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2006-09-07Today's Thought of the Day is about pricing power and credit standards from Kevin Depew at Minyanville. Open the September Beige Book to follow along. From Kevin:Pricing Power: 'Manufacturers found little ability to pass through higher costs into the prices of manufactured goods.' The report noted that the exception was energy-intensive goods and services in the San Francisco district. But the bottom line is a continued inability to pass through higher costs from manufacturers. Credit Standards: 'Credit standards were reported to be steady to slightly tighter,' the report noted. 'Overall credit quality was generally described as good, and delinquency rates were little changed in most Districts, though a few noted scattered increases.'It's early. But this is how a credit bubble unwinds: Pricing power evaporate, credit standards begin to tighten, delinquencies rise and Bob's your uncle, what appeared to be inflationary (rising energy and raw ...

On December 5th Toll Brothers reported 4th Quarter Earnings and the results were not exactly pretty. Highlights BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? 'In tough times, our team produced our fifteenth consecutive year of record revenues and our second highest annual profits. These accomplishments are exceptional, considering the significant rise in cancellations, and are a tribute to our associates' commitment and hard work. Fifteen months into the current slowdown, we may be seeing a floor in some markets where deposits and traffic, although erratic from week to week, seem to be dancing on the bottom or slightly above. As we previously announced, this quarter's results were negatively impacted by our higher than normal 585 cancellations. With these cancellations creating unintended specs, we could face increasing margin pressure as we seek to move these homes. Right now is a great time ...

Check out the descending triangle formation on the Yen. Click on chart for a better view. At the February 2005 peak in the Yen, the then current rage was that Buffett and Gates were short the dollar. The Yen then proceeded to collapse for two full years. Now after that collapse, here are a few comments from just the past several days.'Worries about the end of the carry trade are absolute nonsense' according to Stephen Massocca, president and head of trading at Pacific Growth Equities as attributed by MarketWatch.'There are really few reasons to extend the yen rally. The economic backdrop of the carry trade hasn't changed. Japan still has low interest rates' said David Watt, senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. That last quote is from Yen Poised for Best Week Since 2005 on Exit From Carry Trades. Following are a few other opinions from the same article.

I had a brief conversation with Mike Morgan on Saturday about what might happen should Levitt declare bankruptcy. Here is the background story...Fort Lauderdale-based Levitt and Sons halts all work on houses. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? I had a brief conversation with Mike Morgan on Saturday about what might happen should Levitt declare bankruptcy. Here is the background story... Levitt and Sons, the cash-strapped Fort Lauderdale company trying to survive the housing slump, said Thursday it has temporarily stopped building houses as it tries to restructure its debt. My Comment: Inconvenience?! Putting down 10%-20% on a house and having the builder walk away in bankruptcy is merely 'inconvenient'? 'I'm up in the air,' said Angelo Palermo, 69, who's renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. 'Thi...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? New Century Financial Corp. said late Friday that it's facing a federal criminal probe and will likely breach a major lending covenant with its financial backers, bringing into question the survival of the second-largest U. S. subprime-mortgage lender. The U. S. Attorney's Office for the Central District of California is conducting a federal criminal inquiry into trading in New Century securities as well as accounting errors, the company wrote in a regulatory filing late Friday. The Securities and Exchange Commission also is looking into the company, as is the regulatory arm of the New York Stock Exchange, New Century disclosed. The company added that it is complying with all three inquiries. The mortgage lender said it expects that it won't report at least $1 of net income for the two quarters ended Dec. 31, as stipulated in covenants with its len...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? The interest rate charged for one - year adjustable loans jumped last week by the most since the Mortgage Bankers Association began keeping records in 1996. The report demonstrates the difficulty some home buyers face in securing affordable financing. Banks, forced to hold loans rather than resell them as securities because demand has dried up, are charging higher rates for riskier mortgages. The housing slump will worsen as banks restrict the availability of credit and falling real - estate prices prevent owners from tapping home equity for extra spending money, economists said. 'If rates go up and credit gets tighter, that is going to lead to a drop in demand on top of what we have already seen,' said Abiel Reinhart, an economist at JPMorgan Chase & Co. in New York. 'That is going to have an adverse impact' on the economy through the firs...

