by Calculated Risk on 7/17/2009 12:43:00 PM

From HotelNewsNow.com: STR reports U.S. performance for week ending 11 July 2009

In year-over-year measurements, the industry’s occupancy fell 9.7 percent to end the week at 60.3 percent. Average daily rate dropped 9.6 percent to finish the week at US$93.97. Revenue per available room for the week decreased 18.4 percent to finish at US$56.65.

Although the occupancy rate was off 9.7 percent compared to the same week in 2008, in both 2006 and 2007 the occupancy rate for the week after the 4th of July weekend was over 74 percent (last year it was 66.8 percent). The occupancy rate is off about 19 percent compared to 2007.

Click on graph for larger image in new window.

This graph shows the YoY change in the occupancy rate (3 week trailing average).

The three week average is off 8.2% from the same period in 2008.

The average daily rate is down 9.6%, and RevPAR is off 18.4% from the same week last year.

Note: Business travel is off much more than leisure travel - so the summer months will probably not be as weak as other times of the year.

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/17/2009 11:10:00 AM

Note: the BLS started keeping state records in 1976.

From the BLS: Regional and State Employment and Unemployment Summary

Michigan again reported the highest jobless rate, 15.2 percent, in June. (The last state to have an unemployment rate of 15.0 percent or higher was West Virginia in March 1984.) The states with the next highest rates were Rhode Island, 12.4 percent; Oregon, 12.2 percent; South Carolina, 12.1 percent; Nevada, 12.0 percent; California, 11.6 percent; Ohio, 11.1 percent; and North Carolina, 11.0 percent. The Nevada, Rhode Island, and South Carolina rates were the highest on record for those states. Florida, at 10.6 percent, Georgia, at 10.1 percent, and Delaware, at 8.4 percent, also posted series highs.

by Calculated Risk on 7/17/2009 09:39:00 AM

Some comments from the GE Conference call (comments from Brian):

GE: If you look at the environment and the global landscape not much has changed from how we saw it at EPG [investor presentation?]. We're seeing growth in selected markets. Parts of the globe are still robust. China and the middle east, India, places like that. Deflation is helping our margins.

just talking about orders and backlog, we had about $18 billion of second quarter orders, slightly below first quarter and down about 23% FX adjusted versus last year. We're down about 16% year to date. The backlog remains strong. The orders were about the same level as '06 and '07. Backlog remains very strong at $169 billion. If you just look at the orders in some context we had a record first half of '08. That was really the peak of what we saw for major equipment orders. We built $30 billion of backlog over the last four years so we really expected orders to be down even without the recession. A couple positives with major equipment, cancellations are very low. Cancellations are like $100 million…If you look at our backlog conversion rate and current orders and look forward, maybe 12 months, and you think about the fact that about two-thirds of any given year's revenue convert from backlog, and the other third represent current year orders, we look at a rough estimate for 2010 at about, with equipment revenue down about 10 to 15%, some where in that range.

Quick update on stimulus and global growth. First with stimulus. We talked about at EPG having about $190 billion potential from a stimulus standpoint. Almost nothing has come out from this so far. The major buckets are clean energy, affordable healthcare, and then a scattering of other projects. We're seeing some early wins in smart grid with orders up 70%. As we said, the wind tax credits have been clarified. China spending is very strong. We're starting to get some bidding on health information changes and seeing some decent activity around the nuclear business. If you look at it from a global standpoint, some of the global regions are still extremely strong. China was up 31%, India up 46%, Middle East up 10% despite the fact that we're only beginning the Iraq shipments and order completion.

GE Capital

Delinquencies – Equipment and Real Estate [US improved and Asia is worse????]

