by Calculated Risk on 11/12/2010 06:41:00 PM

From Bloomberg: Ireland Urged by European Officials to Accept Aid to Contain Debt Crisis

In a conference call of European Central Bank officials around noon Frankfurt time today, Ireland was pressed to seek outside help within days, the person said on condition of anonymity. Separately, a European Union official said a request for assistance was likely ...

However, earlier from the Irish Times: Cowen denies reports of EU talks on emergency funding

Taoiseach Brian Cowen has denied reports that negotiations are going on behind the scenes for emergency funding for Ireland from the European Union.

Quoting an unnamed source, the Reuters news agency reported that Ireland was likely to become the second euro zone country, after Greece, to obtain an international rescue.

Conflicting news reports continue ... reminds me of when Sunday was the new Monday (with all the breaking news during the crisis).

by Calculated Risk on 11/12/2010 06:09:00 PM

Stacking failed banks
One on top of another
To the moon, Alice!
by Soylent Green is People
From the FDIC: Ameris Bank, Moultrie, Georgia, Acquires All of the Deposits of Two Georgia Institutions

As of September 30, 2010, Tifton Banking Company had total assets of $143.7 million and total deposits of $141.6 million, and Darby Bank & Trust Co. had total assets of $654.7 million and total deposits of $587.6 million.
...
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $24.6 million for Tifton Banking Company, and $136.2 million for Darby Bank & Trust Co. ... The two closed institutions were the 144th and 145th banks to fail in the nation this year, and the 17th and 18th banks to close in Georgia.

More Georgia ...

by Calculated Risk on 11/12/2010 04:11:00 PM

A few excerpts from home builder D.R. Horton's conference call:

CEO Don Tomnitz:

As we look to fiscal 2011, we ... expect another very challenging year for the homebuilding industry, as the fundamental drivers of demand, the overall economy, job growth, and consumer confidence are still very weak. In addition, we do not expect any stimulus in fiscal 2011 similar to the federal tax credits that were in effect last year.

All of these factors make it likely that our sales and closing volumes will be below our volumes in fiscal 2010.

And from the Q&A:

Based on current sales demand and the fact that the tax credits were supporting sales demand last year, we expect sales in the next two quarters to be lower than last year.
...
There are still challenges in the homebuilding industry. Rising foreclosures, significant existing home inventory, high unemployment, tight mortgage lending standards, and the weak consumer confidence ... the real key is that the traffic count in our sub-divisions is down, and I don’t think there is a lot of pricing adjustment that we can do, it’s just a function of the lack of traffic. So until there is some consumer confidence, until we start to grow jobs, I think we’re going to continue to be faced with rather flat demand just simply because buyers don’t feel confident about the future and they’re not going out there looking for a house in the numbers that they were certainly when the tax credits were there.

Until the excess housing inventory is absorbed, the home builders will be under pressure. There is still a long way to go ...

by Calculated Risk on 11/12/2010 12:50:00 PM

Just an update since I've been following this over the last few weeks ... the EU finance ministers issued a statement last night that pushed down the yields for Ireland and Portugal debt:

Whatever the debate within the euro area about the future permanent crisis resolution mechanism, and the potential for private sector involvement in that mechanism, we are clear that this does not apply to any outstanding debt and any programme under current instruments.

Any new mechanism would only come into effect after mid-2013 with no impact whatsoever on the current arrangements.

The EFSF (European Financial Stability Facility) is already established and its activation does not require private sector involvement.

The Ireland 10-year bond yield fell to 8.13% (from 8.9%).

The Portugal 10-year bond yield fell to 6.74% from 7.2%.

by Calculated Risk on 11/12/2010 09:55:00 AM

The preliminary Reuters / University of Michigan consumer sentiment index increased slightly in November to 69.3 from 67.7 in October.

Click on graph for larger image in new window.

This was a big story in when consumer sentiment collapsed again in July. Since then this measure of consumer sentiment has mostly moved sideways at a fairly low level.

In general consumer sentiment is a coincident indicator.

by Calculated Risk on 11/12/2010 09:00:00 AM

From Buck Wargo at the Las Vegas Sun: Condo sales at CityCenter a mixed bag

CityCenter projects it will have closed on 435 condominium units by the end of November out of 2,387 units it had on the market. ... even though it trimmed prices 30 percent a year ago
...
According to Las Vegas-based SalesTraq, more than 4,000 high-rise units remain unsold along the Strip.

The CityCenter (18% sold) is even doing worse than Trump Tower (25% sold). It will take years to clear this inventory.

Note: high rise condo units are not included in the new home inventory report from the Census Bureau, and they are also not included in the existing home inventory report from the NAR (unless they are list for sale). This is hidden inventory, and for certain cities like Las Vegas, this is significant.

by Calculated Risk on 11/11/2010 08:20:00 PM

Please don't miss my earlier post: Labor Force Participation Rate: What will happen?

