by Calculated Risk on 10/19/2008 12:33:00 AM

From The Times: Negative equity ‘to reach 2 million’

Collapsing house prices are plunging 60,000 homeowners a month into negative equity, which means the country is on course for a worse crisis than the 1990s crash.

At current trends, 2m households will enter negative equity by 2010, outstripping the 1.8m affected at the bottom of the last housing slump.
...
Economists believe house prices will fall by up to 35% from their peak by 2010. This compares with a drop of only 20% in the early 1990s.
...
Capital Economics, the City consultancy, expects up to 2m properties will be in negative equity by 2010 — more than in the recession of the early 1990s.

The population of the UK is about 20% of the U.S., so using a ratio of population, this would compare to about 10 million homeowners in the U.S. with negative equity. Moody's estimates there are already 12 million homeowners in the U.S. with negative equity in the U.S. - so the problem appears to be worse in the U.S. than in the U.K.

by Calculated Risk on 10/18/2008 11:30:00 AM

From Gail Collins at the NY Times: Is Anybody Happy?

George W. Bush showed up on TV Friday morning to reassure the nation. What could possibly be worse?

Everybody knows that anything our president says is very likely wrong, and certainly won’t happen. If he announced: “I’m sending government agents to Spokane to arrest the looters,” we would expect that the officials would get lost, nobody would be arrested, and the looters probably never existed in the first place.

So hearts sunk throughout the nation when Bush appeared at a Chamber of Commerce gathering to say that the economy would recover.

“America is the most attractive destination for investors around the globe. America is the home of the most talented and enterprising and creative workers in the world,” said the president, who also insisted that “democratic capitalism remains the greatest system ever devised.”

Which translates into: all the money is going to Asia, nobody will ever get a job again and Karl Marx was right after all.

Bummer.

Yes - many Americans feel they have been living in Bizarro world.

by Calculated Risk on 10/18/2008 09:22:00 AM

Form the WSJ: Amid Pressing Problems, Threat of Deflation Looms

[T]he financial shock and a faltering economy can set the stage for a deflationary environment.

Federal Reserve officials view broad-based deflation as unlikely but possible. Federal Reserve Bank of San Francisco President Janet Yellen said in a speech this week that the plunge in oil prices along with slackening demand for labor and goods should "push inflation down to, and possibly even below, rates that I consider consistent with price stability."
,,,
With the unemployment rate rising rapidly and capital markets in turmoil, "pretty much everything points toward deflation," said Paul Ashworth, chief U.S. economist at Capital Economics. "The only thing you can hope is that the prompt action of policy makers can maybe head this off first."
...
Federal Reserve Chairman Ben Bernanke, in a speech as a Fed governor in 2002, said deflation in the U.S. is "highly unlikely" but added, "I would be imprudent to rule out the possibility altogether." The reason, he said at the time, was the Fed "has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief."
...
Deflation concerns in 2002 and 2003 led Fed officials to consider alternative measures to stimulate the economy. Their initial option came from the Fed's 1940s playbook: buying Treasuries to force down long-term yields, leading consumers and businesses to spend instead of save. In normal circumstances, effectively pumping money into the economy would support growth and spur inflation over time. Today's credit crisis has pushed Treasury yields lower already as investors seek less-risky assets.

The debate returns. Some people are concerned about hyperinflation. Others about deflation. The article suggests policy makers think deflation is unlikely.

by Calculated Risk on 10/17/2008 09:00:00 PM

I saw Lahde's updates for the last couple of years, but I could never get him to allow me to excerpt from them. Bloomberg has excerpts from his farewell email.

From Bloomberg: Lahde Quits Hedge Funds, Thanks `Idiots' for Success

Andrew Lahde, the hedge-fund manager who quit after posting an 870 percent gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana.

Lahde, head of Santa Monica, California-based Lahde Capital Management LLC, told investors last month he was returning their cash because the risk of using credit derivatives -- his means of betting on the falling value of bonds and loans, including subprime mortgages -- was too risky given the weakness of the banks he was trading with.

``I was in this game for money,'' Lahde, 37, wrote in a two-page letter today in which he said he had come to hate the hedge-fund business. ``The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

``All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America.''

Pretty amusing stuff. Best to all.

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).