by Calculated Risk on 4/15/2009 08:42:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The index has decreased 0.4 percent over the last year, the first 12 month decline since August 1955.

On a seasonally adjusted basis, the CPI-U decreased 0.1 percent in March after rising 0.4 percent in February. The decrease was due to a downturn in the energy index ... The index for all items less food and energy increased 0.2 percent for the third month in a row.

But for some reason, owners' equivalent rent increased again in March:

The shelter index was virtually unchanged in March. The indexes for rent and owners' equivalent rent [OER] both rose 0.2 percent, but these increases were offset by a 2.4 percent decrease in the index for lodging away from home. This was the sixth straight monthly decline in that index, which has fallen 7.8 percent over the past year.

So CPI is picking up the decline in hotel room rates, but the survey is apparently missing the widespread decline in residential rents.

This is important because OER accounts for almost one-fourth of CPI. CPI ex-OER is off -0.2% in March.

by Calculated Risk on 4/14/2009 10:30:00 PM

A couple of article on revealing the stress tests results ...

From the WSJ: Banks Await Stress-Test Results

The Obama administration is considering making public some results of the stress tests being conducted on the country's 19 largest banks, said people familiar with the matter, a move that could help more clearly separate healthy banks from the weaklings.
...
It isn't clear precisely what information the government might disclose. ... But some within the administration believe a certain amount of information needs to be released in order to provide assurance about the validity and rigor of the assessments. In addition, these people also are concerned that the tests won't be able to fulfill their basic function of shoring up confidence unless investors are able to see data for themselves.

And from the NY Times: U.S. Planning to Reveal Data on Health of Top Banks

The Obama administration is drawing up plans to disclose the conditions of the 19 biggest banks in the country, according to senior administration officials ... The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.
...
“The purpose of this program is to prevent panics, not cause them,” said one senior official ... “And it’s becoming clearer that we and the banks are going to have to explain clearly where each bank falls in the spectrum.”

Two senior government officials said on Tuesday that they were now likely to encourage the banks to reveal a range of information, perhaps including the size of losses the banks could suffer under each of the stress assumptions.

Yes, the results have to be bank specific ... otherwise the doubts will remain.

by Calculated Risk on 4/14/2009 08:46:00 PM

From the WSJ: Banks Ramp Up Foreclosures

J.P. Morgan Chase & Co., Wells Fargo & Co., Fannie Mae and Freddie Mac all say they have increased foreclosure activity in recent weeks. Those companies say they have lifted internal moratoriums which temporarily halted foreclosures.
...
Citigroup Inc. says it stopped all foreclosures until March 12, at the Obama administration's request, on loans serviced for Fannie and Freddie. Since then, says a spokesman, it has "reverted to our previous business-as-usual moratorium."
...
Wells Fargo has also increased foreclosure actions since the expiration of its foreclosure moratorium ...

Both Fannie and Freddie have stepped up sales of foreclosed properties since their moratoriums ended on March 31.
...
More than 2.1 million homes will be lost this year because borrowers can't meet their loan payments, up from about 1.7 million in 2008, according to Moody's Economy.com.

Just something to be aware as foreclosure activity picks up again - the lull was because of the moratorium, not market fundamentals.

by Calculated Risk on 4/14/2009 06:28:00 PM

More conference call comments (ht Brian). A little long, but provides some insight into how Intel views inventory levels. Note the comment about the "industry's at a new baseline".

Analyst: What do you expect your internal inventory to do and any comment on the channel.

Intel: Those two things are obviously related. I'll start with the channel inventory question first. As we look and do our checks of channel inventory levels, we saw a significant burn-off of the overhang of inventory that we had seen in Q4 and in the beginning of Q1. If anything, that burned off a little more quickly than we thought. That's what allowed us to start loading our factories. And you can see in our inventory levels we dropped significantly from Q4 to Q1. And actually I'd say for our inventory levels, we're probably a little lower than we would like. In general, when we look at channel inventories, they look generally lean across the supply chain. If anything, as we thing about a seasonal second half on the back of a pretty weak first quarter, we'll probably grow inventories a little bit as we get into Q2. I don't think it will be significant but I think it will be up a little bit.

Analyst: How much of what you are seeing at the moment [is inventory adjustments] and when do you think that process will end? I know you mentioned Q2, but just to scale it, when do you think -- how much of that is, there is weak underlying demand and when do you think that process will be done?

Intel: I think there was some replenishment of Intel chips at our OEM's customers in the first quarter but certainly not a number that I think would reflect full inventory levels. I think everyone is still running very lean. We actually have seen some expedites in the March time frame of can you get us product real fast, we're running out of end user built products, et cetera. So I think you're still seeing that. My sense is it will stay that way until the second half of this year when you start seeing normal seasonal growth return into the business.

Analyst: Beginning in the second quarter, would you expect sequential sales [growth] in your overall server, two way server processors in the second quarter?

Intel: The question mark we would have is the overall strength of the enterprise market going forward and what we're seeing is that enterprise budgets are locked down pretty tight and CIOs are going to let their fleets age a bit until they get a little more clarity on what the economy looks like.

