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sense of fear in credit markets is palpable.it has not felt this ugly since genius(long term capital) failed in 1998
I believe Q2 prelim GDP consensus was 3.2%. I don't think so. Housing and business inv considerably lower than forecast for Q2. More like mid to upper 2s.
A bit OT but I know a firm that is one (not well known) LBO's current trying to place debt. In fact road shows happened during the last two weeks.
The word I got is the corporate debt markets are getting worse by the day. Also reading between the lines I'll lay good money that their funding gets stuck with the investment bank and does not get funded. This despite the fact that I believe this firm I know are by far the best (most profitable, fastest growing, best management team) of about 5 similar deals -- 2 which already were funded two months ago.
This is without a dout a short term credit squeeze -- so the question is how long it lasts.
Also you can no longer argue that sub prime has been contained -- at a minimum it has in essence shut down corporate debt markets during this period of what CNBC is spinning as a "repricing." Let's hope CNBC is right because if this continues, it will not be good for anyone -- even those of you smart enough not to buy overpriced homes at the peak of the market.
I am beginning to feel like I did during the week prior to the major crash in 1987. Not good. I hope I am wrong but at least that proved to be an excellent buying opportunity.
CR, since these sales figures from census are not accounting for cancellations, are your comparisons to '97 levels apples to apples... meaning, did cancellations run north of 30% at that time too?
If cancellations run 30%, sales are around 580K which means the unsold new homes represent a year supply already.
Pardon the OT - the Yen appears to be testing 119 headed south - already beat through some resistance at 119.3 or so... interesting times indeed.
Hmmm...lets see, existing home sales disappoint, new sales disappoint BIG,... so that must mean that next month the BLS will say 100,000 constructions jobs were added. I get it.
"the Yen appears to be testing 119 headed south - already beat through some resistance at 119.3 or so... interesting times indeed."
Don't you mean the Yen is headed north?
....strengthening according to Bloomberg!
The rate cuts are coming, the rate cuts are coming. Or is that the red coats are coming??? ba hah hah.
"The Fed can't cut because of the dollar"
Nonsense- A rate cut will help the financial markets and eventually the economy(or at least soften the hard landing) which will strengthen the dollar.
The FEDS first mandate is the economy and its going in the crapper.
Cutting rates doesn't help, if anything it'd make things worse.
The only way you can work off this debt hangover is time; you can't push on a string to increase demand.
(going political)
IMO, the only way to boost demand is by the Govt to stop pissing money down a rathole called Iraq and start spending on infrastructure that can increase the velocity of money.
I notice that the level of new home sales were similar to each other at the beginning and at midpoints of the recessions. This suggests that if such a recession will occur, it will start several months from now because the home sales still have so far to drop.
Yes, housing numbers have tanked this week, and the moves in the equity/bond/currency markets is exciting. The equity move is very significant- S&P, NYSE, perhaps others will break last months swing lows on volume, which means they'll be headed for the March lows in no time. All that talk about sentiment being too bearish was just that - talk.
where's Sebastian?
Where's Sebastian?
Dunno, maybe too busy cutting losses on his calls to post?
Dow down 1.6%, S&P down 1.9%, FTSE down 3.1%. Perhaps today is the day I should finally go to cash/short-term bonds? But every time I've had my finger over the mouse button I've waited and everything rallys the next day or two.
How does one "take profits" when every asset class is over-valued? Stocks, bonds, real estate, the dollar, the pound, possibly the Euro (vs the yuan, at least). That's why I've stopped before - I see no good place to put my (very small) pile of money.
Argh.
Alec said,
"Cutting rates doesn't help, if anything it'd make things worse."
Thats what they say everytime look at history- After LTCM etc etc etc
PS: This is a Finance and Economics blog not a political blog
I went to cash and short-term bonds in March and have been frustrated ever since.
Dow is down 230 and it doesn't make one top story.
How does this happen?
grrr....
PS: Im not saying rates cuts are going to help much, just that a cut is coming.
Here is the cross post of what I just put up on Zacks.com. Some of it is a repeat of CR's 1st post on the subject, but has some color and a few additional details.
