by Calculated Risk on 5/16/2010 08:51:00 AM

Professor Shiller is worried about social psychology (I tend to be much more data driven).

From Robert Shiller in the NY Times: Fear of a Double Dip Could Cause One

[T]here is still a real risk of a double-dip recession, though it can’t be quantified by the statistical models that economists use for forecasts. Instead, the danger stems from the weakness and vulnerability of confidence — whose decline could bring markets down, further stress balance sheets and cause cuts in consumption, investment and local government expenditures.
...
From 2007 to 2009, there was widespread concern about the risk of an economic depression, but that scare has been abating. Since mid-2009, it has been replaced by the milder worry of a double-dip recession, as a count of Web searches for those terms on Google Insights suggests. And with that depression scare still fresh in our minds, sensitivity to the possibility of another downturn remains high.

Shiller continues:

I use a definition of a double-dip recession that doesn’t emphasize the short term. Instead, I see it as beginning with a recession in which unemployment rises to a high level and then falls at a disappointingly slow rate. Before employment returns to normal, there is a second recession. As long as economic recovery isn’t complete, that’s a double-dip recession, even if there are years between the declines.

It helps to have a clear definition of a "double-dip" as opposed to calling two separate recessions. The two early '80s recession raised this issue, and the NBER argued they were two separate recessions:

Although not all economic indicators had regained their 1979-80 peaks by the summer of 1981, the committee agreed that the resurgence of economic activity in the previous year clearly constituted a business cycle recovery.

Using Shiller's definition, the two recessions in the '30s were a "double-dip", although NBER called them as two separate recessions.

My definition of a "double-dip" is a second economic downturn before most of the major indicators return to the pre-recession levels. These measures would include GDP, real income, employment, industrial production, and wholesale-retail sales. My view is the economy will probably slow in the 2nd half of 2010, but I think we will avoid a double-dip.

And this is interesting:

Since 1989, I have been compiling the Buy-on-Dips Stock Market Confidence Index, now produced by the Yale School of Management. It shows that confidence to buy on market dips has been declining steadily for individual investors since 2009. (The measure is holding steady for institutional investors.) Will individuals continue to support the market, which is now highly priced?

by Calculated Risk on 5/15/2010 07:54:00 PM

From Sharon Stangenes at the Chicago Tribune: Renting what you can't sell

When Ed Amaya put his Oak Park bungalow up for sale in mid-2007, homes in his neighborhood sold in a matter of days, weeks at the most.

"We had some showings; got close to a deal," recalled Amaya. But as the housing market soured, a sale proved elusive. So Amaya agreed to rent it to a family that was not in a position to buy.

"We stayed in that pattern for a couple of years," said Amaya, who expected real estate to rebound. "But guess what? The market got worse."

Like many homeowners in the housing downturn, Amaya became an unintentional landlord by renting out a property he once hoped to sell.

Like so many others, he should have reduced the price!

So many residences are now for lease that there is "a saturated rental market," with more available units than potential tenants, said Jeanine McShea, president of brokerage services for @Properties.

"Many people are renting out property, but most are not making money," said Sara Benson, a principal in Chicago-based Benson Stanley Realty.

My definition of "shadow inventory" are units that aren't currently listed on the market, but will probably be listed soon. This includes REOs, foreclosures in process and some percentage of seriously delinquent loans (some will cure, some are already listed as short sales), unlisted new high rise condos (these properties are not included in the new home inventory report) and homeowners waiting for a better market.

That last category includes all the accidental landlords that we've been discussing for years.

by Calculated Risk on 5/15/2010 02:52:00 PM

From David Streitfeld in the NY Times: In City of Homes That Sit Empty, Building Booms

Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.

Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more.

Las Vegas is trying to recover by building what it does not need.
...
Some of the demand is coming from families that are getting shut out of the bidding for foreclosures by syndicates that pay in cash, and some is from investors who are back on the prowl.

Land and labor costs have fallen significantly, so the newest homes are competitively priced. Some of the boom-era homes, meanwhile, are in developments that feel like ghost towns. And many Americans will always believe the latest model of something is their only option, an attitude builders are doing their utmost to reinforce.