John Doe on the Southern California Real Estate Bubble Crash Blog made an interesting post about Burn Rates. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Over the past few days, we've had the chance to review the proverbial Canary in the Coalmine, San Diego. It doesn't look good. Inventory has been continuing its parabolic rise. It surpassed its all-time record set in July 1995 of 19,250 some time late last month. The population adjusted inventory record will likely be surpassed within 1 month, give or take a few weeks. Median prices have been flat for at least a year, with considerable weakness shown in recent months that show down since summer last year. Housing analysts agree that houses are not like stocks, and prices will not go down because they have intrinsic value that is not like a piece of paper like stocks. True, houses are not like stocks in every way, but a market is still a market, ...

It took a while but Moody's is finally coming to the realization that MBIA and Ambac capital is in doubt. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? MBIA Inc. had the biggest drop in more than 20 years in New York Stock Exchange trading after Moody's Investors Service said the biggest bond insurer is 'somewhat likely' to face a shortage of capital that threatens its AAA credit rating. 'The guarantor is at greater risk of exhibiting a capital shortfall than previously communicated,' New York-based Moody's said. 'We now consider this somewhat likely.' My Comment: 'Somewhat likely' is certainly a strange way of putting it. I suspect 'nearly guaranteed' is closer to the truth. The loss of MBIA's top ranking would cast doubt over the ratings of $652 billion of state, municipal and structured finance bonds that the company guarantees. MBIA is among at l...

A Santa Cruz Sentinel article claims the housing bubble theory was created by the media to play off our fears. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Nationally, the media plays on consumers' fears in order to keep the attention of listeners and readers. The real-estate housing-bubble theory has given the media a topic that excites. Renters are excited about a possible bursting of the bubble in a sort of perverse way in that they do not feel sorry for homeowners, and they see a radical drop in prices as an opportunity to get into a home themselves. Homeowners are excited because they fear they may lose some of their wealth. Unemployment is low and job growth is strong. The majority of those that buy homes in Santa Cruz work in the Bay Area, where there are jobs that pay well. The reason that Santa Cruz pops up as one of the least affordable areas in the country is because those statistics are b...

With the exception of the US and possibly Japan, interest rates have peaked this cycle. The worldwide economy is clearly slowing and the fat lady is singing in many countries. Europe didn't even have a tightening cycle and the odds are huge that the UK is through. Housing is weakening in some New Zealand areas and Bloomberg is reporting Australia's Central Bank Signals Rates Are on Hold. Of course that leaves the US alone in central bank tightening. They have perhaps another two hikes at a 'measured pace' until housing breaks but good. Once that happens the easy prediction is the FED will start cutting rates at a pace that is decidedly 'not measured'.Japan is on a different cycle actually and is just now coming out of deflation. Japan may start hiking just as everyone else is finished, but it is also possible that the slowing worldwide economy tosses Japan right back into a recession. At any rate, according to the above article Australia's central bank said ...

Citigroup fell under $30 for the first time in five years after CNBC reported the firm could lay off up to 45,000 staffers. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Citigroup, Wall Street’s largest financial services firms, is planning its second round of large-scale layoffs in less than a year. People with knowledge of the matter have described the pending job reductions as 'massive' and 'large.' The total number could reach as high as 45,000, these people estimate. In a statement, Citigroup said: 'We are engaged in a planning process in anticipation of our new CEO and our business heads are planning ways in which we can be more efficient and cost effective to position our businesses in line with economic realities. Any reports on specific numbers are not factual.' 45,000 jobs, should it come to that, is one heck of a lot of jobs. I doubt most of those employees could find jo...

