by Calculated Risk on 6/23/2013 10:04:00 PM

Monday:
• At 8:30 AM ET, the Chicago Fed National Activity Index for May. This is a composite index of other data.

• At 10:30 AM ET, the Dallas Fed Manufacturing Survey for June. The consensus is a reading of 0, up from minus 10.5 in May (below zero is expansion).

Weekend:
• Schedule for Week of June 23rd

The Asian markets are red tonight with the Nikkei down 0.1%, and Shanghai Composite down 1.1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 5 and DOW futures are down 40 (fair value).

Oil prices have moved down recently with WTI futures at $93.59 per barrel and Brent at $100.59 per barrel.

by Calculated Risk on 6/23/2013 06:10:00 PM

From Alejandro Lazo at the LA Times: Motivated home buyers skip the bidding wars

[A]gents like Mathys are resorting to reconnaissance and back-channel networks to find homes that haven't yet hit the market. They're cold-calling homeowners with offers and targeting specific neighborhoods with direct mail. Some come bearing bizarre gifts in return for a listing. One agent offered a seller the use of his exotic car; one of his clients offered free dogs.

And they're chasing so-called pocket listings, homes privately marketed among those in the know. The low-profile nature of the listings makes them hard to quantify. But agents and other real estate experts say they've become common in the booming Southland market, where the median home price shot up nearly 25% in the last year.

Mathys — a 10-year veteran who, with his partner Tracie Kersten, specializes in high-end San Diego properties — said he'd never before seen the market this tight or felt the need to get this creative.
emphasis added

Pocket listings (kept in the agent's "pocket") are always popular with agents in a tight market. This way the agent can get both sides of the commission (or share with someone in their office - or an agent they know who will return the favor).   Other agents and buyers hate pocket listings because they never get a chance at buying the property - and it is usually best for the seller to actually have the property listed and see other offers. 

by Calculated Risk on 6/23/2013 01:45:00 PM

Please excuse my frustration ... there are frequently honest disagreements on policy, but occasionally there are policies that are almost universally panned.

An example of a recent dumb policy was the seller-financed Downpayment Assistance Programs (DAPs) for FHA insured loans. Basically DAPs allowed the seller to provide the buyer - through a 3rd party "charity" - with the 3% downpayment as a "gift". This allowed the buyer to put no money down. The FHA tried to eliminate these programs for several years - the IRS even called them a "scam" - but certain Congressmen fought to keep the DAPs alive. (The FHA's financial position would be much stronger today if seller-financed DAPs never existed). Finally DAPs were eliminated in 2008, after causing serious damage, but some Congressmen like Barney Frank (D-MA) kept fighting for them.

Another example of a dumb policy was the Homebuyer Tax Credit sponsored by Senators Johnny Isakson (R-GA) and Joe Lieberman (I-CT). This was part of the 2009 stimulus package and was a complete mistake. (I wrote numerous posts opposing the tax credit - and talked to a number of Senate staffers - and it passed any way). One of the problems in 2009 was there was an excess supply of housing units, and part of the tax credit provided an incentive to build more! Dumb and dumber.

An example of a recent dumb proposal was Senator Elizabeth Warren's (D-MA) suggestion that FHA short sales not require arms-length transaction (The arms-length requirement is a key protection against short sale fraud, and is a major reason short sale activity increased sharply a couple of years ago).

I could go on ... but now we have the sequestration budget cuts that are considered a blunder by most economists and analysts (at least the ones I respect).  These are mindless across the board budget cuts that are hurting the economy - and probably not helping with deficit reduction in the long run. If they are hurting the economy, and not helping with deficit reduction, why can't we get rid of the cuts?

Some people say the "PAYGO" rules require an offset. But Congress could exempt this from "PAYGO" (PAYGO expired in 2002, so the 2003 tax cuts didn't require an offset). Some people point fingers on sequestration blaming one party of the other.   That is silly.  We all know who is to blame.

If the House passed a bill ending the sequestration budget cuts today, the Senate (barring a filibuster) would pass it tomorrow, and the President would sign the bill the second it landed on his desk.  So the problem is the House - and since I'm naming names - the problem is with the House leadership of John Boehner (R- OH), Eric Cantor (R- VA), and Paul Ryan (R-WI).  Unfortunately none of these men are even arguing to end the sequestration cuts; they aren't even talking about them.  

