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Friday, March 09, 2012

A few Greek Debt Deal Details

by Calculated Risk on 3/09/2012 07:43:00 AM

From the Financial Times: Investors back historic Greek debt swap

Participation in the €206bn debt exchange would reach 95.7 per cent, up from 85.8 per cent, if so-called collective action clauses are used ...
excerpt with permission
Next: There will be a conference call today of eurozone finance ministers to approve the use of the "collective action clauses". And then later today a decision is expected on if this will trigger CDS insurance (probably).

The completion of the swap deal means Greece will receive additional bailout funds and avoid default this month. But there are still many hurdles ahead.

Some analyst commentary from FT Alphaville: Greek PSI — the analyst reaction and Greek PSI — the implications.

Thursday, March 08, 2012

PIMCO's Taj Mahal

by Calculated Risk on 3/08/2012 06:39:00 PM

While we wait for the offical Greek announcement of the bond swap participation at 1 AM ET Friday (Reuters is reporting: Nearly 95% of Greek Creditors Agree to Bond-Swap Deal), and for the February employment report (preview here), and for Freddie Mac to finally release their Q4 results (what is taking so long?), below is a picture of the new PIMCO tower being built in Newport Center.

Pacific Investment Management Co. will lease the 20 story, 380,000-square-foot building, from the Irvine Company. The building is expected to be completed next year.

PIMCO's Taj Mahal Click on graph for larger image.

They have the structure in place for the 6th floor (of 20).

Not tall by New York standards, but this building will have a great ocean view.

Hmmm ... another typical California day ... sunshine and palm trees.

Employment Situation Preview

by Calculated Risk on 3/08/2012 03:30:00 PM

Tomorrow (Friday) the BLS will release the February Employment Situation Summary at 8:30 AM ET. Bloomberg is showing the consensus is for an increase of 204,000 payroll jobs in February, and for the unemployment rate to remain unchanged at 8.3%. The consensus has probably moving up a little this week based on recent reports.

• The Atlanta Fed has a new jobs calculator to answer the question: How many jobs does it take ...? Here is a description. You can enter different assumptions for the participation rate and population growth, and the tool will estimate how many jobs are needed to lower the unemployment rate to some target over a certain period. Very cool.

• The economic question for tomorrow (see pickem game on top right sidebar) is to take the over or under on the consensus for payroll jobs. Right now I'm in the lead for March with 6 correct answers - there is a four way tie for 2nd.

Here is a summary of recent data:

• The ADP employment report showed an increase of 216,000 private sector payroll jobs in February. Although ADP seems to track the BLS over time, the ADP report hasn't been very useful in predicting the BLS report. Also note that government payrolls declined by about 15,000 on average over the last couple of months so this suggests around 216,000 private nonfarm payroll jobs added, minus 15,000 government workers - or around 201,000 total jobs added in February (close to the consensus).

• The ISM manufacturing employment index decreased to 53.2% from 54.3% in January. A historical correlation between the ISM index and the BLS employment report for manufacturing, suggests that private sector BLS reported payroll jobs for manufacturing were unchanged in February.

The ISM service employment index decreased to 55.7% from 57.4% in February. Based on a historical correlation between the ISM non-manufacturing employment index and the BLS employment report for service, this reading suggests the gain of around 210,000 private payroll jobs for services in February.

Somewhat mixed, but overall the ISM surveys suggest an employment report at close to the consensus.

Initial weekly unemployment claims averaged about 355,000 in February, down from 377,000 average in January and December.

For the BLS reference week (includes the 12th of the month), initial claims were at the lowest level since early 2008. This is a very positive sign.

• The final February Reuters / University of Michigan consumer sentiment index increased to 75.3, up slightly from the January reading of 75.0. This is frequently coincident with changes in the labor market, but also strongly related to gasoline prices and other factors. This suggests a weak but improving labor market. This is close to the same level as last month, and also in February 2011 (before the tsunami). The BLS reported jobs gain over over 200 thousand for both months.

