Housing Depression: August 2008

Wednesday, August 27, 2008

FDIC may need to tap treasury

In yet another waste of tax payers money, the FDIC may have to tap treasury for more funds. According to Sheila Bair, FDIC Chairwoman, it is to cover "short-term cash-flow" pressures. As we have seen, short-term becomes permanent pretty fast.

The last time the FDIC borrowed funds from Treasury came at the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered. That the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis.

We've just had nine failures. FDIC has troubled list of 117. Many more than 117 are probably in danger. Banks like WAMU are probably not even on the list. What happens if they fail? We are only at the beginning of this cycle and FDIC is out of money already?

"I would not rule out the possibility that at some point we may need to tap into [short-term] lines of credit with the Treasury for working capital, not to cover our losses, but just for short-term liquidity purposes," Ms. Bair said in an interview. Ms. Bair said such a scenario was unlikely in the "near term."

As I said before, short-term becomes long-term (or even) permanent very quickly. Just look at the all the lines of credit the Fed is providing.

She said she did not expect the FDIC to take the more dramatic step of tapping a separate $30 billion credit line with Treasury, which has never been used.

It seems like no one "expects" anything bad to happen these days. Let's see how quickly this becomes a reality.

..... The fund's balance fell in the second quarter to $45.2 billion. That is just 1.01% of all insured deposits, low by historical standards.

Once again, the lowest reserves when we need them the most. The drivers were asleep and now the tax payers have to pay the price.

In another move to bolster the insurance fund, Ms. Bair said the agency will propose in October charging higher premiums to thousands of U.S. banks......

Trying to close the barndoor after the horses have left. We are going to raise the rates on banks just as they have low capital and their net incomes are to lowest level since 1991.

http://online.wsj.com/article/SB121977767814673649.html?mod=hpp_us_whats_news

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Technorati Tags FDIC,SheilaBair

Monday, August 25, 2008

July Existing Home Sales

Existing home sales increased by 3.1% from last month. Year over year, the sales dropped 13.2%. Inventories rose by 17.9% to 11.2 months supply. That is the highest level since April 2008. Prices dropped by 7.1% compared to last year. June 2008 data was revised lower by 10,000 to 4,850,000.

The drop in price seems to have helped home sales. But with the inventories still rising, it's going to be a while before we see a rebound in housing. There seems to be more downside risk then upside risk.

And as we have said in the past, mortgage rates and labor markets are going to be the keys to prevent housing from a further free-fall.

Technorati Tags July,ExistingHomeSales

More Handouts

This is yet another example of what is wrong with Corporate America and Politicians.

US Automakers have doubled their initial request to $50 billion to develop and build more "fuel-efficient" vehicles. Looks like they did not need help to build gas guzzling SUVs. But now want to use tax payer dollars to build "fuel-efficient" vehicles. But if all this is not ennough, here is the real kicker:

The industry is also seeking fewer restrictions on how the funding is used, the people said today.

So give us the "Loan" to build "Fuel-efficient" vehicles, but we will use it anyway we want. Why not use it to provide bigger incentive to sell SUVs?

Presidential candidate and presumptive Republican nominee Sen. John McCain today gave his support to the proposal.
``Our auto companies are rising to the challenge building the next generation of American cars, but are doing so in times when credit conditions cripple the funding for the facilities and technologies to take the steps to the future,'' he said in an e- mailed statement.
``We should fund it and take action that will assist Detroit and its suppliers in making it through this difficult time of transition,'' he said in the statement.

Yet more example of socialization of America. They had a chance to do this in last ten years, yet they did not do it. What makes anyone think they are going to change all of a sudden?

``This is a horrible idea, another transfer of funds to failed ventures,'' said David Littmann, senior economist for the Mackinac Center for Public Policy in Midland, Michigan, which describes itself as a supporter of free-market ideals. ``If this were a good idea, the market would price the debt accordingly and give them the money.''

