Seven U.S. Banks Are Seized, Raising Year’s Failure Toll to 140

Dec. 19 (Bloomberg) -- By Dan Reichl

Seven U.S. banks were seized: by regulators, bringing this year’s total of failed lenders to 140 as financial companies are tested by the recession and the Federal Deposit Insurance Corp. anticipates more shutdowns.


The budget: “will ensure that we are prepared to handle an ever-larger number of bank failures next year, if that becomes necessary,” FDIC Chairman Sheila Bair said in a statement. Yesterday’s bank closings will cost the agency about $1.8 billion, according to the FDIC statements.

U.S. lenders are buckling: under the weight of loans tied to commercial real estate, which is plummeting in value. Prices have dropped 43 percent from their peak in October 2007, Moody’s Investors Service said last month.


Comments:
It could have been worse for 2009. Clearly we still have more pain in front of us for 2010.

Soaring U.S. Unemployment Threatens Path to Economic Recovery

Nov. 7 (Bloomberg) By Timothy R. Homan--


Highlights:

Key Point to review:

• Unemployment Rate: in the U.S. jumped to 10.2 percent in October, the highest level since 1983.
• Payrolls: fell by 190,000 last month, more than forecast by economists,
• U.S. Economy: has lost 7.3 million jobs since the recession began in December 2007, when the unemployment rate stood at 4.9 percent.
• Underemployment rate: -- which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking -- reached a record 17.5 percent in October from 17 percent, yesterday’s report showed.
• Average Work Week: held at a record low of 33 hours in October. Average weekly earnings rose to $617.76 from $616.11 a month earlier. Workers’ average hourly earnings were 2.4 percent higher than October 2008, the smallest gain since 2004.

“We’ve got lots of people just giving up and leaving the labor force,” said Julia Coronado, a former Fed economist now at BNP Paribas in New York. “Consumer incomes are under pressure, and that raises questions about the sustainability of the improvement we’ve seen in consumer spending.”


COMMENTS:

I am sorry to say, this month unemployment report hits my last year forecast of over ten percent by years end with no end in sight.

China Economy May Slow Next Year

Oct. 24 (Bloomberg) -- By Bloomberg News

Highlights

• Stephen Roach, chairman of Morgan Stanley Asia: China may face an economic slowdown in the middle of next year because the nation’s growth model is unsustainable.
• Economic growth in China: accelerated to 8.9 percent last quarter, fueled by government stimulus spending and more than $1 trillion of new bank lending. “China’s growth model is much more about supply than demand,” Roach said. “It’s not a sustainable model for China. It’s not a sustainable model for any nation.”
• Stimulus Plan: The government’s $586 billion stimulus plan unveiled in November last year spans earthquake reconstruction work, roads, railways and low-cost housing. Chinese banks doled out a record 8.67 trillion yuan ($1.27 trillion) of new loans in the first nine months, more than double the same period a year earlier.
  
• Stimulus Growth: China grew 6.1 percent in the first quarter of 2009, the slowest pace of expansion in almost a decade, as shipments abroad fell 17.1 percent during the period. Growth picked up to 7.9 percent in the second quarter as exports slid 21.4 percent.
• Balancing Need: In the next few months, the government will focus on balancing the need to maintain stable and relatively fast growth with the need to adjust the structure of China’s economy and better manager inflationary expectations, the State Council, China’s cabinet, said Oct. 21. The nation also faces increasing difficulty in managing liquidity and the structure of loans is “not rational,” the State Council said.
  

Comments:

Newton observed that when an apple disconnected from a tree it fell. He call that gravity. In a well organized centralized government like China, which is a major world economic player, they claim the apple rises. Why am I skeptical. Maybe because;

Banking: My banking friends and associates quiver when they think of Chinese accounting and reconciling asset value to book value.

Gasoline Consumption: I am told, (sorry I don't have the exact numbers) new vehicle purchase are up and business is booming domestically; yet; year or year gasoline consumption is down.

