by Calculated Risk on 6/17/2012 09:17:00 PM

The election in Greece was THE story on Sunday. New Democracy received the largest percentage of the vote - around 30% - and they still need to form a coalition government. There is no way they can meet the terms of the memorandum - so even if a government is formed, this will blow up again without further concessions. Meanwhile the Greek economy is collapsing and the unemployment rate is at record levels. Very sad.

For a few questions about what comes next, see from Joseph Cotterill at the Financial Times Alphaville: Greece, the post-election questions

• At 10:00 AM ET on Monday, the June NAHB homebuilder survey. The consensus is for a reading of 29, unchanged from May. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.

The Asian markets are up tonight. The Nikkei is up about 2%, and the Shanghai Composite is up 0.5%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P 500 futures are up about 9, and Dow futures are up 90.

Oil: WTI futures are up to $85.21 (this is down from $109.77 in February) and Brent is up to $99.20 per barrel.

Saturday:
• Summary for Week Ending June 15th
• Schedule for Week of June 17th
For the monthly economic question contest (three more questions for June):

by Calculated Risk on 6/17/2012 06:56:00 PM

Some analysts think the FOMC will announce QE3 this week, others think the FOMC will wait until August or September.

It is also possible that the Greek election will influence some FOMC participants to wait until "Operation Twist" ends in a few weeks and then see what happens.

Usually the Fed provides pretty clear signals in advance of additional accommodation, but this time the smoke signals have been a little confused. From Tim Duy: Communications Failure

Reading Cardiff Garcia's preview of next week's Fed meeting, I was struck by [a] chart from Nomura

The extensive discussion of options with arguments for and against reminded me of the fog that hangs over this next meeting. We really have no idea what the Fed is going to do or why they are going to do it. Reasonable analysis ranges from nothing to massive quantitative easing.

Goldman analysts recently put the odds of QE3 this week at 75%, from Goldman economist Sven Jari Stehn on June 8th:

Although the uncertainty is significant, our model points to a probability of easing of 75% at the June meeting. Moreover, financial conditions are critical: were European stress to ease between now and the meeting the estimated probability of easing could drop to around 50%. Conversely, any further tightening in financial conditions from here—such as turmoil surrounding the June 17 Greek election—would push up the likelihood of easing in June.

I think the odds of QE3 are very high, but I'm uncertain on the timing. One key is changes in the FOMC financial projections that will be released this week.  Here are the projections from the April meeting.

The following April chart shows when participants projected the initial increase in the target federal funds rate should occur.


Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

I expect some movement towards later years - and that would be an argument for QE3 this week.

The following table shows the FOMC's projections for GDP. Given the recent weak data, I'd expect the June projections to be lower for 2012 than the April projections.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

It is also likely that the unemployment rate forecast will be unchanged or revised upwards. Currently the FOMC expects the unemployment rate to be in the 7.8% to 8.0% in Q4. Even that level argues for additional accommodation. At the same time, the recent inflation data suggests the FOMC's inflation forecasts will be revised down (or unchanged).

The data suggests the FOMC will announce QE3 soon. But it is hard to tell when, and maybe we will see some clearer signals tonight or tomorrow.

by Calculated Risk on 6/17/2012 02:56:00 PM

From Reuters: Greek conservatives to win election: official projection (ht curious)

Greece's New Democracy conservatives are set to win ... The projection showed New Democracy taking 29.5 percent of the vote, with SYRIZA in second place with 27.1 percent. The Socialist PASOK followed in third place with 12.3 percent.

The result translates into 128 seats for New Democracy and 33 seats for PASOK, giving the two pro-bailout parties a slender majority in the 300-seat parliament.

New Democracy and PASOK back an EU/IMF bailout providing Greece with funds to stay afloat.

From the Telegraph: Greek election: Live

Official exit numbers are in, and New Democracy are on course to win. The numbers: ND 29.5pc, Syriza 27.1pc, Pasok 12.3pc, Independent Greeks 7.6pc, Golden Dawn 7pc, Democratic Left 6.2pc, Communist Party of Greece 4.5pc. These are numbers from Singular Logic, commissioned for the job by the Greek government.

This suggests New Democracy will be able to form a government. New Democracy's leader, Antonis Samaras, will try to change the terms of the bailout agreement, but generally supports the bailout - and strongly supports staying in the euro.

With the Greek economy in free fall, this just buys a little time until the next review shows Greece is far short of the bailout goals.

by Calculated Risk on 6/17/2012 12:12:00 PM

The Greek media is reporting on some early exit polls. This shows that it is very close between New Democracy and Syriza:

New Democracy: 27.5% to 30.5%

Syriza: 27% to 30%

Pasok: 10 to 12%

The 1st place party gets a 50 seat bonus (out of 300 total seats) and the parties split the remaining seats by the percent of the vote (excluding all parties with less than 3% of the vote).

