http://online.wsj.com/article/SB122417946627541287.html?mod=rss_Business
Downey Curtails some lending at the WSJ
Downey Financial Group Inc.'s savings and loan unit will close its wholesale loan department and shrink its retail operation, affecting about 200 employees, as it said fewer borrowers are able to qualify for loans amid the ongoing credit crisis.
Downey has been on the bank watch list forever. If it wasn't for their parent company trying to rescue them... they would already be done.
What is really telling:
Of all the large lenders that wrote option-ARMs, in particular so-called Pick-A-Pay mortgages, Downey is one of only two -- along with BankUnited Financial Corp. -- that remain independent. Wachovia Corp., Countrywide Financial, Washington Mutual Inc. and IndyMac Bancorp were among the top five issuers of the failing loans. All of them have been forced to sell themselves at fire-sale prices to healthier banks -- or, in the case of IndyMac, to be liquidated after being seized by regulators.
Easy credit is not going to resume shortly. Too many companies are having trouble rolling over their debt.
FYI, I'm reading a book titled "The Panic of 1907" by Robert F. Bruner and Sean D. Carr. I've changed my mind on which recession we're imitating. Why? Parallels to 1907:
1. Over investment of capital in real estate.
2. Liquidity crisis. In particular, the inability of governments and companies to roll over debt.
3. Government (treasury) and banks wasted their remaining capital on treating the symptoms and not the issues.
4. Much denial and mockery of the bears, but 'sophisticated money' left the troubled banks and trusts early (often six+ months before these institutions failed).
5. It was an interconnected bank crises that fell apart when member banks called in their loans.
6. The role of President Theodore Roosevelt will apparently be played by a new president...
7. Other governments are putting in place laws to restrict the flow of capital to the US.
I'm sure there are more... But I also believe in Mark Twain's quote, “History doesn't repeat itself - at best it sometimes rhymes”. We're seeing a pretty bad rhyme of 1907 in 2008. I'll blog more on this as I'm fascinated by this book and the historical similarity.
Got Popcorn?
Neil
Showing posts with label WSJ. Show all posts
Showing posts with label WSJ. Show all posts
Thursday, October 16, 2008
Thursday, October 09, 2008
Dubai: WSJ
In today's panic-stricken debt markets, the uncertainty means higher costs for big and prudent borrowers. The cost of insuring $10 million worth of Dubai debt for five years has risen to $247,500 a year, up more than fivefold from the beginning of the year, according to CMA DataVision, a price-discovery service.
CMA, which calculates a "cumulative probability of default" for sovereign borrowers, estimates the likelihood of Dubai defaulting over the next five years is just shy of 20%. That's up from 4.3% at the beginning of the year.
So... Someone besides Iceland might default on their Sovereign debt. Now, a 20% risk of default really isn't that bad. One has to look at it in order of magnitude (Factors of 3). That could be as low as a ~6% risk or it could be as high as a 60% risk.
Either way, it looks like a huge fraction of the world's cranes might suddenly become available... just as no one else wants them. :(
WSJ on Dubai
But wait... Dubai is among the most heavily indebted governments in the wealthy Persian Gulf. Standard & Poor's estimated at the end of last year that Dubai government debt represented 41.8% of gross domestic product, compared with 22% in Bahrain and 2.9% in Abu Dhabi.
Ok, this isn't Iceland's 1200% of GNP debt by any means. But one of the things that awoke me to the global nature of the bubble was a reader by the handle of SMF alerting me to look into the bubble in Dubai. Heck, I argued with him that Dubai wasn't really a bubble at the time. (Oops... Point SMF.) This credit crunch is brutal. To have have a nation with a large wealth fund in a cash crunch... is interesting...
Got Popcorn?
Neil
CMA, which calculates a "cumulative probability of default" for sovereign borrowers, estimates the likelihood of Dubai defaulting over the next five years is just shy of 20%. That's up from 4.3% at the beginning of the year.
So... Someone besides Iceland might default on their Sovereign debt. Now, a 20% risk of default really isn't that bad. One has to look at it in order of magnitude (Factors of 3). That could be as low as a ~6% risk or it could be as high as a 60% risk.
Either way, it looks like a huge fraction of the world's cranes might suddenly become available... just as no one else wants them. :(
WSJ on Dubai
But wait... Dubai is among the most heavily indebted governments in the wealthy Persian Gulf. Standard & Poor's estimated at the end of last year that Dubai government debt represented 41.8% of gross domestic product, compared with 22% in Bahrain and 2.9% in Abu Dhabi.
Ok, this isn't Iceland's 1200% of GNP debt by any means. But one of the things that awoke me to the global nature of the bubble was a reader by the handle of SMF alerting me to look into the bubble in Dubai. Heck, I argued with him that Dubai wasn't really a bubble at the time. (Oops... Point SMF.) This credit crunch is brutal. To have have a nation with a large wealth fund in a cash crunch... is interesting...
Got Popcorn?
Neil
Wednesday, September 17, 2008
Resurrect the Resolution Trust Corp. (WSJ)
I've been arguing for two years to bring back the RTC. I'm happy to see this WSJ article (hattip Calculated risk) with Volker recommending it too!
