by Calculated Risk on 2/27/2015 06:46:00 PM

From the FDIC: Banco Popular De Puerto Rico, Hato Rey, Puerto Rico, Assumes all of the Deposits of Doral Bank, San Juan, Puerto Rico

As of December 31, 2014, Doral Bank had approximately $5.9 billion in total assets and $4.1 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $748.9 million. ... Doral Bank is the fourth FDIC-insured institution to fail this year, and the first in Puerto Rico. The last time an FDIC-insured institution was closed in Puerto Rico was on April 30, 2010.

This was a decent size bank a fairly large hit to the DIF.

by Calculated Risk on 2/27/2015 03:04:00 PM

From housing economist Tom Lawler:

The National Association of Realtors reported that its Pending Home Sales Index, designed to gauge contract-signing activity on MLS-based existing home sales, increased by 1.2% on a seasonally adjusted basis from December to 104.2 in January. A value of 100 is equal to the average level of contract activity in 2001.

There were significant revisions in historical data – not just seasonally adjusted data but unadjusted data – with all of the unadjusted revisions coming in the West region. As I had noted several times over the past year, most recently in the October 1, 2014 LEHC report (“NAR’s Pending Home Sales Index: The “Curious Case” of the Wild, Wild West”), the NAR’s Pending Home Sales Index for the West had previously made no sense either in terms of the pattern of pending sales vs. closed sales in that region, or in terms of pending sales reports from realtors/MLS in the region. I sent that report to the NAR, and one of their analysts told me that they were aware that the pending data in the West did not look correct, and were looking through archived records to figure out why. Apparently the NAR “found” out why, and the PHSI for the West was revised massively in today’s report, as shown in the table below.

NAR Pending Home Sales Index for the West Region, 2014 (Not Seasonally Adjusted, 2001 = 100
	December 2014 Report	January 2015 Report	% Change
Jan	79.4	78.0	-1.7%
Feb	67.9	83.0	22.3%
Mar	88.6	104.2	17.6%
Apr	79.9	105.0	31.5%
May	99.9	106.1	6.2%
June	100.7	103.2	2.5%
July	109.7	104.1	-5.1%
Aug	126.2	100.9	-20.0%
Sept	111.2	94.4	-15.1%
Oct	109.8	93.3	-15.0%
Nov	101.6	76.8	-24.4%
Dec	65.3	65.3	0.0%

Click on graph for larger image

The NAR’s revisions also produced massive changes in the implied seasonal pattern of Pending Home Sales in the West, from the previously “silly” looking pattern to a more reasonable pattern, as shown on this graph.

Prior to the recent revision the NAR’s Pending Home Sales in the West showed a seasonal peak in August, while NAR estimates of closed existing home sales showed a typical seasonal peak in the May/June period. Local realtor reports in the West – including that of the California Association of Realtors – showed pending sales as reaching a seasonal peak around April, a result much more consistent with the seasonal pattern of closed sales.

The revisions in the Pending Home Sales Index for the West go way back, and the West PHSI for 2012, 2013, and 2014 were all revised downward by about 2.3 percentage points.

The revisions in the West PHSI, combined with annual benchmark seasonal adjustment revisions, produced the following changes in the NAR’s National Pending Home Sales Index for 2014.

NAR National Pending Home Sales Index for 2014, Seasonally Adjusted (2001 = 100)
	December 2014 Report	January 2015 Report	% Change
Jan	94.7	96.1	1.5%
Feb	94.2	95.4	1.3%
Apr	97.9	98.6	0.7%
May	103.8	101.9	-1.8%
June	102.5	101.9	-0.6%
July	105.8	103.3	-2.3%
Aug	104.7	103.1	-1.6%
Sept	105.3	103.7	-1.5%
Oct	104.0	103.7	-0.3%
Nov	104.6	104.1	-0.5%
Dec	100.7	102.5	1.8%

CR Note: The index was reported at 104.2 in January 2015.

by Calculated Risk on 2/27/2015 01:35:00 PM

A review of policy normalization by Fed Vice Chairman Stanley Fischer: Conducting Monetary Policy with a Large Balance Sheet (excerpt)

Turning to policy normalization, the FOMC and market participants anticipate that the federal funds rate will be raised sometime this year. We have for some years been considering ways to operate monetary policy with an elevated balance sheet.

