Calculated Risk

Tuesday, December 02, 2008

Compendium of Tanta's Posts

by Calculated Risk on 12/02/2008 11:15:00 PM

On a personal note: I was in the hospital earlier this week, and I'll be in and out for treatment on an out-patient basis tomorrow and early next week. It's chemo again, unfortunately. Even though I did leave the hospital with better pain pills than I had (yay!), I have no idea when I'll be able to post again. I suspect that if you keep your expectations at or below zero for the next week or so, you're unlikely to be disappointed. And now it's nap time . . .

Manhattan: Office Space for Lease Doubles

by Calculated Risk on 12/02/2008 08:45:00 PM

From the NY Times: Manhattan Awash in Open Office Space

Almost 16 million square feet is currently listed as available in large blocks in 68 office buildings in Manhattan, according to Colliers ABR, a commercial brokerage firm. That is nearly double the space available a year ago, both in terms of the number of large office blocks — which in New York usually means 100,000 square feet or more — and in terms of total square feet.

And just like in the previous downturn, sublease space is flooding the market:

By far the biggest increase in availability has been in the sublease market. Currently, at least 16 large office blocks are being marketed for sublease in Manhattan, up from just 3 listed at this time last year, according to Colliers ABR.

And rents are down sharply:

Mr. Colacino [president of Studley, a real estate brokerage firm] estimates that the actual rents on deals signed in the last three months are down by as much as 20 to 30 percent from the going rents at the end of the summer ...

There is much more in the article, and it sounds like the situation will get worse next year.

GM Requests $4 Billion to Survive 2008

by Calculated Risk on 12/02/2008 04:13:00 PM

From Bloomberg: GM Asks U.S. Lawmakers for Up to $18 Billion in Aid

General Motors Corp. asked Congress for as much as $12 billion in loans to provide adequate funding through 2009, as well as a $6 billion line of credit should industry conditions worsen.
...
GM anticipates an “initial draw” of $4 billion this month

The WSJ headline is:

GM ... in a more dire situation than previously thought. The company ... said it needs $4 billion immediately to stay afloat until the end of the year.

Chrysler sales off 47%

by Calculated Risk on 12/02/2008 03:36:00 PM

Press Release: Chrysler LLC Reports November 2008 U.S. Sales

Chrysler LLC today reported total November 2008 U.S. sales of 85,260 units, down 10% versus October 2008 (94,530 units), and down 47% from the same month last year.

This compares to Ford off 31%, Honda off 32%, Toyota off 34%, and GM off 41%.

GM Sales Off 41%

by Calculated Risk on 12/02/2008 02:16:00 PM

From MarketWatch: GM U.S. November light vehicle sales drop 41.3%

Will Chrysler report any sales?

Ford sales off 31%, Toyota sales off 34%

by Calculated Risk on 12/02/2008 12:56:00 PM

From MarketWatch: Ford, Toyota post steep sales declines

Ford Motor Co. on Tuesday reported a 30.6% drop in November U.S. vehicle sales, which served as a timely reminder of the brutal sales climate with automakers returning to Capitol Hill in hopes of gaining access to $25 billion in loans.

Toyota ... posted an even steeper decline, down 33.9%.

GM and Chrysler report later today. Pretty grim numbers.

Credit Crisis Indicators

by Calculated Risk on 12/02/2008 11:10:00 AM

Yesterday saw a stunning flight to treasuries across the board.

Click on graph for larger image in new window.

The 10-year yield fell to a record low of 2.72%. The yield has fallen further this morning (currently at 2.70%)

The graph shows the 10 year yield since 1962.

The yield on 3 month treasuries is 0.05% (bad). This is essentially zero!

Here are a few other indicators of credit stress once again suggesting little progress over the last few days.

The three month LIBOR has increased to 2.21% from 2.15% last week. The three-month LIBOR rate peaked (for this cycle) at 4.81875% on Oct. 10. (slightly worse)

The TED spread: 2.16 up from 2.13 last week. (slightly worse)

The TED spread is stuck above 2.0, and still too high. The peak was 4.63 on Oct 10th. I'd like to see the spread move back down to 1.0 or lower. A normal spread is around 0.5.

The A2P2 spread decreased to 4.85 from a record (for this cycle) 5.86 on Friday (probably related to the holiday). This is way too high. (Bad).

