by Calculated Risk on 5/15/2009 03:03:00 PM

From CNBC: Credit Card Defaults Reach Record Highs in April

U.S. credit card defaults rose in April to record highs, with Citigroup and Wells Fargo posting double digit loss rates ...

	April	March
Citigroup	10.21%	9.66%
Wells Fargo	10.03%	9.68%
JPMorgan Chase	8.07%	7.13%
Discover Financial Services	8.26%	7.39%

And the beat goes on ...

by Calculated Risk on 5/15/2009 02:00:00 PM

Note: this is not seasonally adjusted.

Sometimes port traffic gives us an early hint of changes in the trade deficit. The following graph shows the loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach 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.

Click on graph for larger image in new window.

Inbound traffic was 21.5% below April 2008.

Outbound traffic was 18.3% below April 2008.

There has been some slight recovery in exports the last two months (the year-over-year comparison was off 30% from December through February). But this is the 2nd worst YoY comparison for imports - only February was worse, and that might have been related to the Chinese New Year. So imports from Asia appear especially weak.

This suggests a little more improvement in the trade balance with Asia in the April trade report. Of course the overall trade deficit will probably be worse because of rising oil prices.

by Calculated Risk on 5/15/2009 12:33:00 PM

Click on puzzle for larger image in new window.

I've linked to a few pieces of the puzzle below.

But this adds up to more supply (in the mid-to-high end) because of rising foreclosures - and limited demand because sellers at the low end are mostly banks or short sales (so there are no move up buyers), and tight financing.

To me, this suggests prices will fall much further in many mid-to-high end areas.

Surging prime delinquencies.

See: OCC: More Seriously Delinquent Prime Loans than Subprime

and Fannie, Freddie Report Surge in Prime Delinquencies

and S&P: Delinquencies Surge for HELOCs and Jumbo Prime Loans

Option ARM Loan Recasts are coming.

See: Loan Reset / Recast Schedule

Limited Jumbo Financing

See: More Jumbo Financing Coming

Few Move up buyers

See: Home Sales: One and Done

And even more shadow supply, see: High Percentage of Homeowners Waiting for a Market Turnaround

by Calculated Risk on 5/15/2009 11:51:00 AM

2nd Update: From FDIC: FDIC Statement Clarifying Bloomberg Article

Statement from the FDIC Office of Public Affairs, "The Bloomberg story referencing Chairman Bair's discussion of management and board changes is misleading and does not provide the proper context of her comments. Chairman Bair said that management changes could happen based on the capital plans that an institution must submit to the government. She did not refer to CEOs specifically and the comment was in the context of capital plans submitted by the institutions. Chairman Bair also did not suggest the federal government will remove the bank CEOs."

Transcript of the exchange from Bloomberg follows:

MR. HUNT: But in the same situation, or similar situation, the government already replaced CEOs at Fannie and Freddie and General Motors -

MS. BAIR: Yes, that's right.

MR. HUNT: And some people say, well, why is the head of Bank of America still there? Or why are some of these other banks' CEO's still there?

MS. BAIR: Right, well, obviously I don't comment on open and operating institutions. I think the review needs to go with both the management and the boards as well, absolutely. And management needs to be evaluated and is this the right skill set, have they been doing a good job, are there people who can do a better job, those kinds of questions.

MR. HUNT: Do you think some will be replaced in the next couple of months without getting into the particulars?

MS. BAIR: Yeah, I think there will be an evaluation process. We're requesting it as part of the capital plan and yes.

Update: From Bloomberg: Bair Says Some Bank Chiefs Will Be Replaced in Next Few Months

From FDIC's Sheila Bair on Political Capital with Al Hunt this weekend (Bloomberg TV):

Some Bank CEOs will be replaced in next few months

'No one accountable' for entire U.S. banking system

U.S. needs to fill 'hole' on oversight of holding companies

U.S. to have management 'evaluation' process at banks

'Need is still there' to remove toxic assets from banks

Liquidity crisis is over

by Calculated Risk on 5/15/2009 09:15:00 AM

The Federal Reserve reported:

Industrial production decreased 0.5 percent in April after having fallen 1.7 percent in March. Production in manufacturing declined 0.3 percent in April and was 16.0 percent below its recent peak in December 2007. The decreases in manufacturing in April remained broadly based across industries. Outside of manufacturing, the output of mines fell 3.2 percent, as oil and gas field drilling and support activities continued to drop. The output of utilities moved up 0.4 percent. At 97.1 percent of its 2002 average, industrial output in April was 12.5 percent below its year-earlier level. The capacity utilization rate for total industry fell further in April, to 69.1 percent, a low over the history of this series, which begins in 1967.
emphasis added

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series is at another record low (the series starts in 1967).

In addition to the weakness in industrial production, there is little reason for investment in new production facilities until capacity utilization recovers.

by Calculated Risk on 5/15/2009 08:36:00 AM

From the NY Fed: Empire State Manufacturing Survey

The Empire State Manufacturing Survey indicates that conditions for New York manufacturers worsened only modestly in May. Although negative, the general business conditions index rose 10 points to -4.6, its highest level since August of last year. The new orders index fell several points and remained below zero, while the shipments index inched into positive territory. The inventories index remained negative, but rose from last month’s record low. Price indexes also continued to be negative, with the prices received index falling 10 points to a record low. Employment indexes indicated further contraction in employment levels and in the average workweek.

