by PJ on 8/15/2008 10:20:00 AM

A WSJ survey found that a bunch of those faceless, nameless types known as economists think the Treasury will use one or both of its new-found abilities to prop up Fannie Mae and Freddie Mac:

On average, the 53 economists polled in the survey put the probability at 59% that the Treasury Department will have to step in to bail out Fannie or Freddie.

"Blank checks almost always get filled in and cashed," said Stuart Hoffman of PNC Financial Services Group.

The majority of respondents hope that it doesn't come to that. When asked how the government should handle the situation with Fannie Mae and Freddie Mac, 68% said the lenders should be pushed to raise capital privately and hope a recovering housing market will keep them from needing government money.

However, nearly one in three said the companies should be nationalized now, and then split into smaller companies when the housing market recovers.

Which makes me think that 16 of the 53 economists surveyed had the last name of Greenspan. Call it a hunch.

by PJ on 8/15/2008 09:32:00 AM

The Fed's industrial production numbers for July are out. I'm pretty much a housing guy, myself, but I'm told these numbers are important by a few economists I know (CR being one of them!). From Bloomberg:

Output at factories, mines and utilities rose 0.2 percent last month after a 0.4 percent gain in June ... Capacity utilization, which measures the proportion of plants in use, increased to 79.9 percent from 79.8 percent.

Demand for autos increased for a third month, reflecting a continued rebound from a strike at an auto-parts supplier. Gains elsewhere signal demand from overseas continued to boost orders even as U.S. consumer and business spending weaken...

Output was forecast to be unchanged according to the median estimate of 79 economists surveyed by Bloomberg News after a previously reported gain of 0.5 percent in June. Projections ranged from a decline of 0.5 percent to a gain of 0.4 percent.

I'll let you guys sort out why we're seeing overseas demand boost orders (ahem, dollar, anyone?). Also, this morning was the Empire State Manufacturing Survey, which found manufacturing gains during August for the first time in four months.

Stocks appear to be headed for a higher open today, but I think that's mostly due to falling oil prices (below $114 this morning) and growing concern that the rest of the world is finally catching our (the U.S.') cold. Which probably brings us right back to the dollar, doesn't it?

by PJ on 8/15/2008 09:04:00 AM

Downey Financial's latest monthly stats are out, and some interesting trends pop out. Deposit outflows, for one, and the company's decision to advertise to get deposits, for another:

Although, as previously reported, Downey experienced elevated levels of deposit withdrawals in July, deposit flows so far in August have stabilized. In fact, deposit balances have increased, recovering about 45% of the net deposit outflow that occurred in July. The bulk of the inflow is in certificates of deposit with 6 to 18 months duration. This increase was due, in part, to management's decision to reinstitute deposit advertising following a long period of not doing so.

Deposits declined by $507 million in July to $9.4 billion at month end, with the majority of the decline related to uninsured deposit amounts. Management believes this occurred as a result of depositor concern over deposit insurance coverage following the failure of a large California financial institution as well as publicity and speculation regarding Downey and the performance of its loan portfolio. [emphasis added]

Also, the first drop in NPAs relative to assets in at least a year:

Non-performing assets increased 3% during July, the lowest monthly increase this year. Due to an increase in total assets during July, the ratio of non-performing assets to assets declined from 15.50% at June 30, 2008, to 15.08%.

My own feeling here is that the July results are better than expected. Not that Downey's out of the woods, by any stretch...

by Calculated Risk on 8/14/2008 09:13:00 PM

From the WSJ: World Economy Shows New Strain

The global economy -- which had long remained resilient despite U.S. weakness -- is now slowing significantly, with Europe offering the latest evidence of trouble.

On Thursday, the European Union's statistics agency said gross domestic product in the euro zone contracted 0.2% in the second quarter, the equivalent of a 0.8% annual rate of decline. It marked the first time since the early 1990s that GDP has fallen overall in the 15 countries that use the euro.
...
For the U.S., economic sluggishness abroad is both blessing and curse. Weak growth is tempering the torrid rise in prices of commodities such as oil, copper and corn ... But weaker foreign economies also undercut one of the few remaining bright spots in the U.S. economy: exports.

The decoupling argument - that the rest of the world would remain healthy while the U.S. was in recession - is proving wrong. Exports have been a bright spot for the U.S. and the key is that any slowdown in exports is offset by falling oil prices. Interesting times.

