BondTrader - 24 February 2009 05:07 PM

On the corporate front
On the corporate front, we see a report in today’s WSJ that AIG is preparing to
report an expected $60 bln quarterly loss, possibly forcing the government to
expand its bailout package that already has grown to $150 bln. Lots of chatter as
well in today’s morning papers over the potential “quasi-nationalization” of Citi
(the third injection being discussed, which would reportedly involve a switch from
preferred to common stock, could have Uncle Sam owning 40% of the bank). On
the policy side, we are rather amazed that the President is now talking about
having to shrink the deficit down the road (shades of 1937-38?) – isn’t it a tad
early to be talking about fiscal restraint (see “Obama Tries to Address Worries
About Widening Deficit” on page A3 of the WSJ).

Bottom will likely be in 550-650 range
As an aside, we have penned in $46 for operating EPS for this year, so on our
estimates the market is basically operating with a 16x multiple. Call us when we
get down to a classic recession trough multiple of 12x – we are at $54 for 2010E
and at one point we will start to discount next year’s earnings stream – which, on
our estimates, means the bottom will likely be in a 550-650 range.

Problems ahead in corporate credit?
S&P reported that 75 companies (with debt outstanding of $175 bln) are potential
“fallen angels” according to Bloomberg News (these are investment-grade
companies at risk of being taken down to junk) – this is the highest number of
candidates in 18 years. Credit default swaps on the Markit CDX North America
Investment-Grade index stand at an uncomfortably high 217 bps. Note as well
that the Libor-OAS spread is back above 100 bps and the Market LCDX index of
default swaps on 100 U.S. leveraged loans has collapsed back to 73% from 82%
a month ago – the lowest levels since last December. The WSJ (page C12) also
reports that spreads on nearly all tranches of the CMBX index (tracks default
swaps on 25 U.S. commercial mortgage-backed securities) have widened back to
record levels after a brief respite in January. As for how bonds in the banking
sector are trading – don’t ask (if you really must know, have a peek at
“Uncertainty Mounts Over Outstanding Bank Bonds” on page 29 of the FT). So if
anything, the credit crunch has actually intensified, and financial conditions in
general have tightened, since the Fed cut the funds rate to 0%.

Personally I would have loved to see him get “serious” about fiscal restraint before agreeing to spend $1 trillion on a social policy bill.  If you look at the numbers, the 1st year of the Obama administration was projected to have a $1.2 trillion budget deficit BEFORE the $1 trillion social policy bill was passed. 

Now it looks like we will run the deficit to $2.2 trillion this year.

Cutting that deficit in half brings it “down” to $1.1 trillion a year - about twice the highest deficit on record prior to the Obama administration.

Are we supposed to think that this is fiscal restraint?

Purchase-only index rose in December
The FHFA home price index (formerly known as OFHEO) rose 0.1% in
December. This was the first increase in the index in ten months. However, the
year-on-year pace in home sale prices dropped a steep 8.7%. The median of
analysts’ expectations was a decline in home prices of 1.7%. For the fourth
quarter, home prices dropped 13.8% (annualized) and 8.5% versus the year-ago
level. Both declines are records. Note that this index captures only conforming
conventional (Fannie/Freddie) loans. By way of contrast, the Case-Shiller home
price index, which was reported earlier today and includes both jumbo and subprime
mortgages and covers the 20 largest metro areas, dropped 2.5% in
December and 18.6% over the past year.
In the regional breakdown, there were declines in the Pacific, New England,
Middle Atlantic and South Atlantic regions. The South Atlantic region, where
home foreclosures and excessive inventories remain highest, posted the largest
decline. Going forward, slowing economic activity, tight credit conditions and
excessive inventories should continue to restrain sale prices.

Initial claims post another cycle-high with more to come
Initial claims for unemployment benefits increased 36K to 667K for the week
ended February 21. The consensus estimate was 625K and the BAS-ML
projection was 700K. Claims are at a cycle high and are at their highest level
since late 1982. Claims for the week of February 14 were revised from a
preliminary estimate of 627K to 631K. The four-week moving average, which
tends to smooth out the week-to-week volatility, jumped from a prior average of
620K to 639K. The upward trend in initial claims and the four-week average is not
surprising given the surge in layoff announcements. We think these figures will
continue to move higher in the months ahead as economic activity slows.

