If you're not scared yet...

... you must be in a coma. The wheels are coming off this thing - and this is after the bailout has begun!

A Sea of Unwanted Imports:

And for the first time, Mercedes-Benz, Toyota, and Nissan have each asked to lease space from the port for these orphan vehicles. They are turning dozens of acres of the nation’s second-largest container port into a parking lot, creating a vivid picture of a paralyzed auto business and an economy in peril.

"This is one way to look at the economy,” Art Wong, a spokesman for the port, said of the cars. “And it scares you to death."

Consumer Prices Fall by Record Amount:

"This month it's more than slowing, it's outright contraction," said James O'Sullivan, United States economist at UBS. "And yes, if you extrapolate that, it's deflation."

The heart of the matter

Largely because of what Mr. Hanson called the “widespread creation of wealth,” the number of domestic hotel rooms in the luxury segment almost doubled, to more than 80,000, in the last 10 years, according to Smith Travel Research. At the same time, luxury hotel companies were also planting their flags in every major city in the world.

Is this true? Was there really a “widespread creation of wealth,” - or was most of the world just involved in the biggest Ponzi scheme (Credit Default Swaps, etc.) ever for the last ten years? Unfortunately I think it was the latter. The excess capacity of luxury hotel rooms, luxury real estate, luxury retail stores, etc. (brought on by the former enormous excess of credit) will probably all have to be worked off in the coming years, and it could be a long and ugly time economically (and literally) as this happens.

Mortgage Equity Withdrawal

Graph courtesy of the fantastic Calculated Risk. What can you say about this chart? How about one word - RECESSION.

Oh my god you are so naive!

Get the latest news satire and funny videos at 236.com.

WTF

... is wrong with these people:

Senator Mitch McConnell of Kentucky, the Republican leader, quickly went to the Senate floor and declared Mr. McCain’s proposal "an outstanding idea."

An outstanding idea? McCain has no clue what is going on. His stunt of suspending his campaign is just that - a cheap stunt to try to get out of the debates, especially the VP debate. But McConnell is just warming up:

“Americans want to know that their home values and college funds and retirement accounts are safe. In other words, that the problems on Wall Street are not going to spread to Main Street. So I appreciate my colleague’s proposal and I hope that it is given serious consideration.”

Hey Senator, the problem is on main street, i.e. record foreclosures - and is headed back to Wall Street in the form of MBS and other toxic paper they invented - to supposedly avoid the very such problems they are in - not the other way around.

Do they just let anybody who is rich become a senator?

The financial markets are working

Knowing that there is nothing this administration won't try, you really have to start to wonder about this plan's timing. Did Paulson really think he could make Chuck Schumer crap himself and sign over a trillion dollars over a weekend?

The plan as it emerges is terrible - it is simply a bailout of the people/institutions holding these MBSs and other pieces of toxic paper.

I have a pretty plain observation about the whole mess - the financial markets are working - not melting down. Credit is tighter, the TED spread is exploding, treasury yields are low, etc. etc. because the market - the market in, of, and for these things - knows that there is no "there" there. There is no credit to be offered, because there are no assets to back it up. The market is trying to tell people to stop borrowing - this is exactly what it is supposed to be doing.

Let the housing market come to rest where it should, let thousands of housing starts stop, let hundreds or thousand of CRE developments grind to a halt, let unemployment rise - and let these banks/brokerages/hedge funds/etc. fail if they have to. They made the mess - they invented it, participated in it, feed slovenly from the trough of it. And when it still wasn't enough, they forced the game all the way down to the lowest of consumers and convinced damn near everyone in the entire United States that they had to own a home (or two or three) and two cars and a 60 inch TV, etc. etc. and that we could all just pay for everything later.

Well you can't. You can't leverage everything up 30 times - it just doesn't work. This has just been proven - and all this bailout seems to want to do is to return things to the way they were a couple of years ago. Instead of seeing the housing market as a bubble, Paulson is talking about a housing recovery. What recovery? Is he insane?

Some links:

Pigs at the Trough TPM

Getting real — and letting the cat out of the bag Krugman

The Bailout

The new bailout as it stands this morning is a crock of crap. This is not a liquidity crisis - it is a solvency crisis. Wall Street is about to be bailed out by the taxpayer, plain and simple. More of these institutions should be allowed to fail. Home prices should adjust to where they have to on their own. When I hear Paulson talk about a housing "recovery" it shakes me to the bone. There is no recovery coming. There was a bubble, it burst, get over it. The fact that there are so many lucid comments all over the web, but that none of those quotes are coming from the government should tell you something. Here are a couple:

Cash for Trash from Paul Krugman:

"Some are saying that we should simply trust Mr. Paulson, because he’s a smart guy who knows what he’s doing. But that’s only half true: he is a smart guy, but what, exactly, in the experience of the past year and a half — a period during which Mr. Paulson repeatedly declared the financial crisis “contained,” and then offered a series of unsuccessful fixes — justifies the belief that he knows what he’s doing? He’s making it up as he goes along, just like the rest of us."

