Before you build something, you get an architect. House, school, office building, apartment building, whatever, and that’s why I find the Architectural Billings Index, from the American Institute of Architects, so very interesting. This index measures billings from AIA member-owned firms and reflects the approximate nine to twelve month lag time between billings and construction spending. And it’s monthly.
Today the AIA reported the August ABI rating was 41.7, down slightly from 43.1 in July.
This score indicates a decline in demand for design services (any score above 50 indicates an increase in billings).
But this comes after several months of gains. I called the AIA’s chief economist, Kermit Baker.
“The ABI is back from the real dark spot it was in six months ago,” says Baker, “but our members say people aren’t beating down the doors.” Despite the upturn in the economy, Baker says there has been more tire kicking than investment in new projects. Right now there’s just not a lot of pressure to invest in new plant and equipment structures.
“We’ve been on a frozen rope since the spring. We were hoping it would inch its way back to recovery but it hasn’t made any progress.”…..
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By John Gittelsohn
Sept. 23 (Bloomberg) — Marriott International Inc., the largest U.S. hotel chain, plans to take a third-quarter pretax charge of $760 million in its timeshare business as the economic slowdown cuts leisure travel and investing.
The company will cut prices, halt development at some luxury fractional ownership and residential resorts, and sell some undeveloped land, Bethesda, Maryland-based Marriott said today in a statement. It also plans to sell its inventory of rooms as part of a new program with Ritz-Carlton Destination Club.
Hotel owners are struggling to attract customers as the recession deters vacationers. Demand for luxury timeshares “was soft in 2008 and weakened further in 2009,” Marriott said today. Timeshares have become a diminishing part of Marriott’s business, accounting for about 14 percent of revenue in the fiscal year ending in January, compared with 16 percent in the year earlier period.
“Marriott has shifted from development mode to cash- harvest mode in its timeshare business,” said Jake Fuller, an analyst with Soleil Securities Group Inc. in New York. He rates the shares “buy.” “This timeshare business will now produce cash instead of use cash.”
Marriott also said its revenue per available room declined by about 19 percent in the quarter ending Sept. 11 from a year earlier. That’s better than a forecast of a drop of 20 percent to 23 percent announced in July.
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FDIC to Meet on Insurance Companies Shortly
U.S. regulators will meet on Sept. 29 to discuss how to rebuild the bank deposit insurance fund, which has been depleted by a sharp increase in bank failures, the Federal Deposit Insurance Corp said in an agenda notice Wednesday.
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The FDIC’s board is expected to propose and put out for public comment a number of options to replenish the fund, including tapping the agency’s $500 billion line of credit with Treasury, levying additional emergency fees on banks, encouraging banks to prepay their regular assessments, and possibly borrowing from healthier banks.
FDIC Chairman Sheila Bair has said all options are on the table and that the agency will seek feedback from the industry before making a final decision.
The board meeting next week will also provide an update of the agency’s expectations for the volume of bank failures that are still looming.
In May, the FDIC projected a loss of $70 billion for the insurance fund over the next five years, up from a prior forecast of $65 billion……
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Mass Layoffs Continue in August
WASHINGTON (Reuters) – The number of mass layoffs by U.S. employers rose by 533 in August from July, with the manufacturing sector the hardest hit, Labor Department data showed on Wednesday.
The number of mass layoff actions — defined as job cuts involving at least 50 people from a single employer — rose to 2,690 last month, affecting 259,307 workers. That brought the total of mass layoffs so far this year to 21,184.
A total of 279 mass layoff events were reported in the manufacturing sector in August, the department said.
While the broader economy appears to be recovering from its deepest and longest recession in 70 years, unemployment continues to rise. There are fears rising joblessness could hamper the recovery.
The U.S. unemployment rate hit a 26-year high of 9.7 percent in August, and many economists expect it to peak above 10 percent early next year.
In the 21 months since the start of the recession, the total number of mass layoff events was 44,669, accounting for over 4.56 million jobs, the department said.
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Xilinx (XLNX: 22.72, 0, 0%) raised its fiscal second-quarter revenue guidance on Wednesday amid “broad-based strength” across the board, sending shares of the chip maker 7% higher in the premarkets.
