by Calculated Risk on 12/12/2011 08:52:00 AM

Another summit. More disappointment ...

The Italian 2 year yield is up to 6.14%, and the 10 year yield is up to 6.72%. Both were below 6% last week.

The Spanish 2 year yield is up sharply to 4.7%, and the 10 year yield is up to 5.98%.

From the NY Times: Chronic Pain for the Euro

“More tests will obviously come, and soon,” perhaps as early as the opening of financial markets on Monday, said Joschka Fischer, the former German foreign minister.
...
The European stock markets had slipped by midmorning on Monday and ... Moody’s Investors Service said it could downgrade the sovereign ratings of some European Union countries in coming months, adding that the crisis remained at a “critical and volatile stage.”
...
The issue is how to promote economic growth and competitiveness in the poorer countries at the euro zone’s periphery that ran up large debts and trade deficits. “You need discipline as part of your stabilization strategy, but we also need a much stronger growth strategy for the southern countries,” including Italy, Mr. Fischer said.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/12/2011 12:26:00 AM

A depressing column from Paul Krugman at the NY Times: Depression and Democracy

Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.

First of all, the crisis of the euro is killing the European dream. ... Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained.
...
Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.

Right-wing populists are on the rise from Austria ... to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.
...
And in at least one nation, Hungary, democratic institutions are being undermined as we speak.

One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.
...
The European Union missed the chance to head off the power grab at the start ... It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.

And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.

The Asian markets are mostly green tonight. The Nikkei is up about 1.5%, and the Hang Seng is up 1.4%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 and Dow futures are down slightly.

Oil: WTI futures are down to $99.16 and Brent is down to $108.17 per barrel.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/11/2011 06:18:00 PM

From Wolfgang Münchau at the Financial Times: Snags, diversions – and the crisis goes on

Remember what everybody said a week ago? To solve the crisis, the eurozone requires, in the long run, a fiscal union with a prospect of a eurozone bond and, in the short run, unlimited sovereign bond market support by the European Central Bank. What we now have is no treaty change, no eurozone bond and no increase either in the rescue fund or in ECB support. ... The crisis ... goes on.
excerpt with permission

This definitely seems like more "can kicking", although the actions of the ECB will provide some liquidity for European banks. It still doesn't seem like European policymakers have addressed the issues of growth and rebalancing.

And from the WSJ: Europe Debt-Crisis Deal Not a Cure-All

by Calculated Risk on 12/11/2011 02:39:00 PM

From Professor Hamilton: More on those secret Federal Reserve loans to banks

The claim that the Federal Reserve extended trillions of dollars in secret loans to banks continues to be spread. Here at Econbrowser we will continue to try to correct some of the misunderstanding that is out there.
...
If you take the position that each new loan should be added as a running contribution to some total, then you are led to maintain that when the Fed loans $1 B to Bank A in the form of a 30-day loan, and loans $1 B to Bank B in the form of an overnight loan that is repaid and renewed each day, then the Fed has 30 times the exposure to Bank B as it does to Bank A. You are further led to infer that the Fed could have lost $1 B in lending to Bank A but somehow could have lost $30 B lending to Bank B. And you are led to infer that it is 30 times safer to make a 1-month loan than it is to make a series of overnight loans in the same amount. Good luck managing your or anybody else's finances, if that's your way of thinking.

But Professor Wray goes on to speak admirably about an analysis by his student James Felkerson that does exactly that, and concludes that the Fed lent not $7.77 trillion but instead $29 trillion. For example, Felkerson takes the gross new lending under the Term Auction Facility each week from 2007 to 2010 and adds these numbers together to arrive at a cumulative total that comes to $3.8 trillion. To make the number sound big, of course you want to count only the money going out and pay no attention to the rate at which it is coming back in. If instead you were to take the net new lending under the TAF each week over this period-- that is, subtract each week's loan repayment from that week's new loan issue-- and add those net loan amounts together across all weeks, you would arrive at a cumulative total that equals exactly zero. The number is zero because every loan was repaid, and there are no loans currently outstanding under this program.

