Now we face the worst economic times since the Great Depression. The coming year will bring more job losses, bankruptcies, foreclosures, cutbacks. Consumers and companies will spend less, dig out of debt, save what they can. The incoming administration of President-elect Barack Obama will try to do its part -- keeping interest rates low, funding job-creating projects and printing money to stimulate the contracting economy. Recovery will take not months, but probably years.
From Calculated Risk: WSJ: Retailers Brace for Major Change
More Bankruptcies: Corporate-turnaround experts and bankruptcy lawyers are predicting a wave of retailer bankruptcies early next year, after being contacted by big and small retailers either preparing to file for Chapter 11 bankruptcy protection or scrambling to avoid that fate.
Analysts estimate that from about 10% to 26% of all retailers are in financial distress and in danger of filing for Chapter 11. AlixPartners LLP, a Michigan-based turnaround consulting firm, estimates that 25.8% of 182 large retailers it tracks are at significant risk of filing for bankruptcy or facing financial distress in 2009 or 2010. In the previous two years, the firm had estimated 4% to 7% of retailers then tracked were at a high risk for filing.
Store Closings: The International Council of Shopping Centers estimates that 148,000 stores will close in 2008, the most since 2001, and it predicts that there will be an additional 73,000 closures in the first half of 2009.January is usually the busiest month for retailer bankruptcies ... and 2009 will probably be especially busy.
Commercial Real Estate Sector is going to be more bleak in the coming 2009!
Saturday, December 27, 2008
After Christmas Shopping
It took massive discounts, longer store hours and promotional giveaways to even get shoppers to the mall this season. Still that last minute rush could not save stores from double-digit sales declines across virtually every category.A packed parking lot doesn't always translate into holiday cheer for stores. As I went to shopping on Friday, the mall was crowed on the day after Christmas. However, not many people are holding shopping bags (less than 50%).
As stores offered rock-bottom prices and extended return policies, shoppers returned to the malls the day after Christmas. However, everyone was on the hunt for big bargains on specific items or hoping to return unwanted gifts -- not looking to splurge.
Some stores offered sales of up to 50-75% off, and most retailers offered sales of 20-25% on top of the existing sales off clothing and other items. However, they were not enticing enough. Most of the sales were seen before Christmas too.
That was a common refrain among shoppers Friday, who appeared to be searching for a deal unlike any they had seen so far this year.
That kind of focus by shoppers could spell deep trouble for the nation's stores, which are facing the worst holiday shopping season in decades.Holiday sales -- which typically account for 30 percent to 50 percent of a retailer's annual total -- have been less than jolly.
Many stores are likely to report a loss for the fourth quarter, said NPD senior retail analyst Marshal Cohen. The weak spending through Christmas Eve brought overall holiday sales to levels unseen since the 1980s.
Stores were hoping that big discounts the day after Christmas could lure people out and help stem those losses. And although some malls appeared to be busy with bargain-hunters and gift-returners, analysts said traffic appeared to be lighter than in years past.
It is much worse and more difficult than anyone could expect.
Readings for the Day
From Market Watch: Ten Investment Ideas for 2009
From Mish: Asian Economic Crisis: Spotlight on Japan, China, Korea, Vietnam
Bank of Japan considers extraordinary steps, and Japan announces record budget:
Extraordinary measures are a way of life for Japan. From currency intervention to building bridges to nowhere, Japan has taken extraordinary measures for decades. In that timeframe, Japan went from being the largest creditor nation to a nation deep in debt.
As of November 17th, 2008, BusinessMirror notes "Japan's public debt that exceeds 180% of the GDP, limiting the government's ability to stimulate growth".
China Needs More Policies to Spur Consumption:
Economic policies have failed to rebalance growth away from trade and investment, with the share of consumption in gross domestic product falling to less than 50 percent from 60 percent a decade ago.
Premier Wen Jiabao may unveil a second stimulus package as early as next month aimed at spurring consumer spending as the economy is set for its slowest growth in two decades. The government has already increased subsidies for farmers to buy household electronics, cut taxes on property and is preparing policies to revive slumping car sales in the world’s second- biggest auto market.
Consumer spending represents more than two-thirds of the U.S. economy while household consumption’s share of China’s gross domestic product slumped to slightly more than 35 percent last year from 45 percent a decade ago, according to Chinese government data.
“This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said. Does anyone learn? Credit bubbles caused the great depression, and the great recession that we are in. One might think that someone in authority would learn something from this. But they never do. China wants to follow the US to ruin.
It it not possible to have too much savings. It is possible however to have too much debt and that is where the US is right now.
From Mish: Asian Economic Crisis: Spotlight on Japan, China, Korea, Vietnam
Bank of Japan considers extraordinary steps, and Japan announces record budget:
Extraordinary measures are a way of life for Japan. From currency intervention to building bridges to nowhere, Japan has taken extraordinary measures for decades. In that timeframe, Japan went from being the largest creditor nation to a nation deep in debt.
As of November 17th, 2008, BusinessMirror notes "Japan's public debt that exceeds 180% of the GDP, limiting the government's ability to stimulate growth".
China Needs More Policies to Spur Consumption:
Economic policies have failed to rebalance growth away from trade and investment, with the share of consumption in gross domestic product falling to less than 50 percent from 60 percent a decade ago.
Premier Wen Jiabao may unveil a second stimulus package as early as next month aimed at spurring consumer spending as the economy is set for its slowest growth in two decades. The government has already increased subsidies for farmers to buy household electronics, cut taxes on property and is preparing policies to revive slumping car sales in the world’s second- biggest auto market.
Consumer spending represents more than two-thirds of the U.S. economy while household consumption’s share of China’s gross domestic product slumped to slightly more than 35 percent last year from 45 percent a decade ago, according to Chinese government data.
“This shows there is huge potential to boost consumer credit and encourage people to buy homes and cars,” Yi said. Does anyone learn? Credit bubbles caused the great depression, and the great recession that we are in. One might think that someone in authority would learn something from this. But they never do. China wants to follow the US to ruin.
