by Calculated Risk on 8/03/2009 07:42:00 PM

The S&P 500 closed above 1000 for the first time since last November.

Click on graph for larger image in new window.

The first graph shows the S&P 500 since 1990.

The dashed line is the closing price today.

The S&P 500 is up 48.2% from the closing bottom (326 points), and off 36% from the peak (563 points below the closing max).

The S&P 500 first hit this level in Feb 1998; over 11 years ago.

The British Bankers' Association reported that the three-month dollar Libor rates were fixed at a new record low of 0.472%. The LIBOR peaked at 4.81875% on Oct 10, 2008.

The A2P2 spread has declined to 0.26. The record (for this cycle) was 5.86 after Thanksgiving, and this is only slightly above the normal spread of around 20 bps.

This is the spread between high and low quality 30 day nonfinancial commercial paper.


Meanwhile the TED spread has decreased further and is now at 29.4. This is the difference between the interbank rate for three month loans and the three month Treasury.

The peak was 463 on Oct 10th and the spread is now in the normal range.

The final graph shows the spread between 30 year Moody's Aaa and Baa rated bonds and the 30 year treasury.

The spread has decreased sharply over the last few months. The spreads are still high, especially for lower rated paper.

The Moody's data is from the St. Louis Fed:

Moody's tries to include bonds with remaining maturities as close as possible to 30 years. Moody's drops bonds if the remaining life falls below 20 years, if the bond is susceptible to redemption, or if the rating changes.

Some of these indicators will be interesting to follow when the Fed eventually unwinds their current positions.

by Calculated Risk on 8/03/2009 04:44:00 PM

From Bloomberg: Banks Urged to Consider Higher Home-Equity Reserves (ht Brian)

U.S. banks may need to boost reserves for potential losses on home-equity loans under guidance issued by the Federal Deposit Insurance Corp. as property prices slump from their peak in 2006.

The regulator, in a letter today to banks and examiners, urged lenders to consider issues such as whether borrowers’ total housing debt exceeds the value of their properties and whether homeowners’ first mortgages have been reworked when determining allowances for losses on the debt.
...
“Failing to properly consider the current effect of more senior liens on the collectibility of an institution’s existing junior lien loans is an inappropriate application” of accounting principles, the FDIC said in the letter.
...
In its letter, the FDIC said “the failure to timely recognize estimated credit losses could delay appropriate loss mitigation activity, such as restructuring junior lien loans to more affordable payments or reducing principal on such loans to facilitate refinancings.”

From the FDIC: Allowances for Loan and Lease Losses in the Current Economic Environment: Loans Secured by Junior Liens on 1-4 Family Residential Properties

The need to consider all significant factors that affect the collectibility of loans is especially important for loans secured by junior liens on 1-4 family residential properties, both closed-end and open-end, in areas where there have been declines in the value of such properties. ...

[D]elaying the recognition of estimated credit losses on junior lien loans secured by 1-4 family residential properties by failing to properly consider the current effect of more senior liens on the collectibility of an institution's existing junior lien loans is an inappropriate application of GAAP. Additional supervisory action may also be warranted based on the magnitude of the deficiencies in this aspect of the institution's [allowance for loan and lease losses] ALLL process. Furthermore, the failure to timely recognize estimated credit losses could delay appropriate loss mitigation activity, such as restructuring junior lien loans to more affordable payments or reducing principal on such loans to facilitate refinancings. Examiners will continue to evaluate the effectiveness of an institution's loss mitigation strategies for loans as part of their assessment of the institution's overall financial condition.

The FDIC wouldn't release a letter unless they felt many banks were delaying the recognition of home-equity losses.

by Calculated Risk on 8/03/2009 04:00:00 PM

Click on graph for larger image in new window.

This graph shows the historical light vehicle sales (seasonally adjusted annual rate) from the BEA (blue) and an estimate for July (red, light vehicle sales of 11.24 million SAAR from AutoData Corp).

This is the highest vehicle sales since September 2008 (12.5 million SAAR).

