by Calculated Risk on 1/21/2009 04:33:00 PM

Press Release: Apple Reports First Quarter Results

Apple® today announced financial results for its fiscal 2009 first quarter ended December 27, 2008. The Company posted record revenue of $10.17 billion and record net quarterly profit of $1.61 billion, or $1.78 per diluted share. These results compare to revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share, in the year-ago quarter. Gross margin was 34.7 percent, equal to the year-ago quarter. International sales accounted for 46 percent of the quarter’s revenue.

Meanwhile Intel announced layoffs: Intel to Consolidate Manufacturing Operations

The company plans to close two existing assembly test facilities in Penang, Malaysia and one in Cavite, Philippines, and will halt production at Fab 20, an older 200mm wafer fabrication facility in Hillsboro, Ore. Additionally, wafer production operations will end at the D2 facility in Santa Clara, Calif.

The actions at the four sites, when combined with associated support functions, are expected to affect between 5,000 and 6,000 employees worldwide. However, not all employees will leave Intel; some may be offered positions at other facilities. The actions will take place between now and the end of 2009.

I usually don't comment on tech companies, but the Apple numbers are pretty good - and a little good news now and then can't hurt!

by Calculated Risk on 1/21/2009 03:03:00 PM

Imagine a home furnishing center - a "one-stop outlet for home remodelers" - built in Southern California at the end of the housing boom. Guess what happened ...

Jeff Collins at the O.C. Register has the story: O.C. furniture mall loses $63 million in value

The South Coast Home Furnishings Centre in Costa Mesa — conceived as a one-stop outlet for home remodelers — has lost customers, tenants and finally ended up in receivership after rents failed to cover loan payments and operating expenses.

The mall was almost 100% leased when it was sold to an investor in August 2007 for $98 million. Now almost half the tenants are gone:

The Home Furnishings Centre had 32 tenants, filling almost all of the available space, when it sold ... in August 2007. [The buyer] put $18 million down and borrowed $84 million to cover the balance of the purchase price.

As of December this year, tenants had fled, including the anchor: bankrupt Wickes Furniture. According to court records, just 18 tenants remained and 34% of the space was vacant.

The receiver just accepted a $35 million offer for the 300,000-square-foot center - a price decline of 64% in about 18 months.

by Calculated Risk on 1/21/2009 01:49:00 PM

From DataQuick: Bargain hunting dominates Bay Area home sales in December

Bargain hunting dominated the Bay Area housing market last month as the purchase of foreclosure properties accounted for more than half of all resales for the first time. Sales patterns also reflected continued problems for buyers looking to finance purchases in the upper half of the market's price range, a real estate information service reported.

A total of 6,889 new and resale houses and condos were sold in the nine- county region last month. That was up 19.7 percent from 5,756 in November, and up 36.0 percent from 5,065 for December 2007, according to MDA DataQuick.
...
The median price paid for a Bay Area home was $330,000 in December. That was down 5.7 percent from $350,000 for the month before, and down 43.8 percent from $587,500 for December 2007. That was the lowest it has been since March 2000 when the median was $320,500, and 50.4% below the $665,000 peak of June/July 2007.

"It would be wrong to say that Bay Area home values are half of what they were a year-and-a-half ago. We're figuring that maybe half of the decline in median is a market mix issue, and the rest a drop in value. But we're in the middle of this, and we won't be able to quantify it until it's behind us. What is remarkable, is that so much Bay Area activity is still on hold, waiting the turbulence out. We don't know how long that can last," said John Walsh, MDA DataQuick president.
...
Homes that were foreclosed on accounted for 50.0 percent of December's resale activity, up from 46.8 percent in November, and up from 14.0 percent for December a year ago. Foreclosure resales ranged from 12.4 percent in San Francisco last month to 67.7 percent in Solano County.
emphasis added

Note that the median price has been partially driven down by the change in mix. Also note the increase in foreclosures in the high priced areas.

by Calculated Risk on 1/21/2009 12:59:00 PM

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The builder confidence index was at 8 in January, a new record low.

Usually housing bottoms look like a "V"; this one will probably look more like an "L". (this refers to activity like starts and sales, but will probably also be apparent in the confidence survey).

Press release from the NAHB: Builder Confidence Edges Down Further In January

Concerns about the faltering economy and reluctant home buyers pushed builder confidence in the market for newly built single-family homes down further in January, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI edged down a single point to a new record low of 8 in January.
...
All of the HMI’s component indexes remained at or near historic lows in January. The index gauging current sales conditions recorded the greatest change, with a two-point decline to 6. Meanwhile, the indexes gauging sales expectations for the next six months and traffic of prospective buyers each rose a single point, to 17 and 8, respectively.

Regionally, the HMI fell one point to 10 in the Northeast, held even at 6 in the Midwest, rose one point to 11 in the South and fell three points to new record low of 4 in the West in January.

by Calculated Risk on 1/21/2009 11:25:00 AM

From the WSJ: Hancock at Center of 'Tranche Warfare' (hat tip Rich in SF)

Earlier this month, a Broadway fund defaulted on $700 million of debt tied to the Hancock tower and other buildings. The default triggered a scramble among investors holding debt tied to the acquisition, with some pushing for immediate foreclosure and others pushing to extend the loan in hopes of a real-estate rebound.
...
The disputed $700 million of debt in the Hancock battle is mezzanine debt that was divided up among nine investors. With real-estate values declining, not all of the investors would be paid off in a liquidation.

As a result, investors who believe they would be in the money are pressing for an immediate foreclosure ... Investors likely to lose out in foreclosure want to give Broadway more time to repay the loan.