Can we have Volker back as the Fed chair? Please!
here is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
What isn't mentioned in the article is one of the RTC's best functions: To seize foreclosures, clean the title, and get them back out onto the market at 'market prices.' What they do is demand a roll call of who has claims on a property (taxes, repairs, 1st and 2nd mortgages, etc.) They then award each claim shares based on the dollar amount of the claim and the type of claim. e.g., For every $ of a 1st mortgage, one share. For a second, every $10 is a share... The house sells and after fees the shareholders split the proceeds on a per share basis. The new owners have the home free and clear and all claims that predate the deed transfer from the RTC must go through the RTC.
Bring back the RTC! Too many cities are in purgatory without it: Sacramento, Las Vegas, Phoenix, Palm Beach, Miami, Orlando, Tampa, Los Angeles (and suburbs, including the OC), San Diego, DC ex-urbs, and most likely a dozen other places (or more). I'm not for big government; but the RTC did its job well last time and is overdue.
It looks like my prediction that the RTC would be reformed 1Q08 was a bit premature... How do I know its needed? All of my wife's talk shows are about the economy. I think its funny how they're pointing out how those that 'live on a budget are ok.' ;)
Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial. Let's just say our employer can determine that this breaks the terms of employment... But there are ways to work this out.
Got popcorn?
Neil
Can we have Volker back as the Fed chair? Please!
here is something we can do to resolve the problem. We should move decisively to create a new, temporary resolution mechanism. There are precedents -- such as the Resolution Trust Corporation of the late 1980s and early 1990s, as well as the Home Owners Loan Corporation of the 1930s. This new governmental body would be able to buy up the troubled paper at fair market values, where possible keeping people in their homes and businesses operating. Like the RTC, this mechanism should have a limited life and be run by nonpartisan professional management.
What isn't mentioned in the article is one of the RTC's best functions: To seize foreclosures, clean the title, and get them back out onto the market at 'market prices.' What they do is demand a roll call of who has claims on a property (taxes, repairs, 1st and 2nd mortgages, etc.) They then award each claim shares based on the dollar amount of the claim and the type of claim. e.g., For every $ of a 1st mortgage, one share. For a second, every $10 is a share... The house sells and after fees the shareholders split the proceeds on a per share basis. The new owners have the home free and clear and all claims that predate the deed transfer from the RTC must go through the RTC.
Bring back the RTC! Too many cities are in purgatory without it: Sacramento, Las Vegas, Phoenix, Palm Beach, Miami, Orlando, Tampa, Los Angeles (and suburbs, including the OC), San Diego, DC ex-urbs, and most likely a dozen other places (or more). I'm not for big government; but the RTC did its job well last time and is overdue.
It looks like my prediction that the RTC would be reformed 1Q08 was a bit premature... How do I know its needed? All of my wife's talk shows are about the economy. I think its funny how they're pointing out how those that 'live on a budget are ok.' ;)
Coworkers are in trouble and DOZENS (perhaps more) are staring to look into short sales; this isn't trivial. Let's just say our employer can determine that this breaks the terms of employment... But there are ways to work this out.
Got popcorn?
Neil
Tuesday, September 16, 2008
Banks trying to unload commercial property debt (WSJ)
Last spring, securities firms and banks were able to sell commercial real-estate debt for discounts ranging from 5% to 20%, small compared with many residential mortgage securities. But that discount has been widening.
In other words, the smart money long ago 'cut and ran.' This real estate mania is over. Now we, unfortunately, have to deal with the downside.
late in the article:
It was in this climate that Lehman tried to save its neck by putting its $30 billion portfolio on the block last week. Lehman was hopeful because more than 70% of its whole loans were used to finance the relatively strong part of the real-estate market, such as offices, hotels, apartments and retail properties.
But the firm also had large amounts of debt tied to residential land, where values have been decimated. The firm negotiated into the final hour to sell the assets, but never reached a deal because it wouldn't cut its price enough, according to people familiar with the matter. And now comes the expected liquidation.
In other words, land loans are now being recognized as financing the derivative of real estate. In too many areas, homes are selling for less than the cost of construction. So land... is going to be a tough sell. But wait... CR has been blogging on the overbuilding of offices, hotels, and retail. Apartments are in that no-mans land. Not as overbuilt as other real estate, but having to compete with all of the FB's trying to rent until the "V recovery" that won't be.
If everyone is trying to get out... no one is trying to get in. This is going to further tighten the real estate noose. In other words tight credit will persist for years. So much for a quick job recovery...
Got Popcorn?
Neil
In other words, the smart money long ago 'cut and ran.' This real estate mania is over. Now we, unfortunately, have to deal with the downside.
late in the article:
It was in this climate that Lehman tried to save its neck by putting its $30 billion portfolio on the block last week. Lehman was hopeful because more than 70% of its whole loans were used to finance the relatively strong part of the real-estate market, such as offices, hotels, apartments and retail properties.
But the firm also had large amounts of debt tied to residential land, where values have been decimated. The firm negotiated into the final hour to sell the assets, but never reached a deal because it wouldn't cut its price enough, according to people familiar with the matter. And now comes the expected liquidation.
