by Calculated Risk on 10/15/2008 02:38:00 PM

Reports indicated that economic activity weakened in September across all twelve Federal Reserve Districts. Several Districts also noted that their contacts had become more pessimistic about the economic outlook.

From the Fed Beige Book on real estate and construction:

Residential real estate and construction activity weakened or remained low in all Districts. ... Several Districts noted continuing downward price pressures and an increasing supply of homes for sale due to rising foreclosures.

And for Commercial Real Estate (CRE):

Most Districts reported commercial real estate and construction activity had slowed, with New York, San Francisco and Dallas noting the sharpest declines. In contrast, Cleveland and St. Louis indicated steady activity. Increases in vacancy rates or sublease space were noted in Chicago, Boston, New York, Atlanta, and San Francisco. Several Districts reported project delays and cancellations due to tighter credit conditions and increased economic uncertainty.

An ugly report.

by Calculated Risk on 10/15/2008 02:05:00 PM

This will be a daily post. Here are a few indicators I'm watching for progress on the credit crisis.

The yield on 3 month treasuries: 0.14% (UGLY - Worse today)

The TED spread: 4.38 (UGLY - Worse today)

Activity in the Treasury's Supplementary Financing Program (SFP). This is the Treasury program to raise cash for the Fed's liquidity initiatives. If this program slows down borrowing, I think that would be a good sign.

Here is a list of SFP sales. Two more $30 billion auctions announced today. NO PROGRESS.

The A2P2 spread is 4.32 for Tuesday. A slight improvement over Friday.

Industry contacts. I'm tracking some financing deals there are being held up right now. If these deals complete that would be a good sign (I'll post something when this happens). No improvement yet.

Update:
Bob in MA sent me this:
The two year swap spread from Bloomberg: No progress.

by Calculated Risk on 10/15/2008 12:19:00 PM

From Fed Chairman Ben Bernanke: Stabilizing the Financial Markets and the Economy. Excerpt on the economy:

Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away. Economic activity had been decelerating even before the recent intensification of the crisis. The housing market continues to be a primary source of weakness in the real economy as well as in the financial markets, and we have seen marked slowdowns in consumer spending, business investment, and the labor market. Credit markets will take some time to unfreeze. And with the economies of our trading partners slowing, our export sales, which have been a source of strength, very probably will slow as well. These restraining influences on economic activity, however, will be offset somewhat by the favorable effects of lower prices for oil and other commodities on household purchasing power. Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning.
emphasis added

Bernanke is looking for longer term improvement - the next few quarters will be ugly for sure.

by Calculated Risk on 10/15/2008 10:20:00 AM

Some excerpts from the JPMorgan conference call (hat tip Brian). Note: it is rumored that Dimon will be the new treasury secretary if Obama is elected President.

Meredith Whitney: I just want to be clear in terms of the decline in originations on your mortgage portfolio, was that more credit based or in terms of tightening underwriting standards or LIBOR challenge?

Jamie Dimon: The origination business, and I think it's true for a lot of people in the industry, Meredith, people have gone back to old fashioned 80% LTV, real verified income, more disciplined appraisals, and then in some areas they won't even go to 85% LTV because of expected home decreases so we are not at 85% in California, Nevada, or Florida we're at 65. So that's why it's down. I think it's true for us and everybody else. Almost everything being originated is eligible for Fannie Mae, Freddie Mac, or FHA. So therefore you have this great reduction. Obviously the quality of that stuff is going to be much higher.

Meredith Whitney: Thank you for that. My follow-up, given the fact that the industry is pulling back credit across the board is that sort of a chicken and egg question, are you seeing areas where you've pulled back credit deteriorating much further? Obviously the sand states are experiencing the most deterioration but have you given an example of seeing all your competitors being a catalyst for deteriorating credit?

Jamie Dimon: I think the answer is yes but we'll never really know ... Let me make general comments about a crisis like this. One of the things that happens which I think the government is to cushion on, a lot of individual actors. I am talking about you as investors, banks as providers of credit, individuals, small businesses, large businesses, all start to take actions that are rationale for them as an individual or corporation, but in total, can cause exactly what you are talking about. And that's one of the things that the government is trying to reverse. Not just the banks. It's the individuals who invest in banks, people who provide capital to other financial institutions, moving money back overseas, so you do see a little bit of that, and they are trying to arrest that. That is the one thing that's got people most scared and they are trying to stop it. Like I said before I think what the government is doing is pretty powerful medicine. I say the governments around the world is pretty powerful medicine, and I think will you start to see some beneficial effect of that in the next couple weeks.

Meredith Whitney: if you really believed that you'd buying beginning credit card lines, right?

Jamie Dimon: ... we are buying slightly more risky assets and we're growing our businesses everywhere so we're not panicking. Credit card receivables are up. We are not pulling out of California . We're still marketing. Obviously we try and modify what's going on, but we are not going to say, yahoo this is over, extend credit liake we did without fear. If you are not fearful, you're crazy.

Meredith Whitney: I'm fearful.

Jamie Dimon: we know you are. We're waiting for you to reverse your position.

William Tanona: Some of the other investment banks provided some pretty good color in terms of where they have certain assets marked within their investment bank. Just wonder if you guys would be willing to provide that same level of detail across prime, alt-A, prime, subprime.

