The Big Picture - Macro Perspective on the Capital Markets, Economy, Technology, and Digital Media

Floyd Norris cuts thru the bull to take a closer look at massively overbuilt New Home market:

“For more than three decades, the sales volume of existing single-family homes and newly built houses tended to rise and fall by about the same percentage, as can be seen in the accompanying charts. To be sure, sales of new homes did tend to do a little worse during recessions, but the difference was small and short-lived.”

See the two charts below — the first one shows sales volumes (all homes) from 1975 – 2009 (three-month moving averages)

Below that is the chart of showing how far sales fell from peak levels during each downturn. As Norris notes, “the plunge in sales of existing homes is severe but not unprecedented. But new-home sales are now running at only about a quarter of peak levels, a fall far deeper than anything seen since the statistics began being collected in the 1960s..”

Here are the charts in question:
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click for bigger graph

Norris continues:

“At the peak of the housing boom in 2005, sales of both existing and new homes were running at twice the 1976 rate. This year, the sales rate for existing homes seems to have stabilized at about one-third higher than the 1976 rate. New-home sales also seem to have stabilized, but at about half the 1976 rate. . .

New-home prices, while they have fallen sharply, do not appear to have declined as far as prices of existing homes. At the worst point this year, the median price of existing homes was off 29 percent from the peak, while the largest drop for new-home prices was 23 percent.

Median home price figures need to be used with caution, since there is no way to know how the median home sold in one month compares, in terms of size and location, to the median home sold in a different month. But in past recessions, new-home prices have tended to be weaker than existing-home prices, the opposite of what has happened in this cycle.”

Its intriguing — but not surprising — that new Homes are faring worse than existing homes . . ..

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Source:
A Recession Measured by New-Home Sales
FLOYD NORRIS
NYT, June 26, 2009

http://www.nytimes.com/2009/06/27/business/economy/27charts.html

You may have missed this fantastic photo of the sky over Citifield at the Yankees/Mets game by Shannon Stapleton (of Reuters)

It has nothing whatsoever to do with baseball — but it is gorgeous and ominous and was hidden in the sports section.

The caption simply does not do it justice: “The threatening skies over Citi Field in the second inning could have been a sign that it was not going to be a good night for the Mets”
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From the NYT

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Source:
Mets Err in Triplicate as the Yankees Roll
BEN SHPIGEL
NYT June 27, 2009

http://www.nytimes.com/2009/06/27/sports/baseball/27mets.html

Shannon Stapleton

http://shannonstapleton.com/

http://www.lightstalkers.org/ShannonStapleton

Video-o-rama: Potpourri of bulls and bears

This week’s video-o-rama comes to you a day late as I make my away from Cape Town to Europe. Notwithstanding terribly slow broadband at South African airports, I have managed to compile an interesting potpourri of clips.

Topics ranged from another round of discussions about the proposed regulatory reform to Fed chairman Ben Bernanke facing a grilling on Capital Hill over the Bank of America-Merrill Lynch deal to the usual dose of debate on the outlook for the economy and financial markets.

The stars of this week’s round-up include Steven Pearlstein, Pete Peterson, Warren Buffett (US economy in “shambles”), Nouriel Roubini (US economy “sort of stabilizing”), Puru Saxena, Edmund Phelps, Mohamed El-Erian, Robert Prechter (a “lot more” bear market) and T. Boone Pickens.

The compilation kicks of with Barry Ritholtz, author of must-read “Bailout Nation” and editor of The Big Picture blog, sharing his views on the financial collapse, and concludes with Dennis Gartman, editor of The Gartman Letter, calling Warren Buffett an idiot.

TheStreet.com: Tales from “Bailout Nation”
“Barry Ritholtz, author of the new bestseller “Bailout Nation”, blames Alan Greenspan for America’s financial collapse and says troubled banks should be allowed to fail.”

Source: TheStreet.com, June 22, 2009.

CNBC: Issa versus Bernanke
“Rep. Darrell Issa (R-CA), questions Fed Chairman Ben Bernanke regarding the Federal Reserve’s influence in the Bank of America-Merrill deal, and whether the Fed actually tried to cover it up.”

Source: CNBC, June 25, 2009.

Charlie Rose: A conversation about regulatory reform with Steven Pearlstein

Source: Charlie Rose, June 18, 2009.

