by Calculated Risk on 9/25/2011 09:23:00 AM

A little Sunday morning speculation ...

From the Telegraph: Multi-trillion plan to save the eurozone being prepared

German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone’s sovereign debt crisis is spiralling out of control.
...
According to sources, progress has been made at the G20 meeting in Washington ... the world’s leading economies set themselves a six-week deadline to resolve the crisis – to unveil a solution by the G20 summit in Cannes on November 4.
...
First, Europe’s banks would have to be recapitalised with many tens of billions of euros to reassure markets that a Greek or Portuguese default would not precipitate a systemic financial crisis. ... Officials are confident that some banks could raise the funds privately, but if they are unable they would either be recapitalised by the state or by the European Financial Stability Facility (EFSF) ...

The second leg of the plan is to bolster the EFSF. Economists have estimated it would need about Eu2 trillion of firepower to meet Italy and Spain’s financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF through the European Central Bank to reach the target.

The complex deal would see the EFSF provide a loss-bearing “equity” tranche of any bail-out fund and the ECB the rest in protected “debt”.
...
As quid pro quo for an enhanced bail-out, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone.

Earlier:
• Schedule for Week of Sept 25th
• Summary for Week Ending Sept 23rd

by Calculated Risk on 9/24/2011 10:45:00 PM

From the NY Times: Europe Seeks to Ratchet Up Effort on Debt

Under increasing pressure from global investors and world leaders, European government officials indicated Saturday that they were working to intensify their response to the continent’s growing debt problems.
...
French and German officials here continued to insist publicly that they were focused on the July plan, but in private meetings this weekend they made clear that they now understand the need for a new proposal ...

“The threat of cascading default, bank runs and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally,” Treasury Secretary Timothy F. Geithner said in a statement on Saturday. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe.

If this follows previous leaks, German Finance Minister Wolfgang Schaeuble will probably deny this tomorrow.

by Calculated Risk on 9/24/2011 07:23:00 PM

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

Here is the unofficial problem bank list for Sept 23, 2011.

Changes and comments from surferdude808:

Finally, the OCC released some information on its recent enforcement action activity. Interestingly, the information only included actions against national banks as the OCC has yet to release any activity with thrifts since the merger with the OTS this summer. This week, there were five removals and seven additions and the changes leave the Unofficial Problem Bank List with 986 institutions and assets of $400.4 billion. Comparatively, there were 872 institutions with assets of $422.4 billion on the list a year ago.

The removals include an action termination against Border Capital Bank, National Association, McAllen, TX ($171 million); and two unassisted mergers -- GreenBank, Greenville, TN ($2.3 billion Ticker: GRNB) and The Merchants & Farmers Bank, Melville, LA ($8 million). Other removals include the two failures -- Bank of the Commonwealth, Norfolk, VA ($985 million Ticker: CWBS) and Citizens Bank of Northern California, Nevada City, CA ($289 million Ticker: CZNB).

Among the additions are Citizens National Bank of Texas, Waxahachie, TX ($526 million); Grayson National Bank, Independence, VA ($358 million Ticker: GSON); Fidelity National Bank, West Memphis, AR ($327 million); and Intercredit Bank, National Association, Miami, FL ($256 million). Long-time readers may remember that Intercredit Bank, N.A. was removed in July when the OCC terminated a Formal Agreement only to return this week under a Consent Order. The OCC is asymmetrical in the publication of its actions with terminations happening more real-time while new actions are issued with a lag. Perhaps the removal of Border Capital Bank, N.A. may prove premature if its Formal Agreement is actually replaced by a Consent Order like Intercredit Bank, N.A.

Next week, we expect the FDIC to release its actions through August 2011.

Earlier:
• Schedule for Week of Sept 25th
• Summary for Week Ending Sept 23rd

by Calculated Risk on 9/24/2011 02:11:00 PM

Earlier:
• Summary for Week Ending Sept 23rd

There are two key housing reports to be released early in the week: New Home sales on Monday, and Case-Shiller house prices on Tuesday.

Other key releases include the third estimate of Q2 GDP on Thursday, and August Personal Income and Outlays on Friday. Several high frequency releases will be closely watched: weekly initial unemployment claims, consumer sentiment (final) and three more regional Fed manufacturing surveys and the Chicago Purchasing Managers Index.