It it not possible to have too much savings. It is possible however to have too much debt and that is where the US is right now.
Friday, December 26, 2008
Credit Default Swap Update
From Big Picture: Credit Crisis - Signs of Progress
Junk bond yields remain at high levels, as shown by the Merrill Lynch US High Yield Index. However, a slight decline of 200 basis points has taken place since the Index’s record high of 2,182 on December 15. This means the spread between high-yield debt and comparable US Treasuries was 1,982 basis points by the close of business on Tuesday. With the US 10-year Treasury Note yield at 2.18%, high-yield borrowers have to pay 22.00% per year to borrow money for a ten-year period. At these rates it is practically impossible for companies with a less-than-perfect credit status to conduct business profitably.
Barron’s Confidence Index: This Index is calculated by dividing the average yield on high-grade bonds by the average yield on intermediate-grade bonds. The discrepancy between the yields is indicative of investor confidence. A declining ratio indicates that investors are demanding a higher premium in yield for increased risk. The Index is at an all-time low, indicating a lack of confidence in the economy.
The graphs of the CDX indices are shown below:
CDX (North America - High Yield) Index
Since a month ago the cost of insuring against government bankruptcy through CDSs has risen for all but nine countries in Bespoke’s list of 38 countries. The table below shows the current
CDS prices, together with month-ago and start-of-year prices.
Argentina, Venezuela and Iceland have the highest default risk. Interestingly, Germany, Japan and France all have a lower default risk than the US at the moment. It now costs $67 per year to insure $10,000 against US default for the next five years. “While this may not seem high, it was at $8 earlier in the year, and $36 one month ago,” said Bespoke.
Junk bond yields remain at high levels, as shown by the Merrill Lynch US High Yield Index. However, a slight decline of 200 basis points has taken place since the Index’s record high of 2,182 on December 15. This means the spread between high-yield debt and comparable US Treasuries was 1,982 basis points by the close of business on Tuesday. With the US 10-year Treasury Note yield at 2.18%, high-yield borrowers have to pay 22.00% per year to borrow money for a ten-year period. At these rates it is practically impossible for companies with a less-than-perfect credit status to conduct business profitably.
The graphs of the CDX indices are shown below:
CDX (North America - High Yield) Index
Since a month ago the cost of insuring against government bankruptcy through CDSs has risen for all but nine countries in Bespoke’s list of 38 countries. The table below shows the currentCDS prices, together with month-ago and start-of-year prices.
Argentina, Venezuela and Iceland have the highest default risk. Interestingly, Germany, Japan and France all have a lower default risk than the US at the moment. It now costs $67 per year to insure $10,000 against US default for the next five years. “While this may not seem high, it was at $8 earlier in the year, and $36 one month ago,” said Bespoke.As shown in Bespoke’s table below, the UK, Greece, the US, Austria and Australia have seen default risk rise the most over the last month. Notably, the US has risen by 87%.
More on Commercial Real Estate
From Mish: Economic Potpourri December 26, 2008
Metlife Drops as Commercial Mortgage Defaults Loom
MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.
The industry, which puts about 10 percent of its invested assets in commercial mortgages, may see losses rise to the highest levels since the early 1990s.
Commercial mortgage defaults are “certainly on the forefront of the radar screen."
The Commercial Real Estate is overleveraged. There is rampant overcapacity in restaurants, furniture stores, appliance stores, nail salons, clothing stores, and anything else you can think of. The way to solve it if for a wave of bankruptcies to shake out the weak.
As retail sales shrank on record, more and more retailers are going to close stores, file bankruptcies. Mall owners need to reduce the rents to prevent losing leases, vacancies are going to soar, empty malls with no tenants will file bankruptcy, all these definitely won't help the commercial real estate market.
Metlife Drops as Commercial Mortgage Defaults Loom
MetLife Inc. and Prudential Financial Inc., the largest U.S. life insurers, declined in New York trading on concern that losses on commercial mortgages will surge as the recession deepens.
The industry, which puts about 10 percent of its invested assets in commercial mortgages, may see losses rise to the highest levels since the early 1990s.
Commercial mortgage defaults are “certainly on the forefront of the radar screen."
The Commercial Real Estate is overleveraged. There is rampant overcapacity in restaurants, furniture stores, appliance stores, nail salons, clothing stores, and anything else you can think of. The way to solve it if for a wave of bankruptcies to shake out the weak.
As retail sales shrank on record, more and more retailers are going to close stores, file bankruptcies. Mall owners need to reduce the rents to prevent losing leases, vacancies are going to soar, empty malls with no tenants will file bankruptcy, all these definitely won't help the commercial real estate market.
Holiday Sales Tumble as U.S. Consumers Cut Spending
From MarketWatch: Fresh Survey shows gloomy U.S. retail sales
Data released by MasterCard Inc.'s SpendingPulse unit showed total retail sales, excluding automobiles, fell by 5.5% in November over the year-earlier period and by 8% in December through Christmas Eve. 2008 holiday season is going to be one the worst in decades.
Data released by MasterCard Inc.'s SpendingPulse unit showed total retail sales, excluding automobiles, fell by 5.5% in November over the year-earlier period and by 8% in December through Christmas Eve. 2008 holiday season is going to be one the worst in decades.
Sales of luxury goods, including jewelry, plunged by 34.5%. Excluding gasoline sales, the fall in overall retail sales was more modest, with a 2.5% drop in November and a 4% decline in December.
Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
With the U.S. and global economies in recession, consumers have all but frozen their spending on anything nonessential, leading retailers to slash prices deeper and earlier than usual to attract sales during their biggest selling period.
Results have been lackluster to this point, with the International Council of Shopping Centers slashing its December forecast and projecting retailers' worst November-to-December period on record.
From Bloomberg: Holiday Sales Tumble as U.S. Consumers Cut Spending
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades.
From Nov. 1 through Dec. 24, women’s clothing sales dropped 23 percent and men’s fell 14 percent. Combined electronics and appliance sales tumbled 27 percent, with purchases over $1,000 suffering the most. Purchases over the Internet fared better, with a 2.3 percent decline. Historically, Web sales have posted 15 percent to 20 percent year-over-year sales gains.
