That is indeed an ugly graph for residential construction spending.
Off Topic and I may be behind a cup of coffee but I thought I just heard that Iran is planning to start selling it's oil for Euro's not Dollars? Anyone hear this and if this is true what will this do to Uncle Ben's options? Won't that pretty much put him in a bind that forces no cut in rates?
Iran has been pushing its customers to pay for oil in Euros for a little while now. China seems to be going along with that plan.
The result on the $USD hasn't been as shattering as some predicted...seems that massive $USD reserves around the world (including most other oil-producing countries) provide more than enough of a buffer to mitigate the Iran-Euro effects...so far...
Commerce Dept. sanctions China over subsidy dispute
The U.S. Commerce Department announced sanctions against China on Friday in connection with a dispute over paper subsidies. Secretary Carlos Gutierrez said the U.S. has the right to apply countervailing duties to Chinese paper imports, which he said threaten U.S. products
The U.S. Commerce Department decided today to begin to levy new duties on imports from China to compensate for Chinese subsidies to exporters, reversing more than two decades of its practices
The immediate case concerns a complaint by NewPage Corp. that low-cost imports of subsidized glossy paper from China, South Korea and Indonesia are undercutting its profitability. China's exports of coated paper were set to almost triple in 2006 to $263 million from their level in 2004, according to U.S. government data.
Commerce Dept. sanctions China over subsidy dispute
The U.S. Commerce Department announced sanctions against China on Friday in connection with a dispute over paper subsidies. Secretary Carlos Gutierrez said the U.S. has the right to apply countervailing duties to Chinese paper imports, which he said threaten U.S. products
The U.S. Commerce Department decided today to begin to levy new duties on imports from China to compensate for Chinese subsidies to exporters, reversing more than two decades of its practices
The immediate case concerns a complaint by NewPage Corp. that low-cost imports of subsidized glossy paper from China, South Korea and Indonesia are undercutting its profitability. China's exports of coated paper were set to almost triple in 2006 to $263 million from their level in 2004, according to U.S. government data.
who wants to place a bet that the Chicago PMI number has been reported in error? There is almost no way that would jump that much even if we were in a recession and coming out of it, let alone where we are now with the country falling apart at the seams
Of course there was the decade old dispute about softwood lumber with Canada that was ~100 times the size of this issue.
Back on topic: closely related post by Menzie at Econobrowser on non-residential investment as opposed to construction spending and the fear that successive NIPA revisions suggest that the little upturn here in Private Nonresidential Construction Spending is noise covering a larger falling trend starting about 3 quarters ago.
Bank of America Warns of New `Correlation Crisis' (Update1)
By Neil Unmack
March 30 (Bloomberg) -- U.S. homebuilders may trigger a ``correlation crisis'' similar to the credit sell off in 2005 when Ford Motor Co. and General Motors Corp. lost their investment-grade credit ratings, according to Bank of America Corp.'s securities unit.
The ratings cuts to the automakers triggered losses for banks and hedge funds holding the riskiest parts of collateralized debt obligations, securities that package bonds, loans and credit-default swaps and use the income to pay investors.
The Chicago purchasing managers index rose to 61.7% from 47.9% in February
Remember, we are not in recession (yet). It is normal to get good, even very good numbers from some reports.
In Q4 economy grew at 2.5%. It takes a while to get from 2.5% to 0%, it can't happen in 3-4 month period of time. If we have a recession this year, then probably it will happen not before June-July period.
Of interest to me in this post and the earlier one on the Koenig paper is Chart 2: According to Koenig Chart 2 shows the source of the difference between 2000-01 and now: consumption growth.
In 200001, consumption spendings contribution to GDP growth fell by about 2%. Over the past couple of years, in contrast, consumptions growth contribution has held comparatively steady.
Would you say MEW and negative savings might be the telling factors going forward?
What impact does consumption spending have on construction spending?
The other possible explanation for the Chicago PMI number is that we are not headed for a recession any time soon. While new orders have been soft, manufacturing backlogs are still posting double digit gains.
Real PCE will be up 3-3.5% in Q1, that is not exactly a sign of a capitulating consumer. Treasury receipts continue to post strong gains. Export growth has been in double digits. Inventories will not take 1.2% off GDP like they did in Q4. Non-res construction still seems pretty strong and eventually businesses are going to have to put something in all those new buildings. All we are left with is a housing market that sucks wind.
Chicken Little, could it be that the sky really isn't falling?
