by Calculated Risk on 8/11/2010 10:50:00 PM

Some interesting anecdotes from David Streitfeld at the NY Times: Bad Debts Rise as Bust Erodes Home Equity

Lenders say they are trying to recover some of that money but their success has been limited, in part because so many borrowers threaten bankruptcy and the collateral in the homes backing the loans has often disappeared.

The result is one of the paradoxes of the recession: the more money you borrowed, the less likely you will have to pay up.

by Calculated Risk on 8/11/2010 06:45:00 PM

A few excerpts from the Cisco Conference call (ht Brian):

“... there are some challenges that are contributing to an unusual amount of conservatism and even caution. In short, we see the same opportunities and challenges that you are reading about in regards to the market, those challenges ranging from GDP growth and future GDP projections continuing to flow in the US, job creation challenges, and concerns coming out of Europe just to mention a few. We are seeing a large number of mixed signals in both the market and from our customers' expectations, and we think the words unusual uncertainty are an accurate description of what is occurring. The Federal Reserve's comments yesterday that the pace and output of the recovery has slowed in recent months and that the recovery is likely to be more modest in the near term then has been anticipated just a few months ago, are comments that most of our large customers that I have talked with recently would agree with. Also, the same customers would agree with few exceptions that they still expect a very gradual return to more normal economic conditions.”
...
As has been our standing practice for some time, we are continuing to provide detailed quarterly guidance one quarter at a time. In light of the unusual uncertainty in the macro environment, including the comments we heard from the Federal Reserve yesterday, we encourage you to continue to model conservatively, especially in the short term. It is important that expectations do not get ahead of where the market is today. We do intend to budget in two halves for our fiscal year and will obviously be conservative, and we would suggest you do the same.
...
What are the areas that [we] have the most concern about? The answer for me this quarter is, I am concerned about what my customers are concerned about. And most of these customer concerns are centered on what they view as mixed signals in their business environment, therefore, their strategy in the short-term in terms of investments and projections for their businesses. As an example, the economy continues to be on the wild card in many customers' minds. We are all aware of GDP growth in the US slowing from 5% to 3.7% to 2.4% over the last three quarters. Many of the customers we talk with are anticipating growth of only 2% or so in the second half of the calendar year. Yet, at the same time, many of these same customers are seeing steadily improving results in their own companies. But when you press them on their comfort level to predict either of these trends over the next year, candidly many of them are not comfortable at all. This is this one of the many examples of today's uncertainty and environment that we are -- that is sending such mixed signals to us and others about the customer's capital spending and job creation intention over the next year. Another example of mixed signals would be our own product order pattern for Q4. On first review, the 23% year-over-year growth in product orders was obviously very strong, and the monthly results, which we tend to follow in terms of linearity, were well within our normal expectations in each of the three months in Q4. In fact, actually almost exactly on as a percentage of what we would have expected in each month. However, several of our customers shared with me that they saw a softening in their business in the second half of June and early July. Upon review, we saw a similar pattern of approximately four to five weeks from mid-June to mid-July where the normal order growth rates were off over 10 points versus our quarter's 23% average. Normally I would not have paid much attention to this, except this is the exact time period where we saw the challenges in Europe and the corresponding challenges in global stock markets. Then, just as the quarter had started in May, the end of July was very strong, well above average for the quarter in terms of year-over-year growth rates from an order perspective.

Cisco's quarter ends July 31st, and they saw weakness in late June and into July that most of the other tech companies missed (most end Q2 on June 30th). Investment in equipment and software has been one of the strongest components of GDP, and Cisco's comments suggest this investment is slowing.

by Calculated Risk on 8/11/2010 04:30:00 PM

This is the new UCLA Anderson Forecast and Ceridian Corporation index using real-time diesel fuel consumption data: Pulse of Commerce Index^TM

Press Release: PCI Climbs in July, Confirming Economy’s Slow but Steady Recovery

All signs continue to point to an economy in recovery with the latest release of the Ceridian-UCLA Pulse of Commerce Index™ (PCI) by UCLA Anderson School of Management. The July PCI climbed 1.7 percent after dropping 1.9 percent in June.
...
“The key takeaway from the July report is that the economy continues to recover – which is encouraging – but the pace needs to substantially pick up to put people back to work,” said Ed Leamer, chief PCI economist. “With the unemployment rate still at 9.5 percent and consumers understandably nervous about opening their wallets, it is hard to be very optimistic about economic growth. On the other hand, there is nothing about the PCI that is supportive of the pessimistic double-dip view.”
...
The PCI is based on an analysis of real-time diesel fuel consumption data from over the road trucking tracked by Ceridian ...

Click on graph for larger image in new window.

This graph shows the index since January 1999.

This is a new index and doesn't have much of a track record in real time - although it appears to suggest that the sluggish recovery was continuing in July.

by Calculated Risk on 8/11/2010 03:03:00 PM

This is a followup to the FOMC announcement yesterday ...

From the NY Fed: New York Fed releases tentative outright Treasury operation schedule

[T]he Desk plans to purchase approximately $18 billion. This is the amount of principal payments from agency debt and agency MBS expected to be received between mid-August and mid-September, adjusted for prior SOMA agency MBS purchases that have been allocated since August 4.

The $18 billion will be spread over 9 purchases (one of TIPS), with duration of 2 to 30 10 years.

by Calculated Risk on 8/11/2010 01:00:00 PM

A couple of stories ...

From HUD: Obama Administration Announces Additional Support for Targeted Foreclosure-Prevention Programs to Help Homeowners Struggling with Unemployment

Treasury’s Hardest Hit Fund Will Provide $2 Billion of Additional Assistance in 17 states and the District of Columbia; HUD to Launch a New $1 Billion Program to Help Unemployed Borrowers in Other Areas
...
The program will work through a variety of state and non-profit entities and will offer a declining balance, deferred payment “bridge loan” (zero percent interest, non-recourse, subordinate loan) for up to $50,000 to assist eligible borrowers with payments on their mortgage principal, interest, mortgage insurance, taxes and hazard insurance for up to 24 months.

This is an extension of a program announced in February to help the unemployed.

And from Catherine Rampell at the NY Times Economix: 2nd Quarter G.D.P. May Be Revised Even Lower

The government’s preliminary estimate for economic growth in the second quarter is likely to be revised substantially lower.
...
"Combining the bigger-than-expected trade deficit with other weak data suggests that Q2 growth was only 1.2 percent rather than the 2.4 percent originally estimated, placing the economy on even shakier ground than it seemed,” wrote Nigel Gault, chief United States economist at IHS Global Insight