CNBC: Pete Peterson on the financial crisis, economy and regulation
Pete Peterson, co-founder and former chairman of the Blackstone Group, shares his thoughts on the economy, the financial crisis and regulation.”

Source: CNBC, June 23, 2009.

CNBC: US economy in “shambles”
“In a live interview on CNBC today, Warren Buffett said there has been little progress over the past few months in the ‘economic war’ being fought by the country. ‘We haven’t got the economy moving yet,’ he told Becky Quick.”

Click here for the transcript.

Source: CNBC, June 24, 2009.

Bloomberg: Nouriel Roubini – US economy “sort of stabilizing”
“Nouriel Roubini, professor at New York University’s Stern School of Business, talks with Bloomberg’s Deirdre Bolton and Tom Keene about the state of the US economy. Roubini, speaking from London, also discusses Federal Reserve monetary policy, personal savings and the outlook for the US unemployment rate.”

Source: Bloomberg, June 24, 2009.

Read the rest of this entry »

The CRA brouhaha last year led the Orange County Register to run an analysis of “more than 12 million subprime mortgages worth nearly $2 trillion” in late 2008.

What did their data based analysis discover?

“Most of the lenders who made risky subprime loans were exempt from the Community Reinvestment Act. And many of the lenders covered by the law that did make subprime loans came late to that market – after smaller, unregulated players showed there was money to be made.”

Among their research conclusions:

• Nearly $3 of every $4 in subprime loans made from 2004 through 2007 came from lenders who were exempt from the law.
• State-regulated mortgage companies such as Irvine-based New Century Financial made just over half of all subprime loans. These companies, which CRA does not cover, controlled more than 60 percent of the market before 2006, when banks jumped in.
• Another 22 percent came from federally regulated lenders like Countrywide Home Loans and Long Beach Mortgage. These lenders weren’t subject to the CRA law, though some were owned by banks that could choose to include them in their CRA reports.
• Among lenders that were subject to the law, many ignored subprime while others couldn’t get enough.
• Among those standing on the sidelines: Bank of America, which made no subprime loans in 2004 and 2005; in 2006 and 2007 subprime accounted for just 2 percent of its loan portfolio. Washington Mutual, meanwhile, raised its subprime bet by 20 times to $5.6 billion in 2006 – on top of its already huge exposure through its ownership of Long Beach Mortgage.

These are facts, adduced from analyzing data.

Data based analysis, for those of you who may be unfamiliar with the term, is how research and discovery get accomplished in the real world. It is an alternative way of arguing that the “Blame CRA” proponents are blessedly unaware of. However, outside the universe of rabid partisan sniping, its how actual analysis gets accomplished.

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click for larger graphic

Chart courtesy of OC Register

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Source:
Most subprime lenders weren’t subject to federal lending law
RONALD CAMPBELL
THE ORANGE COUNTY REGISTER, Sunday, November 16, 2008

http://www.ocregister.com/articles/loans-subprime-banks-2228728-law-lenders

Graphic

http://www.ocregister.com/newsimages/Graphics/2008/11/hdmachartg1109.gif

The End of the Recession? June 26, 2009
By John Mauldin

The End of the Recession?

The New Normal Is Still In Our Future

The Hidden Problem Within Unemployment Data

Was Income Really Up?

Tulsa, London, and The Baltics

Last week we began a series on data abuse, about how various commentators twist and torture data to make it say what they want, or fail to look at the details underneath the headlines. Predictably, there is a lot of fodder this week as we forge ahead into this ripe territory. The headlines screamed that US income data went up unexpectedly. Green shoots were everywhere. But if you look at the actual data, you find something much different. And, I keep hearing the insistent refrain that the market is telling us that the recovery is around the corner. Well, the recovery may be, but can the market really tell us that? I have about 25 windows open in my computer, with tons of misleading data. Let’s see how much we can cover in this week’s letter.

But first, I want to focus your quick attention on a new “Conversation” I will have next Monday. (For those readers who are new, I have a subscription service where I hold conversations with friends on a variety of current topics. I am gratified that it’s getting rave reviews.)

