by Calculated Risk on 4/08/2009 02:48:00 PM

From Bloomberg: San Francisco Office Rents Fall Most Since 2001 (ht Dwight)

San Francisco office rents dropped 24 percent in the first quarter from a year earlier ... The average rent fell citywide to $38.80 a square foot from $50.92 for the highest-quality, best-located space, known as Class A space, according to a preliminary report by commercial brokerage Colliers International. The office vacancy rate rose to 13.2 percent from 12.6 percent in the previous quarter and up from 10.2 percent a year earlier.

And from the Atlanta Journal-Constitution: Landmark Equitable building in foreclosure (ht jp, Bradford)

Downtown Atlanta’s Equitable building, an iconic 30-plus story office tower that once dominated the city’s skyline, has fallen into foreclosure.

A foreclosure notice said the 40-year-old skyscraper is scheduled to be auctioned on the Fulton County courthouse steps on May 5.

by Calculated Risk on 4/08/2009 02:00:00 PM

Here are the minutes for the March FOMC meeting.

Excerpts:

Staff Economic Outlook

In the forecast prepared for the meeting, the staff revised down its outlook for economic activity. The deterioration in labor market conditions was rapid in recent months, with steep job losses across nearly all sectors. Industrial production continued to contract rapidly as firms responded to the falloff in demand and the buildup of some inventory overhangs. The incoming data on business spending suggested that business investment in equipment and structures continued to decline. Single-family housing starts had fallen to a post-World War II low in January, and demand for new homes remained weak. Both exports and imports retreated significantly in the fourth quarter of last year and appeared headed for comparable declines this quarter. Consumer outlays showed some signs of stabilizing at a low level, with real outlays for goods outside of motor vehicles recording gains in January and February. .... The staff's projections for real GDP in the second half of 2009 and in 2010 were revised down, with real GDP expected to flatten out gradually over the second half of this year and then to expand slowly next year as the stresses in financial markets ease, the effects of fiscal stimulus take hold, inventory adjustments are worked through, and the correction in housing activity comes to an end. The weaker trajectory of real output resulted in the projected path of the unemployment rate rising more steeply into early next year before flattening out at a high level over the rest of the year. The staff forecast for overall and core personal consumption expenditures (PCE) inflation over the next two years was revised down slightly. Both core and overall PCE price inflation were expected to be damped by low rates of resource utilization, falling import prices, and easing cost pressures as a result of the sharp net declines in oil and other raw materials prices since last summer.
emphasis added

And the worsening outlook led the FOMC to agree to "substantial additional purchases of longer-term assets":

In the discussion of monetary policy for the intermeeting period, Committee members agreed that substantial additional purchases of longer-term assets eligible for open market operations would be appropriate. Such purchases would provide further monetary stimulus to help address the very weak economic outlook and reduce the risk that inflation could persist for a time below rates that best foster longer-term economic growth and price stability.

by Calculated Risk on 4/08/2009 12:26:00 PM

From Bloomberg: Pulte to Buy Centex for $1.3 Billion in Survival Bid

Pulte Homes Inc. agreed to buy Centex Corp. for $1.3 billion in an all-stock deal that creates the largest U.S. homebuilder by revenue ...

“This is really good because not only are there too many homes, there are too many homebuilders,” said Vicki Bryan, a senior high-yield bond analyst for New York-based Gimme Credit LLC.
...
Because of complementary geographic presence and market segments, the new company will save $350 million annually, [Pulte Chief Executive Officer Richard Dugas] said.

This is a stock swap (no cash).

Dugas talks about signs of a housing bottom, but the last sentence makes it clear that this merger is about layoffs and cost savings.

by Calculated Risk on 4/08/2009 11:06:00 AM

From Carolyn Said at the San Francisco Chronicle: Banks aren't reselling many foreclosed homes (ht Starburst)

Lenders nationwide are sitting on hundreds of thousands of foreclosed homes that they have not resold or listed for sale, according to numerous data sources.
...
"We believe there are in the neighborhood of 600,000 properties nationwide that banks have repossessed but not put on the market," said Rick Sharga, vice president of RealtyTrac ...

