by Calculated Risk on 1/23/2012 03:21:00 PM

A few numbers and a forecast from STR Chairman Randy Smith: Operating margins expected to rise in 2012

2011 numbers:
Demand increased 5%.
Supply (room available) increased 0.6%.
ADR (average daily rates) increased 3.8%.
RevPAR (Revenue per available room) increased 8.2%

2012 forecast from STR:
Demand: "We are currently forecasting room demand to grow about 1.3% during 2012."
Supply: "At this time, we are forecasting a modest increase in room supply for 2012 of 0.8%, which should not impact occupancy significantly."
ADR (average daily rates): 3.8% increase
RevPAR (Revenue per available room): "With modest gains in occupancy and stronger increases in room rates, we expect RevPAR to increase about 4.3% during 2012."

STR expect hotel construction to pickup soon with more deliveries in 2013: "As we enter 2012, room supply barely is keeping pace with room closures, and it could be the beginning of 2013 before we start seeing significant growth in room supply."

Since it takes some time to build hotel rooms, it might take until 2014 or later to see "significant growth in room supply".

Click on graph for larger image.

This graph shows investment in lodging as a percent of GDP. There was a sharp boom in lodging investment during the bubble, and lodging investment peaked at 0.32% of GDP in Q2 2008. However investment has fallen over 80% since then and investment is now near historic lows. With limited supply, increased demand translates to a higher occupancy rate, higher room rates and improved margins for hotels - and eventually more new construction and jobs.

It is still far from rosy for hotel owners, as Smith mentions RevPAR and occupancy are still below the pre-recession levels. And there are still plenty of distressed hotels since a number of investors bought at the top, see: California hotel foreclosures jump in 2011

Lenders foreclosed on 230 hotels in 2010, up from 138 the year before, Atlas Hospitality Group said in a report.

by Calculated Risk on 1/23/2012 12:27:00 PM

From the AP: $25B US mortgage deal goes to states (ht Terry)

The AP reports that a draft settlement "has been sent to state officials for review".

The agreement could be a adopted within "weeks".

As I noted over the weekend, President Obama will probably mention several housing initiatives - including this settlement - in the SOTU address tomorrow night.

There are some details in the article.

Weekend:
• Summary for Week ending January 20th
• Schedule for Week of Jan 22nd
• FOMC Meeting Preview

by Calculated Risk on 1/23/2012 09:09:00 AM

The new goal is to have a deal by next Monday, January 30th, when the EU leaders meet in Brussls.

From Reuters: Euro Zone Finance Ministers to Rule on Glacial Greek Debt Talks

Euro zone finance ministers will decide on Monday what terms of a Greek debt restructuring they are ready to accept as part of a second bailout package for Athens after negotiators for private creditors said they could not improve their offer.
...
"We will listen to the report on the negotiations, see how far they have gotten and have the ministers say what is acceptable and what is not in terms of outcome of the negotiations," one Eurogroup official said.

Once the guidance from the finance ministers, known as the Eurogroup, is clear, talks on the restructuring could be finalized later in the week.

Here are a few key dates in Europe:
Jan 30th: European Union leaders meet in Brussels on debt crisis.

Feb 9th: ECB holds rate meeting.
Feb 20th: Euro-area finance ministers meet in Brussels.
Feb 29th to March 1st: Italy redeems 46.5 billion euros of bonds.

March 1st and 2nd: EU leaders meet in Brussels.
March 8th: ECB holds rate meeting
March 12th: Euro-area finance ministers meet in Brussels
March 20th: Greece redeems 14.4 billion euros of bonds.
March 30th: Euro-area finance ministers meet in Copenhagen.

Late April: Proposed date for Greek general election.
April 22nd: France holds a presidential election.

Weekend:
• Summary for Week ending January 20th
• Schedule for Week of Jan 22nd
• FOMC Meeting Preview

by Calculated Risk on 1/22/2012 09:20:00 PM

Another update ... still a mess.