Here is the general business conditions index. Note that the data only goes back to July 2001 (chart to Jan 2002). Any reading below zero is contraction, so this index shows manufacturing is contracting - but "only modestly" in May.

by Calculated Risk on 5/15/2009 12:21:00 AM

From Floyd Norris at the NY Times: A Bank Is Survived by Its Loans

World Savings ... did not sell its loans into securitizations, so it knew it stood to lose if a loan went bad. Virtually all of the pick-a-pay loans were for less than 80 percent of the appraised value of the home, and the average was just 71 percent. World said it made loans only to those who could afford the stepped-up monthly payment after the reset, and said it did not lend to subprime borrowers.
...
Most banks forced the borrower to start making much larger monthly payments if the amount owed ... rose to 110 percent of the appraised value of the home when the loan was made. World ... did not force the payments up until the amount owed was 25 percent greater than the original value.

World Savings appeared to make safe loans, but they were very generous on the cap for when the loans recast. World also used the original appraised value, and there was no reappraisal provision.

So even though the borrowers originally had substantial "skin in the game", many of the borrowers are deep underwater - and are now really renters.

Note: World was part of Golden West which was bought by Wachovia, and is now owned by Wells Fargo.

The amount owed on such loans at the end of March was $115 billion, which Wells estimates is 107 percent of the current value of the properties underlying the mortgages.
...
Only $325 million of the loans — less than a third of 1 percent — will reset by the end of 2012.
...
Wells Fargo has written the value of the pick-a-pay portfolio down by about 20 percent, and is offering to restructure some of the loans. But many of the owners may have no reason to seek such a restructuring. ... The result may be perverse: a prolonged foreclosure crisis ...

At least we don't have to worry about many of these loans blowing up over the next few years!

Note: I think Norris means recast, not reset, "Reset" refers to a rate change. "Recast" refers to a payment change.

by Calculated Risk on 5/14/2009 09:17:00 PM

After the insurers comes ...

From the WSJ: YRC to Apply for Bailout Funds

YRC Worldwide Inc., one of the nation's largest trucking companies, will seek $1 billion in federal bailout money to help relieve pension obligations, the chief executive said Thursday.
...
Chief Executive William Zollars said the company will seek the money to help cover the cost of its estimated $2 billion pension obligation over the next four years.
...
By applying to the U.S. Treasury for money under the Troubled Asset Relief Program, Mr. Zollars said he hopes to "get the conversation started" with federal authorities about reducing the company's pension obligations. He said YRC will submit an application to the Treasury Department as early as Friday.

Is YRC a bank holding company?

by Calculated Risk on 5/14/2009 07:34:00 PM

Update:from the WaPo: Insurance Companies Approved for TARP Money

The Treasury today granted preliminary approval for some of the nation's largest insurance companies to receive capital infusions under the government's Troubled Assets Relief Program, Treasury spokesman Andrew Williams said.

Recipients are Hartford, Prudential, Allstate, Ameriprise, Lincoln National and Principal Financial Group, Williams said.

From Hartford: The Hartford Receives Preliminary Approval For $3.4 Billion Participation In Treasury's Capital Purchase Program (ht jb)

The Hartford Financial Services Group, Inc. (NYSE: HIG - News) announced today that the United States Treasury Department has provided preliminary approval for the company to participate in Treasury’s Capital Purchase Program (CPP) in the amount of $3.4 billion.

by Calculated Risk on 5/14/2009 05:44:00 PM

From Edmund Andrews at the NY Times: My Personal Credit Crisis

If there was anybody who should have avoided the mortgage catastrophe, it was I. As an economics reporter for The New York Times, I have been the paper’s chief eyes and ears on the Federal Reserve for the past six years. I watched Alan Greenspan and his successor, Ben S. Bernanke, at close range. I wrote several early-warning articles in 2004 about the spike in go-go mortgages. Before that, I had a hand in covering the Asian financial crisis of 1997, the Russia meltdown in 1998 and the dot-com collapse in 2000. I know a lot about the curveballs that the economy can throw at us.

Both Tanta and I linked to articles by Andrews over the years, and I'm amazed by this story ...

But in 2004, I joined millions of otherwise-sane Americans in what we now know was a catastrophic binge on overpriced real estate and reckless mortgages. Nobody duped or hypnotized me. Like so many others — borrowers, lenders and the Wall Street dealmakers behind them — I just thought I could beat the odds.
...
Patty [his new wife] discovered a small but stately brick home in a leafy, kid-filled neighborhood in Silver Spring, Md. We sent in an offer of $460,000 and one day later got our answer: the sellers accepted.
...
The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, I was handing over $4,000 a month in alimony and child-support payments. That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment. Patty had yet to even look for a job. At any other time in history, the idea of someone like me borrowing more than $400,000 would have seemed insane.

But this was unlike any other time in history.

I won't spoil the story, but it should be obvious the number don't work...