In other words, land loans are now being recognized as financing the derivative of real estate. In too many areas, homes are selling for less than the cost of construction. So land... is going to be a tough sell. But wait... CR has been blogging on the overbuilding of offices, hotels, and retail. Apartments are in that no-mans land. Not as overbuilt as other real estate, but having to compete with all of the FB's trying to rent until the "V recovery" that won't be.
If everyone is trying to get out... no one is trying to get in. This is going to further tighten the real estate noose. In other words tight credit will persist for years. So much for a quick job recovery...
Got Popcorn?
Neil
Monday, August 25, 2008
National July Sales/Ineventory news out
July Existing Home Sales: Record Inventory
The best graphs, as always, are at the above link.
What struck me is this: July sales 501k
Fraction of July sales Foreclosures or Short Sales: ~1/3rd.
In other words, normal resales are at less than half of the peak! (2005)
Also notice something from the curves, 2008 is constantly a lower fraction of 2007 than 2007 is of 2006. In plain Englinsh: The downside is accelerating.
August normally will vie with June to be the strongest sales month of the year Nationally, and for most places that will hold true. But not for Florida and a few other areas that have their best weather at other times of the year.
The WSJ has its take on the data:
The slight increase in the headline will provide some support to claims of a bottom in the market forming. However, the fact that 40% of sales activity came from banks selling foreclosed homes tends to suggest that absent a fire sale in housing sector, we have some ways to go before things truly stabilize. More troubling was the continued increase in inventories. … The data supports our call of the housing sector not seeing anything resembling stabilization until mid 2009 at the earliest. – Joseph Brusuelas, Merk Investments
Whoa... in California foreclosure sales are still happening slower than properties entering foreclosure. Yikes! I believe the ~33% value versus the 40% number. I'm bearish... to a limit. Real estate cycles are slow. Once the California foreclosures really pick up speed, good luck restarting the jumbo market. That is when we'll see the 25%+ down payment requirements. Not for months... But probably sometime in 2009.
Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. … [T]here is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market. By our estimation, the national home price measure as calculated by S&P/Case-Shiller, which shows a cumulative 18% drop through May from the July 2006 peak, is roughly two-thirds of the way through its ultimate total decline in this cycle. – Joshua Shapiro, MFR Inc.
I agree with everything in the above except the 'two-thirds of the way through' bit. I think we're about 40% of the way through to as much as 50%. No more.
We're also still in the seasonally best time of year to sell a home. As I noted above, August and June vie to be the peak selling months of the year normally (see CR's graphs). CR thinks we'll peak at 12 months of inventory, I think we'll pass that this Fall/Winter. Not by a lot though. (I hope... the alternative is rather scary.)
Got Popcorn?
Neil
The best graphs, as always, are at the above link.
What struck me is this: July sales 501k
Fraction of July sales Foreclosures or Short Sales: ~1/3rd.
In other words, normal resales are at less than half of the peak! (2005)
Also notice something from the curves, 2008 is constantly a lower fraction of 2007 than 2007 is of 2006. In plain Englinsh: The downside is accelerating.
August normally will vie with June to be the strongest sales month of the year Nationally, and for most places that will hold true. But not for Florida and a few other areas that have their best weather at other times of the year.
The WSJ has its take on the data:
The slight increase in the headline will provide some support to claims of a bottom in the market forming. However, the fact that 40% of sales activity came from banks selling foreclosed homes tends to suggest that absent a fire sale in housing sector, we have some ways to go before things truly stabilize. More troubling was the continued increase in inventories. … The data supports our call of the housing sector not seeing anything resembling stabilization until mid 2009 at the earliest. – Joseph Brusuelas, Merk Investments
Whoa... in California foreclosure sales are still happening slower than properties entering foreclosure. Yikes! I believe the ~33% value versus the 40% number. I'm bearish... to a limit. Real estate cycles are slow. Once the California foreclosures really pick up speed, good luck restarting the jumbo market. That is when we'll see the 25%+ down payment requirements. Not for months... But probably sometime in 2009.
Inventories are very high relative to sales rates, and would probably be even more so if all those wishing to sell their home actually had the house on the market instead of pulling it off in the face of weak demand and eroding prices. … [T]here is still a considerable distance to travel before prices sink to levels necessary to balance supply and demand in the housing market. By our estimation, the national home price measure as calculated by S&P/Case-Shiller, which shows a cumulative 18% drop through May from the July 2006 peak, is roughly two-thirds of the way through its ultimate total decline in this cycle. – Joshua Shapiro, MFR Inc.
I agree with everything in the above except the 'two-thirds of the way through' bit. I think we're about 40% of the way through to as much as 50%. No more.
We're also still in the seasonally best time of year to sell a home. As I noted above, August and June vie to be the peak selling months of the year normally (see CR's graphs). CR thinks we'll peak at 12 months of inventory, I think we'll pass that this Fall/Winter. Not by a lot though. (I hope... the alternative is rather scary.)
Got Popcorn?
Neil
Saturday, August 23, 2008
Apartment Buildings lose immunity to housing chill
Hattip http://bubblemeter.blogspot.com/
WSJ Article on Apartment real estate
But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities.
