2008-08-13 JN News Highlights


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Highlights:

Economy Shrinks Annualized 2.4% On Weak Domestic Demand

 
 
Articles:

Economy Shrinks Annualized 2.4% On Weak Domestic Demand

(Nikkei) Declining consumer and capital spending contributed to pushing down Japan’s gross domestic product 0.6% in real terms from the previous quarter during the April-June period, for an annualized rate of minus 2.4%, according to preliminary data released Wednesday by the Cabinet Office.

The first contraction in four quarters was also attributed to a drop-off in exports amid the U.S. economic slowdown.

Domestic demand contracted 0.6%, with personal spending shrinking 0.5% as price hikes for a number of daily necessities dampened consumer sentiment. The weaker demand also reflected the fact that the previous quarter had one more day than in normal years because 2008 is a leap year.

Capital spending declined 0.2%, while housing investment slid 3.4%. Overall domestic demand pushed down GDP growth by 0.6 percentage point.

Exports, which had until recently driven economic growth, fell 2.3%, meaning overseas demand failed to push up GDP growth in the three months ended June.

In nominal terms, GDP contracted 0.7% for an annualized rate of minus 2.7%.

Fails to mention it grew at over 3% in the prior quarter, so the two quarter average is marginally positive. Japan data seems to have more noise than US data.

Also note the nominal measure over the last year:

Nominal GDP Q/Q:

Q2/08 -0.7%
Q1/08 +0.2%

Q4/07 -0.1%
Q3/07 flat

 
 
Lots of noise due to ‘inflation’ as they measure it.

Yes, a soft quarterly report, but as expected or slightly better than expected on most counts.

Same twin themes as the US: weakness and higher prices.

And lots of talk about a fiscal program over there.


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2008-08-13 UK News Highlights


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Highlights:

BoE Cuts Growth Forecasts, Jobless Climbs
U.K. Unemployment Rose the Most Since 1992 in July
Surge in credit card debt charge-offs
U.K. Homebuilders Fall as Unemployment Rise May Worsen Slump

 
 
Article snip:

BoE Cuts Growth Forecasts, Jobless Climbs (Bloomberg) The BoE cut its forecast for U.K. economic growth and held out the prospect of lower interest rates as unemployment rose the most in almost 16 years in July. Governor Mervyn King said the inflation rate will fall below the 2 % target in two years if policy makers keep the benchmark interest rate at 5 %.

But not if they cut is the implication as well.


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2008-08-13 China News Highlights


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They know how to keep it all going:

(Bloomberg) “Demand for investment is still the one to depend on for dealing with potential external shocks,” because local consumption is not enough to be the main engine of China’s growth, said the center, affiliated with the National Development and Reform Commission. “All levels of government should prepare a list of investment projects in urban transport and infrastructure so that they can be launched immediately once needed.”


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2008-08-13 US Economic Releases


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MBA Mortgage Applications (Aug 8)

Survey n/a
Actual -1.5%
Prior 2.8%
Revised n/a

Muddling through on the low side as mortgage bankers lose market share to banks.

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MBA Purchasing Index (Aug 8)

Survey n/a
Actual 315.2
Prior 315.2
Revised n/a

Flat at low levels.

May do better as the seasonal adjustments get easier.

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MBA Refinancing Index (Aug 8)

Survey n/a
Actual 1074.6
Prior 1121.8
Revised n/a

Slowing, as bulk of resets are past and rates are doing nothing.

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MBA ALLX 1 (Aug 8)

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MBA ALLX 2 (Aug 8)

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Bloomberg Global Confidence (Aug)

Survey n/a
Actual 14.10
Prior 10.30
Revised n/a

Low, but improving.

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Import Price Index MoM (Jul)

Survey 1.0%
Actual 1.7%
Prior 2.6%
Revised 2.9%

Scary stuff if you are responsible for the value of the currency.

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Import Price Index YoY (Jul)

Survey 20.4%
Actual 21.6%
Prior 20.5%
Revised 21.1%

‘Inflation’ flooding in through the open window.