Looks like free-market ideals have left the US long time ago. Commercial Banks, investment banks, mortgage companies, home builders, etc. anywhere you look everyone is getting a bailout.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aY4154PYXWD8&refer=home

Thursday, August 21, 2008

Jobless Claims

Jobless claims fell by 13,000 to a seasonally adjusted 432,000. While the jobless claims fell for the week, 432,000 is still very high. The four week moving average moved up to 445,750. This is the highest moving average since Dec. 2001.

For those who are still arguing whether we are in a recession, everyday it seems more and more likely we are in a recession.

This and problems with Fannie and Freddie should make it more interesting for housing. As we have said before, housings got more downside then up at this point.

And don't look for the housing or the economy to rebound anytime soon. I don't hear anymore "optimistic" forecast for the year end recovery.

http://www.cnbc.com/id/26327709

Technorati Tags JoblessClaims

Wednesday, August 20, 2008

Mortgage Applications Fall to Lowest Since 2000

Mortgage Applications at Lowest level since 2000.

The mortgage applications declined 1.5 percent to 419.3. This despite the mortgage rate declining to 6.47 percent from 6.57 percent.

The index for loan purchases was also near historic lows at 314.

This is only one week of data. But it shows you how bad the housing market is. You are always going to find trolls trying to create a bottom. Remember last year, when BOA analyst called a housing bottom. Or last week when Thomas Lee of JP Morgan called a stock market bottom. And just imagine if you had a penny every time some one said the credit crisis was over.
Bottom line is you have to do your own research. The trolls will keep trolling.

http://www.cnbc.com/id/26307016

Technorati Tags MortgageApps

Tuesday, August 19, 2008

July PPI And Housing Starts

From MarketWatch.com:

U.S. producer prices increased by a bigger-than-expected 1.2% in July, the Labor Department reported Tuesday, driven higher by prices for energy, cars, food and other products.
.....
Producer prices are up 9.8% over the past 12 months, which is the most since June 1981.

It looks like food and energy inflation is being passed to wholesale.

Housing starts drop11%.

Separately, the Commerce Department estimated Tuesday that housing starts fell 11% to a seasonally adjusted annual rate of 965,000 in July, close to the 960,000 expected by economists.

Technorati Tags PPI,July2008,HousingStarts

Home Depot posts 24% decline in Net Income

From WSJ:

Home Depot Inc. posted a 24% decline in fiscal second-quarter net income as Chief Executive Frank Blake said the company is continuing "to see pressure on our market and the consumer."
Still, the nation's largest home-improvement retailer refrained from cutting its fiscal-year outlook again, as Mr. Blake noted, "Despite the macroeconomic conditions, we saw improved execution in our merchandising and operations initiatives during the past quarter."

With the effect of rebate checks waning down, I am not sure if it's wise to keep the same outlook. Of course, most likely, you will see an adjustment somewhere down the line.

For the quarter ended Aug. 3, Home Depot reported net income of $1.2 billion, or 71 cents a share, down from $1.59 billion, or 81 cents a share, a year earlier. Prior-year results included a 3-cent gain from discontinued operations. Net revenue fell 5.4% to $20.99 billion. Same-store sales declined 7.9%, or 7.2% on a comparable-week basis. Analysts polled by Thomson Reuters were for looking for earnings of 61 cents a share on $20.58 billion in revenue. Gross margin edged up to 33.2% from 33.1%.
Looking forward, Home Depot confirmed its prior projection for fiscal-year earnings to fall about 24%, coming in at the low end of previous guidance that had already been cut to a range of $1.72 to $1.84 a share on a sales decline of 5%. Analysts' latest estimates were for $1.71 in earnings on a 6% drop in revenue to $72.32 billion.

http://online.wsj.com/article/SB121914091680552677.html?mod=hps_us_whats_news

Technorati Tags HomeDepot,Q2

Wednesday, August 13, 2008

U.S. Retail Sales Fall

From Bloomberg:

Sales at U.S. retailers dropped in July for the first time in five months as record gasoline prices and tighter credit reduced automobile purchases.
The 0.1 percent drop followed a 0.3 percent gain the prior month that was larger than previously reported, the Commerce Department said today in Washington. Sales excluding automobiles rose 0.4 percent, less than anticipated.
The sales drop came even as the Treasury distributed tax rebates as part of the government's fiscal stimulus plan. Consumer spending, which accounts for more than two-thirds of the economy, is likely to keep fading, hurt by rising unemployment, falling property values and elevated fuel costs.