This is frustrating and embarrassing for the U.S. - and this also impacts the Fed.  If we ended the sequestration budget cuts, then there would be a better chance that the Fed could taper and end QE3 sooner rather than later.  Dumb policy is hurting the country right now ... and if I was a reporter, I'd ask these three Congressmen about ending the cuts at every opportunity.  

by Calculated Risk on 6/23/2013 10:17:00 AM

The refineries in the Midwest are back online, and gasoline prices are falling. From the StarTribune: Gas prices trend down, easing road trips

Average gas prices in the Twin Cities peaked at $4.35 on May 18. By late last week, though, the average price had dropped to $3.52, lower than the national average ...

Less gasoline was available in the Upper Midwest that month, when two oil refineries in the region underwent maintenance. ... For the time being, anyway, the refineries that had stopped operations are back online, and the gasoline is flowing.

However in California: Gas prices up 5 cents overnight

Southern California gasoline prices are on the rise in response to a partial shutdown of a major refinery outside of Los Angeles. ... ExxonMobil confirmed the shutdown Wednesday of crude distillation units at its Torrance refinery, which has reduced production significantly from the 150,000-barrel-a-day capacity.

Oil prices were down this week, with WTI down to $93.69 per barrel, and Brent at $100.91.

Using the calculator from Professor Hamilton, and the current price of Brent crude oil, the national average should be under $3.40 per gallon. That is almost 20 cents below the current level according to Gasbuddy.com. There are probably some seasonal factors not included in the calculator, but if crude oil prices stay at the current level - and the refinery issues are resolved - we should expect national gasoline prices to fall below $3.40 per gallon.

Note: If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 6/22/2013 11:23:00 AM

There are two key housing reports to be released this week: New Home sales for May and Case-Shiller house prices for April.   Other key reports are the third estimate of Q1 GDP on Wednesday,  and the May Personal Income and Outlays report on Thursday.

For manufacturing, the Dallas, Richmond, and Kansas City regional manufacturing surveys for June will be released this week.

----- Monday, June 24th -----
8:30 AM ET: Chicago Fed National Activity Index for May. This is a composite index of other data.

10:30 AM: Dallas Fed Manufacturing Survey for June. The consensus is a reading of 0, up from minus 10.5 in May (below zero is expansion).

----- Tuesday, June 25th -----
8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 3.3% increase in durable goods orders.

9:00 AM: FHFA House Price Index for April 2013. This was original a GSE only repeat sales, however there is also an expanded index that deserves more attention. The consensus is for a 1.2% increase.

9:00 AM: S&P/Case-Shiller House Price Index for April. Although this is the April report, it is really a 3 month average of February, March and April.

This graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indexes through March 2012 (the Composite 20 was started in January 2000).

The consensus is for a 10.9% year-over-year increase in the Composite 20 index (NSA) for December. The Zillow forecast is for the Composite 20 to increase 12.1% year-over-year, and for prices to increase 1.7% month-to-month seasonally adjusted.

10:00 AM: New Home Sales for May from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the April sales rate.

The consensus is for an increase in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 454 thousand in April.

10:00 AM: Conference Board's consumer confidence index for June. The consensus is for the index to decrease to 75.0 from 76.2.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for June. The consensus is for a reading of 2 for this survey, up from minus 2 in May (Below zero is contraction).

----- Wednesday, June 26th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Q1 GDP (third estimate). This is the third estimate of Q1 GDP from the BEA. The consensus is that real GDP increased 2.4% annualized in Q1, unrevised from the 2nd estimate.

----- Thursday, June 27th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for an decrease to 345 thousand from 354 thousand last week.

8:30 AM ET: Personal Income and Outlays for May. The consensus is for a 0.2% increase in personal income in April, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

10:00 AM ET: Pending Home Sales Index for May. The consensus is for a 1.0% increase in the index.

11:00 AM: Kansas City Fed Survey of Manufacturing Activity for June. This is the last of the regional manufacturing surveys for June. The consensus is for a reading of 4 for this survey, up from 2 in May (Above zero is expansion).