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Import Price Index ALLX 1 (Jul)

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Import Price Index ALLX 2 (Jul)

Karim writes:

Import prices continue uptrend

  • Headline +1.7% m/m; ex-petroleum up 0.9% m/m

Yes and ex petro 8% year over year and still rising. And this takes time to pass through to core CPI.

  • Expect headline to be below core for the next few mths though

Yes, if gasoline stays down.

But rental vacancies took a small turn down, and owner equivalent rent already printed a 0.3%, and seems with starts so far down there has to be a shortage of actual units available to live in. Also, lots of catching up to do in other core measures, like medical and others which had some prints on the low side.

All of their costs are rising and push up prices with various lags.

And Russia has demonstrated they can do whatever they want and there’s nothing anyone can do about it.

Not good…

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Advance Retail Sales MoM (Jul)

Survey -0.1%
Actual -0.1%
Prior 0.1%
Revised 0.3%

Down some as expected due to weak car sales, but prior month revised up.

Sometimes if people don’t buy cars they buy other things…

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Advance Retail Sales YoY (Jul)

Survey n/a
Actual 2.6%
Prior 3.4%
Revised n/a

Still looks to be moving off a bottom.

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Retail Sales Less Autos MoM (Jul)

Survey 0.5%
Actual 0.4%
Prior 0.8%
Revised 0.9%

Looks okay, a tenth below expectations but prior month revised up the same tenth.

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Retail Sales Less Autos YoY (Jul)

Survey n/a
Actual 6.0%
Prior 6.4%
Revised n/a

Looking reasonably firm.

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Advance Retail Sales ALLX (Jul)

On Wed, Aug 13, 2008 at 8:54 AM, Karim writes:

Retail sales generally weak but in line with expectations

  • Headline -0.1% m/m; ex-gas -0.2% m/m; ex-autos +0.4%; control group +0.3%
  • Rebate checks did trickle in through July so some help from there
  • Looks like real PCE off to flat start in Q3, perhaps explaining Fisher’s remark yesterday that ‘we will broach zero growth’ in the second half of the year

The FOMC now has a multi year history of underestimating GDP and inflation.

Seems with Q2 GDP now looking like 3% or more, and the first half therefore averaging maybe over 2%, and year over year gdp still pushing 3%, they would either adjust or downgrade their GDP forecasting model.

Same with their inflation forecasting model, as cpi moves through 5% and core elevates from levels not long ago forecast at not a lot more than half that.

Looking more and more like the real economy did bottom in Q4 2007, as private forecasters are now starting to project positive gdp for Q3 and Q4, and some for Q1 2009 as well.

And even if the saudis keep crude at current levels core cpi should continue to march higher for many more quarters as it all catches up to the shift from $20 crude to $100+ crude.

Yes, the financial sector continues to have issues, may severe, but blood is flowing around the clot as the real economy moves forward.

Housing starts peaked in the early 1970s at 2.6 million with only 215 million people and no secondary market or housing agencies- just a bunch of dumb s and l’s taking in deposits and making mortgages (is used to work at one back then).

Today with 50% more people we call 2 million units gangbusters.

The financial innovation is all predatory at the macro level, though at the micro level we’d grown dependent on it for sure.

Yes, US exports are reducing foreign GDP growth, but their are signs they are moving to support domestic demand with fiscal measures, including Japan, the UK, and even some talk from the eurozone, and even china announced lower inflation numbers to justify supporting growth.

And Saudi crude output shows no sign of world net supply going up. Current price action just some kind of massive ‘inventory adjustment’.

Yes, that can change but hasn’t yet.

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Business Inventories MoM (Jun)

Survey 0.5%
Actual 0.7%
Prior 0.3%
Revised 0.4%

3% Q2 GDP means more inventory is needed.

Also, this and previous inventory data for June higher than expected which means Q2 might be revised up that much more as very low inventory levels were estimated with the initial 1.9% release for Q2 GDP.

