by Calculated Risk on 4/29/2008 11:02:00 AM

I enjoyed attending the Milken conference yesterday. Thanks to Jennifer Manfre’ of the Milken Institute for arranging a press pass.

I attended a couple of sessions on topics that I know little about (like Urbanization in India and China), and they were awesome. IMO this type of conference has two strengths: 1) you meet a number of interesting people, and 2) the sessions provide a great introduction to a variety of topics.

However when I was familiar with the topic (like "Real Estate: Where is the Bottom?"), I was disappointed with the depth of the analysis. Hopefully Tanta will have a chance to listen to the audio of "The Future of the Mortgage Market: Where Do We Go From Here?" - but I suspect she will be disappointed too.

On a personal note, it was great to finally meet several bloggers: Professor Mark Thoma of Economist's View, Felix Salmon of Market Movers, Yves Smith of Naked Capitalism, and Paul Kedrosky of Infectious Greed.

Mark and I are "internet friends" - we've corresponded for over 3 years - and it was fun to finally meet face to face. We seemed like old friends ... the internet is awesome!

The econblogger session was well attended. Personally I thought the moderator asked several wrong questions - and he kept focusing on the credibility of the bloggers and rumors being spread on the internet, as opposed to focusing on experts in specific fields bringing more in-depth analysis to a subject than a newspaper. The moderator worked previously at the WSJ, and he seemed to think blogs were a competing product to newspapers. Professor Thoma argued persuasively that blogs are complementary to newspapers and when written well (think Tanta!), provide more in-depth analysis on specific subjects.

by Calculated Risk on 4/29/2008 09:36:00 AM

From the WSJ: Deutsche Bank Swings to Loss On Write-Downs, Trading Loss

The bank marked down assets by a net €2.7 billion for the quarter. The write-downs included around €1.77 billion on leveraged finance loans and loan commitments and €885 million on commercial real-estate and residential mortgage-backed securities, including Alt-A mortgages, which are a step above subprime quality.
...
"In the month of March, pressure on the banking sector was more intense than at any time since the current credit downturn began. Inevitably, this left its mark on Deutsche Bank's results," said Chief Executive Josef Ackermann.

Another visit to the confessional. March was clearly a very difficult month for banks and many retailers.

by Calculated Risk on 4/29/2008 09:12:00 AM

Note: I accidentally deleted this post. Here is the general info ...

S&P reports that the Case-Shiller home price indices declined sharply in February. The Case-Shiller composite 20 index (20 large cities) was off 12.7% YoY through February, and off 14.8% from the peak.

Note: the composite 20 index is not the National Price index, but this does suggests the national index will be off sharply in Q1.

Click on graph for larger image.

This graph shows the price changes for several selected cities. Prices are falling faster in the 'bubble' cities, like San Diego, Miami, and Las Vegas.

Prices are also falling in areas that saw less apprecation, like Denver and Cleveland.

All 20 cities in the Case-Shiller composite saw declining prices in February, led by a 5% one month decline in San Francisco, and over 4% in Los Angeles, Phoenix and Las Vegas.

by Calculated Risk on 4/28/2008 04:19:00 PM

From Bloomberg: KB Home's Broad Says Home Prices May Drop Another 20%

Eli Broad ... said he expects home prices to drop another 20 percent.

``I don't think we're anywhere near a bottom in housing,'' Broad told Bloomberg TV at the Milken Institute Conference in Beverly Hills, California. ``We're going to have a big inventory of unsold, unoccupied homes that's going to take three or four years to clear out.''
...
``People were using their home equity as really an ATM machine,'' Broad said, referring to an automatic teller machine. ``They were spending more money than they were earning by taking equity out of their home. That couldn't go on indefinitely. We're now paying a price for that.''

by Calculated Risk on 4/28/2008 03:45:00 PM

From Reuters: Morgan Stanley see big bank woes just beginning

"More capital hikes and dividend cuts (are) coming as our credit deteriorates and forward earnings decline," [Morgan Stanley] analysts led by Betsy Graseck wrote in a report. "We think we are only in the third inning of the credit cycle and expect this credit cycle will be worse than (the slump in) 1990-91."

