languagevalueNote: any number under 50 indicates that more builders view sales conditions as poor than good.

Click on graph for larger image in new window.

This graph shows the builder confidence index from the National Association of Home Builders (NAHB).

The housing market index (HMI) was at 17 in February. This is an increase from 15 in January.

The record low was 8 set in January 2009. This is still very low - and this is what I've expected - a long period of builder depression. The HMI has been in the 15 to 19 range since May.

Housing starts will be released tomorrow, and both the HMI and housing starts are moving sideways.

Press release from the NAHB: (TBA)typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueFrom Reuters: Capital One credit card defaults rise in January (ht jb) Capital One Financial Corp's U.S. credit-card defaults rose in January, in a sign that consumers continue to remain under stress, it said in a regulatory filing.

Capital One said the annualized net charge-off rate -- debts the company believes it will never collect -- for U.S. credit cards rose to 10.41 percent in January from 10.14 percent in December. Click on graph for larger image in new window.

This graph shows the COF annualized credit card charge-off rate since January 2005.

Notice the spike in 2005 associated with a surge in bankruptcy filings ahead of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

Capital One credit card annualized net charge-off rate is now at 10.41% - above the peak in 2005.

As Reuters notes, Capital One is usually the first to report monthly credit card charge-offs. The other major credit card issuers will report later today.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueThe headline number showed improvement, but two key numbers to watch are new orders and inventories. The new order index fell, and the inventory index rose sharply - and the declining gap between new orders and inventory points to a possible future slowdown in production.

From the NY Fed: Empire State Manufacturing Survey The Empire State Manufacturing Survey indicates that conditions for New York manufacturers improved at a healthy pace in February. The general business conditions index climbed 9 points, to 24.9. The new orders index fell, though it remained positive, and the shipments index inched downward as well. The inventories index rose sharply, to 0.0, its highest reading in considerably more than a year.
...
Employment indexes were positive for a second consecutive month, although at relatively low levels. Below is the general business conditions index. Note that the data only goes back to July 2001 (chart from Jan 2002). Any reading above zero is expansion, so this index shows manufacturing was expanding since August. (chart from NY Fed)

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languagevalueJames Hagerty at the WSJ reports on two studies, one from John Burns Real Estate Consulting Inc., and another from Standard & Poor's Financial Services LLC that both forecast most modification efforts will eventually fail - and that mods have just delayed foreclosures. The Burns forecast is for another 5 million distressed sales over the next few years. See the WSJ: Foreclosures Seen Still Hitting Prices

Hagerty reports that Burns study suggests prices will be mostly flat unless the economy turns down, and the S&P study forecasts further price declines. S&P says current trends suggest that 70% of [modified loans] eventually will redefault.
...
Loan servicers ... seem to have "nearly exhausted the supply of plausible candidates for loan modifications" and will find that many loans are "unredeemable," the S&P study says.

As a result, servicers increasingly are looking to arrange "short sales," in which homes are sold for less than their loan balances. This will be the year of the short sale.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueBased on reports from Dow Jones: Juncker: Euro Zone Ready To Support Greece If Needed and the BBC: Greece 'may cut spending further', here are some comments from Jean-Claude Juncker, Luxembourg's prime minister and chairman of the 16 euro-zone finance ministers:

Greece has until March 16th to show progress on their budget. If Greece is not on track, the EU will demand extra cost cutting measures. Dow Jones quotes Juncker: "If it appears in mid-March that they are not on track we will ask for additional measures."

Juncker said the 16 euro-zone nations stand ready to help Greece.

Mr Juncker said there would be no details released of any possible bail-out. According to the BBC, Juncker said it would be "unwise" to discuss the details now.

Juncker also said that Greece will not be forced out of the euro.

It looks like this will be an issue next month (or tomorrow - you never know).

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languagevalueFrom Carolyn Said at the San Francisco Chronicle: Mortgage rates poised to jump as Fed cuts funds. The following predictions are excerpts from her article:

Guy Cecala, publisher of Inside Mortgage Finance. "My opinion is that rates will go up a full percentage point initially," meaning that 30-year fixed conforming loans, now hovering around 5 percent, would hit 6 percent.

Keith Gumbinger, vice president of HSH Associates, which compiles mortgage loan data, thinks that rates will slowly rise to about 5.75 percent after the Fed withdraws.

Julian Hebron, branch manager at RPM Mortgage's San Francisco office, anticipates a bump up to around 5.5 percent by summer ...

Christopher Thornberg, principal at Beacon Economics in Los Angeles [said] "Clearly, when they stop printing all that money, it's going to be a shock to the system. I have to assume that when they pull back on it, it will cause a 100- to 200-basis-points rise" to rates of 6 percent or 7 percent ...