"There is a real danger that there is much more (foreclosure) inventory than we are measuring," said Celia Chen, director of housing economics at Moody's Economy.com in Pennsylvania.
...
In the Bay Area, a Chronicle analysis of data from San Diego's MDA DataQuick shows that more than one-third of foreclosures are in shadow territory - that is, they are not registering in county records as having been resold.

For the 26 months from January 2007 through February 2009, banks repossessed 51,602 homes and condos in the nine-county Bay Area, according to DataQuick. Yet in the same period, only 30,823 foreclosures were resold, leaving about 20,000 bank repos unaccounted for.

I'm not convinced. There might just be a built in a lag between when the banks foreclose to when the properties are finally sold. Instead of using aggregate statistics, it would probably be better to do a survey - follow some number of foreclosures and see what happens to them each month.

by Calculated Risk on 4/08/2009 09:18:00 AM

Roger Vincent writes in the LA Times: Apartment rents fall in Southern California

... The average rent in Los Angeles County fell almost 4% in 2008 as apartment occupancy rates dropped and new units came online. The decline should continue this year as more renters lose their jobs, according to the annual USC Casden Forecast expected to be released by the university today.

"In L.A. County alone, 41,000 people moved out of apartments last year compared to the 29,000 people who moved in during the last five years," said forecast director Delores Conway.
...
Orange County is generally stronger than the rest of the region, the report said, though rents came down 2% last year ...

Falling rents. Rising vacancies. Same story for apartments, malls, and offices ...

by Calculated Risk on 4/08/2009 12:32:00 AM

From Bloomberg: Vacancies at U.S. Retail Centers Hit 10-Year High, Reis Says

Retail vacancies at shopping centers were the highest since Reis began publishing quarterly data in 1999 and reflected a net decrease in occupied space of 8.7 million square feet, the biggest drop for a single quarter and more than the 8.65 million square feet given back during all of 2008.

Rents paid by tenants fell 1.8 percent from the previous quarter and 2.9 percent from a year ago ...

The vacancy rate at neighborhood and community shopping centers rose to 9.5 percent from 8.9 percent the previous quarter and 7.7 percent a year ago ...

Vacancies at regional malls and super-regional malls ... climbed to 7.9 percent from 7.1 percent in the fourth quarter and 5.9 percent a year earlier ...

Click on image for larger graph in new window.

This graph shows the strip mall vacancy rate since Q2 2007.

Double digits, here we come ...

More from Reuters: Vacancies soar at US strip and regional malls-Reis

Barring a significant economic change, Reis does not expect vacancies to stabilize until sometime in the middle of 2012 if an overall U.S. economic recovery appears next year.

by Calculated Risk on 4/07/2009 09:25:00 PM

The WSJ reports: Treasury Plans to Extend TARP to Life Insurers

The Treasury is expected to announce within the next several days the inclusion of life insurers that are bank holding companies or own a thrift...

This is apparently for life insurers that are bank holding companies or own a thrift. These bank holding were already eligible for TARP money.

The WSJ mentions that Prudential, Hartford, and Lincoln National have all applied.

by Calculated Risk on 4/07/2009 05:39:00 PM

From Reuters: US apartment market worsens with economy--Reis

... The national apartment vacancy rate rose to 7.2 percent in the first quarter, up 0.60 percentage points from the prior quarter and 1.1 percentage points from a year earlier ...

It was the highest vacancy rate since the first quarter of 2002. That was right before the last downturn bottomed out, but Reis expects the picture to get a lot darker as "we are arguably only at the beginning of the current downturn."

Behind the rising vacancy rate is a build-up of available apartments ...

