by Calculated Risk on 1/20/2009 07:55:00 PM

David Rosenberg at Merrill Lynch wrote a research piece last week: "Not Your Father’s Recession ...(But Maybe Your Grandfather’s)" (no link)

Needless to say, the piece wasn't too upbeat.

But I was intrigued by some of the comments on vehicle sales. Rosenberg presented the following data (these are my graphs of the same data):

Click on graph for larger image in new window.

The first graph shows monthly vehicle sales (autos and trucks) as reported by the BEA at a Seasonally Adjusted Annual Rate (SAAR).

This shows that sales have plunged to just over a 10 million annual rate - the lowest rate since the early '80s recession.

The next graph shows the ratio of registered vehicles in the U.S. to the number of licensed drivers.

Rosenberg only plotted the data from 1975 through 2006 and the Y-axis was scaled from 1.0 to 1.2. This gave the appearance of a rapid increase in the ratio.

Looking at the raw data reveals that this includes private and commercial vehicles, so if someone drives a car to work - and then a different vehicle at work - that is counted as 2 vehicles per licensed driver. This would include truck drivers, police officers, and others. So a ratio of 1.2 vehicles per driver doesn't seem so high, although Rosenberg asks "Too many vehicles?"

This led me to plot the third graph (not in research piece).

This graph shows the total number of registered vehicles in the U.S. divided by the sales rate - and gives a turnover ratio for the U.S. fleet (this doesn't tell you the age of the fleet).

Currently this ratio is at 23.9 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 24 years!), and the ratio will probably decline over the next few years. This could happen with vehicles being removed from the fleet, but more likely because of a sales increase.

If the ratio of vehicles to licensed drivers declined to 1.1 (last seen in the early '90s recession), and the turnover ratio declined to 15 years, this would suggest sales would increase to 15 million vehicles per year. Although not as high as the recent boom years - this is still a sales increase of more than 40% above current levels.

Sales won't increase right away (look at the depressed sales during the early '80s), but this does suggest that auto sales are closer to the bottom than the top, and that auto sales will increase significantly in the future - although sales in 2009 will probably be dismal.

by Calculated Risk on 1/20/2009 05:54:00 PM

Actually Bailout Bitter! Click on photo for a larger image. Credit: Barley Enjoy Responsibly.

by Calculated Risk on 1/20/2009 04:58:00 PM

More banking news from Europe ...

From Bloomberg: King Says BOE May Start Buying Assets Within Weeks

Bank of England Governor Mervyn King said officials may start buying assets in the next weeks to loosen credit markets as the lowest interest rates since 1694 fail to avert a “marked” recession.

The U.K. central bank may acquire securities such as corporate bonds and commercial paper to bolster lending to companies and consumers as banks rebuild balance sheets damaged by the global financial crisis, King said today.

And from Reuters: Germany's Hypo gets extra 12 bln eur in guarantees

Stricken German investment bank Hypo Real Estate said on Tuesday it would get an additional 12 billion euros in state guarantees and it was still in talks with the state regarding further support.

by Calculated Risk on 1/20/2009 04:17:00 PM

Citigroup (C) off 20%

BoF (BAC) off 29%

JPMorgan (JPM) off 21%

Goldman Sachs (GS) off 19%

Wells Fargo (WFC) off 24%

Morgan Stanley (MS) off 16%

Did someone say "Nationalize"?

Another fun day ...

by Calculated Risk on 1/20/2009 02:36:00 PM

From CNBC: Layoffs Keep Growing—Is Your Firm On the List? (hat tip stay classy San Diego)

Bank of America may slash as much as 4,000 jobs as it absorbs Merrill Lynch, the Financial Times reported Tuesday.

CNBC has a list of layoffs announced since the beginning of the year.

Also from The Boston Globe: Bose confirms layoffs

Bose Corp., a Framingham company known for its audio products, confirmed news reports that it is cutting 1,000 jobs, or about 10 percent of its work force, as it seeks to adapt to a global economy in recession.

The beat goes on ...

by Calculated Risk on 1/20/2009 11:14:00 AM

Here is the CNBC feed of the inauguration. Mr. Obama takes the oath of office at noon ET.

From an economic perspective, Mr. Obama's first few weeks in office will be critical as his administration finalizes the stimulus package and addresses the ongoing crisis in the banking system.

Best wishes to Mr. Obama. You are now on the clock.

by Calculated Risk on 1/20/2009 10:00:00 AM

From Bloomberg: Roubini Predicts U.S. Losses May Reach $3.6 Trillion

“I’ve found that credit losses could peak at a level of $3.6 trillion for U.S. institutions, half of them by banks and broker dealers,” Roubini said at a conference in Dubai today. “If that’s true, it means the U.S. banking system is effectively insolvent because it starts with a capital of $1.4 trillion. This is a systemic banking crisis.”

Professor Roubini has been steadily increasing his estimate of total U.S. credit losses, but I think this estimate might be too high.

I think the U.S. residential credit losses will be in the $1 to $1.5 trillion range and additional credit losses from corporate loans and bonds, commercial real estate, credit cards, and other consumer loans will probably add close to another $1 trillion in losses. That is still well short of Roubini's $3.6 trillion estimate - although give Roubini credit - he has definitely been right so far!

by Calculated Risk on 1/20/2009 09:37:00 AM

From Bloomberg: State Street Net Falls 71% on Costs to Support Funds

State Street Corp ... Results included costs of more than $800 million to offset losses in its stable value funds, cut jobs and write down the value of investment securities.

Here is the State Street presentation (hat tip Mike in Long Island)

Check out the acceleration in the Unrealized after-tax MTM losses on page 4.

Also Mike suggests looking at page 18 and the exposure to RMBS in Spain and Italy.

And from the WSJ: Regions Financial Swings to Loss on $6 Billion Write-Down

Regions Financial Corp. swung to a fourth-quarter loss as it took a $6 billion goodwill write-down and sharply raised loan-loss provisions, although non-performing assets fell slightly amid the continuing disposal of problem assets.

The bad news continues ...

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.