by Calculated Risk on 12/16/2008 08:44:00 PM

Just checked some money market funds, and for a few of them the expenses are now greater than the yield - so you'd do better with a mattress.

MarketWatch: Fed to consumers: Hold tight quotes Dean Baker co-director of the Center for Economic and Policy Research:

"I'm a little surprised [the Fed] decided to take it all the way down, it isn't really going to have any substantial impact. The other reason I was surprised is that it could create an awkward situation for money market funds where they will have to give people negative returns."

I wonder if the funds will lower their expenses?

by Calculated Risk on 12/16/2008 05:27:00 PM

Remembering the remarkable lives of some who passed this year ... see #7

For more pictures, and, well, more ... see Tanta: In Memoriam in the menu bar above.

by Calculated Risk on 12/16/2008 03:59:00 PM

From DataQuick: Southland home sales ease but still beat '07; median falls below $300K

Southern California home sales outpaced last year for the fifth consecutive month in November, when 55 percent of buyers in the resale market chose repossessed homes. The abundance of discounted foreclosures helped push the median sale price down a record 35 percent from a year ago, a real estate information service reported.

The median is dropping fast because the mix has changed to lower priced homes. This mix change is because of all the foreclosures at the low end, and also because jumbo loans are very expensive - limiting home buying at the mid and high end in SoCal. As I've noted before, the Case-Shiller repeat sales index is a better measure of price movement because it isn't distorted by changes in the mix.

"Bargains and bargain hunters have kept this market alive through some of the bleakest financial news in memory. There's this renewed sense that you can score a 'deal' - something that had been missing for many years. Last month's Southland sales weren't great, given they were the second-lowest for any November in 16 years. But they could have been a lot worse," said John Walsh, DataQuick president.

"Many first-time homebuyers are, understandably, cheering as foreclosures dominate sales, tugging down prices and raising affordability," he continued. "For home sellers and the industry, though, one concern over foreclosures representing half of all sales is that those transactions simply repay lenders. They don't trigger a move-up purchase."

That is a key point - the chain is broken - there is no move-up buyer.

by Calculated Risk on 12/16/2008 02:15:00 PM

This is quite a statement ... Fed will hold rates low for an extended period.

Fed Statement:

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

by Calculated Risk on 12/16/2008 12:11:00 PM

From the FDIC: FDIC Adopts Assessments for Insured Institutions for 2009

The Board of Directors of the Federal Deposit Insurance Corporation (FDIC) today voted to adopt a final rule increasing risk-based assessment rates uniformly by 7 basis points (7 cents for every $100 of deposits), on an annual basis, for the first quarter of 2009.

"With higher levels of bank failures, the FDIC's resolution costs have increased significantly. ..." said FDIC Chairman Sheila C. Bair. ...

Currently, banks pay between 5 and 43 basis points of their domestic deposits for FDIC insurance. Under the final rule, risk-based rates would range between 12 and 50 basis points (annualized) for the first quarter 2009 assessment. Most institutions would be charged between 12 and 14 basis points.

In October, the FDIC also proposed changes to take effect beginning in the second quarter of 2009 that would make deposit insurance assessments fairer by requiring riskier institutions to pay a larger share.

This doubles (or more) the insurance rate for most insitutions.

by Calculated Risk on 12/16/2008 11:31:00 AM

Click on Ad for larger image in new window. WaMu is offering $100 when you open a checking account. (hat tip John) Note: John removed the promo code. You too can get a piece of the TARP! This is better than a toaster ...

by Calculated Risk on 12/16/2008 09:00:00 AM

Press Release:

“The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced,” said Brad Anderson, vice chairman and CEO of Best Buy. “We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace."
...
"[B]ased on the recent changes we’ve seen in consumer behavior and the potential for worsening consumer spending, we need to prepare our organization to operate in a wide range of potential macro economic scenarios in the coming year. Additional prudent actions will be taken to prepare the business, such as reducing our capital spending by approximately 50 percent next year, including a substantial reduction in new store openings in the United States, Canada and China."
emphasis added

Company after company is announcing reduced capital spending plans, and this means non-residential investment will decline sharply next year.

by Calculated Risk on 12/16/2008 08:32:00 AM

Click on graph for larger image in new window.

Total housing starts were at 625 thousand (SAAR) in November, by far the lowest level since the Census Bureau began tracking housing starts in 1959.

Single-family starts were at 441 thousand in November; also the lowest level ever recorded (since 1959). Single-family permits were at 412 thousand in November, suggesting single family starts may fall even further next month.

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

Building permits decreased:

Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 616,000.
This is 15.6 percent below the revised October rate of 730,000 and is 48.1 percent below the revised November 2007 estimate of 1,187,000.

Single-family authorizations in November were at a rate of 412,000; this is 12.3 percent below the October figure of 470,000..

On housing starts:

Privately-owned housing starts in November were at a seasonally adjusted annual rate of 625,000. This is 18.9 percent below the revised October estimate of 771,000 and is 47.0 percent below the revised November 2007 rate of 1,179,000.

Single-family housing starts in November were at a rate of 441,000; this is 16.9 percent (±8.5%) below the October figure of 531,000.

And on completions:

Privately-owned housing completions in November were at a seasonally adjusted annual rate of 1,084,000. This is 3.3 percent above the revised October estimate of 1,049,000, but is 22.8 percent below the revised November 2007 rate of 1,404,000.

Single-family housing completions in November were at a rate of 760,000; this is 0.9 percent above the October figure of 753,000.

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 probably continue to decline.

A VERY weak report ...

by Calculated Risk on 12/15/2008 11:02:00 PM

Jad Mouawad at the NY Times writes about the impact of falling oil prices on investment: Big Oil Projects Put in Jeopardy by Fall in Prices

The NY Times article discusses the impact of falling oil prices on energy investment worldwide, but also interesting is the impact on domestic investment. The following graph compares real oil prices (data from the St. Louis Fed, adjusted with CPI) and real investment in petroleum exploration and wells in the U.S. (data from the BEA).

This doesn't include investment in alternative energy sources.

Click on graph for larger image in new window.

Not surprisingly there is a strong correlation between oil prices and investment. With oil prices now in the $45 per barrel range, this suggests that domestic investment could fall to $25 billion per year or so. This is another area of non-residential investment that will probably see a significant decline in 2009.

by Calculated Risk on 12/15/2008 06:15:00 PM

First another great cartoon! Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis

From Bloomberg: AIG Sells Mortgage-Backed Securities to Fed Vehicle

American International Group Inc. ... sold residential mortgage-backed securities with a face value of $39.3 billion to a facility funded by the Federal Reserve.

AIG will receive about $19.8 billion for the assets ...

Without some details, it is impossible to know if half off is a good price for the Fed.

Also, check out Eric's earlier cartoon on Bernanke and quantitative easing.