• And a little pessimism from the NFIB: NFIB Jobs Statement: Job Creation Breaks Even in February; Hiring Plans Look Grim

“February was a ‘break-even’ month for job creators on Main Street. For small employers, the net change in employment per firm (seasonally adjusted) was 0.04. While this is better than January’s net zero report, it’s certainly nothing to get excited about."
The participants in the NFIB surveys aren't doing much hiring, however a small business report from Intuit was more upbeat.

• And on the unemployment rate from Gallup: U.S. Unemployment Up in February
The February unemployment rate the U.S. government reports on Friday morning will be based largely on mid-month conditions. In mid-February, Gallup reported that its U.S. unemployment rate had increased to 9.0% from 8.3% in mid-January. The mid-month reading normally provides a relatively good estimate of the government's unadjusted unemployment rate for the month.

Assuming the government's unadjusted rate increases -- from its 8.8% in January -- to at least match Gallup's mid-month measurement for February, then the government should also report an increase in the seasonally adjusted unemployment rate for February.
Last February, the U.S. Bureau of Labor Statistics applied a seasonal adjustment factor of 0.5 points to its unadjusted unemployment rate for the month. If that same seasonal adjustment is applied to Gallup's mid-month unemployment rate of 9.0%, it would produce a seasonally adjusted unemployment rate of 8.5%. ... Gallup therefore forecasts an increase in the unemployment rate.
NOTE: The Gallup poll results are Not Seasonally Adjusted (NSA), so use with caution. This does suggest some increase in the headline seasonally adjusted unemployment rate.

There always seems to be some randomness to the employment report, but the overall situation has improved (lower initial weekly unemployment claims, more job openings). The ADP and ISM reports suggest the consensus is close, however since most of the recent data has been "better than expected" - and the weather was better than normal in February - I'll once again take the over (above 204,000).

Fed's Flow of Funds: Household Real Estate Value declined $213 billion in Q4

by Calculated Risk on 3/08/2012 12:31:00 PM

The Federal Reserve released the Q4 2011 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth peaked at $66.8 trillion in Q2 2007, and then net worth fell to $50.4 trillion in Q1 2009 (a loss of $16.4 trillion). Household net worth was at $58.5 trillion in Q4 2011 (up $8.0 trillion from the trough, but still down $8.4 trillion from the peak).

The Fed estimated that the value of household real estate fell $213 billion to $15.96 trillion in Q4 2011. The value of household real estate has fallen $6.75 trillion from the peak - and was still falling at the end of 2011.

Household Net Worth as Percent of GDP Click on graph for larger image.

This is the Households and Nonprofit net worth as a percent of GDP.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was relatively stable for almost 50 years, and then we saw the stock market and housing bubbles.

Household Percent EquityThis graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q4 2011, household percent equity (of household real estate) was at 38.4% - down slightly from Q3, and only up slightly from the all time low of 37.2% in Q1 2009.

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 52+ million households with mortgages have far less than 38.4% equity - and, according to CoreLogic, about 11.1 million households have negative equity.

Household Real Estate Assets Percent GDP The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt declined by $42 billion in Q4. Mortgage debt has now declined by $777 billion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

Asset prices, as a percent of GDP, have fallen significantly and are only slightly above historical levels. Also the value of real estate, as a percent of GDP, is near the lows of the last 30 years - just above the low in 1997 following the previous housing (and much smaller) housing bust. However household mortgage debt, as a percent of GDP, is still historically very high, suggesting more deleveraging ahead for households.

Report on Greek Debt Deal: "more than 75 percent and heading for 80 percent" participation

by Calculated Risk on 3/08/2012 11:41:00 AM

From the Financial Times Eurozone Crisis live blog:

16.35: More from Kerin Hope in Athens – a Greek cabinet minister has just told the FT:
“It will be good news tonight, take-up will be around 80 per cent”
excerpt with permission
This means the collective action clause will be used, but that was expected.