Its only going to accelerate.
Economist quoting Bernanke
he (edit: Bernanke) suggested that the worst “second-round” effects of the financial crisis are about to be felt: “the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.”
Yet the primary drivers haven't peaked. Credit is still tightening, foreclosures continue to grow, and now layoffs.
In my opinion the greatest risk to the economy is the impact of bank failures upon small businesses. Small businesses need to keep $200k to $2M of cash in their checking accounts just to operate. (e.g., payroll, inventory) Since the FDIC limit hasn't been inflation adjusted in... too long. I propose lifting it to $500k ($1M for a couple). Yes, this will weaken the dollar (due to the Fed printing money). But a planned recovery has less downside potential than the current process of covering 50% of Jumbos at Bank A, 100% at the First Bank of Podunk, and 0% at another bank.
We're in a recession that is going to get worse. But there is no reason it should be any worse than the 1974 recession; but that would require sensible regulatory changes.
But let's look back at apartments (WSJ article):
But that competition isn't nearly as big a problem as job-loss trends. "A lot of folks think it's the shadow market that's softening rents. It's really a jobs issue," says Richard Campo, chief executive of Camden Property Trust. The Houston-based REIT saw rents fall 1.4% last quarter from a year earlier in Phoenix. Arizona shed some 87,000 jobs in June and July.
Yet for only six months have the drivers been strong enough to cause doubling up. Jobs going forward will be weak for at least 18 months. Expect rents to continue to soften. The housing surplus is too great to ignore.
Got Popcorn?
Neil
WSJ Article on Apartment real estate
But now the specter of job losses is beginning to spread the gloom into that sector as well. As would-be renters are doubling up in apartments or moving in with friends and families, rents and occupancy rates are beginning to fall in many cities.
Its only going to accelerate.
Economist quoting Bernanke
he (edit: Bernanke) suggested that the worst “second-round” effects of the financial crisis are about to be felt: “the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.”
Yet the primary drivers haven't peaked. Credit is still tightening, foreclosures continue to grow, and now layoffs.
In my opinion the greatest risk to the economy is the impact of bank failures upon small businesses. Small businesses need to keep $200k to $2M of cash in their checking accounts just to operate. (e.g., payroll, inventory) Since the FDIC limit hasn't been inflation adjusted in... too long. I propose lifting it to $500k ($1M for a couple). Yes, this will weaken the dollar (due to the Fed printing money). But a planned recovery has less downside potential than the current process of covering 50% of Jumbos at Bank A, 100% at the First Bank of Podunk, and 0% at another bank.
We're in a recession that is going to get worse. But there is no reason it should be any worse than the 1974 recession; but that would require sensible regulatory changes.
But let's look back at apartments (WSJ article):
But that competition isn't nearly as big a problem as job-loss trends. "A lot of folks think it's the shadow market that's softening rents. It's really a jobs issue," says Richard Campo, chief executive of Camden Property Trust. The Houston-based REIT saw rents fall 1.4% last quarter from a year earlier in Phoenix. Arizona shed some 87,000 jobs in June and July.
Yet for only six months have the drivers been strong enough to cause doubling up. Jobs going forward will be weak for at least 18 months. Expect rents to continue to soften. The housing surplus is too great to ignore.
Got Popcorn?
Neil
Sunday, August 03, 2008
Strong US productivity
Strong Productivity Defies Trend
This article is well worth the read. Why am I posting something bullish? 1. Its not going to be *that* bad and 2. this is one of the trends that will pull us out of the recession we're in... By say late 2010 or 2011.
The whole article is worth reading and there is a graph in there worthy of close examination. (Sorry, subscription required, but sometimes the links work without an account.)
The productivity growth in exports is well above the economywide average. In a paper last year, a group of economists found that manufacturing plants involved in producing exports had significantly higher labor productivity than those that weren't. The same holds for services.
The only way we're going to pull out of this is export oriented jobs. The obvious candidates would be banking (or other financial), manufacturing, or tourism. The other choice is high taxes that drive skilled workers to become expatriates who send back cash to their families (a la the illegal immigrant labor force that upholds Mexico's economy).
I personally believe we'll have a partial resurgence of manufacturing in the US. Yes... I understand there is a long term trend to higher "value added" jobs. But we went too far and did so too fast. Quite bluntly, we replaced manufacturing with unneeded sales jobs! Whiskey Tango Foxtrot? There is an internet out there to do much of that; I believe this recession will drive consumers to develop 'low purchase cost habits' that won't go away for a while. Well... not completely. The sheeple do have a way of proving that Ditech's ads really are nothing more that ironic poetry for profit.
We're approaching the October through February time frame. That will be a time of scary news. So in a way its time to pull back and realize that when J6P starts stampeding with his fellow lemmings towards the cliff... Then there is blood in the streets and its time to start buying. (Not this winter... NEXT winter. This winter is the warm up act.) 2009 will be the year of the greatest price drops of this downturn.
Got Popcorn?
Neil
This article is well worth the read. Why am I posting something bullish? 1. Its not going to be *that* bad and 2. this is one of the trends that will pull us out of the recession we're in... By say late 2010 or 2011.