If ND wins, they will probably form a government with Pasok (it would be close with the 50 seat bonus). However if Syriza wins, no one knows.

by Calculated Risk on 6/17/2012 08:56:00 AM

Polls close at noon ET on Sunday and the first "safe" results are expected around 2:30 PM ET.

Meanwhile there is a forest fire raging near Athens.

A few stories ...

From the Athens News: Voting underway in crunch election

Voting in the second general election in as many months got underway at 7am [Athens time] on Sunday at over 20,000 polling stations in 56 constituencies across the country.
Polling stations will remain open until [12 PM ET].
...
Unofficial exit polls will be announced, via the media, by the country’s polling agencies shortly after the closing of polling stations.

The authorities expect the first official projections by [2:30 PM ET]. Counting should be completed in the early hours of Monday morning.

From the Financial Times: Greece vote set to end in stalemate

Greeks voted on Sunday in a second general election set to end in stalemate ... The centre-right New Democracy party had a three-point lead over the radical left Syriza coalition, but neither party would capture even 30 per cent of the vote, according to two private polls seen by the FT.
excerpt with permission

From the WSJ: Greeks Vote in High-Stakes Election

The vote is pitting the conservative New Democracy party—which mostly supports the country's latest European-led bailout—against its leftist rival, Syriza, which has denounced the deal and wants to tear up the austerity program that came with it.

From the NY Times: A Critical Vote in Greece on Its Standing in the Euro Zone

As world financial institutions braced for more political uncertainty and potential market turmoil on Monday, Greek political leaders said they understood the need to form a government as quickly as possible, no matter what the election results. ...

As they headed to the polls, Greeks were gripped by anxiety about the collapse of the economy and with it the middle class — and shaken by repeated warnings from European leaders that Greece’s exit from the single currency was likely. For many, the election was seen as a choice between hope and fear.

There will be no clear winner, and even if a government is formed, the path forward is uncertain.

by Calculated Risk on 6/16/2012 06:06:00 PM

Note: The FDIC's official problem bank list is comprised of banks with a CAMELS rating of 4 or 5, and the list is not made public. (CAMELS is the FDIC rating system, and stands for Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The scale is from 1 to 5, with 1 being the strongest.)

As a substitute for the CAMELS ratings, surferdude808 is using publicly announced formal enforcement actions, and also media reports and company announcements that suggest to us an enforcement action is likely, to compile a list of possible problem banks in the public interest.

So this is an unofficial list of Problem Banks compiled only from public sources. (And only US banks).

Here is the unofficial problem bank list for June 15, 2012. (table is sortable by assets, state, etc.)

Changes and comments from surferdude808:

As anticipated, the OCC released its actions through mid-May 2012. That release and several failures contributed to some changes to the Unofficial Problem Bank List. In all, there were six removals and two additions. The changes leave the list with 919 institutions with assets of $354.0 billion. A year ago, 996 institutions with assets of $416.7 billion.

The removals include three action terminations -- Baylake Bank, Sturgeon Bay, WI ($1.1 billion Ticker: BYLK); First National Bank South Dakota, Yankton, SD ($415 million Ticker: FINN); and Woodlands National Bank, Hinckley, MN ($133 million). The three failures were Putnam State Bank, Palatka, FL ($169 million); The Farmers Bank of Lynchburg, Lynchburg, TN ($164 million); and Security Exchange Bank, Marietta, GA ($151 million).

The additions were Lifestore Bank, West Jefferson, NC ($294 million Ticker: LSFG) and Fidelity National Bank, Medford, WI ($89 million).

Earlier:
• Summary for Week Ending June 15th
• Schedule for Week of June 17th

by Calculated Risk on 6/16/2012 01:11:00 PM

Earlier:
• Summary for Week Ending June 15th

The focus will be on Greece on Sunday. For the US, this week is about the Fed and housing. The key reports are housing starts on Tuesday, and Existing Home Sales on Thursday.

On Wednesday, the FOMC concludes a two day meeting, and there is the possibility of additional policy accommodation.

----- Sunday, June 17th -----
12:00 PM ET: Election in Greece. Polls close at noon ET on Sunday and the first "safe" results are expected around 2:30 PM ET.

----- Monday, June 18th -----
10:00 AM: The June NAHB homebuilder survey. The consensus is for a reading of 29, unchanged from May. Although this index has been increasing lately, any number below 50 still indicates that more builders view sales conditions as poor than good.

