Thank goodness! I thought we were headed into a time when houses were sold near their intrinsic value. I'm glad to hear that the irrationality in the housing market will keep on going forever. It's the 1999 dotcom stockmarket all over again, baby!
This is such a FOSH position for B of A- if they were serious they could jumpstart the market by offering a nice safe fixed 5% 30 years mortgage for all home buyers with a fico over 650 and a pulse.....funny they don't seem to be doing that.
Pablum right up there with tech stocks always go up.
Although Lewis can be accused of "talking his book," so can Kiesel.
The "blood bath" call may prove to be the correct one, but PIMCO hasn't exactly called this market correctly and has underperformed in a big way with their premise that the housing slowdown will lead to a serious slowing of the "real" economy.
Lewis went on to say that the Easter Bunny told him the housing slump was a fairy tale. I had dinner with the bunny-man last night. He said the good times are going to roll again soon. He also said that Elvis will be playing the Bellagio next month. After a pause followed by several snort-like sounds, Mr. Lewis indicated that he could not speak further. Theyre here you know. Theyre among us. All around us. You dont know who they or what theyre capable of. They know what youre thinking. Ive got to go.
I personally know someone (1 person) who defaulted on more than 50k in debt thru BK held with BAC.... straight default, no chance of BAC ever getting there money... this year...
i'm not sure the asset backed market is ready for this
steve what is your .5 estimate based on..looking at falling starts , wouldnt it be a bigger drag than .5 or.6?
just want to know how u made the estimate
Actually starts in Q2 are mostly flat compared Q1 (up a little bit, but not by a significant amount). In Q1 starts averaged a rate of 1.46 million. In Q2, starts are averaging 1.49 million. But the main reason is because the quarterly comparisons are getting easier.
A lot of the GDP in residential investment for any given quarter comes from starts in the previous quarter. That is, a house takes, say, six months to build. The value added to the economy is spread over the six months it takes to build the house. This is a good chart that shows why the worst drag on GDP was in Q4 of '06. You can see the huge drop off in activity going from quarter to quarter starting in January.
I suspect starts will probably decrease more this year, but the rate of decline probably wont be as fast nor will the size of the drop off in activity be as large as we saw last year. So it's very likely that Q4 of 2006 was the largest drag on growth we'll see.
One wild card is the improvements component of RI. Growth has slowed significantly and if that flips negative it could weigh things down a bit. Although that is a much smaller piece of RI.
Steve - starts are up because of apartments. Residential sfr is down. And of course the drag from construction recession slows - big deal. The problem is, as that is waning, all the second round effects on consumption are growing.
Is this a lot like the recession of 1973-75? Back then there was lot of recession denial, for many months, even as the economy stalled and finaly sank. It well into 1974 before it understood the economy was in a recession.
We do not see a recession,'' Lewis said.Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters.'
This could be a prelude to destruction. Recessions start when guys like Lewis realize their little Jedi Mind Trick isn't going to work and finally admit "OK, we're f**ked."
Wow, Ken Lewis sure changes his tune fast. Maybe it depends on the audience.
May 9th, 2007:
Bank of America Corp. Chief Executive Officer Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.
c25:c27 on table 3 sure looks like a drop from month to month. Perhaps we are talking about diff things (you Q me M) the point is, the recent data for M is more indicative of where we are heading than using a quarter which was artifically inflated by April.
BoA's unwinding along with what I am sure will be acceptable prices in MER's auction are anticipated and will doubtless quell the waters sufficiently to allow major players to get out.
I confess there are times when the Fed's primary function seems to be nothing more than the protection of the wealthy and powerful.
Personally I remain net long as I have in equities since '03 and in precious metals and oil since '01 but my hedges have grown to the point I will probably be net short before the end of the year; discipline is what it is (shrug).
steve,
starts are not up enough for the drag to come down to .5..look at average of starts not the drop..and i suspect the decrease in commercial re starts will atleast have a minimal impact in q2..but thanx for the chart
I should mention that the "credit bubble" article that quotes Lewis is most about business lending, but its hard to see how this would be good for the housing market.
don't for one second think that this shit is over.
people crack me up with this, oh, well that wasn't bad, back to loading up on the pinkies...let's see, I can buy 45,000,000 shares at .03 and only have 3 cents of potential downside, trades on average 30,000 shares a day so it is a very "fluid" market (where have we heard that before).
