by Calculated Risk on 6/19/2008 03:24:00 PM

From John Spence at MarketWatch: Builder execs nervous about jobs and the economy

Home-builder executives said at an industry conference Thursday that they're making progress clearing out excess inventory, but warned that a recession and spiking unemployment could stop that advance in its tracks.

"No one who's unemployed ever bought a house," said Lawrence Angelilli, senior vice president of finance at Centex Corp. "That's the wild card that everybody is waiting to see is if we get a true economic recession."

Yes, the homebuilders are finally building fewer homes than they are selling - so new home inventory is declining. But the huge overhang of existing homes on the market - especially distressed inventory - will keep housing under pressure for some time.

Also, I think a few unemployed people did buy homes during the boom. NINJA loans were one of the big jokes: No Income, No Job, No Assets.

by Calculated Risk on 6/19/2008 12:50:00 PM

From the Department of Transportation: Americans Drove 1.4 Billion Fewer Highway Miles in April of 2008 than in April 2007 While Fuel Prices and Transit Ridership Are Both on the Rise

[U.S. Transportation Secretary Mary E. Peters] said that Americans drove 1.4 billion fewer highway miles in April 2008 than at the same time a year earlier and 400 million miles less than in March of this year. She added that vehicle miles traveled (VMT) on all public roads for April 2008 fell 1.8 percent as compared with April 2007 travel. This marks a decline of nearly 20 billion miles traveled this year, and nearly 30 billion miles traveled since November.

This is the fewest miles driven in April since 2003.

by Calculated Risk on 6/19/2008 12:25:00 PM

The WSJ has the indictment here.

According to the indictment, the managers knew material information about the condition of the funds, and then provided false information to other investors. As an example, the indictment alleges the managers knew of a major investor withdrawing their entire investment, but in answering direct questions about redemptions, falsely stated that fund redemptions would be minor.

by Calculated Risk on 6/19/2008 11:57:00 AM

Here are few headlines from the Citi conference call.

Impact of CDOs in quarter will be "substantial"

CDO Marks will not be as big as last quarter.

Consumer Credit remains a challenge.

Story to follow ...

by Calculated Risk on 6/19/2008 11:35:00 AM

Here is the Philadelphia Fed Index for June activity released today: Business Outlook Survey.

Note the special question at the bottom on prices. The average expected price change this year is 5.4%!

Click on graph for larger image in new window.

This graph shows the Philly index vs. recessions for the last 40 years. There are a number of times the index was below zero without a recession - so the reading today doesn't mean the economy is in recession. However it is very likely that the economy is already in recession.

From the release, weaker conditions and higher prices :

Indicators Reflect Continued Weakening

The survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased slightly, from -15.6 in May to -17.1 this month. The index has now been negative for seven consecutive months.

More Manufacturers Report Higher Input Prices

A larger share of firms — 72 percent, up from 61 percent in May— reported higher input prices this month. The prices paid index jumped 16 points, to 69.3, its highest reading since November 1980. (see chart)

Outlook Is Less Optimistic

Following significant improvement in expectations over the last two months, the future general activity index retreated in June, falling from a May reading of 28.2 to 21.3. Forty percent of the firms expect growth in activity over the next six months; 18 percent expect a decline.

Special Questions (June 2008) 1. What impact are these recent cost increases having, or expected to have, on the prices of your finished products over the next three months?
We expect price decreases		14.6%
We expect steady prices		20.2%
We expect price increases		65.2%
	Less than 2.5%		4.5%
	Between 2.5-5%		28.1%
	Between 5-7.5%		13.5%
	Between 7.5-10%		11.2%
	Between 10-15%		3.3%
	Greater than 15%		2.3%
	No response		2.3%
Total		100.0%
Average expected price change		5.4%
Average reported price increase* since the beginning of the year:		3.8%
*Firms were asked what increases in prices have already occurred since January.

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).