----- Tuesday, June 19th -----
8:30 AM: Housing Starts for May.

Total housing starts were at 717 thousand (SAAR) in April, up 2.6% from the revised March rate of 699 thousand (SAAR). Note that March was revised up sharply from 654 thousand.

The consensus is for total housing starts to increase to 720,000 (SAAR) in May from 717,000 in April.

10:00 AM ET: Job Openings and Labor Turnover Survey for April 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.

Jobs openings increased in March to 3.737 million, up from 3.565 million in February. The number of job openings (yellow) has generally been trending up, and openings are up about 17% year-over-year compared to March 2011. Quits also increased in March, and quits are now up about 8.5% year-over-year and quits are now at the highest level since 2008. These are voluntary separations and more quits might indicate some improvement in the labor market.

----- Wednesday, June 20th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. Refinance activity has been increasing sharply, and it appears purchase activity is increasing too.

12:30 PM: FOMC Meeting Announcement. No changes are expected to interest rates, however additional policy accommodation is possible.

2:00 PM: FOMC Forecasts The will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

2:15 PM: Fed Chairman Ben Bernanke holds a press briefing following the FOMC announcement.

During the day: The AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).

----- Thursday, June 21st -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to decline to 383 thousand from 386 thousand last week.

9:00 AM: The Markit US PMI Manufacturing Index Flash. This is a new release and might provide hints about the ISM PMI for June. The consensus is for a reading of 53.8, down slightly from 53.9 in May.

10:00 AM: Existing Home Sales for May from the National Association of Realtors (NAR).

The consensus is for sales of 4.57 million on seasonally adjusted annual rate (SAAR) basis.

Housing economist Tom Lawler is forecasting the NAR will report sales of 4.66 million in May.

A key will be inventory and months-of-supply.

10:00 AM: Philly Fed Survey for June. The consensus is for a reading of 0.5, up from -5.8 last month (above zero indicates expansion).

10:00 AM: FHFA House Price Index for April 2012. This is based on GSE repeat sales and is no longer as closely followed as Case-Shiller (or CoreLogic).

10:00 AM: Conference Board Leading Indicators for May. The consensus is for no changed in this index.

----- Friday, June 22nd -----
No economic releases scheduled.

by Calculated Risk on 6/16/2012 08:02:00 AM

Another week. More disappointment. A broken record ...

The European problems are dominating the headlines, with the Greek election on Sunday, and bond yields increasing in Spain and Italy. In response, the UK has announced a new stimulus plan, and the ECB is hinting at further monetary accommodation.

US data was weak again. Retail sales and industrial production declined, consumer sentiment was down, and initial weekly unemployment claims increased. And the NY Fed manufacturing survey showed slow expansion in June.

However inflation appears to be falling and this increases the possibility of further Fed policy accommodation at the FOMC meeting next week.

The coming week will be about Europe – especially Greece – housing, and the Fed.

Here is a summary of last week in graphs:

• Retail Sales declined 0.2% in May

Click on graph for larger image.

On a monthly basis, retail sales were down 0.2% from April to May (seasonally adjusted), and sales were up 5.3% from May 2011. Sales for April was revised down to a 0.2% decrease from a 0.1% increase.

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 22.1% from the bottom, and now 6.8% above the pre-recession peak (not inflation adjusted)

This was at the consensus forecast for retail sales of a 0.2% decrease in May, and below the consensus for a 0.1% decrease ex-auto.

All current retail sales graphs
• Key Measures show slowing inflation in May

This graph shows the year-over-year change for four key measures of inflation. On a year-over-year basis, the median CPI rose 2.3%, the trimmed-mean CPI rose 2.1%, and core CPI rose 2.3%. Core PCE is for April and increased 1.9% year-over-year.

Most of these measures show inflation on a year-over-year basis are still above the Fed's 2% target, but it appears the inflation rate is slowing. On a monthly basis (annualized), most of these measure were below the Fed's target; median CPI was at 1.5%, trimmed-mean CPI was at 1.1%, and Core PCE for April was at 1.6% - although core CPI was at 2.4%.

• Industrial Production, Capacity Utilization declined in May

"Capacity utilization for total industry declined 0.2 percentage point to 79.0 percent."
This graph shows Capacity Utilization. This series is up 12.2 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 79.0% is still 1.3 percentage points below its average from 1972 to 2010 and below the pre-recession levels of 80.6% in December 2007.

This graph shows industrial production since 1967.

Industrial production declined 0.1 to in May to 97.3. This is 16.6% above the recession low, but still 3.4% below the pre-recession peak.

The consensus was for no change in Industrial Production in April, and for no change in Capacity Utilization at 79.2%. This was below expectations.