But with gift card sales down this holiday season and consumers looking to save money rather than spend it, even the big discounts may not be enough to salvage what looks to be one of the most dismal holiday shopping seasons in years.
Retailers went from 'Ho-ho' to 'Uh-oh' to 'Oh-no.'"
Amazon.com Inc. said that the 2008 holiday season finished as its best ever, with over 6.3 million items ordered worldwide on the peak day, Dec. 15 -- a record-breaking 72.9 items per second.
Results have been lackluster to this point, with the International Council of Shopping Centers slashing its December forecast and projecting retailers' worst November-to-December period on record.
From Bloomberg: Holiday Sales Tumble as U.S. Consumers Cut Spending
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades.
Discounts of 70 percent off or more by Macy’s Inc., AnnTaylor Stores Inc. and other retailers failed to prevent a spending drop of as much as 4 percent during the final two months of the year, according to data from SpendingPulse. Including fuel, sales tumbled as much as 8 percent. The decline is the worst since MasterCard Advisors started tracking data in 2002 to provide the SpendingPulse service.
From Nov. 1 through Dec. 24, women’s clothing sales dropped 23 percent and men’s fell 14 percent. Combined electronics and appliance sales tumbled 27 percent, with purchases over $1,000 suffering the most. Purchases over the Internet fared better, with a 2.3 percent decline. Historically, Web sales have posted 15 percent to 20 percent year-over-year sales gains.
It took massive discounts, longer store hours and promotional giveaways to even get shoppers to the mall this season. Still that last minute rush could not save stores from double-digit sales declines across virtually every category. Sales above $300 were at a virtual standstill.
That weak spending through Christmas Eve brought overall holiday sales to levels unseen since the 1980s. The results are well below the plus 2.2 percent forecast made by the National Retail Federation in September.
The high-end stores were hit the hardest. Jewelry, handbags and other luxury items sat on shelves. Luxury results through December 24th were down minus 34.5 percent. Stripping out jewelry, sales dropped minus 21.2 percent. When shoppers did splurge, they mainly spent in the $500 to $800 range. How they buy will determine whether some stores have enough cash to survive through 2009.
From Yahoo! Finance: Retailers slash prices to entice holiday shoppers
But with gift card sales down this holiday season and consumers looking to save money rather than spend it, even the big discounts may not be enough to salvage what looks to be one of the most dismal holiday shopping seasons in years.
"The last week of December represents about 14 percent of Christmas sales," said C. Britt Beemer, chairman of America's Research Group. "You can't save a season with only one-seventh of the sales to go." The holiday season -- which typically accounts for 30 percent to 50 percent of a retailer's annual total sales -- has been less than jolly for most retailers.
Oil Could be on a way to $20 a Barrel
From CNBC: Oil Could be on Way to $20 a Barrel: Gulf CEO
The steep drop in oil prices may not be over yet, says the CEO of Gulf Oil.
The steep drop in oil prices may not be over yet, says the CEO of Gulf Oil.
The price of US light, sweet crude could yet move as low as $25, and even $20 if current conditions persist.
Several factors are critical in the move lower, particularly the pressure set against traders in the oil markets, and the control sovereign foreign governments, as opposed to private entities, have exerted on the market since the summer price shock that sent gasoline prices at the pump above $4 a gallon.
"They have a tendency to sell more on the way down, not less," Petrowski said of the governments ruling the energy trade.
In all, he thinks those who believe oil is due for a rebound aren't seeing the global economic factors that are playing into energy prices.
From CNBC: Oil Rises above $36 after UAE cuts supplies
Oil rose above $36 a barrel on Friday after the United Arab Emirates joined leading exporter Saudi Arabia in deepening supply curbs in line with OPEC's biggest ever output cut announced last week.
Abu Dhabi National Oil (ADNOC), the main producer in the UAE, the world's fifth-largest oil exporter, said it would cut supplies of February Murban and Upper Zakum allocations by 15 percent and Lower Zakum and Umm Shaif by 10 percent each.
From Yahoo! Finance: Retail gasoline prices drift to 58-month low
Retail gasoline prices tumbled Friday to the lowest level in nearly five years (58-month low). And while crude futures rose, analysts believed it was a temporary pause in an extended, downward arc as the recession spreads. "We're paying about a billion dollars per day less than we were in July" for gasoline.
Pump prices were driven down mostly because Americans are staying home more. The travel habits of Americans are "fundamentally changing" as drivers clocked 9 billion fewer miles in October, even as gas prices plunged.
Crude futures are down more than 60% so far this year, poised for their worst year on record since crude started futures trading on the New York Mercantile Exchange in 1983.
Japan's Recession Deepens
From Yahoo! Finance: Japan auto production marks worst drop since 1967
Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles. That marked the second straight month of one-year declines and the percentage slide was the biggest since the group began compiling such data in 1967.
Earlier this month, the Japan Automobile Manufacturers Association said it expected demand in Japan will dive next year to its lowest in about three decades. Sales of new autos are expected to stand at 4.86 million in 2009, down 4.9 percent from what it's projecting for this year at 5.11 million. New vehicle sales in Japan have never dipped below the 5 million mark since 1980. They reached 7.78 million in 1990, during this nation's heyday "bubble" economy.
From Bloomberg: Japan’s Recession Deepens as Factory Output Plummets
Japan’s recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.
Vehicle production in Japan, home to Toyota Motor Corp. and other major automakers, plunged 20.4 percent in November compared to the same month a year ago to 854,171 vehicles. That marked the second straight month of one-year declines and the percentage slide was the biggest since the group began compiling such data in 1967.
Earlier this month, the Japan Automobile Manufacturers Association said it expected demand in Japan will dive next year to its lowest in about three decades. Sales of new autos are expected to stand at 4.86 million in 2009, down 4.9 percent from what it's projecting for this year at 5.11 million. New vehicle sales in Japan have never dipped below the 5 million mark since 1980. They reached 7.78 million in 1990, during this nation's heyday "bubble" economy.