I am sure by now BS feels as though they were in a small room drowning in fluid.
on another note-
"Standard & Poor's published a report last week called The Covenant-Lite Juggernaut warning that these sorts of risky CLO assets exploded to $48bn in the first quarter of this year, double the figure in all of 2006. It said lenders would "rue the day" when the credit cycle turns." Banks fear rout on risky US bonds - Telegraph
This also likely shook the markets, the use of the word "systemic" makes people nervous-
""Securities and Exchange Commission Chairman Christopher Cox said the agency's division of market regulation is tracking the turmoil at the Bear Stearns fund.
I can understand his concern in that it has been widely felt that hedge funds have been chasing the same trades and piling on concentration, this would lead to the concerns listed above.
and to think I heard some moron say this was part of the normal hedge cyle....
yeah right, assholes with far too much leverage, thinking they are properly hedged, that, in and of itself is laughable.
in the end, this means one thing, there is no shortage of idiots roaming the hedge world collecting two and twenty.
Not sure whether we hit a recession, but new construction is picking up in Omaha. With their reduced costs, builders are competing effectively against re-sales. The re-sale market is tough.
IMHO, we have a international financial balance of terror going on. In order to have us buy all of their stuff, they need to loan us the money to buy it at rates we are willing to pay. So while I think that it will not end well, it may be a slow deterioration.
Not sure whether we hit a recession, but new construction is picking up in Omaha. With their reduced costs, builders are competing effectively against re-sales. The re-sale market is tough.
I'm still seeing lots and lots of residential and commercial building going on where I am on the East coast.
This is despite a growing forest of "For Sale" and "For Lease" signs all throughout the area.
It's just like the 1980s Houston mess replicated on a national scale. I can't imagine how it will end, but the word "bloodbath" comes to mind.
I have a "traditional" IRA at Bear, Stearns securities Corp (from my monthly statement under CLEARANCE AGENT). My money is in 3 month Treasury Bills which my accountant takes care of rolling over as they mature. Perhaps you can tell that I am very conservative, financially anyway. Is there any way that this problem with their hedge fund could negatively impact my retirement funds? I remember a commodities company (Refco) went bankrupt and people lost money, could Bear Stearns somehow lose my T Bills?
Re: Construction drag on GDP Q3 of '06: -1.2%
Q4 of '06: -1.2%
Q1 of '07: -.9%
Q2 is looking even better and will probably come in around -.5%/-.6%.
Steve
So if I was to try and compare the drag on GDP and construction employment, would it be reckless to say that there's been 225-250k job losses in that sector?
At the same time, several lenders, including JP Morgan Chase, Goldman Sachs and Bank of America, reached deals with Bear Stearns that forestalled a need to sell securities in the open market. It appeared that some lenders pulled back over concerns about the effect that a large liquidation would have on bond prices and investor confidence. While the securities involved represent a fraction of the market, a liquidation could have forced a bigger sell-off while setting a lower price.
(end quote)
I'm sure the comment from BOA that CR posted and the story above have no relationship to one another, but...
As of March:
Bank of America (a unit of Bank of America reported $704 million in past-due mortgages in its portfolio serviced for others, along with $1.4 billion in credit exposure on sold loans.
China sold more US treasury bonds in April than any time in at least seven years, a signal that the nation may be diversifying the world's largest foreign-exchange reserves, Shanghai Securities News reported today....To attract more investments in US dollar assets, Treasury deputy secretary Robert Kimmitt plans to lobby China and Russia to keep investing in the US on his trips to Moscow and Beijing next week. He said he plans a similar message on upcoming visits to Japan, South Korea and the Middle East.
You don't have to be a genius to see where this is going.
"I'm still seeing lots and lots of residential and commercial building going on where I am on the East coast. This is despite a growing forest of "For Sale" and "For Lease" signs all throughout the area. It's just like the 1980s Houston mess replicated on a national scale. I can't imagine how it will end, but the word "bloodbath" comes to mind." [ac]
Not to say that ac isn't a genius. His comments here are excellent, IMO...
