by Calculated Risk on 2/25/2011 06:06:00 PM

Midwest core meltdowns
Radioactive assets
Toxicity rise
by Soylent Green is People
From the FDIC: First State Bank, Mendota, Illinois, Assumes All of the Deposits of Valley Community Bank, St. Charles, Illinois

As of December 31, 2010, Valley Community Bank had approximately $123.8 million in total assets and $124.2 million in total deposits ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $22.8 million. ... Valley Community Bank is the 23rd FDIC-insured institution to fail in the nation this year, and the second in Illinois.

It is Friday ...

by Calculated Risk on 2/25/2011 04:54:00 PM

Yesterday I noted that the combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased 71% compared to Q4 2009 (year-over-year comparison). As I noted, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

Click on graph for larger image in graph gallery.

This graph from economist Tom Lawler shows an estimate of all the REO inventory. Lawler writes:

Based on the FDIC’s QBP report, as well as preliminary data on REO for private-label securities (using Barclay’s Capital data, as I don’t have data from my other source yet), REO inventory at “the F’s,” FDIC-insured institutions, and PLS would look as follows [see graph]

From CR: REO inventory is still below the levels in 2008 - but not much - and that was when prices were falling quickly. I think the various lenders are a little more careful disposing of REOs now, but the level of REOs suggest downward house price pressure.

The 2nd graph (repeated from yesterday) just shows the REO inventory for Fannie, Freddie and FHA through Q4 2010.

The REO inventory for the "Fs" has increased sharply over the last year, from 172,368 at the end of 2009 to a record 295,307 at the end of 2010. Although this slowed in Q4 - as the "Fs" slowed foreclosures - this will probably increase some more in 2011.

by Calculated Risk on 2/25/2011 03:20:00 PM

This speech from Fed Vice Chair Janet Yellen provides the Fed's view of the impact of QE2: Unconventional Monetary Policy and Central Bank Communications (see Effectiveness of Asset Purchases and the associated graphs).

Yellen also commented on forward guidance:

Down the road, once the recovery is well established and the appropriate time for beginning to firm the stance of policy appears to be drawing near, the FOMC will naturally need to adjust its "extended period" guidance and develop an alternative communications strategy to shape market expectations about the policy outlook.

This is part of the timeline I outlined earlier this week: When will the Fed raise rates?

My view is the Fed will complete the $600 billion “QE2” large-scale asset purchase program (probably in June, but they may taper it off), then they will stop the reinvestment of maturing MBS and Treasury Securities (could be concurrent with the end of QE2), and then the FOMC will change the "extended period" language. That suggests the Fed will not raise until 2012 at the earliest.

Earlier today, Richmond Fed President Jeffrey Lacker suggested QE2 might end early, via MarketWatch:

Federal Reserve should seriously consider adjusting its $600 billion bond-buying program in light of a recent pickup in U.S. economic activity, said Jeffrey Lacker, president of the Richmond Federal Reserve Bank, on Tuesday.
...
“The distinct improvement in the economic outlook since the [bond-buying] program was initiated suggests taking that re-evaluation quite seriously,” Lacker said ...

I think it is very unlikely the program will end early. Note: I've heard suggestions that high oil prices might lead to an expanded QE2 (or QE3) - that also seems unlikely to me at this point. It would probably take renewed weakness in the U.S. economy before we see additional stimulus.

by Calculated Risk on 2/25/2011 12:30:00 PM

A few notes and stories ...
• The Irish election is today. The polls stay open until 10 PM (5 PM ET).
Here is the Irish Times for election results. The yield on Ireland's Ten Year bond is up to 9.35% - very near the all time high.

• There is a meeting of several EU leaders, apparently including Angela Merkel and Nicolas Sarkozy, in Helsinki on March 4th, and then a special eurozone debt crisis summit on March 11th.

• Portugal will probably be high on the agenda. The yield on Portugal's Ten Year bond is at 7.55% - an all time high.

• There has been some concern about Italy because they import a large amount of oil from Libya. The yield on Italy's Ten Year bond is up to 4.85% - but the WSJ reports Italy’s €9.5B Bond Sale Goes Smoothly.

