by Calculated Risk on 2/16/2009 06:42:00 PM

From the WSJ: California Legislators Reconsider Plan to Close $42 Billion Budget Gap (ht Dwight)

California legislators met Monday to reconsider a proposal to close the state's $42 billion deficit after aborting a vote late Sunday ... that would raise taxes and cut spending. ...

The budget put up to vote during the long-weekend session outlined spending for the next 17 months. In addition to the revenue increases, it proposed cutting $15 billion in spending, including $8.6 billion from education and $1.4 billion from payroll costs, to be achieved in part by furloughing 200,000 state workers at least one day a month.
...
The impasse has revolved around a bill, out of the nearly 30 in the budget proposal, that would generate $14 billion in revenue by temporarily raising the sales tax by one percentage point, by increasing the gasoline tax by 12 cents a gallon and by adding a surcharge of up to 5% on income taxes, among other steps.

And from the AP: Kan. suspends income tax refunds, may miss payroll (ht Mark)

Kansas has suspended income tax refunds and may not be able to pay employees on time, the state's budget director said Monday.

The state doesn't have enough money in its main bank account to pay its bills, prompting Democratic Gov. Kathleen Sebelius to suggest transferring $225 million from other accounts throughout state government. But the move required approval from legislative leaders, and the GOP refused Monday.

There are just 2 of 46 states that the Center on Budget and Policy Priorities is facing a shortfall (of course California has the largest shortfall): State Budget Troubles Worsen

States are facing a great fiscal crisis. At least 46 states faced or are facing shortfalls in their budgets for this and/or next year, and severe fiscal problems are highly likely to continue into the following year as well. ...

States are currently at the mid-point of fiscal year 2009 — which started July 1 in most states — and are in the process of preparing their budgets for the next year. Over half the states had already cut spending, used reserves, or raised revenues in order to adopt a balanced budget for the current fiscal year — which started July 1 in most states. Now, their budgets have fallen out of balance again. New gaps of $51 billion (over 10% of state budgets) have opened up in the budgets of at least 42 states plus the District of Columbia.

by Calculated Risk on 2/16/2009 04:40:00 PM

From Smith Travel Research (STR): Hotel industry recession reaches 15 months

The Hotel Industry’s Pulse index declined 1.9-percent in January to bring the index to a reading of 90.8, according to a report from economic research firm e-forecasting.com in conjunction with Smith Travel Research.

The index measures the likelihood of a recession for the U.S. hotel industry. It was set to equal 100 in 2000. January’s 1.9-percent decline followed a drop of 1.2 percent in December.

HIP’s six-month growth rate, which historically has signaled turning points in U.S. hotel business activity, decreased by an annual rate of 16.1 percent in January, building on December’s 14.5 percent decline.
...
“According to HIP, the hotel industry entered its 15th month in the current recession in January,” said Chad Church from Smith Travel Research.

The previous two industry recessions, in 1991 and 2001, lasted 17 months each. “If HIP continues to decline for a few more months, the current recession in the hotel industry may outpace the longest hotel recession on record that occurred in 1981 and lasted 20 months,” Simos added.

Click on graph for larger image in new window.

This graph from e-forecasting.com and Smith Travel Research shows the hotel recessions based on the Hotel Industry’s Pulse index and the NBER's business cycle dating methodology.

In general, hotel recessions correspond to general economic recessions, although they last longer. There was a double dip recession for hotels following the 2001 recession.

The second graph shows investment in lodging (based on data from the BEA) as a percent of GDP. In general investment in lodging starts to decline during a hotel recession, however the recent boom in lodging investment has been stunning. Lodging investment is now at 0.34% of GDP - an all time high. However, with the hotel industry in recession, it appears likely that investment in lodging will decline sharply in 2009.

Note: prior to 1997, the BEA included Lodging in a category with a few other buildings. This earlier data was normalized using 1997 data, and is an approximation.

by Calculated Risk on 2/16/2009 02:24:00 PM

"The money is going to sit on the sidelines until [regulators] announce they’re going to do something with these [big banks]. Nobody is going to put fresh capital into the banking business when your major competitor is going to be continuously bailed out by the United States government with more and more money.”
Rusty Cloutier, the president and CEO of MidSouth Bank

From Diana Golobay at Housing Wire: Break Up Big Banks, Says Community Banker

Rusty Cloutier, the president and CEO of MidSouth Bank, recently told major news outlets that “[c]oncentration is a bad thing” and called for the feds to break up the “miserable eight” largest banks that, he said, control 60 to 64 percent of the country’s assets, restoring competition to the banking industry and restoring investor confidence in the system.

This is an excellent point. Most of the big banks can't raise capital because investors are afraid of nationalization preprivatization. And small banks can't raise capital because investors are concerned that their competitors (the large banks) will be continuously bailed out by the government.

by Calculated Risk on 2/16/2009 12:25:00 PM

Comedian Jim the Realtor tells the story of Dictionary Hill ... (2 min 49 sec). You have to wait until the end ...