And a couple earlier predictions:

Eric S. Rosengren, president and chief executive of the Boston Fed, expects a 50 to 75 bps increase.

Pimco's Bill Gross expects about a 50 bps increase. He also thinks the Fed will restart the program later in 2010.

My own estimate is for an increase in the spread - relative to the 10 Year Treasury - of about 35 bps (maybe 50 bps).

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languagevalueThe following chart is based on data from a research paper by Andrew Sum and Ishwar Khatiwada at the Center for Labor Market Studies, Northeastern University (ht Ann):

"Labor Underutilization Problems of U.S. Workers Across Household Income Groups at the End of the Great Recession: A Truly Great Depression Among the Nation’s Low Income Workers Amidst Full Employment Among the Most Affluent"

Update: Bob Herbert at the NY Times wrote about this paper last week: The Worst of the Pain and so did Ryan McCarthy at Huffington Post: 'No Labor Market Recession For America's Affluent,' Low-Wage Workers Hit Hardest: STUDY

Click on graph for larger image in new window.

This graph shows the labor underutilization rates by household income based on the author's research and calculations. "At the end of calendar year 2009, as the national economy was recovering from the recession of 2007-2009, workers in different segments of the income distribution clearly found themselves in radically different labor market conditions. A true labor market depression faced those in the bottom two deciles of the income distribution, a deep labor market recession prevailed among those in the middle of the distribution, and close to a full employment environment prevailed at the top. There was no labor market recession for America’s affluent."
emphasis addedA few notes:

The number of workers in each income group is not the same. Ranges were chosen based on available data. Actual income decile boundaries are provided in Appendix A of the paper.

The three categories of labor underutilization are:

Unemployed

Underemployed

Labor force reserve or hidden unemployment: "workers who express a desire for immediate employment but are not actively looking for work and thus are not counted as unemployed."

The authors calculated the total labor underutilization rate at 18.5% at the end of Q4 2009. The BLS reported U-6 at 17.3%, so this is somewhat higher rate than the BLS measure of "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"

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languagevalueA few articles this morning ...

From Bloomberg: Europe Economy Chief Calls for More Steps by Greece The European Union’s top economic official said Greece should take more measures to cut the region’s largest budget deficit as evidence emerged that the nation may have used swaps to mask its swelling debt. From The Times: Greece refuses EU austerity measures demand ... Olli Rehn, the new EU Commissioner for Economic and Monetary Affairs said: "Our view is that risks... are materialising, and therefore there is a clear case for additional measures.”
...
[George Papaconstantinou, Greece's Finance Minister] said: “If we announce today new measures, will that stop markets attacking Greece?

"My guess is that what will stop markets attacking Greece at the moment is a further more explicit message that makes operational what has been decided last Thursday at the European council." And on the swaps from Simon Johnson at Baseline Scenario: Goldman Goes Rogue – Special European Audit To Follow

Remember Greece is a small country with about 10 million people. And they have a special problem because the previous government published false data on the size of their debt and deficit. The larger problem is how a single currency works when different countries have different issues ...

From Paul Krugman: The Making of a Euromess I’ve been troubled by reporting that focuses almost exclusively on European debts and deficits ... For the truth is that lack of fiscal discipline isn’t the whole, or even the main, source of Europe’s troubles — not even in Greece, whose government was indeed irresponsible (and hid its irresponsibility with creative accounting).

No, the real story behind the euromess lies not in the profligacy of politicians but in the ... policy [of] adopting a single currency well before the continent was ready for such an experiment.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueFrom David Streitfeld at the NY Times: U.S. Housing Aid Winds Down, and Cities Worry

Streitfeld discusses the Fed's MBS purchase program (95% complete and scheduled to end next month), the housing tax credit (contracts must be signed by the end of April, and deals closed by the end of June), and the slight tightening of FHA requirements.

Here is a list compiled in December of many Government housing support programs. Some have already ended (like the extension of the HAMP trial mods on Jan 31, 2010), and, as Streitfeld noted, others will end over the next few months.

One program that is being ramped up is Home Affordable Foreclosure Alternatives (HAFA: short sales and deed-in-lieu) that starts on April 5, 2010.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueHere is a solution for some of the vacant retail space ...