From Bloomberg: Japan’s Recession Deepens as Factory Output Plummets
Japan’s recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.
Factory output plunged 8.1 percent from October, more than the 6.8 percent estimated by economists. The jobless rate climbed to 3.9 percent from 3.7 percent. Household spending slid 0.5 percent, a ninth drop.
The decline in production was the biggest since comparable figures were first made available in February 1953. Shipments also fell the most on record. Japan's exports plunged 26.7% in November, the sharpest drop since at least 1980.The yen’s 23 percent gain against the dollar this year is compounding exporters’ woes by eroding their profits. Japan’s currency surged to a 13-year high of 87.14 on Dec. 17.
The ratio of jobs available to each applicant dropped for a 10th month in November to 0.76, extending the longest losing streak since 1998. Wages fell 1.9 percent, the most in four years, underscoring why consumer sentiment slumped to a record low. Retail sales slid 0.9 percent from a year earlier, the biggest drop in 16 months. Weaker personal spending is prompting retailers to reconsider investments.
Thursday, December 25, 2008
Wednesday, December 24, 2008
Stock Market - The Icon of January
From CNBC: January Effect
Why? Because in 31 of the last 36 years, a rally in January was followed by a full-year of gains.
“January is the first month of the year when people set their forecasts. And there’s the state of union address and important agendas laid out,” he says. All those things set the tone for the year.
The January Effect is accurate 91% of the time.
Jan. Change Year Change
2004 +1.7% +9.0%
2005 -2.5% +3.0%
2006 +2.5% +13.6%
2007 +1.4% +3.5%
2008 -6.1% -40.31(YTD)
What’s the bottom line? As the S&P goes in January, so goes rest of year.
2009 Outlook continues to be ugly
From Mish: 2009: Already looking bleak
Destruction of household wealth, bleak employment situation and wage conditions
Housing plunges, declining corporate profits
Destruction of household wealth, bleak employment situation and wage conditions
Housing plunges, declining corporate profits
From CNBC: Outlook '09: Likely Bad, but Just How Ugly Will It Get?
Forget about the good. It’s about the bad and the ugly when it comes to the US economy next year. The big questions are how ugly things will get and how they’ll compare to recessions of the past.
Forget about the good. It’s about the bad and the ugly when it comes to the US economy next year. The big questions are how ugly things will get and how they’ll compare to recessions of the past.
Many economists now expect the economy to contract as much as 5 percent on an annualized basis in the first quarter, followed by a small contraction in the second quarter. Bank of America’s chief economist Mickey Levy is forecasting a decline in every quarter of 2009 and doesn’t see a return to trend, or normal, growth until early to mid 2010.
The recession we are experiencing is going to be at least as bad as 1973-1975 and 1980-1982 periods if not worse. Also, this recession is going to be long and deep, and we won't see recoveries soon.
“With another eight months of declines in home prices, you start to get some modest pickup in sales, followed by a stabilization in construction, not a bounceback,” warns Levy.
Another key yardstick of any recession is unemployment. The jobless rate is widely expected to rise steadily from its current rate of 6.7 percent to 9-percent (or 10%) in 2009 or early 2010. If so, that would be double the expansionary low of 4.4% set in December 2006, something that didn't happen in either of the past two recessions.
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Rich Pedroncelli / AP |
David Rosenberg, chief North American economist at Merrill Lynch, sees another 15 percent decline in house prices. “We don't have a lot of pent up demand,” he told CNBC. “The supply needs to go down.”
The MBA expects rates on 30-year fixed mortgages to plateau at about 5 ¼ percent in the first half of the year, but tighter credit borrowing standards will continue to keep would-be buyers out of the market. Meanwhile, prices will continue to decline, but more moderately.
Obama's stimulus package: "Six-hundred billion (dollars) is the minimum,” says Behravesh “If they can make it bigger -- $700-800 billion, even a $1 trillion. The latter might make sure we come out of it this summer”.
Thus far, a big part of the funds in what’s likely to be a two-year package appears to be earmarked for infrastructure spending, with the usual social safety net measures and some kind of tax cut for low-and middle-income earners.
“There's a limit to how much fiscal stimulus you can do,” says Resler, who, like other critics worries about waste, fraud and pork barrel politics in an infrastructure program.
One traditional worry missing from the list of many economists is inflation. At best, all the money and fiscal stimulus will succeed in stimulating demand, the thinking goes, without accompanying wage and price pressures.
"The increase (in money supply) is necessary but a not sufficient condition for inflation," says Levy. "The turbo-charged Fed easing prevents deflation."
That deflation worry is back on the list.
Allen Sinai of Decision Economics said the economy is in for another three to six months of dismal performance; real recovery will wait until 2010. The stimulus will work; lots of government spending will lift GDP, but the real question will be whether the health of the private section can be restored.U.S. Store Traffic Fell 24% on Pre-Christmas Weekend
From Bloomberg: U.S. Store Traffic Fell 24% on Pre-Christmas Weekend
From Yahoo! Finance: Holiday season magnifies shoppers' frugality
Over the past year, shoppers have drastically changed their spending habits in ways not seen since the 1970s, switching to store brands and discounters like Wal-Mart. During the holiday shopping season, they cut back on their spending, took advantage of big discounts and bought practical gifts.
One of the big worries for stores is what to do with the mounds of items they still have to sell. If 75 percent off before Dec. 25 didn't make people splurge, will even bigger deals afterward do the trick? Another problem is that shoppers shunned gift cards this season. That means they are less likely to return to the stores after the holiday. The new consumer mantra for this coming year is: If I don't need it, I won't buy it.
The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.
A full picture of the holiday season will not be known until Jan. 8, when major retailers report their sales figures.
U.S. retail store traffic fell 24 percent last weekend from a year earlier as deepened discounts failed to entice consumers to spend during what may be the worst holiday-shopping season in four decades. Retail sales declined 5.3 percent Dec. 19 through Dec. 21 because of inclement weather and a slowing U.S. economy.
Many retail stores have offered discounts of as much as 70 percent to lure shoppers seeking bargains, and retailers’ profit margins may suffer as a result.
