by Calculated Risk on 3/03/2009 10:00:00 AM

From the NAR: Pending Home Sales Down but Housing Affordability at Record

The Pending Home Sales Index, a forward-looking indicator based on contracts signed in January, fell 7.7 percent to 80.4 from a downwardly revised reading of 87.1 in December, and is 6.4 percent below January 2008 when it was 85.9. The index is at the lowest level since tracking began in 2001, when the index value was set at 100.

Lawrence Yun, NAR chief economist, said ... “We expect similarly soft home sales in the near term ... "
emphasis added

This suggests a further decline in existing home sales for the March report (January was the most recent report). Note: there still might be a slight increase in existing home sales in February based on the December Pending Home Sales report.

Note: Existing home sales are reported at the close of escrow, pending home sales are reported when contracts are signed. The Pending Home Sales index leads existing home sales by about 45 days, so the January report suggests existing home sales will decrease from February to March.

Finally, ignore the "affordability index". That really just tells us that interest rates are low - something we already know.

by Calculated Risk on 3/03/2009 09:25:00 AM

From the Fed:

In carrying out the Financial Stability Plan, the Department of the Treasury and the Federal Reserve Board are announcing the launch of the Term Asset-Backed Securities Loan Facility (TALF), a component of the Consumer and Business Lending Initiative (CBLI). The TALF has the potential to generate up to $1 trillion of lending for businesses and households.

The TALF is designed to catalyze the securitization markets by providing financing to investors to support their purchases of certain AAA-rated asset-backed securities (ABS). These markets have historically been a critical component of lending in our financial system, but they have been virtually shuttered since the worsening of the financial crisis in October. By reopening these markets, the TALF will assist lenders in meeting the borrowing needs of consumers and small businesses, helping to stimulate the broader economy.

Under today’s announcement, the Federal Reserve Bank of New York will lend up to $200 billion to eligible owners of certain AAA-rated ABS backed by newly and recently originated auto loans, credit card loans, student loans, and SBA-guaranteed small business loans. Issuers and investors in the private sector are expected to begin arranging and marketing new securitizations of recently generated loans, and subscriptions for funding in March will be accepted on March 17, 2009. On March 25, 2009, those new securitizations will be funded by the program, creating new lending capacity for additional future loans.
...
Today the Board also released revised terms and conditions for the facility and a revised set of frequently asked questions. ...

The Treasury Department also released a new white paper outlining efforts to unlock credit markets. On February 10, 2009, the Board and Treasury announced an expansion of TALF to include new asset categories that could generate up to $1 trillion in new lending. Teams from the Treasury Department and Federal Reserve are analyzing the appropriate terms and conditions for accepting commercial mortgage-backed securities (CMBS) and are evaluating a number of other types of AAA-rated newly issued ABS for possible acceptance under the expanded program. The expanded program will remain focused on securities that will have the greatest macroeconomic impact and can most efficiently be added to the TALF at a low and manageable risk to the government.
...
Increased TALF lending and other actions to stabilize the financial system have the potential to greatly expand the Federal Reserve’s balance sheet. In order for the Federal Reserve to conduct monetary policy over time in a way consistent with maximum sustainable employment and price stability, it must be able to manage its balance sheet, and in particular, to control the amount of reserves that the Federal Reserve provides to the banking system. The amount of reserves is the key determinant of the interest rate that the Federal Reserve uses to pursue its monetary policy objectives. Treasury and the Federal Reserve will seek legislation to give the Federal Reserve the additional tools it will need to enable it to manage the level of reserves while providing the funding necessary for the TALF and for other key credit-easing programs.

TALF Terms and Conditions (88 KB PDF)

TALF Frequently Asked Questions (102 KB PDF)

TALF White Paper

Fun reading for all. Here comes another significant expansion of the Fed's balance sheet.

by Calculated Risk on 3/03/2009 09:12:00 AM

James Baker writes in the Financial Times: How Washington can prevent ‘zombie banks’

[T]he US may be repeating Japan’s mistake by viewing our current banking crisis as one of liquidity and not solvency. Most proposals advanced thus far assume that, once confidence in financial markets is restored, banks will recover.

But if their assumption is wrong, we risk perpetuating US zombie banks and suffering a lost American decade.
...
First, we need to understand the scope of the problem. The Treasury department – working with the Federal Reserve – must swiftly analyse the solvency of big US banks. Treasury secretary Timothy Geithner’s proposed “stress tests” may work. Any analyses, however, should include worst-case scenarios. We can hope for the best but should be prepared for the worst.

Next, we should divide the banks into three groups: the healthy, the hopeless and the needy. Leave the healthy alone and quickly close the hopeless. The needy should be reorganised and recapitalised, preferably through private investment or debt-to-equity swaps but, if necessary, through public funds. It is time for triage.