From the Columbus Dispatch: Razing cuts retail vacancy rate Fewer storefronts were empty last year in Columbus than the year before, but only because two white-elephant malls were torn down ... The demolition of the Columbus City Center mall Downtown and Consumer Square East in the Brice Road area took 1.1 million square feet of empty retail space out of the market. That cut retail vacancies to 15.1 percent in 2009 from 16.9 percent in 2008. That helped a little, but the forecast is for the vacancy rate to stay in the 14% to 15% range through 2012. Maybe they can demolish a few more malls ...typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueNote: Scroll down or click here for a look ahead and weekly summary.

Back in December, the qualification dates for existing tiers of unemployment benefits were extended for an additional two months. Time is up at the end of February.

Now another extension is needed or millions of workers will lose benefits over the next few months.

The National Employment Law Project (NELP) released a new report last week showing that ...1.2 million jobless workers will become ineligible for federal unemployment benefits in March unless Congress extends the unemployment safety net programs from the American Recovery and Reinvestment Act (ARRA). By June, this number will swell to nearly 5 million unemployed workers nationally who will be left without any jobless benefits.
...
Currently, 5.6 million people are accessing one of the federal extensions (34-53 weeks of Emergency Unemployment Compensation; 13-20 weeks of Extended Benefits, a program normally funded 50 percent by the states). This table shows the NELP's projections: Of the almost 1.2 million workers facing a cut off of benefits in March alone:

380,000 workers will exhaust their 26 weeks of state benefits without accessing the temporary EUC extension program or the permanent federal program of Extended Benefits.

Another 814,000 workers will not be eligible to continue receiving EUC past their current tier of benefits.

The following graph is based on the January employment report and shows the number of workers unemployed for 27 weeks or more ...

Click on graph for larger image in new window.

The blue line is the number of workers unemployed for 27 weeks or more. The red line is the same data as a percent of the civilian workforce.

According to the BLS, there are a record 6.31 million workers who have been unemployed for more than 26 weeks (and still want a job). This is a record 4.1% of the civilian workforce. (note: records started in 1948).

The current qualification dates extension being considered is for another three months. Cynics might argue that some Senators want to limit the extension to an additional three months, so they can use the popular benefit extension in May to once again extend the homebuyer tax credit - hopefully the cynics are wrong!typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueThe NAHB Housing Market Index for February, and Housing Starts for January will both be released this week, see: Weekly Summary and a Look Ahead.

As a review, here is a graph showing the relationship between the two series:

Click on graph for larger image in new window.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the January release for the HMI and the December data for single family starts.

This shows that the HMI and single family starts mostly move in the same direction - although there is plenty of noise month-to-month. Since the NAHB index declined in January (it is released a month ahead of starts), we usually wouldn't expect much of an increase in January single family housing starts.

However there might be an increase in starts (single family) in January since many builders started a few extra homes in anticipation of the expiration of the first time home buyer tax credit. It takes about six months to build an average home, so the builders can't wait until the expected buying rush in April to start building a home - they have to close by the end of June.

Here are some comments from the Feb 2nd D.R. Horton conference call: In [Q2 2010], we expect strong closings since homes must close by June 30th for the extended tax credit. ... We expect [Q3] will be the most challenging as the tax credit for home sales will have expired. As we move past the selling season, we'll be able to get a better read on core demand and we'll adjust our business accordingly.”
...
We are prepared for the spring selling season and for current demand created by the Federal home buyer tax credit with our current spec level.

We will continue to manage our spec levels very closely as we move closer to the April 30th sales contract deadline for the home buyer tax credit. Residential investment1 is one of the best leading indicators for the economy, and the best indicators for RI are the NAHB HMI, housing starts, and new home sales. Usually housing starts lead changes in unemployment too - see Housing Starts, Vacant Units and the Unemployment Rate - so the sideways movement in the NAHB HMI and housing starts suggest unemployment will stay elevated for some time.

Note 1: The largest components of residential investment are new home construction, and home improvement. This also includes brokers' commissions and some minor categories.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueThe U.S. markets will be closed on Monday for Presidents' Day, but there might be some more news from Europe and China.

On Tuesday, the Empire Manufacturing Survey (February) and the NAHB Housing Market Index survey (February) will be released. The consensus is for a slight uptick in builder confidence to 16 or 17 from 15 in January.

On Wednesday, the Census Bureau will release Housing Starts for January. The consensus is for an increase to close to 600,000 since many homebuilders started a few extra spec homes trying to beat the deadline for the homebuyer tax credit. As an example, here is a quote from Andrew Konovodoff, president of Town and Country Homes (from Daily Herald): "Last year 50 percent of our buyers purchased homes using a tax credit and so far this year 35 percent of buyers have used one," Konovodoff said. "We are not a spec builder, but even we have started spec homes in anticipation of a rush this spring. Currently we have 30 homes that can close by the end of June."Also on Wednesday, the Fed will release the Industrial Production and Capacity Utilization numbers for January. The consensus is for a 0.8% increase. The FOMC minutes for the January meeting will also be released.

