by Calculated Risk on 1/19/2009 11:26:00 PM

From the WSJ: Fiat Nears Stake in Chrysler That Could Lead to Takeover

Under terms of a pact that is being hammered out, Fiat is likely to take a 35% stake in Chrysler by the middle of this year. It would have the option of increasing that to as much as 55% ...

Fiat ... wouldn't immediately put cash into Chrysler. Instead it would obtain its stake mainly in exchange for covering the cost of retooling a Chrysler plant to produce one or more Fiat models to be sold in the U.S. ...

Thirty five percent of Chrysler for the cost of retooling a plant ... that will make Fiats!

by Calculated Risk on 1/19/2009 08:53:00 PM

From The Times: Nationalisation calls as RBS teeters on the brink

RBS, worth £75 billion only two years ago, is now valued at £4.5 billion, even though it received £32 billion from taxpayers and shareholders less than three months ago.

The bank’s plight prompted calls for the outright nationalisation of RBS, with some MPs urging the Treasury to take over its day-to-day running.
...
The turmoil suggested that the Government’s second massive rescue package had failed to restore confidence to the financial sector. It was a graphic illustration of continued banking uncertainty that prompted calls on the Government from Labour MPs to nationalise the whole system, an idea resisted firmly by Alistair Darling, the Chancellor, last night.

The most recent bail out will increase public ownership of RBS to 70%, so it's not a huge step to complete nationalization.

by Calculated Risk on 1/19/2009 05:09:00 PM

From the National Multi Housing Council (NMHC): Job Losses, Credit Market Conditions Challenge The Apartment Sector, According to NMHC Survey

The stunning job losses and economic deterioration recorded over the past four months have eroded demand for apartments, putting the sector—like other real estate sectors and the economy itself—in a clearly "down" phase of the cycle, according to the National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions.
...
"The long-term prospects for the sector are strong," explained [Mark Obrinsky, NMHC's Chief Economist]. "The number of people between 20-34 years of age is rising rapidly, and as they enter the rental market, demand will rise correspondingly. For now, though, that demographic advantage is being trumped by the worsening job market, which is leading more people to move back in with family or take on roommates to save on housing costs."

"At the same time, the financial crisis is having a material impact on current or planned activities at most apartment firms," said Obrinsky. "Nearly two-thirds of respondents (62 percent) said the credit crisis has had a material impact on current and planned activities. The lack of capital has slowed sales volume, made it difficult to refinance maturing debt and caused many firms to cancel new developments."

The Market Tightness Index, which measures changes in occupancy rates and/or rents, declined sharply this quarter to 11 from 24. This is the third-lowest result on record, and the sixth straight quarter in which the index has been below 50.

Click on graph for larger image in new window.

This graph shows the quarterly Apartment Tightness Index.

As NMHC chief economist Obrinsky noted, it is common in a recession for apartment vacancies to rise, as households double up by moving in with a friend or family member. However an added factor in this recession is all the single family homes being offered as rentals. This is additional competition for apartments and might also be impacting demand for apartments.

by Calculated Risk on 1/19/2009 02:49:00 PM

For a laugh, here is a house in Carlsbad, CA west of the freeway selling for under $400 thousand ... from Jim the Realtor:

Wow. Who could live there? (backs to the "Detroit River" ROFLOL)

Houses are even cheaper in Detroit. From Dow Jones: How low can homes go? Try $0

[T]he median price of a home sold in Detroit last month was $7,500, according to Realcomp, a Farmington Hills, Mich., multiple-listing service, down 50 percent from last year.

[Detroit real estate agent Ian Mason] counted 1,228 homes listed for under $10,000, 209 of which were under $1,000.

"Many of them are in pretty decent shape," he said, "and some can be lived in."

Define "live".

by Calculated Risk on 1/19/2009 01:07:00 PM

From DataQuick: Southland home sales off bottom

The core trends of Southern California's 2008 housing market were on prominent display in December: Low-cost inland foreclosures sold briskly, builders had their worst month in decades, expensive markets remained in wait-and-see mode and lenders continued to hold back on making 'jumbo' home loans ...

While sales from September 2007 through last summer were at the lowest in at least two-decades, they've been up off the bottom ever since. Last month was the fifth-slowest December in DataQuick's statistics, which go back to 1988. December a year ago was the all-time slowest ...

The number of resale houses sold in Riverside County almost tripled on a year-over-year basis, from 1,238 in December 2007 to 3,617 last month. Just under 70 percent of Riverside County resales were foreclosure homes. ...

Regionwide, foreclosure resales accounted for 55.7 percent of December's resales activity, up from 54.7 percent in November, and up from 24.3 percent in December 2007.

A total of 1,813 newly-built homes were sold in December, easily the lowest number for that month in DataQuick's statistics. ...

The median price paid for a Southland home was $278,000 last month. That was down 2.5 percent from $285,000 for November, and down 34.6 percent from $425,000 for December a year ago. The median reached $505,000 in mid 2007.

In today's market, the drop in the median overstates the decline in home values. The more affordable inland markets with most of the discounted foreclosures account for a large share of today's sales, while homes in the upper half of the market are not selling well ...

This makes a few key points:

The median price is skewed by the mix.

Foreclosure resales ARE the market in many areas.

Builders had the worst December ever.

