by Calculated Risk on 6/27/2008 03:40:00 PM

From the WSJ: Deep June Car-Sales Slump Seen in J.D. Power Estimate

J.D. Power & Associates sees the market for U.S. light vehicles contracting 15.4% in the month of June compared to a year ago, according to a report released Friday ... The firm expects the closely-watched seasonally adjusted annual rate of sales to fall to 12.5 million vehicle rate, well below the 16.3 million rate set in the same period last year.

This is more grim news for the U.S. auto industry.

by Calculated Risk on 6/27/2008 01:45:00 PM

For those with a round number fetish, the Dow is now off more than 20% from the peak last October. If it closes at or below this level, then this will be considered an official bear market.

Dow closing high on Oct 9, 2007: 14,164.53

20% off would be: 11,331.62 (right now 11,326 so it's close).

The closing high for the S&P 500 was 1565.15 last October 9th and 20% off would be 1252.12 - so we still have a little ways to go for the S&P.

by Calculated Risk on 6/27/2008 10:54:00 AM

Tim Duy has another great post on the Fed being caught between inflation and recession: This Is Not Good. Here is his conclusion:

This is a no win situation...which way will the Fed turn? The Fed will hold the current policy in place until policymakers becomes sufficiently distressed by the impact of energy price inflation ... Note that market participants are increasingly aware that the Fed’s default policy for the time being is higher inflation, as evidenced by the rise in 10 year TIPS breakeven levels to 254bp today.

In theory, the best outcome is to find is a sweet spot that allows global growth outside of the US to decelerate while avoiding a free fall in the Dollar. In the absence of such equilibrium, the US economy can hobble along only as long as the following three conditions hold:

1. The Federal Reserve can maintain easy monetary policy.

2. The US government can sustain repeated fiscal stimulus measures.

3. China and the rest of the dollar bloc continue to be willing to accumulate US assets, primarily the Treasury debt needed for fiscal stimulus.

When these conditions no longer hold – such as the Fed needs to tighten to counter energy inflation, or the demand for US debt drops sharply – then I suspect the US economic environment will shift decisively toward higher inflation or significant recession.

by Calculated Risk on 6/27/2008 10:18:00 AM

From MarketWatch: Consumers extremely gloomy, UMich survey says.

The consumer sentiment index fell to 56.4 in June from 59.6 in May ... It's the lowest since 1980 and the third-lowest reading in the 56-year history of the survey.

A record number of consumers said their own finances had worsened, and inflation expectations are the highest since Feb 1982. (here is the Reuters story with more detail)

Usually consumer sentiment surveys tell you what you already know, and sentiment is heavily impacted by gasoline prices, but these are still pretty stunning numbers.

by Calculated Risk on 6/27/2008 08:57:00 AM

From CNBC: Merrill Likely to Write Down $3 Billion-$5 Billion

Reuters is reporting: Merrill may take $5.4 bln in Q2 writeoffs: Lehman

Merrill Lynch will likely incur $5.4 billion of write-downs in the second quarter, mainly from its exposure to monolines, said an analyst at Lehman Brothers ...

Here comes another round of visits to the confessional!

by Calculated Risk on 6/26/2008 09:32:00 PM

From the WSJ: Schumer Asks Regulators For Greater IndyMac Scrutiny (Thanks to all!)

Sen. Charles Schumer sent letters to federal regulators asking them to monitor more closely the financial health of IndyMac ...

The New York Democrat wrote that he is "concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers and that the regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac or minimize the damage should such a failure occur."

Here is the AP story: Schumer: concerned over IndyMac stability

I'm very surprised a letter like this was made public. And I'm surprised a U.S. Senator is mentioning a specific bank. Oh well, anyone with more than the FDIC insured limit deposited with IndyMac has had ample warning.

by Calculated Risk on 6/26/2008 06:02:00 PM

From Bill Fleckenstein's Daily Rap today: It's About to Blow! (Here is Fleck's Site for the Daily Rap):

Note: excerpted with permission.

[About midday] I received a phone call from the Lord of the Dark Matter, who began the conversation: "It's about to blow!" He then repeated himself.

He went on to say that behind the scenes, many parts of the credit/mortgage market were "offered only." He said it had nothing to do with month-end or quarter-end. Instead, he believed it had to do with the enormous amount of inventory that would be looking for a home in the next quarter. He believed that the equity market was "miles behind what was occurring in the mortgage-backed/credit markets." Though he noted that he'd said it before, he repeated: "It's never been this bad."

And I heard confirmation from a bond shop today that "liquidity is getting worse and worse". Here we go again?

by Calculated Risk on 6/26/2008 02:53:00 PM

From MarketWatch: Oil prices tops $140

TED spread rising sharply. Is this the 4th wave of the credit crisis?

by Calculated Risk on 6/26/2008 12:47:00 PM

Paul Jackson at Housing Wire reports: Alt-A Performance Gets Much Worse in May

A new report released by Clayton Fixed Income Services, Inc. on Wednesday afternoon found that 60+ day delinquency percentages and roll rates increased in every vintage during May among Alt-A loans ... Add in soaring borrower defaults, and the picture doesn’t get much better. Clayton reported that the 2006 vintage saw 60+ day borrower deliquencies among Alt-A first liens reach 21.22 percent in May, up 10.5 percent in a single month; 2007 fared even worse, with 60+ day delinquencies ratcheting up 22 percent to 18.55 percent.

Paul notes that the rating agencies will be probably have to increase their loss assumptions:

Those numbers make Standard & Poor’s Ratings Services latest assumption of 35 percent loss severity on Alt-A loans, only one month old, already start to look a little too conservative. ... given the data now available, a ratings cut for any AAA classes deemed at risk one month ago would seem to be a foregone conclusion for most investors.

Housing Wire has more details.

by Calculated Risk on 6/26/2008 11:52:00 AM

Click on graph for larger image in new window.

This graph shows Not Seasonally Adjusted (NSA) existing home sales for 2005 through 2008. Sales are sharply lower in May 2008 compared to the previous three years.

May is an important month for existing home sales, and marks the beginning of the Summer selling season.

Let's compare the NSA pattern for existing home sales to the pattern for new home sales.

The second graph shows monthly NSA new home sales.

The first difference is that new home sales peak in the Spring, and existing home sales peak in the Summer. This is because new home sales are reported when the contract is signed, and existing home sales are reported at the close of escrow.

The second obvious difference is there was no Spring selling season for New Home sales, but there has been a pickup (although muted) in Existing Home sales.

The difference in sales activity could partly be because new homes tend to be in more remote locations, and with rising fuel prices, home buyers are buying existing homes closer to their places of work. Another explanation is that existing home sales are being boosted by REO (bank Real Estate Owned) sales. Dataquick reported that in California in May, 38.3 percent of all sales were foreclosure resales!

The third graph compares New Home sales vs. Existing Home sales since January 1994.

Clearly new home sales have fallen faster than existing home sales.

I suspect REO resales explain some of the difference (as does location).