On Thursday the Producer Price Index, initial weekly Unemployment Claims, and the Philly Fed Survey will all be released.

And on Friday, the Consumer Price Index and more bank failures.

There will be several Fed speeches during the week, and the West Coast port data and the Department of Transportation vehicle miles driven for December will probably be released.

And a summary of last week ...

Trade Deficit increased to $40.2 Billion in December

The Census Bureau reported that the U.S. trade deficit increased to $40.2 billion, up from $36.4 billion in November.

Click on graph for larger image.

The first graph shows the monthly U.S. exports and imports in dollars through December 2009.

Both imports and exports increased in December. On a year-over-year basis, exports are up 7.4% and imports are up 4.6%. This is an easy comparison because of the collapse in trade at the end of 2008.

MBA: Mortgage Purchase Applications Decline

The MBA reported that the "seasonally adjusted Purchase Index decreased 7.0 percent from one week earlier".

This graph shows the MBA Purchase Index and four week moving average since 1990.

The decline in mortgage applications since October appears significant.

BLS: Few Job Openings in December

The BLS released the Job Openings and Labor Turnover Summary for December.

This graph shows job openings (yellow line), hires (purple Line), Quits (light blue bars) and Layoff, Discharges and other (red bars) from the JOLTS. Red and light blue added together equals total separations.

According to the JOLTS report, there were 4.073 million hires in December, and 4.238 million separations, or 165 thousand net jobs lost. The comparable CES report showed a loss of 150 thousand jobs in December (after revisions).

Separations have declined sharply from earlier in 2009, but hiring has not picked up. Quits (light blue on graph) are at a new low too. Usually "quits" are employees who have already found a new job (as opposed to layoffs and other discharges).

The low turnover rate is another indicator of a very weak labor market.

Fed MBS Purchase Program 95% Complete

The following graph is from the Atlanta Fed Financial Highlights, and shows the Fed MBS purchases by week:

From the Atlanta Fed:

The Fed purchased a net total of $12 billion of agency-backed MBS through the week of February 3, bringing its total purchases up to $1.177 trillion, and by the end of the first quarter 2010 the Fed will have purchased $1.25 trillion (thus, it is 94% complete).

The Fed purchased an additional $11 billion net in MBS through the week of Feb 10th, bringing the total to $1.188 trillion or just over 95% complete.

Other Economic Stories ...

From Kenneth Harney in the LA Times: 'Cash-in' refis growing in popularity

From Fed Chairman Ben Bernanke: Federal Reserve's exit strategy

From NFIB: Small Business Economic Trends - February 2010 "Optimism has clearly stalled in spite of the improvements in the economy in the second half of 2009. Small business owners entered 2010 the same way they left 2009 – depressed. The quarterly Index readings have been below 90 for 7 quarters, indicative of the severity and pervasiveness of this recession."

From Fitch: New Year, No Improvement as U.S. Prime Jumbo RMBS Delinquencies Approach 10%

Moody's: CMBS Delinquency-Rate Increases Sharply

From RealtyTrac: U.S. Foreclosure Activity Decreases 10 Percent in January

From Freddie Mac: Freddie Mac To Purchase Substantial Number of Seriously Delinquent Loans From PC Securities and from Fannie Mae: Fannie Mae to Purchase Delinquent Loans from Single-Family MBS Trusts

Rail Traffic Flat in January Compared to 2009

Unofficial Problem Bank List at 605

Best wishes to all.

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languagevalueFrom The Economist: European finance ministers meet to discuss bailing out the Greek economyEUROPE'S finance ministers meet for two days, beginning on Monday February 15th ... a vague promise of aid for Greece did little to lessen uncertainty, finance ministers will be expected to produce more concrete measures. From The Times: Economic boost from Europe for Greece GREECE was given fresh hope of a financial lifeline yesterday when Jean-Claude Juncker, chairman of Europe’s finance ministers, said action would be taken to support its beleaguered economy.
...
In an interview with a German newspaper, he said: “We have many instruments ready and will use them if necessary.” Meanwhile, in a poll of Germans from Reuters: Germans say euro zone may have to expel Greece: poll A majority of Germans want debt-ridden Greece to be thrown out of the euro zone if necessary and more than two-thirds oppose handing Athens billions of euros in credit, [in a Emnid poll for Bild am Sonntag newspaper] published on Sunday.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueFrom Dina ElBoghdady and Renae Merle at the WaPo: Refinancing unavailable for many borrowers The refinancing wave that swept the nation when mortgage rates hit historic lows last year is petering out, leaving behind millions of homeowners who could not qualify for the best rates.