The whole article is worth reading and there is a graph in there worthy of close examination. (Sorry, subscription required, but sometimes the links work without an account.)
The productivity growth in exports is well above the economywide average. In a paper last year, a group of economists found that manufacturing plants involved in producing exports had significantly higher labor productivity than those that weren't. The same holds for services.
The only way we're going to pull out of this is export oriented jobs. The obvious candidates would be banking (or other financial), manufacturing, or tourism. The other choice is high taxes that drive skilled workers to become expatriates who send back cash to their families (a la the illegal immigrant labor force that upholds Mexico's economy).
I personally believe we'll have a partial resurgence of manufacturing in the US. Yes... I understand there is a long term trend to higher "value added" jobs. But we went too far and did so too fast. Quite bluntly, we replaced manufacturing with unneeded sales jobs! Whiskey Tango Foxtrot? There is an internet out there to do much of that; I believe this recession will drive consumers to develop 'low purchase cost habits' that won't go away for a while. Well... not completely. The sheeple do have a way of proving that Ditech's ads really are nothing more that ironic poetry for profit.
We're approaching the October through February time frame. That will be a time of scary news. So in a way its time to pull back and realize that when J6P starts stampeding with his fellow lemmings towards the cliff... Then there is blood in the streets and its time to start buying. (Not this winter... NEXT winter. This winter is the warm up act.) 2009 will be the year of the greatest price drops of this downturn.
Got Popcorn?
Neil
Tuesday, July 15, 2008
Mortgage insurers raise bar
Insurers add that they are pursuing the kind of more disciplined behavior that may have helped avert the housing crisis. "Clearly, the pendulum had swung a little too far in terms of flexibility in underwriting," says Len Sweeney, chief risk officer for AIG United Guaranty, the mortgage-insurance unit of American International Group Inc. "Some of the movement we've made of late is back to a more prudent approach."
Michael Zimmerman, a spokesman for industry leader MGIC Investment Corp., says, "So far, we're only losing the business that we no longer want to write. The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability."
The WSJ article
This is a map where the insurers have declared the region a declining market. Remember, redlining is illegal in lending. They must paint with a broad brush. So in effect if a region starts to decline, the whole region becomes tougher to buy into.
The article is worth the time to read in its entirety. I recommend an online subscription to the WSJ. Its nothing really that new to the housing bloggers, but it does point to why the market is not going to turn up anytime soon. The #1 reason in the article: Mortgage insurers are making rule changes that will last years. Mostly due to too many of them having to 'wind down' their business.
Got Popcorn?
Neil
Michael Zimmerman, a spokesman for industry leader MGIC Investment Corp., says, "So far, we're only losing the business that we no longer want to write. The long-term objective of anybody in the housing industry should not be just affordability but sustainability. I think for the last few years, the drive and the focus have been solely on affordability."
The WSJ article
This is a map where the insurers have declared the region a declining market. Remember, redlining is illegal in lending. They must paint with a broad brush. So in effect if a region starts to decline, the whole region becomes tougher to buy into.
The article is worth the time to read in its entirety. I recommend an online subscription to the WSJ. Its nothing really that new to the housing bloggers, but it does point to why the market is not going to turn up anytime soon. The #1 reason in the article: Mortgage insurers are making rule changes that will last years. Mostly due to too many of them having to 'wind down' their business.
Got Popcorn?
Neil
Sunday, July 06, 2008
I don't get it.
The WSJ might have typed too quickly:
In the apartment market, the "shadow market" of unsold homes offered for rent continues to keep renters out of apartments. Otherwise it is a strong market for landlords. They continue to benefit from the housing slowdown that has created more renters and led existing renters to defer homeownership given the tightened mortgage market.
Renters are not going into apartments but somehow landlords have a strong market? Or is it that there are a lot of landlords right now? ;)
I usually really like the WSJ, this time I think the reporters tripped over their fingers.
later in the article:
"Rental demand hasn't really picked up in relation to the falling home sales, which implies that people are doubling up or tripling up or moving back with their parents," says Lawrence Yun, chief economist for the National Association of Realtors. He expects that to change in the near-term, in part because "it's not sustainable to keep adding roommates."
We have more bedrooms per capita than ever. So actually, it is sustainable to fill up those McMansions... For YEARS!
I should be nicer, most of the article is on retail and the predicted surplus of retail space for a long time. :) But sometimes you read something and go "huh?"
Got Popcorn?
Neil
In the apartment market, the "shadow market" of unsold homes offered for rent continues to keep renters out of apartments. Otherwise it is a strong market for landlords. They continue to benefit from the housing slowdown that has created more renters and led existing renters to defer homeownership given the tightened mortgage market.
Renters are not going into apartments but somehow landlords have a strong market? Or is it that there are a lot of landlords right now? ;)
I usually really like the WSJ, this time I think the reporters tripped over their fingers.
later in the article:
"Rental demand hasn't really picked up in relation to the falling home sales, which implies that people are doubling up or tripling up or moving back with their parents," says Lawrence Yun, chief economist for the National Association of Realtors. He expects that to change in the near-term, in part because "it's not sustainable to keep adding roommates."