Prior to the financial crisis, because reserve balances outstanding averaged only around $25 billion, relatively minor variations in the total amount of reserves supplied by the Desk could move the equilibrium federal funds rate up or down. With the nearly $3 trillion in excess reserves today, the traditional mechanism of adjustments in the quantity of reserve balances to achieve the desired level of the effective federal funds rate may well not be feasible or sufficiently predictable.

As discussed in the FOMC's statement on its Policy Normalization Principles and Plans, which was published following the September 2014 FOMC meeting, we will use the rate of interest paid on excess reserves (IOER) as our primary tool to move the federal funds rate into the target range.5 This action should encourage banks not to lend to any private counterparty at a rate lower than the rate they can earn on balances maintained at the Fed, which should put upward pressure on a range of short-term interest rates.

Because not all institutions have access to the IOER rate, we will also use an overnight reverse repurchase agreement (ON RRP) facility, as needed. In an ON RRP operation, eligible counterparties may invest funds with the Fed overnight at a given rate. The ON RRP counterparties include 106 money market funds, 22 broker-dealers, 24 depository institutions, and 12 government-sponsored enterprises, including several Federal Home Loan Banks, Fannie Mae, Freddie Mac, and Farmer Mac. This facility should encourage these institutions to be unwilling to lend to private counterparties in money markets at a rate below that offered on overnight reverse repos by the Fed. Indeed, testing to date suggests that ON RRP operations have generally been successful in establishing a soft floor for money market interest rates.6

The Fed could also employ other tools, such as term deposits issued through the Term Deposit Facility and term RRPs, to help drain reserves and put additional upward pressure on short-term interest rates. We have been testing these tools and believe they would help support money market rates, if needed.

Finally, with regard to balance sheet normalization, the FOMC has indicated that it does not anticipate sales of agency mortgage-backed securities, and that it plans to normalize the size of the balance sheet primarily by ceasing reinvestment of principal payments on its existing securities holdings when the time comes. As illustrated in figure 4, cumulative repayments of principal on our existing securities holdings from now through the end of 2025 are projected to be about $3.2 trillion. As a result, when the FOMC chooses to cease reinvestments, the size of the balance sheet will naturally decline, with a corresponding reduction in reserve balances.
emphasis added

by Calculated Risk on 2/27/2015 11:18:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for February was at 95.4, up from the preliminary reading of 93.6, and down from 98.1 in January.

This was above the consensus forecast of 94.0. Sentiment has been generally improving, and then surged last year at gasoline prices declined - and the economy improved.  The decline in February was probably related to higher gasoline prices.

Chicago PMI February 2015: Chicago Business Barometer At 5½-Year Low

The Chicago Business Barometer plunged 13.6 points to 45.8 in February, the lowest level since July 2009 and the first time in contraction since April 2013. The sharp fall in business activity in February came as Production, New Orders, Order Backlogs and Employment all suffered double digit losses, leaving them below the 50 level which separates contraction from expansion.

The West Coast port strike and the harsh winter probably had a negative impact in February, although it is difficult to gauge the magnitude.
emphasis added

This was well below the consensus forecast of 58.3.  This is just one month, and the decline could be related to special factors - such as the port strike - and we need to see what happens in March.

by Calculated Risk on 2/27/2015 10:05:00 AM

From the NAR: Pending Home Sales Rise in January to Highest Level in 18 Months

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.7 percent to 104.2 in January from an upwardly revised 102.5 in December and is now 8.4 percent above January 2014 (96.1). This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month's gain.
...
The PHSI in the Northeast inched 0.1 percent to 84.9 in January, and is now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2014.

Pending home sales experienced the largest increase in the South, up 3.2 percent to an index of 121.9 in January (highest since April 2010) and are 9.7 percent above last January. The index in the West rose 2.2 percent in January to 96.4 and is 11.4 percent above a year ago.

Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.4 percent from 2014.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March. I'll take the "under" on the NAR forecast for 2015 sales!