by Calculated Risk on 11/11/2010 10:19:00 AM

Ireland is fully funded until mid-2011, however I've heard this morning that certain European investors are no longer willing to provide Irish banks with overnight funding. This could lead to a serious liquidity problem for the Irish banks - and some investors believe that Ireland may need to borrow from the IMF or the EFSF to support the banks.

And some comments from officials, first from the Financial Times: Barroso reaffirms offer of help to Ireland

José Manuel Barroso, European Commission president, said ... “What is important to know is that we have all the essential instruments in place in the European Union and eurozone to act if necessary, but I am not going to make any speculation”.
excerpt with permission

Both the Irish Central bank governor Patrick Honohan (See: IMF would use same fiscal policy - Honohan) and the Irish Finance Minister Brian Lenihan said today they believe Ireland will not need help (See: Irish FinMin: c.bank comments not laying ground for help).

The Ireland 10-year bond yield is at 8.9%.

For much more on the problems for Ireland (and Portugal), see: Life on the Edge of the EFSF, by Elga Bartsch & Daniele Antonucci at Morgan Stanley.

Note: I've been using the 8% cost estimate for the EFSF from Wolfgang Munchau in the Financial Times. The Morgan Stanley analysts write that they "expect such a loan to carry an interest rate of 5-6.5% per annum".

This is similar to the 6% EFSF rate calculated by University College Dublin professor Karl Whelan: Borrowing Rates from The EFSF

by Calculated Risk on 11/11/2010 08:24:00 AM

From RealtyTrac: Foreclosure Activity Decreases 4 Percent in October

RealtyTrac® ... today released its U.S. Foreclosure Market Report™ for October 2010, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 332,172 properties in October, a 4 percent decrease from the previous month and almost exactly the same total reported in October 2009. ...

“October marks the 20th consecutive month where over 300,000 U.S. homeowners received a foreclosure notice,” said James J. Saccacio, chief executive officer at RealtyTrac. “The numbers probably would have been higher except for the fallout from the recent 'robo-signing' controversy — which is the most likely reason for the 9 percent monthly drop in REOs we saw from September to October and which may result in further decreases in November."
...
A total of 100,575 U.S. properties received default notices (NOD, LIS) in October, a 2 percent decrease from the previous month and a 19 percent decrease from October 2009 — the ninth straight month where default notices have decreased on a year-over-year basis.
...
Lenders foreclosed on 93,236 U.S. properties in October, down 9 percent from the record high in the previous month but still up 21 percent from October 2009.

The good news is the number of default notices is trending down, although that might pick up again as house prices decline.

by Calculated Risk on 11/10/2010 10:15:00 PM

From Reuters: Cisco's dismal outlook stuns Street

On the conference call, CSCO guided lower and said public sector spending is slow. Management also said that Europe is seeing some declines - although it was too early to call it a trend. (ht Brian, JB)

And from the WSJ: Kulicke & Soffa 4Q Profit Soars; Shares Down On Weak 1Q View

Kulicke & Soffa Industries ... predicted revenue for the current quarter of $125 million to $135 million, far below analysts' average estimate of $214.6 million ...

This might suggest a slowdown in equipment and software investment.

by Calculated Risk on 11/10/2010 06:18:00 PM

CR Note: This is from housing economist Tom Lawler:

Based on data available so far, it would appear as if national existing home sales in October ran at a seasonally adjusted annual rate that was little changed from September [4.53 million SAAR]. Of course, October’s YOY sales decline on an unadjusted basis is significantly larger than September’s. But October sales were significantly goosed (SAAR of 5.98 million) last October by the expiring (or so folks thought!) first time home buyer tax credit. In addition, there was one fewer business day this October than last October.

The incoming listings data have on average been consistent with the realtor.com data showing a 3.2% decline in existing home sales inventory in October.

CR Note: A 3.2% decline in inventory, and sales of 4.53 million SAAR would put the months-of-supply at about 10.4 months in October. That would be the fourth straight month of double digit supply.

Based on this early forecast, YoY sales would be off 24%, and inventory would be up close to 10% YoY.

Existing home sales for October will be released on Tuesday November 23rd at 10 AM ET.

by Calculated Risk on 11/10/2010 04:05:00 PM

Note: Some people have asked why I've posted so often about Ireland the last few weeks, I think these hockey stick graphs show why ...

Ireland 10-year bond yield at 8.64%.

Portugal 10-year bond yield at 7.04%.

And for Spain, the 10-year bond yield has risen to 4.5%.

And for Greece, the yield is up to 11.55%.

From the WSJ: European Debt Markets Take Hits

And from the Financial Times: Irish bond yields leap after selling wave

Last week LCH.Clearnet warned investors of higher margin requirements to trade in Ireland’s debt. That went into effect today - here is the memo:

The margin required for positions of Irish government bonds will consequently be increased by 15% of net exposure ... The additional margin will be charged on net exposure at close of business on Thursday 11 November 2010 and will be reflected in a margin call on Friday 12 November 2010.

