by Calculated Risk on 10/17/2008 01:03:00 PM

Here are a few indicators I'm watching for progress on the credit crisis.

The yield on 3 month treasuries: 0.79% up from up from 0.40% (BETTER)

The TED spread: 3.59 down from 4.11 yesterday (BETTER)

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. No announcement today have to wait for progress.

The A2P2 spread is 4.49 for Thrusday up from 4.4 for Wenesday. slightly worse.

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.

The two year swap spread from Bloomberg: 122.2 down from 138.38 BETTER

I'll add a couple more indicators, but this is progress.

Note: posting will be light today - I'm hiking in Zion. I hiked Angel's Landing this morning - awesome.

by Calculated Risk on 10/17/2008 10:30:00 AM

I'm hiking in Zion this morning, and I'll be back by lunch.

Make sure to check the three month treasury yield (above 0.435% would be an improvement) and the TED spread (below 4.08% would be an improvement). I'll have more on credit indicators later.

Meanwhile, here are a few more jokes:

From Peter:
Q: What the difference between today's investment bankers and pigeons?
A: Pigeons can still make a deposit on a BMW.

From Sidd:
I went to an ATM today, and it asked to borrow a twenty till next week.

From monta's ankle:
I went to fill up my gas tank and I couldn't decide between leveraged and unleveraged.

From Rob Dawg:
Went to Best Buy to get a toaster and they gave me a free bank with purchase

by Calculated Risk on 10/17/2008 09:30:00 AM

Nobel prize winning economist Paul Krugman writes: Let’s Get Fiscal

Just this week, we learned that retail sales have fallen off a cliff, and so has industrial production. Unemployment claims are at steep-recession levels, and the Philadelphia Fed’s manufacturing index is falling at the fastest pace in almost 20 years. All signs point to an economic slump that will be nasty, brutish — and long.

How nasty? The unemployment rate is already above 6 percent (and broader measures of underemployment are in double digits). It’s now virtually certain that the unemployment rate will go above 7 percent, and quite possibly above 8 percent, making this the worst recession in a quarter-century.

And how long? It could be very long indeed.

And Krugman argues for more government spending:

[T]here’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case.

At the start of the Depression, President Hoover kept trying to balance the budget - by cutting spending and raising the top marginal taxes from 25% to 63% - while the economy kept getting worse. It's unlikely that balancing the budget will be a priority in 2009.

by Calculated Risk on 10/17/2008 08:30:00 AM

Single-family starts were at 544 thousand in September; the lowest level since February 1982. Single-family permits were at 532 thousand in September, suggesting single family starts will fall even further next month. (Graph when I return home)

Here is the Census Bureau reports on housing Permits, Starts and Completions.

Building permits decreased:

Privately-owned housing units authorized by building permits in September were at a seasonally adjusted annual rate of 786,000. This is 8.3 percent (±1.6%) below the revised August rate of 857,000 and is 38.4 percent (±1.6%) below the revised September 2007 estimate of 1,277,000.

Single-family authorizations in September were at a rate of 532,000; this is 3.8 percent (±1.6%) below the August figure of 553,000. Authorizations of units in buildings with five units or more were at a rate of 225,000 in September.

The declines in single family permits suggest further declines in starts next month.

On housing starts:

Privately-owned housing starts in September were at a seasonally adjusted annual rate of 817,000. This is 6.3 percent (±12.0%)* below the revised August estimate of 872,000 and is 31.1 percent (±8.3%) below the revised September 2007 rate of 1,185,000.

Single-family housing starts in September were at a rate of 544,000; this is 12.0 percent (±8.3%) below the August figure of 618,000. The September rate for units in buildings with five units or more was 254,000.

And on completions:

Privately-owned housing completions in September were at a seasonally adjusted annual rate of 1,097,000. This is 11.7 percent
(±14.0%)* above the revised August estimate of 982,000, but is 20.4 percent (±9.6%) below the revised September 2007 rate of
1,378,000.
Single-family housing completions in September were at a rate of 806,000; this is 17.0 percent (±11.5%) above the August figure of
689,000. The September rate for units in buildings with five units or more was 260,000.