We have more bedrooms per capita than ever. So actually, it is sustainable to fill up those McMansions... For YEARS!
I should be nicer, most of the article is on retail and the predicted surplus of retail space for a long time. :) But sometimes you read something and go "huh?"
Got Popcorn?
Neil
Credit Tightening
WSJ's 'ahead of the tape'
More than 55% of U.S. banks tightened lending standards for large and midsize companies in the second quarter, according to a recent Federal Reserve survey, the highest since the first quarter of 2001. In the two other instances of such harsh tightening since 1990, a steep profit decline followed three quarters later, notes Citigroup chief U.S. strategist Tobias Levkovich.
A profit decline 3 quarters later... In other words, it hasn't really begun.
The article is on the start of earnings season. Its not bullish. But out of fairness and keeping to 'fair use', I'll leave it to those who subscribe.
Got Popcorn?
Neil
More than 55% of U.S. banks tightened lending standards for large and midsize companies in the second quarter, according to a recent Federal Reserve survey, the highest since the first quarter of 2001. In the two other instances of such harsh tightening since 1990, a steep profit decline followed three quarters later, notes Citigroup chief U.S. strategist Tobias Levkovich.
A profit decline 3 quarters later... In other words, it hasn't really begun.
The article is on the start of earnings season. Its not bullish. But out of fairness and keeping to 'fair use', I'll leave it to those who subscribe.
Got Popcorn?
Neil
Friday, June 06, 2008
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.
Got Popcorn?
Neil
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.
Got Popcorn?
Neil
Saturday, April 19, 2008
Chinese Stock Market Plunge
The Chinese stock market is about to pass the 50% off milestone. Between this and risking global food prices, it could be an interesting year leading up to the Olympics. The WSJ earlier noted that as much as 50% of Chinese corporate profits were profits speculating in their own stock market.
Don't be foolish to ignore this trend just because it is 'over there.' China buys billions of US airliners, computers (or parts), software (despite huge piracy), and other US goods. In a repressive state, the economy either grows or there is civil unrest. Oh, I expect the Olympics to be a rallying point for Sino patriotism, but how long afterwards will the 'glow' last?
ORIGINAL WSJ ARTICLE
Got Popcorn?
Neil
Don't be foolish to ignore this trend just because it is 'over there.' China buys billions of US airliners, computers (or parts), software (despite huge piracy), and other US goods. In a repressive state, the economy either grows or there is civil unrest. Oh, I expect the Olympics to be a rallying point for Sino patriotism, but how long afterwards will the 'glow' last?
ORIGINAL WSJ ARTICLE
Got Popcorn?
Neil
Monday, April 07, 2008
Light after the dark
There is always light after the dark. So I'm going to write a bit about recovery after the coming recession. For our economy will recover, albeit with a new personality. Yes... that bad a recession.
Part of what is hurting the economy is oil prices. Our economy is dependent on cheap energy, but should be using it more efficiently. High oil prices will drive consumer habits towards more efficient use of energy. Let's face it, business will adapt to the energy prices quickly. Its J6P and his heated/cooled McMansion and SUV that need to adapt.
But there is more oil out there for the drilling. I've had this argument with friends for years. One is the new field off the coast of Brazil. But guess what. There is a HUGE known field that isn't being pumped!
But the expansion is more important strategically for Aramco. In three years, Aramco plans to open the spigots on what could be Saudi Arabia's last giant reservoir of crude: the Manifa field that stretches from the kingdom's east coast into the Persian Gulf. The field, first discovered in 1957 but later mothballed, is slated to pump 900,000 barrels a day of heavy Arabian oil.
In this WSJ article on a refinery expansion (subscription)
The article is focused on the refinery. But it notes it can also use Canadian oil shale as a source of oil.
I'm hoping we'll invent a bacteria to process saw grass into Ethanol or diesel. But that's up to one inventor pulling off an amazing improvement.
Got Popcorn?
Neil
Part of what is hurting the economy is oil prices. Our economy is dependent on cheap energy, but should be using it more efficiently. High oil prices will drive consumer habits towards more efficient use of energy. Let's face it, business will adapt to the energy prices quickly. Its J6P and his heated/cooled McMansion and SUV that need to adapt.
But there is more oil out there for the drilling. I've had this argument with friends for years. One is the new field off the coast of Brazil. But guess what. There is a HUGE known field that isn't being pumped!
But the expansion is more important strategically for Aramco. In three years, Aramco plans to open the spigots on what could be Saudi Arabia's last giant reservoir of crude: the Manifa field that stretches from the kingdom's east coast into the Persian Gulf. The field, first discovered in 1957 but later mothballed, is slated to pump 900,000 barrels a day of heavy Arabian oil.
In this WSJ article on a refinery expansion (subscription)
The article is focused on the refinery. But it notes it can also use Canadian oil shale as a source of oil.
I'm hoping we'll invent a bacteria to process saw grass into Ethanol or diesel. But that's up to one inventor pulling off an amazing improvement.
Got Popcorn?
Neil
Saturday, March 29, 2008
WSJ: Firms Should Resist Urge to Sue Critics
You would think that by now public companies that monkey with their numbers would get the hint: Suing critics almost always backfires.