Continuing claims increase for sixth week
Continuing claims, which increased by 483K in the prior five weeks, increased by
114K to a record 5.112M for the week of February 14. The rise in continuing
claims indicates that businesses are reluctant to add labor inputs. Another 1.4M
workers received “extended benefits” from the Federal government after
exhausting their regular state-sponsored benefits. This puts the total pool of
unemployed at over 6.5M. We are projecting a February payroll decline of 700K
and a rise in the unemployment rate from 7.6% in January to 8.0% for February.

Households not favoring idea of taking on new credit
We can spend all the resources possible to underpin the financial system but the
reality is that the experiment with massive doses of leverage from 2002 to 2007 has
left the household sector, at the margin, in complete disgust, if not fear, when it
comes to taking on new credit. This is evident in the Fed flow-of-funds data
showing the first net consumer debt paydown ever, the Fed loan officer survey, the
record-low NACM index and of course, as we saw yesterday, the 2.6% slide in
mortgage applications for new home purchases in the February 20th week – and
down a whopping 30% from year-ago levels despite record low mortgage rates
and record-high affordability levels. Housing turnover down 5.3% in January (to a
12-year low) and median home prices down 15% YoY (and down 26% from the
peak) tell the tale that housing today is about as desirable a consumer asset as the
Lincoln convertible was back in 1973. People are content renting and forgoing the
risk of taking on a mortgage – or the experience of investing in an ever-deflating
asset for that matter.

Home sales data, as weak as it was, was not even organic
As an aside, the home sales data, as weak as they were, were not even ‘organic’
– 45% of the activity were foreclosure/distressed property sales (which is why
home sales were flat in the West and down 7.1% in the rest of the country – those
massive foreclosure auctions are taking place largely in CAL). And there is
precious little chance that home prices in the resale market are going to make a
low with 9.6 months’ supply of unsold inventory overhanging the market, in our
view. And the inventory data are likely grossly understated because, according to
RealtyTrac, banks are holding on to between 500,000 and 600,000 foreclosed
homes that they have not yet listed. In other words, the “real” inventory level is
equivalent to 11.2 months’ supply (as if 9.6 wasn’t bad enough) – and this spells
more real estate deflation ahead. Perhaps the Geithner stress test of a further
25% decline in home prices from here isn’t aggressive enough.

Just because credit becomes easier does not mean that folks will necessarily borrow.

awgee - 26 February 2009 06:43 PM

Just because credit becomes easier does not mean that folks will necessarily borrow.

We’re talking about Americans here.  The only thing that will stop us from spending money that we don’t have is having the lenders cut us off.