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Business Inventories YoY (Jun)

Survey n/a
Actual 5.6%
Prior 5.3%
Revised n/a

Not the usual recession pattern.

The real sector seems well managed.

The financial sector is another story. They don’t count mbs inventory, for example, in this series…

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Business Inventories TABLE 1 (Jun)

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Business Inventories TABLE 2 (Jun)


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2008-08-12 Saudi Oil Output


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Saudi Oil Output

The Saudi production increase tells me world demand was up, even at the higher prices.

Yes, US demand was down 800,000 bpd vs last year, and yes other world demand may fall.

Only when demand for Saudi output falls sufficiently will they be dislodged from being swing producer and price setter.

That is not to say they won’t continue to disguise their role as best they can, and allow volatility as various world inventory positions (cash and futures) are being liquidated, as is probably the case currently.

Saudi output is also getting very near capacity of maybe 11 million bpd.

If demand goes above that they lose control of price on the upside.


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AGY MBS UPDATE: 08/12/08


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On Tue, Aug 12, 2008 at 5:18 PM, Andrew wrote:

AGY MBS UPDATE: 08/12/08

General Themes:

  • Mortgages were weaker to dealer hedge ratios – versus CXLs they were down only -5cents
  • The small CXL daily price change masks what was a pretty bad performance for mortgages
  • Dealer OAS’s are back to the wides of last week – Lehman has FN5.5 LOAS at +90bps
  • What could help mortgages?
  • Asian buying returning
  • Capital raising by the GSE’s, (or capital injection by Tsy)
  • Reduced capital surplus guidelines from OFHEO
  • Convexity led rally in rates

not to mention investors recognizing value vs tsy’s, atraight agency paper, quality AAA corporates, libor, and other lower yielding paper


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2008-08-12 US Economic Releases


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ICSC-UBS Store Sales WoW (Aug 12)

Survey n/a
Actual -1.1%
Prior 0.0%
Revised n/a

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ICSC-UBS Store Sales YoY (Aug 12)

Survey n/a
Actual 2.6%
Prior 2.9%
Revised n/a

Year over year looking fine.

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Redbook Store Sales Weekly YoY (Aug 12)

Survey n/a
Actual 1.5%
Prior 3.5%
Revised n/a

Softer but no collapse.

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ICSC-UBS Redbook Comparisson TABLE (Aug 12)

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Trade Balance (Jun)

Survey -$62.0B
Actual -$56.8B
Prior -$59.8B
Revised -$59.2B

Lower than expected and moving lower even with crude prices up in June.

I still think last months number was too high which is part of the reason for the June drop.

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Exports MoM (Jun)

Survey n/a
Actual 4.0%
Prior 1.2%
Revised n/a

Government and exports continue to support GDP.

Q2 now looking to be revised to maybe north of 3%.

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Imports MoM (Jun)

Survey n/a
Actual 1.8%
Prior 0.3%
Revised n/a

Up due to crude and gasoline prices.

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Exports YoY (Jun)

Survey n/a
Actual 21.1%
Prior 18.2%
Revised n/a

Looking more like an export economy every day. Weak domestic consumption and ok employment.

Workers earn enough to drive to work and eat, and the rest of their output gets exported to someone else.

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Imports YoY (Jun)

Survey n/a
Actual 13.5%
Prior 12.5%
Revised n/a

Mostly petro and product prices.

Other imports are down.

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Trade Balance ALLX (Jun)

Ex petro down to about 20 billion.

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IBD-TIPP Economic Optimism (Aug)

Survey 39.0
Actual 42.8
Prior 37.4
Revised n/a

Up some, but less than expected.

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Monthly Budget Statement (Jul)

Survey -$95.0B
Actual -$102.8B
Prior -$36.4B
Revised n/a

Government spending and exports supporting GDP more than most anticipate.

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Monthly Budget Statement ALLX (Jul)

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ABC Consumer Confidence (Aug 10)

Survey n/a
Actual -50
Prior -49
Revised n/a

Bumping along the bottom.

Inflation hurting confidence as wages remain ‘well contained’.

