by Calculated Risk on 12/11/2008 09:06:00 PM

A couple of stories to discuss ...

SEC Charges Bernard L. Madoff for Multi-Billion Dollar Ponzi Scheme

According to regulatory filings, the Madoff firm had more than $17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing.

And from the WSJ: GM Retains Bankruptcy Counsel; Tentative Pact Reached on Bailout

General Motors Corp. has hired lawyers and bankers to consider whether to file for bankruptcy protection, said several people familiar with the matter, while Senate lawmakers neared a tentative agreement on an emergency auto-bailout package that could see a vote Thursday night.

by Calculated Risk on 12/11/2008 07:36:00 PM

From NYU journalism professor Alyssa Katz writing in the Columbia Journalism Review: An Irresistably Readable Mortgage Critic

Last week, journalism lost its most incisive, stubbornly accurate, and unfailing hilarious chronicler of the failings of the mortgage industry with the death of Doris Dungey of ovarian cancer, at age forty-seven.
...
Thousands of devoted readers knew her as “Tanta,” the blogger who made up one half of Calculated Risk ... Those readers included a number of journalists, and I’d like to add my own voice to those who have celebrated her role.
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Following her first and almost fatal bout of cancer, in 2006 Dungey became something else – a journalist. As she recovered at home in Maryland, she had been watching from the sidelines as her industry descended into insanity and almost every business reporter in the nation went along for the ride. ... Tanta stepped up to the formidable task [of trying] to make sense of an increasingly senseless mortgage marketplace. ... She put to work not only her armament of knowledge from the cubicle maze but also a command of language that allowed her to dissect the obfuscations of mortgage lenders and explain what they were really up to. She was not just the most reliable chronicler of the workings of the mortgage industry; she was, I believe, one of the most irresistibly readable voices in the blogosphere, on any topic.

Read more about Tanta here: Tanta: In Memoriam

by Calculated Risk on 12/11/2008 05:36:00 PM

This is a scary chart ...

Click on graph for larger image in new window.

This graph shows the combined loaded inbound and outbound traffic at the ports of Long Beach and Los Angeles in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Inbound traffic has peaked for the year as retailers have already imported most of the goods for the holiday season. Inbound traffic was 11% below last November. This slowdown in exports (inbound traffic to the U.S.) is hitting Asian countries hard.

But even more concerning for the U.S. is that export traffic is declining sharply. For the LA area ports, outbound traffic continued to decline in November, and was 18% below the level of November 2007. Export traffic is now at about the same level as in late 2006. So much for the export boom!

The key supports for the economy earlier this year - consumer spending, exports, and investment in non-residential structures - are all declining sharply now.

by Calculated Risk on 12/11/2008 04:46:00 PM

From Bloomberg: Bank of America to Cut 30,000 to 35,000 Positions

Bank of America Corp., the third- largest U.S. bank, said it plans to cut 30,000 to 35,000 positions over the next three years because of its acquisition of Merrill Lynch & Co. and the weak economic environment.

Lots of redundancies.

by Calculated Risk on 12/11/2008 03:31:00 PM

Some more data from the Fed's Q3 2008 Flow of Funds report ...

Click on graph for larger image in new window.

This is the Households and Nonprofit Net Worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages).

This ratio was relatively stable for almost 50 years, and then ... bubbles!

by Calculated Risk on 12/11/2008 12:06:00 PM

The Fed released the Q3 2008 Flow of Funds report today: Flow of Funds.

Household percent equity was at an all time low of 44.7%.

Click on graph for larger image in new window.

This graph shows homeowner percent equity since 1952.

When prices were increasing dramatically in recent years, the percent homeowner equity was declining because homeowners were extracting equity from their homes. Now, with prices falling, the percent homeowner equity is Cliff Diving!

Note: approximately 31% of households do not have a mortgage. So the 50+ million households with mortgages have far less equity than 44.7%.

The second graph shows household real estate assets and mortgage debt as a percent of GDP. Household assets as a percent of GDP is now declining. Mortgage debt as a percent of GDP has declined for the last three quarters.


Rex Nutting at MarketWatch has more: U.S. households pay down debts for first time

Stung by the loss of more than $2.8 trillion in their net wealth, the nation's households paid down their debts in the third quarter for the first time since at least 1952, the Federal Reserve reported Thursday.

As of Sept. 30, households' total outstanding debt shrank at an annualized rate of 0.8% from $13.94 trillion to $13.91 trillion, the Fed said in its quarterly flow of funds report. It's the first decline in household debt ever recorded in the report.
...
With the stock market plunging and home prices falling rapidly, American households lost a total of $2.81 trillion in wealth during the third quarter, the most ever. Wealth fell at an 18% annual rate during the quarter.