U.S. Treasuries Fall for Third Day on Supply, Spending Concern
By Susanne Walker and Kim-Mai Cutler
Feb. 26 (Bloomberg)—Treasuries fell for a third day as the government sold $22 billion of seven-year notes in the last of three auctions this week as it issues an unprecedented amount of debt to spur the U.S. economy.
Declines were led by 10- and 30-year securities. The administration forecasts a budget deficit of $1.75 trillion in the fiscal year ending Sept. 30. That’s 23% higher than a forecast by economists at primary dealer Goldman Sachs Group Inc., and equivalent to about 12 percent of the nation’s gross domestic product.
“The more spending you have to have, the more Treasuries you will have to issue, and that means more pressure on prices,” said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc.
The two-year yield rose one basis point, or 0.01 percentage point, to 1.09 percent at 2:57 p.m. in New York, according to BGCantor Market Data. It touched 1.11 percent, the highest since Nov. 28. The 0.875 percent security due in February 2011 fell 1/32, or 31 cents per $1,000 face amount, to 99 18/32. The rate climbed from a record low of 0.60 percent on Dec. 17.
The 10-year note’s yield rose five basis points to 2.98 percent. It slid to a record low of 2.04 percent on Dec. 18 and averaged 4.65 percent in the past decade. The 30-year bond yield increased six basis points to 3.65 percent.
U.S. stocks declined, with the Standard & Poor’s 500 Index falling 1.3 percent.
‘It Never Ends’
Treasuries pared losses after today’s seven-year note sale yielded 2.748 percent, compared with an average forecast of 2.715 in a Bloomberg News survey of seven trading firms. The government last issued seven-year notes in April 1993, when it sold $9.76 billion. The notes at that auction drew a yield of 5.58 percent. The government sold a record $94 billion of notes this week.
The seven-year auction’s so-called bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, was 2.11. Indirect bidders, a class of investors that includes foreign central banks, were awarded 38.7 percent of today’s sale. Comparable data is not available from the government.
“The biggest difficulties will be in the next few seven- year auctions,” said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the 16 primary dealers required to bid at Treasury auctions. “We’re going to get a very hefty slug of supply. As the saying goes, if you miss an auction this week, you’ll get another auction next week. It never ends.”
Possibility of Default
The U.S. is borrowing so much that it may have trouble paying the money back, said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies.
“Yields are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility of default is more and more as time passes.”
President Barack Obama is depending on investors from overseas to help fund his $787 billion economic plan. China is the largest overseas holder of Treasuries, with $696.2 billion, followed by Japan, which has $578.3 billion.
The administration forecast gross domestic product to shrink 1.2 percent in 2009, followed by an expansion of 3.2 percent in 2010. That’s more optimistic than economists’ estimates for a 2 percent contraction this year and 1.8 percent growth next year, according to the median forecast in a Bloomberg News survey.
The White House forecast an annual average yield for 10-year Treasury notes of 2.8 percent this year and 4 percent in 2010.
The 10-year note yield will reach 3.08 percent by the fourth quarter of this year, according to the weighted average of 58 economists surveyed by Bloomberg News, and 3.69 percent by the second quarter of 2010, according to the weighted average of 43 economists.
The Three Elements
China’s top banking regulator said today the country will pay attention to safety, liquidity and profitability when deciding whether to buy more U.S. debt.
“How much we will invest in U.S. Treasuries will depend on the three elements,” said China Banking Regulatory Commission Chairman Liu Mingkang at a press conference in Beijing.
Losses by U.S. Treasuries are 0.3 percent in February and 3.4 percent so far in 2009, compared with a 1.7 percent gain in the same period a year ago, according to Merrill Lynch & Co.’s U.S. Treasury Master Index.
The yield gap between two- and 10-year notes widened by four basis points to 1.87 percentage points.
TED Spread
Money markets show the world’s biggest banks see no recovery before 2010.
The premium banks charge each other for short-term loans, the so-called Libor-OIS spread, rose above 1 percentage point last week for the first time since Jan. 9. Contracts traded in the forward market indicate the gauge, which measures banks’ reluctance to lend, will remain higher for the rest of the year than before Sept. 15, when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, rose to 99 basis points from 91 basis points on Feb. 10.

The crazy situation is thousands of empty houses and thousands of homeless people and no way to unite the two.

PeterUK - 27 February 2009 08:58 AM

The crazy situation is thousands of empty houses and thousands of homeless people and no way to unite the two.

Send them to Detroit, Feds buy the house and give it to a homeless person… whole thing would cost us maybe $50 a house. Of course, without a job they’ll have no power, no water, and no heat… so they will need a job. Maybe we can pay them to work…

Deficits projected to jump sharply (maybe too sharply)
The budget deficit is projected to jump to $1,752 billion this fiscal year and to stay
above $1 trillion through 2011. However, the figure for this fiscal year includes
$250bn as a “placeholder” for additional “financial stabilization efforts.” However,
as the administration notes that there are no plans to ask for more funds, this
figure likely overstates the true expected deficit which would be closer to their
baseline estimate of $1,509bn (versus our expectation of $1,350bn). Our deficit
projection of $1,250bn for fiscal year 2010 is close to the administration’s
estimate of $1,171bn. However, although we see the near-term administration
deficit estimates as pessimistic, we see their forecast beyond 2011 as optimistic.
Under the budget estimates provided, which assume that estimates for the cost of
universal health care are correct, government outlays as a percent of GDP would
grow from the long-term average of 20.7% to 22.6%. This 22.6% average for
2010-2019 represents the highest level of outlays as a percent of GDP since
1985 (the average for the 1980s was 22.2%). The era of big government has
returned. The new limitation on deductions for taxpayers earning over $250,000
could have a significant negative impact on growth and could forestall the
economic recovery which we believe will still be in its early stages when these
taxes take effect. In addition to the consumption effect, limiting deductions would
raise the after-tax costs of buying a home, placing additional pressure on the
housing market.