From a commenter on TPM:

"As a Wall Street guy I am sort of glad that this bailout is being organized. However, what seems unfair to me is that there are absolutely no provisions for homeowners. Moreover, this morning on Stephanopulous I saw Hank Paulson talking about homeowners taking out mortgages that were higher than they could afford and about them needing to live up to their obligations.

I find it incredible that he would use language like that while asking taxpayers to send a trillion dollars to Wall Street because investment banks made irresponsible investments and aren't able to live up to their obligations."

And whatever your opinion of Shedlock at Global Economic Trend Analysis, he has been all over this mess forever. As has Calculated Risk.

19,000 Workers Accept Buyout at G.M.

Wow:

DETROIT — General Motors on Thursday said that 19,000 hourly workers — a quarter of a unionized work force that already has been dramatically pared down — have accepted buyouts.

Most of the workers will depart within the next month, as G.M. formulates a plan to deal with plummeting demand for sport utility vehicles and pickup trucks while gasoline prices climb above $4 a gallon. The proportion of G.M. workers who took a buyout is more than triple the acceptance rate at Ford, where 4,200 of 54,000 workers took deals offered as part of a similar program.

Though G.M.’s 74,000 workers are on average older than Ford’s, the size of the exodus at G.M. signals deteriorating confidence among members of the United Automobile Workers union in their employer and the industry.

Many who remain — particularly workers at truck plants who were laid off for much of the spring because of a strike at a parts supplier — face what is sure to be a summer filled with plant idling and an uncertain future after that. G.M. said in April that it would eliminate one shift at each of four truck plants in Michigan, Wisconsin and Ontario.

But gasoline prices have risen 35 cents since then, making big vehicles even more unattractive and suggesting that Detroit automakers will need to cut deeper.

“While too early to tell definitively, indications are that the shift in buying preferences may, as in the late ’70s/early ’80s, persist for several years, even if oil/gas prices retrench,” Brian Johnson, an analyst with Lehman Brothers, wrote in a note to clients.

Ford last week responded to falling sales by saying it was reducing production in North American by 15 percent, ramping up cost-cutting efforts and abandoning its long-held goal of returning to profitability by next year.

Ford is also planning a considerable reduction in salaried positions, according to a person with direct knowledge of the plan. The cuts would be achieved through layoffs, rather than buyouts or early retirement offers, and reportedly could number as many as 2,000, though this person, who is not authorized to speak publicly about the plan, would not confirm that figure.

“They’re finally recognizing that there’s a sea change in the vehicles people are going to buy,” said Greg Gardner, an analyst with the Oliver Wyman Group, which publishes the Harbour Report on automotive manufacturing.

Ford posted a surprising $100 million profit in the first quarter but warned that it would lose money in the rest of the year.

Meanwhile, G.M. lost $3.3 billion in the first quarter. It said second-quarter income would be reduced by $1.8 billion because of strikes at two of its plants and by the 87-day strike at its supplier, American Axle & Manufacturing, all of which recently ended.

But much of that amount would have been lost even without the American Axle walkout, because G.M. still has more than four months’ worth of inventory of the vehicles produced in the factories that had to be shut down.

“Demand has deteriorated so fast that inventory units haven’t declined much and inventory days remain at record high levels,” Mr. Johnson wrote. “We believe that very sharp production cuts will be required throughout the rest of the year.”

G.M. is expected to discuss its plans to cope with declining sales at its annual shareholder meeting Tuesday in Wilmington, Del. The plans are believed to call for further reductions in truck production but not additional plant closings.

The company said it would hire new workers, under a significantly lower pay scale created by the contract G.M. signed with the U.A.W. last fall, to replace many of those who leave through the buyout program. G.M. could decide to slow production by hiring fewer replacements or by hiring them more slowly than originally intended.

“Despite significant challenges in the U.S. market, we continue to reshape our business for long-term success,” Troy Clarke, the president of G.M.’s North American operations, said in a statement. “This attrition program gives us an opportunity to restructure our U.S. work force through the entry-level wage and benefit structure for new hourly employees.”

The number of workers leaving G.M. through the buyouts is at the high end of the range that the U.A.W. president Ronald Gettelfinger estimated in February. But after Ford only managed to persuade half as many workers to leave as it wanted, many thought G.M.’s acceptance rate would be much lower.

