by Calculated Risk on 10/30/2009 04:00:00 PM

Remember that rally yesterday? All gone and then some ...

Click on graph for larger image in new window.

From Doug Short of dshort.com (financial planner).

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

The S&P was off 2.8% today ...

A great interview on Tech Ticker: "Still a Very Shaky Sort of World Recovery," FT's Martin Wolf Says

Martin Wolf, chief economics commentator for The Financial Times, talks about the U.S. and world economy.

"It's very difficult to believe in a really strong consumer-led recovery in the U.S.. I think this is still a very shaky sort of world recovery."

And on the stock market:

"I think the market actually did a probably not unreasonable job - that is why I think it is not much of a bubble - of anticipating what was going to happen. And you sell on the news, isn't that the story? You buy on the hope and you sell on the news. We now know there is a reasonable recovery. By the way, in the early phases of a recovery, 3.5% annualized growth is not sensational by American standards. And remember if the U.S. is going to reduce its unemployment we will want to see annual growth - not annualized growth - of 4% to 5%."
emphasis added

And from Bloomberg: Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash (ht James, others)

Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”

“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”

I'm not sure this is the beginning of a "huge crash" - prices are already down 41% from the peak according to the Moody’s/REAL Commercial Property Price Indices!

Note: on CRE, also see MIT Professor David Geltner discussion on the CPII and the differences between price declines for healthy and distressed properties: Where we are in the aggregate: A two-year anniversary ...

by Calculated Risk on 10/30/2009 02:08:00 PM

From the WSJ: CIT, Icahn Reach Tentative Deal Over Lender's Restructuring

As part of further discussions with CIT, Mr. Icahn has agreed to back down while the company restructures in bankruptcy court. ...

The company plans to file for bankruptcy in New York as soon as Sunday night or early Monday, said people familiar with the matter. CIT is poised to enter bankruptcy with enough creditor support to approve its reorganization plan and shorten its stay in Chapter 11 ...

... CIT asked bondholders to vote on a prepackaged bankruptcy plan, which would give most bondholders new debt it values at 70 cents on the dollar, and all the equity in a restructured company.

This debt-for-equity swap makes the most sense and would allow CIT to continue to operate.

Note: CIT provides financing for about one million small businesses, so a prepackaged bankruptcy that allows the company to continue to operate would be helpful. Small businesses are already having trouble obtaining credit, and this might be impacting hiring plans (see from Melinda Pitts at Macroblog: Prospects for a small business-fueled employment recovery )

by Calculated Risk on 10/30/2009 11:21:00 AM

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

The restaurant business is still contracting ...

Note: Any reading below 100 shows contraction for this index. The index is a year-over-year index, so the headline index might be slow to recognize a pickup in business, but the underlying details suggests ongoing weakness.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Remained Uncertain as Restaurant Performance Index Declined in September for Second Consecutive Month

[T]he National Restaurant Association’s ... Restaurant Performance Index (RPI) – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 97.5 in September, down 0.4 percent from August and its 23rd consecutive month below 100.
...
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.0 in September – unchanged from August and tied for the second-lowest level on record. In addition, September represented the 25th consecutive month below 100, which signifies contraction in the current situation indicators.
...
The outlook for capital spending fell considerably from recent months. Thirty-seven percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months, down sharply from 45 percent who reported similarly last month.
emphasis added

by Calculated Risk on 10/30/2009 09:48:00 AM

Click on cartoon for larger image in new window. Cartoon from Eric G. Lewis www.EricGLewis.com (site coming soon)

Actually the recession is not "officially" over until the National Bureau of Economic Research (NBER) determines the end of the recession.

It took the National Bureau of Economic Research (NBER) Business Cycle Dating Committee over a year and half after the 2001 recession ended to call the trough of the cycle. And it took 21 months after the 1990-1991 recession ended for NBER to date the end of the recession.

The previous NBER announcements make it clear that NBER will not date the trough of the recession until certain economic indicators - like real GDP - are above the pre-recession levels. Any downturn before economic activity reaches pre-recession levels will probably be considered a continuation of the recession that started in December 2007.

Here is the NBER dating procedure.

by Calculated Risk on 10/30/2009 08:38:00 AM

From the BEA: Personal Income and Outlays, September 2009

Personal income decreased $0.1 billion, or less than 0.1 percent, and disposable personal income (DPI) decreased $0.2billion, or less than 0.1 percent, in September, according to the Bureau of Economic
Analysis. Personal consumption expenditures (PCE) decreased $47.2 billion, or 0.5 percent.
...
Real DPI -- DPI adjusted to remove price changes -- decreased 0.1 percent in September, compared with a decrease of 0.2 percent in August.

Real PCE -- PCE adjusted to remove price changes -- decreased 0.6 percent in September, in contrast to an increase of 1.0 percent in August.
...
Personal saving -- DPI less personal outlays -- was $355.6 billion in September, compared with $307.0 billion in August. Personal saving as a percentage of disposable personal income was 3.3 percent in September, compared with 2.8 percent in August.

Click on graph for large image.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the September Personal Income report. The saving rate was 3.3% in September. (3.1% with three month average)

Although the saving rate declined in Q3, households are still saving more than during the last few years (when the saving rate was around 1.0%). The saving rate will probably continue to rise as households save more to repair their household balance sheets (and because an aging population usually pushes the saving rate higher) This increase in the saving rate - if it happens as expected - will keep pressure on personal consumption expenditures for the next year or two.