by Calculated Risk on 8/10/2005 11:10:00 AM

According to Briefing.com the market expects the trade deficit in June to be $57.2 Billion. The deficit for May was $55.3 Billion. My guess for June is $57.7 Billion.

PROJECTIONS:
I. Petroleum Prediction. I made an earlier prediction but I'm not happy with the BLS estimates. I'm going to lower the projection slightly to reflect the DOE estimates.

Forecast: Total NSA ERRP Imports: $19.46 Billion

Total SA ERPP FORECAST:
Imports SA: $19.3 Billion (seasonal factor estimated at 0.9925 for June)
Exports SA: $2.3 Billion
Balance ERPP: $17.0 Billion

Including petroleum exports and adjusting for seasonal effects, the SA oil balance for June is projected at $17.0 Billion. This compares to $15.8 Billion for May - an increase of $1.2 Billion.

II: For China, I project (see bottom) a NSA deficit of $16.3 Billion for June compared to $15.75 Billion in May. SA this is $16.3 Billion vs. $16.3 Billion for May (no change).

III. Japan. I haven't figured out how to estimate trade with Japan yet, but I suspect we will see a larger deficit in June than May for two reasons:

A) inbound port traffic at Los Angeles was up 7% over May and outbound traffic was down 9%. It appears that Long Beach trade fluctuates more with China and Los Angeles with Japan and other Asian countries. Based on these numbers I expect the deficit with Japan to grow by about $1 Billion in June.

B) Bloomberg: Japan's June Exports Rise 3.6%, More Than Expected

IV. OVERALL: I haven't developed a method for predicting the deficit for other countries, but based on Oil and China I think the deficit in June will be slightly higher than May's deficit of $55.3 Billion. Oil will be about $1.2 Billion more in June (than May), SA China will be approximately the same and Japan/Asia will add another $1 Billion.

My Guess (not enough work to call it a projection / estimate): $57.7 Billion Deficit.

NOTE: I expect July to be worse than June.

CHINA: The following is the estimate for trade with China based on this methodology.

CHINA TRADE BALANCE: Table numbers in Billions $

NOT SEASONALLY ADJUSTED

MONTH	NSA Balance	NSA Exports	NSA Imports
February	-$13.9	$3.08	$16.95
March	-$12.9	$3.3	$16.21
April	-$14.7	$3.4	$18.12
May	-$15.75	$3.3	$19.05
June	-$16.3(est)	$3.2(est)	$19.5(est)

SEASONALLY ADJUSTED (all estimates)

MONTH	SA Balance	SA Exports	SA Imports
February	-$18.1	$3.08	$21.19
March	-$15.1	$3.3	$18.42
April	-$15.5	$3.4	$18.88
May	-$16.3	$3.3	$19.6
May	-$16.3	$3.2	$19.5

by Calculated Risk on 8/10/2005 09:53:00 AM

Reuters reports:

Applications for U.S. home mortgages fell last week, its third consecutive drop, as refinancing activity waned and interest rates reached four-month highs, industry group figures showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 0.9 percent to 745.0 in the week ended Aug. 5, adding to the previous week's 0.3 percent loss. The four-week moving average is down 1.5 percent to 763.1 from 774.9.

What is puzzling is the high percentage of borrowers still using ARMs:

After falling during the previous week, demand for adjustable-rate mortgages (ARMs) rose in the week ended Aug 5, the MBS said.

The ARM share of activity stood at 29.7 percent of total applications last week, up from 28.5 percent the previous week.

Of course I was puzzled last month too:

Given the spread between the various mortgage products, I'm surprised anyone is using an ARM. The breakeven point for a 30 year fixed rate mortgage vs. a 1 year ARM is less than 3 years. For those using a 5/1 year ARM (fixed for 5 years), the rate is the same as a 15 year fixed!

Since 28% of all application are for ARMs, this probably means:
1) Buyers think interest rates will decline in the future, or
2) Buyers are planning on moving within 3 years, or
3) Buyers can only qualify with a reduced payment.

None of these reasons seem compelling. I think this is more evidence of speculation / excessive leverage.

by Calculated Risk on 8/09/2005 03:58:00 PM

The National Association of Realtors (NAR) President Al Mansell made some interesting comments today:

"It's a great time to sell, but it may be a better time to buy about a year from now when the market should come closer to balance,”

I'm sure he meant that there are still below normal inventories and that he expects the housing market to be more balanced between supply and demand next year. But it sure sounded like a "Sell now, buy later" recommendation. Also from NAR chief economist David Lereah:

“The housing market is probably close to a peak right now in terms of sales activity, but there is tremendous momentum. Sales are expected to coast at historically high levels into next year, but they will trend slightly downward."

Falling sales and rising inventories followed by declining prices is what I expect.

by Calculated Risk on 8/09/2005 03:01:00 AM

UPDATE: PJ had a similar post a few days ago and excerpts from a NY Times article - check it out!

On the Discovery Channel: Flip That House.

House flipping — buying and renovating a house to sell for profit — is currently the hottest trend spreading through the real estate industry. A "flip" occurs when an individual purchases a home, remodels the home in a short period of time (anywhere from 3 weeks to 4 months) and then re-sells the home for a profit.

Flip That House is a new series for Discovery Home that dives into this very craze. Each episode is a fun, fast half hour that will document the entire flipping process of one house.

And on A&E: Flip This House. On Sat Aug 13th:

Richard and Kevin's friendship is put to the test when Kevin asks to be involved in the investment side of the business. Setting his sights on a beautiful but unfinished waterfront house on Foley Beach, Kevin convinces Richard it's a good house to flip. At $1.2 million it's a big gamble but Richard, unsure at first, agrees to go 50/50 on the house with Kevin. Things get out of hand as costly decisions are made that Kevin and Richard don't necessarily agree on and threaten a slim profit margin. A lifelong friendship strains at the seams until Dawn takes matters into her hands and uses a little southern style coaxing to get the two friends back together. Tune in to learn the incredible value of waterfront property, true friendship, and find out whether Richard is pushed out of his helicopter or does he jump?

And some people thought that flippin' was a fad.

by Calculated Risk on 8/08/2005 07:31:00 PM

Barry Ritholtz, chief market strategist for Maxim Group and author of the excellent blog "The Big Picture" announced today:

"We expect a recession in the 2006-07 time frame."

In an excellent summary post, Mr. Ritholtz argues that the slowing housing market will lead the economy into recession.

Two major themes we have been discussing for quite some time appear to be coming together:

A) Real Estate, though not a bubble, is an extended asset class overdue to retrace;
B) RE has been the dominant sector in the US economy since the recession ended.
...
Given the significance of this sector and the relative modest strength of the rest of the economy, we suspect the Fed will fail in their attempt to engineer a soft landing.

We expect a recession in the 2006-07 time frame.

Note that Mr. Ritholtz doesn't think the housing market is a "bubble", but an "extended asset class". I think he just defines a bubble differently than me, but the result is the same. Its still too early for me to call a recession.