Traffic decreased 6.5 percent for the week through Dec. 20 from a year earlier. U.S. customer traffic on Dec. 20, also known as “Super Saturday,” fell 17 percent from the corresponding day a year earlier, Dec. 22, 2007.
Same-store sales in November and December may drop as much as 2 percent, the International Council of Shopping Centers said yesterday, more than the previously projected 1 percent decline. That would make it the worst Christmas sales season in at least 40 years.
From Yahoo! Finance: Holiday season magnifies shoppers' frugality
Over the past year, shoppers have drastically changed their spending habits in ways not seen since the 1970s, switching to store brands and discounters like Wal-Mart. During the holiday shopping season, they cut back on their spending, took advantage of big discounts and bought practical gifts.
One of the big worries for stores is what to do with the mounds of items they still have to sell. If 75 percent off before Dec. 25 didn't make people splurge, will even bigger deals afterward do the trick? Another problem is that shoppers shunned gift cards this season. That means they are less likely to return to the stores after the holiday. The new consumer mantra for this coming year is: If I don't need it, I won't buy it.
The retail industry could be looking at its biggest contraction in 35 years, according to Burt P. Flickinger, III, managing director of consulting firm Strategic Resource Group. He estimates that 160,000 stores will have closed in 2008 and predicts that an additional 200,000 will shutter next year. In March and April of 2009, Flickinger expects 2,000 to 3,000 malls to shutter.
A full picture of the holiday season will not be known until Jan. 8, when major retailers report their sales figures.
Oil = $35
From Calculated Risk: Oil Prices: Cliff Diving
Crude-oil futures fell for a third session Wednesday, tumbling 9.3% to close at $35.35 a barrel as government data showed inventories at a key delivery point hit a record.
Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19. It was the highest since at least April 2004, when the government started collecting Cushing data.
The low oil price definitely effected Gulf countries and Russia's economy.
Crude-oil futures fell for a third session Wednesday, tumbling 9.3% to close at $35.35 a barrel as government data showed inventories at a key delivery point hit a record.
Crude inventories at Cushing, Okla., the delivery point for crude futures contracts traded on the New York Mercantile Exchange, reached 28.7 million barrels in the week ended Dec. 19. It was the highest since at least April 2004, when the government started collecting Cushing data.
The low oil price definitely effected Gulf countries and Russia's economy.
Coforming Rates Fall Lure Refiance Applications
From CNBC: Mortgage Demand at 5-Year High as Rates Plunge
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Dec. 19 soared 48.0 percent to 1,245.4, the highest reading since the week ended July 18, 2003.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Dec. 19 soared 48.0 percent to 1,245.4, the highest reading since the week ended July 18, 2003.
Interest rates are sharply below the peak of 6.59 percent reached during the summer and below a mere month ago when they were at 5.99 percent, according to the trade group. Interest rates were also well below year-ago levels of 6.10 percent.
The MBA's seasonally adjusted purchase index rose 10.6 percent to 316.5. The index, however, came in well below its year-ago level of 394.5, a drop of 19.8 percent. Overall mortgage applications last week were 106.3 percent above their year-ago level. The four-week moving average of mortgage applications, was up 28.8 percent.
The group's seasonally adjusted index of refinancing applications jumped 62.6 percent to 6,758.6, the highest reading since the week ended July 4, 2003, when it reached 6,768.3. The index was up 252.9 percent from its year-ago level of 1,915.3. The refinance share of applications increased to 83.2 percent from 76.9 percent the previous week. The adjustable-rate mortgage share of activity decreased to 0.8 percent, down from 1.1 percent the previous week.
From Calculated Risk: Conforming Mortgage Rates Fall, Jumbo Spread at Record
The average 30-year fixed rate for home loans of more than $729,750 remains almost 2 percentage points above conforming rates and the spread between them may set a record this month. The difference between the two averaged 2.13 percentage points in December, 10 times the spread from 2000 to 2006 and above last month’s 1.95 percentage points that was the highest on record.
It's jumbos rates that matter for most of California and other higher priced markets.
GMAC approved as Bank for seeking aids
From Yahoo! Finance: Fed grants GMAC authority to seek bailout funds
The Federal Reserve approved GMAC Financial Services' request to become a bank holding company, allowing it to apply for a portion of the $700 billion bailout fund and get emergency loans directly from the Fed.
The Federal Reserve approved GMAC Financial Services' request to become a bank holding company, allowing it to apply for a portion of the $700 billion bailout fund and get emergency loans directly from the Fed.
Analysts had speculated that without financial help, GMAC would have had to file for bankruptcy protection or shut down, dealing a serious blow to GM's own chances for survival. The Fed cited "emergency conditions" in justifying its decision.
The move to rescue an auto financing company was just the latest extension of the federal bailout program, which has designed to shore up ailing banks but has grown to include insurers and credit card companies.
What Happened to Proshares ETFs Yesterday?
Stock Market dropped about 2% yesterday. However, SDS dropped $11, and SRS dropped $4. What happened?
Here is why:
From ProShares ETFs Declare Distributions
ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today.
Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.
Does this mean we are going to get the capital gain per share on 12/30/2008?
Here is why:
From ProShares ETFs Declare Distributions
ProFunds Group, the world’s largest manager of short and leveraged funds,1 has announced fourth quarter income dividend distribution declarations for its ProShares ETFs. The firm expects dividend distributions for 52 of its 76 ETFs. Capital gain distributions for 35 of the firm’s ETFs were announced earlier today.
Distributions reduce the net assets of each of the affected ETFs as of the close of business today and the ETFs will trade ex-dividend tomorrow. Each portfolio’s exposure to its benchmark index will be adjusted today to reflect this reduction in assets.
Does this mean we are going to get the capital gain per share on 12/30/2008?
Hotel Occupancy Rate falling
From Calculated Risk: Hotels: Occupancy Rate Falling, delinquencies Rising
Downtown Chicago hotels saw a 13.1 percent dive in the average occupancy rate, to 69 percent last month from a year earlier, according to Smith Travel Research. Nationwide, occupancy dropped 10.6 percent, to a 51.9 percent rate.
