GDP And Employment Reports

GDP And Employment Reports 

The GDP in Q2 grew at 1.9% rate after expanding .9% in first quarter.  The recession probably beganin 2007 Q4 as "revised" data showed contraction. 

The world's largest economy contracted at a 0.2 percent annual pace in the fourth quarter of last year compared with a previously reported 0.6 percent gain, the Commerce Department said today in Washington. Growth for the period from 2005 through 2007 was also trimmed.

``While everyone focuses on GDP, keep in mind that it is not the only barometer of economic activity,'' David Rosenberg, chief North American economist at Merrill Lynch & Co. in New York, said in a July 28 note to clients. Growth ``is subject to huge historical revisions.''....

American workers also earned less in the last two years than the government previously estimated. Employee compensation was reduced by $69 billion, or 0.9 percent, in 2007. Figures for wages and for benefits were reduced about equally. The reduction in benefits reflected smaller contributions by employers to health insurance plans.  

But I guess that's good news as there is no wage inflation.

Separately, the Unemployment claims report showed that initial claims for unemployment jumped by 44,000 to 448,000.  Is it just a conincident that the numbers are worse in five years just before tomorrows number?  The report tomorrow will have a mid-year adjustment to Birth/Death model.  It's going to be a bad number.

 

 

 

 

Technorati Tags     And,Reports,Employment,GDP

Merrill CDO worth less than 22 cents on the Dollar

Merrill CDO worth less than 22 cents on the Dollar

When Merrill sold the 22 cents on the dollar, shills (so called analysts) started calling this the bottom (YAB - Yet Another Bottom).  But looking at the details, we have seen this kind of deals before. 

Nouriel Roubini exposes the truth.

Merrill is financing 75% of the transaction.  Merrill has not announced the terms of the agreement.  We have seen this kinds of voodoo transactions in the past.  According to Nouriel, in exterme scenario, the CDOs could be worth as low as 5.5 cents  on the dollar.

Of course, you will have other companies pricing their CDOs at 22 cents on the dollar and calling it a bottom.  But we have seen the Australian banks take much bigger cut than merrill and now we know why.  The accounting games are getting more creative. 

 

And now the FASB may delay the rules to bring SPEs on balance sheets. 

 

Troubles in those off-balance sheet assets have been blamed for helping trigger the credit crisis. FASB members have said they believe the current rules prevented investors from understanding the true risks banks faced. Analysts have estimated the rule change could force banks to bring $5 trillion in assets onto their books.

So let's just keep the game going a little bit longer.  No need to bring worthless securities onto balance sheet.  No need to tell investors it's worth next to nothing.  Keep Enron accounting going.

"Changes to securitization accounting could have a dramatic impact on the economy, the capital markets and consumers seeking credit," Republican Rep. Spencer Bachus of Alabama said in a letter to the chairmen of FASB and the U.S. Securities and Exchange Commission last week.

Our economy is not doing too well, please let the credit games continue.  When are the politicians going to realize this is the problem in first place and not the solution.  We need to take our medicine and stop these fake games.

 

 

Technorati Tags     VoodooAccounting

Record U.S. Deficit in 2009

Record U.S. Deficit in 2009

The U.S. budget deficit will widen to a record of about $490 billion next year, an administration official said, leaving a deep budget hole for the next president.

The projected deficit for the fiscal year that begins Oct. 1 is far higher than the $407 billion forecast by President George W. Bush in February. The official also confirmed a report in USA Today that the deficit this year will be less than the $410 billion estimated in February.

Move the deficit to next president. Then you can say he made it worse.

The Bush administration and Congress haven't dealt with the largest long-term fiscal problems: the growing costs of Medicare, Medicaid, and Social Security. Those three programs consumed an estimated 41 percent of the federal budget in 2007.

Nothing being done in last eight years. It's going to make it that much more difficult to control those costs.

Bush inherited a budget surplus when he took office in 2001. In his State of the Union address he pledged to submit a budget that would return the federal government to a surplus by 2012.

3012 seems more likely than 2012.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aVdPjt7fCiXc&refer=home

As if the federal government does not have any problems, all the states are currently going through financial crisis.

From the NY Post:

Paterson is also expected to announce that he's ordered state agencies to slash spending beyond the relatively modest 3.3 percent cuts he ordered in late spring.