This is the spread between high and low quality 30 day nonfinancial commercial paper. If the credit crisis eases, I'd expect a significant decline in this spread - and the graph makes it clear this indicator is still in crisis.

The two year swap spread from Bloomberg: 108.75 essentially unchanged. (unchanged). This spread peaked at near 165 in early October, so there has been significant progress, but I'd like to see this below 100.

For the LIBOR, the TED spread, and the two-year swap, there has been clear progress - but there is still a ways to go. For the A2P2 spread (and all treasury yields), the markets are still in crisis.

Mortgage Delinquency Rate to Rise Sharply in 2009

by Calculated Risk on 12/02/2008 09:39:00 AM

From the WSJ: Delinquent Mortgages Set to Nearly Double in 2009

TransUnion LLC ... predicted that the proportion of consumers with mortgages that are 60 days or more past-due will hit 7.17% in the fourth quarter of 2009.

That would be the highest level reached since the Chicago credit bureau ... first started tracking these statistics in 1992. It compares with an expected delinquency rate of 4.67% at the end of 2008.
...
"There are a lot more loans that will be resetting throughout 2009 through 2011," says Ezra Becker, principal consultant in TransUnion's financial-services group, who notes that rising unemployment and depreciating home values are other contributing factors. "There may be an ongoing flow of consumers who may now be able to pay their mortgage but may not be able to a year from now."

We're all subprime now!

Monday, December 01, 2008

A2/P2 Spread Blow Out

by Calculated Risk on 12/01/2008 11:48:00 PM

Click on graph for larger image in new window.

This graph shows the A2/P2 spread from the Fed's commercial paper report. The A2/P2 Spread hit 586 bp as of Friday.

When the A2/P2 spread spiked to 160 last year that was considered shocking; now that spike looks minor.

Maybe that was holiday related, but look at the 10 year Treasury yield:

This shows the 10 year yield since 1962. The current yield is at 2.72%.

This is the lowest yield in the 46 year history of the 10 year treasury note.

This spike was probably because of comments by Fed Chairman Ben Bernanke that the Fed might buy longer term treasuries.

[T]he Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities. This approach might influence the yields on these securities, thus helping to spur aggregate demand.

Neither of these graphs suggest anything positive for the credit markets or the economy.

Tanta Donation Information

by Calculated Risk on 12/01/2008 10:15:00 PM

These were all picked by Tanta on Saturday.

Please note: I'll post some links tomorrow for some Mortgage Pig™ clothing articles that Tanta was working on. The proceeds will be donated as a split between OSUMC and UMMS.

Tanta was treated for ovarian cancer over the course of 2.5 years by the caring staff at the University of Maryland Medical System and the Greenebaum Cancer Center in Baltimore, MD. Donate here.

She was cared for at the very end of her life by the extraordinary staff at The James Cancer Center at the Ohio State University Medical Center in Columbus, OH. Donate here.

National Public Radio has long been Tanta’s favorite. Here is the information for one of the local stations in her area.

While a student at Illinois State University, Tanta volunteered much of her time and writing efforts to the Rape Crisis Center. The Sexual Assault Prevention and Survivor Services program at ISU continues that work (please indicate in “other”). Donate here.

Tanta was a member of Normal Community High School’s Drama Club and made headlines at 17 with her impassioned plea to the School Board to allow the students to do the play “The Bad Seed”, considered controversial at the time due to the subject matter and language in the script. The school does not have online donations but checks can be mailed to 3900 E. Raab Rd, Normal, Il 61761. Att: Caroline Fox

Thanks to all.

Remembering Tanta

by Calculated Risk on 12/01/2008 04:50:00 PM

If she was here, Tanta would be stomping her foot about now and saying "enough". Well, sorry T ...

Here are a few of the comments from the earlier thread, some emails (including an old email from Tanta), and more.

From reader sdtfs:

She will always be Tanta to me, just as Mark Twain and George Orwell are real, and not merely pseudonyms of Samuel Clemens and Eric Blair. She thought she was just another anonymous pen on the internet, but no one with her talent at writing and complete honesty could be a shallow pale ghost; she was as alive to me as my other literary heroes.