Pricing dropped as well, leading to double-digit declines in revenue per available room, a key measure of profitability. In downtown Chicago, the decline was 20.6 percent; nationally, it was 12.9 percent.
Also, Deutsche Bank reported in their Commercial Real Estate Outlook: Q4 2008 (no link), that "hotel loan deterioration now beginning to take-off" and that the 30-day delinquency rate has risen from 6bp to 55bp in just the last three months.
Downtown Chicago hotels saw a 13.1 percent dive in the average occupancy rate, to 69 percent last month from a year earlier, according to Smith Travel Research. Nationwide, occupancy dropped 10.6 percent, to a 51.9 percent rate.
Pricing dropped as well, leading to double-digit declines in revenue per available room, a key measure of profitability. In downtown Chicago, the decline was 20.6 percent; nationally, it was 12.9 percent.
Also, Deutsche Bank reported in their Commercial Real Estate Outlook: Q4 2008 (no link), that "hotel loan deterioration now beginning to take-off" and that the 30-day delinquency rate has risen from 6bp to 55bp in just the last three months.
Durable Goods drop 1% in November
From Yahoo! Finance: Durable Goods drop 1 percent in November
Orders to U.S. factories for big-ticket manufactured goods fell for the fourth consecutive month in November, and a steady rise in inventories suggests production will need to be cut further.
The drop in durable goods orders, while smaller than expected, revealed persistent weakness for the auto industry and a big decline in demand for commercial aircraft. Analysts believe manufacturing will not rebound until the broader economy does -- at the earliest, in the middle of next year.
The Commerce Department reported Wednesday that orders for durable goods fell 1 percent last month, a decline that was smaller than the 3 percent decrease economists had been expecting. However, the decrease was on top of an 8.4 percent plunge in orders in October, which had been the biggest decline in eight years.
The weakness in November reflected a big 37.7 percent fall in demand for commercial aircraft and a smaller 0.2 percent drop in orders for new vehicles and auto parts.
Total transportation orders dropped by 7.4 percent in November. Excluding the big decline in transportation, total orders rose by 1.2 percent in November, the best showing since last June. However, this gain was expected to be only a temporary upward blip as the prolonged recession continues to cut into demand for factory products.
Strength was shown in demand for machinery, which rose by 4.1 percent, and computers and other electronic products, which posted a 5.9 percent increase. But orders for primary metals such as steel fell by 2.9 percent.
Total inventories of durable goods rose by 0.5 percent in November, the 16th increase in the past 17 months. That is likely to spell trouble in the months ahead as manufacturers slash production further in an effort to get inventories more in line with falling sales.
Consumer Spending Drops fifth Month
From Yahoo! Finance: Consumer spending posts fifth monthly drop
U.S. consumers cut spending for a fifth straight month during November and their incomes shrank, according to a government report on Wednesday that pointed to deepening recessionary pressures.
The Commerce Department said spending contracted by 0.6 percent after falling even more steeply by 1 percent in October. Incomes contracted by 0.2 percent after a slight 0.1 percent gain in October, reflecting the strain that rising unemployment is putting on Americans' ability to spend.
Personal savings edged up in November to 2.8 percent of disposable income from 2.4 percent in October, still a low level but a possible sign that the year-old recession is causing wary consumers to put more into bank accounts rather than spending it.
New Jobless Claims 26-year high
From Yahoo! Finance: New Jobless claims jump more than expected
New claims for unemployment benefits rose more than expected last week. The Labor Department reported that initial requests for jobless benefits rose to a seasonally adjusted 586,000 in the week ending Dec. 20, from an upwardly revised figure of 556,000 the previous week. That's much more than the 560,000 economists had expected.
That's also the highest level of claims since November 1982, though the work force has grown by about half since then.
There was some improvement in the number of Americans continuing to seek unemployment benefits, which dropped slightly to 4.37 million from 4.39 million the previous week. Wall Street economists had expected the number to increase to 4.4 million.
The elevated level of new jobless applications is just one of several signs that the labor market has deteriorated rapidly in recent months.
Tuesday, December 23, 2008
Readings for the Day
Recessions will be severe as companies adjust investment, production and labor:
From Mish: Fed Destined to become the world's largest auto dealership
From Mish: Consumer Demand for Nearly Everything Plunges
From Mish: Economic Potpourri December 22, 2008
From Calculated Risk: Philly Fed November State Coincident Indicators
From Mish: Fed Destined to become the world's largest auto dealership
From Mish: Consumer Demand for Nearly Everything Plunges
From Mish: Economic Potpourri December 22, 2008
From Calculated Risk: Philly Fed November State Coincident Indicators
TechCrunch Layoff Tracker
From TechCrunch Layoff Tracker:
Total Companies Layoffs Since August 27, 2008: 311
Total Employees: 113,576
Here are some of the well known companies joined the layoff waves since our last report on December 3rd:
Total Companies Layoffs Since August 27, 2008: 311
Total Employees: 113,576
Here are some of the well known companies joined the layoff waves since our last report on December 3rd:
Manhattan Office Vacancy Rate 10.9%
From Calculated Risk: Manhattan Office Vacancy Rate Rises to 10.9%:
The overall vacancy rate rose to 10.9 percent in the fourth quarter, the highest level in two years and more than three percentage points greater than a year ago, according to the report released by FirstService Williams.
Space available directly from a landlord registered an 8.1 percent vacancy rate in the fourth quarter, while sublease space weighed in at 2.8 percent -- the highest rate in more than three years.
"With leasing activity languishing and tenant space choices growing exponentially, it is not surprising that the overall asking rent for Manhattan dropped by 4 percent from the previous quarter," Mark Jaccom, FirstService Williams chief executive, said in a statement.
The Class A vacancy rate is expected to rise from about 7.5% to 13%, and rents are expect to decline by 20% or more from the peak.
The overall vacancy rate rose to 10.9 percent in the fourth quarter, the highest level in two years and more than three percentage points greater than a year ago, according to the report released by FirstService Williams.
