by Calculated Risk on 8/15/2005 12:49:00 AM

My most recent post is up on Angry Bear: Oil Prices Revisited.

It looks like oil imports will add about $1.2 Billion to the July trade deficit.

It is possible that higher oil prices are leading to lower interest rates! As Dr. Setser noted:

"High oil prices = oil windfall = global savings glut = low long-term rates ... and the low-long term rates help even as high oil prices hurt."

And finally, back in March, I speculated that there was a relationship between housing and the trade deficit. In fact, it was possible that a virtuous cycle had developed that might become vicious when housing slows down.

UPDATE: Here are the graphics from the Virtuous-Vicious post.


Click on diagram for larger image.

The following diagram depicts the possible unwinding of the current cycle.



Check out the post for a discussion of how this could work (and some numbers).

It all ties together (hopefully). I'm focused mostly on housing because I think housing is the linchpin for the US economy.

Best to all.

by Calculated Risk on 8/14/2005 12:17:00 AM

Real estate investors are just walking away from residential property and lenders are getting stuck. Some lenders do not want to take title to the worthless property and the city has started a campaign called the "shaming sign" - placing signs on abandoned property with the names of the lenders' executives. This has induced some lenders to take title and either fix up or demolish the abandoned homes.

This is a story from the Great Depression ... except it is happening right now in Dayton, Ohio.

... others have fallen victim to a conspiracy of carelessness and greed by lenders and their clients, many of them investors. When loans go bad, both duck for cover, their abandoned properties becoming a cancer on neighborhoods.

This reality has led to a new strategy — the "shaming sign." Those who cut out on neighborhoods are held up to richly deserved embarrassment.

A major bank recently took charge of one of its neglected foreclosure properties; a bank official didn't like seeing his name on a sign.

Another big bank has been bobbing and weaving to avoid responsibility. Unable to sell a foreclosed property, it won't take title itself. Instead, it filed suit against its customer, leaving the property to languish and the city holding the bag.

Another property, though, on Helena Street could have a happy ending. A representative for the owner says the owner will tear the building down and deed the property to an adjacent community garden.

That action hasn't happened yet, but should it comes to pass, it will demonstrate the power and potential of the city's attack on abandoned properties.

With lax lending restrictions it is no surprise that areas with little or no appreciation are seeing rising foreclosures. I wonder if the "investors" were able to borrow against the home before just walking away from the loan.

by Calculated Risk on 8/13/2005 10:11:00 PM

Three months ago I started to build a simple model to project the trade deficit. I didn't make as much progress as I had hoped, but the first two components (oil and China) performed reasonably well for two months... but I underestimated China for June.

Here are my projections for June. My model projected a deficit of $17.0 Billion Seasonally Adjusted in energy related petroleum product imports. The actual number was $17.77 Billion (see Exhibit 9). This is an error of 4.3%.

For the trade balance with China, my model projected a deficit of $16.3B NSA (SA is not available). The actual number (see Exhibit 14) was $17.6B or an error of 7.3%.

Here are each of the components and how the model performed:

ITEM	Projection	Actual	Error
US Exports to China (NSA)	$3.2B	$3.4	6%
US Imports from China (NSA)	$19.5B	$20.99B	7%
US Trade Deficit: China (NSA)	$16.3B	$17.6B	7%
Oil: Imports SA	$19.3B	$19.9B	3%
Oil: Exports SA	$2.3B	$2.14B	7%
OIL Balance SA	$17.0B	$17.77B	4%

Some internal data:

ITEM	Projection	Actual	Error
Oil: Contract Price BBL	$45.11	$44.40	1.6%
Oil: BBLs Crude	328.0	328.3M	0%
Oil: Price Other BBL	$51.88	$51.58	<1%
Oil: BBLs Other	90M	103.7M	13%
Oil: Oil Imports NSA	$19.5B	$19.9B	2%

I really missed on China. I wondered about the surge in imports at LA and attributed them to Japan (imports in Japan were up $1.26B). Overall, my guess of $57.7B was on the high end of estimates, and I still underestimated the deficit for June!

by Calculated Risk on 8/13/2005 06:32:00 PM

Gen'l Glut pointed out last month that another jump in oil imports would come in July. It looks like he is correct. Here are the forecasted July oil numbers using the same model (described here). The ERPP (Energy Related Petroleum Products) trade numbers for July are forecast to be:

Forecast: Total NSA ERRP Imports: $21.8 Billion

Total SA ERPP FORECAST:
Imports SA: $21.1 Billion (seasonal factor estimated at 0.965 for July)
Exports SA: $2.2 Billion
Balance ERPP: $18.9 Billion

I am forecasting a record average price per barrel of $49.71 compared to June's $44.40 and the previous record of $44.76 in April.

Imports SA and NSA will set records in July. And the projected SA deficit of $18.9 Billion will shatter the previous seasonally adjusted record oil deficit of $17.9 Billion set last November.

This compares to the SA June deficit of $17.76 Billion. It appears oil imports will add approximately $1.2 Billion to the July trade deficit.

by Calculated Risk on 8/13/2005 03:08:00 PM

Novak reports (I know, I know - I'm quoting Robert Novak):

WASHINGTON -- Federal Reserve Chairman Alan Greenspan, worried about excesses in real estate investment, has privately called on other federal regulators to take a closer look at imprudent speculation.

According to Fed sources, Greenspan has told the regulators that there is a limit to what the central bank's monetary policy can do in tamping down inflationary pressures. He has been in contact with the Comptroller of the Currency and the Office of Thrift Supervision, among other agencies.

A footnote: High officials in the Japanese Ministry of Finance recently commented privately that the vibrant U.S. home mortgage market is supporting an otherwise shaky global economy.

Thanks to Dr. Thoma.