From Landon Thomas at the NY Times: Greek Talks Hit a Snag Over Rates

While considerable progress has been made, Greece’s financial backers — Germany and the International Monetary Fund — have been unyielding in their insistence that the longer-term bonds that would replace the current securities must carry yields in the low 3 percent range, officials involved in the negotiations said on Sunday.
...
Also holding up discussions was the question of what to do about the European Central Bank’s 55 billion euros in Greek bonds. ... To get around this, officials are now discussing the possibility that Europe’s rescue fund might lend money to Greece to allow it to buy the bonds back from the European Central Bank at the price the bank paid for them — thought to be about 75 cents on the euro.

Earlier:
• Summary for Week ending January 20th
• Schedule for Week of Jan 22nd
• FOMC Meeting Preview

by Calculated Risk on 1/22/2012 03:20:00 PM

There will be a two day meeting of the Federal Open Market Committee (FOMC) this coming Tuesday and Wednesday. I expect no changes to the Fed Funds rate, or to the program to "extend the average maturity of its holdings of securities" (scheduled to end in June 2012), or to the program to "reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities". I don't expect further accommodation (aka "QE3") to be announced at this meeting.

On Wednesday the FOMC statement will be released around 12:30PM and Fed Chairman Ben Bernanke will hold a quarterly press briefing at 2:15 PM ET.

A few things to look for:

1) FOMC participants' projections of the appropriate target federal funds rate. This will the first quarterly release of the participants' view of the appropriate path for the Fed funds rate. On Friday the Fed released blank templates for reporting participants' views. The first chart "Appropriate Timing of Policy Firming" will show when participants judge that the first increase in the target federal funds rate from its current range will occur. The second chart will the participants' view of the "Appropriate Pace of Policy Firming".

These charts will probably show that most participants judge that the first rate increase will occur in 2014 or later, and that most participants believe the appropriate policy path through 2013 will be no change in the Fed's fund rate.

2) Fed Chairman Press Briefing. At the press briefing, Chairman Bernanke will discuss the new FOMC forecasts including the two new charts on the Fed funds rate. Growth forecasts were routinely revised down all through 2011, and it is likely that GDP growth for 2012 will be revised down slightly again this month. However the unemployment rate for 2012 might be revised down or left unchanged.

I expect Bernanke will be asked about the possibility of a large scale MBS purchase program, but it appears too early for "QE3".

Here are the updated forecasts from the November meeting. The GDP projection for 2012 will probably be revised down slightly from the 2.5% to 2.9% range.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2011	2012	2013	2014
November 2011 Projections	1.6 to 1.7	2.5 to 2.9	3.0 to 3.5	3.0 to 3.9

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate declined to 8.5% in December, and the projection for 2012 will probably be revised down slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2011	2012	2013	2014
November 2011 Projections	9.0 to 9.1	8.5 to 8.7	7.8 to 8.2	6.8 to 7.7

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation will probably be mostly unchanged.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2011	2012	2013	2014
November 2011 Projections	2.7 to 2.9	1.4 to 2.0	1.5 to 2.0	1.5 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2011	2012	2013	2014
November 2011 Projections	1.8 to 1.9	1.5 to 2.0	1.4 to 1.9	1.5 to 2.0

If the economy under performs or even tracks the November projections, QE3 would seem likely at either of the two day meetings in April or June. Some have argued that QE3 could happen sooner, perhaps at the March meeting. If the economy performs better than expected, then the Fed will probably wait longer.

3) Possible Statement Changes. The FOMC met in December, and not much has changed - so the statement will probably be very similar to the December statement.

Investors will probably focus on any change to the sentence in the second paragraph: "Strains in global financial markets continue to pose significant downside risks to the economic outlook."

The FOMC will probably reiterate that they stand ready to take further action: "The Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability."

The sentence "The Committee ... currently anticipates that economic conditions ... are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013" will be removed and replaced with the Fed funds rate projections.

I expect the focus will be on the press briefing and the FOMC forecasts.

Yesterday:
• Summary for Week ending January 20th
• Schedule for Week of Jan 22nd