He may also call a special session of the Legislature to propose reducing some of the record-high levels of spending that were approved as part of the state's new budget in April.

"The situation is worse than anyone realizes," said a source close to Paterson

Let's see..Business's slowing down, home taxes going down, personal spending (tax) going down....etc..

http://www.nypost.com/seven/07282008/news/regionalnews/that_70s_woe_in_rerun_121880.htm

NAR Press Release on Existing Home Sales

NAR Press Release on Existing Home Sales

Any time you want to have a laugh, just go and read any NAR press release.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said there is something of a quandary in the current market. “A recent online survey of Realtors® shows nearly a quarter of potential home buyers are waiting on the sidelines,” he said. “However, timing the market can be very tricky, which is why home buyers should always have a long-term view to build wealth.”

Hey Rich, it's not that tricky. There is only one way for the current market to go...DOWN. And how long term is long term? You might have to wait 10 or 20 years before prices come back to the bubble level.

Lawrence Yun, NAR chief economist, said first-time home buyers are critical to the health of the housing market. “About four in 10 homes are purchased by first-time buyers, which frees existing owners to trade up,” Yun said. “With many potential first-time home buyers on the sidelines, a first-time buyer tax credit would have a significant positive impact on both housing and the economy. Combined with permanent increases to mortgage loan limits and enhancing the FHA loan program, the housing stimulus package working its way through Congress would go a long way toward helping consumers and boosting the overall economy.”

Is there no shame left? I guess if everyone else is getting a bailout, why not NAR? I would rather eliminate real-estate agent commissions? That would do more for housing than a small stimuls package.

Yun said there is a downward distortion in the price data. “With short sales and foreclosures accounting for approximately one-third of transactions, it’s hard to make an apples-to-apples comparison with a year ago when they were only a minor portion of the market,” he said.

He forgot to mention that those foreclosure sales helped make the home sales data look better. Yun would like to mention foreclosures because they hurt price. But not mention it in sales as they help sales. More double talk.

“Sales are now beginning to pick up in Orlando, Fla., Phoenix, and Oakland, Calif.,” Yun said. “Interestingly, sales fell in Atlanta, Houston, and Kansas City, Mo., despite affordable home prices and solid local employment conditions.”

"Affordable" is a relative term. May be Orando, Pheonix, and Oakland are probably picking up because of the distressed sales.

Blaming Bloggers?

Bloggers Causing Bank Run?

I was flabbergasted when I read the following story. Sheila Bair is accusing bloggers of being a "bit out of countrol."

The federal agency insuring bank deposits learned that it can't afford to ignore the blogs following its seizure this month of IndyMac Bank, the largest bank failure since the 1980s.

"The blogs were a bit out of control," Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the San Francisco Business Times after a speech in San Francisco this week.

That's putting it mildly. Following the FDIC's takeover of IndyMac on July 11, widely followed blogs were speculating on bank runs on some of California's largest banks based on nothing more than people waiting for their branch to open or large deposits moving between financial institutions.

The FDIC plans to pay closer attention to the blogosphere in the future.

"We're very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it," Bair said. "The misinformation that came out over the weekend fed a lot of depositors' fears."

She is using tax payer dollar to prove her theory that loan remodifications are better than foreclosing. And bloggers are out of control?

Remember we try to tell you the way it is. Unlike other media that have other agendas.

http://globaleconomicanalysis.blogspot.com/2008/07/fdic-chairman-shelia-bair-is-out-of.html

Homes Sales Down 15.5% YOY and down 2.6% from last Month

Homes Sales Down 15.5% YOY and down 2.6% from last Month

The existing home sales report was yet another blow to those who think housing is bottoming out. Home sales dropped 2.6 percent from last month and 15.5 percent from June 2007.

Prices dropped 6.1 percent. And yet the worst news of all? Inventory rose to 11.1 months. That is an increase of 2.8% from last month and 22 percent from last year! For those trying to find a bottom in housing? Good luck.

As we have said in the past - inventory, interest rates, and the labor markets (and by extension economy) are still the biggest threat to the housing markets. And none of them look good at this point.

Weekly Jobless claims jumped by 34,000

Weekly Jobless claims jumped by 34,000

The weekly jobless claims jumped by 34,000 to 406,000 last week. The numbers match a three-year high. And next Friday we get the jobs report with the BLS adjustment. Let's wait and see if that is another bomb for the labor markets.