There were two very interesting posts on May 17th by John Succo on Minyanville about risk. The first is called Don't Confuse Risk Taking With Value. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? I haven’t had much to say lately. Just more of the same. With money growth my firm estimates at an egregious 14% (compared to a falling GDP now quoted in the 1-2% range, we can safely say that the money is becoming more and more anemic in producing growth), no wonder speculation in stocks and other assets is unabashedly high, along with risk. But I don’t confuse risk taking with value and I hope you don’t either. I have suspected for a long time that government “intervention” or “participation” (or whatever you want to call it) in private asset markets is as high as it has ever been. The markets are just not acting “naturally” to me. They seem orchestrated in many ways. Why? With the levels of debt in the syst...

This morning Kirk Kerkorian made a tender offer of $31 for 5% (28 million shares) of General Motors (GM) stock. Does he know something no one else does? Is GM undervalued here? Don't be silly. GM is still headed to its ultimate target which is zero. Oh I suppose if GM can manage to package off it pension plan debt and sell it then perhaps it can survive if it also gets its act together on producing decent cars that people actually want but I do not rate those odds very high. Still GM is not headed to zero tomorrow and that is what this nonsense is all about. Given that GM trades about 7-10 million shares a day it is clear that KK easily could have acquired 5% of GM at prices far below $31 a share, so what gives? Here goes: KK currently owns 22 million shares. This announcement of seeking to buy 5% of GM is just BS. Profitable BS but still BS. It will not affect (or should not anyway) GM's credit rating nor will it affect GM's ultimate target price of zero dollars a share. B...

I am outraged. Just what kind of talk is this? The Carroll County Times is reporting Housing prices may be falling. Normally I would dismiss such insane talk right out. It is of course just the kind of bubble nonsense that one might see on Patrick or the Vancouver Housing Bubble blog or the mother of all bubble blogs, the Housing Bubble Blog. Apologies extended to all kinds of blogs that I failed to mention (but we know who you are and we are watching you closely)!Make no doubt about it. This is serious blasphemy. Please pay attention. The president of the Maryland Association of Realtors said he expects the cost of homes to drop later in the year. The county's inventory of available homes has steadily risen since last year, up to nearly 1,100 in June, according to MAR. One year earlier, about 570 homes were available for sale. Despite the growth in inventory, the median home price in the county has not fallen, and the housing affordability index, which compares the median income o...

Have you ever read a press release and the first thing on your mind is the question 'Why Now?'This happened to me just today. Please consider the following news release from the US Immigrations and Customs office: Fischer Homes supervisors charged with harboring illegal aliens. Cincinnati. Com is reporting 80 People Arrested In ICE Raid Of Fischer Homes. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Police took four supervisors and 76 undocumented workers into custody Tuesday in connection with a two-year investigation of Fischer Homes. The 76 suspected workers were picked up from at least three construction sites in Hebron, Union and Florence, officials with the U. S. Immigration and Customs Enforcement, also known as ICE, said. Some were also taken into custody at their homes, according to the wife of one man taken away from an apartment complex in Florence. 'I was asleep when I was hearing ...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? General Motors Corp. rose for the first time in six days after GMAC LLC said it may buy a 'non-U. S. mortgage unit' and the automaker said it has 'no further obligation' to inject capital into GMAC, its former finance arm. GM's November 2006 agreement to sell 51 percent of GMAC to a group led by Cerberus Capital Management LP ended any requirement to fund GMAC beyond $1 billion injected in the first quarter, said Randy Arickx, GM's executive director of investor relations, in an interview today. My comment: The headline is interesting because it is recycled news that's nearly a year old. GM is attempting to stir up good sounding news any way it can. GMAC is 'closely monitoring' its Residential Capital subsidiary and 'we do believe we have the right plan in place to address it,' spokeswoman Gina Proia said. ResCap los...