Retailing Chains Caught in a Wave of Bankruptcies

The NY Times has an article out today about companies across the country going out of business. I think it sounds a little too sympathetic to the business side - there is a lot of "retailing is so hard" and "we have to borrow to pay bills and salaries", etc. That just doesn't sound like a good business plan to begin with. If these businesses are so weak and rely so much on debt, then losing them is probably a better long term solution. My sympathies are with the people who work there more than the corporate/equity firm owners. There is just something about America that makes everyone think you have to have 500 stores in all 50 states, and leverage yourself up to the gills to pay for it all, blah, blah, blah. Maybe one thing this recession and global credit crisis will change for the better will be a shift to more small, family owned, sustainable businesses, a revival of some downtowns, and the realization that bigger and cheaper is not always better. It would be a nice silver lining to this mess.

Shoppers scrimp as food prices rise

That is a Reuters headline.

SECAUCUS, New Jersey (Reuters) - Patricia Norris' family is feeling the one-two punch of higher fuel and food prices.

Her husband works as messenger, driving around to deliver packages. But the job is not as profitable as it once was because rising fuel prices are eating into his earnings.

With money tight and food prices rising, Norris can no longer afford to buy beef and chicken on a regular basis.

"We buy meat only for special occasions. Like for Easter, we had a ham," she said after a shopping trip at her local Wal-Mart in Romeoville, a mixed blue- and white-collar suburb of Chicago.

Norris must purchase only what is on her shopping list, to avoid spending more than she can afford.

"Sometimes I cry," she said, when she passes items on store shelves she can no longer buy.

Overdue Consumer Debts Highest Since 1992

There are a lot of not very good signs out there - this is one of them:

"Consumers fell behind on car, credit- card and home-equity loans at the highest level in 15 years, another sign the U.S. economy is slowing, according to the American Bankers Association's quarterly survey."

This is another:

"The Labor Department reported Thursday that new applications filed for unemployment insurance jumped by a seasonally adjusted 38,000 to 407,000 for the week ending March 29. The increase left claims at their highest point since Sept. 17, 2005, following the blows of the devastating Gulf Coast hurricanes."

I get this fleeting feeling sometime that this is as bad as it gets - that all of this money pumping by the Fed and the tax payer assisted rescue of the Robber Barons of our day has started to kick in and will have some soothing effect - but then I remember that we are still in this terrible, three trillion dollar war, that inflation is raging, real wages are falling, gas is pushing $4.00 a gallon, and that people are pretty gloomy about this whole mess - and the feeling goes away.

A change in the zeitgeist?

It is only one article "Thinking the unthinkable: what if it's not that bad" - but - could the tide already be shifting?

I don't think so - not yet. The stock market may have stabilized, but does that really mean anything for the overall economy? Housing news supposedly looks better? Who are we kidding - maybe month to month some things are improving - but these are still bad numbers overall and YOY they are TERRIBLE (DOWN 23.8% below February 2007 levels). There is a lot of inventory to work off, and many bad loans out there. It is going to take some time. Maybe the market panic is over - but the real work on the economy has hardly started.

Carlyle Capital says unable reach deal with lenders

More humor:

"The credit angst is back," said Tim Condon, head of Asia research with investment bank ING."

How long was it gone for - one day?!? What is wrong with these people... can we at least get serious reporting on this mess?

Home loan demand drops as rates near 5-month high

It is really amazing that everything the Fed does, timing wise, seems to be because how the stock market is acting, and is actually having no effect on the real world. I know it isn't that simple, but it really seems to be. Check out this headline: Home loan demand drops as rates near 5-month high.

The cutting of interest rates was supposed to... lowere interest rates, right? Instead, real mortgage rates are going UP!

Some other recent headlines: Unemployment rate rises in 27 states in January, Consumer bankruptcies leap in February, Subprime crisis and poverty hand-in-hand: study. And yet many economists are still saying that technically there will not be a "real recession". At this point, who cares? The pain seems real enough. The country is convulsing in a leaderless vacuum.

Economy Lost 63,000 Jobs in February

The NY Times tells us today that "The economy shed 63,000 jobs in February... the fastest falloff in five years and the strongest evidence yet that the nation is headed toward — or may already be in — a recession."

What I can't get is how many news reports repeatedly call this kind of news "unexpected". What the hell were they expecting!

Vacant Homes in U.S. Climb to Most Since 1970s With Ghost Towns

This is really bad on several levels, besides the stark economic one. These empty houses are going to attract squatters, drug users, vandalism, etc. These neighborhoods with just a few residents are going to be like cancerous growths on the immediate areas. And you can only imagine that eventually there will be people showing up to rip out windows and interior finishings, etc.