Ed: You should take a look at the Treasury Direct program as an alternative to a broker or a bank as a custodian of your 3 month T bills. I too am very conservative and I'm not comfortable with the idea that the major part of my asset base is held by any firm that might become insolvent and tied up in settlement claims for months on end. Consider a scenario in which your Treasury Bills mature and revert to cash during the "frozen" period of a workout. Would they be guaranteed and immediately available under such a scenario or would you just be one of many hapless customers?
Isn't it ironic that the majority of the sales will be to China, Russia and the Middle East, all countries that hold our interest in the highest regards.
"China sold more US treasury bonds in April than any time in at least seven years, a signal that the nation may be diversifying the world's largest foreign-exchange reserves, Shanghai Securities News reported today....To attract more investments in US dollar assets, Treasury deputy secretary Robert Kimmitt plans to lobby China and Russia to keep investing in the US on his trips to Moscow and Beijing next week."
WTF? Wasn't congress bitching about Chinese currency manipulation????
Re: Construction drag on GDP
Q3 of '06: -1.2%
Q4 of '06: -1.2%
Q1 of '07: -.9%
Q2 is looking even better and will probably come in around -.5%/-.6%.
Steve
Since housing construction peaked to today I would suspect there has been more than 250K construction jobs lost.
Thanks, I'm just trying to eyeball it, and with the weak GDP growth I'm sure I'm lowballing it.
After much looking about...
looking at the non adjusted current population numbers, from the peak to today we'd be down 317k in construction/extraction jobs. However, The denominator has shrunk(while flattening) while the numerator is not shrinking as much from its peak, suggesting that people are finding jobs in other sectors.
My back of the envelope methodology (originally) is as follows:
Using Q3 Construction employment(source, BED) -77k, -1.2% GDP as a baseline
Q4 would likely be the same (using unadjusted current population survey it's actually down a smidge) and following quarters would decrease from 77k to 60k & 50k losses.
It seems the unemployment levels are starting to trend down to between 2002+2003 levels: Still elevated, but reverting towards the mean. Once CRE winds down over the next couple of quarters it should return to the mean, which suggests another 200-250k to go..
I was curious about 'your' treasury bonds held by Bear stearns and the conflicting advise you got.
The worry i would have is if Bear Stearns is ahead of you in its claim to those bonds. If the bonds are in your name then why dont you have them yourself?
Thank goodness! I thought we were headed into a time when houses were sold near their intrinsic value. I'm glad to hear that the irrationality in the housing market will keep on going forever. It's the 1999 dotcom stockmarket all over again, baby!
This is such a FOSH position for B of A- if they were serious they could jumpstart the market by offering a nice safe fixed 5% 30 years mortgage for all home buyers with a fico over 650 and a pulse.....funny they don't seem to be doing that.
Pablum right up there with tech stocks always go up.
Someday this war's gonna end...
Although Lewis can be accused of "talking his book," so can Kiesel.
The "blood bath" call may prove to be the correct one, but PIMCO hasn't exactly called this market correctly and has underperformed in a big way with their premise that the housing slowdown will lead to a serious slowing of the "real" economy.
So BoA and PIMCO are talking their own books ...hmmmm.
And the bids in the MER auction will, as if by magic, come in at pretty close to model.
Geez, I feel like a little puppy dog getting its belly rubbed ...hmmmm.
y, pimco re-hash circa 2002-
Gross, Dow going to 5k
Lewis went on to say that the Easter Bunny told him the housing slump was a fairy tale. I had dinner with the bunny-man last night. He said the good times are going to roll again soon. He also said that Elvis will be playing the Bellagio next month. After a pause followed by several snort-like sounds, Mr. Lewis indicated that he could not speak further. Theyre here you know. Theyre among us. All around us. You dont know who they or what theyre capable of. They know what youre thinking. Ive got to go.
It's alright. Kenny is just doing penance for suggesting that the credit bubble was about to burst in a speech last month. You can just hear the board members telling him "You've been a very naughty boy Ken..."
Bank of America's Lewis Calls for Lending `Sanity' (Update2) - Bloomberg.com
tanta, now that digby has outed herself, I'm waiting for you to do the same! (unless maybe you ARE digby)
Looks like an interesting week. I keep waiting for the tipping point, but it never comes. Maybe the bulls are right.