----- Friday, June 28th -----
9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a decrease to 55.0, down from 58.7 in May.

9:55 AM: Reuter's/University of Michigan's Consumer sentiment index (final for June). The consensus is for a reading of 83.0.

by Calculated Risk on 6/22/2013 08:01:00 AM

This is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 21, 2013.

Changes and comments from surferdude808:

As expected, the OCC released its enforcement action activity through mid-May today. For the week, there were seven removals and one addition that leave the Unofficial Problem Bank List at 751 institutions with assets of $273.0 billion. A year ago, the list held 921 institutions with assets of $354.6 billion.

The OCC terminated actions against Metropolitan National Bank, New York, NY ($591 million); Fidelity National Bank, West Memphis, AR ($364 million); and Lake City Federal Bank, Lake City, MN ($73 million). Removals from unassisted acquisitions include Mid-Wisconsin Bank, Medford, WI ($448 million); Los Angeles National Bank, Buena Park, CA ($193 million); and Great Eastern Bank of Florida, Miami, FL ($46 million). The thrift controlled by Lehman Brothers, Aurora Bank FSB, Littleton, CO ($314 million), was voluntarily liquidated.

The sole addition this week was First National Bank, Camdenton, MO ($262 million).

Next week, we anticipate the FDIC will release its enforcement action activity through May 2013. With the quarter ending, we will update the transition matrix. We continue to monitor the airwaves for any news on Capitol Bancorp and the fate of the banks it controls, but nothing hit the wire this week.

by Calculated Risk on 6/21/2013 07:06:00 PM

From Martin Wolf: How Austerity Has Failed

Austerity has failed. It turned a nascent recovery into stagnation. That imposes huge and unnecessary costs, not just in the short run, but also in the long term: the costs of investments unmade, of businesses not started, of skills atrophied, and of hopes destroyed.

What is being done here in the UK and also in much of the eurozone is worse than a crime, it is a blunder. ...

Austerity came to Europe in the first half of 2010, with the Greek crisis, the coalition government in the UK, and above all, in June of that year, the Toronto summit of the group of twenty leading countries. This meeting prematurely reversed the successful stimulus launched at the previous summits and declared, roundly, that “advanced economies have committed to fiscal plans that will at least halve deficits by 2013.”
...
What was the consequence? In a word, “dire.”
...
The right approach to a crisis of this kind is to use everything: policies that strengthen the banking system; policies that increase private sector incentives to invest; expansionary monetary policies; and, last but not least, the government’s capacity to borrow and spend.

Failing to do this, in the UK, or failing to make this possible, in the eurozone, has helped cause a lamentably weak recovery that is very likely to leave long-lasting scars. It was a huge mistake. It is not too late to change course.

There are many details in Wolf's piece. The good news is most people now recognize that austerity alone was a blunder. The bad news is policymakers in Europe are taking no action (maybe they will after Merkel is reelected on September 22nd). 

by Calculated Risk on 6/21/2013 02:10:00 PM

Former European Central Bank (ECB) President Jean Claude Trichet has been widely criticized for pushing to raise rates near the end of his term, even though the euro zone was headed for another recession (an obvious blunder).  Clearly Trichet had a bias towards tightening, even though the data suggested otherwise.

Some people are wondering if Fed Chairman Ben Bernanke has one eye on the calendar too ...

From Tim Duy: It's About The Calendar

Key words: "calendar objectives." Bullard clearly felt the mood in the room was something to the effect of "We know the data is soft, but we want out of this program by the middle of next year, so we are going to lay out a program to do just that."

In light of Bullard's dissent, the market's reaction should be perfectly clear. I have seen some twitter chatter to the effect of market participants didn't understand what Federal Reserve Chairman Ben Bernanke was saying, that his message was really dovish, that interest rates would be nailed to the zero bound in 2015, that the policy was data dependent, etc. Market participants obviously didn't have that interpretation.
...
The Fed changed the game this week. Bernanke made clear the Fed wants out of quantitative easing. While everything is data dependent, the weight has shifted. The objective of ending quantitative now carries as much if not more weight than the data. Market participants need to adjust the prices of risk assets accordingly.

Bottom Line: I think the question is not how good the data needs to be to convince the Fed to taper. The question is how bad it needs to be to convince them not to taper. And I think it needs to be pretty bad.