Feb. 29 (Bloomberg) -- When Quinn Cuthbertson looks around his new neighborhood in El Dorado Hills, California, he sees rows of empty homes and barren hillsides. A promised new school and a clubhouse haven't materialized.

Cuthbertson paid $460,000 for a four-bedroom house in this northern California town named for the mythical golden city. He now suspects his neighbor spent $45,000 less. Nearby, 87 of 98 Toll Brothers Inc. home sites are undeveloped.

Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University's Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.

But seriously folks...

Welcome to March. I started out hot here - 20 posts in January, 13 in February - but the last one was almost 2 weeks ago. Personally I have just had too much work to deal with, and the economic news has been so bad that just trying to read it all was taking up most of my free time. But I digress.

What I want to mention seriously is this - I don't think most people, including economists and financial professionals, are really grasping what is potentially happening to the US and global economy. The word subprime got out there in the media and was latched on to by the general public. It seemed plausible, a bunch of people who shouldn't have bought houses did, and now they are in trouble. Oh, and the mortgages that they were supposed to be paying were actually securitized and sold off around the world as SAFE investments. Problem contained. Maybe 40 billion in losses. Okay 200 billion. Well, maybe 400 billion. Okay, shit, let's say a trillion - whatever. And really - I mean whatever. Because whatever paper losses the real estate crash produces in America and then ripple around the globe, that is only one part of the problem.

We have insolvent banks. We have soaring inflation. We have a huge national debt and trade imbalance. We have growing unemployment and falling wages. Folks - what we have is a mess. Recession? Hell yes. It is just the beginning.

"massive amounts"

I mean - "massive amounts" - come on, its getting nearly comical:

NEW YORK (Reuters) - Banks in the United States have been quietly borrowing "massive amounts" from the U.S. Federal Reserve in recent weeks, using a new measure the Fed introduced two months ago to help ease the credit crunch, according to a report on the web site of The Financial Times.

So what is really going on? I think there are probably several banks that are having a real liquidity crunch - they won't lend to each other, so they are taking what the fed is giving. Is it something to worry about? I think yes, but it isn't the end of the world - yet.

Kunstler

"But that system was considered too awkward and "reserves" were then denoted in just currencies themselves, or certificates that represented the existence of currencies held elsewhere, or pixels on a screen representing the movement of alleged piles of currency from one place to another, or the intention to move a notional pile of currency to a theoretical destination, and then that became an algorithm purporting to represent the future arrival of a notional pile of money at theoretical destination to-be-named-later, and so on...

He can get carried away but I love him - this week's post is on the money.

Understatement of the day

"People have been living off the equity in their houses and their credit cards. Now, both of those things are ending," Provencher said. "It's going to create an interesting problem."

Ya think? There is more here.

Natomas Area Commercial Real Estate Photolog

Just an absolute jaw dropping post "Natomas Area Commercial Real Estate Photolog" - you have to visit this site and see the photos for yourself. Interesting that in the comments lots of people have responded with things like "looks like where I live" from various states around the nation. This kind of hyper over development just smacks of greed and corruption. How could all this excess space get built? The sheer number of people not exercising common sense in this process (owners, banks, planners, local government, construction companies) is staggering in itself.

I mean - just how much shit were people in Sacramento supposed to buy? Check out this chart - and it is dated already. Do you think any of those countries would be horrible places to live?

"arcane financial instruments"

A $45.5 trillion dollar unregulated market... something just isn't right here. I am really starting to believe that this financial mess isn't even understood by Paulson, Bernanke, and the rest of them. They are just holding on for dear life. There is no way that this whole credit default swap story doesn't unwind into a giant mess. The only issue is when:

"No one knows how troubled the credit swaps market is, because, like the now-distressed market for subprime mortgage securities, it is unregulated. But because swaps have proliferated so rapidly, experts say that a hiccup in this market could set off a chain reaction of losses at financial institutions, making it even harder for borrowers to get loans that grease economic activity."

Retail sales?

"Retail sales unexpectedly climbed in January, given a boost by demand for cars and gasoline in a positive sign for the economy."

You know I really don't understand this - demand for cars and gasoline? How about gas costs more, and people are maybe trading in their gas guzzlers for more economical models. I would love to see finer grains in this report. It sounds like a lot of crap to me.

Aha - as I am writing this and check the link it appears that the wording on this article has changed:

"Part of the gain, however, stemmed from higher gasoline prices. Retail-sales data aren't adjusted for inflation.