I personally know someone (1 person) who defaulted on more than 50k in debt thru BK held with BAC.... straight default, no chance of BAC ever getting there money... this year...
i'm not sure the asset backed market is ready for this
I don't know about home prices turning around anytime soon, but they're right about the drag on GDP from construction. It is getting smaller.
Q3 of '06: -1.2%
Q4 of '06: -1.2%
Q1 of '07: -.9%
Q2 is looking even better and will probably come in around -.5%/-.6%.
AllenM - I'm with you on that, restoring those lines of credit BofA?
--
Push Debt and then lie?!
Hurray to the Criminal Gang of Bankers and Financiers that rule over Americans!!
steve what is your .5 estimate based on..looking at falling starts , wouldnt it be a bigger drag than .5 or.6?
just want to know how u made the estimate
Steve,
The cumulative drag of slowing construction grows ever greater...
I am holding out for Abby Joseph Cohen to tell me everything is OK. She was always the ultimate contrary indicator.
Come to think of it I haven't seen her for awhile - is she still a player?
Anonymous,
Actually starts in Q2 are mostly flat compared Q1 (up a little bit, but not by a significant amount). In Q1 starts averaged a rate of 1.46 million. In Q2, starts are averaging 1.49 million. But the main reason is because the quarterly comparisons are getting easier.
A lot of the GDP in residential investment for any given quarter comes from starts in the previous quarter. That is, a house takes, say, six months to build. The value added to the economy is spread over the six months it takes to build the house. This is a good chart that shows why the worst drag on GDP was in Q4 of '06. You can see the huge drop off in activity going from quarter to quarter starting in January.
I suspect starts will probably decrease more this year, but the rate of decline probably wont be as fast nor will the size of the drop off in activity be as large as we saw last year. So it's very likely that Q4 of 2006 was the largest drag on growth we'll see.
One wild card is the improvements component of RI. Growth has slowed significantly and if that flips negative it could weigh things down a bit. Although that is a much smaller piece of RI.
Sounds like Ken has a load of shit to sell soon!
Steve - starts are up because of apartments. Residential sfr is down. And of course the drag from construction recession slows - big deal. The problem is, as that is waning, all the second round effects on consumption are growing.
I know you can do better than this...
Is this a lot like the recession of 1973-75? Back then there was lot of recession denial, for many months, even as the economy stalled and finaly sank. It well into 1974 before it understood the economy was in a recession.
starts are up because of apartments
Geoff,
You are incorrect. (.xls)
Q1 1-Unit starts average: 1.172 million
Q2 1-Unit starts average: 1.1905 millio
God,I hate being right-
Business & Financial News, Breaking US & International News | Reuters.com
We do not see a recession,'' Lewis said.Because that drag stops, you'll see the economy begin to pick up in the third and fourth quarters.'
This could be a prelude to destruction. Recessions start when guys like Lewis realize their little Jedi Mind Trick isn't going to work and finally admit "OK, we're f**ked."
y, pimco re-hash circa 2002-
Gross, Dow going to 5k
Called_Bluff
Put your money where your mouth is.
Naked leveraged long.
Have at it.
onsense? time will tell
Wow, Ken Lewis sure changes his tune fast. Maybe it depends on the audience.
May 9th, 2007:
Bank of America Corp. Chief Executive Officer Ken Lewis said a so-called credit bubble is about to break after six years of historically low interest rates and relaxed lending criteria.
Bank of America's Lewis Calls for Lending `Sanity' (Update2) - Bloomberg.com
I guess this will help the housing market?
c25:c27 on table 3 sure looks like a drop from month to month. Perhaps we are talking about diff things (you Q me M) the point is, the recent data for M is more indicative of where we are heading than using a quarter which was artifically inflated by April.
sorry, column D
I emailed the writer about Ken Lewis' flip-flops, I'll let you know if I get a response.
BoA's unwinding along with what I am sure will be acceptable prices in MER's auction are anticipated and will doubtless quell the waters sufficiently to allow major players to get out.
I confess there are times when the Fed's primary function seems to be nothing more than the protection of the wealthy and powerful.