Led by a significant increase of sales of its Virtex-5, Xilinx now sees a 10% increase of its sales during the current quarter from the previous one. Previously, the company had forecasted sequential growth of just 2% to 6%.
Xilinx, which makes chips for DVD players, cable modems and cellphone base stations, said it now sees Virtex-5 accounting for more than 20% of the quarter’s sales.
The company, which is slated to report results Oct. 14, also reiterated its forecast for gross margin and restructuring charges.
Shares of Xilinx climbed to $24.26 in the premarkets after closing at $22.71 on Tuesday.
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Asia Trades Mixed With Major Markets To The Downside
By Shani Raja
Sept. 23 (Bloomberg) — Asian consumer-related shares rose on expectations the Group of 20 Nations will continue policies to support growth. Chinese shipping lines fell on lower commodity cargo rates.
Geely Automobile Holdings Ltd. soared 19 percent in Hong Kong after selling convertible bonds. Billabong International Ltd., Australia’s biggest surfwear maker, rose 3.1 percent. Woodside Petroleum Ltd., Australia’s second-biggest oil and gas producer, jumped 5.1 percent, after crude oil advanced for the first time in four days yesterday. China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, lost 3 percent.
“G-20 leaders are expected to continue to support fiscal policy stimulus and the global banking system, with the removal of stimulus to take place in a globally coordinated manner,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State, which holds about $115 billion. “There are still concerns about the sustainability of the recovery beyond the stimulus.”
The MSCI Asia Pacific excluding Japan Index rose 0.3 percent to 394.49 as of 7:20 p.m. in Tokyo, after touching its highest point in a year. About three stocks on the index fell for every two that gained. The gauge that includes Japan has rallied 69 percent from a five-year low on March 9. Australia’s benchmark S&P/ASX 200 Index advanced 1.5 percent at the close, snapping three straight days of losses. Japanese markets were closed for a holiday.
Broker Upgrades
New Zealand’s NZX 50 Index added 0.2 percent, as a government report today showed the nation emerged from recession. The unexpected growth in gross domestic product drove the U.S. dollar to a 13-month low against New Zealand’s currency.
South Korea’s Kospi Index lost 0.4 percent to 1,711.47 at the close. Hynix Semiconductor Inc. slumped 5.4 percent, leading a gauge of technology stocks on the ex-Japan Asian index lower, after Hyosung Corp. submitted a bid to gain control of the world’s second-biggest computer-memory chipmaker. Korea Express Co., the nation’s largest logistics company, slumped 5 percent to 71,000 won after prosecutors raided its offices. Hong Kong’s Hang Seng Index dropped 0.5 percent at the close.
Futures on the U.S. Standard & Poor’s 500 Index gained 0.1 percent. The gauge climbed 0.7 percent to 1,071.66 yesterday following a spate of brokerage upgrades. JPMorgan Chase & Co. had its earnings estimate raised at Bank of America Corp., while Citigroup Inc. advised buying Macy’s Inc. shares.
Asia Leading Recovery
“A slew of broker and earnings upgrades provided the impetus and now there’s plenty of cash to follow the advice,” said Cameron Peacock, a Melbourne-based analyst at IG Markets. “The demand from cash on the sidelines will make dips shallow and short lived.”
International Monetary Fund Managing Director Dominique Strauss-Kahn called on leaders from the G-20 nations to maintain policies to pull the world economy out of recession and said China will play a larger role in shaping a sustainable recovery. The Washington-based IMF is advising officials around the world not to withdraw economic stimulus programs too soon as they chart a path to lasting growth.
The Federal Reserve has started talks with bond dealers about withdrawing the unprecedented amount of cash injected into the financial system in the last two years, according to people with knowledge of the discussions……
European Markets Trade Fractionally to The Upside
By Adria Cimino
Sept. 23 (Bloomberg) — European and Asian stocks rose for a second day amid speculation the Group of 20 nations will maintain measures to support the economy even as signs grow that a recovery is accelerating.
Alcatel-Lucent SA jumped 4.9 percent after a report that the world’s biggest supplier of fixed-line phone networks may post higher-than-estimated profit. Merck KGaA climbed 2.2 percent after saying its Erbitux treatment helped some colon cancer patients live longer. Mitchells & Butlers Plc led pub owners lower after UBS AG recommended selling the shares.