Funny, intelligent, and compassionate, how could you not like her? I don’t know if we could ever be friends, (she awed me so much with her knowledge and wit), but in a very real sense I adored her. I am so thankful for the writings she left behind and yet feel cheated, as we might feel cheated by only having the Great Pyramids of Egypt left behind and none of the other Seven Wonders of the World to gaze upon.

Her blog posts were carefully crafted masterpieces and worthy of attention, but her follow up answers to questions really showed her acumen. I hesitate to say it, but her real abilities showed up best in response to people who annoyed her by their persistent inability to argue the facts and clung to their prejudices or misbehaved. She could skewer a commenter who was misrepresenting himself and take him apart point by point in the blink of an eye, or issue a perfectly balanced warning to someone who was clumsily interrupting her conversation with us, her readers. Most of us have thought of the perfect thing to say an hour, or a day after the conversation is long dead, but on-line, she had immediate and total command of her wit and the conversation.

And really, if she had a blind spot, it was she had no idea of the tremendous impact she had on her readers. Any casual mention of her likes and dislikes was seared into my memory, Van Morrison? Check. Jackson Browne? Check. ABBA? Check. “Zen and the Art of Motorcycle Maintenance”? Check. Marianne Moore? Check. Ann Taylor Stores? Ha! For someone who engaged in as many and extended wide-ranging conversations with us all as she did, how could we not know her?

I didn’t even care about mortgages when I stumbled across her writing, and to tell you the truth, the only reason I care now was because it gave me a chance to read her writing. Some might have kidded about the length of her posts, in part because she was so thorough, but there are still a large number of us who thought them, if not too short (because she was always complete), at least over too soon. She could have written about anything and I would have read it. But she was careful to stay in the areas where she felt her expertise was needed.

I felt proud whenever I managed to catch one of her literary allusions and only wish that she could know how much we appreciated them,…Just as I wish that her friends and family could know how much she meant to us, her internet pen pals.

ADDED: From the WSJ: Influential Economics Blogger Tanta Has Died

The econoblogosphere has lost one of its most influential voices, as the news emerged that Calculated Risk blogger Doris Dungey, better known as Tanta, passed away from ovarian cancer on Sunday.

Started in 2005, Calculated Risk emerged as one of the smartest and most influential blogs on the mortgage meltdown and resulting financial crisis. As one of its two main bloggers, Tanta, a former mortgage banker, helped explain the crisis in a smart, accessible way that made her posts a must-read for anyone looking for a deeper understanding on the situation. Her expert analysis and trademark wit elevated the discourse.

A beautiful post from Alex Blumberg at NPR: On The Loss Of Tanta

A Mortgage Pig movie from Bacon Dreamz: Spring Piggy. Note: 1.4 mb excel file, hit CTRL PgDn to automate.

Bacon Dreamz wrote:

For some reason we liked to tease each other about our eating habits, which started when I had a bout of food poisoning and she told me I should eat peanut butter and banana sandwiches to get better even though they sound gross, to which I replied that I had eaten them ever since I was a little boy and I liked them and for that matter I also liked "ants on a log," and then she informed me that she could not abide celery, and so my unholy love of celery became a running joke between us and on and on it went . . . )

This my favorite [Excel Movie] because Tanta told me that when she watched it her "wrinkled reptilian snout was presiding over a blazing smile".

An email from Tanta to Brian in early 2007:

One More Thing For Me To Forget To Do

So some helpful relative was visiting over President's Day weekend, and decided to set up a Yahoo! account for me. I figured out how to log into it this morning.

It's not, you know, that I'm really stupid. About a year ago my PC died a miserable death caused mostly by a spyware infestation. I could have gotten over that but the hard drive seized up at some point in the process of reading the backup discs and hey presto! it became a boat anchor. The process of buying a new one and getting it set up was complicated by the fact that at the same time I was diagnosed with a very aggressive form of cancer and underwent long dangerous surgery. At some point in my morphine-laced moments of apparent consciousness, I begged my brother-in-law, the family IT expert, to set up the new PC he had just purchased on my behalf and make it invasion proof. For the love of god, etc. He took me at my word--it's amazing how seriously people take you when you are, after all, on what might be a death-bed.