Relentless declines in home prices continue
The Case-Shiller home price index for the 20 largest US cities fell by 2.5% M/M in
December, for the 29th consecutive monthly decline. This was in line with BASML
expectations but slightly worse than consensus estimates. Relative to a year
ago, prices fell by 18.6%, while the three-month annualized change was a
steeper drop at 24.5%. Deflation intensified across all markets, bringing the total
decline to -27.0% relative to the peak in July 2006. Indeed, all 20 markets fell for
the fourth straight month. Markets that have been hardest hit by pervasive subprime
lending also reported the largest monthly and annual declines in
December. The National Association of Realtors reported that 45% of existing
sales over the month were foreclosure related, specifically citing activity in
California, Nevada and Arizona. Such properties, selling at steep discounts,
continue to drive prices lower, as was seen in the sharper declines reported in
Phoenix (-5.1% M/M and -34% Y/Y), Las Vegas (-4.8% M/M and -33% Y/Y) and
San Francisco (-3.8% M/M and -31.2% Y/Y).
National home prices (which are only released quarterly by Case-Shiller) in the
4Q fell by 7.2% versus the 3Q, or -26% at a quarterly annualized rate. This
compares to a lighter 13.3% annualized quarterly drop in 3Q and reflects a
marked acceleration in the pace of decline. Clearly, a broader number of
markets are sharing the pain as the economic downturn weighs on sales and
foreclosure sales grab more of the activity. Relative to the peak in mid-2006,
the national index is now down by 21%. Depressed demand, tight credit, rising
default rates and excess inventories can be expected to continue to lead prices
lower in the quarters ahead. We estimate that an additional 15%-20% in
downside is still in store.

Housing, the quintessential leading indicator
We’ve said it once and we shall say it again that it all comes down to housing, the
quintessential leading indicator. There is simply no sustainable recovery in the
economy, the stock market or the financial backdrop until we get some clarity on
the outlook for residential real estate prices. Here, the news last week was
unremittingly negative.

We still have more sellers than buyers
First, the fact that the Case-Shiller home price index sagged 2.5% in December
was rather telling. Not only was this the 29th consecutive monthly decline, taking
the cumulative decline from the mid-2006 peak to 27%, but this is a critical sign
that we continue to have a total lack of equilibrium in the housing market. In other
words, the “price” is still telling us that at the latest data point, we still have more
sellers than buyers, which is amazing considering that this is now a three-year old
depression in the housing market, despite the fact that affordability has improved
to its best level ever recorded.

Demand for residential real estate is basically dead
Outside of all-cash deals in the foreclosure auction market, demand for residential
real estate is basically dead. As we saw in last week’s data flow, existing home
sales came in at a well-below-expected 4.49 million unit annualized rate, down
5.3% sequentially. Importantly, the unsold inventory overhang rose to 9.6
months’ supply from 9.4 in December; and considering that an estimated 15% of
the existing inventories are not included in the data because they are bank-held
subprime properties, the ‘real’ inventory number is closer to 11.2 months supply.

New housing market has gone from bad to worse
The action in the new housing market is most important since this drives
incremental activity in the residential construction sector. On this front, the news
has gone from bad to worse. New home sales plunged 10.2% in January to a new
all-time low of 309,000 annualized units (and the 17.3% M/M plunge in mortgage
applications for purchase thus far in February suggests that we should expect to
see a lower low in home sales when the next round of data are released).

We are not interested in trying to call the bottom
We are not at all interested, as these legends have been, in trying to call the
bottom. We remain more concerned about having our clients stay out of harm’s
way in what is an increasingly clouded economic, financial and political outlook.
We will all know that the bear market is over when nobody cares – when fear has
totally overwhelmed long-term resolve. At this stage, the fewer articles we see
teaching investors how cheap the stock market is based on newly revised
valuation metrics, the better it will be for all of us. We have this sense that we are
now just one more sharp downleg away from seeing the true capitulation in
equities – and the same holds true for bond yields too (we think it’s too early to
turn bearish, but we are looking for signs to take profits in the next sharp downleg
if/when panic starts to set in … that will be a critical signpost that we have still yet
to see take hold). Let’s just say that as we woke this morning and turned on
CNBC, the topic was “Have We Reached Bottom Yet?”. That is the problem – at
the true capitulation low, nobody cares. So the answer, sadly enough, must be
“no”.

