by Calculated Risk on 3/07/2011 06:00:00 PM

American Banker has posted the 27 page draft servicer settlement agreement that the state attorneys general sent to the servicers last week.

Settlement Terms (27 page PDF)

And from Cheyenne Hopkins at American Banker: Cheat Sheet: How the State AGs Want to Revamp Mortgage Servicing

The 27-page term sheet handed to the five largest mortgage servicers last week is a detailed, dense list of requirements that, if implemented as proposed, would fundamentally change the relationship between servicers, investors and borrowers.

The term sheet, obtained by American Banker and available here, is just the opening bid in an ongoing negotiating process between the servicers and various state and federal agencies attempting to punish them for significant issues uncovered in the foreclosure process. While some of the details of the term sheet have been made public already, the sheer breadth and depth of the proposed requirements were not clear until now.

The article has a nice summary of the document.

by Calculated Risk on 3/07/2011 02:18:00 PM

This is "D list" data and doesn't show much improvement in February.

From the Association of American Railroads: February Freight Rail Traffic Continues to Make Gains. The AAR reports carload traffic in February 2011 was up 4.2% compared to February 2010 and intermodal traffic (using intermodal or shipping containers) was up 10.3% over February 2010.

U.S. freight railroads originated 1,135,396 carloads in February 2011, an average of 283,849 per week (see chart below). That’s up 4.2% (46,054 carloads) over February 2010 and up 2.7% (29,400 carloads) over February 2009.

Click on graph for larger image in new window.

This graph shows U.S. average weekly rail carloads (NSA).

From AAR:

On a seasonally adjusted basis, U.S. rail carloads were down 3.0% in February 2011 from January 2011. That’s the biggest month-to-month decline
since April 2009, but we cannot be certain that the weather effect was completely captured by the seasonal adjustment process. Even if the seasonally adjusted decline is legitimate, it could just be one of those “two steps forward, one step back” kind of things.

As the first graph shows, rail carload traffic collapsed in November 2008, and now, over 18 months into the recovery, carload traffic has only recovered a little.

The second graph is for intermodal traffic (using intermodal or shipping containers):

In February 2011, U.S. railroads averaged 220,458 intermodal trailers and containers per week, for a total of 881,830 for the month. That’s up 10.3% (82,267 intermodal units) over February 2010 and up 21.4% (155,487 units) over February 2009.

Seasonally adjusted U.S. rail intermodal traffic was up 0.1% in February 2011 from January 2011. ... in seasonally adjusted terms, the recovery in U.S. rail intermodal traffic has been much stronger than the recovery in U.S. carload traffic.
excerpts with permission

Intermodal traffic is fairly strong, but carload traffic has barely recovered.

by Calculated Risk on 3/07/2011 12:40:00 PM

We continue to be reminded of the downside risks to economic growth this year: higher oil prices and the potential for a supply shock, the European financial crisis, state and local government fiscal issues, Federal government budget issues, and the two sides of the inflation coin (inflation increases or policymakers overreact).

• U.S. oil prices were near $107 per barrel this morning before declining slightly to $105. I think this is the key risk to U.S. economic growth in the short term.

Not only is the situation in Libya looking more and more like a prolonged civil war, but the unrest may spread to Bahrain and Saudi Arabia (March 11th is the "Day of Rage" in Saudi).

• The European financial crisis has been on the back burner, but yields are still elevated and there are key Euro Zone meetings scheduled in March - including a special eurozone debt crisis summit scheduled for Friday, March 11th. Ireland is asking to renegotiate the terms of their bailout, Greece debt was downgraded this morning, and Portugal is probably next in line. And the European Banking Authority has now launched the next round of bank stress tests.

I expect this to be front page news again soon.

• State and local governments reduced employment by 30,000 in February, and several state budgets are in the news, especially the ongoing Wisconsin political battles. I expect state and local government cutbacks to continue all year.

• On the Federal government, some drag from fiscal policy was expected due to some spending cuts, and also from the decline in spending from the 2009 fiscal stimulus package. However the "debt ceiling" debate is just political grandstanding, but it is possible that more cuts will be enacted this year - slowing growth in 2011.

• Inflation is a two sided coin: if inflation increases in the U.S., then the Fed might move quicker on tightening policy (I think core inflation will remain below the Fed's target all year), and it is possible policymakers will overreact to price increases in commodities and raise rates too soon. However if oil prices continue to increase, then QE3 is more likely:

"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation," [Atlanta Fed President Dennis Lockhart said this morning].

These are all risks to 2011 economic growth. For now I'm sticking with my over forecast of 3.5% to 4.0% real GDP growth in 2011, but I'm watching all of these issues closely.

by Calculated Risk on 3/07/2011 08:57:00 AM

The following is a reminder that there is a special eurozone debt crisis summit scheduled for Friday, March 11th.

From MarketWatch: Moody’s cuts Greece rating, stokes debt fears

Moody’s Investors Service cut Greece’s sovereign-debt rating Monday by three notches to B1 ... The ratings agency, which also assigned a negative outlook to Greece’s ratings, highlighted the government’s difficulties with revenue collection and noted a risk that Athens might not meet the criteria for continued support from the International Monetary Fund and the European Union after 2013.

That could result in a voluntary restructuring of existing debt, the ratings agency said.

The Ten Year yield for Greece is at 12.4%.

Here are the Ten Year yields for Ireland, Portugal, Spain, and Belgium. All moving up some today ...

On U.S. economy:
• Summary for last week ending March 4th
• Schedule for Week of March 6th

by Calculated Risk on 3/06/2011 10:38:00 PM

I always pay close attention to Fed stories from Jon Hilsenrath at the WSJ: Fed Unlikely to Remove Its Economic Stimulus Just Yet

Hilsenrath makes several key points:
• QE2 will probably end in June: "the securities purchase program ... is likely to end in June as scheduled."

• Tapering off of purchases unlikely: "Though the idea of tapering has received some attention on Wall Street of late, officials seem unlikely to want to follow that course this time ..."

• Fed will probably take a wait and see approach after June to see "how the economy performs later in the year without [QE2]."

• The "hawks" aren't pushing hard to finish early.

As I noted in When will the Fed raise rates?, this suggests a timeline for the earliest Fed funds rate increase:
• End of QE2 in June.
• End of reinvestment 0 to 2 months later.
• Drop extended period language a couple months later
• Raise rates in early 2012.

That is probably the earliest the Fed will raise rates - and it could be later in 2012 or even later ...

Earlier:
• Summary for last week ending March 4th
• Schedule for Week of March 6th