On 12,15,06 Immobilienblasen.blogspot.com had a post on the credit rating of many of the largest homebuilders. Since then we have seen HBs earnings take a turn for the worse. I would not be surprised to see this sector take a serious hit in their ratings.
OT Iran has been working on starting an oil bourse for well over a year. It may not be of concern to a lot of people if Iran trades for oil in Euros, but the question is what if a number of other oil producing countries join them. For example Venezuela.
Daisycolorado: possibly you're right. But it seems that I've seen data showing trucking and train freight volumes down recently. Also, it's not just housing that's having trouble at this point: autos and semiconductors are also in a rough patch.
venezuela exports most of its oil to US a bussiness is a two party transaction so if US is paying in dollars thats exactly what venezuela will get. hugo wont make any troubles
because the moment the oil stops flowing he will be replaced by another colonel like in 1992 the last venezuelan el presidente was replaced by then unknow colonel hugo chavez. never heard about the Dune planet of worms? the Spice must flow ...
besides i d like to see the faces from the south american guerillas when the guys from venezuela give them euros or yen and say them that they should buy their weapons with euros and yen xD
like all populists hugo can only talk big, when a recesion/depression starts and oil will go down he will lose his power, like in 2001 when oil was 9-12$ and he was nearly toppled
bofiz over Daisy by a landslide.
Inventory numbers consisted largely of dismal domestic auto sales that are so bad Chrysler execs are demanding that unions scale back their wages that don't come up for negotiation until Sept. Generally business investment is hoarding cash because they have no confidence in demand. The stock market is growing only on buybacks and rumors of M&A and LBOs.
Good catch on those freight volumes too bofiz.
The Chicago group surveys companies with U.S. and worldwide operations. Any group member, even one not located in the Midwest, can respond to the survey.
The "catch of the day" definitely goes to ron for his link to the story mapping-out the subprime mess, it's really illuminating.
I knew that it was heavily concentrated in southern California, but even I never realized how much.
The other eye-opener was that although so. Cal. has a large amount of subprime, that's not the area where the largest percentage of delinquent loans are. The delinquencies are worst where the economic conditions are worst...just as the fundamentals would suggest.
Just an FYI. Thje way the rating agencies claim to work is that they expect cyclicality and that is built into their ratings. So a downturn, in and of itself, should not cause a ratings change anymore than the up part of the cycle should.
The construction spending charts are interesting for watching trends, but they are just percentages, unweighted by absolute numbers. While non-residential may stay strong relative to itself, it won't help save construction too much because non-residential is only about 25% of residential and public is about 10% of residential, so if non-res and public total 35% of res, a 20% increase of that 35% won't make up for a 15% drop on the 65% res.
Gasoline prices are not important to inflation because they are not sticky and so they likely won't carry much weight with the Fed. My guess is the increase in consumer spending represents mostly the new higher cost of pharma from the new 2007 increases for Medicare regulation D retirees and higher pharmaceutical costs for workers too.
Which builders are weakest? I've been short CTX and BZH. Perhaps BZH is down enough for a while. SPF is recently down almost as much as BZH and has a lot of exposure to California. Based on accumulation and distribution, BZH, SPf, Pulti PHM, CTX and MTH are among the weakest of the public, large builders.
That is indeed an ugly graph for residential construction spending.
Off Topic and I may be behind a cup of coffee but I thought I just heard that Iran is planning to start selling it's oil for Euro's not Dollars? Anyone hear this and if this is true what will this do to Uncle Ben's options? Won't that pretty much put him in a bind that forces no cut in rates?
Yeh, It has been confirmed by the Chinese that Iran is selling its oil to China for dollars, and is considering selling its oil to Japan for yen.
Iran has been pushing its customers to pay for oil in Euros for a little while now. China seems to be going along with that plan.
The result on the $USD hasn't been as shattering as some predicted...seems that massive $USD reserves around the world (including most other oil-producing countries) provide more than enough of a buffer to mitigate the Iran-Euro effects...so far...
Read Brad Setser's column for more details:
RGE - Iran, oil, dollar, euro
OT but I know many here follow DSL.
From Seeking Alpha: 'Credit Fiasco Could Spread to Downey'
Credit Fiasco Could Spread To Downey Financial -- Seeking Alpha
Huh?
Chicago index shows biggest gain ever
The Chicago purchasing managers index rose to 61.7% from 47.9% in February, the NAPM-Chicago reported Friday.