Half of the nation's borrowers have mortgages with rates above 6 percent even though the average rate on 30-year, fixed rate mortgages has been about 5 percent for most of the past year, according to research firm First American CoreLogic. Many of these homeowners have been unable to refinance because they have little or no equity in their homes (many have negative equity), some have lost their jobs and can't qualify, and others have been rejected because lenders have tightened standards.

The following graph shows the MBA seasonally adjusted Refinance index since 1990.

Click on graph for larger image in new window.

As the article mentions, there was a huge wave of refinance activity in 2003 when mortgage rates fell below 6%, and house prices increased sharply.

There was another refinance boom starting at the end of 2008 and through the first half of 2009 when mortgage rates fell below 5%.

Now, even with rates near 5%, it appears the recent refinance boom is mostly over. Those that can refinance already have - and those that can't are out of luck.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueFrom Louise Story, Landon Thomas Jr. and Nelson D. Schwartz at the NY Times: Wall Street Helped to Mask Debts Shaking Europe. A brief excerpt: In 2001, just after Greece was admitted to Europe’s monetary union, [Goldman Sachs] helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe’s deficit rules while continuing to spend beyond its means.
...
Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country’s liabilities.
...
“Politicians want to pass the ball forward, and if a banker can show them a way to pass a problem to the future, they will fall for it,” said Gikas A. Hardouvelis, an economist and former government official who helped write a recent report on Greece’s accounting policies.

Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal.The quote from Hardouvelis is on target. Many on Wall Street just care about short term fees and large bonuses, and politicians just want to push the problems into the future. A perfect match ... except for all the people who are eventually hurt by their actions.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueAnother view ...

Simon Johnson writes at Baseline Scenario: Greece Derails – Is Europe Far Behind? Already facing serious difficulties – both internal and with regard to its EU partners (see our longer essay in Saturday’s WSJ) – Greece’s predicament just became substantially worse.

Speaking on national television this evening, the Greek Prime Minister – George Papandreou – lashed out at the European Union (presumably meaning mostly Germany) for creating a “psychology of looming collapse which could be self-fulfilling.” He also implied that Greece was being treated, in some senses, like a “lab animal.”
...
Greece is well down the path to becoming regarded more like Argentina – a country that struggles over many decades (and whose leaders frequently rail against the world) and for which episodes of reasonable prosperity and new economic models are punctuated by gut-wrenching crises, most of which do not shake the world.

Will the EU save Greece? Much will depend on how bad the situation could become in other “related” (in the eyes of the financial markets) places.

But destabilizing actions or inflammatory statements by Greece make an orderly rescue less likely and put another major international economic crisis firmly on the table.Here is the piece in the WSJ from Simon Johnson and Peter Boone: The Greek Tragedy That Changed Europe Update: When I linked to it, the title was "How Much Does a Grecian Urn?"

Greece is just one of several global financial concerns right now ...typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueFrom CNNMoney: States to Senate: Send more federal aidStates are looking to the federal government for more help balancing their budgets, but the Senate is not heeding their call. ...

States are looking at a total budget gap of $180 billion for fiscal 2011, which for most of them begins July 1. These cuts could lead to a loss of 900,000 jobs, according to Mark Zandi, chief economist of Moody's Economy.com.

To close this gap, governors and lawmakers will be forced to lay off state employees, cut services and postpone capital projects ...
Already, states laid off 44,000 workers in the 12 months ending in January, according to federal labor statistics. If Zandi is correct the vast majority of state layoffs are still to come.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueThis is an unofficial list of Problem Banks compiled only from public sources. Changes and comments from surferdude808: The Unofficial Problem Bank List saw minor changes during the week and the total number of institutions remained unchanged at 605 but aggregate assets increased slightly to $329.4 billion from $328.7 billion last week.

There was one addition – Broadway Bank, Chicago, IL ($1.2 billion), and one removal -- Mt. Washington Co-operative Bank, South Boston, MA ($501 million), which was acquired via an unassisted merger with East Boston Savings Bank, Boston, MA during January 2010.

The only other change is a Prompt Corrective Action order issued by the Federal Reserve against Marco Community Bank, Marco Island, FL ($138 million) on February 2, 2010.The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)



Class: from FDIC The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC

Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueIt looks like no bank failures this week, but there were renewed global concerns today:

Dubai:

From the WSJ: Cost of Insuring Dubai's Debt Jumps The cost of insuring Dubai's sovereign debt against default rose to its highest level since November as concerns resurfaced over the emirate's large debt. ... On Wednesday, the Al-Ittihad newspaper reported that Dubai World would this month ask creditors to freeze payments on 80 million dirhams ($21.8 million) of debt for six months, until its restructuring is complete.