However Jon Hilsenrath at the WSJ thinks Analysis: Markets Might Be Misreading Fed’s Messages

Despite the Fed’s efforts to signal it wouldn’t apply the brakes any time soon, the market reacted sharply. Investors appear to have been caught off guard by the specific timetable Mr. Bernanke laid out and the central bank’s optimism about the 2014 growth outlook.

My view is the Fed will be data driven - as opposed to calendar driven - and will only taper in December if there is a clear pickup in the economy during the 2nd half. 

by Calculated Risk on 6/21/2013 11:31:00 AM

From the BLS: Regional and state unemployment rates were little changed in May

Regional and state unemployment rates were little changed in May. Twenty-five states had unemployment rate decreases, 17 states had increases, and 8 states and the District of Columbia had no change, the U.S. Bureau of Labor Statistics reported today.
...
Nevada had the highest unemployment rate among the states in May, 9.5 percent. The next highest rates were in Illinois and Mississippi, 9.1 percent each. North Dakota again had the lowest jobless rate, 3.2 percent.

Click on graph for larger image in graph gallery.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement - Michigan and Nevada have seen the largest declines and many other states have seen significant declines (California, Florida and more).

The states are ranked by the highest current unemployment rate. No state has double digit unemployment and the unemployment rate is at or above 9% in only three states: Nevada, Illinois, and Mississippi.  This is the fewest states with 9% unemployment since 2008.

For some of the sand states (largest real estate bubble states), the improvement has been significant. The unemployment rate in California has declined from 10.7% in May 2012 to 8.6% in May 2013. The unemployment rate in Florida has declined from 8.8% in May 2012 to 7.1% in May 2013. For Arizona, the unemployment rate has declined from 8.4% to 7.8%, and for Nevada from 11.5% to 9.5%.

The second graph shows the number of states with unemployment rates above certain levels since January 2006. At the worst of the employment recession, there were 9 states with an unemployment rate above 11% (red).

Currently only three states have an unemployment rate above 9% (purple), fifteen states above 8% (light blue), and 24 states above 7% (blue).

by Calculated Risk on 6/21/2013 10:01:00 AM

Yesterday I posted Four Charts to Track Timing for QE3 Tapering. I will update those charts as data is released.

The table below lists the four remaining FOMC meetings this year and the key data that will be available at each meeting.

Following the September and December meetings, the FOMC will release updated quarterly projections and the meeting will be followed by a press conference. It seems more likely that the Fed will announce tapering at a meeting with a press conference.

As the four charts indicated, economic growth (and inflation) would have to pick up for the Fed to announce the tapering of asset purchase at the December meeting. To start tapering at an earlier meeting, economic growth would have to increase significantly.

To taper at the July meeting, the advance estimate of Q2 GDP would probably have to be well above 3%, May PCE prices increasing at a much faster pace, and the May unemployment rate at 7.5% or below. Even then, I think most FOMC members would want to wait for more data.

There is a slight chance of tapering starting in September.  There is a press conference following the meeting, and updated quarterly projections will be released.  If the unemployment rate for July and August average below 7.4%, and PCE prices were increasing - it is possible the Fed could announce tapering.

The most likely meeting for announcing tapering this year is in December.  By then the 2nd estimate of Q3 GDP will be available (plus some better forecasts for Q4).  The November employment report will be available (and the FOMC will have a good idea if the unemployment rate will be around 7.2% in Q4), and PCE prices through October will be available (we will have evidence if the decline in inflation is "transitory".

Note: The December press conference will probably be the final press conference for Ben Bernanke as Fed chairman.

My current view is tapering will start in December or in the first half of 2014.

FOMC Meetings in 2013
Date	Press Conference	Key Data
July 30-31, 2013	No	June employment, Q2 Advance GDP, May PCE Prices
Sept 17-18, 2013	Yes	July & Aug Employment, 2nd Estimate Q2 GDP, June & July PCE Prices
Oct 29-30, 2013	No	Sep Employment, Q3 Advance GDP, August PCE Prices
Dec 17-18, 2013	Yes	Oct & Nov Employment, 2nd Estimate Q3 GDP, Sept & Oct PCE Prices