Personally I remain net long as I have in equities since '03 and in precious metals and oil since '01 but my hedges have grown to the point I will probably be net short before the end of the year; discipline is what it is (shrug).
steve,
starts are not up enough for the drag to come down to .5..look at average of starts not the drop..and i suspect the decrease in commercial re starts will atleast have a minimal impact in q2..but thanx for the chart
I should mention that the "credit bubble" article that quotes Lewis is most about business lending, but its hard to see how this would be good for the housing market.
RW-
don't for one second think that this shit is over.
people crack me up with this, oh, well that wasn't bad, back to loading up on the pinkies...let's see, I can buy 45,000,000 shares at .03 and only have 3 cents of potential downside, trades on average 30,000 shares a day so it is a very "fluid" market (where have we heard that before).
I am sure by now BS feels as though they were in a small room drowning in fluid.
on another note-
"Standard & Poor's published a report last week called The Covenant-Lite Juggernaut warning that these sorts of risky CLO assets exploded to $48bn in the first quarter of this year, double the figure in all of 2006. It said lenders would "rue the day" when the credit cycle turns."
Banks fear rout on risky US bonds - Telegraph
A few neat tidbits. From six hours ago:
JPM cancels BS auction
The about three hours ago:
JPM Issues $750 mil in notes
Just thought you people here would like something to speculate about.
Keeps this soap opera going. ehehehe!
This also likely shook the markets, the use of the word "systemic" makes people nervous-
""Securities and Exchange Commission Chairman Christopher Cox said the agency's division of market regulation is tracking the turmoil at the Bear Stearns fund.
Our concerns are with any potential systemic fallout,'' Cox said in an interview today.So far, so good on that score.''"
Bear Stearns's Attempt to Save Hedge Funds May Falter (Update7) - Bloomberg.com
I can understand his concern in that it has been widely felt that hedge funds have been chasing the same trades and piling on concentration, this would lead to the concerns listed above.
and to think I heard some moron say this was part of the normal hedge cyle....
yeah right, assholes with far too much leverage, thinking they are properly hedged, that, in and of itself is laughable.
in the end, this means one thing, there is no shortage of idiots roaming the hedge world collecting two and twenty.
But, it's cool, things are "fluid".
bad eli, bad....stirring the pot like that.
Not sure whether we hit a recession, but new construction is picking up in Omaha. With their reduced costs, builders are competing effectively against re-sales. The re-sale market is tough.
IMHO, we have a international financial balance of terror going on. In order to have us buy all of their stuff, they need to loan us the money to buy it at rates we are willing to pay. So while I think that it will not end well, it may be a slow deterioration.
That's a pretty ballsy call by Mr. Lewis. We'll see.
Anecdotal Info: The first of my SoCal family members who work for homebuilders was layed off last week.
Not sure whether we hit a recession, but new construction is picking up in Omaha. With their reduced costs, builders are competing effectively against re-sales. The re-sale market is tough.
I'm still seeing lots and lots of residential and commercial building going on where I am on the East coast.
This is despite a growing forest of "For Sale" and "For Lease" signs all throughout the area.
It's just like the 1980s Houston mess replicated on a national scale. I can't imagine how it will end, but the word "bloodbath" comes to mind.
I have a "traditional" IRA at Bear, Stearns securities Corp (from my monthly statement under CLEARANCE AGENT). My money is in 3 month Treasury Bills which my accountant takes care of rolling over as they mature. Perhaps you can tell that I am very conservative, financially anyway. Is there any way that this problem with their hedge fund could negatively impact my retirement funds? I remember a commodities company (Refco) went bankrupt and people lost money, could Bear Stearns somehow lose my T Bills?
Re: Construction drag on GDP
Q3 of '06: -1.2%
Q4 of '06: -1.2%
Q1 of '07: -.9%
Q2 is looking even better and will probably come in around -.5%/-.6%.
Steve
So if I was to try and compare the drag on GDP and construction employment, would it be reckless to say that there's been 225-250k job losses in that sector?
Alec,
Since housing construction peaked to today I would suspect there has been more than 250K construction jobs lost.
Ed, please relax, even if BearS goes belly up (unlikely), your T-bills are safe.
Thanks, I'll go back to worrying about the return on my money instead of the return of my money.
Ed,
Close your Bear Stearns account and start using TreasuryDirect. You may want to look for a new accountant, too.