The second graph shows light vehicle sales since the BEA started keeping data in 1967.

Although sales were boosted by the "Cash-for-clunkers" program, I think sales would have rebounded some anyway. If "Cash-for-clunkers" is extended, then August will probably be over 11 million SAAR too, but I'd expect sales to falter a little later in the year.

by Calculated Risk on 8/03/2009 03:03:00 PM

From Reuters: U.S. raids Colonial Bank office in Florida (ht Jim the Realtor)

Federal agents working with the U.S. Treasury's Troubled Asset Relief Program (TARP) executed search warrants at two Florida banks on Monday and Colonial Bank (CNB.N) said one of them was its office in Orlando.
...
A spokeswoman with the office of the Special Inspector General for the Troubled Asset Relief Program, which buys assets from troubled financial institutions to stabilize the banking industry, would only say that its agents executed two search warrants in Florida on Monday.

Colonial is operating under a Cease & Desist order, and just Friday reported to the SEC: " ... management has concluded that there is substantial doubt about Colonial’s ability to continue as a going concern."

Colonial has about $25.5 billion in assets and would be the largest bank failure this year. No word on the purpose of the raid.

by Calculated Risk on 8/03/2009 01:17:00 PM

From Bloomberg: Mortgage-Bond Rally May End on Housing Reality, Barclays Says (ht James)

While an S&P/Case-Shiller index for May showed the first month-over-month price increase since 2006 and a 2 percent seasonally adjusted annualized drop, a more-accurate reading probably would have been an annualized decline of 10 percent to 15 percent, [Barclays' analysts Ajay Rajadhyaksha and Glenn Boyd] wrote.

... seasonally adjusted home-price data has been skewed higher during the spring months of this year and last year by an “amplified” version of typical patterns, according to the analysts. More homeowners sell their properties during those months, cutting the share of foreclosed homes being offloaded at distressed prices, as new buyers focus on “desirable neighborhoods” where values hold up better, they said.
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Data reflecting a reversal of the seasonal benefit, as well as “a tide of new foreclosure sales” as a moratorium on the seizing of homes put in place by banks subsides, will lead to “renewed weakness” in the fall, they said.
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They project that U.S. home prices will fall an additional 11 percent on average before bottoming next year, bringing the total decline to 40 percent from their peak.

This is similar to the argument Mark Hanson made last week (See: Housing Bottom? No, the Mother of All Head Fakes). I think we will see further price declines in the mid-to-high end bubble areas where the prices have still been sticky.

by Calculated Risk on 8/03/2009 11:19:00 AM

From CBS MarketWatch: Ford U.S. July sales rise 2.3%

Ford Motor said Monday that U.S. July sales rose 2.3% to 165,279 vehicles, reversing nearly two years of monthly year-over-year losses.

Ford said the "Cash for Clunkers" program helped July sales (no kidding).

This is the first year-over-year increase reported by Ford since November 2007.

Notes: The auto companies compare sales to the same month of the previous year (so this is compared to July 2008). Auto sales will be released all morning, and I'll post a saesonally adjusted graph when a summary is available.

by Calculated Risk on 8/03/2009 10:21:00 AM

Private residential construction spending increased slightly in June and is now 63.6%% below the peak of early 2006.

Private non-residential construction spending declined in June, but is only off 6.7% below the peak of last September.

Overall construction spending increased with a boost from public spending.

Click on graph for larger image in new window.

The first graph shows private residential and nonresidential construction spending since 1993. Note: nominal dollars, not inflation adjusted.

Residential construction spending increased slightly in June, and nonresidential spending declined a little. From other data (new housing starts), it appears that residential spending has stabilized and might increase in Q3 - however private nonresidential construction will be falling off a cliff.

The second graph shows the year-over-year change for private residential and nonresidential construction spending.

Nonresidential spending is off 4.8% on a year-over-year basis, and will turn strongly negative as projects are completed. Residential construction spending is still declining YoY, although the negative YoY change will get smaller going forward.