Many buyers have been frustrated recently trying to buy homes, especially at the low end. They are competing with cash buyers, or they have to endure endless delays with short sales (although the process is improving), and meanwhile the lenders have been slow to foreclose. This has created an opportunity for builders - even though there is no need for new supply in places like Las Vegas.

Click on image for larger graph in new window.

This graph (from this post earlier this week) shows the negative equity and near negative equity by state. The graph is based on the data in the First American CoreLogic Q1 2010 negative equity report this week.

From the report:

Negative equity continues to be concentrated in five states: Nevada, which had the highest percentage negative equity with 70 percent of all of its mortgaged properties underwater, followed by Arizona (51 percent), Florida (48 percent), Michigan (39 percent) and California (34 percent). Las Vegas remains the top ranked CBSA with 75% of mortgaged properties being underwater, followed by Stockton (65%), Modesto (62%), Vallejo-Fairfield (60%) and Phoenix (58%).

The good news for buyers is there are probably many more distressed sales coming.

by Calculated Risk on 5/15/2010 11:30:00 AM

From an intereview in Der Spiegel with European Central Bank President Jean-Claude Trichet: A 'Quantum Leap' in Governance of the Euro Zone Is Needed. A few excerpts:

Trichet: "[I]t is clear that since September 2008 we have been facing the most difficult situation since the Second World War -- perhaps even since the First World War. We have experienced -- and are experiencing -- truly dramatic times."

On buying government bonds of EU countries:

Trichet: Our measures are explicitly authorized by the (EU) treaty. We are not embarking on quantitative easing. We are helping some market segments to function more normally. And, as I said, we will take back all the additional liquidity that we will supply in our Securities Markets Program.

On countries leaving the euro:

SPIEGEL: Would it not be good if a country such as Greece were able to leave the euro area?

Trichet: No. This is excluded. If a country joins the euro area, it shares a common destiny with the other members. There is a need for a quantum leap in the governance of the euro area. There need to be major improvements to prevent bad behavior, to ensure effective implementation of the recommendations made by "peers" and to ensure real and effective sanctions in case of breaches (of the Stability and Growth Pact).

by Calculated Risk on 5/15/2010 08:50:00 AM

From Bloomberg: S&P Cuts to Junk Mortgage Bonds It Rated AAA in 2009 (ht Bob_in_MA, Justin)

Standard & Poor’s cut to junk the ratings on certain securities, backed by U.S. mortgage bonds, that it granted AAA grades when they were created last year ...

The reductions were among downgrades to 308 classes of so- called re-remics, or re-securitizations, created from 2005 through 2009 ...

“The downgrades reflect our assessment of the significant deterioration in performance of the loans backing the underlying certificates,” S&P analysts Cesar Romero and Terry G. Osterweil said in the statement.

Rated AAA last year and now junk ... ratings: what are they good for?

by Calculated Risk on 5/14/2010 11:34:00 PM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for May 14, 2010.

Changes and comments from surferdude808:

It was a quiet week for the Unofficial Problem Bank List as there were only three removals because of failure and one addition.

The list includes 725 institutions with aggregate assets of $363 billion. The failures include Midwest Bank and Trust Company ($3.4 billion Ticker: MBHI), New Liberty Bank ($114 million), and Satilla Community Bank ($146 million). The sole addition is Monarch Community Bank, Coldwater, MI ($290 million Ticker: MCBF).

There was one name and location change with Ohio Legacy Bank, N.A., Wooster, OH now known as Premier Bank & Trust, N.A., North Canton, OH. We had anticipated for the OCC to release its actions for April 2010 but it looks like that will happen by next Friday.

CR Note: Midwest was a TARP recipient of $89.4 million - and usually when a bank is seized, the Treasury (aka taxpayers) lose the entire investment.

by Calculated Risk on 5/14/2010 09:28:00 PM

A little Friday evening humor from Jon Stewart at the Daily Show: Hoarders

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Hoarders
www.thedailyshow.com

by Calculated Risk on 5/14/2010 07:10:00 PM

In the "Show Me State"
Southwest Community Bank
Has been shown the door.