NYT, today
(quote)
At the same time, several lenders, including JP Morgan Chase, Goldman Sachs and Bank of America, reached deals with Bear Stearns that forestalled a need to sell securities in the open market. It appeared that some lenders pulled back over concerns about the effect that a large liquidation would have on bond prices and investor confidence. While the securities involved represent a fraction of the market, a liquidation could have forced a bigger sell-off while setting a lower price.
(end quote)
I'm sure the comment from BOA that CR posted and the story above have no relationship to one another, but...
Can I use Treasury Direct for IRA? Would that save on fees?
Oddly enough, Mr. Paulson's former company rached the same conclusion.
As of March:
Bank of America (a unit of Bank of America reported $704 million in past-due mortgages in its portfolio serviced for others, along with $1.4 billion in credit exposure on sold loans.
China Daily News 6/17/07
China sold more US treasury bonds in April than any time in at least seven years, a signal that the nation may be diversifying the world's largest foreign-exchange reserves, Shanghai Securities News reported today....To attract more investments in US dollar assets, Treasury deputy secretary Robert Kimmitt plans to lobby China and Russia to keep investing in the US on his trips to Moscow and Beijing next week. He said he plans a similar message on upcoming visits to Japan, South Korea and the Middle East.
You don't have to be a genius to see where this is going.
"I'm still seeing lots and lots of residential and commercial building going on where I am on the East coast. This is despite a growing forest of "For Sale" and "For Lease" signs all throughout the area. It's just like the 1980s Houston mess replicated on a national scale. I can't imagine how it will end, but the word "bloodbath" comes to mind." [ac]
Not to say that ac isn't a genius. His comments here are excellent, IMO...
Ed: You should take a look at the Treasury Direct program as an alternative to a broker or a bank as a custodian of your 3 month T bills. I too am very conservative and I'm not comfortable with the idea that the major part of my asset base is held by any firm that might become insolvent and tied up in settlement claims for months on end. Consider a scenario in which your Treasury Bills mature and revert to cash during the "frozen" period of a workout. Would they be guaranteed and immediately available under such a scenario or would you just be one of many hapless customers?
Isn't it ironic that the majority of the sales will be to China, Russia and the Middle East, all countries that hold our interest in the highest regards.
"China sold more US treasury bonds in April than any time in at least seven years, a signal that the nation may be diversifying the world's largest foreign-exchange reserves, Shanghai Securities News reported today....To attract more investments in US dollar assets, Treasury deputy secretary Robert Kimmitt plans to lobby China and Russia to keep investing in the US on his trips to Moscow and Beijing next week."
WTF? Wasn't congress bitching about Chinese currency manipulation????
"WTF? Wasn't congress bitching about Chinese currency manipulation????"
I think the PRC understands that the U.S. doesn't speak with one voice.
Re: Construction drag on GDP
Q3 of '06: -1.2%
Q4 of '06: -1.2%
Q1 of '07: -.9%
Q2 is looking even better and will probably come in around -.5%/-.6%.
Steve
Since housing construction peaked to today I would suspect there has been more than 250K construction jobs lost.
Thanks, I'm just trying to eyeball it, and with the weak GDP growth I'm sure I'm lowballing it.
After much looking about...
looking at the non adjusted current population numbers, from the peak to today we'd be down 317k in construction/extraction jobs. However, The denominator has shrunk(while flattening) while the numerator is not shrinking as much from its peak, suggesting that people are finding jobs in other sectors.
My back of the envelope methodology (originally) is as follows:
Using Q3 Construction employment(source, BED) -77k, -1.2% GDP as a baseline
Q4 would likely be the same (using unadjusted current population survey it's actually down a smidge) and following quarters would decrease from 77k to 60k & 50k losses.
It seems the unemployment levels are starting to trend down to between 2002+2003 levels: Still elevated, but reverting towards the mean. Once CRE winds down over the next couple of quarters it should return to the mean, which suggests another 200-250k to go..
Ed
I was curious about 'your' treasury bonds held by Bear stearns and the conflicting advise you got.
The worry i would have is if Bear Stearns is ahead of you in its claim to those bonds. If the bonds are in your name then why dont you have them yourself?
Not sure how it works.
If BS collapses would you get anything at all?
Can't call him a drag queen.