Space available directly from a landlord registered an 8.1 percent vacancy rate in the fourth quarter, while sublease space weighed in at 2.8 percent -- the highest rate in more than three years.
"With leasing activity languishing and tenant space choices growing exponentially, it is not surprising that the overall asking rent for Manhattan dropped by 4 percent from the previous quarter," Mark Jaccom, FirstService Williams chief executive, said in a statement.
The Class A vacancy rate is expected to rise from about 7.5% to 13%, and rents are expect to decline by 20% or more from the peak.
November Exisitng & New Home Sales
Read Calculated Risk: More on Existing Home Sales
and Calculated Risk: Even More on Home Sales
From Yahoo! Finance: November existing home sales fall by 8.6 percent
Graphs are from Calculated Risk: Existing Home Sales Plunge in November
Existing home sales plunged far more than expected by 8.6 percent in November to an annual rate of 4.49 million, lowest since 1999, from a downwardly revised pace of 4.91 million in October, and are 10.6 percent below the 5.02 million-unit pace in November 2007. Single family home sales fell the the lowest since 1997.
The median sales price plunged 13.2 percent in November to $181,300, from $208,000 a year ago. That was the lowest price since February 2004, the biggest year-over-year drop on records going back to 1968 and most likely the biggest drop since the Great Depression. In the West, (think California, Nevada and Arizona) prices tumbled 25.5%.
and Calculated Risk: Even More on Home Sales
From Yahoo! Finance: November existing home sales fall by 8.6 percent
Graphs are from Calculated Risk: Existing Home Sales Plunge in November
The median sales price plunged 13.2 percent in November to $181,300, from $208,000 a year ago. That was the lowest price since February 2004, the biggest year-over-year drop on records going back to 1968 and most likely the biggest drop since the Great Depression. In the West, (think California, Nevada and Arizona) prices tumbled 25.5%.Nationally, the Realtors group estimates that sales of distressed properties made up 45 percent of all property sales in November. There were 4.2 million unsold homes on the market in last month. At the current sales pace, it would take 11.2 months to sell all the properties highest since 1982.
From Yahoo! Finance: November home sales fall 2.9 percent
Graphs from Calculated Risk: New Home Sales in November
Sales of newly built single-family homes slowed in November to the weakest levels since 1991, and the lowest November since 1982. The seasonally adjusted annual sales pace of 407,000 was down 2.9 percent from October, and down 35.3% from a year ago. The October number has been downwardly revised to 419,000 as previously reported 433,000. The median sales price rose to $220,400 from $214,600 in October.
The seasonally adjusted estimate of new houses for sale at the end of November was 374,000. This represents a supply of 11.5 months at the current sales rate. The months of supply for October was revised up to 11.8, an all time record.
Market Today
From Bonddad: Today's Market (December 22nd)
As shown of yesterday, with another 8.47 points drop in S&P today, we clearly broke the up trend we had been building since November 20. The volume is light. This might be a year-end sell as for tax purpose.
As shown of yesterday, with another 8.47 points drop in S&P today, we clearly broke the up trend we had been building since November 20. The volume is light. This might be a year-end sell as for tax purpose.
Frozen Wages and CA Unemployment
From EDD: California's Unemployment Rate Increases To 8.4 Percent
In October, the state's unemployment rate was 8.2 percent, and in November 2007, the unemployment rate was 5.7 percent. The unemployment rate is derived from a federal survey1 of 5,500 California households.
In a year-over-year comparison (November 2007 to November 2008), nonfarm payroll employment in California decreased by 136,000 jobs (down 0.9 percent).
In related data, the EDD reported that there were 593,670 people receiving regular unemployment insurance benefits during the November survey week. This compares with 527,918 last month and 302,550 last year. At the same time, new claims for unemployment insurance were 80,920 in November 2008, compared with 67,491 in October and 39,531 in November of last year.
In the letter, California Governor Schwarzenegger Stated:
Our state's fiscal crisis has worsened dramatically in the past few weeks without legislative action to address our budget crisis. We face an approximately $15 billion General Fund deficit this fiscal year, and that number is estimated to grow to $42 billion over the next 18 months. Without immediate action, the state will not have enough cash to meet its obligations starting in February.
Furloughs: Beginning February 1, 2009, and lasting through June 30, 2010, rank-and-file employees will be furloughed two days per month. For employees who are not part of a bargaining unit (i.e., exempt appointees, career executive assignment employees, supervisors and managers), we will implement an equivalent furlough or salary reduction plan effective February 1, 2009. We intend to implement these measures in a way that does not affect your retirement.Layoffs: I have instructed the Department of Personnel Administration to work with state agencies to initiate layoffs, reductions and other efficiencies to achieve General Fund savings of up to 10 percent starting February 1, 2009. This is in addition to reductions that I have already ordered for the current fiscal year. Employees in General Fund positions in the bottom 20 percent of seniority will receive "surplus" notices within the next month. Employees who receive these notices will not necessarily be laid off, and they will have hiring preference for non-General Fund positions for which they qualify.
From Calculated Risk: Frozen Wages
In addition to more part time workers, freezing wages is becoming a common theme.
According to the employment consulting firm Watson Wyatt, 11 percent of all the companies it recently surveyed either already had cut wages or planned to do so over the next 12 months, and 10 percent either have reduced their employer 401(k) match or planned to do so. Among many corporations and organizations, FedEx has one of the toughest plan:
Base salary decreases, effective January 1, 2009:
- 20% reduction for FedEx Corp. CEO Frederick W. Smith
- 7.5%-10.0% reduction for other senior FedEx executives
- 5.0% reduction for remaining U.S. salaried exempt personnel
- Elimination of calendar 2009 merit-based salary increases for U.S. salaried exempt personnel
- Suspension of 401(k) company matching contributions for a minimum of one year, effective February 1, 2009
Consumer Sentiment Rises
From Yahoo! Finance: Consumers' mood boosted by lower prices in December
Consumer confidence rose in December due to declining prices, although job losses and falling income continued to weigh on sentiment. The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for December rose to 60.1 from November's 55.3.