Next is an update on our delinquencies in non earnings. On the left side is the commercial equipment finance data. You can see the 30 plus day delinquencies for equipment are down six basis points in Q2 versus Q1. That was driven by a decline in delinquencies in the Americas where 30 plus went from 2.81% to 2.45%. So we're very interested in watching this trend and seeing how this develops as we go through the year. That was partially offset by, we had some increased delinquencies in our Asia and European equipment books. We continue to see pressure on non earnings, up 18 basis points versus the first quarter but again the pace of that growth has also leveled off a bit. It's driven by senior secured loans where we're well collateralized. In terms of real estate, which is not in the delinquency for the equipment bar up above, delinquencies increased up to 4% [up 178BP Q/Q] on the real estate book and non earnings are up to 2.9% [up 166BP Q/Q]. You can see we continue to see pressure in the commercial real estate book,

Click on graph for larger image in new window.

From the GE Investor Presentation material.

Delinquencies – Consumer

On the right side, consumer data, and this is really developing into the two different categories by type of exposure. We broke out mortgage, global mortgage, and nonmortgage because loss dynamics are so different. You can see the improvements in the non mortgage delinquency as the delinquency went from 6.02 in the first quarter down to 5.92 in the second quarter and that's driven by North America . North American delinquencies are down 14 basis points to 6.96%. We're seeing better entry rates in delinquency. We're seeing improved late-stage collection effectiveness. The non earnings balance was flat to the prior quarter, and the reason the rate increase a little bit is because the balance is down. So as a percent it's a little higher, but we are getting the benefit of all the underwriting actions that we took last year as well as some seasonality benefits. And then the second category are the global mortgage assets. We continue to see growth in 30 plus delinquencies and non earnings. UK mortgage book drives most of the changes

Reserves

Next is an update on how we think about the non earning assets and our reserve coverage. The left side is commercial. Non earnings ended the quarter at 6.4 billion. It's up 1.9 billion from Q1. This represents 2.9% of financing receivables. The bars show the benefit of being senior secured lender. We expect 1.9 billion of non earnings to have 100% recovery. We have another 1.2 billion some type of workout where we expect full recovery. We'll have a renegotiation, some changes to the documents and terms, and then we have another 1.9 billion where we're protected by collateral value. At the end of the day that leaves with you 1.4 billion of estimated loss exposure today. You can see we have 173% coverage with our reserves. [To summarize, they are expecting a 78% recovery on what is largely a junk grade portfolio albeit in a senior secured position]

On the right side of the consumer non-earning assets of $6.6 billion and they were up over Q1, represent about 4.7% of the financing receivables. The consumer dynamics are very different between the mortgage and the nonmortgage assets so the green bar represents our non mortgage non earning assets, principally the US retail business, the credit card business and retail sales finance. We have 1.7 billion dollars of non earnings in that book. And we have 3.3 million of reserves against it, 189% coverage. And then the remainder of the non-earning assets on the global mortgage book we expect 1.5 billion of that to cure. With our underwriting positions we expect to recover $2.9 billion of exposure based on loan to value position. We underwrite at about 70 to 75% loan to value. Today they're at about 85% loan to value as house prices have declined. We have some mortgage insurance we expect to recover on leaving with expected loss of $500 million, 173% coverage without that. We believe we're appropriately reserved for non-earning loss exposure. We'll cover more in detail on the 28th meeting. [To summarize, they expect 30% of their non performing mortgage assets to cure, the value of the underlying assets in their mortgage book are down 12-18% from origination, they expect a 15% loss severity rate (including a modest benefit from mortgage insurance) - these guys must the gods of mortgage underwriting – if anyone wants to bet on the trend of future loss estimates, I’ll take the over – their corporate motto “Imagination at Work” seems fully appropriate here )

by Calculated Risk on 7/17/2009 08:30:00 AM

Click on graph for larger image in new window.

Total housing starts were at 582 thousand (SAAR) in June, up sharply over the last two months from the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959).

Single-family starts were at 470 thousand (SAAR) in June; 31 percent above the record low in January and February (357 thousand).

Permits for single-family units were 430 thousand in May, suggesting single-family starts might decline some in July.

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

Building Permits:
Privately-owned housing units authorized by building permits in June were at a seasonally adjusted annual rate of 563,000. This is 8.7 percent (±3.0%) above the revised May rate of 518,000, but is 52.0 percent (±3.6%) below the June 2008 estimate of 1,174,000.

