originators have been a problem too…it’s unbelievable to me they are back already. When I go on my AOL account over the weekend I’m seeing no-doc, low-doc, ‘bankruptcy okay,’ a $200,000 loan for $800 a month. They are back. It is just amazing to me.”

A transcript isn't available yet.

by Calculated Risk on 4/07/2008 08:35:00 PM

UPDATE2: Washington Mutual sent a memo to brokers today announcing the closing of their wholesale lending business. The last date for loan funding is June 13th (unless a previous commitment was issued). Excerpts:

Today, WaMu announced significant changes affecting our Home Loans business. As part of this announcement, and consistent with the company’s retail focused strategy, WaMu has made the very difficult decision to exit the Wholesale lending business.
...
WaMu will continue to originate loans through Consumer Direct and our Retail Lending channel.
...
This is a very hard day for WaMu and all of Wholesale Lending. We have appreciated your partnership and support over these many years and wish you the best as we move on to new opportunities.

UPDATE: Housing Wire has more, including an excerpt from an email allegedly from WaMu (unconfirmed):

“[C]onsistent with the company’s retail focused strategy, WaMu has made the very difficult decision to exit the Wholesale lending business.”

The Implode-o-Meter reports (not sourced):

Washington Mutual will announce later today they are backing out of Wholesale entirely, and Retail is retreating to the bank footprint. Expect an email blast to Brokers later today.

This is apparently part of the $5 billion cash infusion from TPG.

by Calculated Risk on 4/07/2008 06:13:00 PM

Note: A "V" shaped recession is usually short, and fairly shallow like in '90-'91 and '01. Both of those recessions lasted 8 months. A "U" shaped recession is longer and possibly deeper.

A "W" shaped recession is a double dip (like in '80 and '81/'82). And an "L" shaped recession is like the experience in Japan in the '90s.

Professor Roubini writes: The US Recession: V or U or W or L-Shaped?.

My view is ... a U-shaped recession as I expect that the economic contraction will last at least 12 months and possibly as long as 18 months through the middle of 2009. This view is based on the fact that the last two recessions – in 1990-91 and 2001 – lasted 8 months each and today the macro and financial conditions are worse – relative to those two previous recessions - in at least three dimensions:

1. We are experiencing the worst US housing recession since the Great Depression ...

2. In 2001 it was the corporate sector (10% of GDP or real investment) to be in trouble. Today it is the household sector (70% of GDP in private consumption) to be in trouble. ...

3. The US is experiencing its most severe financial crisis since the Great Depression. This is not just a subprime meltdown. ...

Could the US recession end up being W-shaped, i.e. a double-dip recession? This view is presented by those who argue that the recent fiscal stimulus – that will provide a tax rebate to US households in May-June – could lead - after negative growth in Q1 and Q2 - to a positive economic growth in Q3 and possibly part of Q4 to be followed by a relapse into a second recession by year end or early 2009 when the effects of such fiscal stimulus fade out. Such a W-shaped recession – effective a U-shaped recession with a small temporary upward blip in the middle of it (thus a W-shaped one) cannot be ruled out. ...

Finally, could the US experience an L-shaped recession, i.e. a protracted period of economic stagnation like the one experienced by Japan in the 1990s after the bursting of its housing and equity bubble? My view is that a protracted economic stagnation – bordering on an economic depression – is unlikely in the case of the US as the policy response of the US is already more aggressive than the one of Japan. ...

This will turn out to be the most severe recession and financial crisis that the US has experienced for decades. Thus, the current conditions and valuations in US equity and financial markets – that currently price a mild and shallow recession – will be proven wrong as the bottom of the real economic contraction and the bottom of the financial and credit losses are ahead of us rather than behind us. ...

My major area of disagreement with Roubini is the severity of the recession. I also think the recession will linger (at least the effects of the recession). And a double dip is very possible.

But to say this will be the "most severe recession" in decades suggests job losses - and a corresponding increase in the unemployment rate - that I don't see on the horizon. The good news is that manufacturing employment is holding up better than usual in a recession due to a combination of a weak dollar (strong exports) and relatively strong global growth. This doesn't mean the recession won't be painful for many - I think it will be. And the recession could be severe if manufacturing contracts sharply (probably due to a global recession), but I think this is less likely than Roubini.

by Calculated Risk on 4/07/2008 01:59:00 PM

From Reuters: U.S. mall vacancy rates rise as economy slides (hat tip deuces wild)

The vacancy rate at U.S. strip malls rose to the highest level since 1996 in the first quarter of 2008 ... research firm Reis said on Friday.

Strip mall vacancies rose 0.2 percentage points from the preceding quarter to 7.7 percent.

By the end of the year, the rate likely will reach or surpass 8 percent, Reis said.

Strip mall vacancy rates were 7.5% in Q4 2007, 7.4% in Q3, and 7.3% in Q2.

The 8% estimate for the end of 2008 seems pretty conservative.

by Calculated Risk on 4/07/2008 11:42:00 AM

From Reuters: NBER's Feldstein says U.S. sliding into recession

"I think that December/January was the peak and that we have been sliding into recession ever since then," [Martin] Feldstein, the president of the National Bureau of Economic Research, said on CNBC television.

Feldstein also said he thinks the recession will "linger" and that it might last twice as long as the previous two recessions (both lasted 8 months). He also thinks Q1 GDP might be misleading - his view is the economy is in recession even if the preliminary GDP report shows some positive real growth.

by Calculated Risk on 4/07/2008 10:17:00 AM

Jon Lansner at the O.C. Register writes: O.C. home demand rises for 1st time in 18 months

Deals to buy O.C. existing homes and condos are now above year-ago levels for the first time since Sept. 22, 2005, says the math of Steve Thomas at Re/Max Real Estate Services in Aliso Viejo. As of last Thursday, there were 2,285 deals created in the past 30 days, Thomas’ definition of demand. That’s 159 better (7%) than a year ago.

The following graph is based on DataQuick's sales data for Orange County.

Click on graph for larger image.

The graph shows the sales per month and the year-over-year change in the number of sales since the peak in activity. In Feb 2008, there were 1,471 sales reported in O.C., about 40% below Feb 2007. Feb 2008 was the weakest sales for February since DataQuick started keeping records in 1988.

Also note that many of these sales were Bank Real Estate Owned (REOs):

Of the homes that resold in February, about one-third, 33.5 percent, had been foreclosed on at some point since January 2007. A year earlier the figure was 3.5 percent. At the county level, the percent of homes resold in February that had been foreclosed on since January 2007 ranged from 25.3 percent in Orange County to 48.1 percent in Riverside County.

Note: DataQuick includes new homes sales.

The DataQuick numbers for March will be released soon, and I'm skeptical of the claim that the year-over-year change was positive in March.