by Calculated Risk on 8/04/2011 04:15:00 PM

From the WSJ: Dow Tumbles 500 Points, Putting It in Red for Year

The Dow slid 512.61 points, or 4.3%, to 11383.83, erasing all its gains for 2011.
...
The Standard & Poor's 500-stock index fell 60.26 points, or 4.8%, to 1200.08, putting it in correction territory, having fallen more than 10% since May. The Nasdaq Composite slumped 136.68 points, or 5.1%, to 2556.39, also in the red for the year.

The Chicago Board Options Exchange's Volatility Index, known as the fear gauge, broke the 30 level for the first time since March 16, up 30% at 30.48.

Here is a table of the largest one day declines (in percentage terms) for the S&P 500 since January 1950. There were quite a few large down days in 2008 and early 2009 ...

Largest S&P 500 One Day Percentage Declines since 1950
	Date	Percent Decline	Close	Previous Close	Six Months Later
1	10/19/1987	-20.5%	224.84	282.70	15.3%
2	10/15/2008	-9.0%	907.84	998.01	-4.7%
3	12/1/2008	-8.9%	816.21	896.24	15.7%
4	9/29/2008	-8.8%	1,106.42	1,213.27	-28.8%
5	10/26/1987	-8.3%	227.67	248.22	15.3%
6	10/9/2008	-7.6%	909.92	984.94	-5.9%
7	10/27/1997	-6.9%	876.99	941.64	23.7%
8	8/31/1998	-6.8%	957.28	1,027.14	28.0%
9	1/8/1988	-6.8%	243.40	261.07	11.7%
10	11/20/2008	-6.7%	752.44	806.58	17.9%
11	5/28/1962	-6.7%	55.50	59.47	10.6%
12	9/26/1955	-6.6%	42.61	45.63	14.1%
13	10/13/1989	-6.1%	333.65	355.39	3.2%
14	11/19/2008	-6.1%	806.58	859.12	10.1%
15	10/22/2008	-6.1%	896.78	955.05	-5.0%
16	4/14/2000	-5.8%	1,356.56	1,440.51	-2.0%
17	10/7/2008	-5.7%	996.23	1,056.89	-18.1%
18	6/26/1950	-5.4%	18.11	19.14	10.0%
19	1/20/2009	-5.3%	805.22	850.12	18.1%
20	11/5/2008	-5.3%	952.77	1,005.75	-4.8%
21	11/12/2008	-5.2%	852.30	898.95	4.8%
22	10/16/1987	-5.2%	282.70	298.08	-8.1%
23	11/6/2008	-5.0%	904.88	952.77	2.7%
24	9/17/2001	-4.9%	1,038.77	1,092.54	12.2%
25	2/10/2009	-4.9%	827.16	869.89	21.8%
26	9/11/1986	-4.8%	235.18	247.06	23.4%
27	8/4/2011	-4.8%	1,200.08	1,260.34	---
28	9/17/2008	-4.7%	1,156.39	1,213.60	-31.3%
29	9/15/2008	-4.7%	1,192.70	1,251.70	-36.8%
30	3/2/2009	-4.7%	700.82	735.09	47.1%
31	2/17/2009	-4.6%	789.17	826.84	27.2%
32	4/14/1988	-4.4%	259.75	271.58	7.0%
33	3/12/2001	-4.3%	1,180.16	1,233.42	-8.0%
34	4/20/2009	-4.3%	832.39	869.60	31.7%
35	3/5/2009	-4.3%	682.55	712.87	46.2%
36	11/30/1987	-4.2%	230.30	240.34	10.0%
37	11/14/2008	-4.2%	873.29	911.29	4.2%
38	9/3/2002	-4.2%	878.02	916.07	-6.4%
39	10/2/2008	-4.0%	1,114.28	1,161.06	-25.1%
40	10/25/1982	-4.0%	133.32	138.83	20.3%

by Calculated Risk on 8/04/2011 01:02:00 PM

Admitting the obvious ... from the WSJ: Letter from the President of the European Commission José Manuel Barroso

Developments in the sovereign bond markets of Italy, Spain and other euro area Member States are a cause of deep concern ... they reflect a growing scepticism among investors about the systemic capacity of the euro area to respond to the evolving crisis.
...
The 21st of July bold decisions on the Greek package and the increased flexibility of the EFSF (precautionary use, recapitalisation of banks and intervention in secondary bond markets), are not having their intended effect on the markets.
...
[I]t is clear that we are no longer managing a crisis just in the euro-area periphery. ... We need also to consider how to further improve the effectiveness of both the EFSF and the ESM in order to address the current contagion.
...
I would like to call on you to accelerate the approval procedures for the
implementation of these decisions so as to make the EFSF enhancements operational very soon.

Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. And for Spain to Germany. The Italian spread is at a record 389.5, the Spanish spread is at are record 398.5. The race is on ...

Here are the links for bond yields for several countries (source: Bloomberg):

Greece	2 Year	5 Year	10 Year
Portugal	2 Year	5 Year	10 Year
Ireland	2 Year	5 Year	10 Year
Spain	2 Year	5 Year	10 Year
Italy	2 Year	5 Year	10 Year
Belgium	2 Year	5 Year	10 Year
France	2 Year	5 Year	10 Year
Germany	2 Year	5 Year	10 Year

by Calculated Risk on 8/04/2011 10:53:00 AM

From the National Multi Housing Council (NMHC): Apartment Sector Continues Across-the-Board Improvement, NMHC Market Conditions Survey Finds

The Market Tightness Index, which examines vacancies and rents, came in at 82, down from a record 90. This is the sixth straight quarter the index has topped 50. Though down slightly from last quarter’s record level, two-thirds of respondents noted tighter markets (lower vacancies and/or higher rents) compared with three months earlier.
...
“Demand for apartment residences continues to rise, even as the overall economy remains hampered by the aftermath of the housing bubble,” said NMHC Chief Economist Mark Obrinsky. “For the fifth time in the last six quarters, all four survey measures of market health showed improvement over the prior three months. Markets are tighter, debt and equity capital are more available and sales volume is rising.”

Click on graph for larger image in graph gallery.

This graph shows the quarterly Apartment Tightness Index.

The index has indicated tighter market conditions for the last six quarters and although down from the record 90 in April - a reading of 82 is still very strong. A reading above 50 suggests the vacancy rate is falling and / or rents are rising. This data is a survey of large apartment owners only.

This fits with the recent Reis data showing apartment vacancy rates fell in Q2 2011 to 6.0%, down from 6.2% in Q1 2011, and 7.8% in the Q2 2010.

New multi-family construction is one of the few bright spots for the U.S. economy and this survey indicates demand for apartments is still strong.

A final note: This index helped me call the bottom for effective rents (and the top for vacancy rate) over a year ago.

by Calculated Risk on 8/04/2011 08:30:00 AM

The DOL reports:

in In the week ending July 30, the advance figure for seasonally adjusted initial claims was 400,000, a decrease of 1,000 from the previous week's revised figure of 401,000 [from 398,000]. The 4-week moving average was 407,750, a decrease of 6,750 from the previous week's revised average of 414,500.

The following graph shows the 4-week moving average of weekly claims since January 2000 (longer term graph in graph gallery).

Click on graph for larger image in graph gallery.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased this week to 407,750.

The 4-week average is still elevated, but has been moving down since mid-May. This is the lowest level for the 4-week average since early April.

by Calculated Risk on 8/03/2011 09:22:00 PM

Also from CNBC: Japan Intervenes in FX Markets, Dollar Jumps Versus Yen; Finance Minister Holding Emergency Press Conference

From Floyd Norris at the NY Times: The Truth About Fundamentals

Herewith I offer a fundamental law about fundamentals:

If a government feels a need to proclaim that its economic fundamentals are strong, they are not.

And then he quotes Italian Prime Minister Silvio Berlusconi:

“Our economy is healthy. The country is economically and financially solid.”

Of course some people will also point to this comment by White House Spokesman Jay Carney today:

“We do not believe that there is a threat of a double-dip recession.”

I don't think there will be a double-dip in the U.S., but as Paul Krugman noted there is definitely a threat.

Back to Europe. As bond values fall, banks in Italy and Spain that hold many of their home country's bonds, are having funding problems. They are having to turn to the ECB for funding. Another key point from the NY Times: Europe’s Banks Struggle With Weak Bonds

[T]he European Financial Stability Fund, Europe’s so-called bazooka rescue fund that it endowed last month with the powers to recapitalize weak banks, will not be able to offer any such aid for at least two months.

According to a stability fund official, staff members there are working night and day to recast the entity, but do not expect to be finished until the end of August. At that point, it must be approved by the parliaments of the 17 countries that use the euro currency.

The markets may not wait.

Here is a graph of the 10 year spread (Italy to Germany) from Bloomberg. And for Spain to Germany. Although the spreads eased slightly today, if the spreads increase much more, Italy and Spain might be knocking on the bailout door.

Earlier:
• ADP: Private Employment increased 114,000 in July
• ISM Non-Manufacturing Index indicates slower expansion in July
• CoreLogic: Home Price Index increased 0.7% in June