The servicing agreement usually details what is supposed to happen in default, but many of these agreements haven't been tested before. Clearly holders of different tranches of debt have very different interests.

And, oh, on the vacancy rate:

[T]he vacancy rate in the John Hancock Tower has risen from practically zero to 15%.

I bet the investors didn't include that scenario in their pro forma analysis!

by Calculated Risk on 1/21/2009 09:39:00 AM

Here is the CNBC feed. (starts at 10 AM ET)

Here is the CSpan2 feed

From the NY Times: Tough Questions Expected for Geithner Today

The Senate Finance Committee hearing is scheduled to begin at 10 a.m.
...
Here’s a quick look at the tough questions that Mr. Geithner is likely to confront:

How will he use the second tranche of $350 billion in federal bailout money from the Troubled Asset Relief Program, or TARP?

Is the Obama administration likely to come back for even more bailout money? ...

How much additional regulation of the financial system, including hedge funds and private equity, does he think is needed?

As president of the Federal Reserve Bank of New York, he had oversight of banks like Citigroup. How does he grade his own performance?

Why was Lehman Brothers allowed to collapse in September? And why was American International Group saved by the government only 48 hours later?

Why didn’t the Treasury and the Federal Reserve act more aggressively to stabilize the financial system after the downfall of Bear Stearns last spring?

by Calculated Risk on 1/20/2009 10:28:00 PM

The building industry trade show started today in Las Vegas. The Las Vegas Review Journal has some details: Economists say housing market to remain unstable

David Crowe of the National Association of Home Builders said he was quite negative in his housing and economic outlook last year, but not negative enough.
...
"We have consumer confidence at or near a historic low," the economist said Tuesday at the building industry trade show, "and it will probably deteriorate in 2009."

The S&P/Case-Shiller Home Price Index fell 25.3 percent from March 2006 to October 2008.

Crowe said he expects prices to fall another 29 percent this year and new home sales to decline 14 percent.

... The nation has an excess "overhang" of 6.2 million homes for sale, about 1.5 million too many, he said.

There are negative comments from other economists in the article too.

The WSJ has more: Builders Predict More Housing Pain

Economists from Freddie Mac, the government-backed lending agency, mortgage insurer PMI Group Inc. and the Portland Cement Association trade group also predicted this year would be worse than 2008 in terms of starts and overall housing activity.
...
Frank Nothaft, chief economist for Freddie Mac, predicted the U.S. unemployment rate will jump to 8.7% by the fourth quarter of 2009 from 7.2% as of December.
...
The Portland Cement Association held a separate news conference Tuesday at which its chief economist sounded even more pessimistic about prospects for a recovery. "I see another full two years almost before a significant gain," said Mr. Sullivan, who was one of the first industry economists to predict the current downturn.

Grim and grimmer. Must be a fun convention.

by Calculated Risk on 1/20/2009 07:55:00 PM

David Rosenberg at Merrill Lynch wrote a research piece last week: "Not Your Father’s Recession ...(But Maybe Your Grandfather’s)" (no link)

Needless to say, the piece wasn't too upbeat.

But I was intrigued by some of the comments on vehicle sales. Rosenberg presented the following data (these are my graphs of the same data):

Click on graph for larger image in new window.

The first graph shows monthly vehicle sales (autos and trucks) as reported by the BEA at a Seasonally Adjusted Annual Rate (SAAR).

This shows that sales have plunged to just over a 10 million annual rate - the lowest rate since the early '80s recession.

The next graph shows the ratio of registered vehicles in the U.S. to the number of licensed drivers.

Rosenberg only plotted the data from 1975 through 2006 and the Y-axis was scaled from 1.0 to 1.2. This gave the appearance of a rapid increase in the ratio.

Looking at the raw data reveals that this includes private and commercial vehicles, so if someone drives a car to work - and then a different vehicle at work - that is counted as 2 vehicles per licensed driver. This would include truck drivers, police officers, and others. So a ratio of 1.2 vehicles per driver doesn't seem so high, although Rosenberg asks "Too many vehicles?"

This led me to plot the third graph (not in research piece).

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

Currently this ratio is at 23.9 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 24 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.

If the ratio of vehicles to licensed drivers declined to 1.1 (last seen in the early '90s recession), and the turnover ratio declined to 15 years, this would suggest sales would increase to 15 million vehicles per year. Although not as high as the recent boom years - this is still a sales increase of more than 40% above current levels.

Sales won't increase right away (look at the depressed sales during the early '80s), but this does suggest that auto sales are closer to the bottom than the top, and that auto sales will increase significantly in the future - although sales in 2009 will probably be dismal.

by Calculated Risk on 1/20/2009 05:54:00 PM

Actually Bailout Bitter! Click on photo for a larger image. Credit: Barley Enjoy Responsibly.

by Calculated Risk on 1/20/2009 04:58:00 PM

More banking news from Europe ...

From Bloomberg: King Says BOE May Start Buying Assets Within Weeks

Bank of England Governor Mervyn King said officials may start buying assets in the next weeks to loosen credit markets as the lowest interest rates since 1694 fail to avert a “marked” recession.

The U.K. central bank may acquire securities such as corporate bonds and commercial paper to bolster lending to companies and consumers as banks rebuild balance sheets damaged by the global financial crisis, King said today.

And from Reuters: Germany's Hypo gets extra 12 bln eur in guarantees

Stricken German investment bank Hypo Real Estate said on Tuesday it would get an additional 12 billion euros in state guarantees and it was still in talks with the state regarding further support.