Analysts Score With 2Q Revenue Estimates 7/24/2009
Despite misjudging profits for three-quarters of reports, analysts nail sales figures, Barron’s Bob O’Brien reports
Fascinating stuff:
Members of Congress probing threats to the global financial system — especially the threat of concentration of risk — will have a lot to ponder in newly mandated disclosures highlighted by a Fitch Ratings report issued last week. While derivatives use among U.S. companies is widespread, an “overwhelming majority of the exposure is concentrated among financial institutions,” according to the rating agency’s review of first-quarter financials.
Concentrated, in fact, among a mere handful of financial-services giants. About 80% of the derivative assets and liabilities carried on the balance sheets of 100 companies reviewed by Fitch were held by five banks: JP Morgan Chase, Bank of America, Goldman Sachs, Citigroup, and Morgan Stanley. Those five banks also account for more than 96% of the companies’ exposure to credit derivatives.
Its a short article worth reading in full . . .
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Source:
Five Firms Hold 80% of Derivatives Risk, Fitch Report Finds
First-quarter financials mark the first time comprehensive derivatives disclosure was mandated for all U.S. companies.
David M. Katz
CFO.com | USJuly 24, 2009
http://www.cfo.com/article.cfm/14113089
Historically, Commercial Real Estate lags Residential by about 2 years. Here is what the past 10 years look like:
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Geez, today seems to be all about RE.
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Source:
The CRE disaster
Rolfe Winkler
Reuters, July 23rd, 2009
http://blogs.reuters.com/rolfe-winkler/2009/07/23/the-cre-disaster-comparing-with-residential/
June New Home sales, a measure of contract signings, totaled 384k annualized, 32k more than expected and up from a revised 346k in May. The federal $8,000 tax credit for 1st time buyers and the $10,000 California tax credit for new homes are certainly helping (sales in the West rose 23% m/o/m). Months supply fell to 8.8 from 10.2, the lowest since Oct ’07 and is the other bright spot within the data. Sales also rose in the Northeast and Midwest while falling in the South. The median home price fell 12% y/o/y and 5.8% sequentially as builders lower prices to compete with foreclosures. New home sales make up about 15% of the overall housing sector so the existing home sales data is more relevant in terms of trends and inventory but today’s data is still a move in the right direction as we bounce along the bottom. A sustainable improvement not induced by tax credits will still take time as the home ownership rate heads lower.
Get ready for another round of bad reporting:
The $8,000 Fed tax credit (1st time buyers) and a $10,000 California tax credit (new homes only) likely helped out in NHS this month. Falling prices are also contributing to sales activity of the sector, which represents about 15% of the overall housing market.
Here is the official New Home Sales:
Sales of new one-family houses in June 2009 were at a seasonally adjusted annual rate of 384,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 11.0 percent (±13.2%)* above the revised May rate of 346,000, but is 21.3 percent (±11.4%) below the June 2008 estimate of 488,000.
Thus, we in fact know that Sales fell from last year. They were down 21.3%, a number greater than the margin of error.
The monthly data, on the other hand, is not statistically significant. Therefore we DO NOT KNOW what the change was from last month, as the margin of error is greater than the reported data point.
The usual suspects got it wrong, as they do every month.
If New Home Sales are so strong, then can anyone explain why prices are still plummeting? Median home prices dropped 12% year-over-year, and 5.8% from the prior month.
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Chart via Calculated Risk
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Previously:
New Home Sales Data: Don’t rely On It Either (November 30th, 2005)
http://www.ritholtz.com/blog/2005/11/new-home-sales-data-dont-rely-on-it-either/
Source:
NEW RESIDENTIAL SALES IN JUNE 2009
Census, HUD, JULY 27, 2009 AT 10:00 A.M. EDT
http://www.census.gov/const/newressales.pdf
Art Cashin, head of floor operations at UBS, has the latest buzz from the NYSE
Airtime: Mon. Jul. 27 2009 | 9:20 AM ET
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ECONOMY
As discussed since March, GDP will likely be positive in the fourth quarter and maybe in the third quarter, if inventory restocking kicks into gear. If both the third and fourth quarters are positive, the National Bureau of Economic Research could determine sometime in the first half of 2010 that the recession ended in July or August 2009. Before anyone breaks out the champagne in celebration, it must be noted that in declaring an end to a recession, NBER is only identifying the trough in business activity. In determining the beginning and end of a recession, NBER looks at employment, real personal income minus government transfers, industrial production, retail sales, in addition to GDP. In the last two recessions, NBER decided the trough in activity coincided with an increase in industrial production in April 1991 and December 2001. As a result, NBER determined the 1991 recession ended in March, and in November 2001. If the past is any guide, NBER could determine that the current recession ended, in the month preceding a turn around in industrial production. The next few months could prove interesting in this regard. In June, industrial production fell -.4%, after posting a deep drop of -1.2% in May. For the second quarter as a whole, industrial production fell at an annual rate of -11.6%, after plunging -19.1% in the first quarter.
