by Calculated Risk on 9/11/2010 03:05:00 PM

From Steven Gjerstad and Vernon Smith in the WSJ: Why We're in for a Long, Hard Economic Slog (ht MrM)

In the Great Depression and in every recession since, recovery of residential construction has preceded recovery in every other sector, and its recovery has been far larger in percentage terms than the recovery in any other major sector.

Applied to the Great Recession, it appears that those who see signs of a recovery may be grasping at straws.

This is something I've been writing about since I started the blog in 2005, but it is worth repeating ... even though Residential Investment usually only accounts for around 5% GDP, it isn't the size of the sector, but the contribution during the recovery that matters - and housing is usually the largest contributor to economic and employment growth early in a recovery.

But not this time because of the large number of excess housing units.

Here is the paper from Steven Gjerstad and Vernon Smith: Household expenditure cycles and economic cycles, 1920 – 2010

This has key implications for policy. As an example, a policy (like the housing tax credit) that encourages adding to the housing stock (new home construction) is a clear mistake, whereas policies that are aimed at household creation (jobs) or at least household preservation (like extended unemployment benefits) make more sense. Also policies aimed at supporting house prices - keeping the price above the market clearing price - are counterproductive and also a mistake.

by Calculated Risk on 9/11/2010 11:49:00 AM

I saw this article at CNBC yesterday: Outlook Gloomy at Secret Billionaire Meeting

For 25 years, legendary Wall Street strategist Byron Wien, now with The Blackstone Group, has held summer meetings with high net worth individuals to get their outlook on the global economy and investing. This year’s group, totaling fifty individuals and including more than 10 billionaires, was decidedly pessimistic on the U.S. economy ...

That reminded me to check on Byron Wien's The Surprises of 2010 list.

Note: For anyone not familiar with the list, Wien tries to make predictions that are generally out of the consensus view - he has been doing this for 24 years, and usually gets more than half right.

It looks like this will be an off year for the "Surprises" list ...

A quick review of Wien's possible surprises:
1. The United States economy grows at a stronger than expected 5% real rate during the year and the unemployment level drops below 9%. ...
CR: Not Likely.

2. The Federal Reserve decides the economy is strong enough for them to move away from zero interest rate policy. In a series of successive hikes beginning in the second quarter the Federal funds rate reaches 2% by year-end.
CR: Not Gonna Happen.

3. Heavy borrowing by the U.S. Treasury and some reluctance by foreign central banks to keep buying notes and bonds drives the yield on the 10-year Treasury above 5.5%. ...
CR: Not Gonna Happen

4. In a roller coaster year the Standard and Poor’s 500 rallies to 1300 in the first half and then runs out of steam and declines to 1000, ending where it started at 1115.10. ...
CR: Missed on the high, but the general idea of a trading range has been correct so far.

5. Because it is significantly undervalued on a purchasing power parity basis, the dollar rallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below $1.30 as the long slide of the greenback is interrupted.
CR: Right on the euro, wrong on the yen.

6. Japan stands out as the best performing major industrialized market in the world as its currency weakens and its exports improve. Investors focus on the attractive valuations of dozens of medium sized companies in a market selling at one quarter of its 1989 high. The Nikkei 225 rises above 12,000
CR: The Nikkei did rally to 11,200 before falling sharply, but I think this counts as a miss.

7. Believing he must be a leader in climate control initiatives, President Obama endorses legislation favorable for nuclear power development. ...
CR: Didn't happen.

8. The improvement in the U.S. economy energizes the Obama administration. The White House undergoes some reorganization and regains its momentum. ...
CR: Not likely this year.

9. When it finally passes, financial service legislation, like the health care bill, proves to be softer on the industry than originally feared. ...
CR: I think this was right.

10. Civil unrest in Iran reaches a crescendo. Ayatollah Khomeini pushes out Mahmoud Ahmadinejad in favor of a more public relations adept leader. Economic improvement becomes the key issue and anti-Israel rhetoric subsides.
CR: Sounds good, but very unlikely.

2009 was Wien's best year (he reviews 2009 here), but it looks like 2010 will be his worst.

by Calculated Risk on 9/11/2010 08:43:00 AM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for September 10, 2010.

Changes and comments from surferdude808:

After six additions and one removal, the Unofficial Problem Bank List includes 849 institutions with aggregate assets of $415.3 billion, up from 844 institutions with assets of $412 billion last week.

The additions include First National Community Bank, Dunmore, PA ($1.3 billion Ticker: FNCB); Pacific Mercantile Bank, Costa Mesa, CA ($1.1 billion Ticker: PMBC); Community Shores Bank, Muskegon, MI ($262 million Ticker: CSHB); First American State Bank, Greenwood, CO ($244 million); Service1st Bank of Nevada, Las Vegas, NV ($232 million Ticker: WLBC); and Bank of the Eastern Shore, Cambridge, MD ($223 million).

The removal is the failed Horizon Bank ($188 million). Next week, we anticipate for the OCC to release its actions for August.

The FDIC has only closed one bank over the last three weeks - but the additions keep coming!

by Calculated Risk on 9/10/2010 10:27:00 PM

Via Politico in October 2009 (link here if embed doesn't load)

"Number one on the list we wanted to make sure - [whisper] all the Clinton people got their jobs back - to do something to help the country."

“The unemployment rate is at 9.7% ... Have some sympathy for those people that are unemployed, because when Rahm Emanuel sees my comments from this evening, I am going to be one of them.”

by Calculated Risk on 9/10/2010 06:25:00 PM

Fading Horizon
It's reach, overextended.
Federal eclipse.
by Soylent Green is People
From the FDIC: Bank of the Ozarks, Little Rock, Arkansas, Assumes All of the Deposits of Horizon Bank, Bradenton, Florida

As of June 30, 2010, Horizon Bank had approximately $187.8 million in total assets and $164.6 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58.9 million. ... Horizon Bank is the 119th FDIC-insured institution to fail in the nation this year, and the twenty-third in Florida. The last FDIC-insured institution closed in the state was Community National Bank at Bartow, Bartow, on August 20, 2010.

After taking two weeks off, the FDIC is back in action.