by Calculated Risk on 9/19/2011 03:36:00 PM

From Bloomberg: Greece’s Next Aid Payment in the Balance as Review Resumes

European Union and International Monetary Fund inspectors began a teleconference today at 7:22 p.m. Athens time [12:22 PM ET] with Finance Minister Evangelos Venizelos and other officials to judge whether the government is eligible for an aid payment due next month...

No official announcement will be made after the call, which may last until the early morning and could resume tomorrow or at a later time, the Athens-based Finance Ministry said in an e- mailed statement. There is no Greek Cabinet meeting scheduled tomorrow ...

"The only thing that is on the table is full compliance with the agreed targets. No more, no less," [European Commission economics spokesman Amadeu Altafaj] said, adding that only after today's conference call will the commission "be in a position to communicate further on the next steps." ...

Greece is now looking to the next meeting of euro-area finance ministers, on Oct. 3, for a decision on the release of the installment. The loan would be disbursed by mid-October, enabling the government to pay its bills through the end of the year.

We might not hear anything for a few days.

The Greek 2 year yield increased to 61.4%. The Greek 1 year yield increased to 126%.

by Calculated Risk on 9/19/2011 01:10:00 PM

From Eric Wolff at the North County Times: The bigger the loan, the longer to foreclose

When it comes to foreclosing, lenders see some delinquent homeowners as more equal than others.

Mortgage debt of more than a half-million dollars seems to get lenders to look the other way for an extra month compared with those who owe far less, according to a North County Times analysis of foreclosure records.
...
"Just like any other business, when you have larger losses, you're going to be more cautious when you make any decisions than with a smaller loss," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Association, an industry group. "There's no policy in place at any of the servicers I talked to ---- not anything top down."

Eric Wolff discusses several possible reasons including accounting rules, legal issues and lenders being more careful with larger loan amounts.

by Calculated Risk on 9/19/2011 10:00:00 AM

The National Association of Home Builders (NAHB) reports the housing market index (HMI) declined in September to 14 from 15 in August. Any number under 50 indicates that more builders view sales conditions as poor than good.

From the NAHB: Builder Confidence Virtually Unchanged in September

Builder confidence in the market for newly built, single-family homes dipped by a single point to 14 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) for September, released today. The index has now held between 13 and 16 for six consecutive months.
...
"The fact that the HMI continues to hover within such a narrow, low range reflects builders' awareness that many consumers are simply unwilling or unable to move forward with a home purchase in today's uncertain economic climate," added NAHB Chief Economist David Crowe. "While some bright spots are beginning to emerge in about a dozen select metro areas, the broader picture remains fairly bleak due to the weak economy and job market."
...
Each of the HMI's three component indexes recorded declines in September. The component gauging current sales conditions slipped one point to 14, while the components gauging sales expectations in the next six months and traffic of prospective buyers each declined two points, to 17 and 11, respectively.

The Midwest was the only region to post a gain in its HMI score for September, edging up one point to 11. Meanwhile, the Northeast and South each posted two-point declines to 15 and the West posted a three-point decline to 12.

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the September release for the HMI and the July data for starts (August housing starts will be released tomorrow).

Both confidence and housing starts have been moving sideways at a very depressed level for several years.

by Calculated Risk on 9/19/2011 08:31:00 AM

The BuildFax Residential Remodeling Index was at 130.4 in July, up from 129.5 in June. This is based on the number of properties pulling residential construction permits in a given month.

From BuildFax:

The Residential BuildFax Remodeling Index rose 24% year-over-year--and for the twenty-first straight month--in July to 130.4, the highest number in the index to date. Residential remodels in July were up month-over-month almost a single point (.6%) from the June value of 129.5, and up year-over-year 25.6 points (24.5%) from the July 2010 value of 104.7.
...
In July, the West (3.4 points; 3%) and Midwest (4.9 points; 5%) all had month-over-month gains, while the South (3.3 points; 3%) and Northeast (2.7 points; 3.4%) saw a decline.
...
"As millions of Americans believe that they will not be able to secure a new home due to a variety of factors including tight credit, limited buyers and challenging job prospects, they are more and more turning to renovating and remodeling their current properties, sending remodeling activity to record levels," said Joe Emison, Vice President of Research and Development at BuildFax.

Click on graph for larger image in graph gallery.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: Permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Since there is a strong seasonal pattern for remodeling, the second graph shows the year-over-year change from the same month of the previous year.

The remodeling index is up 24.5% from July 2010.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

Data Source: BuildFax, Courtesy of Index.BuildFax.com

Weekend:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th
• Links for Sovereign Debt Series

by Calculated Risk on 9/18/2011 08:57:00 PM

From the WSJ: Greece Seeks Further Cuts

Greece's government held an emergency cabinet meeting Sunday to plan new measures to bring its unruly budget deficit into line, after heated warnings from the other euro-zone nations over the weekend that its efforts were insufficient and might threaten the delivery of future aid.