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ABC Consumer Confidence ALLX (Aug 10)


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Fed senior loan officer survey charts


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On Mon, Aug 11, 2008 at 1:25 PM, Karim writes:

  • Both lending standards and spds move up from cycle highs; appears defining aspect of the current episode may be the duration of tighter lending conditions (prior episodes approached current levels of tightness but were relatively short-lived).
  • Also of concern to Fed is chart on page 3 showing significant tightening of standards for prime residential mortgage loans (though all types of loans showed a deterioration)

http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200808/charts.pdf

Yes, and note how housing showing strong signs of bottoming and GDP moving up at the same time.

Interesting to watch the blood flowing around the clot, as it necessarily does.

Though not without difficulty.


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2008-08-11 Weekly Credit Graph Packet


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IG On-the-run Spreads (Aug 11)

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IG6 Spreads (Aug 11)

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IG7 Spreads (Aug 11)

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IG8 Spreads (Aug 11)

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IG9 Spreads (Aug 11)


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NYPost: Lost Sovereignity – There’s a new land grab


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Hope they don’t dig it up and take it home!

Lost Sovereignity

Oil-rich Fund Eyeing Foreclosed US Homes


By Teri Buhl

There’s a new land grab starting in America.

Foreign money, which up to now has focused its attention on investing in iconic commercial real estate – like Barneys New York and the Chrysler Building – is now moving to scoop up tens of thousands of discounted foreclosed homes across the country.

One sovereign fund, said to have earmarked $29 billion to purchase foreclosed residential real estate, recently hired a West Coast mortgage broker and is starting to search for bargains, The Post has learned.

The search, which is being carried out, in part, by Field Check Group mortgage consultant Mark Hanson, who was retained by the broker, Steve Iversen, is concentrating on single- and multi-family REO (real estate owned) homes, or homes that have already been taken over by the mortgagee.

Neither Iversen nor Hanson would disclose the name of the client, but sources told The Post it’s a sovereign fund.

The unidentified fund joins individual US investors, hedge funds and Wall Street banks in kicking the tires of REO homes, which have fallen in value so much that they are now tempting investments.

A sovereign fund would have two distinct advantages over other investors – the depressed value of the US dollar makes the homes a bargain, and sovereign funds have deeper pockets.

The sovereign fund of Abu Dhabi, for example, has a reported $875 billion in assets, while Norway has $391 billion, Singapore has $303 billion and Kuwait has $264 billion in their sovereign funds, which are funded by proceeds from oil sales.

The Abu Dhabi Investment Authority is expected to announce next month what type of US distressed assets they will be investing in and real estate is at the top of the list, according to a report in Financial Times last week.

ADIA did not respond to an e-mail question about REO investments.

So far, prices on bulk sales of REO properties vary based on location and are selling from 60 cents to 80 cents on the dollar. Hanson started out offering 40 cents on the dollar for about $2.5 billion worth of California properties owned by IndyMac and Washington Mutual but was turned down. The banks refused to comment.

Hanson is now willing to pay 50 cents to 60 cents on the dollar for a collection of California REOs worth at least $500 million.

In fact, this week Hanson’s team negotiated a $2 billion package mixed with homes across the country for 31 cents on the dollar. While progress seems slow, Hanson reminds us this is only a nine-month old industry.

Some market experts think such deeply discounted REOs, like the deal Hanson just closed, are more fiction than fact.

“The size and discount of that type of deal isn’t the norm yet,” said Robert Pardes, with Recourse Recovery Management Services, a provider of mortgage advisory services.

“The critical mass of bulk REO is in well-capitalized institutions that don’t need to sell yet in bulk at a deep discount because they are better off not taking substantial hits to the capital just to get the assets off their books,”

This may change, should the market become more crowded with bank failures and distressed institutions, he said.

Enoch Lawrence, senior vice president of CB Richard Ellis, says “This type of bulk buy would make an impact on the market. They are in a unique position because they have a long time horizon to invest and a cheap cost of capital. It’s actually a perfect time for them to acquire these REO assets.”


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