In addition, economists were puzzled by a 0.6% increase in auto sales, since other industry reports show auto sales declined"

I don't know who could take this as good news...

Mortgage Crisis Spreads Past Subprime Loans

From conversations with some American friends I am not so sure (anecdotally) that people are quite getting the breadth and scope of what has happened (is still happening) in the mortgage and housing markets. You really just have to look at a chart (thanks to Calculated Risk) to see it - this is an historic collapse. And it continues to spread, as this new article from the NY Times explains:

"The credit crisis is no longer just a subprime mortgage problem.

As home prices fall and banks tighten lending standards, people with good, or prime, credit histories are falling behind on their payments for home loans, auto loans and credit cards at a quickening pace, according to industry data and economists.

The rise in prime delinquencies, while less severe than the one in the subprime market, nonetheless poses a threat to the battered housing market and weakening economy, which some specialists say is in a recession or headed for one."

This is going to be a lot more than a little downturn and maybe a few layoffs. My fear is that it is going to the kind of event that may take a decade or more for the country to properly adjust to - or that it may actually be an end to business as usual as we know it (which of course is probably silly - but - possible).

Many Believe US Already in a Recession

Interesting article from the AP:

WASHINGTON (AP) -- Empty homes and for-sale signs clutter neighborhoods. You've lost your job or know someone who has. Your paycheck and nest egg are taking a hit.

Could the country be in recession?

Sixty-one percent of the public believes the economy is now suffering through its first recession since 2001, according to an Associated Press-Ipsos poll.

The fallout from a depressed housing market and a credit crunch nearly caused the economy to stall in the final three months of last year. Some experts, like the majority of people questioned in the poll, say the economy actually may be shrinking now. The worry is that consumers and businesses will hunker down further and pull back spending, sending the economy into a tailspin.

''Absolutely, we're in a recession,'' said Hilda Sanchez, 44, of Waterford, Calif.

More here.

D.R. Horton Swings to 1Q Loss on Charges

Hefty Write-Down Charges Drive D.R. Horton to Post 1st-Quarter Loss, Revenue Drops Sharply

Hefty Write-Down Charges Drive D.R. Horton to Post 1st-Quarter Loss, Revenue Drops Sharply

FORT WORTH, Texas (AP) -- D.R. Horton Inc., the nation's largest homebuilder, said Thursday it swung to a loss in its fiscal first quarter, due to hefty charges to write off inventory and land values as the housing slump continues to worsen.

Losses for the quarter ended Dec. 31 totaled $128.8 million, or 41 cents per share, compared with profit of $109.7 million, or 35 cents per share, a year ago. The 2008 quarter includes $245.5 million in pretax charges to write down inventory and the value of land deposits...

"Market conditions remained challenging in our December quarter as inventory levels of both new and existing homes remained high while pricing remained very competitive,"

"Challenging" is the new code word for "our business is in the shitter".

Amateurs

"I have no idea why I wouldn't call Ms. Sanchez a real estate speculator, since as far as I can tell she was speculating in real estate. I'm sure she's an amateur speculator, but that's rather the point, isn't it"

Great quote from Calculated Risk - go read.

Economy Fitful, Americans Start to Pay as They Go

It is just one article, and I think a lot of the evidence is anecdotal, but still - there seems to be either a sentiment change about "living beyond your means", or at least an awareness in the media that some people are not spending like they used to:

“We don’t use our credit cards anymore,” said Lisa Merhaut, a professional at a telecommunications company who lives in Leesburg, Va., and whose family last year ran up credit card debt it could not handle.

Today, Ms. Merhaut, 44, manages her money the way her father did. Despite a household income reaching six figures, she uses cash for every purchase. “What we have is what we have,” Ms. Merhaut said. “We have to rely on the money that we’re bringing in.”

The shift under way feels to some analysts like a cultural inflection point, one with huge implications for an economy driven overwhelmingly by consumer spending.

While some experts question whether most Americans, particularly baby boomers, will ever give up their buy-now/pay-later way of life, the unraveling of the real estate market appears to have left millions of families with little choice, yanking fresh credit from their grasp.

“The long collapse in the United States savings rate is over,” said Ethan S. Harris, chief United States economist for Lehman Brothers. “People are going to start saving the old-fashioned way, rather than letting the stock market and rising home values do it for them.”

Read the whole article - it is worth it.

"This is a stunning fall"

From Bloomberg:

Feb. 5 (Bloomberg) -- U.S. service industries unexpectedly shrank in January at the fastest pace since the last recession as the housing slump deepened and consumer spending cooled.

