by Calculated Risk on 12/14/2008 10:59:00 AM

Marni Leff Kottle write in the San Francisco Chronicle: S.F. feels the pain of real estate meltdown (hat tip Jim)

The downturn that slammed other parts of the Bay Area and the rest of the country didn't really begin inflicting serious pain on San Francisco until the second half of this year, real estate experts said. And while no one expects San Francisco to see the kind of foreclosures and bank sales that have become common in the East Bay, the city's real estate market is clearly suffering.

"San Francisco had managed to fool itself through most of 2008 into thinking that it wasn't going to suffer the same sort of issues that have hurt other places in the state," said Christopher Thornberg, an economist with the consulting firm Beacon Economics. "The last four or five months of the year, San Francisco has seen price declines that have been quite prominent. You can't have prices fall as much as they have across the bay without some impact on San Francisco itself."

OK, the price dynamics in San Francisco will be different than in the East Bay; East Bay prices have fallen faster because of all the foreclosures and distressed sales.

However prices will fall in San Francisco too, and by close to the same percentage as other areas in real terms, it will just take a little longer. I think those hoping for a price bottom in 2009 (in San Francisco) are way too optimistic. Some low end areas might be close to the bottom already.

by Calculated Risk on 12/13/2008 11:07:00 PM

From the Orlando Business Journal: Orlando hotel occupancy falls again

Orlando’s hotel room occupancy rate in the first week of December dropped to 57 percent, down 6.1 percent from the same week in 2007 ... occupancy across the nation fell to 50.2 percent during the week, 5.5 percent below 2007 levels.

From the Charleston Regional Business Journal: Charleston tourism drags amid economic downturn

Charleston County hotel occupancy rates fell 13% in September and 11% in October when compared with the same months last year, according to a report from the College of Charleston’s Office of Tourism Analysis.

Occupancy rates, a key indicator of the tourism industry’s strength, have fallen every month this year ...

Lodging is probably the most overbuilt commercial real estate sector. The following graph is probably worth a repeat!

Click on graph for larger image in new window.

This graph shows investment in lodging (based on data from the BEA) as a percent of GDP. The recent boom in lodging investment has been stunning.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

by Calculated Risk on 12/13/2008 06:13:00 PM

Life is difficult for Professor Krugman (see from 2:24 to 2:37).

by Calculated Risk on 12/13/2008 01:32:00 PM

This is the story of the day ... here are some of the losers:

From the NY Times: For Investors, Trust Lost, and Money Too

The zoning lawyer in Miami trusted him because his father had dealt profitably with him for decades. The officers of a little charity in Massachusetts respected him and relied on his advice.

Wealthy men like J. Ezra Merkin, the chairman of GMAC; Fred Wilpon, the principal owner of the New York Mets; and Norman Braman, who owned the Philadelphia Eagles, simply appreciated the steady returns he produced, regardless of market conditions.

But these clients of Bernard L. Madoff had this in common: They chose him to oversee much of their personal wealth.

And now, they fear, they have lost it.
...
For Stephen J. Helfman, a lawyer in Miami whose father had opened an account with Mr. Madoff more than 30 years ago, the news on Thursday came as a hammer blow.

“The name ‘Madoff’ has overnight gone from being revered to reviled in the Helfman family,” Mr. Helfman said on Friday. His grandmother, at 98, relied on her Madoff money to pay for round-the-clock care, he said, and his two children’s college funds were wiped out.
...
Mr. Merkin, a prominent philanthropist and the founder of several hedge funds, including one called Ascot Partners, jolted his clients on Thursday with a letter announcing that “substantially all” of that fund’s $1.8 billion in assets were invested with Mr. Madoff.

From The Independent: 'Superwoman' stung by hedge fund guru's '$50bn trading scam'

In London, the most startling confession came from Nicola Horlick, probably the most famous British fund manager, known as Superwoman for balancing her high-flying finance career with bringing up five children. Her fund, Bramdean Alternatives, had almost 10 per cent of its assets – about £10m – invested with Mr Madoff, money Ms Horlick admitted yesterday she was "uncertain" she would ever see again. Bramdean shares lost a third of their value.

From the WSJ: Fund Fraud Hits Big Names

Giant French bank BNP Paribas, Tokyo-based Nomura Holdings Inc. and Neue Privat Bank in Zurich are also exposed, according to people familiar with the matter.

And at least three funds of hedge funds -- which raise money from investors and farm it out to hedge funds -- may have significant losses. Fairfield Greenwich Group and Tremont Capital Management of New York placed hundreds of millions of their investors' dollars into funds overseen by Mr. Madoff. On Friday, Maxam Capital Management LLC reported a combined loss of $280 million on funds they had invested with Mr. Madoff.

"I'm wiped out," said Sandra Manzke, Maxam's founder and chairman. The Darien, Conn., fund of hedge funds will have to close as a result of the losses, she said.

When I first heard this story, I was incredulous. This is probably a classic case of someone who started a business with good intentions, but had a bad month or two and covered up the losses with the intention of making good later - and "later" never came as he just kept falling further behind.

The details will be interesting. I still can't believe all these people invested so much money with him without asking more questions.

by Calculated Risk on 12/13/2008 09:06:00 AM

The Goldman Sachs analyst who predicted oil at $200 per barrel in 2008, has lowered his 2009 forecast again.

From The Times: Expert cuts $200-a-barrel oil forecast to $45

In a research note published late on Thursday, [Goldman Sachs oil analyst Arjun] Murti's team said that it had been compelled to trim its average price outlook for next year to $45, from a previously reduced forecast of $75, because of a “continued deterioration in global oil demand”.