We are already seeing tax rebate effect starting to disappear. Yet, the administration keeps telling us the effects will last until the end of the year.

The Labor Department reported separately that prices of imported goods rose 1.7 percent in July from the previous month, after a 2.9 percent increase in June.

This is a 21.6 percent increase from a year ago.

http://www.bloomberg.com/apps/news?pid=20601087&sid=annvUlX6HikU&refer=home

Tuesday, August 12, 2008

Philly Fed: Economy slowing more sharply

From Reuters:

U.S. economic growth is expected to slow more sharply in the coming months than previously forecast with employers shedding staff into next year, according to a Philadelphia Federal Reserve survey released on Tuesday.
...
"Growth in U.S. real output over the next few quarters looks slower now than it did just three months ago," the Philadelphia Fed said on its Web site.
....
The current survey also forecast the U.S. unemployment rate would be 5.7 percent in the third quarter, above its previous 5.4 percent forecast, then rising to 5.8 percent in the fourth quarter.
"A weaker near-term outlook for the labor market accompanies the outlook for slower output growth," the Philadelphia Fed said.

We have been talking about the poor labor markets for a while. As the labor market gets worse, housing is going to get worse.

Economists expect employers to shed jobs at a slower rate in the first three months of next year before adding workers in the second quarter of 2009.

They are already looking to second quarter of 2009 for a recovery.

U.S. core PCE inflation, a gauge the Federal Reserve watches closely, is estimated at 2.2 percent in the third quarter and 2.1 percent in the fourth quarter.

While the inflation is under-reported, going forward, we will be looking at deflation.

http://biz.yahoo.com/rb/080812/usa_economy_phillyfed_forecast.html

Technorati Tags economy,PhillyFed

JPMorgans had Losses of $1.5

JP Morgan Chase & Co. has had losses of $1.5 billion.

From Bloomberg:

JPMorgan Chase & Co. has had losses of $1.5 billion on mortgage-backed assets so far this quarter as the U.S. housing slump deepened amid turmoil in credit markets.
....
``The global credit market hasn't much improved,'' said Tim Leung, who helps manage about $1.5 billion at IG Investment Ltd. in Hong Kong. ``The risk aversion to lending to financial institutions is still high and everyone is still very cautious.''

Risk aversion except for the Fed. They just keep increasing the loans.

It expects the global economy ``to continue to be weak, for capital markets to remain under stress and for a continued decline in U.S. housing prices,'' the filing said. ``These factors have affected, and are likely to continue to adversely impact, the firm's credit losses, overall business volumes and earnings.''

Once again, they are looking for a continued decline in housing. Unlike the analysts who see a housing bottom.

UBS

In other news, UBS will split Investment bank from Wealth management. So much for one-stop banking model. UBS's strong poing was it's Wealth management unit. Investment Bank's problem were dragging down wealth management. It will be interesting to see if they can stop the slide.

The bank reported a second-quarter net loss of 358 million Swiss francs ($329 million), compared with a 5.55 billion-franc profit a year before. About 3.8 billion francs in tax credits cushioned the loss.
....
Clients at UBS's wealth management units withdrew a net 17.3 billion francs in the quarter, triple the 5 billion-franc estimate of analysts. The divisions, which oversaw 1.86 trillion francs at the end of June, attracted an average of 37.9 billion francs in each quarter last year. Net outflows from all the bank's money management units totaled 43.8 billion francs.