The Institute for Supply Management's non-manufacturing index, which reflects almost 90 percent of the economy, fell to 41.9, the lowest since October 2001, from 54.4 the prior month, the Tempe, Arizona-based ISM said. A reading of 50 is the dividing line between growth and contraction.

"This is a stunning fall,'' said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. "If accurate, it's dire news on the economy.''

The momentum of reality is starting to wash across the landscape. The economy is in rough shape, credit is getting tighter, all sorts of loans are going bad, the labor market is weakening, and its the middle of winter!

I like how this article is framed as if this number was as surprise - I mean what the hell were they expecting?

Back from a long weekend...

and have some catching up to do obviously. More soon -

"and the labor picture is sure to worsen"

In my last post I said, "and the labor picture is sure to worsen". Here is a headline from a few hours later: U.S. stock futures point lower for second day, Labor Dept. reports large jump in weekly jobless claims, from 69,000 to 375,000

That is a huge increase - I guess all the retail holiday help got their pink slips!

"Already lower, futures for the Dow Jones Industrial Average more than doubled their losses after the government reported the largest gain in claims for first-time unemployment benefits since September 2005.

S&P Mulls $500B in Mortgage Downgrades

NEW YORK (AP) — Standard & Poor's Ratings Services is considering slashing its rating on more than $500 billion of investments tied to bad mortgage loans, the ratings agency said Wednesday.
The massive downgrade would threaten a broad swath of the world's finance industry, S&P said, ranging from Wall Street's trading desks to regional banks to local credit unions.

This isn't going to end any time soon. The commercial real estate market has to follow, and the labor picture is sure to worsen also.

"which is also concerning to us."

From Calculated Risk:

"Another effect we're having has been a challenge with the media and with consumer groups; and with consumers willingness just to walk away from homes. We haven't seen anything like this since Texas during the oil bust and people just willing to declare bankruptcy and walk away. We are seeing a lot of that similar type social phenomenon occur, particularly in California, which is also concerning to us."

Mark Hammond, CEO, Flagstar Bancorp conference call.

This really is the tip of the iceberg. As this kind of behavior becomes socially acceptable, there is going to be an avalanche of foreclosures. These houses will eventually, some way, come back into a housing market that is already flooded with inventory. This is starting to feel more like a 3 to 5 year event than a 1 or 2 year event.

Update: I listened to this call myself and made some corrections to the transcript above. If you want to hear this quote it comes at about the final quarter of the call.

MBIA Posts Biggest Loss, Considers New Capital Plans

From Bloomberg:

"Jan. 31 (Bloomberg) -- MBIA Inc., the world's largest bond insurer, posted its biggest-ever quarterly loss and said it is considering new ways to raise capital after a slump in the value of subprime-mortgage securities the company guaranteed.

The fourth-quarter net loss was $2.3 billion, or $18.61 a share, raising concern the Armonk, New York-based company will lose its top credit ratings. The loss came a day after FGIC Corp.'s insurance unit became the third company to be stripped of its AAA grade."

Robert Reich's Blog

We just added the feed from Robert Reich's Blog to the left hand column. I already mentioned in passing that the stimulus bill was garbage - he has a couple of recent posts talking about it, including this one:

"Perhaps the silliest part of an already silly stimulus bill is a provision giving corporations big tax deductions this year on the costs of new machinery, instead of spreading those deductions over several years, as is normally the case. The idea is to get businesses to invest in more machinery, which will stimulate the economy.

But accelerated depreciation, as it’s called, doesn’t work. Almost the same tax break was enacted in 2002 and studies show just about no increase in business investment as a result. Why? Because companies won’t invest in more machines when demand is dropping for the stuff the machines make. And right now, demand is dropping for just about everything."

Another big bond insurer in trouble

From Bloomberg:

"Jan. 30 (Bloomberg) -- Financial Guaranty Insurance Co., the world's fourth-largest bond insurer, lost its AAA credit rating at Fitch Ratings after missing a deadline to raise capital.

Financial Guaranty, a unit of New York-based FGIC Corp., was cut two levels to AA, New York-based Fitch said today in a statement. The company had been AAA since at least 1991. Moody's Investors Service and Standard & Poor's are also reevaluating their ratings."

Instead of the Fed cutting rates, and the Government and Treasury Dept. coming up with some half baked "stimulus" package, they just should have put a trillion aside to save these bond insurers. Other people can buy up the bank shares - but who has got the money to save these bond insurers? The panic is not going to stop, and the credit markets are not going to function until all this worthless paper is exposed.