----- Monday, Sept 26th -----
8:30 AM ET: Chicago Fed National Activity Index (August). This is a composite index of other data.

9:15 AM: Speech, Fed Governor Sarah Bloom Raskin, "Monetary Policy and Job Creation" At the University of Maryland Smith School of Business Distinguished Speaker Series, Washington, D.C.

10:00 AM: New Home Sales for August from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the current sales rate.

The consensus is for a slight decrease in sales to 295 thousand Seasonally Adjusted Annual Rate (SAAR) in August from 298 thousand in July. Given that new home sales are reported when contracts are signed - and August was an especially weak month due to the debt ceiling debate - sales might fall even further.

10:30 AM: Dallas Fed Manufacturing Survey for September. The Texas production index increased 1.1 in August.

----- Tuesday, Sept 27th -----
9:00 AM: S&P/Case-Shiller Home Price Index for July. Although this is the July report, it is really a 3 month average of May, June and July.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The consensus is for prices to increase 0.1% in July. The CoreLogic index showed a 0.8% increase in July (NSA). Based on other price indexes, the Case-Shiller index will probably increase a little more than the consensus.

10:00 AM: Conference Board's consumer confidence index for September. The consensus is for an increase to 46.2 from 44.5 last month.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for September. The consensus is for the index to be at -9, up slightly from -10 in August (below zero is contraction).

----- Wednesday, Sept 28th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been especially weak over the last month.

8:30 AM: Durable Goods Orders for August from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders after increasing 4.0% in July.

5:00 PM: Speech, Fed Chairman Ben Bernanke, "Lessons from Emerging Market Economies on the Sources of Sustained Growth", At the Cleveland Clinic Ideas for Tomorrow Speaker Series, Cleveland, Ohio

----- Thursday, Sept 29th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for a decrease to 420,000 from 423,000 last week.

8:30 AM: Q2 GDP (third estimate). This is the third estimate for Q2 GDP from the BEA.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years.

The first estimate was for 1.3% real annualized growth in Q2. Growth was revised down to 1.0% in the 2nd estimate. The consensus is for an upward revision to 1.2% in Q2.

10:00 AM: Pending Home Sales Index for August. The consensus is for a 2% decrease in the index.

11:00 AM: Kansas City Fed regional Manufacturing Survey for September. The index was at 3 in August (slight expansion).

----- Friday, Sept 30th -----
8:30 AM: Personal Income and Outlays for July. The following graph shows real Personal Consumption Expenditures (PCE) through June (2005 dollars).

PCE increased 0.8 in July, and real PCE increased 0.5% as the price index for PCE increased 0.4 percent in July.

The consensus is for a 0.1% increase in personal income in August, and a 0.2% increase in personal spending, and for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for September. The consensus is for a decrease to 55.4, down from 56.5 in August.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for September). The consensus is for no change from the preliminary reading of 57.8.

by Calculated Risk on 9/24/2011 08:12:00 AM

The top story of the week was the Fed’s decision “to extend the average maturity of its holdings of securities”, and “reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities”. These measures are intended to reduce longer term interest rates and probably spur another round of mortgage refinancing. For a discussion of the impact, see Jim Hamilton’s Effects of operation twist

The Fed definitely scared investors by adding the word “significant” to their description of downside risks. The August phrase "downside risks to the economic outlook have increased" was changed to "there are significant downside risks to the economic outlook, including strains in global financial markets." (emphasis added). As Tim Duy noted: “The downside risks are now ‘significant’, and we can thank the Europeans for that.”

And once again the European financial crisis was on the front pages. And once again the story seemed to change day-to-day. Early in the week there were reports of good progress in talks with Greece, and later in the week there were less optimistic reports.

In the U.S., talk of a possible double-dip recession continue to grow, however the data released last week still indicated sluggish growth. Housing starts were off a little in August, but are mostly moving sideways. The Architecture Billings Index was positive for the first time in five months. Existing home sales were up in August, although sales will probably decline in September. And weekly initial unemployment claims are still elevated, but declined slightly.

