by Calculated Risk on 7/05/2011 02:18:00 PM

Bloomberg reports that Moody's downgrades Portugal to Ba2 with a negative outlook.

This is a reminder that the financial crisis in Europe doesn't stop with Greece.

by Calculated Risk on 7/05/2011 11:09:00 AM

From the American Bankruptcy Institute: Consumer Bankruptcy Filings Down 8 Percent Through the First Half of 2011

U.S. consumer bankruptcy filings totaled 709,303 nationwide during the first six months of 2011 (Jan. 1-June 30), an 8 percent decrease from the 770,117 total consumer filings during the same period a year ago, according to the American Bankruptcy Institute (ABI), relying on data from the National Bankruptcy Research Center (NBKRC). The overall June consumer filing total of 119,768 represented a 5 percent decrease from the 126,270 filings recorded in June 2010.

Click on graph for larger image in graph gallery.

This graph shows the non-business bankruptcy filings by quarter using monthly data from the ABI and previous quarterly data from USCourts.gov.

Note: The spike in 2005 was due to the so-called "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005". (a good example of Orwellian named legislation).

It is possible that consumer bankruptcy filings peaked in 2010, but they will probably stay elevated for some time.

by Calculated Risk on 7/05/2011 08:45:00 AM

From Bloomberg: Trichet May Save Face With S&P, Fitch Greece Moves: Euro Credit

Standard & Poor’s and Fitch Ratings may enable European Central Bank President Jean-Claude Trichet to support a private investor rollover of Greek debt by saying a default rating would be partial and temporary.

Many observers think the ECB will back down and still accept Greek government bonds as collateral.

By saying the default is temporary - and if at least one rating agency keeps the Greek government bonds above a default rating (even if the rating agency lowers Greece's issuer rating to “restricted default”) - this could give the ECB wiggle room to keep accepting Greek government bonds as collateral.

The policymakers appear to have a couple of months to find a solution. The yield for Greek 2 year bonds are up to 27% this morning, and the 10 year yield is at 16.5%. Portuguese and Irish 10 year yields are at (11.6% for Ireland, 11% for Portugal).

by Calculated Risk on 7/04/2011 08:28:00 PM

Weekend:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

The key report for this week will be the June employment situation report to be released on Friday.

The following table summarizes some of the grim labor statistics and compares the current situation (May 2011) with the employment situation when the recession started (December 2007).

Since December 2007, the U.S. working age civilian population has increased by 6.157 million people - however the number of people saying the are in the labor force has actually declined.

Total nonfarm payrolls are still 6.94 million below the December 2007 level, and private payrolls are 6.69 million lower.

Some of the decline in the labor force participation is due to an aging population, but these numbers suggest the U.S. needs 6.94 million jobs, plus some percent of the increase in the labor force, to get back to the 2007 employment situation.

On unemployment, perhaps the most staggering number is the 6.2 million workers who have been unemployed for 27 weeks or more.

Recoveries following a housing/credit bubble and financial crisis are usually sluggish - so these numbers are not a surprise - but this is a reminder that the top priorities for policymakers remains jobs, jobs and jobs.

Employment Statistics (Thousands or Percent)1
	May-11	Dec-07	Change
Civilian noninstitutional population (16 and over)	239,313	233,156	6,157
Civilian labor force	153,693	153,936	-243
Total nonfarm Payroll	131,043	137,983	-6,940
Private Payroll	108,916	115,606	-6,690
Unemployment Rate	9.1%	5.0%	4.1%
Unemployed	13,914	7,664	6,250
Part-Time for Economic Reasons	8,548	4,638	3,910
Marginally Attached to Labor Force2	2,206	1,395	811
Discouraged Workers2	822	363	459
U-6 Unemployment rate3	15.8%	8.8%	7.0%
Unemployed for 27 Weeks & over	6,200	1,327	4,873

¹ The payroll numbers are from the Current Employment Statistics (establishment survey), and the remaining numbers are from the Current Population Survey (household survey).
² BLS: "Discouraged workers are a subset of persons marginally attached to the labor force. The marginally attached are those persons not in the labor force who want and are available for work, and who have looked for a job sometime in the prior 12 months, but were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, discouraged workers were not currently looking for work specifically because they believed no jobs were available for them or there were none for which they would qualify."
³ BLS: "Total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers"

by Calculated Risk on 7/04/2011 03:43:00 PM

Happy 4th of July!

Just thinking out loud (and enjoying the day) ...

All year I've been forecasting an increase in multi-family starts - and that is already happening.  Multi-family starts are on a 156,000 annual pace over the first 5 months of 2011 compared to 115,700 starts for all of 2010.  Historical this is a low level, but this is a nice increase over last year.

Now I'm starting to wonder if we will see a little increase in new home sales and single family housing starts in the 2nd half of 2011 on a seasonally adjusted (SA) basis.