So I got a lot better, got home, and found myself with a computer I could do very little with because all the security settings were at DEFCON 5 and all the ways to turn things off had been child-proofed, booby-trapped, and encrypted. You wouldn't believe what it took me just to get Yahoo! main page to display. And that was after I had quit with the opiates and was just munchin' Tylenol. I make bong jokes, you know, but I'm not actually a drug-user by preference. I don't know if you're familiar with the term "chemo-brain," but it's quite a real phenomenon. It's not fun-stoned, it's just stupid-stoned. Trying to turn down the stereo with your coffee cup while the remote is in the microwave warming up kind of stupid. But it doesn't seem to affect long-term memory, so you can never forget what ignorant thing you just did.

Anyway, Brian, as I once explained to our dear CR, I have been really hesitant to email people, for what may sound like insane reasons, but fighting cancer can make you a little nutty. You must understand that some day, quite possibly sooner than you'd expect, you will just not get an answer from an email to me, and that might mean I'm in the hospital, it might mean I'm in the hospice, and it might mean that God is my mail drop from now on. (It could, actually, mean I'm vacationing in Aruba , but I could warn you about that.) I have no clear idea why, but the way this strikes me is that I should be careful about inviting perfectly nice people into my personal little dilemmas, without first warning them. So be warned: the reason that I have a lot of "spare time" to play on the internet is that there are lots of days I don't have the strength to get off the chair and do something more exciting. If you wish--kind person that you are--to invite me to feel as if I am part of a fun conversation with grownups, I am very grateful. The reason that I'm so paranoid about my personal email address getting out is really just that at some sense once it gets too "personal," the pleasure of the online persona--Tanta who is always amused by this stuff but not particularly willing to suffer fools gladly--becomes overlaid with the real woman behind the curtain, who has days when nothing, really, is very funny. As I said, that might sound nuts, but next time I get a deadly disease I'll know better. (You do never know, you know. It's really truly possible that I could lick this cancer thing and end up getting old enough to get heart disease or something. If so, watch out! I'll have my jokes ready! Amateurs to the back of the line!) Anyway, please don't forward this message to anyone. Feel free to cut out the business parts, if you want, but let's pretend that no one but CR knows how to email me, even though Brian now does and I'm happy to have him respond.

So anyway, I now have two email accounts to remember to check periodically. At least CR has my real one, so he can call me on that phone if I forget about the Yahoo! one (I would never dream of leaving off that exclamation point!). Right at the moment I'm off the drugs that don't allow coffee to be drunk, so it shouldn't be a problem. If I go back on Cipro, though, expect a startling amount of stupidity from an otherwise apparently bright person. I was just looking yesterday at a spreadsheet I tried to put together at the end of December, and I confess the only reason that one of the formulas made me laugh was because no one else saw it. I'd have about fainted from embarrassment if anyone who got through third grade math had seen that. I'm talkin' plus and minus (why is this value in brackets?) problems here. I mentioned it to a friend who is still, actually, a mortgage trader, and she said that there might be some people in the whole loan market who are on chemo. Or should be. Their numbers look like mine sometimes and their remotes are in the microwave. Let's hope they've got a good excuse for it like I do.

She also mentioned that she's seeing deal stips asking for field review appraisals on loans that are six months old. Six months ago people would have done an AVM on the sample (for ten bucks a pop or something) and called it due diligence. Field reviews are nearly as expensive and time-consuming as full original appraisals, and if someone is spending that kind of money on due diligence, kiss those conduit spreads goodbye. Kiss them goodbye anyway if those field review appraisers find out too much. Friend also said that three loans fell out of the deal because two appraisals came back showing the "owner occupied principal residence" to be vacant and one "completed new construction loan" came back with a photo attached of the construction dumpster parked in the unpaved driveway. I don't, actually, scare easily--been in the mortgage biz too long for that--but we are witnessing the information-catching-up-with-representations problem unwind in a really, really ugly way. I mean from this morning's trade to this afternoon's call from the QC department saying, "Hi! It's Cindy. You didn't sell those loans yet, did you? You did? Oh. I see." The absolute last thing I'd want to be doing right now is talking to someone on a recorded line about a bunch of wholesale loans I'd like to sell. I would certainly not be doing business with anyone I hadn't been doing business with for years on end. Taking a bid right now from some junk dealer I don't know and who will not be understanding about any subsequent "issues" with the due diligence is not a place I'd want to go. So then when people tell me you can't even get RFC to take your trade? Yikes, yikes, more yikes. I've done business with RFC for a hundred years. I cannot imagine throwing myself on the mercy of the only bid left, not when all of a sudden I don't even know how good my loans are right now. It isn't a good market for anyone with a conscience, and I doubt anyone on the buy side is assuming that anyone on the sell side has a conscience. Not with the deal stips we're seeing. If I sound too pissed off sometimes, it's because I want to go back to the days when I could cheerfully squeeze another tick out of my dealers because I had quality loans, I knew those loans, and I'd dare anybody to offer me a trash bid. From what I hear from those still gainfully employed doing that, it's come down to begging somebody to take your loans off your hands at a reasonable loss, and nobody knowing how "reasonable" it is.