There are calls across the political spectrum to avoid zombie banks. No one wants to nationalize the banks, just preprivatize the "hopeless".

This is similar to my suggestion (and others) a few weeks ago:

The banks will probably fall into one of three categories:

1) No additional assistance required. ...

2) The banks in between that will need additional capital. This is where the Capital Assistance Program comes in: ...

3) Banks that will need to be nationalized or sold.
...
The sooner the better, although March 12th works for me (30 days from Geithner's speech)! ...

BTW the banks have been told to submit their stress test results to the Treasury by Wednesday March 11th. Although the stress test appears inadequate, and the 3rd option - "closing the hopeless" - is apparently off the table.

by Calculated Risk on 3/02/2009 10:19:00 PM

For market discussion and graphs of the Grizzly Bear, see: Market: More Cliff Diving
Note: For the grim economic news in graphs, please see my post yesterday: February Economic Summary in Graphs

******************
Here is another Deal of the Week from Zach Fox at the San Diego North County Times: Turning back the clock in Vista

The featured 1,600 square feet, three-bedroom, two-bath house in Vista, CA was built in 1982.

Sold in August 1989: $165,000

Sold in August 2005: $520,000

Sold in December 2008: $100,000

Zach doesn't say, but I bet the house was trashed by the most recent owner. In general Vista is a decent area, and this is quite a round trip.

******************
For those interested, here are few sources for futures and the foreign markets.

Bloomberg Futures.

CBOT mini-sized Dow

CME Globex Flash Quotes

Futures from barchart.com

And the Asian markets.

And a graph of the Asian markets. (ht Jeffrey)

Best to all.

by Calculated Risk on 3/02/2009 08:40:00 PM

From the WSJ: Funding for 'Bad Banks' Starts to Get Fleshed Out

The Obama administration ... is considering creating multiple investment funds to purchase the bad loans and other distressed assets that lie at the heart of the financial crisis ...

The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month. ...

... one leading idea is to establish separate funds to be run by private investment managers. The managers would have to put up a certain amount of capital. Additional financing would come from the government, which would share in any profit or loss.

These private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

... the government wants to encourage private investors to buy up the assets in a way that would come closer to setting a market price where no market currently exists.

By offering low interest non-recourse loans, these public-private entities can pay a higher than market price for the toxic assets (since there is no downside risk). This amounts to a direct subsidy from the taxpayers to the banks. It is amazing how many different ways they've tried to recycle the same bad idea.

by Calculated Risk on 3/02/2009 06:15:00 PM

The Haloscan comment system crash on Friday. Ken has suggested the following:

With this recent haloscan failure, I’ve been investigating JS-Kit and its alternatives (disqus, intensedebate, sezwho). I’ve been frustrated by how ill suited they are to a community like CalculatedRisk, which is really more a real time salon than a blog with semi-static comments.

I’ve also had an evolving interest in enhancing the commenting experience for Calculated Risk users, first through CR Companion, and more recently in building a prototype for a searchable index. Lately I’ve been bubbling with ideas on what could be done to improve things specifically for this blog. But I’ve also been somewhat wary of taking the project on, as this truly is a 24/7 community, and I’ve witnessed how harshly judgment can come over the tubz (the recent Louis CK Everything’s Amazing, Nobody’s Happy bit comes to mind). I may be a CR addict, but I do have a family and personal life, and would like to keep them.

It occurred to me today that there is an alternative. There are clearly a great many talented IT people on this blog, several of whom have already demonstrated both their interest and mojo quite effectively. Perhaps some of you might be interested in joining into the process of building and maintaining an alternative system that is written specifically for us? One that could satisfy the various nits many of you have?

What I’m envisioning is building a site that runs in parallel to JS-Kit for awhile, posting back and forth, much like CRBot’s iRC channel, for safety’s sake.

To get the ball rolling, here are some of the features I’ve been picturing, grouped by Must Haves and Would Be Cool. I imagine you have some of your own ...

Must Haves

Fast

Simple

Generic browser support, including mobile devices

Registration (simple, relatively anonymous, with openID support)

Multiple moderators (for CR’s sanity)

Permalinks per comment

Homepage links

Threading with a better UI for real time (before you say “yuck!” or “huh?”, let me put together a prototype so you can see what I mean)

Choice of a decent editor, with preview and edits within a 5 minute window

Keyword searchable archives, with slices by user, CR Post, date, tag (see below)

Multiple handles, single user

Personal profiles (member since, homepage, deep thoughts, etc.)