Electrical Output: Ditto for electrical output for the country. Business is booming domestically but year over year electrical consumption is down.

After decades of a worldwide economic party which was driven by a constant deterioration of credit standards and the creation of derivatives that required a religious quality to believe we are all experiencing the hangover. Sorry folks, quick fixes and the solutions will not occur until new leadership faces and policies continue to emerge and reach a critical mass. Half way through 2010 we may look back at 2009 as having been a very prosperous time for the world economy.

Best,

James Monachino

U.S. Economy: Retail Sales Unexpectedly Fall for Second Month

May 13 (Bloomberg) --By Courtney Schlisserman

HIGHLIGHTS

Retail sales in the U.S. unexpectedly dropped in April for a second month.

• Retail Drop: The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated, the Commerce Department reported today.
  
• Carl Riccadonna an Economist at Deutsche Bank Securities: “It looks like consumers are losing momentum heading into the second quarter and that is a very worrisome development, They have very significant headwinds and number one among them is that the labor market is far from turning the corner.”
• US Business Inventories: Commerce Dept. showed inventories at U.S. businesses fell 1 percent in March, a seventh consecutive drop as slumping sales forced companies to pull back. The streak of decreases is the longest since 2001-2002.
• Sales Decline: was led by falling demand at electronics, furniture, clothing and grocery stores.
  
• Prices of goods Imported: into the U.S. climbed 1.6 percent in April, more than three times as much as forecast, a report from the Labor Department also showed. Excluding oil, prices were down 0.4 percent.

COMMENTS

Rising unemployment and falling family wealth is clearly ripping into the fabric of the economy. Issues of note include:

Grocery store sales declined: I Don't think the implication is that people and families are eating out more. Disturbing at the core if the trend continues.

Rising Oil Prices: Isn't it great to know how the free market really works. Business, Governments, and Families are feeling the pressures of a world wide slow down and as Memorial Day Season draws near we experience the free market price of oil begin it's seemingly obligatory rise for the start of the summer.

Finally, to all you Fat Cats left standing. This is your year. The year the market sucks you in. Be careful you aren't standing by a 747 Wallstreet propaganda engine starting up. Why, because there is tremendous amount of toxic debt and poorly structured equity opportunities that in this new environment will not profit you as they may have in the past.

James Monachino

Rich Americans Default on Luxury Homes Like Subprime Victims

May 6 (Bloomberg) -- By Bob Ivry and Dan Levy

HIGHLIGHTS:

The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said.

• Jumbo lending Slowed: in the fourth quarter to $11 billion, or 4 percent of the mortgage market, the lowest quarterly figure since Inside Mortgage Finance, a Bethesda, Maryland-based trade publication, started tracking the data in 1990.
• Sales: for all homes in the state increased 2.5 percent last year from 2007, sales of homes valued at more than $1 million declined 43 percent to the lowest since 2003, MDA DataQuick reported. Part of the reason is falling prices as California’s median home price dropped 41 percent in February to $247,590, according to the state’s Association of Realtors.
• David Adamo, chief executive officer of Luxury Mortgage Corp.: “Just like homeowners in smaller homes, these homeowners anticipated being able to refinance mortgages to continue making payments and at a future date sell for a gain and put it toward their next home. That strategy backfired when the market for jumbo mortgages dried up.”
• Andrew Laperriere, Managing director at research firm International Strategy & Investment Group: “There was this unrealistic view that the crazy financing was limited to subprime when of course it was across the board,” in addition “A lot of jumbo mortgages were nothing down with high debt-to-income ratios.”
• Philip Tirone, president: of Los Angeles-based Mortgage Equity Group Inc., Values have taken longer to decline in more affluent areas, taking some homeowners by surprise. People are coming to me to do a refinance or buy another property, and what they thought they had in the equity of the home they don’t have and they don’t know what to do.”

COMMENTS

All real estate pricing is connected. Don't expect your home to be isolated from the equity storm.