Notice that single-family completions are significantly higher than single-family starts. This is important because residential construction employment tends to follow completions, and completions will decline sharply soon.

by Calculated Risk on 10/16/2008 10:38:00 PM

From Hannah Wood at Mirror.co.uk: Top 10 credit crunch jokes to have you laughing all the way to the bank

1) I went to the ATM this morning and it said "insufficient funds"..

I'm wondering is it them or me?

2) Petrol is way too expensive these days. I actually can't afford to drive.

Last time I went dogging, I had to ask my mum to give me a lift.

3) With the current market turmoil, what's the easiest way to make a small fortune?

Start off with a large one.

My favorite:

How do you define optimism?

A banker who irons five shirts on a Sunday

by Calculated Risk on 10/16/2008 06:35:00 PM

From the WSJ:Lenders Eager for GM-Chrysler Deal

General Motors Corp. and Chrysler LLC are picking up the pace on merger discussions as the two sides are seeing strong support from banks and other potential lenders that are eager to see a deal done...

GM ... is aiming to get a deal done as soon as the end of October.

It sounds like the banks that still own Chrysler pier loans are pushing this deal. (Pier loans are bridge loans that couldn't be sold).

by Calculated Risk on 10/16/2008 06:26:00 PM

Comments about credit cards

We have tightened underwriting standards across the boar. In our US card business we have gotten more conservative. We have begun to reduce credit lines. We have continued to tweak our underwriting models and to the recalibrate models this may be unstable. We have adapted our models and approaches as the economic environment has changed and we are intervening judgmentally even more than our models would indicate.

Auto Loan Business

We repositioned our auto business at the beginning of the year. We pulled back on origination and we are shrinking the book of loans and originations. We have leveraged pricing and shrinking competitive supply and we [continue] to aggressively manage operating costs. Originations for the second quarter were $1.4 billion, down 56% from the third quarter of 2007. We are on track for auto loan originations for the full year of 2008 to be at least 45% lower than 2007 origination. The total auto loan portfolio shrink by $2.8 billion year-to-date. Dealer customers, the credit characteristics of new originations continue to improve as evidence by rising average FICO scores, and improving and encouraging early delinquency performance of our 2008 origination vintages. We have been able to maintain pricing power while improving the credit characteristics of new originations. Expected seasonal increases in charge offs will put significant pressure on profitability for the remainder of 2008. The continuing pressure from the seasoning of 2006 and 2007 vintages and broader cyclical economic challenges are likely to be a drag on results throughout 2009 and the continuing decline in loan balances will impact the optics, for example declining loan balances would reduce the denominator like charge offs, and operating expenses as a percentage of loans [the 30 day DQ rate increased to 9.3% from 7.6% from last quarter]

Q&A:

Analyst
[Are you inclined to get more aggressive here in pursuing new business?]


Capital One
It is very clear in all of our markets competition is easing in some places, there's more pricing power. We can be more selective et cetera… what holds us back has nothing to do with frankly either capital or liquidity at the moment with respect to originations. It really is - the elephant in the living room is about the economy. From our experience over 20 years of doing this, our [conclusion] is that the assets originated as economy is getting worse tend to have more adverse characteristics than assets at other times. The one thing I would say, though, is everything I said relates to our origination strategy. I think with respect to acquisitions, acquisitions of seasoned businesses and portfolios, distressed sales of those in this environment can in fact be exceptionally profitable. So our capital raise and our kind of looking out on the horizon at the moment is related to acquisition benefits.

Analyst
My follow up question just on the incremental trends in consumer spending, the spending on your cards were flat year-over-year and I just wondered if you could giver a little color into what you have seen September, October trends year-over-year spending patterns of consumer, how much have they worsened?

Capital One
…the right way to look at it on our portfolio is purchases per account. I think it is 4 something percent, but it is just a little bit below the overall growth in purchases that has happened in the industry. We have, everything that we have seen recently has been a mirror of what you see out there in the economy. But, the window we see into the consumer is almost exactly what you see on the outside and all of the public metrics.