Portland's condo demand appeared insatiable. Now, shelved projects and stalled construction dot the city as a Shadow falls on the Portland condo market. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? In the hot real estate summer of 2005, the futuristic John Ross tower generated a buzz never seen before in Portland. Within a week, 222 potential buyers plunked down $5,000 or more to reserve their condos in the 31-story tower on the Willamette River. The talk around town was that developers couldn't build new big-city condos fast enough to keep up with downsizing baby boomers and newcomers. But two years later, the condo boom is over. Today, the John Ross has seen so many canceled purchases that developers actually have fewer buyers -- 192 -- than they did two years ago. The city has a condo glut, and thousands more are rising out of the ground. In the past six years, developers built 4,042 downtown ...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Moody's Investors Service's warning that the top credit ratings of FGIC Corp. and three other bond insurers may be cut casts doubt on $1.2 trillion of municipal, corporate and asset-backed securities. Moody's late on Dec. 14 placed the top Aaa insurance ratings of Stamford, Connecticut-based FGIC and XL Capital Assurance Inc. in New York under review for possible downgrade. It affirmed the Aaa insurance ratings of Armonk, New York-based MBIA Inc. and CIFG Guaranty in Hamilton, Bermuda, though it said the outlooks were 'negative.' If the insurers lose their Aaa ratings, so too may the securities they guarantee, forcing some holders to sell the bonds because of their investment guidelines. 'Everyone understands the systemic risk if even one of these companies is downgraded,' said Peter Plaut, an analyst at hedge fund manager Sanno Poi...

Following is an Email I received about the 'Pulte House From Hell'. It was interesting enough for me to post, but please bear in mind that time simply does not permit me to get involved in all such endeavors. Before diving into the house from hell let me first mention The Plight of The Implode-O-Meter. Implode-O-Meter has been sued, a motion to strike has been denied, and anyone wanting to help and/or anyone seeking more information can click on the above link for more details. The Pulte house from hell:

There was an interesting exchange on Minyanville today about the Activist Fed. The origin was a set of reader questions about subprime bailouts, the Fed's role in the process, and thoughts from Pimco about the real estate (credit) lending excesses that will bear on the economy for years to come. Questions to John Succo and Scott Reamer BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? today about the Activist Fed. The origin was a set of reader questions about subprime bailouts, the Fed's role in the process, and thoughts from Pimco about the real estate (credit) lending excesses that will bear on the economy for years to come. What do you think the probability is that an activist Fed will seek to spread the consequences over a significantly longer time period? If some of what I've hypothesized is really possible, what are some not broadly considered potential ramifications that I should be thinki...

The Bush Administration is proposing a 'temporary' freeze on interest rates in the latest misguided government intrusion into private business activity. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations. The plan is being negotiated between regulators including the Treasury Department and a coalition of mortgage-related companies including Citigroup Inc., Wells Fargo & Co., Washington Mutual Inc. and Countrywide Financial Corp. People familiar with the talks say the individual members have agreed to follow any agreement reached by the coalition, which is called the Hope Now Alliance. Mr. Paulson, who is philosophically opposed to federal meddling in markets, at first rejected...

Readers of this blog have known how useless the guarantees of MBIA and Ambac have been for quite some time. Three of the more recent examples are MBIA and Ambac's Capital in Doubt and Will Ambac and MBIA Survive? and just several days ago Financial Day of Reckoning Approaches. The realization that guarantees from Ambac and MBIA are worthless is finally dawning on state and local investors as the following Bloomberg headline shows: Muni Insurance Worthless as Borrowers Shun Ambac. BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Readers of this blog have known how useless the guarantees of MBIA and Ambac have been for quite some time. Three of the more recent examples are The realization that guarantees from Ambac and MBIA are worthless is finally dawning on state and local investors as the following Bloomberg headline shows: State and local borrowers are discovering that buying municipal bond insurance f...