by Calculated Risk on 6/03/2009 05:50:00 PM

From the FDIC: FDIC Statement on the Status of the Legacy Loans Program

The FDIC today formally announced that development of the Legacy Loans Program (LLP) will continue, but that a previously planned pilot sale of assets by open banks will be postponed. In making the announcement, Chairman Bair stated, "Banks have been able to raise capital without having to sell bad assets through the LLP, which reflects renewed investor confidence in our banking system. As a consequence, banks and their supervisors will take additional time to assess the magnitude and timing of troubled assets sales as part of our larger efforts to strengthen the banking sector."

As a next step, the FDIC will test the funding mechanism contemplated by the LLP in a sale of receivership assets this summer. This funding mechanism draws upon concepts successfully employed by the Resolution Trust Corporation in the 1990s, which routinely assisted in the financing of asset sales through responsible use of leverage. The FDIC expects to solicit bids for this sale of receivership assets in July.

Chairman Bair added, "The FDIC will continue its work on the LLP and will be prepared to offer it in the future as an important tool to cleanse bank balance sheets and bolster their ability to support the credit needs of the economy."

Yeah, they will be prepared to offer the program.

Just more wasted letters ... MLEC!

by Calculated Risk on 6/03/2009 03:39:00 PM

Note: Market graph at bottom of post.

Mark Lomanno, President of Smith Travel Research gave a presentation on hotel performance in New York. Stacey Higgins at HotelNewsNow has some details: NYU: By the numbers

When contrasting this downturn with others, one of the most important differences is that as demand has declined at historically low rates, supply is still increasing.
...
Another noteworthy trend is the weakness of weekday performance, according to Lomanno.

Here are a couple of graphs from Lomanno's presentation:

Click on graph for larger image in new window.

The first graph shows the 12 month moving average for hotel room supply and demand.

As Lomanno noted, this is very unusual for supply to be increasing while demand is falling - and this is probably because of the huge surge in hotel construction in recent years (and these projects are just now being completed).

The second graph shows investment in lodging (based on data from the BEA) as a percent of GDP through Q1 2009.

The recent boom in lodging investment has been stunning. Lodging investment peaked at 0.33% of GDP in Q3 2008 and is now declining sharply (0.28% in Q1 2009).

Notice that lodging investment continued to grow right into the recession - suggesting very loose lending for new hotel construction.

And the final chart - also from Lomanno's presentation - shows that weekday lodging (business travel) has fallen off much more than weekend lodging (leisure travel).

For weekdays, occupancy is off 14.4% and RevPAR (revenue per available room) is off 21.4%.

This suggests there might be a little increase in occupancy later this year as businesses gain confidence.

************************

By popular demand ... Click on graph for larger image in new window. This graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 6/03/2009 02:40:00 PM

From Kansas Fed President Thomas Hoenig: An Economy at Risk: Tough Decisions Ahead. A few excerpts:

"While I am convinced the economic recovery we all want will develop, it will be slower and more fragile than we hope for."
...
"I would direct you to an article by Martin Barnes, the managing editor of Bank Credit Analyst, published in May. In estimating the effect on consumption growth if the annual savings rate steadily increased from zero to 8 percent between now and the end of 2013, the article suggests that consumer spending would grow at an average rate of only 1.3 percent per year. This would be a significant reduction of consumption growth, the slowest since the 1930s."
...
"The markets won't be fooled by artificially low rates for long. Market participants realize that a period of high deficits and accommodative monetary policy are an invitation to increased inflationary pressure. I suspect we are experiencing the first signs of the markets' concerns in the rising rates and increased volatility in longer-term Treasury markets. I suggest strongly that we need to be alert to the markets' message and begin in earnest to bring monetary policy into better balance before inflation forces our hand."

It is interesting that Hoenig believes growth will be sluggish for some time, and he is still advocating raising rates. This will not happen any time soon.

by Calculated Risk on 6/03/2009 12:54:00 PM

Click on cartoon for larger image in new window.

Eric Lewis sent me this great cartoon this morning!

I'm sure many homeowners are saying "Uh oh!"

Enjoy ...

by Calculated Risk on 6/03/2009 11:01:00 AM

This was released earlier this morning ...

From the ISM: May 2009 Non-Manufacturing ISM Report On Business®

The NMI (Non-Manufacturing Index) registered 44 percent in May, 0.3 percentage point higher than the 43.7 percent registered in April, indicating contraction in the non-manufacturing sector for the eighth consecutive month, but at a slightly slower rate. The Non-Manufacturing Business Activity Index decreased 2.8 percentage points to 42.4 percent. The New Orders Index decreased 2.6 percentage points to 44.4 percent, and the Employment Index increased 2 percentage points to 39 percent. The Prices Index increased 6.9 percentage points to 46.9 percent in May, indicating a slower decrease in prices from April.
...
Some respondents indicate that there are signs of stabilization, while others continue to have a negative outlook on the economy.

Still contracting, but at a slower pace.