Europe’s Dow Jones Stoxx 600 Index added 0.3 percent to 245.01 at 11:13 a.m. in London. The regional gauge has soared 55 percent since March 9 as earnings at companies from Goldman Sachs Group Inc. to GlaxoSmithKline Plc surpassed projections and the German and French economies exited recessions.
“We’re looking at a recovery,” Mike Lenhoff, who helps oversee about $26 billion as chief strategist at Brewin Dolphin Securities Ltd. in London, said in a Bloomberg Television interview. “Markets are indicating a degree of confidence in prospects of growth that lie ahead. This is the quarter that we’re getting some indication of GDP recovering.”
The MSCI Asia Pacific excluding Japan Index rose 0.3 percent as New Zealand unexpectedly emerged from recession. The country’s economy grew for the first time in six quarters, with gross domestic product increasing 0.1 percent in the three months to June 30, a government report today showed…..
Oil Trades Largely Unch @ $71pb
By ALEX KENNEDY p {margin:12px 0px 0px 0px;}
Benchmark crude for November delivery was down 6 cents at $71.70 a barrel by late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract added $1.83 a barrel to settle at $71.76 on Tuesday.
Oil prices have traded between $65 and $75 for months as consumer demand in the U.S. has remained tepid despite evidence of an economic recovery.
U.S. oil inventories rose unexpectedly last week, the American Petroleum Institute said late Tuesday. Crude stocks increased 276,000 barrels while analysts had expected a drop of 2.25 million barrels, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.
“The reason oil is trading in this range is this battle between weak supply fundamentals and optimism for economic recovery,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
“This seems to be a level that both producers and consumers are happy with.”
A weakening U.S. dollar has helped support oil prices. The euro rose Wednesday in Asian trading to $1.4817 from $1.4788 the previous day while the dollar fell to 90.68 yen from 91.15.
In other Nymex trading, gasoline for October delivery was steady at $1.77 a gallon, and heating oil held at $1.81 a gallon. Natural gas was up 3.2 cents to $3.64 per 1,000 cubic feet.
In London, Brent crude fell 13 cents to $70.40 on the ICE Futures exchange.
By Anchalee Worrachate and Ron HaruiSept. 23 (Bloomberg) — The dollar traded within a cent of a one-year low against the euro on speculation the global economic recovery is gathering strength, encouraging investors to buy higher-yielding assets.
The U.S. currency also weakened versus the pound and South Korean won as economists forecast the Federal Reserve will signal today it intends to keep holding down borrowing costs. New Zealand’s dollar was the biggest gainer versus the greenback among major currencies as the nation’s economy unexpectedly grew for the first time in six quarters.
“The dollar is likely to remain weak in the near term,” said Lee Hardman, a currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “What’s driving the dollar lower is the exceptionally loose liquidity conditions, and this encourages its use as a funding currency.”
The dollar traded at $1.4778 per euro at 7:09 a.m. in New York, from $1.4790 yesterday, after earlier declining to $1.4842, the weakest level since Sept. 22, 2008. The U.S. currency rose 0.3 percent to 91.37 yen, from 91.10. The yen weakened 0.2 percent to 135.01 per euro, from 134.76.
The pound advanced 0.5 percent to $1.6434 and 0.6 percent to 89.91 pence per euro as minutes of the Bank of England’s meeting showed Governor Mervyn King agreed this month to follow through with policy makers’ August decision for 175 billion pounds ($286 billion) of asset purchases, suspending his drive to buy more…..
Taiwan’s Exports Fall For The 11th Month
By Janet Ong
Sept. 23 (Bloomberg) — Taiwan’s export orders fell for an 11th month in August, as weaker demand from the U.S. and Europe offset improved sales to China.
Export orders, an indicator of actual shipments over the next one to three months, dropped 11.96 percent from a year earlier, after an 8.77 percent decrease in July, the Ministry of Economic Affairs said in Taipei today. That’s more than the median estimate of a 7.25 percent decline in a Bloomberg News survey of 12 economists.
Taiwan is relying on exports, which account for more than two-thirds of the economy, to drive the island’s recovery. Increased demand from China for electronic products from companies including Taiwan Semiconductor Manufacturing Co. and Asustek Computer Inc. were countered by a larger decline in sales to the U.S. and Europe.