Expect the labor markets to remain weaker. And you can forget about the fed tightening. We already know they talk hawkish and act dovish. Now with the job reports, there is no way they are going to be raising the rates.

Fed's Beige Book : STAGFLATION!

Fed's Beige Book : STAGFLATION!

WASHINGTON (MarketWatch) -- The U.S. economy has slowed over the past month while price pressures intensified, according to the latest report of economic conditions compiled by the Federal Reserve released Wednesday. Consumer spending was sluggish despite the tax rebates, according to the survey.

Bottom line...weaker car sales, housing slump continues....

As market watch says "In one of the worst reports on prices in memory..."

Wonder why they did not use "worst report since the Great Depression" since that seems to be popular these days.

Overall wages were soft, while workers in some areas were demanding wage adjustments to supplement cost of living increases

Good luck trying to get an increase in this environment. Slower growth is keeping inflation numbers (As per Fed) from getting out of control.

http://www.marketwatch.com/news/story/feds-beige-book-finds-slower/story.aspx?guid=%7B2C2ABFF9-2455-44BB-BE0F-FBB68AB1BEB9%7D&dist=msr_1

Bush talks about the finacial mess and life after presidency. The president was speaking to a private group and he thought all the cameras were off.

"There is no question about it. Wall st got druunk...that's one reason I asked you to turn off TV cameras. He's got drunk and now it's got a hangover..... The question is how long will it sober up and not try to do all these fancy financial instruments?

Guess who was tending the bar while Wall St. was getting drunk.

Mortgage Applications down 6.2 Percent last week

We have been saying here on HD about housing is a long way from bottoming out. We have record inventory. The economy is about to get worse, jobs numbers have been bad and July numbers are going to be even worse with a revision for mid-year coming. And we have been saying the mortgage rates are going to go up with all the foreclosures and rising inflation.

Last week's mortgage applications dropped 6.2 percent in week ending July 18 to 489.6. The rates rose to 6.59 percent for 30-year mortgage. That was a .37 percentage point in one week. It's the highest mortgage rate since July 20, 2007. We have higher mortgage rates after the feds cuts from 5.25% to 2%.

As if we don't have ennough issues, we've got rising foreclosures, and Fannie and Freddie issues. It means we have a long way to go before we see a housing bottom.

Of course, analysts will try to tell you that problems with banks are over. Remember that the root cause of all this is the housing market. Until we see a bottoming out in the housing, all the other financial issues will still be there.

Microsoft results dissapoints stock down 6.4% After-Hours

Microsoft posted fourth-quarter profit that missed analysts expectations and also gave a dissapointing forecast.

Microsoft's net income increased 42% to $4.3 billion from $3.04 billion a year earlier.

For those who do not think the credit crunch is going to effect technology spending:

The deepening credit crunch and increase in gas prices have created what Goldman Sachs says is the worst technology spending environment globally since 2003. Chief Executive Officer Steve Ballmer is seeking to boost sales overseas and efforts have been hampered by piracy in countries such as China, where eight in 10 programs are illegal copies.

Also, with Google offering office (Google Docs, Spread Sheet, and Presentation) online, I wonder if that is going to start eating into Microsoft's profit. Although, I would think that is many years away as corporations are still using Microsoft products.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXtGyX3_BIMk&refer=home

Google shares tumble as results are diappointed investors.

Analysts were expecting earnings of $4.74 a share instead they came in at $4.63. Investors are used to google results blowing past estimates. As as result, google stocks were down more than 10% at one point. They have recovered to $492 (-7.77%) as of 6:00 pm.

Despite the disappointing second-quarter report, Citigroup remains positive on Google.

"Google's underlying fundamentals are intrinsically strong," analyst Mark Mahaney wrote. "We'd be buyers on this pullback."

Mr. Mahaney noted that operating margin came in "modestly light" but that Google showed strength in revenue from its partner sites and licensing.

http://online.wsj.com/article/SB121632252797362801.html?mod=hps_us_whats_news

From WSJ - Merrill Posts its fourth consecutive loss (Emphasis added)

Merrill Lynch lost Merrill Lynch & Co. posted its fourth consecutive quarterly loss Thursday amid $9.75 billion in additional write-downs on troubled assets.

....