• And on oil, Bloomberg reports: Spain Cuts Speed Limit on Highways as Oil Surges on Libya (ht Brian)

Spain will cut the speed limit on its highways, slash the price of train tickets and increase the use of biofuels after oil prices surged because of turmoil in North Africa.

Spain will reduce the speed limit on highways to 110 kilometers per hour (68 miles per hour) from 120 kilometers per hour ...

• Here are the Ten Year yields for Spain, Greece, and Belgium. Still elevated ...

by Calculated Risk on 2/25/2011 09:55:00 AM

The final February Reuters / University of Michigan consumer sentiment index increased to 77.5, the highest level in three years.

Click on graph for larger image in graphic gallery.

This was above the consensus forecast of 75.4.

In general consumer sentiment is a coincident indicator. This is still fairly low, but improving.

by Calculated Risk on 2/25/2011 08:30:00 AM

From the BEA: Gross Domestic Product, 4th quarter 2010 (second estimate)

The small downward revision came mostly from PCE, imports, and state and local government expenditures (see table at bottom for changes in contribution to GDP).

Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The current quarter is in blue.

The dashed line is the median growth rate of 3.05%. The current recovery is still below trend growth.

The following table shows the changes from the advance release (this is the Contributions to Percent Change in Real Gross Domestic Product).

Contributions to Percent Change in Q4 Real Gross Domestic Product
	Advance	2nd Estimate (Revision)	Change
Percent change at annual rate:
Gross domestic product	3.2	2.8	-0.4
Percentage points at annual rates:
Personal consumption expenditures	3.04	2.88	-0.16
Goods	2.26	2.2	-0.06
Durable goods	1.48	1.44	-0.04
Nondurable goods	0.78	0.76	-0.02
Services	0.78	0.68	-0.1
Gross private domestic investment	-3.2	-3.13	0.07
Fixed investment	0.5	0.57	0.07
Nonresidential	0.43	0.51	0.08
Structures	0.02	0.11	0.09
Equipment and software	0.41	0.39	-0.02
Residential	0.08	0.06	-0.02
Change in private inventories	-3.7	-3.7	0
Net exports of goods and services	3.44	3.35	-0.09
Exports	1.04	1.18	0.14
Goods	0.85	0.99	0.14
Services	0.19	0.19	0
Imports	2.4	2.17	-0.23
Goods	2.29	2.07	-0.22
Services	0.11	0.11	0
Government consumption expenditures and gross investment	-0.11	-0.31	-0.2
Federal	-0.01	-0.02	-0.01
National defense	-0.11	-0.12	-0.01
Nondefense	0.1	0.1	0
State and local	-0.1	-0.29	-0.19

by Calculated Risk on 2/24/2011 10:46:00 PM

Here is the weekly update on hotels from HotelNewsNow.com: San Diego tops ADR, RevPAR weekly increases

Overall, the U.S. hotel industry’s occupancy increased 6.7% to 59.1%, ADR was up 3.3% to US$99.32, and RevPAR finished the week up 10.2% to US$58.72.

Note: RevPAR: Revenue per Available Room.
Click on graph for larger image in graph gallery.

This graph shows the seasonal pattern for the hotel occupancy rate.

The occupancy rate really fell off a cliff in the 2nd half of 2008, and then 2009 was the worst year for the occupancy rate since the Great Depression. The occupancy rate started to improve in the Spring of 2010, and was above the 2008 rates later in the year.

However, so far, 2011 is closer to the weak occupancy rates of 2009 and early 2010 than to the median for 2000 through 2007 - although it does appear occupancy improved last week.

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

Earlier today:
• New Home Sales decrease in January
• Home Sales: Distressing Gap
• Fannie, Freddie, FHA combined REO Inventory at Record Level

by Calculated Risk on 2/24/2011 06:37:00 PM

The combined REO (Real Estate Owned) inventory for Fannie, Freddie and the FHA increased to a record 295,307 units at the end of Q4, although REO inventory decreased slightly for both Fannie Mae and Freddie Mac in Q4 (compared to Q3). The REO inventory increased 71% compared to Q4 2009 (year-over-year comparison).

Click on graph for larger image in new window.

This graph shows the REO inventory for Fannie, Freddie and FHA through Q4 2010.

The REO inventory for the "Fs" has increased sharply over the last year, from 172,368 at the end of 2009 to a record 295,307 at the end of 2010.