Chicago index shows biggest monthly gain in its history - MarketWatch
How's this possible when so many other indicators are heading south?
also off topic but a big market mover!
Commerce Dept. sanctions China over subsidy dispute
The U.S. Commerce Department announced sanctions against China on Friday in connection with a dispute over paper subsidies. Secretary Carlos Gutierrez said the U.S. has the right to apply countervailing duties to Chinese paper imports, which he said threaten U.S. products
The U.S. Commerce Department decided today to begin to levy new duties on imports from China to compensate for Chinese subsidies to exporters, reversing more than two decades of its practices
The immediate case concerns a complaint by NewPage Corp. that low-cost imports of subsidized glossy paper from China, South Korea and Indonesia are undercutting its profitability. China's exports of coated paper were set to almost triple in 2006 to $263 million from their level in 2004, according to U.S. government data.
the related cartoon
immobilienblasen: CHINA AND ITS REGION / economist
also off topic but a big market mover!
Commerce Dept. sanctions China over subsidy dispute
The U.S. Commerce Department announced sanctions against China on Friday in connection with a dispute over paper subsidies. Secretary Carlos Gutierrez said the U.S. has the right to apply countervailing duties to Chinese paper imports, which he said threaten U.S. products
The U.S. Commerce Department decided today to begin to levy new duties on imports from China to compensate for Chinese subsidies to exporters, reversing more than two decades of its practices
The immediate case concerns a complaint by NewPage Corp. that low-cost imports of subsidized glossy paper from China, South Korea and Indonesia are undercutting its profitability. China's exports of coated paper were set to almost triple in 2006 to $263 million from their level in 2004, according to U.S. government data.
the related cartoon
immobilienblasen: CHINA AND ITS REGION / economist
who wants to place a bet that the Chicago PMI number has been reported in error? There is almost no way that would jump that much even if we were in a recession and coming out of it, let alone where we are now with the country falling apart at the seams
Of course there was the decade old dispute about softwood lumber with Canada that was ~100 times the size of this issue.
Back on topic: closely related post by Menzie at Econobrowser on non-residential investment as opposed to construction spending and the fear that successive NIPA revisions suggest that the little upturn here in Private Nonresidential Construction Spending is noise covering a larger falling trend starting about 3 quarters ago.
Its been over a week since a lender went out of business, things are getting better!
Read that First NLC and Option One trimmed staff this last week though.
Chicago index shows biggest gain ever
The Chicago purchasing managers index rose to 61.7% from 47.9% in February, the NAPM-Chicago reported Friday.
I think April 1 came one day early this year.
...or make that 2 days.
I got small short position on LEN and some PUTs on KBH.
Bank of America Warns of New `Correlation Crisis' (Update1) - Bloomberg.com
what do you suggest is the best builder to short more ?
CR, please, same graph from 1990!!! Thanks!
Bank of America Warns of New `Correlation Crisis' (Update1) - Bloomberg.com
Bank of America Warns of New `Correlation Crisis' (Update1)
By Neil Unmack
March 30 (Bloomberg) -- U.S. homebuilders may trigger a ``correlation crisis'' similar to the credit sell off in 2005 when Ford Motor Co. and General Motors Corp. lost their investment-grade credit ratings, according to Bank of America Corp.'s securities unit.
The ratings cuts to the automakers triggered losses for banks and hedge funds holding the riskiest parts of collateralized debt obligations, securities that package bonds, loans and credit-default swaps and use the income to pay investors.
Remember, we are not in recession (yet). It is normal to get good, even very good numbers from some reports.
In Q4 economy grew at 2.5%. It takes a while to get from 2.5% to 0%, it can't happen in 3-4 month period of time. If we have a recession this year, then probably it will happen not before June-July period.
Dear CR
Of interest to me in this post and the earlier one on the Koenig paper is Chart 2: According to Koenig Chart 2 shows the source of the difference between 2000-01 and now: consumption growth.
In 200001, consumption spendings contribution to GDP growth fell by about 2%. Over the past couple of years, in contrast, consumptions growth contribution has held comparatively steady.
Would you say MEW and negative savings might be the telling factors going forward?
What impact does consumption spending have on construction spending?
Best regards,
The other possible explanation for the Chicago PMI number is that we are not headed for a recession any time soon. While new orders have been soft, manufacturing backlogs are still posting double digit gains.
Real PCE will be up 3-3.5% in Q1, that is not exactly a sign of a capitulating consumer. Treasury receipts continue to post strong gains. Export growth has been in double digits. Inventories will not take 1.2% off GDP like they did in Q4. Non-res construction still seems pretty strong and eventually businesses are going to have to put something in all those new buildings. All we are left with is a housing market that sucks wind.