China:

From Bloomberg: China Raises Bank Reserve Requirement to Cool Economy China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy after loan growth accelerated and property prices surged.

The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones.

Europe:

From the NY Times: Growth in Europe Slows to a Crawl The total gross domestic product increased by one-tenth of 1 percent in the 16-nation euro area during the fourth quarter, compared with a year earlier, according to an initial estimate from Eurostat, the European Union’s statistics agency. The same tepid rate was also recorded for the 27 members of the European Union as a whole.

Greece:

See: Greece Still Slippery.

Also:

Retail Sales

increased 0.5% in January

Inventory Cycle and GDP

If you've been wondering about the inventory cycle and GDP, I tried to explain how it works (with a tie in to the Census Bureau's Manufacturing and Trade Inventories and Sales report released today for December)

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languagevalueFrom the Financial Times: Greek austerity ‘comes before any bail-out’ [A] senior [German] government official insisted European Union leaders had not given Greece any firm promises of financial assistance, he said they had signalled the possibility of help once the government of George Papandreou had implemented a tough and sustainable austerity programme.
excerpted with permissionOriginally investors expected a detailed plan early next week when the eurozone finance ministers meet, but now it appears there will be no plan released.

These "mixed messages" have upset Greek Prime Minister Papandreou, from the Financial Times: Greece turns on EU critics In a televised address to his cabinet, [George Papandreou] criticised EU members for sending “mixed messages about our country . . . that have created a psychology of looming collapse which could be self-fulfilling”. Sorry for the bad pun in the post title.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueA number of readers have sent me a video that is obviously inaccurate. I usually don't do "take downs", so I'm happy to see the FDIC has responded ...

From the FDIC: FDIC Provides Additional Information on its Loss Share Agreement With OneWest BankFDIC Director of Public Affairs Andrew Gray said, "It is unfortunate but necessary to respond to blatantly false claims in a web video that is being circulated about the loss-sharing agreement between the FDIC and OneWest Bank. Here are the facts: OneWest has not been paid one penny by the FDIC in loss-share claims. The loss-share agreement is limited to 7% of the total assets that OneWest services, and OneWest must first take more than $2.5 billion in losses before it can make a loss-share claim on owned assets. In order to be paid through loss share, OneWest must have adhered to the Home Affordable Modification Program (HAMP).

The producers of this video perpetuate other falsehoods. The FDIC has not requested to borrow money from the Treasury Department. Indeed, we continue to be funded by the banking industry through assessments, not by taxpayers as claimed in the video.

This video has no credibility. Regardless of the personal or professional motivations behind its production, there is always a responsibility to be factually correct and transparent. The FDIC made available a fact sheet on the day that the sale of IndyMac was announced that details the terms of the contract. It's too bad that the creators of this video opted to premise it on falsehoods." Supplemental Facts about the Sale of Indymac F.S.B. to OneWest Bank

The FDIC is absolutely correct.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueFrom Moody's: The delinquency rate on CMBS conduit and fusion loans increased by more than 50 basis points in January, bringing the total rate to 5.42%. The total delinquent balance is now more than $36 billion, a $3 billion increase over the month before. By dollar and basis points, this is the largest increase in the delinquency rate thus far in the downturn, as measured by the Moody’s Delinquency Tracker (DQT).
emphasis addedOn sectors: The retail delinquency rate rose 72 basis points and currently stands at 5.24%. The 72 basis point increase was more than 1.5 times higher than any increase in the history of the retail DQT ...

The office delinquency rate rose 34 basis points, and although that represents the second largest increase to the office DQT to date ... the office DQT, which currently stands at 3.53%, is the lowest of the five major sectors ...

The multifamily delinquency rate now stands at 8.77%, a 63 basis point increase over the month before. ...

The hotel DQT increased 75 basis points and currently stands at 9.82%.Hotels and multi-family are the worst, but delinquencies are increasing in every category - especially for retail.

Here is WSJ articletypetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueThe rapid expansion of high speed rail in China is pretty astounding ...

From the NY Times: China’s Project to Build Fast Trains Is Spurring Growth The Chinese bullet train, which has the world’s fastest average speed, connects Guangzhou, the southern coastal manufacturing center, to Wuhan, deep in the interior. In a little more than three hours, it travels 664 miles ... Even more impressive, the Guangzhou to Wuhan train is just one of 42 high-speed lines recently opened or set to open by 2012 in China. This is part of the stimulus package:Faced with mass layoffs at export factories [due to the global financial crisis], China ordered that the new rail system be completed by 2012 instead of 2020, throwing more than $100 billion in stimulus at the projects.