Asking rents fell by 0.6 percent to $1,046 per month, the largest single-quarter decline since Reis began reporting quarterly performance data in 1999.

This puts more pressure on house prices, and also raises more questions about the BLS measure of "Owners' equivalent rent" (that is showing an increase).

With new supply coming online, and families doubling up, it appears rents will decline for some time. Here are some comments from BRE properties in February:

We believe we are looking at a negative rent curve for the next two years.

We believe on a composite basis, market rents in 2009 could fall between 3 and 6% from peak levels in 2008. And the rent cuts in 2010 could be deeper ...

by Calculated Risk on 4/07/2009 03:48:00 PM

More volatility ...

Dow down 2.3% (7,789)

S&P 500 down 2.4%

NASDAQ down 2.8%

Click on graph for larger image in new window.

The first graph is from Doug Short of dshort.com (financial planner): "Four Bad Bears".

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

The second graph shows the S&P 500 since 1990.




The dashed line is the closing price today.

This puts the recent rally into perspective - the S&P is still off almost 50% from the 2007 high.

by Calculated Risk on 4/07/2009 03:25:00 PM

From Bloomberg: Manhattan Office Rents Fall Most in Quarter Century (ht Bob_in_MA)

Manhattan office rents ... dropped 6 percent from the fourth quarter to $65.01 a square foot, commercial property broker Cushman & Wakefield Inc. said in a report today. The decline is the most in records dating back to 1984 ...

“It’s gone beyond the financial firms,” Joseph Harbert, Cushman & Wakefield’s chief operating officer for the New York region, said in a telephone interview. “It’s broad across a lot of industries. ... Rents are “falling faster than they did in the last two recessions.”

Sharply falling rents. Hoocoodanode?

by Calculated Risk on 4/07/2009 02:27:00 PM

From Reuters: Source: Bank 'stress test' results delayed (ht Branden DD49)

The U.S. Treasury Department is planning to delay the release of any completed bank "stress test" results ...

The Treasury is still talking about how results of the regulatory stress tests on the 19 largest U.S. banks will be released, and may disclose them as summary results that are not institution-specific, the source said.
...
The source ... said officials do not want any test results released before the earnings season wraps up for most U.S. banks on April 24.

The original time frame was no later than the end of April, so this is still on schedule. We definitely need institution-specific results.

by Calculated Risk on 4/07/2009 12:06:00 PM

From Reuters: GM shares skid on bankruptcy preparation news

... a source familiar with the company's plans told Reuters it was in "intense" and "earnest" preparations for a possible bankruptcy filing.

Also from Reuters: U.S. carmakers at 70 percent risk of bankruptcy: Moody's

Moody's Investors Service said it still sees a 70 percent chance of bankruptcy for Detroit's automakers ... "Given the lack of progress achieved and the additional progress that will be required in the revised plans, this threat will need to be seen as credible in order to compel adequate movement on the part of stakeholders," Moody's said in a note dated Monday.

At least this story has an expiration date (another 52 days for GM, 22 days for Chrysler).

by Calculated Risk on 4/07/2009 10:53:00 AM

From MarketWatch: RBS to cut 9,000 back office jobs over two years

Royal Bank of Scotland said Tuesday that it will cut up to 9,000 back office and support jobs over the next two years ... The cuts represent 20% of the 45,000 staff employed in the bank's "group manufacturing" division, which includes back office operations, purchasing, IT and property management.

The beat goes on ...

by Calculated Risk on 4/07/2009 09:10:00 AM

Why are the PPIP loans coming from the FDIC? Apparently to avoid asking Congress for additional funds ...

Andrew Sorkin writes in the NY Times: ‘No-Risk’ Insurance at F.D.I.C.