Government spending on an irrevocable upward trend
We feel that President Obama is sending the trend in government spending on an
irrevocable upward trend. So, the current fiscal plan is far different and will lock
the country into more sustainable deficits and debt growth in the future than was
the case in the 1980s. Outside of defense and interest payments, spending
growth barely rose more than 1% annually in real terms during the Reagan era.
So the expenditures, to repeat, were targetted and ultimately were reversed. As
for the years of deregulation, especially in the financial services sector, we
actually believe that households derived substantial benefits from wider choices
and lower costs. The problem was one of oversight, not deregulation – a lack of
oversight and refusal to contain leverage ratios (as per Fannie and Freddie), but
the reality is that everyone is to blame for this, Republicans and Democrats alike
(and the reality, for those who like to point the finger at the previous
Administration, is that the Dems controlled either the White House or one of the
houses of Congress all but four years since Reagan was first elected in 1980).

awgee - 26 February 2009 09:46 PM

U.S. Treasuries Fall for Third Day on Supply, Spending Concern
By Susanne Walker and Kim-Mai Cutler
Feb. 26 (Bloomberg)—Treasuries fell for a third day as the government sold $22 billion of seven-year notes in the last of three auctions this week as it issues an unprecedented amount of debt to spur the U.S. economy.
Declines were led by 10- and 30-year securities. The administration forecasts a budget deficit of $1.75 trillion in the fiscal year ending Sept. 30. That’s 23% higher than a forecast by economists at primary dealer Goldman Sachs Group Inc., and equivalent to about 12 percent of the nation’s gross domestic product.
“The more spending you have to have, the more Treasuries you will have to issue, and that means more pressure on prices,” said Andrew Brenner, co-head of structured products and emerging markets in New York at MF Global Inc.
The two-year yield rose one basis point, or 0.01 percentage point, to 1.09 percent at 2:57 p.m. in New York, according to BGCantor Market Data. It touched 1.11 percent, the highest since Nov. 28. The 0.875 percent security due in February 2011 fell 1/32, or 31 cents per $1,000 face amount, to 99 18/32. The rate climbed from a record low of 0.60 percent on Dec. 17.
The 10-year note’s yield rose five basis points to 2.98 percent. It slid to a record low of 2.04 percent on Dec. 18 and averaged 4.65 percent in the past decade. The 30-year bond yield increased six basis points to 3.65 percent.
U.S. stocks declined, with the Standard & Poor’s 500 Index falling 1.3 percent.
‘It Never Ends’
Treasuries pared losses after today’s seven-year note sale yielded 2.748 percent, compared with an average forecast of 2.715 in a Bloomberg News survey of seven trading firms. The government last issued seven-year notes in April 1993, when it sold $9.76 billion. The notes at that auction drew a yield of 5.58 percent. The government sold a record $94 billion of notes this week.
The seven-year auction’s so-called bid-to-cover ratio, which gauges demand by comparing the number of bids to the amount of securities sold, was 2.11. Indirect bidders, a class of investors that includes foreign central banks, were awarded 38.7 percent of today’s sale. Comparable data is not available from the government.
“The biggest difficulties will be in the next few seven- year auctions,” said William O’Donnell, a U.S. government bond strategist at UBS Securities LLC in Stamford, Connecticut, one of the 16 primary dealers required to bid at Treasury auctions. “We’re going to get a very hefty slug of supply. As the saying goes, if you miss an auction this week, you’ll get another auction next week. It never ends.”
Possibility of Default
The U.S. is borrowing so much that it may have trouble paying the money back, said Jaemin Cheong, a bond trader in Seoul at Industrial Bank of Korea, the nation’s largest lender to small- and mid-sized companies.
“Yields are headed higher,” Cheong said in an interview. “More issuance will be needed to support the economy. The possibility of default is more and more as time passes.”
President Barack Obama is depending on investors from overseas to help fund his $787 billion economic plan. China is the largest overseas holder of Treasuries, with $696.2 billion, followed by Japan, which has $578.3 billion.
The administration forecast gross domestic product to shrink 1.2 percent in 2009, followed by an expansion of 3.2 percent in 2010. That’s more optimistic than economists’ estimates for a 2 percent contraction this year and 1.8 percent growth next year, according to the median forecast in a Bloomberg News survey.
The White House forecast an annual average yield for 10-year Treasury notes of 2.8 percent this year and 4 percent in 2010.
The 10-year note yield will reach 3.08 percent by the fourth quarter of this year, according to the weighted average of 58 economists surveyed by Bloomberg News, and 3.69 percent by the second quarter of 2010, according to the weighted average of 43 economists.
The Three Elements
China’s top banking regulator said today the country will pay attention to safety, liquidity and profitability when deciding whether to buy more U.S. debt.
“How much we will invest in U.S. Treasuries will depend on the three elements,” said China Banking Regulatory Commission Chairman Liu Mingkang at a press conference in Beijing.
Losses by U.S. Treasuries are 0.3 percent in February and 3.4 percent so far in 2009, compared with a 1.7 percent gain in the same period a year ago, according to Merrill Lynch & Co.’s U.S. Treasury Master Index.
The yield gap between two- and 10-year notes widened by four basis points to 1.87 percentage points.
TED Spread
Money markets show the world’s biggest banks see no recovery before 2010.
The premium banks charge each other for short-term loans, the so-called Libor-OIS spread, rose above 1 percentage point last week for the first time since Jan. 9. Contracts traded in the forward market indicate the gauge, which measures banks’ reluctance to lend, will remain higher for the rest of the year than before Sept. 15, when the bankruptcy of Lehman Brothers Holdings Inc. froze credit markets.
The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, rose to 99 basis points from 91 basis points on Feb. 10.

