by Calculated Risk on 10/28/2011 09:47:00 PM

From the Financial Times: Italy gives EU a post-party hangover

Italy was forced to pay a record 6.06 per cent at an auction of its benchmark 10-year bonds, up from 5.86 per cent a month ago, despite intervention by the European Central Bank on the open market.
excerpt with permission

From the NY Times: Hitches Signal Further Difficulties for Euro Zone

Elsewhere in the troubled euro zone, a big loss by an Austrian bank served as a reminder of the fragility of financial institutions, while a German supreme court decision scrambled efforts to speed up political decision making. In the meantime, the head of Europe’s bailout fund turned to China to invest in the fund.

From the NY Times: China Is Asked for Investment in Euro Rescue

China is expected to demand significant concessions, including financial guarantees and limits on what Beijing sees as discriminatory trade policies, in exchange for any investment in Europe’s emergency stability fund.

From the NY Times: Greeks Direct Anger at Germany and European Union

Beyond populist talk, which ranges from euro-skepticism to anti-German demagoguery, experts say the concessions that Greece has made in exchange for the foreign aid it needs to stave off default — including allowing European Union officials to monitor Greek state affairs closely — are unprecedented for a member nation, making Greece a bellwether for the future of European integration.

From Kash Mansori at Street Light: Worrying Signs

I am not impressed by the direction in which things have been heading in Europe this week. My sense is that, like me, many financial market participants have been suffering from so much 'crisis exhaustion' that they were willing to give this week's rescue package the benefit of the doubt and believe that it was in fact sufficient to permanently put things on a stable footing. Everyone wants this crisis to be over. But the inadequacies of the plan are real, and will only become more apparent over time. I hate to say it, but I fear that we haven't reached the final fix yet.

And a great cartoon from Paul Krugman: Here We Go Again

by Calculated Risk on 10/28/2011 07:17:00 PM

All American
International savior.
Done the Chi-Town way.
by Soylent Green is People
From the FDIC: International Bank of Chicago, Chicago, Illinois, Assumes All of the Deposits of All American Bank, Des Plaines, Illinois

As of June 30, 2011, All American Bank had approximately $37.8 million in total assets and $33.4 million in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $6.5 million. ... All American Bank is the 85th FDIC-insured institution to fail in the nation this year, and the ninth in Illinois.

Pretty sad when the All American Bank fails ... oh well, it is Friday!

by Calculated Risk on 10/28/2011 03:55:00 PM

From Reuters: Analysis: Mortgage probe may open new path for housing relief

Settlement talks continue with the banks, state attorneys general and some federal agencies over foreclosure shortcuts and other abuses. A deal could be struck within a month, according to people familiar with the matter.
...
Five major banks could be required to commit roughly $15 billion to reduce principal balances for struggling homeowners and modify loans in other ways under a proposed deal to settle allegations linked to the "robo-signing" scandal.

That amount would be part of broader sanctions that could total $25 billion ... Much of the exact language has yet to be hashed out but it could provide for the first broad use of principal writedowns ...

It appears there will be two more housing related announcements soon: this mortgage settlement, and an REO disposition program for Fannie/Freddie/FHA (also the changes to the HARP refinance program were announced this week).

by Calculated Risk on 10/28/2011 01:21:00 PM

The BEA released the underlying detail data today for the Q3 Advance GDP report. As expected, the recent pickup in non-residential structure investment has been for power and communication. Here is a look at office, mall and lodging investment:

Click on graph for larger image.

This graph shows investment in offices, malls and lodging as a percent of GDP. Office investment as a percent of GDP peaked at 0.46% in Q1 2008 and then declined sharply. Investment has increased a little recently (probably mostly tenant improvements as opposed to new office buildings).

Investment in multimerchandise shopping structures (malls) peaked in 2007 and is down about 65% from the peak (note that investment includes remodels, so this will not fall to zero). Mall investment declined in Q3.

The bubble boom in lodging investment was stunning. Lodging investment peaked at 0.32% of GDP in Q2 2008 and has fallen by over 80%.

Notice that investment for all three categories typically falls for a year or two after the end of a recession, and then usually recovers very slowly (flat as a percent of GDP for 2 or 3 years). This is happening again, and there will not be a recovery in these categories until the vacancy rates fall significantly.

The second graph is for Residential investment (RI) components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories (dormitories, manufactured homes).

Usually the most important components are investment in single family structures followed by home improvement.

Investment in single family structures was just above the record low set in Q2 2009.

Investment in home improvement was at a $151 billion Seasonally Adjusted Annual Rate (SAAR) in Q3 (about 1.0% of GDP), significantly above the level of investment in single family structures of $106 billion (SAAR) (or 0.7% of GDP).

Brokers' commissions increased slightly in Q3, and are moving sideways as a percent of GDP.

And investment in multifamily structures is still moving sideways as a percent of GDP (increasing slowly in dollars). This is a small category, and even though investment is increasing, the positive impact on GDP will be relatively small.

These graphs show there is currently very little investment in offices, malls and lodging - and for residential investment.

by Calculated Risk on 10/28/2011 09:55:00 AM

The final October Reuters / University of Michigan consumer sentiment index increased to 60.9, up from the preliminary October reading of 57.5, and up from 59.4 in September.


Click on graph for larger image.

In general consumer sentiment is a coincident indicator and is usually impacted by employment (and the unemployment rate) and gasoline prices. In August, sentiment was probably negatively impacted by the debt ceiling debate.

This was still very weak, but above the consensus forecast of 58.0.