But zero isn't quite as fun a number with which to try to rouse the rabble.

There is much more in Hamilton's piece.

CR Note: There is much more to this story - the need for transparency, the lawsuit to have the information released - but I'm glad that Professor Hamilton is trying to correct some of the faulty analysis of the actual numbers. We have to remember that banks (and other institutions) borrow short and lend long. During a panic (a liquidity crisis), banks are stuck with solid assets that are illiquid, but they have a need for short term cash. The Fed steps in as the lender of last resort, and the banks use the long term assets as collateral to obtain cash. This is a key role for the Fed.

During the crisis, the peak liquidity lending was about $1.5 trillion. A large number, but we need to compare that to the total amount of household and corporate debt outstanding (about $24 trillion in 2009). So, at the peak of the crisis, the Fed was providing liquidity for about 6% of the outstanding corporate and household debt.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/11/2011 09:36:00 AM

There will be a one day meeting of the Federal Open Market Committee (FOMC) on Tuesday, December 13th. The FOMC statement will be released around 2:15 PM ET on Tuesday.

Although there are several topics currently being discussed - such as adding a probable path for the Fed funds rate to the quarterly forecasts, and another round of QE ("QE3") by buying additional Mortgage Backed Securities (MBS) - those possible changes are more likely to be announced early next year.

So I expect no changes to interest rates, or to the program to extend the average maturity of its holdings of securities, or to the policy of reinvesting principal payments.

The FOMC statement might be changed to reflect the slight improvement to incoming data - but the wording changes will probably be minor. The trends the FOMC mentioned in November have continued: "economic growth strengthened somewhat", "unemployment rate remains elevated" and "Inflation appears to have moderated". And the downside risks remain: "there are significant downside risks to the economic outlook, including strains in global financial markets".

So I expect few changes to the FOMC statement, and the key sentence will remain unchanged: "The Committee ... currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

Charles Evans will probably argue for additional policy accommodation and he is likely to dissent again.

Yesterday:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

by Calculated Risk on 12/10/2011 11:24:00 PM

Earlier:
• Summary for Week ending Dec 9th
• Schedule for Week of Dec 11th

A versusplus.com holiday econoparody sampler, including "In excess, and way so!" and "It's beginning to look a lot more riskless"

by Calculated Risk on 12/10/2011 07:17:00 PM

Earlier:
• Summary for Week ending Dec 9th

Retail sales for November is the key report this week. For manufacturing, the December NY Fed (Empire state) and Philly Fed surveys, and the November Industrial Production and Capacity Utilization report will be released on Thursday.

On prices, the November Producer Price index (PPI) will be released Thursday, and CPI will be released on Friday. Also - there is an FOMC meeting on Tuesday.

----- Monday, Dec 12th -----
No releases scheduled.

----- Tuesday, Dec 13th -----
7:30 AM: NFIB Small Business Optimism Index for November.

Click on graph for larger image in graph gallery.

This graph shows the small business optimism index since 1986. The index increased to 90.2 in October from 88.9 in September. The index has increased for two consecutive months and is expected to increase further in November.

8:30 AM: Retail Sales for November.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline). Retail sales are up 19.5% from the bottom, and now 5.1% above the pre-recession peak (not inflation adjusted).

The consensus is for retail sales to increase 0.5% in November, and for retail sales ex-autos to increase 0.4% .

9:00 AM: Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for November (a measure of transportation).

10:00 AM: Manufacturing and Trade: Inventories and Sales for October. The consensus is for a 0.6% increase in inventories.

10:00 AM: Job Openings and Labor Turnover Survey for October from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

In general, the number of job openings (yellow) has been trending up, and are up about 22% year-over-year compared to September 2010.

2:15 PM: FOMC Meeting Announcement. No changes are expected to interest rates.

----- Wednesday, Dec 14th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak since early August, although this doesn't include cash buyers.

----- Thursday, Dec 15th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an increase to 390,000 from 381,000 last week. The 4-week average has recently declined to slightly below 400,000.