This is a good article (subscription required).
Now the article is on short sellers but also pertains to flippers. If you sue bloggers because they publish the truth, it only persuades other bloggers to post the truth. In the online world, this is know as the Streisand Effect.
If you want your antics to be published on more than one blog. Sue that blog.
Welcome to a generation raised on the web.
Got Popcorn?
Neil
This is a good article (subscription required).
Now the article is on short sellers but also pertains to flippers. If you sue bloggers because they publish the truth, it only persuades other bloggers to post the truth. In the online world, this is know as the Streisand Effect.
If you want your antics to be published on more than one blog. Sue that blog.
Welcome to a generation raised on the web.
Got Popcorn?
Neil
Friday, March 21, 2008
WSJ: Woes in Condo Market Build
The WSJ is one of the better newspapers out there. Its housing news is only a few... years behind the housing blogs. But it has an interesting article on condos.
One option for a developer is to convert the condos to apartments. However, these projects are usually financed with the presumption that sales of individual condos pay off more than rents from a comparably sized apartment building. Also, lenders typically expect developers to pay off condo construction loans with the millions of dollars they receive when closing on the sales. Such a quick payout isn't possible if the developer is only receiving monthly rental payments.
The article details the thousands of condos entering a dozen markets: Miami, Phoenix, Atlanta, San Diego, and Dallas. The article points out that the condo can undermine an otherwise healthy real estate market... but wait... they note that most buyers just cannot qualify for a $500k loan anymore. Maybe that is why the market is falling apart?
Got Popcorn?
Neil
One option for a developer is to convert the condos to apartments. However, these projects are usually financed with the presumption that sales of individual condos pay off more than rents from a comparably sized apartment building. Also, lenders typically expect developers to pay off condo construction loans with the millions of dollars they receive when closing on the sales. Such a quick payout isn't possible if the developer is only receiving monthly rental payments.
The article details the thousands of condos entering a dozen markets: Miami, Phoenix, Atlanta, San Diego, and Dallas. The article points out that the condo can undermine an otherwise healthy real estate market... but wait... they note that most buyers just cannot qualify for a $500k loan anymore. Maybe that is why the market is falling apart?
Got Popcorn?
Neil
Thursday, March 20, 2008
WSJ: Home Vacancy Rates Post Sharp Increase
If you haven't guessed, I regularly read the Wall Street Journal. Its one of the few publications left that seems to do excellent investigative journalism.
IN THIS ARTICLE
its noted that the home vacancy rate has gone up to 2.8%.
"The higher the vacancy rate, the greater is the degree of stress on pricing," said Jim Diffley, managing director of regional services at economic-research firm Global Insight in Waltham, Mass. "It's a measure of how far the market is out of whack."
Normally I avoid blogging about Florida, its disheartening how out of whack the bubble is there. But look at those concentrations. Ugh... The article goes off track at the end and ignores that the latest census data that shows Florida's 'growing population' has slowed and job growth... Well that looks to be in reverse.
The article has an interactive graph that is worth looking at. It shows amazing levels of unoccupied housing in Las Vegas, Florida, California (Sacramento being the poster child), and all around NYC. The table above shows the worst poster children.
Got Popcorn?
Neil
IN THIS ARTICLE
its noted that the home vacancy rate has gone up to 2.8%.
"The higher the vacancy rate, the greater is the degree of stress on pricing," said Jim Diffley, managing director of regional services at economic-research firm Global Insight in Waltham, Mass. "It's a measure of how far the market is out of whack."
Normally I avoid blogging about Florida, its disheartening how out of whack the bubble is there. But look at those concentrations. Ugh... The article goes off track at the end and ignores that the latest census data that shows Florida's 'growing population' has slowed and job growth... Well that looks to be in reverse.
The article has an interactive graph that is worth looking at. It shows amazing levels of unoccupied housing in Las Vegas, Florida, California (Sacramento being the poster child), and all around NYC. The table above shows the worst poster children.
Got Popcorn?
Neil
Wednesday, March 05, 2008
WSJ: FHA raises loan limit to $730k
FHA officials predicted the increases in California would aid about 33,000 individuals. The new loan limits will be in effect through the end of this year. The goal is to invigorate the market for larger mortgages, which should help push down interest rates.
Holy crap.... Read This article from the WSJ Maybe subscription required (I have one and think its worth it.)
Now why is San Diego only at $697.5k? The table in the article is interesting... and scary.
From the article:
"From what we understand there are not going to be a lot of areas in the country except for California that are going to be at the maximum," Mr. Glavin said.
Umm... what about FL? VA? DC? NY? NV? AZ?
Yes, of the top 2% of 'income earners,' half are in California (2%= ~$200k/year).
But it isn't the only super bubble imploding. But wait... people must qualify. Only 33,000 are expected to be helped by this?!? There is more than that number in dire straights in the Antelope Valley alone! What about the Inland Empire or the SF Bay Area?
Forget any bank holding onto a loan $729,750 or less now without FHA insurance. Also expect anything above $729,750 to require one heck of a down payment, asset and income verification, and an interest penalty. If anything, this will only emphasize how bad the market really is. Hey... the homes I like are $950k to $1.4M... Hmmm.... Yes. I think they'll drop that much.