The S&P 500 closed Q3 at 1,114, so just wait - household wealth will take another huge drop in Q4 too.

by Calculated Risk on 12/11/2008 10:28:00 AM

From MarketWatch: Freddie Mac: 30-year mortgage average at 4-1/2 year low

The 30-year fixed-rate average was 5.47% with an average 0.7 point for the week ending Dec. 11, down from 5.53% a week ago. Last year the average was 6.11%. The 30-year average has not been lower since March 25, 2004, when it averaged 5.4%, Freddie Mac said.

Wells Fargo is offering a 5.125% 30 year fixed rate mortgage (conforming limit) with 1 point. I'm sure others are offering similar rates.

by Calculated Risk on 12/11/2008 08:38:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending Dec. 6, the advance figure for seasonally adjusted initial claims was 573,000, an increase of 58,000 from the previous week's revised figure of 515,000. The 4-week moving average was 540,500, an increase of 14,250 from the previous week's revised average of 526,250.
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The advance number for seasonally adjusted insured unemployment during the week ending Nov. 29 was 4,429,000, an increase of 338,000 from the preceding week's revised level of 4,091,000.

Click on graph for larger image in new window.

The first graph shows weekly claims since 1968. Initial weekly unemployment claims last week were the highest since late 1982.

The four moving average is at 540,500; the highest since December 1982.

Continued claims are now at 4.429 million.

The second graph shows continued claims since 1989.

It was just in May that continued claims hit 3 million; that was a big story!

Note: Continued claims hit 4.7 million during the 1982 recession (not shown), although the population was much smaller then. The unemployment rate peaked at 10.8% in 1982 (compared to 6.7% currently).

This suggests that December will be another very weak month for employment.

UPDATE: by request ...

This graph shows the 4-week average of initial weekly unemployment claims (blue, right scale), and total insured unemployed (red, left scale), both as a percent of covered employment.

This normalizes the data for changes in insured employment.

The current recession is already worse than the '01 recession, but still not as bad as the '90/'91 recession (weekly claims) - although continued claims are at the same level as the '90/'91 recession.

by Calculated Risk on 12/10/2008 11:38:00 PM

From the WSJ: Freight Haulers Slam on the Brakes

In a normal year, Gordon Trucking Inc. might replace 20% of its fleet of 1,500 big rigs with new trucks. But given the bleak outlook for the freight business, the Pacific, Wash., hauler doesn't intend to buy a single new truck next year.

"We're settling in for nuclear winter in the first half of 2009," says Steve Gordon, operating chief for the company ...

A common theme these days - reduced capital spending - and in this case a reduction from 300 trucks annually to zero for this trucking company.

In most industries it is the capital equipment companies that really get hit in a business downturn. For freight, it is manufacturers of tractor trailers, rail cars and ships.

by Calculated Risk on 12/10/2008 09:30:00 PM

Four years ago I predicted the Total Public Debt Outstanding would reach $10 trillion by the time Mr. Bush left office in Jan 2009. I jokingly called him the "$10 trillion man".

I was too optimistic.

The Total Public Debt Outstanding is now over $10.6 trillion. And the budget deficit has grown significantly.

From MarketWatch: U.S. Nov. budget deficit $164.4 bln vs $98.2 bln yr-ago

The U.S. federal government deficit soared again in November to $164.4 billion, the Treasury Department reported Wednesday. This is a record shortfall for the month of November.

Click on graph for larger image in new window.

This graph shows the public debt outstanding since the beginning of 1993 (the start of the available data from the Treasury site).

There was a clear trajectory change starting in late 2001, and then a huge amount of borrowing this year due to the credit crisis (hopefully some of this money will be returned).

The second graph shows the same data, but on a year-over-year basis. This clearly shows the two problems: 1) the Bush structural budget deficit, and 2) the heavy borrowing due to the credit crisis.

Even after the credit crisis is over, the U.S. will still have to address the ill-conceived Bush structural budget deficit (a much larger fiscal problem than any Social Security Insurance shortfall, and about the same size as the Medicare shortfall).

As long as the economy is in a recession, the budget deficit will be ignored. But some day this will an issue again ... and the numbers will be huge. See this story from Bloomberg: Treasuries Fall as U.S. Says Borrowing May Reach $2 Trillion

Yields climbed after Treasury Assistant Secretary Karthik Ramanathan, in a speech in New York, cited private analysts’ estimates of borrowing needs that may reach as much as $2 trillion in the financial year that ends in September 2009.

A trillion here, a trillion there ...