by Calculated Risk on 7/22/2009 01:44:00 AM

From Reuters: U.S. architecture billings index down in June - AIA

... The Architecture Billings Index fell more than 5 points last month to a reading of 37.7, after a slight increase in the prior month, according to the American Institute of Architects.

The index has remained below 50, indicating contraction in demand for design services, since January 2008. ...

"It appears as though we may have not yet reached the bottom of this construction downturn," AIA Chief Economist Kermit Baker said. "Architecture firms are struggling and concerned that construction market conditions will not even improve ... next year."
...
Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, as well as schools, hospitals and other institutions. The AIA's Billings Index, which began in 1995, is considered a measure of construction spending nine to 12 months in the future.
emphasis added

Click on graph for larger image in new window.

This graph shows the Architecture Billings Index since 1996. The index is still below 50 indicating falling demand.

Historically there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on commercial real estate (CRE). This suggests further dramatic declines in CRE investment later this year and next.

Earlier this month, the AIA lowered their forecast for commercial construction, from Bloomberg: U.S. Commercial Construction to Drop 16% This Year, Report Says

Construction spending on offices, retail centers and hotels is likely to fall 16 percent this year and 12 percent in 2010, more than previously forecast, the American Institute of Architects said.
...
Hotel construction is likely to decline 26 percent this year and 17 percent in 2010, the institute said. Industrial spending is forecast to dip 0.8 percent this year and 28 percent in 2010, according to the report.

by Calculated Risk on 7/22/2009 12:41:00 AM

“We’re dumbfounded. We’ve been working on this deal for four-and-a-half years. I don’t know how, all of a sudden, the numbers don’t work.”
JMW Development Principal Mark Johnson

From the Minneapolis / St. Paul Business Journal: SuperTarget planned for Woodbury now on hold (ht Arnold)

Target recently informed JMW that it would not proceed with the project unless it receives “a pretty significant discount” from its previously negotiated deal, JMW Principal Mark Johnson said.

“We’re dumbfounded,” Johnson said, noting that Target officials had told him as recently as June 24 that the project was on track.

Maybe Target has lowered their retail sales estimates for the store? Just saying ...

by Calculated Risk on 7/21/2009 10:11:00 PM

The Herald Tribune has a series of article on mortgage fraud in Florida (ht Ed)

Here are the first three in the series:

'Flip that house' fraud cost billions

Fraudulent property flipping ran rampant during this decade's housing boom, with $10 billion in suspicious deals in Florida alone, a Herald-Tribune investigation has found.

The deals -- many of them inflated sales among friends, family and business associates -- drove up property values and tax bills during the boom, fed bank bailouts and failures after the boom, and fueled the foreclosure wave that has gutted property values.

Unscrupulous property flippers would buy houses or condos, then drive up the price in a few days or weeks by selling it to someone they knew. Buyers used the inflated price to get bank loans for more than the property was worth, leaving money for flippers to split as profit.

Flippers' toll: On Gulf Coast, half a billion in defaults

More than 100 properties from Palmetto to North Port doubled in price in a single day during the recent real estate boom. Proposed condos -- no more than ideas on paper -- flipped two or three times before anyone moved in.

The king of the Sarasota flip

Instead of selling properties to outside buyers, [Craig Adams] created a real estate market where his hand-picked buyers and sellers could set the price they wanted, and repeated flips made Adams hundreds of thousands of dollars in real estate sales commissions.

In some cases, Adams and his associates bought a house, marked up the price and quickly sold it to another associate ... Using the inflated sale price, they qualified for a mortgage that more than covered the actual purchase, then divided the remaining cash among themselves, according to seven people familiar with the deals.
...
"They had a joke," said Melone, who did property deals with one of Adams' associates. "They said: 'We're getting low on money. Let's go buy a property.'"

The Herald Tribune has a graphic on hot spots for flipping fraud in Florida, and some supporting documents.

by Calculated Risk on 7/21/2009 06:06:00 PM

Just a couple of comments ... (ht Brian)

Analyst: ... on the commodities [components]. I'm just curious as to which ones you expect to be sort of challenging going forward?

AAPL: In terms of going forward, the market for DRAM and the market for large sized displays has shifted to a constrained environment and the pricing has moved accordingly. The NAND market has now begun to stabilize and we expect it to move towards a supply/demand balance. Hard drives and optical drives are recovering from a constrained supply environment and pricing is declining at less than historical rates as a result.

Interesting that any component is constrained - probably because of inventory cuts by suppliers in Q4 and Q1.

Analyst: When you look at consumer spending and you look at K12 and state and local government, is there any detail you can give on the education or the pro segment?

