by Calculated Risk on 6/19/2008 10:18:00 AM

From Reuters: China to raise gasoline, diesel prices

China, the world's second largest oil consumer, will increase retail gasoline and diesel prices by 1,000 yuan ($145.50) per tonne from Friday, according to industry sources.

See the analyst comments in the story.

Meanwhile, the Shanghai cliff diving continues with the SSE Composite Index off 6.5% last night.

Click on graph for larger image in new window.

This is a spectacular sell off.

I suspect this stock sell off could be in anticipation of a slowing Chinese economy, and a combination of a Chinese slowdown and lower oil and gasoline subsidies could lead to lower world oil prices later this year.

by Tanta on 6/19/2008 09:40:00 AM

. . . until a mortgage insurer goes down.

It's official:

WINSTON-SALEM, N.C., June 19, 2008 /PRNewswire-FirstCall via COMTEX/ -- Triad Guaranty Inc. announced today that it has ended its negotiations with Lightyear Capital LLC to form a new mortgage insurance company. Triad also reported today that Freddie Mac informed Triad that the appeal of its subsidiary's suspension as an approved mortgage insurer has been denied. As a result of these developments, Triad's subsidiary, Triad Guaranty Insurance Corporation, will cease issuing commitments for mortgage insurance effective July 15, 2008 and will work with its customers, the Illinois Division of Insurance and each of the GSEs to assure an orderly transition of its business to run-off.

by Calculated Risk on 6/19/2008 09:21:00 AM

From NPR: Bear Stearns Hedge Fund Managers Arrested

And on the indictment from the WSJ: Prosecutors in Bear Case Focus In on Email

Fund manager Matthew Tannin emailed his more senior colleague Ralph Cioffi that he feared the market for complex bond securities in which they had invested was "toast." He suggested they discuss the possibility of shutting down the funds, according to the email, which was sent from Mr. Tannin's private account.
...
Four days after the Sunday-morning email, Mr. Tannin told fund investors on a conference call that he was "quite comfortable" with their holdings. Mr. Cioffi used similar language.

This seems a little flimsy for a criminal charge - people do change their minds - and hopefully the indictment will be publicly released today with more details.

by Calculated Risk on 6/19/2008 09:02:00 AM

Here is another look at unemployment claims. According to the Department of Labor for the week ending June 14, initial unemployment claims were at 381,000, and the 4-week moving average was 375,250.

Click on graph for larger image in new window.

The first graph shows the continued claims since 1989.

Continued claims declined this week, but have been trending higher and are still above the 3 million level.

Notice that following the previous two recessions, continued claims stayed elevated for a couple of years after the official recession ended - suggesting the weakness in the labor market lingered. The same will probably be true for the current recession (probable).

The second graph shows the weekly claims and the four week moving average of weekly unemployment claims since 1989. The four week moving average has been trending upwards for the last few months, and the level is now solidly above the possible recession level (approximately 350K).

by Calculated Risk on 6/19/2008 02:00:00 AM

Eugene Garcia at the O.C. Register has a followup to his earlier photo tour of foreclosed homes in Orange County: UPDATE: Auction prices for 'The real foreclosures of Orange County'

Garcia notes:

It’s important to note that the winning bids are subject to an undisclosed reserve price set by the seller.

Here are the same two houses I featured last week with updated auction results. See Garcia's article for much more. Note: photos used with permission.

515 W. CAMILE, SANTA ANA: This Dali-inspired home (3 bed, 2 bath, 894 sq.ft.) went for $175,000 in cash. I tried to catch up with the two investor-looking guys who bought it, but they left the auction pretty quickly. I guess when you pay cash, there's not too many papers to sign. PRIOR SALES: Mar 2006: $585,000 Apr 2007: $515,198. (CR note: Starting bid was $99,000)

If the $175,000 price sticks that is 70% off the 2006 sales price. My guess is it will stick.

