by Calculated Risk on 5/11/2009 10:51:00 AM

“Certainly the task that we have in front of us is large, but we know that we can get it done. Today it’s more probable that we would need to resort to a bankruptcy process. But there’s still a possibility and an opportunity for it to be done outside of a bankruptcy.”
GM Chief Executive Officer Fritz Henderson

The NY Times is live blogging the conference call, but there doesn't sound like much news.

GM received three bids for Hummer, and expects a sale by the end of May.

On the bonds:

Mr. Henderson said the Treasury told G.M. to offer its bondholders up to a 10 percent stake in the company in return for the $27 billion in debt that they hold but did not give a reason why. Bondholders have said the stake is too small compared to what others are receiving.

And that is why a BK is likely ...

by Calculated Risk on 5/11/2009 08:58:00 AM

A few quotes from Paul Krugman in China ...

From Reuters: Krugman fears lost decade for US due to half-steps

"We're doing half-measures that help the economy limp along without fully recovering, and we're having measures that help the banks survive without really thriving," Krugman said.

"We're doing what the Japanese did in the nineties," he told a small group of reporters during a visit to Beijing.
...
"I'm mostly worried that the U.S. and the euro zone will have Japanese-type lost decades," he said.
...
"It's clear the administration won't take radical action to strengthen the banks any time soon," he said.

by Calculated Risk on 5/10/2009 11:25:00 PM

Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

The S&P 500 is up 37.4% from the bottom, but still off 40.6% from the peak.

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

The second graph is the Shanghai SSE composite index. I used to post this graph with the subtitle "Cliff Diving"!

The Shanghai composite is up again tonight, and this index is now up 54% from the bottom, but still off 55% from the peak.

Both these markets show how the denominator impacts percentages. Imagine a market that peaked at 100 and dropped to 30. Then rallied back to 50. The market would the be up 67% from the bottom: 50 minus 30 = 20, divided by 30, but still off 50% from the peak. That is why it helps to report both numbers!

The S&P 500 is up 37.4% from the bottom, but that just puts it near the level following the early October crash.

The U.S. futures are off tonight:

CBOT mini-sized Dow

Futures from barchart.com

CME Globex Flash Quotes

And the Asian markets. The Asian markets are mixed.

And a graph of the Asian markets.

Best to all.

by Calculated Risk on 5/10/2009 06:44:00 PM

From the NY Times: White House Forecasts No Job Growth Until 2010

Speaking on C-SPAN, Christina Romer, chairwoman of the White House Council of Economic Advisers, said that she expected the G.D.P. to begin growing in the fourth quarter of this year. ... Ms. Romer also said that she expected unemployment to rise even after the economy turns, saying that the G.D.P. has to grow at a rate of about 2.5 percent before unemployment will fall. Before that happens, she said, it is “unfortunately pretty realistic” that the unemployment rate could reach 9.5 percent. A reasonable estimate for the G.D.P.’s growth rate in 2010, she said, is three percent.

Three percent is pretty close to trend growth. Although three percent is possible, I think a more sluggish recovery is likely. Note: Romer isn't forecasting a "V-shaped" recovery with strong growth coming out of the recession.

The usual engines of recovery - personal consumption expenditures (PCE) and residential investment (RI) - will both be under pressure. With nearly stagnant wages and a rising saving rate (my forecast based on households repairing balance sheets and an aging population), PCE growth will probably be below trend. And for RI, there is far too much inventory for any significant rebound in new home construction. Where will growth come from? Not investment - there is too much capacity.

Meanwhile the banking system is still very fragile, with the Obama administration gambling that the banks will earn their way out of the mess.

I'm still amazed by the bipolar outlooks of forecasters: just a few months ago, many forecasters were openly talking about a 2nd Great Depression (while I was writing about seeing a bottom in a few key leading indicators), and now some forecasters are talking about an immaculate recovery. Amazing.

by Calculated Risk on 5/10/2009 03:19:00 PM

From the NY Times: Manhattan Calling

... Great Recession prices are drawing even the most loyal outer-borough dwellers back to Manhattan. ...

Among the lures: $1,600 one-bedrooms on the Lower East Side. Lenient landlords who no longer require security deposits. And an overriding sense that an obscenely overpriced borough is now, well, slightly more reasonably overpriced.

... "[T]his was a unique moment in real estate history where renters have the upper hand, which seemed unbelievable a couple of years ago." [said] Keith O’Brien, a 30-year-old in marketing and public relations ...

In the first three months of the year, one-bedroom rents in Manhattan fell 6.7 percent compared with the previous year, while Brooklyn one-bedrooms dropped just 3.2 percent, according to data from Citi Habitats and Ideal Properties Group ... Other reports show some Manhattan rents down by 10 percent from a year ago.

... prices at upscale rental buildings like 45 Wall Street have come down significantly, discounted by 15 to 20 percent in recent weeks.

This is mostly anecdotal data, but it does appear apartment rents are falling in much of the country.