AAPL: Relative to the market, the consumer market performed relatively better for us. The US K12 institutional business is weak, as you might expect. It is getting hit by budgets short falls. And last quarter we saw very negligible amounts, if any, of the stimulus funds flow all the way to the state and district levels. And so that may or may not occur this quarter. In the pro business, the pro business has also been affected more by the economy than the consumer businesses. And you can see that somewhat in our ASPs as people that were buying those that were in commercial accounts and small business accounts are delaying purchases.

Once again consumer spending is relatively better off than business spending. Business spending on software and equipment was probably off some more in Q2 (after declining 28.1% SAAR in Q4 and 33.7% SAAR in Q1).

by Calculated Risk on 7/21/2009 04:05:00 PM

Update: "We'll probably ban naked credit default swaps."
House Agriculture Committee Chairman Collin Peterson, from Reuters: US House bill to require clearing of OTC derivatives

Orginal Post: I've heard that Agriculture chairman Collin Peterson and Financial Services Committee chairman Barney Frank (share oversight of of futures markets) are in agreement to have derivatives go through clearinghouses and to ban naked credit default swaps as part of the omnibus financial reform bill. More soon ...

Since several stories have the details wrong, here is the vig on the CIT loan:

"The Credit Facility has a two and a half year maturity and bears interest at LIBOR plus 10%, with a 3% LIBOR floor, payable monthly. It provides for (i) a commitment fee of 5% of the total advances made thereunder, payable upon the funding of each advance, (ii) an unused line fee with respect to undrawn commitments at the rate of 1% per annum and (iii) a 2% exit fee on amounts prepaid or repaid and the unused portion of any commitment."

That is a minimum 13% after paying back 5% immediately as a commitment fee. Tony Soprano would be proud.

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.

by Calculated Risk on 7/21/2009 03:16:00 PM

Baseline Scenario has a guest piece by Elizabeth Warren, chair of the Congressional Oversight Panel and the Leo Gottlieb Professor of Law at Harvard University: Three Myths about the Consumer Financial Product Agency. Professor Warren outlines three myths, and the concludes:

"At the end of the day, industry lobbyists try hard to invent myths and make things sound confusing to intimidate the public and to keep policymakers from acting. But this issue is simple: keeping safety and soundness and consumer protection together has not ensured safety and soundness, has not protected consumers, has not fostered choice and innovation, and has not minimized regulatory burden. In fact, the current regulatory structure that combines consumer protection with other bank oversight responsibilities has led to the kind of bad regulatory oversight that has led us to this crisis. The CFPA would put someone in Washington—someone with real power—who cares about customers. That’s good for families, good for market competition, and good for our economy."

by Calculated Risk on 7/21/2009 01:27:00 PM

From Bloomberg: Harvard’s Feldstein Sees Risk of ‘Double-Dip’ Recession in U.S.

... “There is a real danger this is going to be a double dip and that after six months or so we’ll have some more bad news,” [Martin] Feldstein, the former head of the National Bureau of Economic Research and Reagan administration adviser, said today in an interview on Bloomberg Television. “We could slide down again in the fourth quarter.”

The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.

“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy.

This was the key point of the Texas Instruments post yesterday (with conference call comments on inventory). There is a possibility of short term growth as companies rebuild inventories, but then an extended period of sluggishness since end demand is flat.

by Calculated Risk on 7/21/2009 11:28:00 AM

Click on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. Forty seven states are showing declining three month activity.

This is what a widespread recession looks like based on the Philly Fed states indexes.

On a one month basis, activity decreased in 46 states in June, and was unchanged in 1 state. Here is the Philadelphia Fed state coincident index release for June.

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for June 2009. In the past month, the indexes increased in three states (Mississippi, North Dakota, and Vermont), decreased in 46, and remained unchanged in one (North Carolina) for a one-month diffusion index of -86. Over the past three months the indexes increased in two states (Mississippi and North Dakota), decreased in 47, and remained unchanged in one (Montana) for a three-month diffusion index of -90.

The second graph is of the monthly Philly Fed data of the number of states with one month increasing activity. Most of the U.S. was has been in recession since December 2007 based on this indicator.

Note: this graph includes states with minor increases (the Philly Fed lists as unchanged).

Almost all states showed declining activity in June. Still a very widespread recession ...

by Calculated Risk on 7/21/2009 10:14:00 AM

Click on headlines for larger image in new window.

See losses of more than $1.5 billion.

Insufficient liquidity.

May seek bankruptcy without successful tender offer.

by Calculated Risk on 7/21/2009 09:47:00 AM

Fed Chairman Ben Bernanke will testify before the House Financial Services Committee at 10 AM (semiannual Humphrey-Hawkins testimony on monetary policy).

Prepared testimony below the video links ...

Here is the CNBC feed.

And a live feed from C-SPAN.

Prepared Testimony: Semiannual Monetary Policy Report to the Congress