4 LANGFORD LANE, LADERA RANCH: This one came back to the auction block a second time after the first high bidder ($675,000) dropped out. Curiously, the bid went up to $680,000. There was frenzied bidding on this house. And many exited the auction after the 4 bed, 2.5 bath, 2600 sq. ft. home was sold. PRIOR SALES: Oct 2007: $808,120 Feb 2006: $1,000,000 (CR note: the starting bid was $299,000).

by Calculated Risk on 6/19/2008 12:02:00 AM

The WSJ is reporting that banks are changing their accounting rules to make their numbers look better. (hat tip Brian)

The article gives Astoria Financial Corp. as an example. At the end of 2007, Astoria reported $106 million in nonperforming loans, and by the end of March 2008 nonperforming loans had declined to $68 million. The reason for the improvement: Astoria redefined nonperforming loans as missing three payments, instead of two.

And another example:

Wells Fargo ... had written off home-equity loans ... once borrowers fell 120 days behind on payments. But on April 1, the bank started waiting for up to 180 days.

This is a significant change considering the size of Wells Fargo's HELOC portfolio ($83.6 billion) and heavy exposure to California.

by Calculated Risk on 6/18/2008 09:17:00 PM

Press Release from WaMu:

WaMu will discontinue all negative amortizing loan product options, and will also cease to offer its WaMu Mortgage Plus™ loan product.

The Mortgage Plus loan combined a first with a home equity line of credit.

by Calculated Risk on 6/18/2008 04:47:00 PM

From the WSJ Real Time Economics blog: 2008 Recession: That’s All, Folks?

Merrill Lynch economist David Rosenberg ... note to clients — titled “That’s all folks … Real GDP peaked in January” — uses the monthly figure to support his view that January represented the peak of the business cycle.

The monthly data from Macroeconomic Advisers shows a GDP decline of 0.5% in April and shows GDP peaked in January.

The GDP calculation for the quarterly data is the average (not the end) of one quarter to the average of the next. Here is an example, using monthly data:

month 1: 99
month 2: 100
month 3: 101

Quarter 1: 100

month 4: 102
month 5: 101
month 6: 100

Quarter 2: 101

So the quarterly calculation would show growth in quarter 2, even though GDP is declining on a monthly basis.

This is the point NBER's Martin Feldstein recently made in the Financial Times: Misleading growth statistics give false comfort

The recent government report that US gross domestic product increased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.

I'm not ready to say "That's all folks!", but I do think it's very likely the economy is in recession.

by Calculated Risk on 6/18/2008 03:34:00 PM

From NPR: Ex-Fund Managers at Bear Stearns Face Indictment (hat tip blogenfreude)

Officials close to a major FBI mortgage crisis investigation say two former Bear Stearns hedge fund managers will likely be indicted Wednesday on securities fraud charges.

It sounds like the indictment will be made public on Thursday. It could be an interesting read ...

by Calculated Risk on 6/18/2008 01:36:00 PM

From DataQuick: Bay Area home sales return to record low in May

After a record burst of activity between March and April, Bay Area home sales eased a bit last month to the slowest pace for a May in over 20 years. Sales were weakest in many higher-end coastal markets but rose well above year-ago levels in some inland areas where foreclosures and deep discounts lured bargain hunters.

A total of 6,216 new and resale houses and condos closed escrow in the nine-county Bay Area in May. That was down 1.5 percent from 6,310 in March, and down 23.1 percent from 8,080 in May 2007, DataQuick Information Systems reported.

Last month was the slowest May in DataQuick's statistics, which go back to 1988.
...
In May, post-foreclosure homes continued to play a big role in the market. Across the nine-county region, 25.6 percent of the homes that resold had been foreclosed on at some point in the prior 12 months, down from 26 percent in April but up from 3.3 percent a year ago.
...
The median price paid for a Bay Area home was $517,000 last month, down 0.2 percent from $518,000 in April, and down a record 21.7 percent from $660,000 in May last year. May's median was 22.3 percent lower than the peak $665,000 median in June and July last year. The last time the median was lower than last month's $517,000 was back in September 2004, when it was $510,000.
...
Foreclosure activity is at record levels ...

The pattern continues: the low end areas are seeing some pickup in sales, as foreclosures dominate. Sales are sluggish (and prices still sticky) in high end areas.