by Calculated Risk on 1/13/2009 11:07:00 PM

From the WSJ: Big Chunk of Stimulus Is Proposed to Aid States, Localities

State and local governments would benefit from more than $160 billion in federal aid ... Under the plan, some $80 billion would be steered toward a new "education stabilization fund," which would be used to help states avoid cutbacks in teachers and classroom programs. An additional $87 billion would be set aside for Medicaid, the federal-state program that helps low-income families and is facing budget constraints.

A bailout for Arnold?

In general this seems like a good idea since this keeps states from exacerbating the recession by laying off workers as revenues decline. Unfortunately many states (like California) have structural fiscal problems and were running budget deficits even during the housing boom. These states still need to fix their fiscal problems.

by Calculated Risk on 1/13/2009 06:29:00 PM

From the OC Register: Budget crisis forces UCI to stop work on 2 new buildings

The university stopped building the 64,000 square foot Arts Building on Monday night. The $42 million building is 36 percent completed. And the campus only has enough money to keep constructing the new Telemedicine/Medical Education Building through the end of January. The $40.5 million, 67,000 square foot building is 40 percent complete.
...
Cal State Long Beach ... recently had to suspend construction of its new $105 million Hall of Science due to the budget crisis.

Usually public construction projects are very secure - this shows the severity of the budget crisis in California.

by Calculated Risk on 1/13/2009 03:26:00 PM

From the WSJ: Citi Preparing Major Overhaul

Citigroup ... is preparing to unveil a major reorganization ... In addition to spinning off the New York company's Smith Barney ... Citigroup is preparing to narrow its overall mission to two areas ... wholesale banking for large corporate clients and retail banking for customers in selected markets around the world.

by Calculated Risk on 1/13/2009 01:25:00 PM

Here are a few indicators of credit stress:

The TED spread is at 0.99, sharply lower. (improved) The TED spread was stuck above 2.0 for some time. The peak was 4.63 on Oct 10th. The TED spread has finally moved below 1.0, although a normal spread is around 0.5.

The three month LIBOR has decreased to 1.109%. The three-month LIBOR rate peaked (for this cycle) at 4.81875% on Oct. 10. (improved) Imagine all those adjusted rate mortgage loans tied to treasuries or even the 3 month LIBOR? The rates are looking pretty good!

The A2P2 spread as at 2.23. This spread has seen a huge decline in 2009. This is far lower than the record (for this cycle) of 5.86 after Thanksgiving, but still way too high. (improved).

This is the spread between high and low quality 30 day nonfinancial commercial paper. Right now quality 30 day nonfinancial paper is yielding close to zero. If the credit crisis eases, I'd expect a significant further decline in this spread - although this is good progress.

The two year swap spread from Bloomberg: 52.25. (improved). This spread peaked at near 165 in early October, so there has been significant progress, and the swap hasn't been this low since mid-2007.

By these indicators, the Fed is making progress.

by Calculated Risk on 1/13/2009 11:10:00 AM

The FHLBs are probably about to become a huge story.

From Bloomberg: Seattle FHLB Likely Short of Capital on Mortgage Debt (hat tip Brian)

The Federal Home Loan Bank of Seattle joined its San Francisco counterpart in suspending dividends and “excess” stock repurchases, after the declining value of mortgage bonds likely led to a regulatory capital shortfall.

The shortfall is being caused by “unrealized market value losses” on home-loan securities without government backing, the Seattle bank cooperative said in a filing with the U.S. Securities and Exchange Commission today.
...
The FHLB system has $1.25 trillion of debt, making it the largest U.S. borrower after the federal government.