The Milken conference panel participants didn't address the timing of the credit crisis directly - although the general view was the crisis was overblown and it's just a matter of "confidence". I was disappointed that the panel didn't spend more time on forecasting when real estate would bottom (the title of the session was: Real Estate: Where Is the Bottom?

by Calculated Risk on 4/28/2008 12:52:00 PM

Sam Zell started by saying we need to separate commercial from residential. Commercial will be fine in his view (not my view). Also Zell thinks losses are overstated for investment banks and CDOs.

Update: Zell isn't talking about new construction (CRE), rather he is talking about prices for existing CRE. He feels there is too much global demand ("liquidity") for prices to fall too far - especially for Class-A buildings.

Brian Fabbri, Chief U.S. Economist for North America, BNP Paribas: Builders still overbuilding. Prices still too high. Recession started in December, recession will last year. Housing may bottom well into 2009.

Michael Van Konynenburg, President, Eastdil Secured, CMBS OK unless credit crunch lasts until 2010. Then there could be a huge problem with significant CMBS needing to be refi'd.

Unfortunately most of the discussion is on general economics, and not real estate.

I'll have some quotes later - I believe there was complete agreement that the economy is currently in recession. Those tht commented on the recession (Fabbri especially) seemed to feel the recession started in December 2007, and would last all through 2008 - and the stimulus plan wouldn't help much.

by Calculated Risk on 4/28/2008 12:45:00 PM

From the Census Bureau: CENSUS BUREAU REPORTS ON RESIDENTIAL VACANCIES AND HOMEOWNERSHIP

Homeownership vacancy hit 2.9% in Q1 2008.

Graphs later (I'm at the conference)

by Anonymous on 4/28/2008 10:46:00 AM

That was fast:

Alan Nevin, chief economist for the California Building Industry Association and San Diego-based MarketPointe Realty Advisors, predicted foreclosure sales could account for as many as 15,000 out of 25,000 total sales this year. But at some point, the foreclosures will drop off, he Nevin said.


“Anybody who's going to walk away from a house or condo has already done it,” Nevin said. “Now it's just a matter of the pig going through the snake.”

by Calculated Risk on 4/28/2008 09:41:00 AM

I'm off to LA this morning to attend the Milken Institute Global Conference. Here is the first session I'll be attending:

Real Estate: Where Is the Bottom?

Monday, April 28, 2008
9:35 AM - 10:50 AM (PT)
Speakers:
Brian Fabbri, Chief U.S. Economist for North America, BNP Paribas
Bobby Turner, Managing Partner, Canyon Capital Advisors LLC
Michael Van Konynenburg, President, Eastdil Secured
Sam Zell, Chairman and President, Equity Group Investments LLC; Chairman and CEO, Tribune Company

Best to all.

by Calculated Risk on 4/27/2008 05:27:00 PM

From the NY Times: Recession Diet Just One Way to Tighten Belt

Spending data and interviews around the country show that middle- and working-class consumers are starting to switch from name brands to cheaper alternatives, to eat in instead of dining out and to fly at unusual hours to shave dollars off airfares.
...
Wal-Mart Stores reports stronger-than-usual sales of peanut butter and spaghetti, while restaurants like Domino’s Pizza and Ruby Tuesday have suffered a falloff in orders, suggesting that many Americans are sticking to low-cost home-cooked meals.

This is classic behavior in tough economic times. In economics, "inferior goods" doesn't refer to the quality of the goods, instead it refers to goods where demand changes inversely with income. As incomes rise, people buy less of the inferior good. But as incomes fall, they buy more.

The excerpt above describes people buying more spaghetti to cook at home (inferior good), and ordering less Pizza (a "normal good"). And on beer:

Sales of inexpensive domestic beers, like Keystone Light, are up; sales of higher-price imports, like Corona Extra, are down ...

I expect to see more generic brands (inferior good) soon on the grocery shelves!