"Todays report on New home sales is even uglier than yesterdays report on existing home sales. Apparently, outside of Dixie, housing sales have crumpled to nearly a complete stop. Ok, thats exaggerating, but not by much. June new home sales were down 6.6% from June (on a seasonally adjusted annual basis or SAAR) to 834k, from 893k in May. The May number had originally been posted at 915K, so the drop from the original estimate was 8.9%. On a year over year basis new home sales were down 22.3% from a rate of 1.073 million in June 2006. This was far below consensus expectations of an annual rate of 900k for June. Digging under the national news, things look significantly worse. The big South region actually posted a 7.6% gain in home sales. The other regions posted their biggest one month drops in who knows how long (Ill have to go dig that up later). Sales in the Northeast tumbled 27.1% for the month, but were flat with a year ago. In the Midwest, sales fell 17.1% for the month and are down 28.4% year over year. Out West, the sun is setting as sales shrunk 22.5% for the month and are off a staggering 42.8% on a year over year basis. In June, the importance of the southern region to total sales increased to 59.1% of total national sales, from 51.3% in May and 52.7% a year ago. On an actual number of houses sold in the month basis (not seasonally adjusted), nationwide sales fell to 77k from 82k in May and 98k a year ago
By price range, it looks like the big hit was taken in the mid-range new houses. Sales of starter houses (less than $200K) actually ticked up slightly to 30k houses (actual not SAAR) from 29k in May, but down from 35k in June of 2006. Similarly, McMansions (over $500k) were flat at 10k for the month in both May and June of this year and down from 11k a year ago. However, mid-priced homes (between $200k and 499K) fell to 37k from 43k (down 14%) in May and from 51k (down 27.5%) a year ago.
There is no way to sugar coat it, this was an ugly report, far worse than I expected, and very few people have confused be with having an overly cheery view of the housing market for a long, time. The reports from the homebuilders as they report their earnings (or lack there of) confirm that this situation is not about to turn around any time soon."
Watch 1490 on the S&P. This is former resistance now support, if it breaks this level institutional money will sell and there will be another leg down.
F. Frederson, Nolaguy,
I don't know why some people find it difficult being in cash while the market trends up on no volume. The $RUT is back where it was in January - it's done. S&P, NYSE are next. The Proshares inverse funds (TWM, SDS, QID) are great, but you've got to take a longer term perspective.
It seems so easy to take a longer term (multi-year) view of the housing market, but not equities? We can look back at housing from 1989-1996 and not at the stocks from 2000-2002?
say goodbye to 1490
7.75 million units
sloooow,
We all know how lowering rates after LTCM ended: with a massive NASDAQ bubble. And how Greenspan's 1% rates ended? With an even more massive real estate bubble. Each time more debt was created. I think this time such trick will not work.
During communist times in Poland we had a very relevant joke "Communism is excellent in 'solving' problems it creates". I would say the same about FED.
Anyone celebrating DOW 13,500? When the DOW sheepishly crossed 14K the whole giddy experience was eerily reminiscent of NASDAQ 5K.
Another peak before the crash?
i meant 775K
PS: This is a Finance and Economics blog not a political blog
Really? Are you sure? Who else besides the federal government is going to supply keynesian stimulation? Bill Gates?
Which has a better chance of helping to increase productivity: spending a trillion dollars on a war or spending a trillion dollars on infrastructure?
Those questions don't have anything to do with finance OR or economics?
Puh-leaze
Thanks Dirk,
"Sales in the Northeast tumbled 27.1% for the month, but were flat with a year ago."
So, there was a similar monthly drop in the Northeast last year as well?
I am still bullish longer term, of course
This is just necessary short-term shake out in the market. It may very well be the strongest bear phase for this year, just to set us up for the "mother of all bull markets" next year.
That said, I am 100% cash right now and rather looking to play the short side after a rebound next week.
We'll also still be first-time home buyers next year.
Joe
"This should raise concerns about a possible consumer led recession in the months ahead."
And with durable goods putting in another weak showing following May's tepid report, everybody here should be able to hear the audible "scratch, erase" of prior 2Q GDP estimates. Capex to save the day? Doesn't look likely.