On a Not Seasonally Adjusted (NSA) basis, home sales and starts will probably decline in the 2nd half of 2011 (compared to the first half), but there is a strong seasonal pattern for new home sales and single family starts. The "strong" season for new home sales usually runs from March through July, and for starts from April through September or October.

We already know there was a weak homebuying season and the homebuilders are depressed. But I suspect sales (and starts) will not decline as much as usual in the 2nd half of 2011, and that would mean an increase in sales on a seasonally adjusted basis.

I'm not looking for a strong increase in sales - and we sure don't want the homebuilders starting a bunch of speculative homes - but we might see a little pickup seasonally adjusted. In 2nd half of 2010, new home sales were at a record low 140 thousand homes (Q3 and Q4), and I suspect this year will be stronger. Just a gut feeling at this point ... I'll try to add some supporting data over the next few weeks.

Weekend:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

by Calculated Risk on 7/04/2011 08:47:00 AM

From the WSJ: S&P: Greece Debt Plan Is a Default

Standard & Poor's Corp. said Monday that a leading proposal for easing repayment terms on Greece's sovereign debt would amount to a default under the ratings firm's criteria ... The European Central Bank has maintained that it won't accept bonds with a default rating as collateral. Hence, averting a selective default rating is crucial to ensure that banks holding Greek bonds aren't shut out from the ECB's liquidity operations for the few days that the country's bonds would be rated selective default.
...
A spokesman for the European Commission said euro-zone governments designing a second bailout for Greece intend to avoid a selective default and expect to have "clarity" on the outlines of the package by the July 11 meeting of finance ministers.

From Bloomberg: EU Rescue Effort May Prompt S&P Default Rating on Greece

“It is our view that each of the two financing options described in the Federation Bancaire Francaise proposal would likely amount to a default,” S&P said in the statement. “But, once either option is implemented, we would assign a new issuer credit rating to Greece after a short time reflecting our forward-looking view of Greece’s sovereign credit risk.”
...
Even if S&P or other rating companies determined that the rollover plan constituted a default, the ruling wouldn’t necessarily trigger credit swaps insuring Greek debt. That decision may be made by the determinations committee of the International Swaps & Derivatives Association.

It appears the euro-zone has some time to figure this out - or for someone to blink. The next meeting is July 11th, but it appears they don't have to have a deal until mid-September.

The yield for Greek 2 year bonds is down to 25.9%, and the 10 year yield is at 16.4%. Portuguese and Irish 10 year yields are at (11.6% for Ireland, 10.9% for Portugal).

by Calculated Risk on 7/03/2011 08:08:00 PM

I know everyone wants to know the next deadline for Greece.  It looks like mid-September.

From the WSJ: Greece Awaits Further Rescue

Euro-zone finance ministers ... decided they would agree by September on arrangements for a new bailout ... German Finance Minister Wolfgang Schäuble said after the teleconference that a new aid package for Greece could be approved by autumn, in time for the next expected quarterly tranche of EU/IMF aid.

The Greek finance ministry also said a deal was expected by mid-September.

That gives the finance ministers about 2 1/2 months to find a way for private creditors to participate - without the rating agencies calling it a default. This will heat up again soon enough.

Yesterday:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

by Calculated Risk on 7/03/2011 12:53:00 PM

An interesting story of revitalization ...

From the NY Times: The Young and Entrepreneurial move to Downtown Detroit-Pushing its Economic Recovery (ht Brian).

Recent census figures show that Detroit’s overall population shrank by 25 percent in the last 10 years. But another figure tells a different and more intriguing story: During the same time period, downtown Detroit experienced a 59 percent increase in the number of college-educated residents under the age of 35, nearly 30 percent more than two-thirds of the nation’s 51 largest cities.

These days the word “movement” is often heard to describe the influx of socially aware hipsters and artists now roaming the streets of Detroit. Not unlike Berlin, which was revitalized in the 1990s by young artists migrating there for the cheap studio space, Detroit may have this new generation of what city leaders are calling “creatives” to thank if it comes through its transition from a one-industry.

With these new residents have come the trappings of a thriving youth culture: trendy bars and restaurants that have brought pedestrians back to once-empty streets.
...
Part of the allure of Detroit lies in simple economics. Real estate is cheap by urban standards (Ms. Myles lives in a $900-a-month one-bedroom apartment with a garage), and the city is so eager to draw educated young residents that it is offering numerous subsidies to new arrivals. Ms. Myles, for instance, received $3,500 from her employer, which, like many companies in the city, is offering rent or purchasing subsidies to staff members who choose to live in the city.

This was in the "Fashion & Style" section, but it is really (hopefully) an economic story of renewal.