Technorati Tags Credit,JPMorgan,UBS

Friday, August 8, 2008

Fanni Mae Loses $2.3

Fannie Mae posted its fourth straight quarterly loss. It lost $2.3 billion during the last quarter. The dividend will be cut from 25 cents to 5 cents. Why are they not cutting the dividend to 0? Right now, with the explicit backing, tax payers could be paying the dividend. The explicit guarantee is the worst of both worlds. Tax payers are taking the risk and share holders (who should have been wiped out) are enjoying the rewards (although excluding the dividend, they are not being rewarded).

If the GSEs were nationalized, at least the tax payers are responsible for risk and rewards.

Freddie CEO Richard Syron, 64, this week said the company is waiting for a more ``propitious time'' to sell the $5.5 billion in stock it had agreed to offer in May. Freddie said it will cut its dividend at least 80 percent and may slow purchases of mortgages to shore up capital.

I guess he means waiting for the treasury secratary to provide the capital. Once again, why cut the dividend 80% and not 100%??????

Paulson last month received authority for his plan to buy unlimited equity stakes in the companies and extend them financing if needed to help bolster confidence in the companies.

Once again, the unlimited part just boggles my mind. Remember, the administration needed the authority in Iraq to "enforce a diplomatic solution." Now, the congress has given a blank check. Then when the administration uses this authority, they are going to cry foul.

Freddie revised its forecast for housing price declines to a drop of as much as 20 percent from a previous estimate of 15 percent and said the number of properties it has in foreclosure rose to 22,000, the most since it was created in 1970 during the Vietnam War.

Slowly they seem to be getting the picture. But the 20% still does not seem like ennough. I wonder if their risk management takes into account what happens if home prices decline 30% or more.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYPqJhQUd2Wg&refer=home

Technorati Tags GSE,FannieMae,Nationalization

Thursday, August 7, 2008

June Pending Home Sales

June pending home sales rose by 5.3% while the May number was revised lower to 4.9% from 4.7%. While the number may look good, remeber that this is a 12.3% drop from last year. This still does not mean housing has bottomed, although that won't stop most analysts from calling a bottom in housing.

Lawrence Yun, NAR chief economist, said sales have been in a pattern of rising and falling within a fairly narrow range. “The vacillation of data from one month to the next indicates a housing market in transition,” he said. “The rise in pending home sales was broad-based with all four regions showing gains. This is welcome news because a rise in contract activity is necessary for an overall housing recovery. With a tax credit now available to first-time home buyers, increases in home sales could be sustained with the momentum carrying into 2009.”

It's not a tax credit for the first time home buyers. It's a interest free loan!

The PHSI in the South jumped 9.3 percent to 92.4 in June but is 16.6 percent below June 2007. In the West, the index rose 4.6 percent to 101.0 in June but remains 1.7 percent below a year ago. The index in the Northeast increased 3.4 percent to 79.6 but is 15.4 percent below June 2007. In the Midwest, the index rose 1.3 percent in June to 79.6 but is 13.3 percent below a year ago.

Compared to last year, the nubers are still horrible. Now, the labor market is deteriorating and interest rates are going higher.

Jobless Claims and Retail sales

Jobless claims hits six year high. Applications for unemployment insurance rose by a seasonally adjusted 7,000 to 455,000 for the week ending Aug. 2. This should put an end to people expecting a second half recovery. We still have a long way to go before things bottom out.

The number of people continuing to collect unemployment benefits went up by 31,000 to 3.3 million for the week ending July 26, the most recent period for which that information is available. That was the highest since early December 2003.
.....
Against that backdrop, the Fed decided to leave a key interest rate steady Tuesday. The Fed can't afford to cut rates anymore because it could aggravate inflation. On the other hand, boosting rates too soon would deal a blow to the economy and the ailing housing market.

The fed would have decided to keep the rates low regardless. If the feds were concerned about inflation, they would have stopped cutting the rates, especially the last quarter point cut. The problem with the fed is they are backward looking. The problem going forward is not inflation - it's deflation. We've got deflation in home prices combined with credit contraction. That spells deflation.