Midwest Bank and Trust
A bailout recipient
TARP lifeline squandered
by Soylent Green is People
From the FDIC: Simmons First National Bank, Pine Bluff, Arkansas, Assumes All of the Deposits of Southwest Community Bank, Springfield, Missouri

As of March 31, 2010, Southwest Community Bank had approximately $96.6 million in total assets and $102.5 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $29.0 million. ... Southwest Community Bank is the 71st FDIC-insured institution to fail in the nation this year, and the fourth in Missouri.

From the FDIC: Firstmerit Bank, National Association, Akron, Ohio, Assumes All of the Deposits of Midwest Bank and Trust Company, Elmwood Park, Illinois

As of March 31, 2010, Midwest Bank and Trust Company had approximately $3.17 billion in total assets and $2.42 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $216.4 million. ... Midwest Bank and Trust Company is the 72nd FDIC-insured institution to fail in the nation this year, and the eleventh in Illinois

Midwest was a fair size bank ... that makes four today.

by Calculated Risk on 5/14/2010 06:10:00 PM

New Liberty Bank
Old liberties taken
Asset absconding
by Soylent Green is People
From FDIC: Bank of Ann Arbor, Ann Arbor, Michigan, Assumes All of the Deposits of New Liberty Bank, Plymouth, Michigan

As of March 31, 2010, New Liberty Bank had approximately $109.1 million in total assets and $101.8 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $25.0 million. ... New Liberty Bank is the 70th FDIC-insured institution to fail in the nation this year, and the third in Michigan.

Two down ...

by Calculated Risk on 5/14/2010 05:10:00 PM

Good-bye Satilla
One more Georgia bank wipe-out
B F F begins
by Soylent Green is People
From the FDIC: Ameris Bank, Moultrie, Georgia, Assumes All of the Deposits of Satilla Community Bank, Saint Marys, Georgia

As of March 31, 2010, Satilla Community Bank had approximately $135.7 million in total assets and $134.0 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $31.3 million. ... Satilla Community Bank is the 69th FDIC-insured institution to fail in the nation this year, and the eighth in Georgia.

Friday is here.

by Calculated Risk on 5/14/2010 04:26:00 PM

From the SacBee: Schwarzenegger budget would eliminate welfare

Gov. Arnold Schwarzenegger asked lawmakers Friday to eliminate the state's welfare program starting in October and dramatically scale back in-home care for elderly and disabled as part of his May budget revision to close a $19.1 billion deficit.

[Schwarzenegger] also proposed cuts to state worker compensation.
...
Schwarzenegger proposed eliminating state-subsidized child care for all but preschoolers ...

From the LA Times: Schwarzenegger unveils austere budget plan

Gov. Arnold Schwarzenegger outlined a stark vision Friday of a California that would no longer lend a helping hand to some of its poorest and neediest citizens, proposing a budget that would eliminate the state's welfare-to-work program and most child care for the poor.

His $83.4-billion plan would freeze funding for local schools, further cut state workers' pay and take away 60% of state money for local mental health programs.

During the press conference, Schwarzenegger compared California to Greece. Ouch.

by Calculated Risk on 5/14/2010 02:37:00 PM

There will be a live webcast of Governor Schwarzenegger's comments here on the new budget that his office says includes "absolutely terrible cuts".

From the LA Times: Schwarzenegger's revised budget plan is expected to eliminate health programs

Administration officials declined to reveal which specific programs the governor would eliminate. But officials involved in the budget process, who spoke on condition of anonymity because they are not authorized to speak publicly, said they would probably include home healthcare for the elderly and disabled, a nearly $2-billion program that serves 440,000 Californians.

From the SacBee: Schwarzenegger's prison plan would move nonviolent felons to county jails

Gov. Arnold Schwarzenegger will revive a plan to house 15,000 nonviolent felons in county jails instead of state prisons, a cost-cutting move that likely would result in some inmates leaving jail early. ... His office warned earlier this week that the package will contain "absolutely terrible cuts" to shrink a nearly $20 billion deficit.

