by Calculated Risk on 3/04/2009 03:59:00 PM

The Fed may say the economy has weakened (see Beige Book), but the markets rebounded today ...

Dow up 2.2%

S&P 500 up 2.4%

NASDAQ up 2.5%

Back to full posting later today ...

by Calculated Risk on 3/04/2009 03:00:00 PM

Beige book:

Reports from the twelve Federal Reserve Districts suggest that national economic conditions deteriorated further during the reporting period of January through late February. Ten of the twelve reports indicated weaker conditions or declines in economic activity; the exceptions were Philadelphia and Chicago, which reported that their regional economies "remained weak." The deterioration was broad based, with only a few sectors such as basic food production and pharmaceuticals appearing to be exceptions. Looking ahead, contacts from various Districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 or early 2010.

And on real estate:

Residential real estate markets remained in the doldrums in most areas, with only scattered, very tentative signs of stabilization reported. The pace of sales remained very low in most areas and declined further in some; most Districts reported small declines, but New York cited a sales drop of 60 to 65 percent in Manhattan compared with twelve months earlier. By contrast, Cleveland, Richmond, Dallas, and San Francisco each reported a rising or better-than-expected sales pace for existing or new homes in some areas, attributed largely to falling prices and improved financing terms for some types of home mortgages. House prices continued to decline, reportedly at double-digit paces in some areas, with little or no signs of a deceleration evident. Builders in various Districts generally remain pessimistic regarding recovery prospects this year, and consequently the pace of new home construction declined further in most areas.

Demand for commercial, industrial, and retail space fell further during the reporting period, with some evidence of more rapid deterioration than in preceding periods. Vacancy rates rose and lease rates declined on a widespread basis; New York noted that commercial real estate markets "weakened noticeably," while Atlanta described reports on commercial real estate that were "decidedly more negative" than in previous periods. Construction activity has declined commensurately, and assorted reports suggest that market participants expect this weakness to continue at least through the end of 2009. Cleveland noted that public works projects have shown stability of late, although they declined in the San Francisco District as a result of the budgetary struggles of some state and local governments there. Credit constraints and uncertainty were reported to be a drag on commercial construction and leasing activity in the Philadelphia, Chicago, Dallas, and San Francisco Districts.
emphasis added

Grim outlook, especially for CRE. (sorry for slow post, I'm on jury duty!)

by Calculated Risk on 3/04/2009 11:49:00 AM

I don't have much confidence in the ADP numbers, but here they are anyway ...

From CNBC: ADP Shows Record Job Losses; Planned Layoffs Down

ADP said on Wednesday that private employers cut 697,000 jobs in February versus a revised 614,000 jobs lost in January.

The January job cuts were originally reported at 522,000.

It was the biggest job loss since the report's launch in 2001 ...

And on the Challenger layoff report:

[P]lanned layoffs at U.S. firms fell 23 percent in February from January's seven-year peak, but remained well above long term averages as the protracted U.S. recession took a heavy toll on employment, ...

"The decline in job cuts last month offers some hope that January was the peak and we will now see layoffs begin to fall or at least stabilize," said John A. Challenger, chief executive officer of Challenger, Gray & Christmas, in a statement.

But he said monthly job cuts may remain above 100,000 in the first half of the year and possibly for the rest of 2009.

The consensus for the BLS report on Friday is about 650,000 fewer jobs, but I've seen some forecast much higher (in the 850,000 range). We can be pretty sure the number will be very ugly.

by Calculated Risk on 3/04/2009 10:00:00 AM

From the Institute for Supply Management: February 2009 Non-Manufacturing ISM Report On Business®

"The NMI (Non-Manufacturing Index) registered 41.6 percent in February, 1.3 percentage points lower than the 42.9 percent registered in January, indicating contraction in the non-manufacturing sector for the fifth consecutive month at a slightly faster rate. The Non-Manufacturing Business Activity Index decreased 4 percentage points to 40.2 percent. The New Orders Index decreased 0.9 percentage point to 40.7 percent, and the Employment Index increased 2.9 percentage points to 37.3 percent. The Prices Index increased 5.6 percentage points to 48.1 percent in February, indicating a slower decrease in prices from January. According to the NMI, one non-manufacturing industry reported growth in February. Respondents are concerned about the soft market conditions, the negative outlook for employment and the overall state of the economy."