Administrators mobilized armies of laborers — 110,000 just for the 820-mile route from Beijing to Shanghai, which will cut travel time there to 5 hours from 12 when it opens next year. It sounds like they are building the pyramids!typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueIn Q4 2009 a majority of the increase in GDP was due to changes in private inventories. That can be a little confusing ...

First, GDP is Gross Domestic Production. What is being estimated is "domestic production", but what is being measured is mostly domestic consumption.

Right away we can see that if something is produced domestically and then exported, it will not show up in domestic sales. So exports are added to the equation, and imports subtracted. Investment and Government spending are also added to measures of consumption, and we frequently see an equation like this for GDP:

Y = C + I + G + NX
Y: GDP
C: Consumption
I: Investment
G: Government spending
NX: Exports - imports.

But what about changes in inventories? The same ideas apply. What is measured are sales and changes in inventory, and then production is calculated:

Production = Sales + Changes in Inventory
The following simple table shows how this works, and how it impacts GDP.

 SalesProductionInventoryI/SGDP

Q1	100	100	100	1.00	--
Q2	101	101	100	0.99	4.1%
Q3	102	102	100	0.98	4.0%
Q4	103	103	100	0.97	4.0%
Q5	100	104	104	1.04	3.9%
Q6	97	100	107	1.10	-14.5%
Q7	97	96	106	1.09	-15.1%
Q8	98	93	101	1.03	-11.9%
Q9	99	98	100	1.01	23.3%
Q10	100	100	100	1.00	8.4%

The first four quarters just show normal growth. Sales increase by one unit each quarter, and since inventory is steady, production increases with sales. This gives annualized GDP growth of 4%, and a slightly declining inventory-to-sales ratio (assuming inventory stay at the same level).

Now look at Q5. Sales suddenly drop, but production still increases since the decline in sales was a surprise. This pushes up inventories. Production is measured from sales (100) plus increase in inventory (+4) and GDP still increases.

Now in Q6 sales fall further to 97. The company reacts to the decline in sales and only produces 100 widgets. Inventory still increases (+3), but the combination of sales and inventory changes in Q6 is less than in Q5, so GDP declines sharply (marked in red).

In Q7 sales have bottomed, but the company is still cutting back on producton because they have too much inventory. For Q7, Production = Sales (97) plus changes in inventory (-1) giving production of 96 widgets. That is sharply below the 100 widget production of the prior quarter, so even though sales have bottomed, GDP declines sharply.

In Q8 sales increase slightly, but the company still has too much inventory, and they cut production further - resulting in a decline in GDP.

Finally in Q9, sales increase again by one unit, and the company can now increase production almost to the level of sales. Inventory is still declining (production is less than sales), but production has increased sharply compared to Q8. This shows up as a surge in GDP of 23% in this example.

Remember production in Q9 was calculated from sales and changes in inventory. Production of 98 widgets = Sales of 99 widgets, minus 1 unit for decline in inventory. The increase in production from 93 units in Q8 to 98 unites in Q9 is what shows up in the GDP report.

By Q10 sales and production are pretty much back in equilibrium, but at a lower level than the peak. Now further increases in production depend on increases in sales.

And that brings us to the Manufacturing and Trade Inventories and Sales report from the Census Bureau today that showed inventories declined slightly in December (seasonally adjusted).

Click on graph for larger image in new window.

The Census Bureau reported: Inventories. Manufacturers’ and trade inventories, adjusted for seasonal variations but not for price changes, were estimated at an end-of-month level of $1,310.7 billion, down 0.2 percent (±0.1%) from November 2009 and down 9.7 percent (±0.4%) from December 2008.

Inventories/Sales Ratio. The total business inventories/sales ratio based on seasonally adjusted data at the end of December was 1.26. The December 2008 ratio was 1.46.This report suggests that inventories are back in line with sales, and the inventory cycle is mostly over (there will probably still be a positive contribution in Q1 2010 from changes in private inventories). Further increases in production will now depend on increases in consumption (or exports).typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueFrom Bloomberg: China Raises Bank Reserve Requirement to Cool Economy China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy after loan growth accelerated and property prices surged.

The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones. And from Eurostat: Euro area and EU27 GDP up by 0.1% GDP increased by 0.1% in both the euro area1 (EA16) and the EU271 during the fourth quarter of 2009, compared with the previous quarter, according to flash estimates published by Eurostat, the statistical office of the European Union. In the third quarter of 2009, growth rates were +0.4% and +0.3% respectively. Germany's economy stalled (no change), and Latvia saw the biggest decline (-3.2%).