From Fannie Mae: Fannie Mae Reports Fourth-Quarter and Full-Year 2010 Results

Given the large number of seriously delinquent loans in our single-family guaranty book of business and the large current and anticipated supply of single-family homes in the market, we expect it will take years before our REO inventory approaches pre-2008 levels.

Also, this is just a portion of the total REO inventory. Private label securities and banks and thrifts also hold a substantial number of REOs.

by Calculated Risk on 2/24/2011 04:34:00 PM

From Freddie Mac: Freddie Mac Fourth Quarter 2010 Financial Results

Freddie Mac today reported a net loss of $113 million for the quarter ended December 31, 2010, compared to a net loss of $2.5 billion for the quarter ended September 30, 2010. For the full-year 2010, the company reported a net loss of $14.0 billion, compared to a net loss of $21.6 billion for the full-year 2009.
...
[The FHFA] as Conservator, will submit a $500 million draw request to Treasury ...

“As we begin 2011, the housing recovery remains vulnerable to high levels of unemployment, delinquencies and foreclosures,” [Freddie Mac Chief Executive Officer Charles E. Haldeman, Jr.] said. “Nevertheless, certain economic indicators showed improvement in late 2010. While this trend offers some encouragement, we expect national home prices to decline this year as housing will continue to take some time to recover."

Freddie Mac reported that REO inventory was at 72,079 at the end of Q4, up 60% from Q4 2009 (45,047), but down slightly from Q3 2010.

by Calculated Risk on 2/24/2011 03:04:00 PM

UPDATE: CNBC: US Cannot Confirm Rumors Gaddafi Shot; Oil Tumbles

• From the Kansas City Fed: Manufacturing activity matched an all-time survey high in February

The month-over-month composite index was 19 in February, up from 7 in January and 14 in December. This reading matched all-time survey highs reached several times from late 2003 to early 2005.
...
The production index rose to 23, its highest level since early 2006, and the shipments, new orders, and order backlog indexes also increased. The employment index jumped from 8 to 23, a ten-year high, and the new orders for exports index also edged higher.
...
Price indexes generally increased, or remained elevated from last month’s record high.

This follows solid reports from the NY Fed (Empire State), Philly Fed, and the Richmond Fed. The Texas survey will be released on Monday, Feb 28th, and these surveys suggest a strong reading in the ISM manufacturing survey to be released on March 1st.

• From Freddie Mac: 30-Year Fixed-Rate Mortgage Eases Just Below 5 Percent

30-year fixed-rate mortgage (FRM) averaged 4.95 percent with an average 0.6 point for the week ending February 24, 2011, down from last week when it averaged 5.0 percent. Last year at this time, the 30-year FRM averaged 5.05 percent.

Libya updates:
• From the NY Times: Qaddafi Strikes Back as Rebels Close In on Libyan Capital

• From the WSJ: Libya Rebels Vow Offensive as Gadhafi Blames al Qaeda

• The Telegraph blog that is updated frequently: Libya protests: live

• From al Jazeera: Live Blog - Libya Feb 24

• From Jim Hamilton at Econbrowser: Libya, oil prices, and the economic outlook

[O]ne wouldn't begin to anticipate significant effects on U.S. GDP until the price of oil got above about $130 a barrel, or until the second half of this year. ... My bottom line is that events as they have unfolded so far are not in the same ballpark as the major historical oil supply disruptions, and are unlikely to produce big enough economic multipliers that they could precipitate a new economic downturn. ... But the worry of course is that the big geopolitical changes we've been seeing didn't stop with Tunisia, and didn't stop with Egypt. So maybe it's not a good idea to assume it's all going to stop with Libya, either.

Earlier: New Home Sales
• New Home Sales decrease in January

Existing Home Sales:
• January Existing Home Sales: 5.36 million SAAR, 7.6 months of supply
• Existing Home Inventory increases 3.1% Year over Year

House Prices:
• Case-Shiller: National Home Prices Are Close to the 2009Q1 Trough
• Real House Prices fall to 2000 Levels, Update on NAR Overstating Sales
• House Prices: Price-to-rent, Price-to-median Household Income

Graph Galleries: New Home sales, existing home sales, House prices