No crash needed. Just as with house prices in Cal, FL, everywhere, they're heading down over a secular basis, with many shorter periods of major price reductions.
It's just frustrating for me when prices take forever to budge.
Dirk van Dijk
Don't forget that the South is not known for good wages and is known for high bankruptcy rates.
Looks like Credit Suisse nailed it back in March:
Expressed differently, if we assume that the full impact of mortgage lending tightening will be felt in 2007, all else equal, we would expect new home sales to fall roughly 20% from Decembers seasonally adjusted rate of 1.123 million to an annual rate of 887,000 homes (236,000 reduction from tightening lending standards). . . .
Alec said.
"Puh-leaze"
Your no Puh-litzer winner
I am still bullish longer term, of course
Scary sheet
It's over. If
It's over, if < 1484 S&P holds, that giant sucking sound has begun.
I don't mean to focus a housing blog onto equities, but no more support before 1450 (he-he).
Another Sub Prime lender bites the dust.
Wells Fargo shuts nonprime mortgage unit,cuts jobs
Wells Fargo shuts nonprime mortgage unit,cuts jobs
| Reuters
peter said: "where's Sebastian?"
Sorry, been busy updating my watchlist of nearly-bankrupt companies to buy.
Sebastia
"I don't know why some people find it difficult being in cash while the market trends up on no volume."
I'm not an active trader, so any positions I take I'm liable to hold for a while. (I've been in 2 energy and 2 Euro stock positions for 2-3 years and they are up 60-100%.) And given the heights the markets have gone too, they are liable to be down for a while. Holding cash for a couple of years until the market gets to a reasonable level would be a way to loose money - perhaps a lot if Helicopter Ben panics and takes flight.
On topic: the new housing numbers are hardly surprising. I still say 600K new sales for 2008, which I would imagine means bankruptcy for nearly every major builder.
Your no Puh-litzer winner
Sloowwwww
Still waiting on that grammar award?
some of this stuff is starting to look tempting.
I sold out of TM in Dec at 120. it's under 118.
Fox News just reported that interest rates on a 30 year fixed loan has come down over the last couple of weeks? Comments?
Wells Fargo to close subprime wholesale lending business
Wells Fargo to close subprime wholesale lending business - MarketWatch
Comments? Has mortgage underwriting returned to what it was in 1997?
Seb said,
peter said: "where's Sebastian?"
Sorry, been busy updating my watchlist of nearly-bankrupt companies to buy.
Sebastian
Seb Remember "Dont fight the tape"
This is serious sheet not the selloff but the credit markets.
Okay, bears, revel in it.
The latest from "my" source in the derivatives market.
"The correlation breakdown of April '05 was bad when Ford and GM were being dropped from the IG Indexes, but nothing like today! It's crazy! You just can't get dealers to bid on anything, liquidity is gone."
"So Expedia won't be able to buyback the 40% of their stock that they had planned to due to higher financing costs. And today we hear of a new issue out of Kimberly-Clark for $2 billion in funding to fund their stock buyback program. So no big deal, right? Not so. Kimberly-Clark decided to include a poison-put in their new 10yr and 30yr issue (Change-of-Control, downgrade below IG and the company buys back the debt at 101% plus accrued). Even liquidity has dried up for the biggest and safest of the industrials; most now have to include covenants that just a few months ago were only required for junk issuers.
Things have definitely changed."
FWIW.
Sebastia
Actually, sloowwwlearner, any discussion of finance and economics on a macro level inherently involves political questions.
Keep drinking the GOP Kool-aid, my friend.
And Alec's point about Iraq and domestic infrastructure spending is, IMHO, spot on.
what is the circuit breaker level these days? when do they halt trading?
Gary,
Your true colors come out! Still talking political BS. Politicians are all idiots and so are there blind followers.