Revenue was negative $2.12 billion, compared with revenue of $9.46 billion a year earlier, amid $3.5 billion in write-downs on collateralized debt obligations, a $2.9 billion loss related to hedges with financial guarantors, a $1.7 billion write-down on the investment portfolio of Merrill Lynch's U.S. banks, and $1.3 billion write-down related to residential mortgage exposures and a $348 million write-down related to leveraged finance commitments.

Merrill's loss would have been a lot deeper had it not been for a $91 million gain booked on the declining value of the bank's own debt. The move, while counterintuitive, is a legitimate quirk of mark-to-market accounting.

Merrill has so fare refused to raise additional capital. Whether they need it or not, I wonder if it would have been wise to raise capital while it was still available. Only time will tell.

CPI Surges

The CPI is so bad that even the manipulated CPI is getting out of control.

The Consumer Price Index rose 1.1 percent in June. That's twice the rate of May when inflation grew at .6 percent. That is the biggest gain since Jun 1982.

In the last year, the cpi has risen 5%. Core inflation is up 2.4 percent.

Of course the bright spot in the inflation report is that your wages are not going up. So for the consumers, there is inflation in stuff we buy but no inflation in income.

You really have to feel sorry for the baby boomers. Their costs are going up, not getting much interest rates on their savings, and their stocks are going down. This is what the fed has bought them.

Why are the rates still below inflation? These rates are hurting the consumers. Just look at Wells Fargo results to see why th rate is so low. According to the company, Net interest margin for the quarter edged higher to 4.92% from 4.89% a year ago.

Wells Fargo raised their (already 6%) dividend by 10%. The fed is helping the banks re-capitlize and screwing the consumers.

Freddie and Fannie Bailouts

So while people are debating whether the PPT exists or not, here is our government with a plan to buy equity directly into Fannie and Freddie. If you are shorting either one of this stock, get out!

First, the governemnt bought about $30 billion worth of securities from Bear Stearns. Now, a plan to directly buy equities in Fannie and Freddie. Your tax dollars at work.

How about lending a few billions to Lehman Brothers? Or even better, buying Lehman stock? How about buying futures?

Just remember that if you are too big to fail, and you have ennough risk, the government will bail you out. Even if you are not too big to fail they will still bail you out. Just look at how they are trying to help the homebuilders.

Each day we wonder how many bullets the fed has left. And everytime, while they are running out of bullets, come up with a creative way of using taxpayer dollars.

The printing presses are running at full speed.

In a statement timed to precede the opening of Asian markets Monday, as well as a closely watched auction of debt by Freddie, the Treasury said it plans to seek approval from Congress for a temporary increase in a longstanding Treasury line of credit for the two companies.

The Treasury also said it would seek temporary authority so that it could buy equity in either company "if needed" to ensure they have "sufficient capital to continue to serve their mission" of providing a steady flow of money into home mortgages. The plan, which requires congressional approval, also calls for a provision to give the Federal Reserve a "consultative role" in the process of setting capital requirements and other "prudential standards" for Fannie and Freddie.

Once again, the fed showed it is trying to prevent markets from plunging.

Sunday's moves, by promising government funds to keep Fannie and Freddie operational, reinforce the notion that investors can count on the government to bail them out in a crisis. Until recently, that was an idea the Bush administration had tried hard to quash.

Bye bye capitalism...hello Socialism.

http://online.wsj.com/article/SB121603898437750725.html?mod=hps_us_whats_news

FDIC Taking over Indymac Operations

Indymac taken over by FDIC

Indymac is the biggest bank to fail. The FDIC will take over the operation.

Who is next? Wamu? Wachovia? This thing just keeps getting uglier!

Would it have been a good idea to open a CD that earns over 4% interest?

Pending Homesales down 14% from Last Year

Pending Homesales down 14% from Last Year

Pending home sales were down 14% from last year and down 4.7% from last month.

Modest near-term movement is expected in existing-home sales, with a recovery in sales seen during the second half of the year, according to the latest forecast by the National Association of Realtors^®.....

Lawrence Yun, NAR chief economist, said some pullback after a sharp increase in the previous month was expected. “The overall decline in contract signings suggests we are not out of the woods by any means. The housing stimulus bill that is still being considered in the Senate is critical to assure a healthy recovery in the housing market, jobs and the economy,” he said.