From the Irish Times: Merkel refuses to back down over debt burden

The Irish Times has established ... that informal contacts are under way between Brussels, Berlin and other capitals to assess their readiness to activate the €750 billion rescue fund in the event of an application from Dublin.

Note: The European Financial Stability Facility (EFSF) is complicated and currently unfunded.

Also from the Irish Times (I noted the bank funding issue this morning based on information from a contact in Europe): Investor concern hits Irish banks as funding costs soar

INVESTOR CONCERN switched to the Irish banks yesterday as the cost of funding for AIB and Bank of Ireland rose to record levels and the credit-default swaps on Irish banks soared.

And from the Irish Times: G20 concern over Irish debt as bond yields pass 9%

Last night the rating agency Moody’s said it was awaiting the release of Ireland’s four-year fiscal plan later this month to decide whether to downgrade the country’s credit rating.

by Calculated Risk on 11/11/2010 06:15:00 PM

Hotel occupancy is one of several industry specific indicators I follow ...

Important: Even though the occupancy rate is close to the weak 2008 levels, and RevPAR (revenue per available room) is up 8.2% compared to the same week in 2009 - RevPAR is still down 3% compared to the same week in 2008 - and the 2nd half of 2008 was a very difficult period for the hotel industry.

From HotelNewsNow.com: STR: Midscale with F&B reports strong weekly results

Overall, the total U.S. hotel industry’s occupancy increased 6.2% to 58.2%, average daily rate was up 1.9% to US$99.29, and RevPAR ended the week up 8.2% to US$57.75.

The following graph shows the four week moving average for the occupancy rate by week for 2008, 2009 and 2010 (and a median for 2000 through 2007).

Click on graph for larger image in new window.

Notes: the scale doesn't start at zero to better show the change. The graph shows the 4-week average, not the weekly occupancy rate.

On a 4-week basis, occupancy is up 8.6% compared to last year and 5.8% below the median for 2000 through 2007.

The occupancy rate is slightly above the levels of 2008, but RevPAR is still down 3% compared to the same week in 2008.

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

by Calculated Risk on 11/11/2010 01:58:00 PM

The collapse in the labor force participation rate has been one of the key stories of the great recession. The participation rate is the percentage of the working age population in the labor force.

As the economy slowly recovers, an important question is what will happen to the participation rate over the next few years? If the participation rate increases to 66% - from the current 64.5% - then the U.S. economy will need an additional 3.3 million jobs just to hold the unemployment rate steady (not counting population growth).

Click on graph for larger image.

This graph shows the recent sharp decline in the participation rate (blue), and also the unemployment rate and the employment-population ratio. The participation rate had mostly been above 66% since the late '80s, and had been over 67% in the late '90s.

One of the key factors impacting the participation rate (other than a severe recession) is the age of the labor force. The following graph shows the participation rate by age group in 2007 (I selected 2007 because it is recent, but before the recession started).

This graph is for 2007, but the general pattern holds for all years. The participation rate is low for those in the '16 to 19' age group. The rate increases sharply for those in the '20 to 24' age group, and the rate is at its peak from 25 to 49 - and drops off a little for the '50 to 54' age group.

After 55 workers start leaving the labor force, and the participation rate falls off with age.

Even if the participation rates per age group were static (they aren't), the overall participation rate would change with the demographics of the population.

We can use the above participation rates by age group for 2007, and historical data and age group population projections from the Census Bureau, to calculate a participation rate based on demographics.

This graph shows the calculated participation rate (blue) through 2050, and the actual participation rate since 1950 (red). The calculated participation rate, using 2007 data, is far too high for the earlier periods. This is mostly because of women joining the labor force (next graph).

Without other shifts in the labor force (last graph), the blue line would indicate the participation rate over the next 40 years. The participation rate declines as the population ages. This simple analysis suggests the participation rate will be at about the same level in 2015 as today.

Note: the dashed purple line indicates the participation rate with a 5 percentage point increase in the 'over 55' labor force participation rate.

The early gap in the previous graph was due to women joining the labor force (I used 2007 data to do the projections).

This graph shows the changes in the participation rates for men and women since 1960 (in the 25 to 54 age group - the prime working years).

The participation rate for women increased significantly from the mid 30s to the mid 70s. The participation rate for men has decreased from the high 90s to just about 90%.

And the final graph shows that participation rates for age groups are not static (as was assumed for the projection).

There are a few key trends happening:
1) the participation rate for the '16 to 19' age group has been falling for some time (red).
2) the participation rate for the 'over 55' age group has been rising since the mid '90s (purple).
3) the participation rate for the '20 to 24' age group appears to be falling too (perhaps more education before joining the labor force). Also note the sharp decline over the last couple of years - that will probably turn around quickly as the job market improves.

This is why I added the dashed purple line to the projection graph above. If the trend continues for the 'over 55' group - perhaps because of necessity, perhaps because of fewer "back breaking" jobs - then the overall participation rate will not fall as quickly as the blue line indicates. With just a 5 percentage point increase in participation for the 'over 55', the participation rate will be back to 66% in 2015.

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