So, anyway, I'm watching outfits like AHM because I do think the bottom is or has fallen out of certain whole-loan trades and I don't know where these outfits are going to put their production. I saw some casual email not long ago (forwarded to me "illegally") by some joker at one of the REITs that talked about the "exit strategy" for a group of loans. Oh, glory, the so-called mortgage lenders are talking like VC wannabees. Secure your wallet. T

From lama:

I spent some time this morning reading some of Tanta's old posts and was laughing through the tears. I especially had fun with her writings in the comments. I don't think I'm the only one doing that this morning.

[To her family]:It was my great pleasure to be both entertained and humbled by Tanta's wit and knowledge these last few years. We also traded personal emails where her personal kindness was evident. My sympathies to you. She will also be missed by the many strangers who knew her.

From Susan G.

To have the gift of words is precious and rare; add to that the knowledge and the gift becomes priceless.

As with others from our past, may her written word circle this globe, to be reread often and shared by millions.

I look forward to reading her collective works.

From the OTS. Note we received emails from people at the Fed, OTS, FDIC, SEC and more thanking us (Tanta especially) for various posts:

Tanta was witty, incisive, and a breath of fresh air that this federal mortgage regulator welcomed. She will be missed.

Comrade Yossarian:

Honestly, I felt like I knew her. My god, this is awful... I feel for her family and 'real time' friends. I'm speechless, just speechless..

John Stark:

She enlightened me. She made me laugh. Her writing expressed a powerful spirit, a powerful mind. Like all the great ones, she can't be replaced--only missed and mourned.

Dirk:

Extremely sad news, she was simply the best and shall live on in the memory of everyone who has ever visited here. So increadibly sad to go so soon. Sweet dreams princess of mortgages, may you dwell with the angels for ever more.

An old Tanta comment:

mp, I've only just had hair again since about March, so I'm not yet ready to remove any of it, even for a good cause. (It's getting so long it's almost not even butch anymore.) Could I just send you some toenail clippings instead?

My favorite summertime recipe:

Bourbon Slurpee

Pour 2 cups boiling water and 4 tea bags into large bowl; steep 5 min. Remove teabags and stir in 2 cups sugar, 7 cups cold water, 2 cups bourbon, 2 6-oz cans frozen limeade concentrate and 1 6-oz can frozen lemonade concentrate. Pour into one or more plastic containers and freeze. I'm told it keeps for a long time.

There are two ways to serve this. One: spoon into crystal julep glasses, garnish with a sprig of mint, and serve with a dessert spoon. Two: spoon into a clean mason jar, stick a long straw into it, and slurp your way into oblivion. I prefer the latter, but some of you may have more couth than I.
Tanta | 07.08.07 - 1:24 pm | #

Plantagenet:

I really feel for Tanta's family. I hope that they are reading now, for if so, they may gain some solace witnessing the wave of mutual grief that is resonating through cyberspace. My keyboard is one of hundreds, soon to be thousands, moistened by tears as we type.

Tanta was a titanic figure, larger than life. Not because of her intellect, or her wit, though those were fantastic. I was most impressed with her integrity in a financial world where that quality seemed abandoned. My cynical tendencies will be forever tempered by the knowledge, gained through Tanta's example, that there remain people with honesty, altruism, and high standards all at once. All that, and she handled her final affliction with incredible poise and grace.

Tanta, we will miss you dearly.

A comment from Tanta in 2006 (via Mock Turtle):

Hey, CR. I hope I find you well.