And Greece's economy shrunk by 0.8%, possibly exacerbating the Greek debt crisis.

Note: Europe numbers are quarter-to-quarter. In the U.S. the GDP is annualized.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueOn a monthly basis, retail sales increased 0.5% from December to January (seasonally adjusted), and sales were up 4.7% from January 2009 (easy comparison).

Click on graph for larger image in new window.

This graph shows retail sales since 1992. This is monthly retail sales, seasonally adjusted (total and ex-gasoline).

This shows that retail sales fell off a cliff in late 2008, and appear to have bottomed.

The red line shows retail sales ex-gasoline and shows the increase in final demand ex-gasoline has been sluggish.

The second graph shows the year-over-year change in retail sales since 1993.

Retail sales increased by 4.7% on a YoY basis. The year-over-year comparisons are easy now since retail sales collapsed in late 2008. Retail sales bottomed in December 2008.

Here is the Census Bureau report:The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for January, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $355.8 billion, an increase of 0.5 percent (±0.5%)* from the previous month and 4.7 percent (±0.5%) above January 2009.
...
Gasoline stations sales were up 29.0 percent (±1.5%) from January 2009 typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueFrom Reuters: New Jersey governor declares fiscal emergency New Jersey Governor Chris Christie on Thursday declared a "fiscal emergency," allowing him to reserve or freeze state spending as part of his plan to tackle one of the largest 2011 deficits among U.S. states.
...
The deficit in the current budget, which ends on June 30, is $2.2 billion, while the gap in the following budget has spiked to $11 billion from a forecast of $8 billion in November ... the largest per-capita budget shortfall of any U.S. state Just a late night budget update ...typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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languagevalueOne of the key problems with a short sale is making sure the buyer is an unrelated party; "an arm’s length transaction".

I'm aware of a property being offered as a short sale in SoCal where the agent is the wife of the owner, and she has been, uh, unhelpful to some prospective buyers. I just heard last night that the lender has reached a short sale agreement with a buyer who just happens to be a close friend of the agent. Why am I not surprised? Perhaps this is the best deal for the lender, but I have my doubts.

Jim the Realtor has a "rant" about another agent who apparently took a short sale listing, never put it in the MLS, and then - apparently after getting a short sale agreement - put the listing in the MLS for a few minutes because the lender required a copy of the listing ... I have more doubts about this being the best deal for the lender.


I don't think either of the above deals meets the HAFA requirements. Of course both of the transactions above are not HAFA short sales.

And remember Jillayne's discussion of the Short Sale Negotiator? Under HAFA, those fees have to come out of the real estate commission: The amount of the real estate commission that may be paid, not to exceed 6% of the contract sales price, and notification if any portion of the commission must be paid to a contractor of the servicer that has been retained to assist the listing broker with the transaction. Finally, I'd suggest HAFA go a step further and have the lender hire the real estate agent for short sales and deed-in-lieu transactions, not the owner. I think there is too much incentive for under-the-table payments to the current homeowner, aka short sale fraud.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk
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languagevalueThe countdown continues ...

The following graph is from the Atlanta Fed Financial Highlights, and shows the Fed MBS purchases by week:

Click on graph for larger image.

From the Atlanta Fed:

The Fed purchased a net total of $12 billion of agency-backed MBS through the week of February 3, bringing its total purchases up to $1.177 trillion, and by the end of the first quarter 2010 the Fed will have purchased $1.25 trillion (thus, it is 94% complete).

In the first nine months of the program (January-September 2009), the Fed’s average weekly purchase of MBS was $23.3 billion. Since October 2009, however, it has declined to $14.6 billion per week; the Fed needs to purchase only about $9.2 billion per week through March 2010 to reach its goal.

The Fed purchased an additional $11 billion net in MBS through the week of Feb 10th, bringing the total to $1.188 trillion or just over 95% complete.

Mortgage rates were just under 5% last week, from Freddie Mac: 30-Year Fixed-Rate Mortgage Dips Below 5 Percent Again Freddie Mac today released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 4.97 percent with an average 0.7 point for the week ending February 11, 2010, down from last week when it averaged 5.01 percent. Last year at this time, the 30-year FRM averaged 5.16 percent. However, with the Ten Year Treasury yield increasing today to 3.73% (from around 3.6% last week), I expect rates to be above 5% again next week.typetext/htmlbasehttp://feeds.feedburner.com/CalculatedRisk

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