Jamie Dimon: Leverage loans we did [took marks of 29% on total commitments], and I'll give you some numbers now. Ready? Prime, loans is not really applicable. Alt-A performing about mid 70s, nonperforming 40s. That's loans. Alt-A securities, high 20s. Subprime mid-30s. CMBS mid-80s, that's all we are going to give you because it's competitive information.
emphasis added

by Calculated Risk on 10/15/2008 09:14:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers deteriorated significantly in October. The general business conditions index dropped 17 points to a record-low -24.6. The new orders index also fell to a record low, and the indexes for shipments, unfilled orders, and inventories all declined sharply. The prices paid index eased significantly, to its lowest level of the year, while the prices received index also fell, although less sharply. Employment indexes were negative. Future indexes declined markedly with exceptionally large declines in the future new orders and shipments indexes.
emphasis added

Talk about cliff diving.

by Calculated Risk on 10/15/2008 08:30:00 AM

The Census Bureau reports that retail sales plunged in September:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for September, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $375.5 billion, a decrease of 1.2 percent from the previous month and 1.0 percent below September 2007.

The following graph shows the year-over-year change in nominal and real retail sales since 1993.

Click on graph for larger image in new window.

To calculate the real change, the monthly PCE price index from the BEA was used (September PCE prices were estimated based on the increases for the last 3 months).

Although the Census Bureaureported that nominal retail sales decreased 1.0% year-over-year (retail and food services decreased 1.0%), real retail sales declined by 4.3% (on a YoY basis).

The stimulus checks appeared to help consumer spending in Q2, but Q3 is very weak. This weakness in retail sales is probably because of the weak job market and less mortgage equity withdrawal (MEW) by homeowners (the Home ATM is empty!).

Retail sales are a key portion of consumer spending and real retail sales are now clearly in recession.

by Calculated Risk on 10/14/2008 11:31:00 PM

From San Francisco Fed President Janet Yellen: The Financial System and the Economy. Here are Dr. Yellen's comments on the economy:

The recent flow of economic data suggests that the economy was weaker than expected in the third quarter, probably showing essentially no growth at all. Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely. Indeed, the U.S. economy appears to be in a recession.
...
By now, virtually every major sector of the economy has been hit by the financial shock. I’ll start with consumer spending, where the news has not been good. Employment has now declined for nine months in a row, and personal income, in inflation-adjusted terms, is virtually unchanged since April. Household wealth is substantially lower as house prices have continued to slide and the stock market has declined sharply. On top of this, consumer credit is costlier and harder to get: loan rates are up, loan terms are tougher, and increasing numbers of borrowers are being turned away entirely. Even before the extraordinary deterioration in financial market conditions over the past few weeks, the evidence was accumulating that consumer spending had weakened. In real terms, consumer spending was flat or contracted in recent months.
...
Business spending, too, is feeling the crunch, as firms face weak final demand for their products, a higher cost of capital, and restricted credit. ... We’ve even begun to see some signs of a slowdown for the previously very strong IT industry across the country and in the Bay Area in particular. ... A tech slowdown could intensify with the fall-off in consumer spending, and the weakening in business spending could come into play since the financial industry is a heavy user of both IT equipment and software.
...
Nonresidential construction is another sector that has been affected by the financial crisis, in part because the market for commercial mortgage-backed securities, a mainstay for financing large projects, has all but dried up. ... With financing unavailable, I’m hearing talk about substantial cutbacks on new projects and planned capital improvements on existing buildings.
...
Until recently, we have received a major boost from exporting goods and services to our trading partners. Unfortunately, the news on foreign demand has also turned weaker. Economic growth in the rest of the world, particularly in Europe and Japan, has slowed for a number of reasons, including spillovers from the U.S. slowdown, and most importantly, the financial meltdown that now has intensified substantially in Europe and elsewhere. ... As a result, exports will not provide as much of an impetus to growth as they did earlier in the year.
emphasis added

That is pretty much a clean sweep. All sectors are now slowing or in recession (except possibly government spending).

by Calculated Risk on 10/14/2008 10:38:00 PM

From Bloomberg: GMAC's Lending Limits May Add to GM's U.S. Sales Woes (hat tip Justin)

GMAC said yesterday it's granting financing only to buyers with scores of at least 700, who represent about 58 percent of U.S. consumers. The Detroit-based company, now controlled by Cerberus Capital Management LP, provided 43 percent of GM's second-quarter auto loans.

Tighter credit equals fewer sales. This remains me of the old saying (that is true during a credit crunch): Bankers only lend money to people who don't need it.

by Calculated Risk on 10/14/2008 10:18:00 PM

From the WSJ: Credit Shows Signs of Easing on Bank Rescue

The overnight dollar London interbank offered rate, or Libor, which reflects bank borrowing costs, fell to 2.18% on Tuesday from 2.47% the previous day. But the three-month Libor, a benchmark for many mortgages and corporate loans, remained high at 4.6%.

This is a very small improvement.

Data is only available weekly for some of the indicators of credit stress (see Credit Crisis: Watching for Signs of Progress), but the 3-month treasury and TED spread showed only small improvements.

The yield on 3 month treasuries rose slightly to 0.235%. I'm looking for less daily volatility and for the yield to move up closer to the Fed funds rate, or above 1.25%.

The TED spread declined to 4.30 from 4.64 on Friday. This is still far above the highs reached during the previous waves of the credit crisis. I'm looking for the TED spread to decline below 2.0 (0.5 is normal).

Also the Treasury announced another $45 billion Supplementary Financing Program (SPF) auction to support the Fed. If this program slows down borrowing, I think that would be a good sign.

There was some slight improvement today.

by Calculated Risk on 10/14/2008 06:15:00 PM

A little humor - Jon Stewart intro (31 seconds).



And the Decabox (4 min 37 sec), the last minute is very funny ...