During a late-evening break in the meeting, Finance Minister Evangelos Venizelos pledged that Greece would adopt a raft of new budget-cutting measures endorsed by the "troika" ... Greece agreed in March this year to lay off 80,000 public-sector workers by 2015. But the government has also hired around 25,000 new workers in the past two years to fill shortages in select areas of the public sector.

Now, with Greece unlikely to meet its deficit targets this year, the troika has upped the target for public-sector layoffs to 100,000 ...

The population of Greece is around 11.3 million, so this is similar to about 3 million layoffs in the U.S.

From the NY Times: Greece Nears a Tipping Point in Its Debt Crisis

The Greeks face an October deadline to qualify for 8 billion euros, or $11 billion, in aid, without which Greece will certainly default on its growing debt.

The payment is just one installment in a larger package of 110 billion euros in aid agreed to by euro zone members in spring 2010; a second bailout fund, for 109 billion euros, was agreed to in July, though that has yet to be ratified.

To reach the financial targets, Greek leaders discussed a range of draconian layoffs and pay reductions ... While these measures have long been planned, but never carried out, to the frustration of foreign lenders, the discussion of these cuts represented a marked change in approach for the Greek government, with the emphasis on reductions over revenue increases.

The Greek 2 year yield declined to 55%. The Greek 1 year yield is at 110%. Both significantly off the highs.

Yesterday:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th
• Links for Sovereign Debt Series

by Calculated Risk on 9/18/2011 03:05:00 PM

There will be a two day meeting of the FOMC on Tuesday and Wednesday. This meeting was originally scheduled for one day, but was expanded to two days to allow for a "fuller discussion"¹ of "the relative merits and costs" of the "range of tools that could be used to provide additional monetary stimulus".
¹Words in quotes are from Fed Chairman's Jackson Hole speech on August 26th.

The FOMC statement will be released around 2:15 PM ET on Wednesday.

In July, during his Congressional testimony, Fed Chairman Ben Bernanke reiterated that another round of monetary accommodation (aka QE3) would depend on both a further deteriorating in the economic outlook and the renewed threat of deflation. Bernanke said: "[T]he possibility remains that the recent economic weakness may prove more persistent than expected and that deflationary risks might reemerge, implying a need for additional policy support."

The recent inflation reports indicated an uptick in the core measures of inflation at just above the Fed's target. That would seem to argue against QE3. However Chicago Fed President Charles Evans recently argued that the Fed should remember the dual mandate and take more action:

[W]hen unemployment stands at 9%, we’re missing on our employment mandate by 3 full percentage points. That’s just as bad as 5% inflation versus a 2% target. So, if 5% inflation would have our hair on fire, so should 9% unemployment.

Clearly the economy is weaker than the Fed had expected, but I suspect there will be quite an argument about inflation.

QE3 is unlikely at the September meeting, but not impossible - however most observers think the FOMC will announce a program to change the composition of their balance sheet (extend maturities). It is also possible that the FOMC will announce a reduction in the interest rate paid on excess reserves (currently 0.25%).

Also the FOMC statement might change. It is possible that the outlook on the unemployment rate might be downgraded. From the August statement:

"The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate."

Many forecasters think the unemployment rate will start to increase again - or at least not "decline gradually". As an example, Goldman Sachs is forecasting the unemployment rate to rise to 9.3% in Q4, and to hold flat at 9.4% in 2012.

Of course the key sentence "economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013" will remain.

Yesterday:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th
• Links for Sovereign Debt Series

by Calculated Risk on 9/18/2011 09:19:00 AM

From Scott Reckard at the LA Times: Bank deposits soar despite rock-bottom interest rates

Americans are pumping money into bank accounts at a blistering pace this year, sending deposits to record levels near $10 trillion ...

In the last three months, accounts at U.S. commercial banks have increased $429 billion, or 10%, almost double the increase for all of last year.
...
The large amount of cash only adds to expenses such as paying for deposit insurance premiums. ... [banks] have slashed interest payments to discourage customers. Wells Fargo & Co. ... halved its payments on one-year certificates of deposits to 0.1%; Citigroup ... dropped its payment to a paltry 0.3%.
...
[Some banks are] stashing it in a safe but unrewarding place: Federal Reserve banks, which are paying them an interest rate of just 0.25% to tend the funds. Such deposits rose to more than $1.6 trillion at the end of August from about $1 trillion a year earlier, according to the Fed.

And the Fed might lower the interest rate paid on excess reserves this week.

Yesterday:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th

by Calculated Risk on 9/17/2011 10:35:00 PM

CR Note: This series is from "Some investor guy". He wrote these posts just over a year ago. The series starts with some basics, and concludes in Part 5 with some speculation. The data is a year old - as an example the probability of default for Greece is now close to 100%! (as opposed to over 50% last year).

• Part 1: How Large is the Outstanding Value of Sovereign Bonds?

• Part 2. How Often Have Sovereign Countries Defaulted in the Past?

• Part 2B: More on Historic Sovereign Default Research

• Part 3. What are the Market Estimates of the Probabilities of Default?

• Part 4. What are Total Estimated Losses on Sovereign Bonds Due to Default?

