by Calculated Risk on 9/13/2010 08:48:00 AM

Nick Timiraos has an excellent article on house prices and foreclosures at the WSJ: Banks' Plans for Foreclosed Homes Will Drive Market

The speed at which house prices fall over the next few months could depend ... on how banks decide to manage the huge number of foreclosed homes they own or may take from delinquent borrowers in the near future.

Unlike home owners, banks often are much quicker to slash prices to unload properties quickly.
...
"We see the perfect storm brewing with rising supply and falling demand," said Ivy Zelman ... She estimated that distressed sales could account for half of the market by year-end if traditional sales didn't rebound.

Usually house prices are sticky downwards and decline over several years, but the flood of foreclosures in late 2008 pushed down prices significantly in lower priced areas (Tom Lawler called this "destickification").

Something similar could happen again, especially in some mid-to-high end areas where prices are still too high, although it won't be the flood of foreclosures we saw at the end of 2008. But prices will fall.

There is much more in the article ...

by Calculated Risk on 9/12/2010 11:45:00 PM

From the WSJ: China Has Done ‘Very Little’ on Exchange Rate: Geithner

“China took the very important step in June of signaling that they’re going to let the exchange rate start to reflect market forces. But they’ve done very, very little, they’ve let it move very, very little in the interim."

And from Paul Krugman at the NY Times: China, Japan, America

Back in June, Timothy Geithner, the Treasury secretary, praised China’s announcement that it would move to a more flexible exchange rate. Since then, the renminbi has risen a grand total of 1, that’s right, 1 percent against the dollar — with much of the rise taking place in just the past few days, ahead of planned Congressional hearings on the currency issue.

Obviously China is a "currency manipulator" ... now what?

by Calculated Risk on 9/12/2010 07:59:00 PM

A few excerpts from a WSJ interview with Treasury Secretary Timothy Geithner: Geithner Urges Action on Economy

"[The] typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. ... It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth."

And on tax cuts for high income earners:

"We just don't think it would be responsible for this country, given the size of our future deficits, and given the substantial burden the middle class has been bearing over the past decade in particular, to go out and borrow $700 billion from our children so we can sustain those Bush tax cuts that only go to the wealthiest 2% of Americans."

I agree with Geithner on both points.

by Calculated Risk on 9/12/2010 03:40:00 PM

The key releases this week will be retail sales (on Tues for August), Industrial Production (Weds for August) and the Empire state and Philly Fed surveys (Weds and Thurs for Sept).

----- Likely, but not scheduled -----
Possibly on Monday (update: I've been told Tuesday): Ceridian-UCLA Pulse of Commerce Index™ This is the diesel fuel index for August (a measure of transportation).

CoreLogic House Price Index for July. This release could show the first signs of price declines in July, although the index is a weighted 3 month average for May, June and July.

----- Monday Sept 13th -----
No releases scheduled.

----- Tuesday Sept 14th -----
8:30 AM: Retail Sales for August. The consensus is for a 0.3% increase from July.

Early: NFIB Small Business Survey for August. This survey has been showing declining optimism in the small business sector.

10:00 AM: Manufacturing and Trade: Inventories and Sales for July. Consensus is for a 0.6% increase in inventories in July.

----- Wednesday Sept 15th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index declined sharply following the expiration of the tax credit, and the index has only recovered slightly over the last few weeks - suggesting reported home sales in August and September will be weak.

8:30 AM: Empire Manufacturing Survey for Sept. The consensus is for a reading of 5.0, down from 7.1 in August. These regional surveys have been showing a slowdown in manufacturing and are being closely watched right now.

9:15 AM: Industrial Production and Capacity Utilization for August. The consensus is for a 0.2% increase in August.

----- Thursday Sept 16th -----
8:30 AM: The initial weekly unemployment claims report will be released. Consensus is for a slight increase to 455K from 451K last week. Claims for nine states were estimated last week because of the holiday.

8:30 AM: Producer Price Index for August. The consensus is for a 0.3% increase in prices.

10:00 AM: Philly Fed Survey for September. This survey declined sharply over the last few months, and showed contraction last month for the first time since July 2009. The consensus is for an increase to 3.8 (slow expansion) from minus 7.7 in August.

----- Friday Sept 17th -----
8:30 AM: Consumer Price Index for August. The consensus is for a 0.3% increase in prices. This is being closely watched for further disinflation, and also because Q3 is the quarter the annual annual cost-of-living adjustment (COLA) is calculated for Social Security (probably no change in 2011).

9:55 AM: Reuters/University of Mich Consumer Sentiment preliminary for September. The consensus is for a slight increase to 70.0 from 68.9 in August.

12:00 PM: Q2 Flow of Funds Report from the Federal Reserve.

After 4:00 PM: The FDIC has only closed one bank over the last 3 weeks. The pace will probably pickup soon ...

by Calculated Risk on 9/12/2010 12:18:00 PM

The details will be released later today, but here is an overview from the Financial Times: Regulators agree to reforms on bank capital

Basel III ... is expected to include a new minimum core tier one ratio for banks worldwide. ... The current minimum is 2 per cent.

[The] proposal [was] for a new minimum of 4½ per cent [with] an additional buffer of 2½ per cent ... Banks within the buffer zone would face restrictions on their ability to pay dividends and discretionary bonuses.
excerpt with permission

Here is an article from the WSJ: Bank Regulators Reach Deal on New Capital Rules

The details will be released later, and the agreement is expected to be approved in November. This will probably lead to more banks raising capital.