Note: I'll be out hiking the next two days. Tanta and Paul Jackson of Housing Wire will be handling the posts. Best to all.

by Calculated Risk on 8/14/2008 06:25:00 PM

From Paul Krugman: Greenspan: not a mensch

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index as of when Greenspan claimed this was flattening out. On a long term scale, I didn't see any significant "flattening out".

And how could Greenspan think this was "the most important series"? That was absurd and is probably why Greenspan was consistently wrong on housing.

by Calculated Risk on 8/14/2008 05:36:00 PM

From Bloomberg: Wachovia's BluePoint Insurance Unit Files Bankruptcy

Wachovia Corp.'s BluePoint Re Ltd. unit, which insures structured finance and municipal transactions, filed for bankruptcy protection, citing defaults on securitized mortgages.

This is a small reinsurer, but it's interesting that Wachovia has decided not to provide additional funding.

by Calculated Risk on 8/14/2008 03:13:00 PM

From Reuters: Global junk bond default rate rises to 1.79 pct-S&P

The U.S. default rate rose to 2.37 percent in July from 1.92 percent in June ...

S&P is forecasting the U.S. default rate will to 4.9 percent over the next year.

by Calculated Risk on 8/14/2008 01:03:00 PM

Dr. David Altig, now director of research at the Federal Reserve Bank of Atlanta, returns to blogging. Welcome back!

From Macroblog: What the Fed did during macroblog's vacation

To state the very obvious, it has been quite an eventful twelve months since I last committed fingers to laptop. I might well have titled this post "Four Fed programs that did not exist one year ago." Over the four months from December to March, the Federal Reserve Board of Governors and the Federal Open Market Committee, or FOMC, introduced an alphabet soup of new lending programs to address acute stress in financial markets, some of which required the invocation of emergency powers based on "unusual and exigent circumstances."

I know that in some quarters—maybe the one where you reside—all this activity had a certain frenetic, whack-a-mole feel to it. But I think it appropriate to view the Fed's actions over this period as what I believe them to be: A measured and logical sequence of steps to address very specific liquidity distress in financial markets.

Much more at the link.

On a personal note, when I first started blogging (a long time ago!), Dr. Altig gave Calculated Risk some wider exposure, especially on housing. Altig wasn't as pessimistic as me at the time, but he was very open to the possibilities of a major housing correction. Thanks Dave and Welcome Back!

by Calculated Risk on 8/14/2008 11:06:00 AM

From S&P: Downey Financial Corp. Downgraded To 'B+/C'; Still On CreditWatch Negative

... deposit outflows in July and the recent drawing down of most of its FHLB lines have reduced Downey's liquidity and available lines of credit. ... We are concerned that depositors in Downey's footprint (think California and Arizona) have a heightened sensitivity to potential bank failures after recent experience and publicity (think IndyMac), which increases the possibility that Downey could experience further material deposit outflows.

S&P also suggests withdrawals could "overwhelm Downey's liquidity" and possibly trigger an "adverse regulatory action" (FDIC?). S&P is also concerned that further NPA growth may "overwhelm" Downey.

by Calculated Risk on 8/14/2008 10:08:00 AM

Sacramento Real Estate Statistics has some excerpts from a Deutsche Bank research report by research analyst Nishu Sood: "An inventory overhang builds in the shadows" (no link)

Peter Viles at the LA Times covers the story: Bank sees huge "shadow inventory" of foreclosed houses

This is interesting data, and worth reading the excerpts. In the report, Sood argues: "MLS listings do not fully reflect distressed inventory." and then he provides some tables (see the above link).

But it's not as bad as it first seems. I've chatted with Max at Sacramento Real Estate Statistics (thanks Max!), and in the notes, Nishu Sood writes:

Source: Realtytrac, Housingtracker, Deutsche Bank
Note: Foreclosure inventory includes pre-foreclosures, auctions and REO. 2/3 of pre-foreclosures are assumed to become foreclosures.

So these are not all REOs; in fact most of these homes are probably in the foreclosure process.

Yes, Sood makes a good point - there are many homes not listed that are probably future foreclosures. And I'd add, there are many homeowners waiting for a "better market" to list their homes. So inventory will probably stay elevated for some time.

But, just to be clear, Sood's stats are not unlisted REOs held by some bank in the shadows.