Near Term: Loans qualification for Jumbo loans can be very conservative compared to Freddie and Fannie conforming loans. Look for values to keep sinking for 2009.

New Threat: Rising unemployment is an emerging home equity threat that has not been fully valued into the majority of econometric type models. Yes, if you lose your job you might not be able to pay the mortgage there by forcing you to take action against your best economic judgment.

Finally, the message going forward continues to be the same, stay liquid and protect principle. Deflation is counter intuitive to inflation. Almost all Americans only understand inflation and that type of strategy will prove unsuccessful these next couple of years. Save your money if you can and only spend what you feel you must.

James Monachino

U.S. Economy: Unemployment Hits 25-Year High, Services Contract

By Bob Willis and Shobhana Chandra

Highlights

April 3 (Bloomberg) The U.S. unemployment rate jumped to 8.5% in March to the highest level since 1983 and service industries shrank at a faster than anticipated pace, indicating the economy remains trapped in what’s likely to be the longest recession since the 1930s.

Additional points of interest include:

• Lost Jobs: The economy lost 663,000 jobs in March, bringing losses since the slump began to about 5.1 million, the worst in the postwar era, Labor Department figures showed in Washington.
• Revisions: subtracted 86,000 workers from January payrolls while February’s drop of 651,000 was not revised.
• Average Number of Hours Worked: fell to 33.2 per week, down six minutes from February and the fewest since records began in 1964.
• Nariman Behravest: Chief economist at IHS Global Insight in Lexington,“We could continue to see a few more months of really bad employment numbers before it starts to ease,”. Behravesh projected the jobless rate will peak between 10 percent and 10.5 percent in early 2010. “We aren’t there yet, but we are getting closer to a bottom,” he said.
  
• Service industries: which include banks, insurance companies, restaurants and retailers, cut 358,000 workers after a 366,000 decline in February. Financial firms cut payrolls by 43,000, after a 44,000 decrease the prior month. Retail payrolls decreased by 47,800 after a 50,800 drop.
• Federal Reserve Vice Chairman Donald Kohn: said both the Obama administration and central bank must remain “flexible and open” to further measures because the economy and financial markets aren’t “out of the woods yet.” The labor-market rout will make it tougher for President Barack Obama to follow through on his pledge to save or create 3.5 million jobs.

COMMENTS

The economy is experiencing the flip side of prosperity. High rising unemployment is adding another layer of downward pricing pressure on everything. Yes, deflation is still alive and we need to realize unless more people go back to work and we start seeing a rise in real wages at the middle and working class level, problems will continue to loom.

Finally, buyers beware of false market starts in the housing and stock market. We are to early in this market cycle to see a turn around in this bear market. 2009 is the year we will see all the toxic asset securities and life support blue chip companies go to the public. Everyone want to try and unload their bad debt and equity. Yep, fortunes are made at the bottom of markets but what you never hear is fortunes are also lost by those unlucky folks trying to pick a bottom.

James Monachino

Heard from the Street - Fiday 3/27/09

Heard from the Street - Pasadena, California - Friday 3/27/09
The "Heard from the Street" report represents a series of short interviews regarding what Main Street in Southern California is thinking regarding, "How are you coping with the changing economy?"

Young Working Class Father: It was a beautiful day with the sun shining and the temperature just right. Carl was in a hurry to return home with some badly needed baby formula but did have time to tell me how he is adjusting to the downturn. "It is Limiting". Everything I do now is less than before. Now I think about where I am driving, gas cost money you know. I am still working but business is way down and so they are cutting back on my hours. I go to the store and buy less and cheaper food. I would love to take my wife to the movies more but that is out of the question for now. Limited is how I describe my life right now and I really am feeling it.

Comment
Carl wasn't sure how long this temporary downturn would take before life reverted back to normal. In the mean time, he is adjusting his life style to reflect changes he is experiencing.

James Monachino