So in one paragraph, the NAR expects a recovery during second half of the year. But in the next, it's begging congress for help. I guess this is the new socialist world the fed and the government has created. Privatize gains and socialize risk. I did not see the NAR arguing that home prices were too high when they were going up. Now they are asking congress to keep them artificially high.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the current market offers immediate benefits and long-term value for many buyers. “Home buyers are getting a great deal right now,” he said. “Although inflationary expectations appear to be under control for the time being, sharper consumer price gains could lead to notably higher mortgage interest rates in 2009.”

Higher mortgage rates will effect the sellers. They will have to bring down the prices more! Morons!

“The speed at which home prices has declined in a few select markets is unprecedented, but the large price declines in those areas have enticed bargain hunters back into the market,” Yun said. “Interestingly, there have been reports of multiple bidding after the large price cuts, so it is possible that most of the price declines have already occurred in those markets.”

If you had a penny everytime NAR saw a bottom in housing, you would be a millionaire.

The aggregate median existing-home price is projected to fall 6.2 percent this year to $205,300, and then rise by 4.3 percent in 2009 to $214,100.

Once again, in one paragraph they talk about interest rates going higher. And in another they talk about home prices rising. As I have said before, with the labor markets in the dumps, and so many issues with mortgages, I am not sure how they forecast rising home prices.

http://www.realtor.org/press_room/news_releases/2008/home_sales_vary_then_rise

Indymac - Major Layoffs and ending Wholesale and Retail Lending

Indymac - Major Layoffs and ending Wholesale and Retail Lending

In addition to needing to shrink our assets to improve our capital ratios, we also need to do so to ensure that we maintain prudent operating liquidity. A consequence of falling below well-capitalized is that we are no longer permitted to accept new brokered deposits or renew or roll over existing ones, unless we get a waiver from the FDIC. While we have submitted a waiver application, it is uncertain as to whether such a waiver will be granted.

As a result of the above, we have made the difficult decision, effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel.....

Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months, which should reduce our operating expenses by roughly 60%.

We have been talking about no housing bottom. Now with more layoffs it's going to get worse. This should also effect the mortgages directly another lender goes down.

US Loses 62,000 Jobs in June

US Lost 62,000 jobs in June. This is the sixth straight decline in job numbers. Numbers for May were revised downward from 49,000 jobs lost to 62,000 jobs lost.

The birth and death model once again came to the rescue by adding 241,000 jobs. July is when BLS model give back some of it's gain. So look for July number to be a fugly number (July 2008 number will still not give back all of the BLS number - Look for that in Jan 2009!)

``As long as the consumer is facing these headwinds, it's going to be very tough for a major turnaround in employment growth,'' Kathleen Stephansen, head of global economics at Credit Suisse Holdings USA Inc. in New York, said before the report. ``There is very little room for the Fed to do anything.''

Actually, the fed has already done alot. Thanks for the higher gas prices and lower dollar.

This is yet another nail in the housing coffin. The only remaining hope for the housing market is lower interest rate. With inflation going up, I am not sure how long that is going to last.

Of course, the trolls are going to be out there once again touting the stocks. We might be ready for antoher bear-market rally.

Lehman bonuses equal to 20% of compensation: report

Huh? Is this the last hurrah? Should they not be conserving capital? Just too weird!

Morning Briefs - More Job Losses

U.S. private employers slashed 79,000 jobs in June, the largest drop since November 2002, according to a private report by ADP Employer Services released Wednesday.

Meanwhile, a separate private survey showed planned layoffs at U.S. companies fell 21 percent in June from May's 29-month high, but were 47 percent above June 2007, while second-quarter cuts were the highest since late 2005.

Planned job cuts at U.S. companies totaled 81,755, compared with 103,522 in May and 55,726 in June 2007, employment consulting firm Challenger, Gray & Christmas reported.

In other news, Starbucks is planning to cut up to 12,000 full- and part-time positions.

We have been saying housing is going to get worse due to the job market. If interest rates go higher, that would depress the already depressed housing market - if that is possible.

Delinquent Home-Equity Credit Lines Rise Most Since 1987.

Home-equity lines of credit at least 30 days past due rose 14 basis points to 1.1 percent of accounts for the quarter, the Washington-based group said today in a statement. Delinquent credit-card accounts increased 13 basis points to 4.51 percent, the highest level since 2006.

The housing ATM is finished. Now it is time to pay back.