Here is a summary in graphs:

• Existing Home Sales in August: 5.0 million SAAR, 8.5 months of supply

The NAR reported: August Existing-Home Sales Rise Despite Headwinds, Up Strongly from a Year Ago

Click on graph for larger image in graph gallery.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in August 2011 (5.03 million SAAR) were 7.7% higher than last month, and were 18.6% above the August 2010 rate (depressed in Aug 2010 following expiration of tax credit).

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, so it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 13.1% year-over-year in August from August 2010. This is the seventh consecutive month with a YoY decrease in inventory.

Months of supply decreased to 8.5 months in August, down from 9.5 months in July. This is much higher than normal.

Here is a graph of existing home sales Not Seasonally Adjusted (NSA).

The red columns are for 2011.

Sales NSA are above last August - of course sales declined sharply last year following the expiration of the tax credit in June 2010 - but sales are also above August 2008 and 2009 (pre-revision).

• Housing Starts declined in August

This graph shows total and single unit starts since 1968.

Total housing starts were at 571 thousand (SAAR) in August, down 5.0% from the revised July rate of 601 thousand (revised from 604).

Single-family starts declined 1.4% to 417 thousand in August.

There was a sharp decline in housing starts following the housing bubble, and housing starts have been mostly moving sideways for about two years and a half years - with slight ups and downs due to the home buyer tax credit.

Multi-family starts are increasing in 2011 - although from a very low level. This was below expectations of 592 thousand starts in August, but permits increased in August suggesting a slight increase for starts in September.

• AIA: Architecture Billings Index Turns Positive

From AIA: Architecture Billings Index Turns Positive after Four Straight Monthly Declines

Note: This index is a leading indicator for new Commercial Real Estate (CRE) investment.

This graph shows the Architecture Billings Index since 1996. The index increased to 51.4 in August from 45.1 in July. Anything above 50 indicates expansion in demand for architects' services.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction. So the recent contraction suggests further declines in CRE investment in early 2012, but possibly flattening out in 9 to 12 months (just one month's data).

• Moody's: Commercial Real Estate Prices increased in July

From Bloomberg: Commercial Real Estate Prices in U.S. Increased 5% in July, Moody’s Says

Below is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index. Beware of the "Real" in the title - this index is not inflation adjusted.

CRE prices only go back to December 2000. The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

According to Moody's, CRE prices are up 1.2% from a year ago and down about 42% from the peak in 2007. Some of this increase was probably seasonal - also this index is very volatile because there are relatively few transactions. Also, this report was for July, and the index will probably be weaker in August after the debt ceiling debate and the renewed fears about Europe.

• Weekly Initial Unemployment Claims decline slightly to 423,000

The following graph shows the 4-week moving average of weekly claims since January 2000 (there is a longer term graph in graph gallery).

The DOL reported:
"In the week ending September 17, the advance figure for seasonally adjusted initial claims was 423,000, a decrease of 9,000 from the previous week's revised figure of 432,000. The 4-week moving average was 421,000, an increase of 500 from the previous week's revised average of 420,500."

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 421,000.

The 4-week average has been increasing recently and this is the highest level since early July.

• Residential Remodeling Index at new high in July

The BuildFax Residential Remodeling Index was at 130.4 in July, up from 129.5 in June. This is based on the number of properties pulling residential construction permits in a given month.

This is the highest level for the index (started in 2004) - even above the levels from 2004 through 2006 during the home equity ("home ATM") withdrawal boom.

Note: Permits are not adjusted by value, so this doesn't mean there is more money being spent, just more permit activity. Also some smaller remodeling projects are done without permits and the index will miss that activity.

Even though new home construction is still moving sideways, it appears that two other components of residential investment will increase in 2011: multi-family construction and home improvement.

• Other Economic Stories ...
• FOMC Statement: Extend Maturities, Reinvest in agency mortgage-backed securities
• Fed Study: Lack of Home equity and underwriting changes limited Refinancing in 2010
• From Freddie Mac: Fixed-Rate Mortgages Hold Steady, Remain Near Record Lows
• From MarketWatch: August economic indicators signal weak growth
• NAHB Builder Confidence index declines slightly in September
• Philly Fed State Coincident Indexes Decline in August
• DOT: Vehicle Miles Driven decreased 2.5% in July compared to July 2010