I was a regular commenter on your wonderful site until late last year, after which I kinda disappeared without saying goodbye, which is rude. I apologize. Fact is, I got diagnosed with ovarian cancer and I have been in the process of working myself out of "cancer patient" status and into "cancer survivor" status. It's a long and drug-filled road, and I have surgical scars that look like some of your more interesting graphs. However, I'm getting more and more able to sit up at a desk and do non-essential things like surf the web and revisit some old favorites, so here I am. I sure hope you've been doing better than I have.

Back to business: the mortgage insurers can raise rates all day long and it won't do dog for them or anyone else. The whole problem is, precisely, that the "piggyback" mortgage was designed to get around MI. As long as there are second-lien lenders willing to price them cheaper than MI--and perhaps we're seeing the beginning of the end of that--the MIs just lose business entirely in a credit bubble, since they've been burned before and haven't been willing to follow the pricing down to ruin again. They remember the early 90s better than the regulators do (or did, maybe).

The real point is they have two dogs in this fight: they have lost market share because competitors (second lien and 100% lenders) have been willing to underprice risk, and they are at risk for the book of business they do have because increasing foreclosures and bubble-deflating in their market areas drag down values on insured as well as uninsured collateral. A lot of lenders and RE brokers have been dismissing the MIs for years now on the grounds that they're just crying over lost business, but in my unhumble opinion the MIs have been pretty good risk managers in an irrational market for a long time, meaning they're damned if they do and damned if they don't. The fact that their interest in all this isn't quite public-spirited altruism doesn't mean they aren't right. (If you remember, I've often made that argument about Fannie and Freddie.)

As I have been saying for years now, the reports from the MI companies ought to scare the crap out of Alt-A RMBS holders, but it never seems to. If the sector of the industry whose whole function is to underwrite default risk won't touch that stuff at the (then) current market price, what makes anyone think the risk is adequately managed by a structured security? What are we going to do here, "make it up on volume"? (Inside joke: mortgage lenders always think they can keep slicing off risk premiums and "make it up on volume.")

The chickens are coming home to roost. The effects will not be pretty, but I have to admit that both personal and professional circumstances are conspiring to make me say: I TOLD YOU SO! I TOLD YOU SO! I SO TOLD YOU SO!

There. I think I got that out of my system. Nice to be back, CR.
Tanta | 08.19.06 - 6:39 am | #

And over 1000 very nice comments here.

Paulson Speaks, Market Crashes

by Calculated Risk on 12/01/2008 04:04:00 PM

I wonder if anyone in Treasury notices the correlation?

DOW off 690

NASDAQ off 137

S&P 500 off 80

From Bloomberg: Paulson Says Treasury May Use TARP Funds for Foreclosure Relief

U.S. Treasury Secretary Henry Paulson said his department is working to expand the availability of capital to businesses and consumers and may use funds from the $700 billion bank rescue plan to help homeowners.

“We are actively engaged in developing additional programs to strengthen our financial system so that lending flows into our economy,” Paulson said in the text of a speech in Washington. “We are continuing to examine potential foreclosure mitigation ideas that may be an appropriate use” of funds from the Troubled Asset Relief Program.
...
The Treasury has committed all except $20 billion of the first half of the TARP funds in injecting capital into banks, AIG and Fannie and Freddie.

That first $350 billion sure burned a hole in Paulson's pocket!

Bernanke: Fed may buy Longer-Term Treasuries

by Calculated Risk on 12/01/2008 02:58:00 PM

From Bloomberg: Bernanke Says Fed May Buy Treasuries to Aid Economy

“Although further reductions from the current federal funds rate target of 1 percent are certainly feasible, at this point the scope for using conventional interest-rate policies to support the economy is obviously limited,” Bernanke said in prepared remarks to the Austin Chamber of Commerce.

One option is for the Fed to buy “longer-term Treasury or agency securities on the open market in substantial quantities,” Bernanke said. “This approach might influence the yields on these securities, thus helping to spur aggregate demand.”

Here is Bernanke's speech: Federal Reserve Policies in the Financial Crisis

NBER: December 2007 Peak in Economic Activity

by Calculated Risk on 12/01/2008 12:14:00 PM

The National Bureau of Economic Research (NBER) has decided economic activity peaked last year and that December 2007 marks the beginning of the current U.S. recession. That means all my charts (with the recession starting in Dec '07) are correct.

