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Sunday, June 22, 2008

Saudi Arabia Plans to Increase Oil Production

by Calculated Risk on 6/22/2008 10:53:00 AM

Here is a story from Bloomberg on the "Oil Summit" in Saudi Arabia: Saudi Arabia Boosts Oil Supply, May Pump More Later

``Saudi Arabia is prepared and willing to produce additional barrels of crude above and beyond the 9.7 million barrels per day, which we plan to produce during the month of July, if demand for such quantities materializes and our customers tell us they are needed,'' [Saudi Oil Minister Ali al- Naimi] said.

Saudi Arabia's capacity will be 12.5 million barrels a day by the end of 2009 and may rise to 15 million after that if necessary, he said.

UK Housing: Starts Off 56%

by Calculated Risk on 6/22/2008 01:13:00 AM

From The Guardian: Number of new houses being built plummets nearly 60%

The National House Building Council, which has 20,000 registered house builders on its books, said there were 6,890 new starts in the private sector in May, compared with 15,713 this time last year. This represents a drop of 56%.
..
This news came on the same day as Halifax, the UK's biggest mortgage lender, announced that it would be raising its fixed rates on loans by half a percentage-point from today ... Homeowners who have more than 25% equity in their houses now face an increase on a two-year fixed-rate mortgage from 6.49 to 6.99%.
And on house prices in the UK: HBOS predicts 9% fall in house prices and sales to halve
House prices will fall 9% this year, HBOS warned yesterday in its gloomiest prediction for the housing market since 1989.
Just a reminder that the housing bust is global not just in the U.S.

Saturday, June 21, 2008

Foreclosure Rage

by Calculated Risk on 6/21/2008 08:08:00 PM

I wonder if he has a demolition permit? (30 secs) Be careful what you buy!

BofA and the Dodd Bailout Bill

by Calculated Risk on 6/21/2008 08:07:00 PM

Peter Viles at the LA Times (L.A. Land blog) has the story: Did Bank of America write the Dodd bailout bill?

Update: I don't like the system, but I don't see a scandal here. Bank of America employees have given to almost all candidates, and almost legislation is written by lobbyists.

Non-Residential Investment: Multimerchandise shopping

by Calculated Risk on 6/21/2008 10:08:00 AM

The previous post discussed the incentives being offered by mall owners to marginal retailers. Move in incentives are common in retail (and frequently in commercial too), but according to the WSJ in the case of Steve & Barry's the incentives were essential:

Without these payments, the stores are barely profitable, if at all ...
That shows the desperation of mall owners with vacancy rates rising rapidly.

Just like for residential, there was substantial overbuilding in multimerchandise shopping space in recent years.

Non-Residential Investment: Multimerchandise shopping Click on graph for larger image in new window.

This graph shows investment in multimerchandise shopping space starting in 1997 in current dollars (inflation adjusted Q1 2008). The circle shows the probable period of overinvestment.

It appears that $20 billion per year or so would be a normal level of investment. However, with the recent over investment, non-residential investment in multimerchandise shopping structures will probably fall below $20 billion per year for a few years.

Unfortunately the investment data for multimerchandise shopping is only available starting in 1997.

Steve & Barry's: The Mall Vacancy Answer? Probably Not.

by Calculated Risk on 6/21/2008 12:35:00 AM

The WSJ has an article about fast growing retailer Steve & Barry's facing possible bankruptcy. This story has an interesting twist: Steve & Barry's Faces Cash Crunch

[S]ome of the forces pushing Steve & Barry's growth were not tied to end-consumer demand, but the needs of mall owners in a softening commercial-real-estate market. Much of the company's earnings came in the form of one-time, up-front payments from mall owners. Those payments were designed to lure the retailer to take over vacated sites, say several people familiar with the company.

Without these payments, the stores are barely profitable, if at all ...
So the mall owner pays the tenant to take retail space that the the tenant can barely afford unless other mall owners pay the tenant to take additional space. And on and on.

This shows just how tough the mall leasing environment currently is.

Friday, June 20, 2008

MBIA: $2.9 Billion Required for Contract Terminations

by Calculated Risk on 6/20/2008 05:30:00 PM

UPDATE: from Yves Smith at Naked Capitalism: MBIA Downgrade Increases Collateral Requirements; Clarification on CDS Acceleration in Insolvency/Custodianship

MBIA Comments on the Impact of the Moody's Downgrade

As a result of the downgrade to A2, MBIA expects that it will require $2.9 billion to satisfy potential termination payments under Guaranteed Investment Contracts (GICs). In addition, MBIA expects to be required to post approximately $4.5 billion in eligible collateral to satisfy potential collateral posting requirements under GIC's as a result of the downgrade. MBIA Inc. has total assets of $25 billion related to its ALM business, of which $15.2 billion is available to satisfy these requirements including approximately $4.0 billion in cash and liquid short-term investments; $1.0 billion of unpledged eligible collateral on hand; and approximately $10.2 billion of other unpledged diversified securities with an average rating of Double-A. In addition, MBIA Inc. also has available another $1.4 billion in cash, including the proceeds of its recent equity offering.

S&P Research Downgrades BofA

by Calculated Risk on 6/20/2008 02:17:00 PM

From MarketWatch: S&P cuts Bank of America to sell from hold

"We take unfavorable note of the large Countrywide option-adjustable rate mortgage portfolio that Bank of America will inherit, since we believe this portfolio has yet to be stress tested," S&P said in its action.
Not stress tested ... yet. The losses are coming for these Option ARM (and HELOC) portfolios.

More on Bear Stearns Indictment

by Calculated Risk on 6/20/2008 01:16:00 PM

Bloomberg has an overview: Bear Stearns Fund Prosecutors Reveal `Lot of Evidence' of Fraud

As I noted yesterday, the indictment contains several allegations that the managers knew specific material information about the condition of the funds, and then provided false information to investors. Bloomberg noted the same example I gave yesterday:

``It's very hard to say you weren't shading the truth in an important way when you say you had a couple of million dollars of redemptions when in fact you had $47 million,'' [Christopher Clark, a former federal prosecutor in New York] said.
If the prosecutors can prove the managers knew certain material facts on a certain date, and then prove the managers told investors materially different facts on a subsequent date - IMO that is powerful evidence of securities fraud.

The WSJ has the indictment here. I think the actual indictment is much stronger than the flimsy evidence provided in the advance news stories.

Ford Warns on Sales

by Calculated Risk on 6/20/2008 11:04:00 AM

From MarketWatch: Ford delays new F-150 pickup, cuts truck production

[Ford] pared its 2008 U.S. industry sales forecast to a range of 14.7 million to 15.2 million cars and trucks, down from its previous projection of 15 million to 15.4 million vehicles. Ford cut its third-quarter production plans to 475,000 vehicles, 50,000 units lower than prior targets ...
Apparently June auto sales are looking really weak according to this article in the Detriot Free Press:
[I]n November ... executives were assuming Americans would buy ... only about 15.5 million [vehicles in 2008]. ... [S]o far in June ... J.D. Power and Associates and Citigroup are seeing a sales pace that is almost 20% lower -- only 12.5 million vehicles per year.