Visitor count

Would Be Cool

Autorefresh (like CR Companion, only more efficient)

CRVIX and other stats

Tags per comment/thread (e.g. news, well-said, funny, youtube, thread-music, thread-of-the-day)

Word clouds per CR post, or per user to give a quick sense of what’s being discussed (or constantly ranted about)

Private ratings and filters, ala CR Companion (I’ve taken to heart the desire to avoid a public popularity contest)

Top Ten Threads of the Day

New post notification (CRBot/The Pig), maybe even from multiple sites like CRBot does (with tags, so people can ignore if desired)

A financial dashboard mashup

An easy way to paste in references to previous comments

Anyone interested? There’ll be need for client and server developers, sysadmin types, graphic designers, testers, lawyers, nay-sayers, etc. This might take awhile, but it’ll be worth it.

by Calculated Risk on 3/02/2009 03:48:00 PM

The S&P 500 closed just above 700. We are back to 1996 prices ...

The low in 1997 was 737.01.

The low in 1996 was 598.48.

Click on graph for larger image in new window.

DOW off about 4.3%

S&P 500 off about 4.7%

NASDAQ off 4.0%

The second graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears". (If not updated right way, Doug should update in a few minutes)



Note that the Great Depression crash is based on the DOW; the three others are for the S&P 500.

by Calculated Risk on 3/02/2009 02:22:00 PM

The BEA released vehicle sales for January this morning. Total auto and truck sales in the U.S. were below 10 million (SAAR) for the first time since 1982. I've update the sales and turnover graphs below with the January data.

The automakers will release February sales numbers tomorrow, and here is a preview from MarketWatch: No sales bounce in sight for automakers

The total industry decline, according to Edmunds.com, is expected to reach 41.4%. Most forecasts on Wall Street call for a seasonally adjusted annual rate of sales in the low 9-million range, down from 9.6 million last month, which marked a 26-year low.
...
"The crisis in the automotive market continues to worsen, but we believe we are nearing the bottom of this cycle," J.D. Power analyst Jeff Schuster said in a report last week. "Our expectation is for February or March to be the low point, but a high degree of uncertainty and risk remains for the second half of 2009."

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 9.75 million annual rate in January - the lowest rate since 1982. If the car analysts are correct, February will be even worse.

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 25.5 years, the highest ever. This is an unsustainable level (I doubt most vehicles will last 25 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.

This suggests vehicle sales are much nearer the bottom than the top, and there will probably be some sort of modest rebound later this year or in 2010.

by Calculated Risk on 3/02/2009 11:36:00 AM

Amid all the gloom this morning - the AIG bailout and massive losses, the weak manufacturing ISM index, the cliff diving construction spending numbers - there was this Personal Income and Outlays report for January from the BEA.

This report showed that personal income increased in January, however the increase was mostly because of special factors related to government and military wage increases. But this report also showed that PCE was up slightly from October to January (the period that matters for GDP); about 0.7% in real terms annualized. Not much - and this is just one data point and could be revised, and this might be impacted by gift cards (this data uses the January retail numbers) - but perhaps PCE won't fall completely off a cliff in Q1. I still expect PCE to decline sharply in Q1, but maybe not as rapidly as in Q3 2008 (-3.8% SAAR) and Q4 2008 (-4.3% SAAR)
(SAAR: seasonally adjusted annual rate)

Also interesting:

Personal saving -- DPI less personal outlays -- was $545.5 billion in January, compared with $416.8 billion in December. Personal saving as a percentage of disposable personal income was 5.0 percent in January, compared with 3.9 percent in December.

This increase in the percent saved is an important part of the rebalancing process and helps repair household balance sheets.

Click on graph for larger image in new window.

This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing).

Although this data may be revised significantly, this does suggest households are saving substantially more than during the last few years (when they saving rate was close to zero). This is a necessary but painful step ... and a rising saving rate will repair balance sheets, but also keep downward pressure on personal consumption.

by Calculated Risk on 3/02/2009 10:30:00 AM

From the ISM: February 2009 Manufacturing ISM Report On Business®

"Manufacturing continues to decline at a rapid rate in February. While production has slowed its rate of decline, employment continues to fall precipitously. Prices continue to decline, but price advantages are not sufficient to overcome manufacturers' apparent loss of demand. Survey respondents appear generally pessimistic about recovery in 2009."
...
Manufacturing contracted in February as the PMI registered 35.8 percent, which is 0.2 percentage point higher than the 35.6 percent reported in January. This is the 13th consecutive month of contraction in the manufacturing sector. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.
...
ISM's Employment Index registered 26.1 percent in February, which is 3.8 percentage points lower than the 29.9 percent reported in January. This is the seventh consecutive month of decline in employment. An Employment Index above 49.7 percent, over time, is generally consistent with an increase in the Bureau of Labor Statistics (BLS) data on manufacturing employment.

Manufacturing is still contracting, and employment is especially weak with the employment index at a record low (since the index started in 1948).