The note read: “Global economic conditions are the weakest the world has seen since at least the early 1980s and demand is declining at an accelerating rate.”
...
“We think that the sharp and sudden collapse in global oil demand exceeds Opec's ability to, on its own, balance markets, and necessitates sharply lower non-Opec crude-oil supply,” the report said.

Click on graph for larger image in new window.

This graph shows the weekly U.S. spot oil prices (from EIA). This is some serious cliff diving.

Murti expects production cuts from both OPEC and non-OPEC producers. However, as I noted in Thoughts on Oil, it is difficult for some countries to cut production when their expenditures are $50 per barrel and oil prices are in the mid $40!

The only good news for oil producers is there was an increase in gasoline consumption in the U.S. in October (see DOT: Gasoline Demand Increases in October), but vehicle miles driven in the U.S. was still 3.5% below last year. And with China's economy weakening significantly, global demand for oil will probably be weak in 2009.

by Calculated Risk on 12/12/2008 11:22:00 PM

From the WSJ: Meatier Stimulus Plan in Works

Obama aides and advisers have set $600 billion over two years as "a very low-end estimate," ... The final number is expected to be significantly higher, possibly between $700 billion and $1 trillion over two years.

Remember when $1 trillion was a big number?

It seems like ages ago (Dec 2007) that I wrote this:

If every upside down homeowner resorted to "jingle mail" (mailing the keys to the lender), the losses for the lenders could be staggering. ... Not every upside down homeowner will use jingle mail, but if prices drop 30%, the losses for the lenders and investors might well be over $1 trillion (far in excess of the $70 to $80 billion in losses reported so far).

And the WSJ called it "the big number" (Dec 27, 2007):

The global race is on to find the best phrase to describe the housing and credit mess. The U.K.’s Telegraph quotes an economist who says it “could make 1929 look like a walk in the park” if central banks don’t solve the crisis in a matter of weeks.

The report cites the recent prediction from Barclays Capital that losses from the subprime-mortgage meltdown could hit $700 billion. That would top Merrill Lynch’s recent estimate of $500 billion. The Australian newspaper notes that a $700 billion “bloodbath” — potentially leading the U.S. economy into “the blackest year since the Great Depression” — would top the GDPs of all but 15 nations.

Back in the U.S., the Calculated Risk blog sidestepped the colorful language and went straight for the big number: “The losses for the lenders and investors might well be over $1 trillion.”

Now we're talking "the big number" for a stimulus package.

Note: the Bush stimulus package, signed in February 2008, was for only $152 billion.

by Calculated Risk on 12/12/2008 09:31:00 PM

From Bloomberg: Wagoner Said to Confer With Paulson, Bolten on Rescue

General Motors Corp. Chief Executive Officer Rick Wagoner spoke today with White House Chief of Staff Joshua Bolten and Treasury Secretary Henry Paulson about a short-term rescue plan to keep the automaker solvent ... The talks, conducted by telephone, focused on details including the amount and source of funding...

GM Chief Financial Officer Ray Young and other executives probably will work on the details with administration staffers this weekend, although any agreement isn’t likely until next week at the earliest ... Stephen Feinberg, founder of Chrysler owner Cerberus Capital Management LP, was also in talks with administration officials today ...

Not much new, but the Treasury is working weekends again.

by Calculated Risk on 12/12/2008 07:51:00 PM

From Ken Cooper:

For those of you who haven’t tried it yet, CR Companion is an add-on to the Firefox browser, written to improve the Haloscan experience of reading and posting comments at Calculated Risk.

The initial version added a side panel to the browser that made it easy to view and navigate among the authors on a thread. It also provided filtering tools to hone in on authors and subjects of interest when you’re overwhelmed by the volume. Most importantly, it included Tanta’s Mortgage Pig to tell you when new posts appear.

There is now a new version available that makes posting more convenient as well. It adds an html editor, so you can bold, italicize, and insert hyperlinks as you would with a word processor, rather than using error-prone tags. It also adds live updating, so you don’t have to refresh the page yourself.

For more information, visit the CR Companion blog.

Thanks Ken!

by Calculated Risk on 12/12/2008 07:03:00 PM

From the FDIC: The Pecos County Bank Acquires All the Deposits of Sanderson State Bank, Sanderson, Texas

Sanderson State Bank, Sanderson, Texas, was closed today by the Texas Department of Banking, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. ...

As of December 3, 2008, Sanderson State Bank had total assets of $37 million and total deposits of $27.9...

The FDIC estimates that the cost to the Deposit Insurance Fund will be $12.5 million. ... Sanderson State Bank is the 25th bank to fail in the nation this year, and the second in Texas. The last bank to be closed in the state was Franklin Bank, SSB, Houston, TX, on November 7, 2008.

Twofer today. Maybe three?

by Calculated Risk on 12/12/2008 04:34:00 PM

From the FDIC: BB&T Company Acquires All the Deposits of Haven Trust Bank, Duluth, Georgia

Haven Trust Bank, Duluth, Georgia, was closed today by the Georgia Department of Banking and Finance, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. ...

As of December 8, 2008, Haven Trust had total assets of $572 million and total deposits of $515 million. BB&T agreed to assume all of the deposits for $112,000. In addition to assuming all of the failed bank's deposits, BB&T will purchase approximately $55 million of the failed bank's assets. The FDIC will retain the remaining assets for later disposition.
...
The FDIC estimates that the cost to the Deposit Insurance Fund will be $200 million. ... Haven Trust is the 24th bank to fail in the nation this year, and the fifth in Georgia. The last bank to be closed in the state was First Georgia Community Bank, Jackson, GA, on December 5, 2008.