This is another weak report.

by Calculated Risk on 3/04/2009 09:24:00 AM

From MarketWatch: Treasury says mortgage plan to help up to 9 mln homeowners

The Treasury Department released guidelines to its mortgage modification plan on Wednesday and said that the program will help up to 9 million homeowners avoid foreclosure. The guidelines will enable servicers to begin modifying mortgages right away ... The Treasury program also includes incentives for removing second liens on loans.

From financialstability.gov (Treasury site):

Summary of Guidelines

Modification Program Guidelines

Counselor Q&A

Fact Sheet

by Calculated Risk on 3/04/2009 09:08:00 AM

From Bloomberg: More Than 8.3 Million U.S. Mortgages Are Underwater

More than 8.3 million U.S. mortgage holders owed more on their loans in the fourth quarter than their property was worth as the recession cut home values by $2.4 trillion last year, First American CoreLogic said.

An additional 2.2 million borrowers will be underwater if home prices decline another 5 percent, First American, a Santa Ana, California-based seller of mortgage and economic data, said in a report today. Households with negative equity or near it account for a quarter of all mortgage holders.

Late last year Mark Zandi at Moody's Economy.com estimated that there were "roughly 12 million households, or 16%, owe more than their homes are worth". The difference between the estimates is probably because a large number of homeowners have little equity - and small changes in home price assumptions change the number underwater significantly. The differences in percentages is because CoreLogic is using only households with mortgages; Zandi used all households (about 31% of households have no mortgages).

by Calculated Risk on 3/04/2009 06:48:00 AM

"We have not yet seen a pick-up in activity at our communities other than ordinary seasonal increases for this time of year."
Robert I. Toll, chairman and chief executive officer, March 4, 2009

Press Release: Toll Brothers Reports 1st Qtr 2009 Results

Toll Brothers ... today reported a FY 2009 first quarter net loss of $88.9 million ... which included pre-tax write-downs totaling $156.6 million.
...
Joel H. Rassman, chief financial officer, stated: "Given the numerous uncertainties related to sales paces, sales prices, mortgage markets, cancellations, market direction and the potential for and size of future impairments, it is particularly difficult in the current climate to provide guidance for the rest of FY 2009. As a result, we will not provide earnings guidance at this time."
...
FY 2009's first-quarter cancellation rate (current-quarter cancellations divided by current-quarter signed contracts) was 37.1% ...

Toll's normal cancellation rate is about 7%.

In summary: More losses. More write-downs. More cancellations. No guidance. No pick-up in activity.

by Calculated Risk on 3/03/2009 09:30:00 PM

Click on graph for larger image in new window.

Reader Nate suggests the S&P 500 is just tracing out the Mortgage Pig™. (ht Nate and IF)

* IF suggested the post title.

Mortgage Pig™ says: "In UR Poolz Killin your convexity."


For those interested, here are few sources for futures and the foreign markets.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 3/03/2009 08:32:00 PM

From Reuters: U.S. office furniture orders, shipments plunge in January

U.S. office furniture orders and shipments fell about 25 percent in January, reflecting the biggest year-over-year percentage declines since the 2001-02 recession, a trade group said.

The Business and Institutional Furniture Manufacturers Association said January orders fell 25 percent to $565 million and shipments fell 26 percent to $630 million.

BIFMA also lowered its 2009 forecast for orders to a decline of 26.5 percent, compared with its prior estimate of a drop of 11.6 percent.

Click on graph for larger image in new window.

This graph shows the actual consumption of office furniture in the U.S. (including imports) and the Business and Institutional Furniture Manufacturers Association forecast for 2009.