In my December 2007 letter, I stated that the Federal Reserve was going to have a more difficult time containing the coming credit crisis, since so much credit creation was taking place outside the banking system. Twenty-five years ago, banks provided almost 75% of the credit to the economy. In recent years, it had fallen to 35%, while the securitization of mortgages, home equity loans, auto loans, credit card debt, student debt and company receivables provided more than 40% of the credit. “Since the market place is supplying a greater proportion of credit creation to finance economic growth, the Federal Reserve’s capability to manage the credit creation engine has diminished. This is why this crisis is quite different than the other crisis faced by the Fed in the last 20 years. Most investors really don’t understand the credit creation process, and as a result, don’t comprehend the scope of this crisis, or the Fed’s limited ability to deal with it. It really is different this time.”
As much as the phrase “It really is different this time” applied to the credit crisis we were facing in December 2007, it also is appropriate in assessing the sustainability of the coming recovery. As noted last month, the decline from a growth rate of 2.8% in the second quarter of 2008 to a negative -6.1% in the fourth quarter, and rebound into a positive GDP print by the fourth quarter of 2009 is going to look every bit like a V-shaped recovery.
In tracking the end of a recession, NBER is merely identifying when the economy in aggregate reached its lowest point. It tells us virtually nothing about the quality and strength of the recovery that follows the trough. In the three worst recessions since World War II (1957-1958, 1973-1975, 1981-1982), real GDP (nominal GDP less inflation) averaged 5.6% in the first full calendar year after the recession ended. If measured from the trough of those recessions, real GDP growth averaged 7.8%. The coming recovery will be far weaker than prior recoveries. Those recessions were precipitated by the Federal Reserve increasing rates enough to significantly slow economic growth, causing a buildup of inventories, a reduction in production to pare inventory levels, and an increase in unemployment. Since the higher cost of money negatively impacted demand for homes and cars, pent up demand was unleashed as soon as the Federal Reserve lowered interest rates, which launched a strong self sustaining recovery.
The current recession was precipitated by the largest global financial crisis in history, not by a large increase in interest rates. The collapse in credit creation has resulted in the deepest synchronized contraction in global trade and economic growth since the 1930’s. The depth of this recession, and commensurate increase in unemployment, and declines in business investment and trade, has made this financial crisis worse and more protracted. The magic elixir of lower rates, which spurred the strong recoveries after the 1957-1958, 1973-1975, and 1981-1982 recessions, has proven a placebo. Lower rates have helped, but the demand for housing and cars has collapsed, so there is no pent up demand for the recovery to draw upon. The banking system remains crippled. Lending standards are very high for most forms of credit, credit availability remains restrained, and the volume of securitized credit is still off by more than 80%.
click for larger graphic
via NYT
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I saved this from Saturday’s Off the Charts column by Floyd Norris:
THE American recession appears to be nearing an end, but only after it has become the deepest downturn in more than half a century.
The index of leading indicators, which signals turning points in the economy, is rising at a rate that has accurately indicated the end of every recession since the index began to be compiled in 1959.
The index was reported this week to have risen for the third consecutive month in June, and to have risen at a 12.8 percent annual rate over those three months. Such a rise, pointed out Harm Bandholz, an economist with UniCredit Group, “has always marked the end of the contraction.” Mr. Bandholz said he expected that the National Bureau of Economic Research, the official arbiter of American economic cycles, would eventually conclude that the recession bottomed out in August or September of this year.
Why isn’t the Conference Board ready to declare the recession over? The index of coincident indicators — now down for eight consecutive months (down 17 of the last 19 months). That indicator is often used by the National Bureau of Economic Research in making dating decisions, and its failure to stabilize is likely why we haven’t seen any declaration that the downturn is officially over yet.
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Source:
Leading Indicators Are Signaling the Recession’s End
Floyd Norris
NYT, July 24, 2009
http://www.nytimes.com/2009/07/25/business/economy/25charts.html
Long interview with Rosie on BNN: Note he believes Canada’s recession is ending
click for video
‘If you sell it, they will come,’ is the US Treasury’s Field of Dreams mantra this week as they attempt to sell $205b of US debt most of which should be easy to sell as most have maturities of 5 years and less. If the stock market is right and the economy in the 2nd half of the year will have a strong rebound, then interest rates are going higher due to higher inflation and the demand on the part of foreigners, who own half our debt, and others for higher yields for the enticement of buying the enormous new supply. Goldilocks of strong growth and low inflation was 1990′s fiction. The US$ is falling to just shy of its lowest level since Dec ’08 vs the euro after the Aug German consumer confidence # was better than expected and rose to the highest level since July ’08. Hong Kong exports fell at the slowest pace since Nov ’08 and Asia stocks continue their melt up. June New Home sales are out at 10am.
"I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." -Thomas Jefferson (letter to John Taylor in 1816)
After 3 quarters in a row that averaged just 1.2%, Q4 GDP grew 2.8%, a touch below expectations of 3.0% BUT Nominal GDP grew well below forecasts. Because the price deflator was up just .4% vs the estimate of 1.9%, Nominal GDP was up 3.2% vs the estimate of 4.9%. Personal Consumption rose 2.0% vs the forecast of 2.4%. Fixed Investment rose 3.3% helped by a 5.2% increase in equipment and software spending and residential construction rose by 10.9%. Trade was a slight drag on GDP growth and government spending was as well led by a 12.5% decline on national...
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