From NBER: Determination of the December 2007 Peak in Economic Activity

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.
...
The committee believes that the two most reliable comprehensive estimates of aggregate domestic production are normally the quarterly estimate of real Gross Domestic Product and the quarterly estimate of real Gross Domestic Income, both produced by the Bureau of Economic Analysis. In concept, the two should be the same, because sales of products generate income for producers and workers equal to the value of the sales. However, because the measurement on the product and income sides proceeds somewhat independently, the two actual measures differ by a statistical discrepancy. The product-side estimates fell slightly in 2007Q4, rose slightly in 2008Q1, rose again in 2008Q2, and fell slightly in 2008Q3. The income-side estimates reached their peak in 2007Q3, fell slightly in 2007Q4 and 2008Q1, rose slightly in 2008Q2 to a level below its peak in 2007Q3, and fell again in 2008Q3. Thus, the currently available estimates of quarterly aggregate real domestic production do not speak clearly about the date of a peak in activity.

Other series considered by the committee—including real personal income less transfer payments, real manufacturing and wholesale-retail trade sales, industrial production, and employment estimates based on the household survey—all reached peaks between November 2007 and June 2008.

There you have it - the U.S. economy has officially been in a recession for one year.

Cliff Diving: ISM Manufacturing Index

by Calculated Risk on 12/01/2008 11:41:00 AM

From Rex Nutting at MarketWatch: November manufacturing activity falls, prices plummet

The November ISM reading for U.S. manufacturing activity decreased to 36.2%, the lowest reading since May 1982, from 38.9% in the prior month. Readings above 50% indicate an expansion of the manufacturing economy, while readings below indicate a contraction.

Manufacturing had been holding up pretty compared to other recessions. This was partly due to strong U.S. exports, but exports have now slowed sharply.

It seems all of the previously relatively strong areas of the economy - consumer spending, investment in non-residential structures, and exports (and manufacturing) - are all in a steep slide.

Construction Spending Declines in October

by Calculated Risk on 12/01/2008 10:00:00 AM

The Census Bureau reported this morning that private non-residential construction decreased in October with declines in both residential and non-residential spending. I expect that non-residential investment will decline sharply over the next year or two.

From the Census Bureau: September 2008 Construction at $1,060.1 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $756.5 billion, 2.0 percent (±1.1%) below the revised September estimate of $771.9 billion. Residential construction was at a seasonally adjusted annual rate of $338.8 billion in October, 3.5 percent (±1.3%) below the revised September estimate of $351.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $417.7 billion in October, 0.7 percent (±1.1%)* below the revised September estimate of $420.6 billion.

Click on graph for larger image in new window.

The graph shows private residential and nonresidential construction spending since 1993.

Nonresidential spending had been strong as builders completed projects, but there is substantial evidence of a slowdown - less lending for new projects, less work for architects - and it appears the expected slowdown in non-residential spending has arrived. On the graph nonresidential spending has been relatively flat for the last few months, but I expect some serious cliff diving over the next 18 months.

The second graph shows the year-over-year change for private residential and non-residential construction spending.

The YoY change in non-residential spending is starting to slow down and will probably turn negative later this year or early in 2009.

It now looks like investment in non-residential structures will negatively impact GDP in Q4. This had been one of the few bright spots for the economy.

Whitney: Credit Card Consumer Liquidity to Decline by 45%

by Calculated Risk on 12/01/2008 09:16:00 AM

Note: I'll post a compendium of Tanta's posts soon, plus a charity of her choosing. The services will be private.

From Reuters: Credit card industry may cut $2 trillion of lines: analyst

The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said.
...
"In other words, we expect available consumer liquidity in the form or credit-card lines to decline by 45 percent."

This would be a stunning reduction in available credit.

Sunday, November 30, 2008

Sad News: Tanta Passes Away

by Calculated Risk on 11/30/2008 09:41:00 PM

UPDATE Dec 15, 2008: Please see Tanta: In Memoriam for photos, remembrances, links to Tanta's writing, Tanta's charities and stories about her.

My dear friend and co-blogger Doris “Tanta” Dungey passed away early this morning. I would like to express my deepest condolences to her family and friends.

Photo: Tanta in 2004 (from her sister Cathy).