“The weaker-than-expected export orders is no cause for worry,” Cheng Cheng-mount, an economist at Citigroup Inc., said by telephone in Taipei today. “There were fewer working days in August because of the typhoon. In September, we will see a smaller decline in export orders as economy recovers. By October, we can see a growth in export orders.”
Typhoon Morakot dumped record rainfall on Taiwan between Aug. 6 and 9, killing more than 600 people as landslides buried villages and destroyed bridges and roads.
Industrial Production
Industrial production fell 9.62 percent from a year earlier, after declining a revised 7.93 percent in July, according to today’s report……
The Department of Statistics said consumer prices dropped 0.3% year-on-year in August, slower than a 0.5% fall seen in the preceding two months. The rate came in less than economists’ forecast for a 0.4% decline.
Housing costs fell 1.6% on an annual basis, due to lower electricity and gas tariffs and cheaper liquefied petroleum gas. Transport and communication costs slipped 0.4%, mainly due to cheaper petrol prices. Recreation costs were down 1.4%.
Meanwhile, health care prices climbed 2%, while food as well as clothing & footwear prices were up 0.9% and 1.7%, respectively.
Month-on-month, consumer prices rose 0.4%, but the pace was slower than the 1.1% in July. The increase was mainly due to higher costs of transport and communication, clothing and footwear, as also housing and stationery items.
On a seasonally adjusted basis, consumer prices climbed 0.4% in August, faster than the 0.3% in the preceding month. Excluding accommodation costs, consumer prices were down 0.9% year-on-year in August, but rose 0.5% compared to the previous month…..
By Jennifer Ryan
Sept. 23 (Bloomberg) — Bank of England Governor Mervyn King agreed this month to support policy makers’ August decision for 175 billion pounds ($286 billion) of asset purchases, suspending his drive to buy even more.
King and David Miles switched sides and joined a unanimous vote for no change in the plan, arguing that consensus was better for now even though a higher amount may be warranted. All nine members of the Monetary Policy Committee also opted to keep the interest rate at 0.5 percent, minutes of the Sept. 10 decision released by the central bank today in London showed.
King and Miles had sought as much as 200 billion pounds at the August decision. The Confederation of British Industry today raised its forecast for economic growth in the third quarter and predicted the central bank may cap its program after buying the current allocation with newly printed money.
“We probably have seen the worst of the recession,” said Colin Ellis, an economist at Daiwa Securities SMBC in London and a former Bank of England official. “A further extension of asset purchases could be on the cards, but it’s a difficult balancing act for the bank.”
The pound rose as much as 0.6 percent against the dollar after the report to $1.6438. Against the euro, the U.K. currency climbed by the same amount to trade at 90.03 pence as of 10:01 a.m. in London.
“For those members who had preferred a larger stimulus at the August meeting, a larger asset-purchase program could still be justified,” the minutes said. “But in the absence of significant news about the medium term, the case for adjusting the program now was outweighed by the benefits of following through with the program” announced in August.
Risks to Growth
Policy makers noted that prices of assets including housing and equities had risen, and the short-term risks to economic growth had lessened……
Areva Gets 3 Bids For Less Than $4bln
By Jacqueline Simmons and Anne-Sylvaine Chassany
Sept. 23 (Bloomberg) — Areva SA, the biggest builder of nuclear reactors, received three offers of less than 4 billion euros ($5.9 billion) for its transmission and distribution unit, according to three people familiar with the sale.
General Electric Co. teamed up with CVC Capital Partners Ltd. to make an offer, while Toshiba Corp. submitted a separate bid, said the people, who declined to be identified because the talks are private. France’s Alstom SA and Schneider Electric also submitted a joint offer, the people said.
The bids fell short of the 4.25 billion euros analysts had estimated the unit to be worth. Areva is selling the business to raise money to develop uranium mines and buy Siemens AG’s share of a nuclear-reactor joint venture. The company bought the division from Alstom for 920 million euros in 2004.
Areva spokeswoman Patricia Marie and GE spokesman Dan Nelson declined to comment. Officials at Alstom and Schneider weren’t immediately available to comment. Toshiba spokesman Keisuke Ohmori didn’t answer calls to his mobile phone and officials couldn’t be reached at the company’s Tokyo headquarter on a national holiday.