Seb,
Thanks for the color. The markets are really strange sometimes. The LBO biz is stuck and what do IG buyers demand NOW? Protection against LBO's. it's pretty funny.
there's a generally easy fix for the whole mess. we simply all trade our blackberries in for new and sleeker models, click on google and to get to amazon, buy up a few harry potter books, then click over to appl (remembering to hit google again) then buy a few iphones for the spouses and maybe a few ipods for the kids (just so it doesn't look like iphone sales are canabalizing ipod sales we need to keep these ratios in order). with the ensuing earnings it should be no problem to get this sector of the market up another 50 or 60 percent and then we can have a wealth effect to offset the decline in housing. once we get the stocks up some more we can sell the whole lot to china, and call it even on the trillion dollars worth of our treasury bonds we might want to get back. all the gse stuff that they own, well they can keep that, or at a good enough price we can maybe give 'em blackstone and call it a day.
Gary,
About circuit breakers, via Barry's blog Feb 27th: NYSE, New York Stock Exchange > About Us > News & Events > Media Resources > Media Resources
sloooowwwwwmotion said: "Seb Remember "Dont fight the tape"
This is serious sheet not the selloff but the credit markets."
I'm not fighting the tape, I just said that for dotcommunist's benefit.
Seriously, though, I've been waiting for a good correction and it looks like it's finally here.
Sebastia
Anyone want to comment on the declines in gold&silver today?
Joe
"Fox News just reported that interest rates on a 30 year fixed loan has come down over the last couple of weeks? Comments?"
Ha ha... don't buy into those stats my friend. The numbers are skewed by two factors:
It's sort of analogous to the rise in median home prices due to the skewed distribution of only higher end homes being sold.
Thanks inOrlando.
They're looser than I thought.
Sebastian: just my thought. We need a good shake out before resuming the bull.
Joe
. Politicians are all idiots and so are there blind followers.
sloooowwwwwmotion
I hope you're using your extant financial skills to a better extent than your grammar.
My housing inspired put portfolio is now up 180% since mid-May and 60K this week. I am taking profits in a few positions today to have money to buy if there is a bounce. Best position today, FED 55 put up 60%.
If Apple were to go down, that would be a terrible blow for the bulls.
I would at least expect a bounce in Energy in the next few days. If not, that's a bad sign. Keep an eye on financials.
Joe,
I hope you have some durable gloves trying to catch those falling knives!
We're only in the 2nd inning of this correction my friend.
RP asked: "Fox News just reported that interest rates on a 30 year fixed loan has come down over the last couple of weeks? Comments?"
Here's a sort of compendium of mortgage-related interest rates. Mostly they're no higher or within a few basis points of where they were a year ago.
Mortgage Indexes: CMT, Treasury Bill, MTA, COSI, COFI, LIBOR, CODI, CD, Prime Rate
S.
regarding gold and silver i suspect it is all about deleveraging there ,too.the credit markets havent felt this ugly since 1998 when genius failed.i suspect that spreadproduct/risky assets will remain under pressure until month end.bounces will be infrequent and will resemble the bounce of the ifamous moribund feline
RP, why would you pay any attention to Fox News, no more reliable than the Weekly World News (RIP, it was fun to read in the Checkout lanes at Krogers)
Oh on the prediction front, I would guestimate 815K new home sales in 2007, for 2008 It think 600k is a reasonable round figure, perhaps a bit on the optimistic side though. However, 08 might not be the bottom either.
markit mid-day quote - down 50 bps:
Markit Homepage
this is the real story.
btw, what the rumors on City ?
Yes BUT ITS DIFFRENT THIS TIME!!!!
(with your fngers crossed)
barely, the problem with cancellations is they hide what is really happening. Remember all those cancellations last year? When those homes are sold again, they aren't counted by the Census Bureau. So sales could actually be higher now than reported! As you note, the current cancellations should be subtracted, but some or all of last year's cancellations should be added.
It's a mess.
Best Wishes.
I know we have PE clients looking for targets in the US. All that global liquidity not going to the bond market will be looking for a home. If the jobs numbers begin to worsen, the Fed now has room to loosen money.
I believe this is an just overdue correction, and just another day.
From Bennet Sedacca
12:51:58 PM
The Real Deal
Whenever I want some really good, really accurate market color I go to a friend of mine with 35 years of experience including 15 years as a head Treasury trader for two major 'primary dealers'. So I just called him and got the following response about 'structured product'. It ain't pretty.