All current manufacturing graphs
• Consumer Sentiment declines in June to 74.1

The preliminary Reuters / University of Michigan consumer sentiment index for June declined to 74.1, down from the May reading of 79.3.

This was below the consensus forecast of 77.5 and the lowest level this year.

Overall sentiment is still weak - probably due to a combination of the high unemployment rate and the sluggish economy.

• Weekly Initial Unemployment Claims increased to 386,000

"In the week ending June 9, the advance figure for seasonally adjusted initial claims was 386,000, an increase of 6,000 from the previous week's revised figure of 380,000."

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. The four-week average of weekly unemployment claims increased to 382,000.

The average has been between 363,000 and 384,000 all year, and this is near the high for the year.

All current Employment Graphs
• NFIB: Small Business Optimism Index "Stagnates" in May

This graph shows the small business optimism index since 1986. The index decreased slightly to 94.4 in May from 94.5 in April.

For the second consecutive month, the "single most important problem" was not "poor sales". In the best of times, small business owners complain about taxes and regulations, and that is starting to happen again.

This index remains low, but as housing continues to recover, I expect this index to increase (there is a high concentration of real estate related companies in this index).

• Other Economic Stories ...
• Fed Survey: From 2007 to 2010, Median Family income declined 7.7%, Median Net Worth declined 38.8%
• CoreLogic: Existing Home Shadow Inventory declines 15% year-over-year
• NY Fed: Regional manufacturing activity "expanded slightly" in June Survey

by Calculated Risk on 6/15/2012 10:27:00 PM

I've always enjoyed reading Gluskin Sheff economist David Rosenberg's analysis. Of course Rosenberg has been bearish on the economy and the stock market for years. But I found his comments in this article amusing: Market Bear Gets (a Little) Bullish

[It]caused a mini-sensation within financial circles this week when Mr. Rosenberg—the former economist at Merrill Lynch & Co. who’s now at Canadian money-management firm Gluskin Sheff—wrote a morning commentary titled “Parting of the Clouds?”

... “I do see a light at the end of the dark tunnel,” [Rosenberg] wrote.

And the article concludes:

“Don’t be surprised,” he wrote, “if I end up turning bullish ahead of the pack.”

Really? After missing the sluggish recovery and the large run up in the stock market, Rosenberg thinks he will be "ahead of the pack"?

Geesh. I wrote "Looking for the Sun" in February 2009. That was one of several posts about the coming end of the recession. I even used some of Rosenberg's analysis on auto sales (arguing Rosenberg was wrong), as one of my reasons that we were nearing the end of the recession (see Vehicle Sales, Jan, 2009). Needless to say I was correct about auto sales - auto sales have been a key driver of the sluggish recovery - and I was correct about the economy (and, in a rarity for me, I even mentioned my bullish outlook on the stock market). Of course, even though I thought a recovery would start, I thought it would be choppy and sluggish.

So Rosenberg was wrong, and I was correct. And now, three years later, he is looking for the "parting of the clouds?" and he thinks he will be "ahead of the pack"? Oh my. I feel like saying "Check the scoreboard, Mr. Rosenberg!"

But I still enjoy reading his analysis :-)

P.S. His reasons for turning more optimistic (more austerity in the US) are wrong too.

by Calculated Risk on 6/15/2012 06:16:00 PM

Liquidity floods
Oceans boil with cheap money
Still banks submerging
by Soylent Green is People
From the FDIC: Harbor Community Bank, Indiantown, Florida, Assumes All of the Deposits of Putnam State Bank, Palatka, Florida

As of March 31, 2012, Putnam State Bank had approximately $169.5 million in total assets and $160.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $37.4 million. ... Putnam State Bank is the 29th FDIC-insured institution to fail in the nation this year, and the fourth in Florida.

From the FDIC: Fidelity Bank, Atlanta, Georgia, Assumes All of the Deposits of Security Exchange Bank, Marietta, Georgia

As of March 31, 2012, Security Exchange Bank had approximately $151.0 million in total assets and $147.9 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $34.3 million. ... Security Exchange Bank is the 30th FDIC-insured institution to fail in the nation this year, and the fifth in Georgia.

From the FDIC: Clayton Bank and Trust, Knoxville, Tennessee, Assumes All of the Deposits of the Farmers Bank of Lynchburg, Lynchburg, Tennessee

As of March 31, 2012, The Farmers Bank of Lynchburg had approximately $163.9 million in total assets and $156.4 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $28.3 million. ... The Farmers Bank of Lynchburg is the 31st FDIC-insured institution to fail in the nation this year, and the third in Tennessee.

That makes seven failed banks in two weeks (so far) - feels like old times!