As I've noted before, these will probably be two key stories for late 2009: the collapse in private non-residential construction, and the probable bottom for residential construction spending. Both stories are still developing ...

From the Census Bureau: June 2009 Construction at $965.7 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $643.9 billion, 0.1 percent (±1.1%)* below the revised May estimate of $644.8 billion. Residential construction was at a seasonally adjusted annual rate of $246.1 billion in June, 0.5 percent (±1.3%)* above the revised May estimate of $244.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $397.9 billion in June, 0.5 percent (±1.1%)* below the revised May estimate of $400.0 billion.

In June, the estimated seasonally adjusted annual rate of public construction spending was $321.7 billion, 1.0 percent (±2.4%)* above the revised May estimate of $318.5 billion.

by Calculated Risk on 8/03/2009 10:00:00 AM

PMI at 48.9% up from 44.8% in June. Still contracting (below 50) but contracting at a slower pace.

From the Institute for Supply Management: July 2009 Manufacturing ISM Report On Business®

Economic activity in the manufacturing sector failed to grow in July for the 18th consecutive month, while the overall economy grew for the third consecutive month following seven months of decline, say the nation's supply executives in the latest Manufacturing ISM Report On Business®.

The report was issued today by Norbert J. Ore, CPSM, C.P.M., chair of the Institute for Supply Management™ Manufacturing Business Survey Committee. "The decline in manufacturing was slower in July when compared to June, as the more leading components of the PMI — the New Orders and Production Indexes — rose significantly above 50 percent, thus setting an expectation for future growth in the sector. The Employment and Inventories Indexes are still contracting, but the rate is slowing and they are moving in the right direction. It is also worth noting that the New Export Orders Index shows growth following nine consecutive months of decline, suggesting that the global economy is recovering. Overall, it would be difficult to convince many manufacturers that we are on the brink of recovery, but the data suggests that we will see growth in the third quarter if the trends continue."
emphasis added

As noted, any reading below 50 shows contraction, although the pace of contraction has slowed and new orders suggest some growth later this year.

by Calculated Risk on 8/03/2009 08:56:00 AM

From The Times: UK manufacturing 'pulls out of nosedive' in July

British manufacturing grew for the first time in 16 months during July ...

According to the Chartered Institute of Purchasing & Supply (CIPS), the Purchasing Managers Index, which measures activity in the manufacturing sector, rose from a reading of 47.4 to 50.8 between June and July.

It is the first time the measure has risen above 50, the dividing line between contraction and growth, since March 2008.

David Noble, chief executive of CIPS said: "The manufacturing sector has clearly pulled out of the nosedive it was in earlier this year and is no longer plummeting.”

He said customers had cut inventories so severely in the downturn that they were now in need of new stock ...

The end of cliff diving isn't the same as new growth.

In the U.S., the ISM Manufacturing Index for July will be released this morning, and also July vehicle sales - with sales probably above 10 million units SAAR for the first time this year.

Construction spending for June will also be released this morning.

by Calculated Risk on 8/03/2009 12:32:00 AM

From Nick Timiraos and James Hagerty at the WSJ: High-End Homes Frozen Out of Budding Housing Rebound

Housing is fast dividing into two markets: Sales of low- and moderately priced homes are picking up and values have stopped falling in some parts of the nation. But on the upper end, sales remain mired in a deep slump and price declines are expected to accelerate.
...
The divide between the mass market and the high-end -- generally defined as homes that cost above $750,000 -- partly reflects the effects of Washington's housing-rescue plan, which is producing winners and losers.
...
To be sure, the affluent housing market is substantially smaller than the mass market. Sales of existing homes priced over $750,000 accounted for 2.3% of all sales in the first quarter of this year, compared to 4.4% of the housing market in 2007, according to the National Association of Realtors.

But what percentage of the market in 2005?

The low end is doing well because of first time buyers and investor groups buying properties (see previous post). Prices in the mid-to-high end are stickier and will probably decline for some time.