From David Streitfeld at the NY Times: Doris Dungey, Prescient Finance Blogger, Dies at 47

The blogger Tanta, an influential voice on the mortgage collapse, died Sunday morning in Columbus, Ohio.

Tanta, who wrote for Calculated Risk, a finance and economics blog, was a pseudonym for Doris Dungey, 47, who until recently had lived in Upper Marlboro, Md. The cause of death was ovarian cancer, her sister, Cathy Stickelmaier, said.
...
Tanta used her extensive knowledge of the loan industry to comment, castigate and above all instruct. Her fans ranged from the Nobel laureate Paul Krugman, an Op-Ed columnist for The New York Times who cited her in his blog, to analysts at the Federal Reserve, who cited her in a paper on “Understanding the Securitization of Subprime Mortgage Credit.”

She wrote under a pseudonym because she hoped some day to go back to work in the mortgage industry, and the increasing renown of Tanta in that world might have precluded that. Tanta was Ms. Dungey’s longtime family nickname, Ms. Stickelmaier said.

From CR to Tanta’s many readers, fans and internet friends: Tanta enjoyed writing for you, chatting with many of you in the comments, and corresponding with you via email. She told me several times over the last few months how much she enjoyed discussing current events with you.

Tanta worked as a mortgage banker for 20 years, and we started chatting in early 2005 about the housing bubble and the changes in lending practices. In 2006, Tanta was diagnosed with late stage cancer, and she took an extended medical leave while undergoing treatment. At that time I approached her about writing for this blog, and she declined for a simple reason – her prognosis was grim and she didn’t expect to live very long. To her surprise, after aggressive treatment, her health started to improve and she accepted my invitation. When she chose an email address, it reflected her surprise: tanta_vive ... Tanta Lives!

Armed with a literary background and extensive knowledge of the mortgage industry, Tanta wrote about current events with deep insight and wit. Here is the introduction to one of her posts in 2006: Let Slip the Dogs of Hell

I still haven’t gotten over the fact that there’s a “capital management” group out there having named itself “Cerberus”. Those of you who were not asleep in Miss Buttkicker’s Intro to Western Civ will recognize Cerberus; the rest of you may have picked up the mythological fix from its reprise as “Fluffy” in the first Harry Potter novel. Wherever you get your culture, Cerberus is the three-headed dog who guards the gates of Hell. It takes three heads to do that of course, because it’s never clear, in theology or finance, whether the idea is to keep the righteous from falling into the pit or the demons from escaping out of it (the third head is busy meeting with the regulators).

Tanta wrote a number of posts detailing the inner workings of the mortgage industry. These posts covered a wide range of topics, from mortgage servicing, to everything you want to know about mortgage backed securities (MBS), to reverse mortgages. She called these posts “The Compleat UberNerd” and in typical fashion she noted:

An “UberNerd” is someone who is compelled to understand how things work in grim detail, even if the things in question are tedious in the extreme …”

Tanta liked to ferret out the details. She was inquisitive and had a passion for getting the story right. Sometimes she wouldn’t post for a few days, not because she wasn’t feeling well, but because she was reading through volumes of court rulings, or industry data, to get the facts correct. She respected her readers, and people noticed.

Felix Salmon at Condé Nast Portfolio.com, wrote on Nov 7, 2007 wrote:

“Tanta is one of the best financial writers in the world, and explains complex ideas with wit and great clarity."

Paul Krugman at the NY Times complemented Tanta several times, recently writing:

“The great thing about this age of blogs is the way people who really know something about a subject can quickly weigh in, without being filtered through Authority.”

Even researchers at the Federal Reserve referenced Tanta’s work: From Adam Ashcraft and Til Schuermann: Understanding the Securitization of Subprime Mortgage Credit, credit on page 13:

Several point raised in this section were first raised in a 20 February 2007 post on the blog http://calculatedrisk.blogspot.com/ entitled “Mortgage Servicing for Ubernerds.”

Tanta was also extremely funny. She introduced the Muddled Metaphor Index (MMI) and Excel Art featuring the Mortgage Pig, and she was the originator of a number of phrases in use today, like “We’re all subprime now!”

This is a very sad day and I know many of you are in shock. Tanta was our teacher. She generously shared her knowledge with all of us. I doubt she knew how many lives she touched; her insights, spirit and passion lives on in her writings – and in all of you.

Tanta Vive!