Yesterday:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level
• Schedule for Week of July 3rd

by Calculated Risk on 7/03/2011 09:14:00 AM

From David Streitfeld at the NY Times: Big Banks Easing Terms on Loans Deemed as Risks

Two of the nation’s biggest lenders, JPMorgan Chase and Bank of America, are quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk.

Rula Giosmas is one of the beneficiaries. Last year she received a letter from Chase saying it was cutting in half the amount she owed on her condominium.
...
Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages ...

Ms. Giosmas bought her two-bedroom, two-bath apartment north of downtown Miami for $359,000 in early 2006, according to real estate records. She made a large down payment, but because each month she paid less than was necessary to pay off the loan, her debt swelled to about $300,000.

Meanwhile, the value of the apartment nosedived. By the time Ms. Giosmas got the letter from Chase, the condominium was worth less than half what she paid. “I would not have defaulted,” she said. “But they don’t know that.”

The letter, which Ms. Giosmas remembers as brief and “totally vague,” said Chase was cutting her principal by $150,000 while raising her interest rate to about 5 percent.

These principal reduction programs are not new. Here was a story about a Wells Fargo program last year:

Wells Fargo has forgiven an average of $46,000 in principal, or 15 percent, for the 43,500 option-ARM loans it has modified this year through September, said Franklin Codel, chief financial officer at the bank’s home-lending unit. The San Francisco-based lender has cut as much as 30 percent off the loan principal in a few “rare exceptions,” with the ceiling typically capped at 20 percent, Codel said.

The banks have kept these programs somewhat quiet - imagine what would happen to Chase or Wells Fargo if their borrowers found out that the banks would substantially reduce their principal if they were 1) underwater (negative equity), and 2) stopped making their payments? The delinquency rate would increase sharply.

Instead the banks quietly approach "high risk" borrowers with substantial negative equity - and who are current on their loans. These are usually borrowers with option ARMs, who made substantial downpayments, and who have solid credit ratings. Although the banks can't be sure who will default, their models suggest these modifications will lead to lower losses.

Also these banks (like Chase and Wells) took substantial write-downs when they inherited these loans, from WaMu and Wachovia respectively, so they can reduce principal on selected loans without incurring further losses.

by Calculated Risk on 7/02/2011 08:03:00 PM

Earlier:
• Summary for Week Ending July 1st
• Unofficial Problem Bank list at 1,003 Institutions and State Stress Level

The key report this week will be the employment situation report for June on Friday.

Note: Reis is expected to release their Q2 Office, Mall and Apartment vacancy rate reports this week. Last quarter Reis reported falling vacancy rates for apartments, rising vacancy rates for regional malls, and the first decline (small) in the office vacancy rate since 2007.

----- Monday, July 4th -----
Independence Day: All US markets will be closed in observance of the Independence Day holiday.

----- Tuesday, July 5th -----
10:00 AM ET: Manufacturers' Shipments, Inventories and Orders for May. The consensus is for a 1.0% increase in orders.

----- Wednesday, July 6th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the mortgage purchase applications index. This index has been very weak over the last couple months suggesting weak home sales through early summer (not counting all cash purchases).

10:00 AM: ISM non-Manufacturing Index for June. The consensus is for a slight decrease to 54.0 in June.

Click on graph for larger image in graph gallery.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index. The May ISM Non-manufacturing index was at 54.6%, up from 52.8% in April. The employment index increased in May to 54.0%, up from 51.9% in April. Note: Above 50 indicates expansion, below 50 contraction.

----- Thursday, July 7th -----
8:15 AM: The ADP Employment Report for June. This report is for private payrolls only (no government). The consensus is for +70,000 payroll jobs in June, up from the 38,000 reported in May.

8:30 AM: The initial weekly unemployment claims report will be released. The number of claims has been elevated for the last couple of months. The consensus is for a decrease to 420,000 from 428,000 last week.

----- Friday, July 8th -----
8:30 AM: Employment Report for June.

The consensus is for an increase of 110,000 non-farm payroll jobs in June, up from the 54,000 jobs added in May.

This graph shows the net payroll jobs per month (excluding temporary Census jobs) since the beginning of the recession. The consensus forecast for June is in blue.

The consensus is for the unemployment rate to hold steady at 9.1% in June.

This second employment graph shows the percentage of payroll jobs lost during post WWII recessions through May. This shows the severe job losses during the recent recession.

So far this year, the economy has added 908,000 private sector jobs, or about 181 thousand per month. There have been 783,000 total non-farm jobs added this year or 157 thousand per month. This is a better pace of payroll job creation than last year, but the economy still has 6.95 million fewer payroll jobs than at the beginning of the 2007 recession.

10:00 AM: Monthly Wholesale Trade: Sales and Inventories for May. The consensus is for a 0.6% increase in inventories.

3:00 PM: Consumer Credit for May. The consensus is for a $4.3 billion increase in consumer credit.

Best wishes to All!