Significant price declines are probably coming in the more expensive areas. (price follows volume).

by Calculated Risk on 1/19/2009 12:09:00 PM

Bloomberg has an article on the Inland Empire: California Finds Public-Works Spending No Unemployment Cure-All. The focus of the article is on public works projects, but the more important point is that areas with the highest levels of construction employment during the housing boom are now suffering the most from unemployment (no surprise!).

Only four years ago, Riverside and nearby San Bernardino, often called the Inland Empire, were California’s economic powerhouse, accounting for more than a fifth of the state’s new jobs. Today, unemployment reigns in the sprawling region east of Los Angeles. The 9.5 percent jobless rate in the two counties matches Detroit’s as the highest of any major metropolitan area in the U.S.

Click on graph for larger image in new window.

This graph (using Not Seasonally Adjusted data) shows construction as a percent of total employment for the Inland Empire, California and the U.S.

Although there was a surge in construction employment in the U.S., and about a 50% increase in California (as a percent of total employment), construction employment doubled (as a percent of total employment) in the Inland Empire.

The second graph shows the percent of construction employment and the unemployment rate for the Inland Empire.

With the housing bust, the percent construction employment has declined sharply and the unemployment rate has risen to almost 10%. Is it any surprise that jobless rate in the Inland Empire matches Detroit’s as the highest of any major metropolitan area in the U.S.?

by Calculated Risk on 1/19/2009 09:10:00 AM

From The Times: RBS losses set to reach record £28 billion

Royal Bank of Scotland (RBS) confirmed today that losses for the full-year could reach as much as £28 billion ...

The bank said this morning that it will make an annual loss of between £7 billion and £8 billion, when it announces its results on February 26.

However, it also expects to announce a charge of between £15 billion and £20 billion related to last year's acquisition of ABN Amro, the Dutch bank, which it acquired with Spain's Santander and Fortis, the Belgium bank.

The potential £28 billion loss is nearly twice the size of Vodafone's £15 billion deficit in 2006, currently the biggest-ever corporate loss in UK history.

From the WSJ: RBS Expects Huge 2008 Loss

Royal Bank of Scotland Group PLC said Monday that tough market conditions in the fourth quarter and mounting impairment charges could push it to a 2008 full-year loss of as much as £28 billion ($41.29 billion), the U.K.'s biggest ever corporate loss.

Ouch!

by Calculated Risk on 1/19/2009 01:44:00 AM

Paul Krugman explains (once again) why "bad banks" won't work: Wall Street Voodoo

Also see Krugman's blog today: More on the bad bank

by Calculated Risk on 1/18/2009 05:36:00 PM

The Times is reporting that Gordon Brown will announce on Monday: Banks bail-out: Taxpayers may take shares in Barclays and HSBC

* The Government's £250 billion Credit Guarantee Scheme to support lending between banks will be extended until the end this year.

* An expansion of the Bank of England's £200 billion Special Liquidity Scheme. The Bank will now accept consumers' car loans in exchange for high-grade Government bonds ...

* A plan for the Government to guarantee £100 billion of mortgage-backed securities...

* Northern Rock, the state-owned bank will be told to offer more mortgages ...

Talks are also underway for the state to increase its holdings in RBS and the newly-formed Lloyds Banking Group ...

Still scheming ...

by Calculated Risk on 1/18/2009 03:42:00 PM

OK, this is amusing. Although there is no formal definition of an economic depression, the most common definition is a sustained recessionary period with at least a 10% decline in real GDP from peak to trough.

And that brings us to the odds of a depression from Intrade Prediction Markets. (hat tip Asymmetric). This graph shows that traders believe the odds of a depression in 2009 are about 55%.

And how does Intrade define a depression? Here are the rules:

This contract will settle (expire) at 100 ($10.00) if quarterly GDP figures show the US economy has gone into a depression in 2009.

The contract will settle (expire) at 0 ($0.00) if quarterly GDP figures DO NOT show the US economy has gone into a depression in 2009.

For expiry purposes a depression is defined as a cumulative decline in GDP of more than 10.0% over four consecutive quarters. This is calculated by adding together the published (annualized) Real GDP figures (as detailed below). If these annualised figures add up to more than -10.0% over four consecutive quarters then the contract will expire at 100.

Example 1:

In Q1 the Final Real GDP figure is -3.5%
In Q2 the Final Real GDP figure is -2.5%
In Q3 the Final Real GDP figure is -2.0%
In Q4 the Final Real GDP figure is -2.3%

The sum of these figures is -10.3% so the contract will be expired at 100.
...
Negative quarters in the preceding year will count towards the total GDP decline for expiration purposes. For example, if the total decline in GDP from Q3 2008 to Q2 2009 exceeds 10.0% then the contract will expire at 100.

Quiz: If the annualized real GDP declines 2.5% in each quarter of 2009, how much does real GDP decline in 2009?

A: -10% (as calculated by Intrade adding the four quarters together)

B: -2.5%

I'm not making this up. The answer is B. If GDP declines at an annualized rate of 2.5% each quarter, then the total decline in real GDP over four quarters is 2.5%.

So which is correct for Intrade? A a cumulative decline in GDP of more than 10.0% or "adding together the published (annualized) Real GDP figures"? ROFLOL. I think they might have a dispute coming!

I suspect this might actually come up if reported GDP declines 5% in Q4 2008 and another 5% in Q1 2009; some observers might claim GDP has declined 10% (adding the two together). Readers of this blog will know that real GDP would have only declined about 2.5%! That is bad enough. (5% annual rate for half a year)