Buyers are interested in the Areva division because of the growing business of making electrical grids more efficient. Areva, the world’s third-biggest maker of transmission and distribution equipment behind Germany’s Siemens AG and Switzerland’s ABB Ltd., provides circuit breakers, high voltage management systems and substations that distribute electricity generated by power plants across the grid.
By TESS STYNES
NEW YORK — General Mills Inc.’s fiscal first-quarter earnings soared 51% as the company’s profit margins widened in tandem with moderating commodity prices and as sales rose of household staples like Hamburger Helper, Multigrain Cheerios and Pillsbury cookie dough.
The results handily topped expectations and the processed-food giant again raised its fiscal-year earnings view, this time by 20 cents to $4.40 to $4.45 a share.
Lower commodity prices have begun to aid the large food makers, who were hit badly last year as their raw material costs surged. Despite the declines in raw material costs, most of these companies have largely been able to avoid the large scale price rollbacks some investors had feared. That is beginning to help their profit margins. ConAgra, maker of Hunt’s sauces and Healthy Choice meals, this week also raised its fiscal year earnings forecast. Companies like General Mills have also cut costs aggressively.
General Mills also has introduced products to help drive its U.S. retail segment growth, such as Progresso High Fiber soups. Its Betty Crocker brand entered the profitable gluten-free niche with mixes for cookies, brownies and cakes.
For the quarter ended Aug. 30, the company reported a profit of $420.6 million, or $1.25 a share, up from $278.5 million, or 79 cents, a year earlier.
Excluding items, such as hedging gains and losses, earnings were up at $1.28 from 96 cents. The company earlier this month indicated results likely would top its internal projections but didn’t give details.
Revenue edged up 0.6% to $3.52 billion, with currency fluctuations hurting sales results by 2 percentage points. Volume was flat, reflecting the loss of 2 percentage points from divested product lines.
Analysts polled by Thomson Reuters most recently were looking for earnings of $1.03 on revenue of $3.49 billion.
Gross margin jumped to 41.5% from 34.1% amid lower costs for grain and other commodities.
At its U.S. retail business, sales rose 5.8%, with volume up 2%. Profit rose 21%. In its international division, sales dropped 4.1% on the weaker dollar as earnings fell 13%.
The bakery and food-service unit remains under pressure amid restaurant industry weakness, with sales down 16% on divestitures and falling flour prices. However, segment profit more than doubled amid lower commodities prices and cost cuts.
Retailers Expect Fewer Holiday Jobs
BY ANN ZIMMERMAN AND ELIZABETH HOLMES
Nearly half the nation’s 25 biggest retail chains expect to hire fewer holiday workers this season than they did last year, another sign that retailers aren’t counting on recession-strained shoppers to relax the tight grip on their pocketbooks this year.
About 40% of stores surveyed across a broad swath of retailing, including consumer-electronic chain Best Buy Inc., teen-retailer American Eagle Outfitters Inc., and luxury-goods seller Saks Inc., told the Hay Group, a human resources consulting firm, that they expect to hire between 5% and 25% fewer temporary workers this year than last, when the recession forced many retailers to trim …
U.S Mortgage Applications Jump the Most Since May
By Julie Haviv
NEW YORK (Reuters) – U.S. mortgage applications jumped last week to their highest since late May as interest rates tumbled below 5 percent, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Sept 18 increased 12.8 percent to 668.5, the highest level since the week ended May 22.
While consumers clamored for home refinancing loans, their appetite for applications to buy a home, a tentative early indicator of sales, was also robust. The overall trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.
Eric Belsky, executive director at Harvard University’s Joint Center for Housing Studies, said several months of improvement in new and existing home sales is a positive sign.
“Low interest rates on mortgages are important to the fledging housing recovery,” he said.
This has made a significant impact on the affordability front and where they may be headed could be key to a sustained recovery, he said.
“While an uptick may bring buyers anxious that rates will keep rising into the market temporarily, a material increase in rates could threaten the rebound.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.97 percent, down 0.11 percentage point from the previous week. It was the first time since the week ended May 22 that the rate on this most widely used home loan was below 5 percent.
However, the rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below year-ago levels of 6.08 percent….