Single-family authorizations in June were at a rate of 430,000; this is 5.9 percent (±1.4%) above the revised May figure of 406,000. Authorizations of units in buildings with five units or more were at a rate of 109,000 in June.

Housing Starts:
Privately-owned housing starts in June were at a seasonally adjusted annual rate of 582,000. This is 3.6 percent (±11.3%)* above the revised May estimate of 562,000, but is 46.0 percent (±4.3%) below the June 2008 rate of 1,078,000.

Single-family housing starts in June were at a rate of 470,000; this is 14.4 percent (±11.8%) above the revised May figure of 411,000. The June rate for units in buildings with five units or more was 101,000.

Housing Completions:
Privately-owned housing completions in June were at a seasonally adjusted annual rate of 818,000. This is 0.4 percent (±15.7%)* below the revised May estimate of 821,000 and is 27.7 percent (±9.0%) below the June 2008 rate of 1,131,000.

Single-family housing completions in June were at a rate of 538,000; this is 8.9 percent (±14.7%)* above the revised May figure of 494,000. The June rate for units in buildings with five units or more was 271,000.

Note that single-family completions of 538 thousand are still significantly higher than single-family starts (401 thousand).

It now appears that single family starts might have bottomed in January. However I expect starts to remain at fairly low levels for some time as the excess inventory is worked off.

by Calculated Risk on 7/17/2009 01:00:00 AM

Just a little preview for BFF ...

From Bloomberg: Corus Bankshares May Be Seized as FDIC Weighs Potential Bidders

U.S. regulators are poised to seize Corus Bankshares Inc., the Chicago lender crippled by loans for condominium construction, and are preparing to auction the entire company or its assets, people briefed on the matter said.
...
Corus’s fate has shifted into the hands of the FDIC because the lender and its financial adviser, Bank of America Corp., haven’t found a buyer willing to complete a deal in the absence of government assistance.

Note: Corus had $7.7 billion in assets at the end of Q1.

Guaranty Financial (another candidate for BFF) had $15.4 billion in assets at the end of Q3 2008. They have been filing NT forms since Q3 (Notification of inability to timely file).

by Calculated Risk on 7/16/2009 10:51:00 PM

If video doesn't load, here is the link.

by Calculated Risk on 7/16/2009 09:41:00 PM

Earlier today, DataQuick reported that home sales increased in the California Bay Area. The report mentioned "a perception among potential buyers that prices have bottomed out."

First, a little history: When the housing bubble was inflating, the demand for housing surged with the widespread use of non-traditional mortgage products. Looking at a supply-demand diagram, this surge in demand pushed the curve to the right.

At the same time speculators were buying up properties, reducing the supply with the intention of selling later at a higher price. This activity shifted the supply curve to the left (this activity was classic storage).

So with the surge in demand, combined with speculators removing supply from the market, prices skyrocketed.

This is exactly what I described in April 2005: Housing: Speculation is the Key

Of course, once the bubble burst, the supply curve shifted back to the right with speculators unloading properties and all the distressed sales. At the same time, demand declined sharply as speculators disappeared and lenders tightened standards.

If housing was a perfect market, prices would have fallen rapidly to the market clearing price. However housing prices are sticky downward - as I described in 2005 post: "[R]eal estate prices display strong persistence and are sticky downward. Sellers tend to want a price close to recent sales in their neighborhood, and buyers, sensing prices are declining, will wait for even lower prices.

This means real estate markets do not clear immediately, and what we usually observe is a drop in transaction volumes."

This doesn't mean prices are stuck - just sticky. Prices have been falling in most areas for three years, and will probably fall further.

And this brings us back to the DataQuick article. Just because demand is picking up a little, doesn't mean prices have bottomed. Note: Ignore the median price in the article - that is rising because of the change in mix.

Assume the following diagram shows the current housing market supply and demand. With the current supply and demand curves, and a perfect market, prices would be at P₀ and quantity Q₀. However prices were actually at P₁.

Note that demand doesn't fall to zero just because the price is above the market clearing price.

Now prices have fallen from P₁ to P₂.

Click on graph for larger image in new window.