[The F.D.I.C. is] going to be insuring 85 percent of the debt, provided by the Treasury, that private investors will use to subsidize their acquisitions of toxic assets. The program ... is the equivalent of TARP 2.0. Only this time, Congress didn’t get a chance to vote.
...
The F.D.I.C. is insuring the program, called the Public-Private Investment Program, by using a special provision in its charter that allows it to take extraordinary steps when an “emergency determination by secretary of the Treasury” is made to mitigate “systemic risk.”
...
[H]ow much does the F.D.I.C. think it might lose?

“We project no losses,” Sheila Bair, the chairwoman, told me in an interview. Zero? Really? “Our accountants have signed off on no net losses,” she said.
...
Here’s the F.D.I.C.’s explanation: It says it plans to carefully vet every loan that gets made and it will receive fees and collateral in exchange. And then there’s the safety net: If it loses money from insuring those investments, it will assess the financial industry a fee to pay the agency back.

These potentially higher fees must make a few banks nervous. And if the losses really pile up, the FDIC will be bailed out, and it will be the taxpayers on the hook.

by Calculated Risk on 4/07/2009 12:38:00 AM

There has been a request for a graph of Federal tax receipts, and I'll post something when the March numbers are released this Friday.

Tim Duy has a follow-up: More on Inflation Expectations

"Conventional wisdom of the Fed's policy describes quantitative easing as an effort to boost inflation expectations. This flows from the fact that the Fed Funds rates is at zero, therefore further decrease in the real rate can only be achieved by boosting inflation expectations. To me, however, the Fed has not committed to a program of raising inflation expectations. Instead, they are reiterating their existing commitment to a low, stable rate of inflation."

Dr. Duy argues the Fed has had some success in anchoring inflation expectations.

Click on graph for larger image in new window.

Update: Tim provides these two graphs.

The first graph shows inflation expectations based on the difference in yields between TIPs and conventional Treasury securities.

For more on using TIPs for inflation expectations, see: Inflation Expectations: How the Market Speaks

The second graph shows the median expected price change next 12 months, Univestiry of Michigan Survey of Consumers.

The data is available from the St. Louis Fed.


The futures are flat:

Bloomberg Futures.

Futures from barchart.com

And the Asian markets are generally off slightly.

Best to all.

by Calculated Risk on 4/06/2009 09:13:00 PM

From The Times: Toxic debts could reach $4 trillion, IMF to warn

Toxic debts racked up by banks and insurers could spiral to $4 trillion (£2.7 trillion), new forecasts from the International Monetary Fund (IMF) are set to suggest.

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.

It just keeps getting worse ...

by Calculated Risk on 4/06/2009 05:48:00 PM

From CNBC: Banks' 1st-Quarter Results May Show Improvement: Whitney

"I think you’ll see a directional turn," [Meredith] Whitney said in a live interview. "Banks will make a little money, as little as a penny a share, but they won’t lose money."
...
She also said she expected home prices to fall another 30 percent ...

House price comments at 5:25 into this interview ... "peak to trough off 50%":

by Calculated Risk on 4/06/2009 04:02:00 PM

Press Release: Richards Barry Joyce & Partners Releases Quarterly Report On Greater Boston’s Commercial Real Estate Office Market

[O]verall vacancy rates in Greater Boston’s office market rose during the first quarter of 2009, moving up a percentage point from 13.4% to 14.4%. During the period, the market experienced negative absorption of 1.1 million square feet.

Class A office space was hit particularly hard. In the last two quarters since Q3’08, tenants have vacated 1.7 million square feet of Class A office space, increasing the vacancy rate from 10.5% to 13.1%. Additionally, Class A asking lease rates dropped $0.59 to $38.75 across the market.

Negative absorption: words that strike terror in the hearts of CRE owners. Negative absorption means more offices are vacated than leased in a given period. Add any new supply, and the vacancy rate spikes and rents fall.

On Friday, REIS Inc. reported that the nationwide office vacancy rate increased to 15.2% from 14.5% in Q4 2008.

Click on graph for larger image in new window.

This graph shows the national office vacancy rate from REIS starting in 1991.