Moody’s Accused Of Issuing Inflated Ratings
(Reuters) – A former analyst with Moody’s Corp has accused the credit ratings agency of issuing inflated ratings, and has taken his concerns to U.S. congressional investigators, the Wall Street Journal reported on Wednesday.
In a letter dated July, obtained by the paper, Eric Kolchinsky accused Moody’s Investor Service of issuing a high rating to a complicated debt security in January, in spite of it being aware it was planning to downgrade assets backing the securities.
“Moody’s issued an opinion which was known to be wrong,” Kolchinsky wrote, along with detailing other instances of inflated ratings issuance, according to the paper.
The paper said a Moody’s spokesman declined to comment on the January rating under scrutiny, but had said Kolchinsky refused to cooperate with an investigation into the issues he raised, and was suspended with pay.
Kolchinsky is scheduled to testify on ratings firm reform before the House Committee on Oversight and Government Reform on Thursday, the paper said.
Moody’s was not available to comment.
Ford Launches New Indian Division
NEW DELHI (Reuters) – Ford Motor Co will start production of a small car in India early next year, and its chief executive said the U.S. market had was showing signs of recovery and he expected industry sales to rise in the next two years.
The No. 2 U.S. automaker is focusing on small cars, which it feels will increasingly drive sales, and chief executive Alan Mulally said the fast-growing Asia Pacific market will play a bigger role in Ford’s global sales.
“We expect the small car segment will double in the next 10 years,” he said at the launch of the Figo, Ford’s new small car, in the Indian capital of New Delhi.
“When you look at vehicle size, about 60 percent of the vehicles worldwide would be smaller vehicles like the new vehicle here.”
The company did not disclose the Figo’s price, but Mulally said Ford was not looking to directly compete with Tata Motor’s Nano, the world’s cheapest car at around $2,000 which hit Indian roads earlier this year.
“Right now we are going to focus on the larger portion of the (small car) market, which is the B size. So, we don’t have plans to compete in the A size, or sub-B right now.”
Ford will make the Figo at a plant in the southern Indian city of Chennai, which it plans to make a global production hub.
The company is investing $500 million in the plant, which will have annual capacity of 200,000……
The Next Wave of Foreclosures Begins
Clobbered bears are now clinging to three real-estate theories that will bring the economy down:
- Commercial real-estate collapse (worst-kept secret ever)
- Option ARM reset armageddon (some analysts think the chart that scares the hell out of everyone here is misleading and out of date)
- A delayed wave of foreclosures, thanks to mortgage mods and banks trying not to dump properties at the bottom.
The WSJ’s Ruth Simon and James Hagerty explore the last concern:
Legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market.
The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market.
The trouble, of course, is that it’s really hard to get a handle on exactly how many foreclosures are “delayed.” The WSJ gives it the old college try:
As of July, mortgage companies hadn’t begun the foreclosure process on 1.2 million loans that were at least 90 days past due, according to estimates prepared for The Wall Street Journal by LPS Applied Analytics, which collects and analyzes mortgage data. An additional 1.5 million seriously delinquent loans were somewhere in the foreclosure process, though the lender hadn’t yet acquired the property. The figures don’t include home-equity loans and other second mortgages
Moreover, there were 217,000 loans in July where the borrower hadn’t made a payment in at least a year but the lender hadn’t begun the foreclosure process. In other words, 17% of home mortgages that are at least 12 months overdue aren’t in foreclosure, up from 8% a year earlier.
So call it about 3 million houses at risk. Owners will catch up on payments on some of these. Others will be sold as short sales. So maybe call it 2-2.5 million.
Meanwhile, even bearish analysts agree that the low end of the real-estate market (where many foreclosures are) is likely stabilizing. So buyers will snap up more of these houses than they would have a year ago.
Will 2-2.5 million “delayed” foreclosures crush the housing market? Well, they won’t help prices rise, certainly. But as long as they don’t hit the market all at once–which, from the time-spans described above, doesn’t seem likely–they probably won’t be a devastating “wave,” either.
Read the whole WSJ article >
Government or Bankers To Blame ?
Meetings like the G-20 summit this week in Pittsburgh aren’t famous for their accomplishments, but this one bids to be different in at least one area: Cementing the notion that banker paychecks were the financial weapons of mass destruction that blew up the markets last year.
