WSJ: Real Estate Woes of Banks Mount

"As long as the housing market is on a downward path, as long as those prices continue to fall, I think there's a risk that the losses could continue to mount on a variety of loans," Federal Reserve Vice Chairman Donald Kohn told the Senate Banking Committee Thursday.

Ok, that is a given. The chart on projected bank failures is amazing. I keep repeating that the indicators are that the steepest drop in home prices will be in 2009. This chart shows the steepest losses in construction loans being in 2009. That implies that 2010 could be even worse than 2009. Yikes!



edit: WSJ source article I shouldn't forget my source links. ;)

The time to pretend everything is ok is over. The LA Times this morning has an interesting article on how jobs that see peak demand at the onset of a recession... are becoming very difficult to get (e.g., lifeguards).


Side note:
I thought by now I'd have enough additional information to blog a new article on job transfers. Instead, the big companies are being clever. They're moving 500 jobs here... 500 there. Never a big enough move to make headlines. Certainly not enough of a headline to compete with GM, Ford, and Chrysler cutting truck production.

Too many of the "upper middle class" are poseurs without savings. Never before have we been in a situation where so many of our high wage earners need to borrow to maintain appearances.

Oh wait, people tried to warn about this since 2005!
http://www.freerepublic.com/focus/f-news/1514966/posts

I love this quote:
"Americans are basically living a lifestyle that they can afford as long as the unexpected doesn't happen," said Robert Manning, a consumer finance expert at the Rochester Institute of Technology.

Why? It makes me laugh. Recessions are to be expected. This one is just beginning. Most people are about to learn why we never let total DTI exceed 35% (That is 35% of gross income to service monthly debt payments. I really dislike thinking in monthly payments... but since most Americans think that way, I'll accommodate the majority and write in monthly cash flow terms.)

I just drove the LA freeways this morning to do some errands. I honestly expected to lose 20 to 30 minutes in traffic. When I arrived at my destination early, I pulled us www.sigalert.com. I was shocked to see only one of the freeways (55 down in Orange Country) was red (to signify bad stop and go traffic). While many people I know are trying to carpool, what is this doing to the economy? At a minimum, this implies further slowing car sales (fewer miles=less need to replace the car or a longer life of the vehicle if its sold used). I think this will trickle down to auto shops, tire vendors, and the whole 1/6th of the US population employed in selling, maintaining, building, or otherwise tied to the auto industries.

Since there are more than two major industries still on the decline, we can expect the recession to get worse. I'm a huge fan of such simple "rules of thumb." They help cut through the BS we hear too much of. But it also keeps me from becoming too bearish for un-needed reasons. Unless I can identify 3+ industries in decline... I know the economy is going to grow. Today we know construction (plus related, such as lumber), airlines (but not aircraft manufacturing (yet)), automobiles, and finance are all declining industries. Yes, there are bright spots (tech), but not enough to offset four major industries in decline. Not to mention too many states have yet to rationalize their budgets. Traditionally, the MSM peaks their discussion of recessions when the government jobs are cut back (either hours, positions, or pay).

Overall, we have a long way to go. If anything, the downside emotional states will linger. I think we're in an uptick of a big "down 5" as the Elliot wave theorists like to say.

Edit: NYTimes "heat map" of delinquent loans.














California hasn't even begun to enter the stage. So many of the "Prime Adjustable" haven't adjusted... and while the prime fixed has a low default rate, it is creeping up. Notice the map is for 90+ days past due. Once California implodes, good luck getting a jumbo mortgage.


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Neil