The slump in the office market - with rapidly rising office vacancies - is having a secondary impact on office suppliers. This is similar to what happened to the home furnishing bust over the last few years because of the bursting of the housing bubble. Based on this forecast, the U.S. office furniture market will probably be back to the 1994 to 1995 level.

by Calculated Risk on 3/03/2009 05:25:00 PM

From David Evans at Bloomberg: Hidden Pension Fiasco May Foment Another $1 Trillion Bailout (ht James & Bob)

Public pension funds across the U.S. are hiding the size of a crisis that’s been looming for years. Retirement plans play accounting games with numbers, giving the illusion that the funds are healthy.
...
The misleading numbers posted by retirement fund administrators help mask this reality: Public pensions in the U.S. had total liabilities of $2.9 trillion as of Dec. 16, according to the Center for Retirement Research at Boston College. Their total assets are about 30 percent less than that, at $2 trillion.

With stock market losses this year, public pensions in the U.S. are now underfunded by more than $1 trillion.

Evans points out that many pension plans have been funded based on optimistic projections of future investment returns. He gives several examples including:

The nation’s largest public pension fund, California Public Employees’ Retirement System, has been reporting an expected rate of return of 7.75 percent for the past eight years, and 8 percent before that, according to Calpers spokesman Clark McKinley.

Its annual return during the decade from Dec. 31, 1998, to Dec. 31, 2008, has been 3.32 percent, and last year, when markets tanked, it lost 27 percent.

There is much more in the article.

Note: Back in 2007 Evans wrote a great article on a Florida state run investment pool investing in SIVs.

by Calculated Risk on 3/03/2009 03:49:00 PM

The S&P 500 closed below 700 today at 696 and change. We are back to 1996 prices ...

Click on photo for larger image in new window. Photo credit: lama Reader lama just took this picture at the wildlife zoo in Phoenix. Lama suggests that "Black Swine" might be more in keeping with the Mortgage Pig theme!

Click on graph for larger image in new window.

By popular demand I've extend this graph back to 1990.

The low in 1996 was 598.48.

The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". (If not updated right way, Doug should update in a few minutes)



The 2nd worst bear market in the U.S. in 100 years.

Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 3/03/2009 01:52:00 PM

Headline from MarketWatch: GM U.S. February sales down 53% to 126,170 units

Also from MarketWatch: Toyota U.S. sales down 39.8% to 109,583 units in February

Last month GM reported U.S. sales fell 48.9% compared to January 2008, so the numbers are still getting worse.

by Calculated Risk on 3/03/2009 01:05:00 PM

From the Journal of Commerce: Idle Box Fleet Reaches 1.35M TEUs (hat tip Vincent)

Idled ocean container capacity on March 2 reached a record 1.35 million TEUs with 453 ships without work as carriers continue to axe services in the face of collapsing cargo volumes and tumbling freight rates across all trade routes.

The jobless figure, up from 392 vessels of 1.1 million TEUs two weeks ago, is equivalent to 10.7 percent of the world cellular container ship fleet in capacity terms, according to AXS-Alphaliner, the Paris-based consultant.

This is the highest unemployment rate in the history of container shipping and is three times the 3.5 percent jobless figure in the depth of the 2002 bear market.

From the American Trucking Association: ATA Truck Tonnage Index Rose 3 Percent in January

Click on graph for larger image in new window.

The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index climbed 3 percent in January 2009, marking only the second month-to-month increase in the last seven months. Still, the gain did little to erase the revised 7.8 percent contraction in December 2008. In January, the seasonally adjusted tonnage index equaled just 104.7 (2000 = 100), its second-lowest level since October 2002. ...

Compared with January 2008, the index declined 10.8 percent, which was slightly better than December’s 12.5 percent year-over-year drop.

ATA Chief Economist Bob Costello said that there was no reason to get excited about January’s 3 percent month-to-month improvement. “Tonnage will not fall every month, and just because it rises every now and then doesn’t mean the economy is on the mend,” Costello said. “Furthermore, tonnage is contracting significantly on a year-over-year basis, which is highlighting the current weakness in the freight environment.”

by Calculated Risk on 3/03/2009 12:10:00 PM

Update: From CNBC: Ford Sales Fall Sharply but Match Forecasts

Sales at [Ford] fell 46.3 percent on an adjusted basis ... Ford sold 99,060 vehicles last month, compared with 192,248 the same month in 2008.