I have been waitin forever for that treasuries bubble to pop. Can’t wait to see where that money flows… equities? I think not. Ppl sit in treasuries for safety, if they can’t find safety there or in equities, where will they go? hmmmmm GOLD to teh moo000nn!

Hoocoodanode?

Based on the recent past, the government of the USA will bail out GE.  And it will be huge.  GE’s CDS book is gigantic, and my guess is that it is all poop.  Can you say AIG?

Chris Laird:

Now that the credit crisis is about one and a half years old, since Aug 07, bank/financial pressures have expanded to a new phase. First causing credit markets to freeze, then threatening bank and business solvency worldwide, the new phase is currency instability.

If you look at it as a whole, basically the rich nations are being forced to use public money on a totally unprecedented scale to try and prop up the remains of a paralyzed world financial system. The question arises, is there enough money in public bond markets to deal with this crisis, or rather, will the world financial markets just totally implode? That would take the bond markets, stock markets, and currencies down all over the world. If the bond markets are not willing to buy all the new bonds, then the only alternative is printing money.

Both purchase and refinancing volumes fell
Mortgage applications tumbled 12.6% in the week ending February 27 with
declines in both refinancing (-15.2%) and purchase activity (-5.6%). This is the
second consecutive weekly decline in refinancing and purchase activity. One
reason for the recent slowdown in mortgage application activity is that mortgage
rates have risen. After rising by 8bps to 5.07% in the prior week, the contract rate
for the 30-year fixed rate mortgage increased another 7bps to 5.14%.

Home sales were very weak in February
The purchase index dropped 18% M/M in February, suggesting that home sales
posted a large decline for the month. And, relative to a year ago, the decline in
purchase applications was 35%. While housing affordability remains at record
highs, headwinds of rising unemployment and tight credit conditions will continue
to have an adverse impact on housing demand.

Details of $75bn foreclosure prevention plan unveiled
The Obama administration unveiled details of its $75bn foreclosure prevention
plan. Take a look at the front page of today’s New York Times for more. People
with mortgages as high as $729,750 could qualify for help and there is no limit on
how high their income can be to get help so long as they are in danger of losing
their homes. Interest rates on loans could go as low as 2%.

Municipalities looking to merge
The budget strains at the local level are forcing municipalities to merge services
and departments. Take a look at page A3 of today’s Wall Street Journal,
“Localities Facing Merger Push.” In Pennsylvania, for example, the governor
proposed consolidating the state’s 500+ school districts into as few as 100.

States turning to slot-machines to fill their budget holes
Massachusetts is looking to place as many as 9,000 slot machines across the state
to attract state residents who now gamble in Rhode Island and Connecticut. The
state is also looking at privatizing the lottery, which could raise as much as $1bn.

Americans holding onto their cars for longer
According to RL Polk and Co., the average American now owns their vehicle for
46 months, the longest ownership period ever reported and the group has been
tracking this data for over a decade. Polk reported that the median age for cars
on the road rising to 9.4 years in 2008 – an all time high. Back in 99, the median
age was 8.2 years.
RC

Yoy, all of you, may want to ask yourself, “Who is the Federal Reserve accountable to?

transparent Fed ... NOT

More good CDS news

States turning to slot-machines to fill their budget holes
Massachusetts is looking to place as many as 9,000 slot machines across the state
to attract state residents who now gamble in Rhode Island and Connecticut. The
state is also looking at privatizing the lottery, which could raise as much as $1bn.