• Part 5A. What Happens If Things Go Really Badly? $15 Trillion of Sovereign Debt in Default

• Part 5B. Part 5B. What Happens If Things Go Really Badly? More Things Can Go Badly: Credit Default Swaps, Interest Swaps and Options, Foreign Exchange

• Part 5C. Some Policy Options, Good and Bad

• Part 5D. European Banks, What if Things Go Really Badly?

Earlier:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th

by Calculated Risk on 9/17/2011 06:55:00 PM

Nothing was resolved. It sounds like there will be another round of stress tests including exposure to sovereign debt. About time!

• From the WSJ: EU Ends Talks With Little Progress in Overcoming Divisions

At the end of two days of informal talks here, the finance ministers made little progress in overcoming divisions ... they continued to spar over a range of issues, including whether to impose a financial transactions tax, boost the euro zone's rescue fund and how to address Finland's demands for collateral in return for its contribution to Greece's bailout.
...
Michel Barnier, the EU's commissioner for financial regulation, said that while the 2011 tests were an improvement over last year's, "we must also acknowledge that the tests did not restore the credibility in banks strength in the way we would have hoped."

The tests should be strengthened, he said. "In particular, I think we need to reconsider how we treat sovereign exposure and liquidity, and further improve coordination between supervisors," Mr. Barnier said.

• From Bloomberg: Greece’s Premier Cancels U.S. Trip Before ‘Critical’ Week (ht jb)

Greek Prime Minister George Papandreou canceled a U.S. visit that was to begin tomorrow, saying he needed to remain in the country for a “critical” seven days in its effort to avert a bond default.

“The coming week is particularly critical for the implementation of the July 21 decisions in the euro area and the initiatives which the country must undertake,” said a statement e-mailed today from Papandreou’s office in Athens.
...
EU and International Monetary Fund inspectors will hold a conference call with Finance Minister Evangelos Venizelos to resume and accelerate their review on Sept. 19

• From the Irish Times: €10bn interest-rate cuts on State bailout signed off

EU FINANCE ministers have signed off on a package of interest rate cuts on Ireland’s bailout which will benefit the State by up to € 10 billion during the course of the rescue.

Earlier:
• Summary for Week ending September 16th
• Schedule for Week of Sept 18th

by Calculated Risk on 9/17/2011 02:15:00 PM

Earlier:
• Summary for Week ending September 16th

Three key housing reports will be released this week: September homebuilder confidence on Monday, August housing starts on Tuesday, and August existing home sales on Wednesday.

The September FOMC meeting was extended to two days, and the statement will be released on Wednesday. The Fed is expected to announce a program to increase the average maturity of their portfolio - and possibly lower the interest rate on excess reserves.

----- Monday, Sept 19th -----
10 AM ET: The September NAHB homebuilder survey. The consensus is for a reading of 15, unchanged from August. Any number below 50 indicates that more builders view sales conditions as poor than good. This index has been below 25 for four years.

----- Tuesday, Sept 20th -----
8:30 AM: Housing Starts for August. After collapsing following the housing bubble, housing starts have mostly been moving sideways for over two years.

Total housing starts were at 604 thousand (SAAR) in July, down 1.5% from the revised June rate of 613 thousand. Single-family starts declined 4.9% to 425 thousand in July.

The consensus is for a decrease to 592,000 (SAAR) in August.

----- Wednesday, Sept 21st -----
Early: The AIA's Architecture Billings Index for August (a leading indicator for commercial real estate).

This graph shows the Architecture Billings Index since 1996. The index decreased in in July to 45.1 from 46.3 in June. Anything below 50 indicates a contraction in demand for architects' services.

This index usually leads investment in non-residential structures (hotels, malls, office) by 9 to 12 months.

7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last several months and the four average was at 1995 levels last week.

10:00 AM: Existing Home Sales for August from the National Association of Realtors (NAR). The consensus is for sales of 4.75 million at a Seasonally Adjusted Annual Rate (SAAR) in August, up from 4.67 million SAAR in July. This is probably low - economist Tom Lawler estimates the NAR will report sales of 4.91 million.

Note: the NAR is working on benchmarking existing home sales for previous years with other industry data (expectations are for large downward revisions). These revisions are expected this fall.

2:15 PM: FOMC Meeting Announcement. The FOMC meeting was extended to two days, and many people expect the FOMC to announce a program to change the composition of their balance sheet (extend maturities) - and to possibly lower the interest rate on excess reserves. There will no press briefing after this meeting - the next press conference is scheduled for Nov 2nd.

----- Thursday, Sept 22nd -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 420,000 from 428,000 last week.

10:00 AM: Conference Board Leading Indicators for August. The consensus is for no change for this index.

10:00 AM: FHFA House Price Index for July 2011. This is based on GSE repeat sales and is no longer as closely followed as Case-Shiller (or CoreLogic).

Expected: The Moody's/REAL Commercial Property Price Indices (commercial real estate price index) for July.

----- Friday, Sept 23rd -----
1:30 PM: New York Fed President William Dudley speaks at the Bretton Woods meeting: "Financial Stability and Economic Growth" (part of the IMF/World Bank annual meetings).