A note: Some areas have now dropped to afford ability that is just worse than the past historical worst case* examples. Ok... we're going to overshoot the other way. We're in a credit crunch that has only begun. Good solid companies are finding they cannot use their 'cash' portfolios due to poor money market selection. So normal investment that should kick in... cannot.
edit: * added two words for clarity.
Got Popcorn?
Neil
Holy crap.... Read This article from the WSJ Maybe subscription required (I have one and think its worth it.)
Now why is San Diego only at $697.5k? The table in the article is interesting... and scary.
From the article:
"From what we understand there are not going to be a lot of areas in the country except for California that are going to be at the maximum," Mr. Glavin said.
Umm... what about FL? VA? DC? NY? NV? AZ?
Yes, of the top 2% of 'income earners,' half are in California (2%= ~$200k/year).
But it isn't the only super bubble imploding. But wait... people must qualify. Only 33,000 are expected to be helped by this?!? There is more than that number in dire straights in the Antelope Valley alone! What about the Inland Empire or the SF Bay Area?
Forget any bank holding onto a loan $729,750 or less now without FHA insurance. Also expect anything above $729,750 to require one heck of a down payment, asset and income verification, and an interest penalty. If anything, this will only emphasize how bad the market really is. Hey... the homes I like are $950k to $1.4M... Hmmm.... Yes. I think they'll drop that much.
A note: Some areas have now dropped to afford ability that is just worse than the past historical worst case* examples. Ok... we're going to overshoot the other way. We're in a credit crunch that has only begun. Good solid companies are finding they cannot use their 'cash' portfolios due to poor money market selection. So normal investment that should kick in... cannot.
edit: * added two words for clarity.
Got Popcorn?
Neil
Tuesday, October 23, 2007
Merrill Loss May Be
From this WSJ aritcle:
Merrill Lynch & Co. is expected to announce its third-quarter losses are more than $2 billion more than first projected, ratcheting up the pressure on Chief Executive Stan O'Neal to demonstrate he has a grip on the firm's risk level.
Merrill announced on Oct. 5 that it expected to write down $5 billion for the quarter that ended in September, the biggest such loss of any Wall Street firm, based mainly on an over-exposure to risky mortgage-related securities.
But the actual write-down is expected to come in far above that initial estimate, with outsiders putting the level at $7 billion or higher.
Ouch!
So the question is, how long until I-bank layoffs?
Update:
Merrill Lynch & Co. swung to an unexpectedly deep loss in the third quarter on the back of a $7.9 billion writedown in its fixed-income trading business, a hit that exceeded the Wall Street giant's net earnings for all of 2006.
Merrill posted a net loss of $2.24 billion
Updated WSJ article:
hat tip Calculated Risk
Got popcorn?
Neil
Merrill Lynch & Co. is expected to announce its third-quarter losses are more than $2 billion more than first projected, ratcheting up the pressure on Chief Executive Stan O'Neal to demonstrate he has a grip on the firm's risk level.
Merrill announced on Oct. 5 that it expected to write down $5 billion for the quarter that ended in September, the biggest such loss of any Wall Street firm, based mainly on an over-exposure to risky mortgage-related securities.
But the actual write-down is expected to come in far above that initial estimate, with outsiders putting the level at $7 billion or higher.
Ouch!
So the question is, how long until I-bank layoffs?
Update:
Merrill Lynch & Co. swung to an unexpectedly deep loss in the third quarter on the back of a $7.9 billion writedown in its fixed-income trading business, a hit that exceeded the Wall Street giant's net earnings for all of 2006.
Merrill posted a net loss of $2.24 billion
Updated WSJ article:
hat tip Calculated Risk
Got popcorn?
Neil
Sunday, October 21, 2007
What to expect in coming week
This coming week could be interesting. We're in earning reporting season, a financial crunch, and the NAR reporting on existing home sales. The graph comes from the following link:
WSJ article
Notice one thing from the graph? The plunge in seasonally adjusted home sales only "paused" during the normally really slow January/February months. In other words, the worst months of the year didn't behave horridly, but every other month has been performing far worse than seasonal norms.
Countrywide reporting on Friday should be exciting. Any predictions?
Don't forget to look at foreign stock markets:
http://finance.yahoo.com/intlindices?e=asia
All I'm seeing (today 10/21/2007) is red.
I send out my best wishes to those impacted by the fires. The Laguna fires from my days down in the OC left quite a memory (we were the next section scheduled for evacuation prior to containment of the fires). I'm not at my place right now, but one of the fires supposedly stopped 1.5 miles away. Oh joy, lots of ash in my stuff. :( But that is nothing compared to anyone who lost their home. Or might that be good luck for some FB's? ;)
Got popcorn?
Neil
Thursday, October 04, 2007
Home Price Estimates
Basically, the CME futures contracts are point to moderate price drops ahead in LA, DC, and quite a few other markets.
WSJ ON HOME PRICES
I think we'll see bigger price drips due to the impacts of the credit crunch and overbuilding. If LA drops less than 45%, quite a few industries are "priced out forever." Let's see how they adapt.
Got popcorn?
Neil
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