8:30 AM: Producer Price Index for November. The consensus is for a 0.2% increase in producer prices (0.2% increase in core).

8:30 AM ET: NY Fed Empire Manufacturing Survey for December. The consensus is for a reading of +3.0, up from +0.61 in November (above zero is expansion).

9:15 AM ET: The Fed will release Industrial Production and Capacity Utilization for November.

The second graph shows industrial production since 1967. Industrial production increased in October to 94.7 The consensus is for a 0.2% increase in Industrial Production in November, and for no change at 77.8% for Capacity Utilization.

10:00 AM: Philly Fed Survey for December. The consensus is for a reading of 5.0 (above zero indicates expansion, up slightly from 3.6 last month.

----- Friday, Dec 16th -----
8:30 AM: Consumer Price Index for November. The consensus is a 0.1% increase in prices. The consensus for core CPI is also an increase of 0.1%.

by Calculated Risk on 12/10/2011 01:35:00 PM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for Dec 9, 2011. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

Perhaps the FDIC is giving its closing teams the balance of the year off as there is only one weekend left before Christmas and New Year's weekend. This week there were three removals to the Unofficial Problem Bank List. After the removals, the list has 977 institutions with assets of $399.5 billion. A year ago, the list held 919 institutions with assets of $411.4 billion.

Removals include two unassisted mergers -- Fullerton Community Bank, FSB, Fullerton, CA ($636 million); and Santa Lucia Bank, Atascadero, CA ($232 million Ticker: SLBA). The other removal was the voluntary liquidation of Greystone Bank, Raleigh, NC ($90 million). Props go out to bank management and the North Carolina State Banking Department for winding down a problem bank at no cost to the deposit insurance fund.

Click on graph for larger image.

Here is a repeat of the graph of bank failures by week (cumulative) for the last several years.

In 2008, 25 banks failed, 140 banks failed in 2009, 157 in 2010, and only 90 so far in 2011.

If there are any more bank failures this year, they will probably be closed next Friday.

Earlier:
• Summary for Week ending Dec 9th

by Calculated Risk on 12/10/2011 08:15:00 AM

This was a light week for economic data and most of the focus was on Europe.

The good news included fewer initial weekly unemployment claims, an increase in consumer sentiment and an increase in rail traffic. However the ISM non-manufacturing index was weaker than expected, and - of course - house prices continued to decline.

Also, the data this week had implications for Q4 GDP, from Goldman Sachs:

[D]ata on inventories in the manufacturing and wholesale sectors was much stronger than expected for October. We now expect a modest inventory build in Q4 instead of a contraction. [I]mport growth was weaker than expected (because imports are subtracted from GDP, this is a positive). ... We revised up our tracking estimate for the quarter by nine tenths from 2.5% (annualized) at the start of the week to 3.4% currently.

However, Goldman still expects growth to slow in the first half of 2012 to around 1%, due to spillover from the Euro-area crisis, and from U.S. fiscal tightening.

Here is a summary of last week in graphs:

• Trade Deficit declined in October

The Department of Commerce reported:

[T]otal October exports of $179.2 billion and imports of $222.6 billion resulted in a goods and services deficit of $43.5 billion, down from $44.2 billion in September,
revised. October exports were $1.5 billion less than September exports of $180.6 billion. October imports were $2.2 billion less than September imports of $224.8 billion.

Click on graph for larger image.

This graph shows the monthly U.S. exports and imports in dollars through October 2011.

Both exports and imports decreased in October. Imports have been mostly moving sideways for the past six months (seasonally adjusted) - partially due to slightly lower oil prices. Exports are well above the pre-recession peak and up 12% compared to October 2010; imports have stalled recently but are still up about 11% compared to October 2010.

• ISM Non-Manufacturing Index indicates slower expansion in November

The November ISM Non-manufacturing index was at 52.0%, down from 52.9% in October. The employment index decreased in November to 48.9%, down from 53.3% in October.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was below the consensus forecast of 53.8% and indicates slower expansion in November than in October.