There is no immediate liquidity crisis for Ireland (unlike for Greece earlier this year), but clearly bond investors are spooked by the discussions of bond holders having to take haircuts if there is a bailout. And if yields stay above 8% that increases the likelihood of Ireland using the European Financial Stability Facility (EFSF).

by Calculated Risk on 11/10/2010 01:29:00 PM

From the NY Times: Panel Weighs Deep Cuts in Tax Breaks and Spending

A draft proposal to be released Wednesday by the chairmen of President Obama’s bipartisan commission on reducing the federal debt calls for deep cuts in domestic and military spending starting in 2012, and an overhaul of the tax code to raise revenue.
...
The plan would reduce Social Security benefits to most future retirees ... and it would subject higher levels of income to payroll taxes to ensure Social Security’s solvency for at least the next 75 years.

But the plan would not count any savings from Social Security toward meeting the overall deficit-reduction goal set by Mr. Obama ...

The proposed simplification of the tax code would repeal or modify a number of popular tax breaks — including the deductibility of mortgage interest payments [and the exemption from taxes for employees’ health benefits] — so that income tax rates could be reduced across the board.

I doubt the mortgage interest deduction will be eliminated, but maybe it could be reduced over time. Same with the exemption for health benefits. I'd prefer if they left Social Security out of this proposal completely, and just addressed the General Fund deficit. Then, after reaching agreement on the General Fund deficit reduction, they could return to Social Security in the future.

Oh well, this proposal will probably end up with most other commission reports - gathering dust (well, mostly digital dust these days).

by Calculated Risk on 11/10/2010 09:20:00 AM

The Census Bureau reports:

[T]otal September exports of $154.1 billion and imports of $198.1 billion resulted in a goods and services deficit of $44.0 billion, down from $46.5 billion in August, revised.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through September 2010.

After trade bottomed in the first half of 2009, imports increased much faster than exports. Over the last five months, both exports and imports have been relatively flat.

The second graph shows the U.S. trade deficit, with and without petroleum, through September.

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 petroleum deficit decreased slightly in September, and the trade deficit with China decreased slightly (NSA).

The trade deficit will probably increase in October since oil prices increased, and China reported a higher trade surplus for October.

by Calculated Risk on 11/10/2010 08:30:00 AM

Update: due to revisions, this is the lowest level since September 2008 for the 4-week moving average.

The DOL reports on weekly unemployment insurance claims:

In the week ending Nov. 6, the advance figure for seasonally adjusted initial claims was 435,000, a decrease of 24,000 from the previous week's revised figure of 459,000. The 4-week moving average was 446,500, a decrease of 10,000 from the previous week's revised average of 456,500.

Click on graph for larger image in new window.

This graph shows the 4-week moving average of weekly claims since January 2000.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week by 10,000 to 446,500.

This is the lowest level for the 4-week moving average since January of this year September 2008 - an improvement over recent months, but still elevated - and still a sign of weakness in the job market.

by Calculated Risk on 11/10/2010 07:26:00 AM

The MBA reports: Mortgage Applications Increase in Latest MBA Weekly Survey

The Refinance Index increased 6.0 percent from the previous week. The seasonally adjusted Purchase Index increased 5.5 percent from one week earlier. This is the third consecutive weekly increase in purchase applications.
...
“The increases in purchase applications we have seen over the past couple of weeks align with the better than expected news from October’s employment report and other data indicating some improvement in the economy’s growth prospects. Refinance applications increased as rates continued to hover near record lows.” [said Michael Fratantoni, MBA’s Vice President of Research and Economics.]
...
The average contract interest rate for 30-year fixed-rate mortgages remained unchanged at 4.28 percent, with points decreasing to 1.05 from 1.07 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

The four-week moving average of the purchase index has increased slightly for three straight weeks, however the index is still about 30% below the levels of April 2010. This suggests existing home sales will remain weak through the end of the year.

by Calculated Risk on 11/09/2010 09:58:00 PM

From the Financial Times Alphaville: US downgraded on QE2 ... by Chinese rating agency (ht Andrew)

Dagong Global Credit Rating Co. — the Chinese rating agency which hit headlines earlier this year for its AA-view on the United States — is back. With a US downgrade.

From the just-published, 10-page report:

Dagong has downgraded the local and foreign currency long term sovereign credit rating of the United States of America (hereinafter referred to as “United States” ) from “AA” to “A+“, which reflects its deteriorating debt repayment capability and drastic decline of the government’s intention of debt repayment.

The serious defects in the United States economic development and management model will lead to the long-term recession of its national economy, fundamentally lowering the national solvency.

I thought this was from The Onion. The report concludes:

[G]iven the current situation, the United States may face much unpredictable risks in solvency in the coming one to two years.

Uh, right. At least someone in China has a sense of humor ...