by Calculated Risk on 11/30/2007 10:14:00 AM

From the Census Bureau: October 2007 Construction Spending at $1,158.3 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $863.2 billion, 1.4 percent (±1.1%) below the revised September estimate of $875.2 billion. Residential construction was at a seasonally adjusted annual rate of $503.7 billion in October, 2.0 percent (±1.3%) below the revised September estimate of $514.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $359.4 billion in October, 0.5 percent (±1.1%)* below the revised September estimate of $361.1 billion.

Further declines in residential construction is widely expected, but also note the small decline in private nonresidential construction spending.

Click on graph for larger image.

The graph shows private residential and nonresidential construction spending since 1993.

Over the last couple of years, as residential spending has declined, nonresidential has been very strong. But it now appears that nonresidential construction may be slowing. This is just one month of data, and one month does not make a trend, but there is other evidence - like the Fed's Loan Officer Survey - that suggests a slowdown in nonresidential has arrived.

by Calculated Risk on 11/29/2007 08:43:00 PM

On Nov 15th David Evans at Bloomberg wrote: Public School Funds Hit by SIV Debts Hidden in Investment Pools

What ... municipal finance managers ... across the country still haven't been told -- is that state-run pools have parked taxpayers' money in some of the most confusing, opaque and illiquid debt investments ever devised.

These include so-called structured investment vehicles, or SIVs, which are among the subprime mortgage debt-filled contrivances that have blown up at the biggest banks in the world.

This story led to a run on the fund, and Evans wrote today: Florida Halts Withdrawals From Local Investment Fund

Florida officials voted to suspend withdrawals from an investment fund for schools and local governments after redemptions sparked by downgrades of debt held in the portfolio reduced assets by 44 percent.

Before the run, the fund had $27 Billion in assets, and the fund was frozen today with $15 Billion remaining.

The Florida LGIP had strict investment guidelines, but unfortunately the guidelines allowed investment in asset backed commercial paper (CP) backed by prime and Alt-A mortgages.

A small percentage of the fund's investments have been downgraded and no longer meet the guidelines of the fund.

Click on chart for larger image.

This chart shows the investments that have been downgraded below the standards of the fund. This chart shows losses of about $45 million; not much for a $27 Billion fund (0.17%). Of course with each redemption at par (the run on the fund), the percentage losses for the remaining funds grow. $45 million for a $15 Billion fund is 0.3%. Considering the fund was paying investors 5.77%, even a 0.3% loss is not horrible.

However there are serious questions about the investment decisions of the pool. And there are other investments that could go bad. As an example the Fund invested $650 million in certificates of deposit in Countrywide Bank - with the recent redemptions that investment now amounts to over 4% of the pool's assets - and there is some risk that Countrywide could go under.

The two main concerns are: 1) Will there be a run on other investment pools? and 2) If other funds stop investing in asset backed CP, this might further the credit crunch and increase spreads for other products.

by Calculated Risk on 11/29/2007 07:26:00 PM

Brian has dug up the value of the ETrade ABS as of Sept 30, 2007. The assets included a substantial amount of prime residential first liens.

Here is Brian's spreadsheet: Etrade Haircut Spreadsheet

He would appreciate comments on the haircuts.

The importance of these marks can't be overstated.

From Dow Jones: E*Trade's CDO Sale May Mean Lower Values For Bank Holdings (no link yet)

Hedge fund Citadel Investment Group's agreement to buy a troubled debt portfolio from E*Trade Financial Corp. ... could be bad news for banks still holding similar securities on their books.

Banks like Citigroup ... and Merrill Lynch ... "mark to model" approach produced some $36 billion in losses for banks in the third quarter ... The E*Trade deal, however, could show that losses have been worse. The discount broker sold Citadel its $3 billion portfolio of asset backed securities ... at a cut-rate price of around 27 cents on the dollar.

by Calculated Risk on 11/29/2007 05:35:00 PM

The asking price for this foreclosed property in Florida is below the price the home sold for new in 2002. (hat tip John)

Here are the details:

Feb 15, 2002: $122,300 (New)

Mar 15, 2006: $259,600

Oct 23, 2007: Foreclosed.

Current Asking Price: $99,900

There are probably some special circumstances with this house, but ... yikes!

According to the public tax records, the larger house on the 2nd lot away sold for $185,300 new in 2004, and for $370,000 in 2006.

This raises some interesting questions: How far have prices really fallen?

How will the neighbors react when they discover their homes are worth far less than they paid in recent years?

As OFHEO noted today:

Declines in home prices will increase the frequency with which homeowners find themselves with no equity and thus may be motivated to “walk away” from the property and the mortgage.

No kidding - this has to be depressing for the neighbors. Note: I rarely mention Florida, but this is worth noting.

by Calculated Risk on 11/29/2007 04:16:00 PM

UPDATE: This Bloomberg Special Report has more info: Florida Suspends Withdrawals From Investment Pool (hat tip Andrew)

The pool had $3 billion of withdrawals today alone, putting assets at $15 billion, said Coleman Stipanovich, executive director of the State Board of Administration. The board manages the pool along with other short-term investments and the state's $137 billion pension fund.

``If we don't do something quickly, we're not going to have an investment pool,'' said Stipanovich at the meeting in the state capitol in Tallahassee. The fund was the largest of its kind, managing $27 billion before this month's withdrawals.

Local governments including Orange County and Pompano Beach that use the pool like a money-market fund asked for their money back after the State Board of Administration disclosed in a report earlier this month that holdings in the fund were lowered to below investment grade.
...
The pool has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20 percent of the pool is in asset-backed commercial paper, Stipanovich said at the meeting today.

``There is no liquidity out there, there are no bids'' for those securities, he said.

Original post from the WSJ: Florida Moves to Halt Run on Fund

Florida halted withdrawals from a $15 billion local-government fund Thursday after concerns over losses ... prompted investors to pull roughly $10 billion out of the fund in recent weeks.

The State Board of Administration met Thursday and voted to immediately freeze withdrawals ...

The decision shows how far this year's ... credit crisis has spread. Florida's Local Government Investment Pool, which had more than $27 billion in assets at the end of September, is a money-market fund that's supposed to invest in ultrasafe assets to provide participants with a secure place to stash spare cash. But even these types of funds have been hit by the widening crunch.