Retail Sales

Walmart's same-store sales, excluding fuel, increased by 3.0% in July. Walmart also gave a conservative estimate for August sales to be up 1% to 2%.

Walmart is a discount retailer and it's numbers were not as ugly as other retailers. Target, another discount retailer, sales fell by 1.2% in July and it forecast another decline in August.

J.C. Penny's same-store slipped 6.5%. Kohl's July sales were down 10.4%.

Over all, the numbers were ugly. Here is Paulson's opinion on stimulus checks just last week.

While many private economists worry that the effect of the stimulus payments will quickly fade, Paulson said the administration expects the stimulus program would continue to support growth in the second half of this year.

2nd half? It seems it did not even last into July!

Technorati Tags JoblessClaims,RetailSales

Wednesday, August 6, 2008

S&P's Rating Games

How screwed up are the Ratings Agencies? Look at their email and you'll know the answer to that question. Here are exceprts from Housing Wire:

In one email, an S&P staffer emailed another that an RMBS deal being rated was “ridiculous” and that “we should not be rating it,” according to the report. They reply came back saying that “we rate every deal,” and that “it could be structured by cows and we would rate it.”

Even after these emails, the SEC is still worried about short-sellers. Of course SEC does not want the credit agencies to start being honest NOW. Imagine all those AAA CDOs becoming junk.

That source said the result was that most firms were often short-handed, turnover was high, and deals were rated often “to get them out of the door.”
“The idea that the agencies actively colluded with issuers misses the point, in my opinion,” said the source. “That would assume that we had the time and ability to do so, neither of which was often the case. We really were turned into order takers, and our main concern was to keep deals.”

I am not sure how "reliable" this source is. According to the "Source", it seems it was lack of time as the main cause of bogus ratings and not conflict of interest. I doubt that. I am sure conflict of interest had something to do with it. After all, the higher you rate, the more business you get from the investment banks.

http://www.housingwire.com/2008/08/04/sps-rating-concerns-structured-by-cows/

Fannie and Freddie Political Donations

I was looking into writing about Freddie and Fannies Political contributions today. And lo and behold there is this article in WSJ.
If the government is not fully backing these institutions, why are they allowed to make political donations? By extension, aren't tax payers dollar being used to lobby?

...But an underreported part of this story is that Majority Leader Harry Reid refused to allow a vote on Republican Jim DeMint's amendment to bar political donations and lobbying by Fannie and its sibling, Freddie Mac.

This is why you can't trust any of the parties. I would like to know why Harry Reid would block this legislation. Can anyone imagine any other government agency doing this?

But with Fan and Fred now explicitly guaranteed by taxpayers, letting them ladle cash all over Washington amounts to using government-guaranteed profits to lobby for continued government protection. Congress sets the rules in favor of Fan and Fred, which then repay the Members with cash from their rigged profit stream. This is the government lobbying itself for more government.

Imagine filling your own back pockets.

Fannie gave $10,000 to Speaker Nancy Pelosi, $10,000 to third-ranking House Democrat Rahm Emanuel, $5,000 to Barney Frank, $10,000 to Republican House whip Roy Blunt, $8,500 to Majority Leader Steny Hoyer and $7,500 to Minority Leader John Boehner and . . . you get the picture.

Anyone who accepts donations from Freddie and Fanny should be voted out. Here the Democratic list seems to be bigger. I am not sure if this is because of WSJ or the Fannie just donated more money to Democrats.

Then there are the "charitable" foundations. Freddie Mac's foundation handed out $25 million to political groups, think tanks and other Beltway outfits in 2007 alone, more than any other foundation in the country, according to the Washington Business Journal. Guess which foundation ranked number two? Yep, Fannie Mae's, which gave out $21 million. The foundations grew thanks to gifts of stock during the companies' heyday before their accounting scandals and the housing bust. Last year, as political scrutiny increased, Fannie closed down its foundation and now runs its tax-deductible donations through the company itself.

The more you read, the angrier I get at tax payer dollar being wasted to loosen the accounting standards so they can keep lending at tax payers risk.