Analyst
it just seems like we are just starting to feel the impact of the weakening employment environment. Where do you see charge offs peaking in '09 if you had to guess today?

NEW SPEAKER
First of all, the way we create this outlook is that we base it on a couple of models. One model is a model built on the last downturn, unemployment is the key driver there, and then another model we built in this downturn which not surprisingly, the big driver of a credit worsening is changes in home prices. So, so what we do in our process we go out and we look at kind of consensus estimates for the macro economic variables... The economic outlook assume in the outlook that Gary talked about is unemployment around 7% by mid 2009, and a nationwide peak to trough home price decline of 25%. Although I don't want to get too literal with that… there are so many new things associated with each downturn….. what we share with you is an outlook that we are managing the company to - an underlying assumption [the downturn] is going to be extended and long.

by Calculated Risk on 10/16/2008 04:08:00 PM

From the WSJ: Switzerland to Inject Capital Into UBS

Switzerland's government and central bank Thursday offered emergency help to the country's two largest banks, following rescue plans in other countries to support the banking system.

The Swiss National Bank will assume up to $60 billion of risky securities from UBS, leaving it nearly free of toxic assets, a move meant to restore trust in UBS, the central bank said.

On the road today ... I see the bailouts continue, and the same with market volatility. Best to all.

by Calculated Risk on 10/16/2008 01:45:00 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: 0.40% up from 0.14% (a little better)

The TED spread: 4.11 down from 4.38 yesterday (a little better)

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 4.4 for Wednesday up from 4.32 for Tuesday. slightly worse.

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.

The two year swap spread from Bloomberg: 138.38 slight improvement

by Calculated Risk on 10/16/2008 01:00:00 PM

From MarketWatch:Home builders' confidence tanks in October

The National Association of Home Builders/Wells Fargo index fell three points to 14 in October, two points below the previous low, NAHB said. The survey has been conducted monthly for 23 years. "Not surprisingly, builder confidence has taken a heavy hit from the recent financial market crisis," said Sandy Dunn, president of the NAHB and a builder from Point Pleasant, West Va

I'm traveling and I'll post a graph later.

From the NAHB: BUILDER SENTIMENT RETREATS IN OCTOBER

Reflecting profound uncertainties tied to the financial market shocks of recent weeks, builder confidence in the market for new single-family homes receded to a new record low this month. The National Association of Home Builders/Wells Fargo Housing Market Index (HMI) declined three points to 14 in October after having edged up slightly in the previous month.

“Not surprisingly, builder confidence has taken a heavy hit from the recent financial market crisis,” noted NAHB Chairman Sandy Dunn, a home builder from Point Pleasant, W. Va. “We applaud the coordinated government efforts that have been undertaken to try to stem the panic on Wall Street and ease the impacts on Main Street, and we stand ready to support additional efforts to help stabilize housing and the national economy going forward.”

“Undoubtedly, today’s HMI reflects builder assessments of the recent events on Wall Street, the rapid deterioration in job markets and the corresponding weakness in consumer confidence,” noted NAHB Chief Economist David Seiders. “This report provides clear evidence that an additional economic stimulus package is needed, including a substantial incentive to spur home buying. The impacts of the record-breaking housing contraction have spilled over to other key sectors of the economy and weighed heavily on financial markets, and stabilizing housing is now the best chance we have to limit the severity of recession.”

Derived from a monthly survey that NAHB has been conducting for more than 20 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view sales conditions as good than poor.

All three component indexes fell this month. The indexes gauging current sales conditions and sales expectations for the next six months each hit new lows, falling three points to 14 and nine points to 19, respectively. The index gauging traffic of prospective buyers declined two points, returning to July’s record low of 12.

Every region posted declines in builder confidence in October, with four-point declines recorded in the Northeast and South, to 17 and 16, respectively, a three-point decline to 10 registered for the West, and a one-point decline to 14 posted in the Midwest.