'Massive loss of confidence among young traders that have never seen a lack of liquidity'
'There aren't enough seasoned, weathered traders to deal with this mess'
'Traders don't know how to deal with illiquity as they are used to a permanent bid and always tighter spreads'
'Dealers are bidding 10 points back of normal because they already have too much inventory'
'In many cases there is no market'
'Inventories at the banks is huge and they will have to get marked to market next week causing many funds to go under'
'We need one headline like 'Buffett to buy Chrysler deal at X price' to clean up market'
He said he tried to sell $25,000,000 of an A rated CDO and his desk bid 75 even though they believed it was worth 90.
"All that global liquidity not going to the bond market will be looking for a home. If the jobs numbers begin to worsen, the Fed now has room to loosen money." [lama]
As U.S. consumption slows, there will be less global liquidity looking for a home. This will multiply the dollar devaluation that will accompany Fed loosening, resulting in higher prices for imports and inflation at home. This is the market adjusting to unstable conditions and should continue for a quite awhile. As this reality sinks in, global liquidity will look elsewhere, exacerbating and speeding up the whole process.
So, yes, this is just another day in what may be a long string of such days...
RP,
It's great that 30-year rates are stable. However, fixed mortgages were never the problem and at this point, don't appear to be much of a solution.
30-yr rates are only stable for the BEST borrowers!!! If you have below a 680 FICO and need to state your income to qualify (a good portion of this market), you are looking at rates that are significantly higher than they were just 4 months ago.
Don't believe the hype!
Detroit Dan,
You have to admit, it's not easy to predict as many trip wires as you've laid out. Maybe all that will happen. I don't know. What I do know is that we have overseas PE's frenetically looking for targets in the US. Not everyone is convinced of impending doom.
CR, you're makin' me nuts.
Why not do a reasonable normalization of those charts based on something related to population?
On the theory that 800k new homes sold in 1987 when there were tens of millions fewer people in the workforce doesn't mean the same thing as 800k in new homes sold in 2007, I've use non-farm payrolls to adjust the number of permits, sales, for-sale, etc. My charts don't look anywhere near as scary as yours, and make the ultimate lows look closer.
Sebastian
Sebastia
Joe and Sebastian,
Just another "buy the dips" opportunity, eh? I guess you didn't learn any fear buying Tech stocks on the way down in '01-'03...
But you've gotta trust your sacred data models, I guess (no matter how unique today's environment is).
ShortCourage
(formerly DoomsayerRenter)
ShortCourage said: "But you've gotta trust your sacred data models, I guess (no matter how unique today's environment is)."
Bears, of all people, should appreciate the concept that "it's not different this time.":) Today's environment is not unique, it's only garden-variety "bad" and the objective measures comparing current and previous "crises" demonstrate that.
Sebastian
Sebastia
So there's tens of millions more workers out there since 1987, but there's also tens of millions more retirees waiting to pull the ripcord out of their nest egg(aka house), and that number's not going down anytime soon. You have to count all aspects of demographics if you're gonna play that game.
Guess what; it's no longer a seller's market.
Life is good. Thank you, Bear Stearns!
Re: PS: This is a Finance and Economics blog not a political blog
Ever heard of political economy?
Sales are down, but that is only 1/2 of the problem. The bigger issue is inventory of resale and new homes. Builders just keep building and a number of builders I know of have significant standing inventory. As foreclosures rise, the inventory situation will just get worse. At some point, builders have to greatly reduce building activity or this weak market will persist indefinitely.
I like the first chart. The froth is obvious. What I am concerned about is the sharp drop (over time). It is not surprising. But, a fast drop never the less. I truely do not think most folks see this.
If (and only if) this is a typical cycle we should see some bottom, from the top, in six years. This takes us until 2010 or 2011. If this was a sever aberation, and if the demographics (aging bommers) have some play it might be very much longer. Close your eyes an imagine the post WWII boom in reverse coupled w/ the the times we are in now.
Are consumers prepared for this? Is the lending industry prepared for this?
Off topic question: Who is watching munis? CA based govts might have a terrible time as well as FL.