The cutbacks and layoffs continue for many state and local governments.

by Calculated Risk on 5/14/2010 11:57:00 AM

From the Financial Times: Euro plunges as growth worries mount

[S]igns of deflation emerged in Spain and concerns grew that the latest tough austerity measures across Europe would damp growth in the region. This sent the euro to new 18-month lows against the dollar and gold to a new high.
excerpt with permission

At the same time China is trying to slow down their overheated real estate sector market:

[T]he China Securities Journal reported that Shanghai’s municipal government was putting up nearly 40 lots of land for sale in the city’s most extensive release yet.

And the stronger dollar will probably impact U.S. exports to Europe (although trade to Europe is a fairly small part of U.S. GDP). Still manufacturing has been one of the better performing U.S. sectors, but with the inventory correction mostly over (businesses are now building inventories) and if exports soften - this will impact U.S. growth.

A 2nd half slowdown in the U.S. appears very likely.

by Calculated Risk on 5/14/2010 09:15:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production increased 0.8 percent in April after having risen 0.2 percent in March. The rates of change for both January and March were revised up, but the rate of change for February was revised down; nevertheless, the cumulative change over those months was only slightly lower than previously reported. Manufacturing output climbed 1.0 percent in April for a second consecutive month and was 6.0 percent above its year-earlier level. The increases in manufacturing continued to be broadly based across industries.

Click on graph for larger image in new window.

This graph shows Capacity Utilization. This series is up 7.9% from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 73.7% is still far below normal - and 8.5% below the the pre-recession levels of 80.5% in November 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

This is the highest level for industrial production since Dec 2008, but production is still 9.0% below the pre-recession levels at the end of 2007.

Still a long way to go.

by Calculated Risk on 5/14/2010 08:30:00 AM

On a monthly basis, retail sales increased 0.4% from March to April (seasonally adjusted, after revisions), and sales were up 8.8% from April 2009 (easy comparison).

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

The red line shows retail sales ex-gasoline and shows the increase in final demand ex-gasoline has been sluggish.

Retail sales are up 9.2% from the bottom, but still off 3.6% from the pre-recession peak.

The second graph shows the year-over-year change in retail sales (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 6.9% on a YoY basis (8.8% for all retail sales). The year-over-year comparisons are easy now since retail sales collapsed in late 2008. Retail sales bottomed in December 2008.

Here is the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $366.4 billion, an increase of 0.4 percent (±0.5%)* from the previous month and 8.8 percent (±0.5%) above April 2009. Total sales for the February through April 2010 period were up 7.3 percent (±0.3%) from the same period a year ago. The February to March 2010 percent change was revised from +1.9 percent (±0.5%) to +2.1 percent (±0.4%).

The strongest sector was building material and garden equipment sales - and that might have been positively impacted by the homebuyer tax credit. Still this is a reasonably strong report.

by Calculated Risk on 5/13/2010 08:45:00 PM

Last night I linked to an article from Catherine Rampell at the NY Times that highlighted the skills mismatch problem related to long term unemployment.

And from Haya El Nasser at the USA Today: More move, but not long distance

More Americans moved last year than in the previous year, but most didn't go far, a sign that foreclosures and housing costs are still keeping people close to home.
...
"The main reason migration has ticked up (in 2009) is local movement," [William Frey, demographer at the Brookings Institution said]. "Foreclosures have a lot to do with that. A lot of people have moved to renter status."
...
"This is the absolute worst time to lose our residential mobility," says Richard Florida, a professor of U.S. urban theory at the University of Toronto. "It's important for people to move to where the new opportunities are, because that is the cornerstone of our idea-driven economy."

The loss of mobility is a huge concern. Usually people can move freely in the U.S. to pursue employment - but it is more difficult now, especially for borrowers who are underwater on their homes.

In March, Atlanta Fed President Dennis Lockhart discussed both of these mismatches: Prospects for Sustained Recovery and Employment Gains. These mismatches are part of the reason I expect the unemployment rate to stay elevated for some time.

by Calculated Risk on 5/13/2010 05:12:00 PM

"Ob Griechenland über die Zeit wirklich in der Lage ist, diese Leistungskraft aufzubringen, das wage ich zu bezweifeln"
Deutsche Bank CEO Josef Ackermann, May 13, 2010

Translation: "Whether Greece - over time – is really in a position to raise its [economic] performance [to repay its debt], I doubt it" (ht U)

by Calculated Risk on 5/13/2010 02:44:00 PM

Here is a graph from the Atlanta Fed weekly Financial Highlights released today (graph as of May 12th):

Click on graph for larger image in new window.