From Roubini's testimony to Congress on February 26th, 2008:

[T]he widespread use of the FHLB system to provide liquidity – but more clearly bail out insolvent mortgage lenders – has been outright reckless. ... A system that usually provides a lending stock of about $150 billion has forked out loans amounting to over $750 billion in the last year with very little oversight of such staggering lending. The risk that this stealth bailout of many insolvent mortgage lenders will end up costing massive amounts of public money is now rising.

by Calculated Risk on 1/13/2009 10:27:00 AM

From Beazer Homes press release:

Home closings for the quarter ended December 31, 2008 totaled 938, a 53.2% decline from 2,006 homes closed during the same period in the prior fiscal year. Net new home orders totaled 551 for the quarter, a decrease of 56.0% from 1,252 net orders in the first quarter of the prior fiscal year. ... The cancellation rate for the first quarter was 45.6%, compared to 46.6% for the same period in the prior year.

It just keeps getting worse ...

by Calculated Risk on 1/13/2009 08:45:00 AM

Both exports and imports are declining, but the decline in the trade deficit was mostly about oil prices. Petroleum import prices fell from $92 per barrel in October to under $67 per barrel in November - and will fall further in December.

The Census Bureau reports:

[T]otal November exports of $142.8 billion and imports of $183.2 billion resulted in a goods and services deficit of $40.4 billion, down from $56.7 billion in October, revised. November exports were $8.7 billion less than October exports of $151.5 billion. November imports were $25.0 billion less than October imports of $208.2 billion.

Click on table for larger image in new window.

This graph from the Census Bureau shows that both imports and exports are declining.

Although the trade deficit is declining - and will probably decline further in December because of the continued decline in oil prices - growth in export related businesses will probably no longer be a positive for the U.S. economy as the global economy slides into recession too.

This graph shows the U.S. trade deficit through November. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. The current recession is marked on the graph.

The oil deficit declined sharply in November and will decline further in December. But even ex-petroleum, the trade deficit is still declining.

by Calculated Risk on 1/13/2009 12:06:00 AM

From the WaPo: Obama Shelves Jobs-Credit Proposal

Bowing to widespread Democratic skepticism, President-elect Barack Obama will drop his bid to include a business tax break he once touted in the economic stimulus bill now taking shape on Capitol Hill, aides said last night.

Obama suggested the $3,000-per-job credit last week as one of five individual and business tax incentives aimed at winning Republican support. He proposed $300 billion in tax relief in a bill that could reach $775 billion, and he resurrected the jobs-credit proposal from the campaign trail as one of his main provisions.
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Obama advisers said further adjustments may be made to the president-elect's tax priorities, including to a proposed $500 payroll tax credit for individuals. ...

Obama also has suggested tax incentives for businesses to make capital investments. Such benefits are popular across party lines and have been successful in recent years. But another Obama proposal, to allow companies to deduct larger portions of recent losses, has raised eyebrows on the Hill, where lawmakers see it as a costly reward for behavior that was possibly irresponsible.

It's hard to analyze a plan without many details, but this seems like progress. The larger deductions for tax losses can be junked too, although the capital investment tax incentive is probably worthwhile since capital investment is falling off a cliff.

by Calculated Risk on 1/12/2009 05:18:00 PM

These will become too common to list them all ... the story also notes ShopperTrak is predicting that retail sales will likely drop 4 percent in the first quarter.

From Bloomberg: Shane Co., U.S. Jewelry Retailer, Seeks Bankruptcy

Shane Co., the family-owned jewelry retailer with 23 stores in 14 states, sought bankruptcy court protection blaming “disappointing” holiday sales and a “grim” outlook on the deepening U.S. recession.

The 38-year-old company, based in Centennial, Colorado, listed both assets and debt of $100 million to $500 million in Chapter 11 documents filed today in U.S. Bankruptcy Court in Denver.

Note: The Census Bureau will release Q4 retail sales on Wednesday, and those numbers are guaranteed to be UGLY.

by Calculated Risk on 1/12/2009 04:21:00 PM

From MarketWatch: Alcoa swings to loss as demand, sales slump

Alcoa said it lost $1.2 billion ... Sales fell to $5.7 billion from $7 billion. Alcoa is in the midst of cutting 15,000 jobs, curbing more production, and slashing its capital budget to make it through the downtrodden economy.

Alcoa announced the job cuts and the 50% reduction in planned capital expenditures (a reduction of $1.8 billion) last week. Still pretty amazing numbers ...