by Calculated Risk on 7/08/2008 02:55:00 PM

From Bloomberg: SEC Probe of Raters Reveals Conflicts in Grading Debt (hat tip DD49)

A U.S. Securities and Exchange Commission investigation into credit-rating companies found the firms improperly managed conflicts of interest and violated internal procedures in granting top rankings to mortgage bonds.

What a surprise. And the article provides this email:

The SEC report details an e-mail in which an analyst at an unidentified credit-rating company refers to the market for collateralized debt obligations as a ``monster.''

``Let's hope we are all wealthy and retired by the time this house of cards falters,'' said the e-mail, which was sent Dec. 15, 2006, to another analyst at the same firm.

Nice.

by Calculated Risk on 7/08/2008 02:00:00 PM

From the WSJ: Lacker to Fed: Don’t Wait Too Long on Rates

In response to questions following a speech to the National Economists Club, Lacker said it is “tempting” for policymakers to wait until there is a “fair amount” of certainty on the economy before raising rates. However, it is easy to make the “mistake” of waiting too long, Lacker added.

Note that Lacker isn't a voting member of the FOMC this year, and he frequently dissented (preferring higher rates) in 2006.

Here is Lacker's speech: The Economic Outlook.

by Tanta on 7/08/2008 12:47:00 PM

You really want to watch this CNBC video interview with OFHEO's Director James Lockhart. Although you won't get an answer to one nagging question--who let that man out of the house in that shirt with that tie and that jacket?--you might enjoy Lockhart's dogged ability to keep making calm answers to increasingly hysterical questions.

by Calculated Risk on 7/08/2008 12:20:00 PM

The Greenbrier Companies (GBX) designs, manufactures, and markets railroad freight car equipment. On their conference call today, Dow Jones reports:

Greenbrier CEO Says U.S. Railcar Market 'Stinks'

by Calculated Risk on 7/08/2008 10:20:00 AM

From Reuters: US retail property 2nd-qtr worst in 30 yrs - report

U.S. store closings and cutbacks turned the second quarter into the worst for strip mall owners in 30 years ... according to a report by real estate research firm Reis. Strip malls ... saw average vacancies spike 0.5 percentage points to 8.2 percent, a level unseen since 1995 ...

Vacancies at regional malls rose 0.4 percentage points to 6.3 percent, the highest level since the first quarter of 2002, according to the preliminary results.

Click on image for larger graph in new window.

This graph shows the strip mall vacancy rate since Q2 2007. Note that the graph doesn't start at zero to better show the change.

It was just last quarter that Reis forecast the strip mall vacancy rate to "reach or surpass" 8% by the end of 2008! I guess that forecast needs to be revised.

And it will get worse. As an example these numbers don't include the impact of the recent announcement by Starbucks to close 600 stores and scale back expansion plans. The CRE bust is here.

by Calculated Risk on 7/08/2008 10:01:00 AM

From MarketWatch: Pending home sales index down 4.7% in May: NAR

From the NAR: Home Sales to Vary in Narrow Range, Then Rise in Second Half

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in May, fell 4.7 percent to 84.7 from an upwardly revised reading of 88.9 in April, and remains 14.0 percent below May 2007 when it stood at 98.5.

by Calculated Risk on 7/08/2008 09:16:00 AM

Fed Chairman Bernanke spoke today on Financial Regulation and Financial Stability

From Bloomberg: Bernanke Says Fed May Extend Wall Street Lending Access to 2009

The Federal Reserve may extend securities dealers' access to direct loans from the central bank into 2009 as long as emergency conditions ``continue to prevail,'' Chairman Ben S. Bernanke said.
...
Bernanke also endorsed proposals to set up a federal liquidation process for a failing investment bank. The Treasury should ``take a leading role in any such process, in consultation with the firm's regulator and other authorities,'' he said.

In general Bernanke argued the Fed needs more authority to provide proper oversight for the financial system.

by Tanta on 7/08/2008 08:09:00 AM

. . . join Burn Outs and Trash Outs in the tabloid lore of the housing bust. Via Housing Doom, we find a 73-year-old man executing his real estate agent because the house he bought in 2005 is no longer worth the original sales price.

Like the recent case of the woman in foreclosure who torched her house, this story says less to me about responses to an RE bust than it does about a simple fact of homeownership in America: the universe of homeowners is big enough that it is a statistical certainty that it contains more than one person with long-term emotional problems and exceptionally poor impulse control that have very little to do with buying or mortgaging a home as such and undoubtedly predate that transaction by decades. There are simply people for whom losing their home (or their "investment") is unbearable stress that pushes them over the edge into violence. I am confident that these people would experience major illness, divorce, unemployment, a scratch on their new car or the neighbor's cat peeing in their yard as unbearable stressors, too, in the right circumstances.

I will nonetheless bet my neighbor's cat's bad habits that editorialists will endlessly recycle this story as a measure of the severity of the housing bust.

by Calculated Risk on 7/08/2008 02:00:00 AM

Press Release: Office Depot Issues Second Quarter Preliminary Outlook

Office Depot ... announced today that it continued to be negatively impacted by the challenging economic environment in the second quarter of 2008.

As a result of additional pressure from weakening business conditions in the second quarter, North American Retail same store sales decreased nearly 10 percent versus the prior year and total Company sales were down slightly.... as sales trends worsened late in the quarter.

... the Company anticipates the economic environment to be difficult over the balance of the year...
emphasis added

It's bad. And it's getting worse ("sales trends worsened late in the quarter").

by Calculated Risk on 7/08/2008 01:17:00 AM

From Andrew Sorkin at the NY Times: Psst! Hear the Rumor of the Day?

“I will hurt the shorts, and that is my goal,” [Lehman CEO] Richard S. Fuld Jr. fumed.

Hey, every time I hear a CEO complain about the "shorts", I think the CEO must have better things to do!

Talk that Barclays was buying even reached Lehman’s trading desks, where the rumor whipped around the office and then reverberated across Wall Street again. Panicky Lehman employees started calling friends outside the firm to find out what was going on inside the firm. One Lehman executive said, “Even my mother-in-law called me.”
...
Absurd rumors can have legs, like the Lehman-Barclays one, which Richard Bove, an analyst at Ladenburg Thalmann, said “ranks up there with the moon is made out of green cheese in terms of its validity.”

I hear rumors frequently; some make sense, some don't. I had a similar reaction as Bove to the Lehman-Barclays rumor.

Today we had rumors circulating about Indymac that proved to be true. I only posted the rumor because of the importance to housing and the credit markets, the stock was halted pending news (although apparently not halted everywhere - weird) and the rumor seemed likely to be true (it was).

As an aside, I met Sorkin at the Milken conference. I thought he was still in high school (just kidding), but I did feel a little old.