The decline of 46.3% is a comparison to a year ago February.

In January, Ford reported a 42.1% decline in total U.S. sales compared to January 2008. In December 2008, Ford reported a 32.4% YoY decline. And in November, Ford reported a 31.5% YoY decline (compared to November 2007).

The comparisons just keep getting worse.

by Calculated Risk on 3/03/2009 10:00:00 AM

From the NAR: Pending Home Sales Down but Housing Affordability at Record

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.7 percent to 80.4 from a downwardly revised reading of 87.1 in December, and is 6.4 percent below January 2008 when it was 85.9. The index is at the lowest level since tracking began in 2001, when the index value was set at 100.

Lawrence Yun, NAR chief economist, said ... “We expect similarly soft home sales in the near term ... "
emphasis added

This suggests a further decline in existing home sales for the March report (January was the most recent report). Note: there still might be a slight increase in existing home sales in February based on the December Pending Home Sales report.

Note: Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so the January report suggests existing home sales will decrease from February to March.

Finally, ignore the "affordability index". That really just tells us that interest rates are low - something we already know.

by Calculated Risk on 3/03/2009 09:25:00 AM

From the Fed:

In carrying out the Financial Stability Plan, the Department of the Treasury and the Federal Reserve Board are announcing the launch of the Term Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and Business Lending Initiative (CBLI). The TALF has the potential to generate up to $1 trillion of lending for businesses and households.

The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.

Under today’s announcement, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17, 2009. On March 25, 2009, those new securitizations will be funded by the program, creating new lending capacity for additional future loans.
...
Today the Board also released revised terms and conditions for the facility and a revised set of frequently asked questions. ...

The Treasury Department also released a new white paper outlining efforts to unlock credit markets. On February 10, 2009, the Board and Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending. Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program. The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government.
...
Increased TALF lending and other actions to stabilize the financial system have the potential to greatly expand the Federal Reserve’s balance sheet. In order for the Federal Reserve to conduct monetary policy over time in a way consistent with maximum sustainable employment and price stability, it must be able to manage its balance sheet, and in particular, to control the amount of reserves that the Federal Reserve provides to the banking system. The amount of reserves is the key determinant of the interest rate that the Federal Reserve uses to pursue its monetary policy objectives. Treasury and the Federal Reserve will seek legislation to give the Federal Reserve the additional tools it will need to enable it to manage the level of reserves while providing the funding necessary for the TALF and for other key credit-easing programs.

TALF Terms and Conditions (88 KB PDF)

TALF Frequently Asked Questions (102 KB PDF)

TALF White Paper

Fun reading for all. Here comes another significant expansion of the Fed's balance sheet.

by Calculated Risk on 3/03/2009 09:12:00 AM

James Baker writes in the Financial Times: How Washington can prevent ‘zombie banks’

[T]he US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.

But if their assumption is wrong, we risk perpetuating US zombie banks and suffering a lost American decade.
...
First, we need to understand the scope of the problem. The Treasury department – working with the Federal Reserve – must swiftly analyse the solvency of big US banks. Treasury secretary Timothy Geithner’s proposed “stress tests” may work. Any analyses, however, should include worst-case scenarios. We can hope for the best but should be prepared for the worst.

Next, we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds. It is time for triage.

There are calls across the political spectrum to avoid zombie banks. No one wants to nationalize the banks, just preprivatize the "hopeless".

This is similar to my suggestion (and others) a few weeks ago:

The banks will probably fall into one of three categories:

1) No additional assistance required. ...

2) The banks in between that will need additional capital. This is where the Capital Assistance Program comes in: ...

3) Banks that will need to be nationalized or sold.
...
The sooner the better, although March 12th works for me (30 days from Geithner's speech)! ...