In most of Europe, the notion that “bank pay did it” is now settled truth. Nicolas Sarkozy wants a pay czar to set compensation levels at French banks. Angela Merkel, up for re-election this weekend, is campaigning against banker bonuses. The Federal Reserve is now joining the act with a proposal to regulate pay structures as a way to police safety and soundness and contain systemic risk. The Fed’s idea, which doesn’t propose to cap pay, is perhaps the least damaging, although it still sets a terrible precedent and makes more comprehensive wage and price controls in the future a difference of degree, not kind.
Governments can’t get incentives right most of the time in their own policies. So the idea that regulators can better align banker incentives than a competitive marketplace fails the laugh test. What’s more, the evidence does not show that bonus incentives caused the late, unlamented credit mania. It is certainly true that bankers (like most human beings) prefer higher bonuses, and that bankers made risky bets on which they booked big fees. But the reality of this mania-turned-panic is how widespread the excesses were, across big banks and small, foreign banks and domestic. The companies that fared relatively better paid huge bonuses too, but they had better risk management controls.
Bankers who owned large equity stakes in their banks—and therefore had a strong incentive not to see them fail—also did not outperform their peers in the crisis. And as Jeff Friedman of Critical Review notes, banks on the whole bought AAA- and AA-rated securities almost exclusively for their own portfolios. Thus they sacrificed the higher yields of the lower-rated tranches for the perceived safety of a AAA seal of approval—hardly the behavior of people seeking short-term gain, whatever the long-term consequences.
Far more important than bonuses were the incentives to issue and take on debt, especially housing-related debt, created by . . . the politicians who now want to blame banker pay. There’s the systemic risk that the Federal Reserve created with the ultralow interest rates that subsidized credit for so much of this decade; the privileged status bestowed upon the ratings agencies by the SEC and others; and regulatory capital rules that favored securitized mortgages over the same loans when held in portfolio by the banks. True reform would grapple with these issues, rather than the calculated distraction of bank pay.
Going forward, the biggest systemic risk is the emerging reality that the politicians consider our biggest financial institutions too big to fail. This is a much greater incentive to excessive risk-taking than any bonus pool because it means the bankers get the profits while taxpayers absorb the risk of failure…..
Up, Up, & Away: Why Markets Keep Moving Higher
This is a question that confounds those on the sidelines and aggravates the bears to no end. Many attribute it to some sort of bank or government engineered conspiracy theory. Others say it is simply performance chasing by large money managers. Personally, I find the answer in the psychological. When you break market transactions down to their simplest point it really all comes down to psychology. The transaction price point occurs at an agreed upon price where one party succumbs to the demands of the other (to oversimplify things). In other words, one party has a greater need to achieve a certain price on the buy side or sell side. This is all due to psychology.
This was best seen during the last year. 12 months ago sellers were desperate to get out of stocks. The buyers were in an obvious position of power where they could actually drop their bids or hold out altogether. Today’s market environment is very much the opposite. The sellers are in a position of power because there is no great need to sell. The buyers on the other hand, are in a position of fear caused by the idea that they might miss out on future price appreciation. There is no dire reason to sell therefore the buyers simply overpower the sellers on a daily basis.
This is all being compounded by the fact that we are coming off such a massive psychological imbalance earlier this year. This is classic overshooting in a mean reversion process. The following image represents price action around the business cycle. The blue line represents the mean. As the economy expands investors tend to overshoot to the upside. The inverse occurs in a recession. What we saw in March was a classic case of panic fear that resulted in a massive overshoot to the downside. My March 8th bottom call had very little to do with changing fundamentals and everything to do with a panic overshoot. Admittedly, the timing was remarkably lucky, but the approach was not. I was simply playing off the idea that stocks and emotions had overshot far too much to the downside.
So where do we sit today? Today’s market is characterized by a lack of negative psychological catalysts that can change the current market dynamic where buyers overpower sellers. That means we are likely to continue seeing the buyers overpower the sellers until a negative catalyst catches hold of the sellers in the market and instills enough fear to grab the reins backs from the buyers. Until that occurs, psychology is likely to remain positive (but not yet euphoric) and price action will likely follow.
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