I have been writing about the New Normal of late, and for my next Conversation I have invited two of the sharpest analysts I know to talk about what the New Normal will look like.What levels do we get to? What does the world economy look like? What will the path to recovery look like? And so on! David Rosenberg, former chief economist for Merrill Lynch, one of the few mainstream analysts who got it
right (now with Gluskin Sheff in Toronto) and the brilliant Michael Lewitt of Harch Capital  Management, someone who was writing about the credit crisis long before it happened, are both deep thinkers, and both have strong ideas about how our future will unfold. I can’t wait to get them at the same table and see if we can flesh out a few concrete ideas.

And if you subscribe today, you also can get the recently released and widely praised Conversation I did with Donald Coxe and Gary Shilling on commodities and where those markets are going. That ended up as a very powerful debate, and one from which listeners said they really came away with meaty ideas.

You can subscribe now at $109 (using code JM70), before we raise the price when we add a new quarterly Conversation service with good friend and head of Stratfor, George Friedman. He gets back from Australia this week, and we will schedule a meeting soon!

And now to funny-looking data.

Where to begin? There are so many targets of opportunity!

The End of the Recession?

I walked into the office yesterday evening and there was someone on CNBC talking about how the 50-day moving average of the S&P 500 rising above the 200-day moving average was telling us the market was getting ready to rise and the recovery had started. I listened to his babbling for another 2-3 minutes and couldn’t take it anymore (and no, it was not my friend Larry Kudlow, who is a lot more balanced than whoever was on.)

We keep getting told that the market is telling us “something,” usually that the recession is going to end. For some reason, people keep repeating the bromide that the market looks out about 6 months. To that I politely say, rubbish.

Riddle me this, Batman. Did the market see the recession in October of 2007? We were already in recession and the S&P 500 (see below) was making new highs! Where was the market prescience? Did it see the 25%+ drop in January of this year? And I could go back and cite scores of examples where the market “missed” the future turning points over the past ten decades.

What about the shibboleth that the market turns up 6 months before the end of a recession? Sometimes that is true. But does it mean anything? The same people who said it meant something last December and January are saying it means something now. But now it’s June and the recovery is not here, so maybe the market wasn’t telling us something in January after all.

Read the rest of this entry »

Congratulations to the 5 lucky ducks who managed to capture the attention of the FDIC:

“Five U.S. banks with total assets of about $1.04 billion were seized by regulators, pushing this year’s tally of failures to 45 as a recession drives up unemployment and home foreclosures.

Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp. The FDIC was named receiver of the four banks.

Wilshire Bancorp’s Wilshire State Bank will take over all of Mirae’s $362 million in deposits, and will purchase $449 million of assets, the FDIC said in a statement.

Sunwest Bank of Tustin, California, acquired most of MetroPacific’s $73 million in deposits and $80 million in assets, the FDIC said. Stearns Bank of St. Cloud, Minnesota, bought Horizon Bank’s $69.4 million of deposits. Stearns will purchase $84.4 million of Horizon’s assets, the FDIC said.

The FDIC didn’t find a buyer for Community Bank of West Georgia, and said it will mail checks to reimburse insured depositors. The bank has deposits of $182.5 million. Charter Financial Corp.’s CharterBank will assume Neighborhood Community Bank’s $191.3 million of deposits and purchased some assets in a loss-share agreement with the FDIC, according to the agency.

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Source:
Five Banks Are Seized, Raising U.S. Failures This Year to 45
Margaret Chadbourn
Bloomberg, June 27 2009

http://www.bloomberg.com/apps/news?pid=20601087&sid=aCbHA.m7rikc

Consolidated volume of NYSE stocks is on track to be the slowest since Jan 2nd. With the completion of the Russell rebalancing by days end, volume will likely get a late day lift but Friday in the summer is clearly here and also coincides with another drop in the VIX to the lowest since Sept 12, the Friday before the Lehman bankruptcy.

Dilbert was perfect this morning:

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Thanks, Scott!

What an absurd side effect of rushed TARP legislation:

“In June 2008, U.S. Virgin Islands Governor John deJongh Jr. agreed to give London-based Diageo Plc billions of dollars in tax incentives to move its production of Captain Morgan rum from one U.S. island — Puerto Rico — to another, namely St. Croix.

DeJongh says he had no idea his deal would help make the world’s largest liquor distiller the most unlikely beneficiary of the emergency Troubled Asset Relief Program approved by Congress just four months later.