From the Atlanta Fed:

European bond spreads (over German bonds) narrowed considerably this week following the unveiling of the European Union’s €750 billion policy response on May 9, jointly with the International Monetary Fund.

In addition to the €750 billion package, the European Central Bank announced its Securities Market Program, aimed at purchasing public and private European debt.

During the past few weeks, the 10-year Greece-to-German bond spread had risen to nearly 10% (or 1000 bps), but following the €750 billion EU/IMF package, the spread fell sharply to around 450 bps, as of May 11. Other European peripherals’ spreads also narrowed, with Portugal currently at 152 bps, Ireland at 165 bps, and Spain at 100 bps.

This is the series to follow to see the short term impact of the policy response. The spread for Greece has fallen sharply, but is still very high. The spreads for Portugal, Ireland and Spain have all fallen back to earlier levels.

by Calculated Risk on 5/13/2010 12:07:00 PM

Notes: this data is not seasonally adjusted. There is a very distinct seasonal pattern for imports, but not for exports. LA area ports handle about 40% of the nation's container port traffic.

Sometimes port traffic gives us an early hint of changes in the trade deficit. The following graph shows the loaded inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container). Although containers tell us nothing about value, container traffic does give us an idea of the volume of goods being exported and imported.

Click on graph for larger image in new window.

Loaded inbound traffic was up 13.6% compared to April 2009. (up 15% compared to last year using three month average). Inbound traffic was still down 11% vs. two years ago (Apr 08).

Loaded outbound traffic was up 13.7% from April 2009. (+19% using three months average) Just as with imports, exports are still off from 2 years ago (off 7%).

Exports were off slightly in April after the increase in March.

For imports there is usually a significant dip in either February or March, depending on the timing of the Chinese New Year, and that didn't happen this year. Then usually imports increase until late summer or early fall as retailers build inventory for the holiday season. So this increase in April imports is part of the normal seasonal pattern.

Still, based on this data, it appears the trade deficit with Asia increased in April. The old global imbalances continue ...

by Calculated Risk on 5/13/2010 09:51:00 AM

The phrase "foreclosure activity" can be confusing.

There are three key stages in the process: 1) Notice of Default (or Lis Pendens depending on state), 2) Notice of Trustee Sale or Notice of Foreclosure Sale, and 3) actual foreclosure (Real Estate Owned). Usually we abbreviate these stages as NOD, NTS and REO.

To calculate "foreclosure activity", RealtyTrac adds the notices together. If a property goes all the way to REO, it will be counted at least 3 times (sometimes more if multiple NODs or NTS are filed).

What this report shows is that REO is at record levels (actual foreclosures), but the initial stage (NODs) has declined substantially. The decline in NODs is good news, but the servicers are still working through a huge backlog of previously filed NODs - and REO activity (or short sales) will be high for a long time.

From RealtyTrac: Foreclosure Activity Decreases 9 Percent in April

RealtyTrac® ... today released its U.S. Foreclosure Market Report™ for April 2010, which shows that foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 333,837 properties in April, a 9 percent decrease from the previous month and a 2 percent decrease from April 2009. One in every 387 U.S. housing units received a foreclosure filing during the month.

“There were two important milestones in the April numbers that show foreclosure activity has begun to plateau — but at a very high level that will not drop off in the near future,” said James J. Saccacio, chief executive officer of RealtyTrac. “April was the first month in the history of our report with an annual decrease in U.S. foreclosure activity. Secondly, bank repossessions, or REOs, hit a record monthly high for the report even while default notices dropped substantially on a monthly and annual basis. We expect a similar pattern to continue for most of this year, with the overall numbers staying at a high level and ripples of activity hitting the various stages of the foreclosure process as lenders systematically work through the backlog of distressed properties.”