A little over one month ago, REIS was forecasting office vacancy rates would reach 17.6% in 2010. Now they are forecasting 19.3%!

by Calculated Risk on 4/06/2009 03:07:00 PM

Some excerpts are now available from Professor Krugman's talk in Spain (March 17th). Note Krugman's comments on innovation ...

Here are the slides from Krugman's talk: How will it end?

Note: This was before Bernanke talked about "credit easing" as opposed to "quantitative easing" again. Bernanke's approach appears to run counter to Krugman's argument:

"The only way to make monetary policy effective once you’re in such a trap, at least in this framework, is to credibly commit to raising future as well as current money supplies."

by Calculated Risk on 4/06/2009 01:42:00 PM

Since about 100 people sent me this interview, I suspect there might be some discussion in the comments ...

The video is here.

Here is the transcript.

BILL MOYERS: In your book, you make it clear that calculated dishonesty by people in charge is at the heart of most large corporate failures and scandals, including, of course, the S&L, but is that true? Is that what you're saying here, that it was in the boardrooms and the CEO offices where this fraud began?

WILLIAM K. BLACK: Absolutely.

BILL MOYERS: How did they do it? What do you mean?

WILLIAM K. BLACK: Well, the way that you do it is to make really bad loans, because they pay better. Then you grow extremely rapidly, in other words, you're a Ponzi-like scheme. And the third thing you do is we call it leverage. That just means borrowing a lot of money, and the combination creates a situation where you have guaranteed record profits in the early years. That makes you rich, through the bonuses that modern executive compensation has produced. It also makes it inevitable that there's going to be a disaster down the road.

BILL MOYERS: So you're suggesting, saying that CEOs of some of these banks and mortgage firms in order to increase their own personal income, deliberately set out to make bad loans?

WILLIAM K. BLACK: Yes.

And here is a photo I've posted before ...

This photo from 2003 shows two regulators: John Reich (then Vice Chairman of the FDIC and later at the OTS) and James Gilleran of the Office of Thrift Supervision (with the chainsaw) and representatives of three banker trade associations: James McLaughlin of the American Bankers Association, Harry Doherty of America's Community Bankers, and Ken Guenther of the Independent Community Bankers of America.

WILLIAM K. BLACK: [T]hey didn't even begin to investigate the major lenders until the market had actually collapsed, which is completely contrary to what we did successfully in the Savings and Loan crisis, right? Even while the institutions were reporting they were the most profitable savings and loan in America, we knew they were frauds. And we were moving to close them down. Here, the Justice Department, even though it very appropriately warned, in 2004, that there was an epidemic...

BILL MOYERS: Who did?

WILLIAM K. BLACK: The FBI publicly warned, in September 2004 that there was an epidemic of mortgage fraud, that if it was allowed to continue it would produce a crisis at least as large as the Savings and Loan debacle. And that they were going to make sure that they didn't let that happen. So what goes wrong? After 9/11, the attacks, the Justice Department transfers 500 white-collar specialists in the FBI to national terrorism. Well, we can all understand that. But then, the Bush administration refused to replace the missing 500 agents. So even today, again, as you say, this crisis is 1000 times worse, perhaps, certainly 100 times worse, than the Savings and Loan crisis. There are one-fifth as many FBI agents as worked the Savings and Loan crisis.

BILL MOYERS: You talk about the Bush administration. Of course, there's that famous photograph of some of the regulators in 2003, who come to a press conference with a chainsaw suggesting that they're going to slash, cut business loose from regulation, right?

WILLIAM K. BLACK: Well, they succeeded. And in that picture, by the way, the other — three of the other guys with pruning shears are the...

BILL MOYERS: That's right.

WILLIAM K. BLACK: They're the trade representatives. They're the lobbyists for the bankers. And everybody's grinning. The government's working together with the industry to destroy regulation. Well, we now know what happens when you destroy regulation. You get the biggest financial calamity of anybody under the age of 80.