If massachusetts does this, won’t they be hurting Rhode Island and Conneticut?
Still a national problem….or a world problem.

Labor market deteriorating rapidly
The ADP national employment report showed 697k jobs were lost in February,
the worst performance so far in this recession indicating that economic conditions
are still deteriorating more than a year into the downturn. Moreover, the prior
month was revised down by 92k to -614k. We do not expect to see any let-up in
monthly job losses until mid-year at which point the unemployment rate will be
just under 10%. This week’s report showed widespread job losses with
manufacturing down 219k, construction off 114k (one million jobs lost, and
counting, in this sector since the peak in 2007) and the private service sector
shedding 359k.
Challenger job layoff announcements rose 159% from year-ago levels to 186K in
February, signaling an ongoing deterioration in the labor markets. While the pace
of layoffs slowed versus January, the level is more than double from a year ago.
Job cuts in the auto sector led over the month accounting for one-third of the
February total. This area will continue to be a drag in the months ahead given the
near term need to restructure and downsize. Layoffs continued to mount in a
broader number of industries while announcements from industrial, retail and
finance companies were among the largest. Looking ahead, the economic
downturn will continue to lead to higher layoffs with corresponding gains in the
unemployment rate through all of 2009.

Housing affordability at a record high
The National Association of Realtors released its housing affordability ratio for
January and it surged for the sixth consecutive month to 166.8 in January from
153.2 in December. Yet over this sixth period of rising affordability we saw new
homes go from 505K units annualized in July, to 448K, to 434K, to 404K, to 380K,
to 344K, and all the way down to a record low of 309K units in January. This jump
in affordability also came in a month that saw homebuilder sentiment crater to a
record low and mortgage applications for purchase run nearly -30% YoY.
Affordability is not the issue. The issues are first, a weakening in the demand for
housing. At the margin, folks would rather rent than own an ever depreciating
asset class. Second, down payment requirements are between 20-30% and there
are few who have $70-80,000 lying around to put down on a house. And finally,
banks are continuing to tighten their credit standards for residential mortgages as
the latest Fed Senior Loan Officer Survey attests.

The National Association of Realtors released its housing affordability ratio

Affordability is not the issue. The issues are first, a weakening in the demand for
housing. At the margin, folks would rather rent than own an ever depreciating
asset class.

We cannot rule out the loss of 1 million jobs in March
Judging by the leading indicators – 600,000+ jobless claims, Challenger layoffs
up an eye-popping 158% from a year ago, the 78,000 plunge in temporary
employment, the record-low workweek – suggest that we will have to endure an
800,000 employment slide when the March data roll out, and a 1 million loss
cannot be ruled out. We may have to redefine yet again what a ‘new normal’ is at
that point. The bottom line is that a recovery in domestic economic activity is, at
best, a late-2009 story, but at this stage, even that could be a fairy tale.

Layer after layer of distress in the labor market
Although we are trying hard to be as objective as possible as sentiment turns
increasingly negative, we have to say that we still do not see the proverbial light
at the end of the tunnel. Not just yet. The data still do not give us the ‘green light’
to turn bullish even as we now look for every opportunity to do so. As we peel the
onion today, we see layer after layer of distress in the labor market – data that will
likely not make it in the soundbite-driven morning papers.

Number of full-time jobs sagging sharply
For example, the number of full-time jobs sagged 940,000 in February after more
than 1 million lost in both December and January – 3.5 million full-time jobs lost in
just three months and 6.7 million since the recession began in late 2007. In a
normal recession, we tend to see around 2.5 million full-time employment losses
and currently we are nearly triple that and counting. These are jobs with benefits
and because of their permanency, they have a tremendous impact on the
household budget.

freedomCM - 06 March 2009 07:15 PM

The National Association of Realtors released its housing affordability ratio

Affordability is not the issue. The issues are first, a weakening in the demand for
housing. At the margin, folks would rather rent than own an ever depreciating
asset class.

Ummm-m-m, I do not think there is anyone who reads these forums who believes anything the NAR says.

“The problem isn’t falling asset prices, it’s not rising foreclosures, it’s too much debt.”

Someone finally gets it.