This has increased the demand from Q₁ to Q₂.

I've drawn the diagram to show P₂ is still above P₀ (typo fixed). Naturally the current buyers think "prices have bottomed out", but they haven't for the market shown.

There are clues in the DataQuick report that prices are still too high. The volume of sales is still below normal, foreclosure resales are 37.3 percent of the resale market (a very high percentage) - and foreclosure activity "remains near record levels". And the foreclosure resale statistic don't include short sales, and the recent data from Sacramento suggest short sale activity is fairly strong.

There are other reasons to believe prices will fall further, but I just want to point out that the small pickup in demand doesn't suggest a price bottom.

by Calculated Risk on 7/16/2009 08:56:00 PM

From Forbes: Bank Earnings: Beauty Is Skin-Deep (ht Brett)

The banking industry is bracing for continued losses from consumer loans, considering the rising unemployment rate, and an expected wave of commercial real-estate losses. At a Senate Banking Committee hearing in Washington on Thursday, Sen. Jim Bunning, R-Ky., related a comment to him by Federal Deposit Insurance Corp. Chairman Sheila Bair that another 500 banks could fail "unless something dramatic happens."

Note that this is Bunning's recollection of a discussion with FDIC Chairman Sheila Bair - so this might not be exactly what Bair said.

UPDATE: FDIC spokesman, Andrew Gray, disputed Bunning’s recollection (ht we will not monetize):

“In both public and private settings, the chairman and the FDIC is always careful to not make predictions on the number of upcoming bank failures,” Gray said in an e-mail. “No estimate” was given during the meeting, which took place last week, Gray said.

“We would regret any miscommunication, but she did not say that,” Gray added.

by Calculated Risk on 7/16/2009 06:31:00 PM

Note: this is not seasonally adjusted. There is a very distinct seasonal pattern for imports, but not for exports.

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 22.2% below June 2008.

Outbound traffic was 19.2% below May 2008.

There had been some recovery in U.S. exports over the last few months (the year-over-year comparison was off 30% from December through February). And this showed up in the in the May trade report, but the port data suggests exports were a little weaker in June.

by Calculated Risk on 7/16/2009 04:05:00 PM

Click on graph for larger image in new window.

This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

Tomorrow could be wild. CIT might file bankrutpcy, Corus Bank and Guaranty Financial might be seized by the FDIC ...

From the Journal Sentinel: Judge denies Guaranty Bank's request to halt insurance payments

A federal judge has denied Guaranty Bank's request that it be allowed to halt payments to an insurance company despite Guaranty's contention that continuing to pay millions of dollars in premiums each month threatened the bank's survival.

In February, Guaranty asked the court to let it stop paying premiums to Evanston Insurance Co. of Deerfield, Ill, but nonetheless keep the insurer's coverage on its home-equity loan portfolio intact. Guaranty also sought the return of $30 million in premiums paid since 2004, contending the policy was sold to the bank illegally under Wisconsin insurance law.

In a brief filed with the lawsuit, Guaranty asserted at the time: "This is a 'bet the bank' motion because the continued existence of Guaranty Bank rests on the outcome."

From the WSJ: CIT Bondholders Hash Out Their Options and Bloomberg: CIT Group’s Bondholders Said to Discuss Debt Swap

From Reuters: MGIC to halt new business; posts steep loss

Mortgage insurer MGIC Investment Corp reported a wider quarterly loss and said it will stop writing new business as losses mount in the battered housing sector ...

The largest U.S. mortgage insurer said it will wind down its business and try to capitalize a fresh enterprise that would write new loans beginning next year.

UPDATE: Roubini: Views on Economy Unchanged Despite Reports

Earlier Roubini report was titled: Roubini Now Says The Worst Of Economic Crisis Is Over

Nouriel Roubini, the economist whose dire forecasts earned him the nickname "Doctor Doom," is now saying that the worst of the economic and financial crisis may be over.
...
Roubini still warned that the US may need a second fiscal stimulus package of up to $250 billion by the end of the year to boost the deteriorating labor market, Reuters reported.