Wall St off high on CNBC bond insurer report

So Charles Gasparino ruined the party! Just when the market got another rate cut, and was up 100 points, he had to bring up something that was known yesterday:

"NEW YORK, Jan 30 (Reuters) - U.S. stocks pared gains in late trading on Wednesday after CNBC reporter Charles Gasparino said he believed that ratings agencies may downgrade bond insurers MBIA and AMBAC Financial Group Inc. as early as today."

Face it - these bond insurers are bankrupt. The paper is worthless - the model was bullshit. This is a trillion dollars worth of stuff here we are talking about. The bulls tried today, but this news wasn't the reason the market sold off late, it was just an excuse.

Update: Calculated Risk has more.

U.S. 10-city home price drop a record in Nov: S&P

Some housing news from yesterday:

"NEW YORK (Reuters) - Home prices in 10 major metropolitan areas fell a record 8.4 percent in the year through November, suggesting the housing slump is worsening, according to a Standard & Poor index released on Tuesday.

The decline in the S&P/Case-Shiller Home Price Index topped the 6.7 percent annual drop for October and was deeper than predicted by economists at Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. The consensus was for a 7.1 percent fall, Goldman economists said.

Home prices across big cities have now declined for 11 consecutive months and show little sign of bottoming, said economists, including Robert Shiller, a founder of the index and chief economist at MacroMarkets LLC. The decline in the index accelerated to 2.2 percent in November over October, from 1.4 percent in the previous month, S&P said."

Wrong...

So the Fed cuts another half point - pretty unreal. Why the market doesn't take this as "holy crap! things are really bad!" is beyond me...

Wall Street extends gains on Fed rate cut
Wednesday January 30, 2:37 pm ET
NEW YORK (Reuters) - Stocks extended gains on Wednesday, sending indexes up more than 1 percent, after the Federal Reserve slashed interest rates by a half-percentage point, boosting hopes that the economy would avert a recession.
The Dow Jones industrial average (DJI:^DJI - News) was up 56.58 points, or 0.45 percent, at 12,536.88. The Standard & Poor's 500 Index (^SPX - News) was up 7.97 points, or 0.59 percent, at 1,370.27. The Nasdaq Composite Index (Nasdaq:^IXIC - News) was up 11.28 points, or 0.48 percent, at 2,369.34.

I think that if the chips were on the table Citibank, Countrywide, maybe UBS, and others would probably be out of business. A real global financial disaster. So instead the Fed is going to keep spreading the cheap money around, keep propping these entities up, and hope that the country comes through it. Free markets - my ass.

UBS Takes a $14 Billion Hit

The hits just keep on coming:

"PARIS — UBS, the largest Swiss bank, said Wednesday that it would write off $14 billion in exposure to the troubled United States housing market and post a net loss for 2007.

The write-offs will result in a record fourth-quarter net loss of approximately 12.5 billion Swiss francs, or $11.4 billion, the bank said in a statement. It also said it expected to report full-year net loss of 4.4 billion francs, or $4 billion, for 2007.

The numbers "include around $12 billion in losses on positions related to the U.S. subprime mortgage market and approximately $2 billion on other positions related to the US residential mortgage market," the bank said."

Good morning -

From the RGE Monitor this morning:

"A recession is usually defined as two consecutive quarters of negative growth. A different meaning is attached to the concept of global recession, in a world where China, Russia and India account for half of global growth and are growing at an annual rate of 11.2%, 7% and 8.5% respectively. A 2.5% rate of global growth qualifies as a global recession. Big investment banks like Citi now expect 2008 global growth at a weak 3.2% while the IMF just adjusted downward its 2008 growth forecast from 4.8% – as in the October WEO – to 4.1%, the slowest in five years. "

You Walk Away

This just leaves me speechless: YouWalkAway.com.

A couple of people have already made extensive commentary on it - so I won't add much more. One thing I think Steve Croft left out of his 60 Minutes report though was the fact that with these 100% (sometime 100% plus - which he did mention) mortgages is that the home "owner" has no equity in their property. Without that down payment - without real tangible loss, why wouldn't people just walk away?

Early morning/overnight news

Good morning. Since we are posting from Europe we can give you a round up of things from late yesterday and early this morning:

UBS: $14 Billion in Mortgage Write Downs That is a lot of money - and not the first write downs for UBS.

Bond Insurers Face Downgrade Despite Call for Delay This is not a good story. It probably has to happen - the house of cards must fall - but this will be a disaster.

F.B.I. Opens Subprime Inquiry Was there actual criminal activity in the whole subprime mess? Probably, but I think it will be a tough case for the FBI to prove.

The dollar was down a tenth of a penny in early morning trading.

A round up of business and finance headlines from the NY Times.