Chicken Little, could it be that the sky really isn't falling?
ron, thanks for the link to the CDO unravelling story. This is just the beginning.
"Pay no attention to the massive deleveraging going on behind the curtains, the Chicago PMI is up huge!!"
uh-huh!!
Expired
excellent article on subprime locations with good maps
I wonder if the increase in consumer spending reflects the higher prices at the pumps?
Doug Kass on TheStreet.com speculated that Chicago PMI numbers might have been skewed by a large Boeing order.
Is this a possibility?
On 12,15,06 Immobilienblasen.blogspot.com had a post on the credit rating of many of the largest homebuilders. Since then we have seen HBs earnings take a turn for the worse. I would not be surprised to see this sector take a serious hit in their ratings.
OT Iran has been working on starting an oil bourse for well over a year. It may not be of concern to a lot of people if Iran trades for oil in Euros, but the question is what if a number of other oil producing countries join them. For example Venezuela.
Daisycolorado: possibly you're right. But it seems that I've seen data showing trucking and train freight volumes down recently. Also, it's not just housing that's having trouble at this point: autos and semiconductors are also in a rough patch.
venezuela exports most of its oil to US
a bussiness is a two party transaction so if US is paying in dollars thats exactly what venezuela will get. hugo wont make any troubles
because the moment the oil stops flowing he will be replaced by another colonel like in 1992 the last venezuelan el presidente was replaced by then unknow colonel hugo chavez. never heard about the Dune planet of worms? the Spice must flow ...
besides i d like to see the faces from the south american guerillas when the guys from venezuela give them euros or yen and say them that they should buy their weapons with euros and yen xD
like all populists hugo can only talk big, when a recesion/depression starts and oil will go down he will lose his power, like in 2001 when oil was 9-12$ and he was nearly toppled
Less Housing = Less Wood=Less Jobs = Less Consumer spending! Layoffs will hurt Quebec towns:
This page is available to GlobePlus subscribers
bofiz over Daisy by a landslide.
Inventory numbers consisted largely of dismal domestic auto sales that are so bad Chrysler execs are demanding that unions scale back their wages that don't come up for negotiation until Sept. Generally business investment is hoarding cash because they have no confidence in demand. The stock market is growing only on buybacks and rumors of M&A and LBOs.
Good catch on those freight volumes too bofiz.
bofiz, about the Chicago Report that is authored by some dude that has the insecurity to publish PhD behind his name (after Jr. which he earns QED), an updated and unusually informative Bloomberg article:
Chicago March Purchasers Index Jumps to 2-Year High (Update3) - Bloomberg.com
had this remark:
The Chicago group surveys companies with U.S. and worldwide operations. Any group member, even one not located in the Midwest, can respond to the survey.
The "catch of the day" definitely goes to ron for his link to the story mapping-out the subprime mess, it's really illuminating.
I knew that it was heavily concentrated in southern California, but even I never realized how much.
The other eye-opener was that although so. Cal. has a large amount of subprime, that's not the area where the largest percentage of delinquent loans are. The delinquencies are worst where the economic conditions are worst...just as the fundamentals would suggest.
Sebastia
Thanks for that Seb, I did miss it first pass.
YS Wayne,
Just an FYI. Thje way the rating agencies claim to work is that they expect cyclicality and that is built into their ratings. So a downturn, in and of itself, should not cause a ratings change anymore than the up part of the cycle should.
Of course, we'll see.
The construction spending charts are interesting for watching trends, but they are just percentages, unweighted by absolute numbers. While non-residential may stay strong relative to itself, it won't help save construction too much because non-residential is only about 25% of residential and public is about 10% of residential, so if non-res and public total 35% of res, a 20% increase of that 35% won't make up for a 15% drop on the 65% res.
Gasoline prices are not important to inflation because they are not sticky and so they likely won't carry much weight with the Fed. My guess is the increase in consumer spending represents mostly the new higher cost of pharma from the new 2007 increases for Medicare regulation D retirees and higher pharmaceutical costs for workers too.
Which builders are weakest? I've been short CTX and BZH. Perhaps BZH is down enough for a while. SPF is recently down almost as much as BZH and has a lot of exposure to California. Based on accumulation and distribution, BZH, SPf, Pulti PHM, CTX and MTH are among the weakest of the public, large builders.
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