For a couple of ugly McMansions in foreclosure, see this Chula Vista video. This is foreclosure alley in a higher price range. And yes, even homes that original sold for over one million dollars are sometimes destroyed by the owners:

by Calculated Risk on 2/16/2009 10:12:00 AM

From MarketWatch: Japan's economy shrinks 12.7% annualized

Japan's economy contracted ...12.7% on an annualized basis in the October-to-December period ...

The decline was the biggest since a 13.1% annualized contraction in the January-to-March period in 1974.

From CNBC:

"Given a rise in inventory and a decline in final demand, output adjustments will continue in January-March, paving the way for another big contraction in the first quarter," said Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities.

"As the U.S. stimulus package will have its effect on Japanese exports, Japan's economy may start picking up from April-June onwards, but it will be a very weak recovery amid a lingering recession. The economy can't avoid a second straight year of contraction in the fiscal year starting in April."

The Japanese economy is very dependent on exports, especially to China and the U.S. They are hoping the stimulus packages in China and the U.S. will also provide a boost to their economy.

by Calculated Risk on 2/16/2009 12:05:00 AM

The North County Times has a feature called "Deal of the Week". This week the deal is interesting for several reasons: See: Deal of the Week: 73% Off (sorry, wrong link initially)

The featured property is a one-bedroom, one-bath, 700-square-foot condominium in Escondido (inland north county San Diego).

In 2006, during the bubble, the unit sold for $191,000, and in December 2008 - after foreclosure, the unit sold for $52,000. That is almost 73% off the peak price!

A few key points:

In 2006, the unit was bought with no money down. Two months ago the buyer paid all cash. From no money down to all cash; near the opposite extremes of financing!

Note: "near" because during the bubble, some buyers actually received cash out at closing with financing of 105% LTV or greater.

These units currently rent for close to $900+ per month (although I suspect rents will decline in this area). Even figuring in HOA fees, taxes, maintenance, insurance, vacancy and other expenses, this unit has to be generating a nice return for the investor.

The unit sold for $45,900 in 1979 (Yes, 1979). I checked with Zach from the NC Times, and he said he confirmed the 1979 price with the assessor's office. Zach told me other units in the building sold for $40,500 in 1984, so maybe the '79 price was a little high (that was near the peak of a housing bubble too, so a 10% decline from '79 to '84 might be reasonable).

Over almost 30 years (1979 to Dec 2008) the price increased 13%. Annualize that return!

by Calculated Risk on 2/15/2009 10:50:00 PM

"Some clever advocates of nationalization have come up some alternative names, Dan. Some of them include government receivership, and my favorite is preprivatization."
John Hendren, ABC News, Feb 15, 2009

(ht to all)

See video ...

My favorite too. Best to all.

by Calculated Risk on 2/15/2009 07:01:00 PM

Four banks were closed by the FDIC Friday, for a total of 13 banks so far in 2009. To put those failures into perspective, here are two graphs: the first shows the number of bank failures by year since the FDIC was founded, and the second graph shows the size of the assets and deposits (in current dollars).

Click on graph for larger image in new window.

Back in the '80s, there was some minor multiple counting ... as an example, when First City of Texas failed on Oct 30, 1992 there were 18 different banks closed by the FDIC. This multiple counting was minor, and there were far more bank failures in the late '80s and early '90s than this year.

Note: there are currently 8,384 FDIC insured banks.

The second graph (ht Kurt) shows the bank failures by total assets and deposits per year starting in 1934 (in current dollars adjusted with CPI).

WaMu accounted for a vast majority of the assets and deposits of failed banks in 2008, and it is important to remember that WaMu was closed by the FDIC, and sold to JPMorgan Chase Bank, at no cost to the Deposit Insurance Fund (DIF).

There are many more bank failures to come over the next couple of years, mostly because of losses related to Construction & Development (C&D) and Commercial Real Estate (CRE) loans, but so far, especially excluding WaMu, the total assets and deposits of failed FDIC insured banks is much smaller than in the '80s and early '90s.

by Calculated Risk on 2/15/2009 03:04:00 PM

From the WSJ: Axelrod: Obama Has 'Solid' Housing Plan

Speaking on "Fox News Sunday," senior adviser David Axelrod said the plan that President Barack Obama plans to announce on Wednesday will aim to provide immediate help to homeowners who are "right on the edge" of foreclosure, and ultimately help in "raising home values that have been plummeting."

Mr. Obama plans to unveil his housing plan during a visit to Phoenix. As part of his swing through western states, he is set to top in Denver Tuesday, when he will sign the $787 billion economic-stimulus plan just passed by Congress.

Mr. Axelrod provided few details of the housing plan, but said a government investment of $50 billion to $100 billion to fund foreclosure prevention "is obviously a necessary part." He promised that the plan would contain "a lot of aspects."

I hope "a lot of aspects" includes "a lot of details".

by Calculated Risk on 2/15/2009 10:55:00 AM

From the Times: £30 billion loss at RBS prompts savage job cuts (ht Jan)

ROYAL BANK OF SCOTLAND boss Stephen Hester is to unveil a brutal cost-cutting exercise, alongside record losses of close to £30 billion, that are expected to lead to a further 10,000 to 20,000 job cuts.
...
The bank has already axed 13,000 jobs internationally since last April, including 3,000 in its investment-banking business.

And the beat goes on ...