Today, as two 56-foot-high (17-meter-high) tanks for holding fermenting molasses will soon rise from the ground on the Caribbean island of St. Croix, the extent to which dozens of nonbank companies benefited from last October’s emergency financial rescue plan is just beginning to come to light.

The hurried legislation adopted by a Congress voting under the threat of sudden global economic collapse led to hidden tax breaks for firms in dozens of industries. They included builders of Nascar auto-racing tracks, restaurant chains such as Burger King Holdings Inc., movie and television producers — and London’s Diageo.

“It’s kind of like the magician’s sleight of hand,” says former House Ways and Means Committee Chairman William Thomas, a California Republican who ran the committee from 2001 to 2007 and oversaw all tax legislation. “They snuck these things in a bill that was focused on other things.”

Unbelievable . . .

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Source:
Bailout of U.S. Banks Gives British Rum a $2.7 Billion Benefit
Ryan J. Donmoyer
Bloomberg, June 26 2009

http://www.bloomberg.com/apps/news?pid=20601109&sid=amp5wXx35fkc

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Despite an unexpected increase in both Initial Jobless Claims and Continuing Claims stocks, bonds and commodities soared on Thursday…Please note that Street shills and their fin media accomplices tout a single decline in either jobless claim component as a sign that the bottom is in and recovery has commenced. But when jobless claims decline, it’s immaterial…Last week’s claims were revised higher.

Incredibly some media outlets and pundits attributed the rally to relief that Bernanke’s testimony didn’t go badly. HUH!!! Where are the adult editors and managers?

The best explanation for Thursday’s ‘everything’ rally is Q2 performance gaming has commenced. Stocks rallied for, wise guys front ran, the monster Russell rebalancing for Q2…Bonds rallied, just as they have been doing, after the last Treasury auction tranche.

Initial jobless claims are 627,000; 600,000 was expected. Continuing Claims are 6.74m. The four-week moving average of initial claims, a less volatile metric, increased to 617,250 from 616,750.

Business Week: A Lost Decade for Jobs; Private sector job growth was almost non-existent over the past ten years. Take a look at this horrifying chart:

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But government [jobs] keeps growing. Over the past 10 years, the private sector has generated roughly 1.1 million additional jobs, or about 100K per year. The public sector created about 2.4 million jobs.

As we have harped for years, low-paying gigs and government are the main sectors of job growth.

Industry ———————————————– Change, May 1999-2009 (thousands of jobs)*
Private healthcare ———————————–2898
Food and drinking places ————————– 1567
Gov educ ——————————————— 1390

via Business Week

This is what Easy Al and Ben have been papering over – declining jobs, wages, US real living standards, the massive transfer of wealth to BRICs and OPEC. Q1 GDP was revised to -5.5% due to minor revisions in inventories and trade. The 37.3% decline in business investment and inventories is a record (data series began in 1947). The 38.8% decline in homebuilding is the largest contraction since 1980.

John Williams notes: On July 31st, the Bureau of Economic Analysis (BEA) will revamp GDP history going back to 1929…GDP reporting remains virtually worthless and is little more than political propaganda. John notes that income contracted more in Q1 than Q2. GDI is the income-side equivalent of the GDP’s consumption estimate. As estimated in last month’s reporting, reflecting a sharp reversal in “statistical discrepancy,” first-quarter GDI was reported showing an annualized real quarterly contraction of 3.64%, versus a fourth-quarter estimated contraction of 7.78%. Today’s reporting and revision reflected something of a reversal in other trends, showing a deeper 4.31% annualized quarterly contraction in the first quarter. Year-to-year, first-quarter GDI declined by 3.11% (previously down 2.94%), versus a 2.16% contraction in the fourth quarter.

Ben played the ‘I don’t recollect’ card yesterday when asked about an email that claimed Ben told a Fed employee that if BAC played the MAC (materially adverse clause) ‘management would be gone’.

Moments later Ben played the ‘I don’t remember’ gambit. Congressman Dan Burton rebuked Ben, saying his experience in investigations leads him to believe that people say ‘I don’t remember’ to avoid perjury.

The Fed’s balance sheet declined $58.5B due to a $53.758B decline in the ‘Term Auction Credit’ and a $28.692 decline in ‘liquidity swaps’. The Fed monetized $30B of securities. It appears the Fed is curtailing credit facilities but is increasing its monetization of Treasuries & MBS.