BTW the banks have been told to submit their stress test results to the Treasury by Wednesday March 11th. Although the stress test appears inadequate, and the 3rd option - "closing the hopeless" - is apparently off the table.

by Calculated Risk on 3/02/2009 10:19:00 PM

For market discussion and graphs of the Grizzly Bear, see: Market: More Cliff Diving
Note: For the grim economic news in graphs, please see my post yesterday: February Economic Summary in Graphs

******************
Here is another Deal of the Week from Zach Fox at the San Diego North County Times: Turning back the clock in Vista

The featured 1,600 square feet, three-bedroom, two-bath house in Vista, CA was built in 1982.

Sold in August 1989: $165,000

Sold in August 2005: $520,000

Sold in December 2008: $100,000

Zach doesn't say, but I bet the house was trashed by the most recent owner. In general Vista is a decent area, and this is quite a round trip.

******************
For those interested, here are few sources for futures and the foreign markets.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets. (ht Jeffrey)

Best to all.

by Calculated Risk on 3/02/2009 08:40:00 PM

From the WSJ: Funding for 'Bad Banks' Starts to Get Fleshed Out

The Obama administration ... is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis ...

The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. ...

... one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss.

These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

... the government wants to encourage private investors to buy up the assets in a way that would come closer to setting a market price where no market currently exists.

By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they've tried to recycle the same bad idea.

by Calculated Risk on 3/02/2009 06:15:00 PM

The Haloscan comment system crash on Friday. Ken has suggested the following:

With this recent haloscan failure, I’ve been investigating JS-Kit and its alternatives (disqus, intensedebate, sezwho). I’ve been frustrated by how ill suited they are to a community like CalculatedRisk, which is really more a real time salon than a blog with semi-static comments.

I’ve also had an evolving interest in enhancing the commenting experience for Calculated Risk users, first through CR Companion, and more recently in building a prototype for a searchable index. Lately I’ve been bubbling with ideas on what could be done to improve things specifically for this blog. But I’ve also been somewhat wary of taking the project on, as this truly is a 24/7 community, and I’ve witnessed how harshly judgment can come over the tubz (the recent Louis CK Everything’s Amazing, Nobody’s Happy bit comes to mind). I may be a CR addict, but I do have a family and personal life, and would like to keep them.

It occurred to me today that there is an alternative. There are clearly a great many talented IT people on this blog, several of whom have already demonstrated both their interest and mojo quite effectively. Perhaps some of you might be interested in joining into the process of building and maintaining an alternative system that is written specifically for us? One that could satisfy the various nits many of you have?

What I’m envisioning is building a site that runs in parallel to JS-Kit for awhile, posting back and forth, much like CRBot’s iRC channel, for safety’s sake.

To get the ball rolling, here are some of the features I’ve been picturing, grouped by Must Haves and Would Be Cool. I imagine you have some of your own ...

Must Haves

Fast

Simple

Generic browser support, including mobile devices

Registration (simple, relatively anonymous, with openID support)

Multiple moderators (for CR’s sanity)

Permalinks per comment

Homepage links

Threading with a better UI for real time (before you say “yuck!” or “huh?”, let me put together a prototype so you can see what I mean)

Choice of a decent editor, with preview and edits within a 5 minute window

Keyword searchable archives, with slices by user, CR Post, date, tag (see below)

Multiple handles, single user

Personal profiles (member since, homepage, deep thoughts, etc.)

Visitor count

Would Be Cool

Autorefresh (like CR Companion, only more efficient)

CRVIX and other stats

Tags per comment/thread (e.g. news, well-said, funny, youtube, thread-music, thread-of-the-day)

Word clouds per CR post, or per user to give a quick sense of what’s being discussed (or constantly ranted about)

Private ratings and filters, ala CR Companion (I’ve taken to heart the desire to avoid a public popularity contest)

Top Ten Threads of the Day

New post notification (CRBot/The Pig), maybe even from multiple sites like CRBot does (with tags, so people can ignore if desired)

A financial dashboard mashup

An easy way to paste in references to previous comments

Anyone interested? There’ll be need for client and server developers, sysadmin types, graphic designers, testers, lawyers, nay-sayers, etc. This might take awhile, but it’ll be worth it.