Fed cut

Well like I said on our first post - I am an amateur in economics. I have no formal training in the field, and just about everything I know I have learned from reading over the past ten or twelve years. What I am getting to is that there was no Fed action yesterday as I said there would be - it was just day one of the planned two day meeting. So today (Wed.) will be the announcement on interest rates. I am sticking with my call of a small cut - probably only a quarter point - which the market won't like.

Is U.S. in Recession?

The Wall Street Journal has an interesting blog post up discussing this question:

"Stanford economist Robert Hall, chairman of the National Bureau of Economic Research committee that dates recessions, is far from announcing whether such an event has started. But he and his colleagues on the NBER’s Business Cycle Dating Committee have taken a key step: The usually dormant panel has started discussing the economic data."

They also have the National Bureau of Economic Research definition of a recession:

“A significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

It is sort of amazing that the US is so accustomed to "constant growth" that a simple recession could be causing so much anxiety not only in the US but across the globe. I say simple recession here because it is not even confirmed we are in one, although most economists of all stripes are now agreeing we are heading towards one. The argument now is going to be how deep and long this coming recession lasts - but - again - I am still shocked at just how much a panic there seems to from the mere word. Recessions happen in capitalist societies/economies - they are normal and probably healthy. I think the real fear here is that people know or feel (even if they are not saying so) that there may be a realignment of the US economy to what I call a more mature economy - that is - an economy of slower growth and demand overall. With the ever rising price of energy costs and the end of cheap credit to American consumers (due to not only the crashing housing market but to tighter credit world wide), maybe the American economy in the next several years will look a lot more like the economies of the EU - and I don't think that would be such a bad thing.

Countrywide: 1 in 3 subprime mortgages delinquent

More great news from the nations largest mortgage company:

"NEW YORK (Reuters) - Countrywide Financial Corp (CFC.N: Quote, Profile, Research), the largest U.S. mortgage lender, on Tuesday said more than one in three subprime mortgages were delinquent at year-end in the $1.48 billion portfolio of home loans it services.

Countrywide said borrowers were delinquent on 33.64 percent of subprime loans it serviced as of December 31, up from 29.08 percent in September. It also said borrowers were at least 90 days late on payments on 17.25 percent of subprime mortgages."

I don't know - I had CFC shorted at $20 and got spooked out of it after the first rate cut. Now that Bank of America is buying it it has managed to sneak back to the $6 level and change. I think without BOA this business was gone. Some people are trying to give Mozilo credit for giving up some dough here at the end - I think he is a criminal. BOA probably forced this on him - what was he going to do? This is a CEO who has done nothing but sell his own stock. He (reportedly) never bought any shares - he always flipped all his options - especially last year as the whole subprime mess began to crack and Wall Street was still busy peddling securities backed by all these crap mortgages.

Strong rate cut hopes lift U.S. index futures

What the market is expecting this morning:

"LONDON, Jan 29 (Reuters) - Wall Street is seen opening slightly higher on Tuesday, tracking gains in Europe and Asia as investors around the world bet the Federal Reserve has another interest-rate cut up its sleeve to help avert a recession."

I'm not buying it - we'll see!

Fed meeting today

Predictions are for fools - here's mine on today's interest rate decision from the Fed: they cut only a quarter point and the market sells off hard.

Anyway - the Fed is not supposed to be in the game of "saving" the market - whatever that means. Many people think that the recent inter-meeting three quarter cut was a mistake anyway, driven by world wide collapsing stock markets - that now in hindsight may have been partly caused by the Société Générale scandal (see this).

My idea of only a quarter point cut is not as solid as it was over the weekend- the terrible housing news from yesterday actually gave the stock market fuel (economy really bad, must cut rates more = (somehow!) good news for stocks). Of course it is only the traders that are going to profit from this - if we are in a recession, corporate earnings are going to continue to suffer and so will stock prices. Those who can move big or small piles around quickly (traders, both of the institutional and day variety) are probably the only ones that are going to profit from today's decision. An economy this weak (real or perceived) is not going to spring to life because cheaper money is floating around.

Calculated Risk

Calculated Risk (http://calculatedrisk.blogspot.com) is a blog we have been turning to daily now for the last several months (they first started posting in 2005). This site is a great place to find news and informed commentary about the latest economic shenanigans - especially those involving the housing market and all things related. For example a post from today: New Home Sales: Cliff Diving

Hey there...

So there is a recession coming - or maybe we are already in one. This blog will attempt to track news and commentary on the coming global slowdown, with a bent on how it affects individuals in the real world. We'll point you to the best blogs on the subject, pertinent news articles, and offer our own (amateur!) analysis too - we welcome your comments.

Cheers -