What bothers me even more is that there is no outrage in the USA. I am not sure if it's because people are unaware of these issues or people just feel they can't do anything with a two party system where both parties are more of the same.

http://online.wsj.com/article/SB121728651034091275.html?mod=todays_us_opinion

Another Freddie Mac Loss

Freddie Mac, the nation’s second-largest mortgage finance giant, reported its fourth consecutive quarterly loss on Wednesday and said it would cut its dividend as it struggled through a housing crisis that had cost Wall Street tens of billions of dollars so far.

The company revealed $2.5 billion in credit losses associated with increased delinquency and foreclosure rates, and said the value of its portfolio of mortgage-backed securities had declined by $1 billion.

A billion here, a billion there..It's scary now that tax payers are behind the losses.

Freddie Mac reiterated that it would raise at least $5.5 billion from investors. The company has been under pressure from regulators and federal officials to raise additional money but as the share price has declined, the cost of raising the funds has skyrocketed.

I guess it meant "The Investor" instead of "investors".

Freddie Mac also said it would cut its quarterly dividend by 80 percent to 5 cents a share, pending board approval.

It is about time. The dividend should have been eliminated long time ago. This is a case of a bit too little too late.

Freddie Mac and Fannie Mae own or guarantee more than $5 trillion in mortgages, or nearly half of all home loans in the United States.

Remember this is the last source of mortgages in the US. And they are already over-leveraged. People looking at housing bottom are still missing the biggest issue - Mortgages. If mortgages dry up or interest rates go higher, as both will happen, it's going to be another nail in the housing markets coffin.

http://www.nytimes.com/2008/08/07/business/07freddie.html?_r=2&hp&oref=slogin&oref=slogin

Tuesday, August 5, 2008

FedPressRelease_8_5_2008

FOMC keeps the rates at 2%.

Here is the press release.

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

There weren't any suckers who knew the dovish fed would raise rates.

Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

So even though the economy expanded, we are keeping our rates (WAY) below inflation rate because we still have many issues. Tight credit conditions despite the fact that we provided almost a trillion dollar of loans to the banks. Higher energy prices caused by our rate cuts are still high. And the housing contraction could worsen as mortgage rates are still rising.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

Inflation is high but who cares. We need some kind of inflation statement in there. Has there ever been a time when we were NOT concerned about inflation? Never at least when it comes to talking. Actions...that's a different topic all together.

Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Who cares about inflation? But remember we need to talk tough.

Monday, August 4, 2008

Roubini-8/4/2008

Here is Nouriel Roubini in a Barron's Magazine interview. It is a must see for those who think we are closer to the end of our troubles.

We have heard CEOs of financial companies telling us we are in the ninth inning. We've got Jim Cramers of the world telling us, as recently as last week, the worst of the crisis is over.

Prof. Roubini crashes their party.

Some highlights from the video:

"Very Accurate Prophet of Doom"
We are in the 2nd Innings of a very long protracted game..."sever recession"... Eye of Strom...Worst ahead of us
On the Fed - ...Running out of bullets.
On the deficit - ...financed by arch-rivals China, Russia, etc.
On USA... US looks like a great empire in decline....US is a net borrower...Debt is $2.5 trilliion, bigget in the world.
What's our country going to look like? It's going to be a difficult period....

Technorati Tags Interview,Barrons,Roubinis

Friday, August 1, 2008

July 2008 Jobs Report

Jobless rate rose to 5.7% but only 51,000 jobs were lost. I say "only" becuase we were expecting numbers to be even worse. The BLS adjustments were -1,458 in July. But "Seasonly Adjustment" seems to have saved the day here.

Of course, the numbers are grim. Look at the Not in labor force details and you see why. There is a 25% increase (From July 2007) of people who are not in labor force because they are too discouraged over job prospects.

Discouragement over job prospects (2)........... 367 461

More people are working two jobs.

Primary job full time, secondary job part time..... 3,996 4,149

And remember the higher levels of umemployment remeber much longer after the recession.

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