Analyst: I was wondering if you might have been able to give some color on how you perceive sort of broader visibility and how you might have compared that to the conversation from January. You talked about a bottom in the PC market and possibly some month over month improvement as you went through the quarter. On the other side of that, your guidance was sort of flat or somewhat similar although it's not formal but just general color on how you see the marketplace and to what extent there is any visibility.

Intel: I think that first of all, when we said that we were planning our business flat in this environment, you have to remember that traditionally the second quarter is seasonally below the first quarter so that alone is at least internally is a sign of how we view the world. In terms of visibility, three months ago we were sitting in a fragile global economic environment and we had just come off of a horrendous Q4 and we weren't sure where sales were of PCs. Three months later, we're still sitting in a fragile global economic environment but we've got three or four months of fairly good trending in terms of where the business is, what the inventory levels are, what geographies are still buying product, what segments are still buying product and so the -- the global environment hasn't changed but our ability to look and plot some points, historical points, has given us the confidence to essentially say that we've seen the bottom, the industry's seen the bottom and I feel pretty comfortable in that, having done this for more than a few years.

Analyst: Do you feel, then that the seasonality is likely to be somewhat similar to broader seasonal patterns in the second half, do you have any color there?

Intel: Well, that goes back to the pipeline. Desktops are a business which is very, very quick. Most of them are assembled to order. 40% of our desktop chips go through our industrial distribution channel. They're sold in white boxes for the most part. There is essentially no inventory on those. When we saw that stabilizing in the early part of the quarter, that was the first stake in the ground in terms of trying to figure out where the business was. The notebook business, we talked about this last time, not only has a longer supply chain and most of it is branded, much of it was put on boats in the third and fourth quarter to save fuel costs and there was a lot of inventory built ahead of the holiday season in Q4 that had to burn off. We now believe that the vast majority of that has burned off. All the patterns we've seen on chip sets for mobile and on microprocessors for mobile are consistent with that in terms of our customers and the Taiwanese mother board manufacturers now beginning to buy again for product that is reflecting end user consumption.

Analyst: So you're confident that you're seeing normal seasonal patterns return but not sure sort of to what degree, perhaps. Is that the main issue that you think that in the second half we do get that uptick but we just don't know how big it is yet and that's why you're being conservative about guidance?

Intel: I think you have it exactly right. Everything I've seen suggested that the industry's at a new baseline. We're starting to see the normal seasonality adjusted a little bit for the inventory. Replenishment we talked about earlier for Q2. And then every sign we see in terms of markets recovering and here's the time phased deal, suggests that we're likely to see typical seasonality in the second half. I talked about Europe being weak. My sense is everything we've seen is that Europe was like the United States except two or three months later. And so Europe is sitting today where we all were two or three months ago, which was still a bit more frozen than we are today. And our recent channel checks in Europe suggest that consumers are now starting to open their wallets for notebooks again.
emphasis added

by Calculated Risk on 4/14/2009 05:44:00 PM

From Intel CEO Paul Otellini (ht Brian):

As we indicated in our last earnings call, we made significant reductions in our wafer starts to bring inventory in line with the new demand environment. These actions resulted in an inventory reduction of 19%, below the fourth quarter levels. Our spending is being controlled and the number of employees declined by 1400 from Q4 levels. Almost all of the headcount reductions in Q1 and in 2009 will be focused on aligning our factory network to the new demand levels while accelerating our conversion to newer silicon technologies. Our product development machine is in high gear, delivering a new generation of products in all segments. We believe that these products extend our lead in our core businesses and position us for significant growth in the new markets we are targeting. In terms of demand, we saw a few important trends play out this quarter. First, we are seeing signs that a bottom in the PC market segment has been reached. I believe the worst is now behind us from an inventory correction and demand level adjustment perspective. We saw order patterns strengthen throughout the quarter. Desktop sales appear to have hit bottom first and have followed a more normal patterns since early February. In notebooks, the length of the supply chain and higher levels of inventory took longer to work through but now have returned to normal levels. In terms of end user consumption, the consumer segment has held up much better than the enterprise. This is particularly true in consumer notebooks, which continue to be the volume-driver in this segment. Netbook sales continue to grow as anticipated, and are clearly incremental volume for us in a difficult market. In the enterprise segment, the server portion is in reasonable shape. Partially reflecting demand for our newly released dual processor products. The client portion remains weak reflecting constrained budgets and redeployment of older equipment. The installed base of enterprise notebooks is now over three years average age and will need to be upgraded as capital budgets free up. Lastly, in terms of end markets, we saw the US and China demonstrate relative strength while Europe, Japan and the emerging markets showed continuing weakness.

... In closing, while it is clear that our end markets are still impacted by the global financial conditions, we are comfortable with our investment levels and capacity profile. We expect business conditions in Q2 to mirror those of Q1, with some gradual recovering of demand and replenishment of inventories occurring as the industry sees increasing signs of stabilization and a return to more normal seasonal trends.
emphasis added

It sounds like the Q1 inventory correction was very significant, and this could subtract a point or two from Q1 GDP.

Brian comments: [Intel] has historically ... had a poor forecasting track record, so take it with a grain of salt