• CoreLogic: House Price Index declined 1.3% in October

CoreLogic released its October Home Price Index showing that "home prices in the U.S. decreased 1.3 percent on a month-over-month basis".

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was down 1.3% in October, and is down 3.9% over the last year.

The index is off 32.0% from the peak - and up just 2.5% from the March 2011 low.

Some of this decrease is seasonal (the CoreLogic index is NSA). Month-to-month prices changes will probably remain negative through February or March 2012 - the normal seasonal pattern. It is likely that there will be new post-bubble lows for this index in early 2012.
All House Price Graphs
• Labor Force Participation Rate

Three recent post on the labor force participation rate:
1) Comments on the Employment-Population Ratio
2) Labor Force Participation Rate by Age Group
3) Labor Force Participation Rate: The Kids are Alright

Here is a repeat of the graph showing the trends by age group since 1990.

Some of the recent decline in the participation rate for the '20 to 24' age group is probably related to the recession.

But probably the main reason for the decline in the participation rate for the younger age groups is that more people are pursuing higher education.

This graph uses data from the BLS on participation rate, and the National Center for Education Statistics (NCES) on enrollment rates.

This graph shows the participation and enrollment rates for the 18 to 19 year old age group. These two lines are a "mirror image".

Note: I added the participation rate for men and women too. One of the key labor stories in the 2nd half of the 1900s was the surge in participation by women.

In the long run, more education is a positive for the economy (although I am concerned about the surge in student loans).

• Weekly Initial Unemployment Claims decline to 381,000

"In the week ending December 3, the advance figure for seasonally adjusted initial claims was 381,000, a decrease of 23,000 from the previous week's revised figure of 404,000."

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. This is the fourth week in a row with the 4-week average below 400,000, and this is the lowest level for claims since February.
All current Employment Graphs
• Consumer Sentiment increased in December


The preliminary December Reuters / University of Michigan consumer sentiment index increased to 67.7, up from the November reading of 64.1.

Consumer sentiment is usually impacted by employment (and the unemployment rate) and gasoline prices.

However the recent sharp decline was event driven (the debt ceiling debate), and sentiment has rebounded as expected. Note: Back in August I looked at event driven declines in consumer sentiment.

Sentiment is still very weak, although this was above the consensus forecast of 66.0.

• Other Economic Stories ...
• From LPS: LPS Home Price Index Shows 1.2 Percent Decline in September U.S. Home Prices; Early Data Suggests Further 1.1 Percent Drop in October Likely
• Research: New paper on the role of investors in the housing bubble
• Lawler on "Real Estate Investors, the Leverage Cycle, and the Housing Crisis"
• AAR: Rail Traffic increased in November

by Calculated Risk on 12/09/2011 08:30:00 PM

This is a special case ...

From the Press Democrat: Bank donates Carinalli house to homeless agency (ht Tom)

An aging, two-bedroom ranch house at the west edge of Santa Rosa, seized in foreclosure proceedings from bankrupt financier Clem Carinalli, will soon become a housing complex for people who have lost their homes.

The house, which sits on two acres and is valued at $290,000, was donated by Luther Burbank Savings to Community Housing Sonoma County, a nonprofit that has helped create 179 units of low-income housing since 2003.

The donation of the foreclosure property is unprecedented in Sonoma County and possibly nationwide, housing advocates and bankers involved in the deal said.
...
Carinalli's assets, including 248 North Bay real estate properties ... according to bankruptcy documents.
...
Luther Burbank Savings, which had loaned Carinalli $19.5 million, foreclosed on 19 of his properties and sold all but one ...

Considering the glut of foreclosed homes in the county ... [Georgia Berland, executive director of the Sonoma County Task Force for the Homeless] said she hoped other banks might follow Luther Burbank Savings' example.

Biggs said he thought that was unlikely, calling the donation the result of “a unique set of circumstances,” including the cluster of Carinalli foreclosures and the home's marginal appeal to buyers.