Consumer confidence rose in December due to declining prices, although job losses and falling income continued to weigh on sentiment. The Reuters/University of Michigan Surveys of Consumers said its final index reading of confidence for December rose to 60.1 from November's 55.3.
The index was above economists' expectations of 58.6, according to the median of forecasts in a Reuters poll. December's final reading was the highest since 70.3 in September, and was also above the preliminary index reading, released on December 12, which was 59.1.
"More consumers expected declines in prices than in any other survey since 1960 -- in December, 23 percent expected deflation in the year ahead, three times the level recorded just two months ago." One-year inflation expectations plunged in December to 1.7 percent, the lowest since July 2003, from 2.9 percent in November.
GDP Shrank 0.5% in 3rd Quarter
From Yahoo! Finance: GDP shrank in third quarter as economy chilled
The economy shrank at a 0.5 percent annual pace in the third quarter as expected after consumers and businesses cut spending and the country's recession gathered steam, government data showed on Tuesday, this versus the previous three months was the steepest since the 3rd quarter of 2001.
The U.S. economy entered a recession last December which deepened after the failure of U.S. investment bank Lehman Brothers in September, which froze credit and sent households and firms into a defensive crouch, and a really bad fourth quarter is expected.
Residential investment contracted 16 percent at an annual pace in the third quarter, which was slightly less than previously estimated and subtracted 0.6 percentage points from overall growth.
"It continues to show basically the same story, which is people stopped spending," said David Wyss, chief economist at Standard & Poor's in New York.
Expenditures on durable goods fell 14.8 percent, subtracting 1.16 percent from growth. A large chunk of this fall was due to declining demand for motor vehicles, which reduced overall growth by 0.83 percent in the third quarter.
Monday, December 22, 2008
Modified Mortgage Re-Defaulting at High Rates
From MarketWatch: Modified Mortgages re-defaulting at high rates: regulators
The proportion of modified loans delinquent by 30 days or more was 55% after six months, and modified loans that were 30 or more days delinquent after three months stood at 37%.
"Delinquencies continue to rise, foreclosures and other actions leading to home forfeiture also continued to rise, and loan modifications were associated with high levels of re-default," the regulators concluded.
The proportion of modified loans delinquent by 30 days or more was 55% after six months, and modified loans that were 30 or more days delinquent after three months stood at 37%.
"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months and even eight months," said Comptroller of the Currency John Dugan.
During the third quarter of 2008, delinquency increased in all loan categories -- prime, Alt-A and subprime -- with the percentage of mortgages that were current and performing falling to 91.47% at the end of the September, down from 93.33% at the end of the first quarter, the report compiled by the Comptroller of the Currency and the Office of Thrift Supervision said. "Delinquencies continue to rise, foreclosures and other actions leading to home forfeiture also continued to rise, and loan modifications were associated with high levels of re-default," the regulators concluded.
The report focused on 35 million first-lien mortgages, worth more than $6.1 trillion and constituting more than 60% percent of all outstanding mortgages in the United States, held or serviced by national banks and thrifts.
Commercial Real Estate Loan Defaults May Tripple
From Calculated Risk: REIS: Commercial Real Estate Loan Defaults May Triple
U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession.
At the end of Q3, REIS reported office vacancy rates hit 13.6%. Clearly REIS expects a significant increase in the vacancy rate in Q4 2008 (to 14.6%), and then a further increase in 2009 to 15.6%.
This graph shows the office vacancy rate vs. the quarterly unemployment rate and recessions.
"Changes in the unemployment rate and the office vacancy rate are highly correlated. As the unemployment rate continues to rise over the next year or more, I'd expect the office vacancy rate to rise sharply - possible to 17% or more by the end of 2009."
REIS believes the rise in defaults will primarily because of the overly optimistic projections used when properties were purchased in recent years:
U.S. commercial properties at risk of default could triple if rental income from office, retail and apartment buildings drops by even 5 percent, a likely possibility given the recession.
Lenders that used optimistic rent estimates to grant mortgages beginning in 2005 stand to lose as much as $23.1 billion, or 7.02 percent, of total unpaid balances if landlords lose 5 percent of net operating income. Office vacancies are forecast to rise to 15.6 percent next year from an estimated 14.6 percent at the end of 2008.
This graph shows the office vacancy rate vs. the quarterly unemployment rate and recessions.
"Changes in the unemployment rate and the office vacancy rate are highly correlated. As the unemployment rate continues to rise over the next year or more, I'd expect the office vacancy rate to rise sharply - possible to 17% or more by the end of 2009."REIS believes the rise in defaults will primarily because of the overly optimistic projections used when properties were purchased in recent years:
“A large decline in net operating income isn’t necessary to shift a lot of properties underlying CMBS loans into debt- service coverage ratios that would be worrisome,” [Victor Calanog, REIS director of research] said in an interview."As I've noted several times, many existing properties were recently purchased at prices that were based on overly optimistic pro forma income projections. These loans typically included reserves to pay interest until rents increased (like a negatively amortizing option ARM), and it is likely that many of these deals will blow up when the interest reserve is depleted - probably in the 2009-2010 period."
...
Over the last three years, lenders raised income projections for commercial properties by as much as 15 percent more than those properties’ historical performance, he said.
“That optimism might not be warranted,” Calanog said. “There’s a big pool of loans underwritten in 2005 and 2006 coming due in 2010 and 2011 that I believe will experience a rise in delinquencies and defaults.”
Loans from those years assumed strong growth in rents, a scenario that seems unlikely as the recession deepens, Calanog said.
Commercial Real Estate wants a piece of the TARP
As Banks used $350 Billion of the $700 Billion Bailout Fund, as American Express and Discover Card became banks, now Commercial Developers want piece of the pie also.
From Yahoo Finance: Line for Bailouts Grows: Commercial Developers Want Govt. Aid, Too
First it was the banks and brokers, then came the automakers and homebuilders. And now commercial real estate developers are lining up for some government largess.
There's good reason commercial real estate developers are looking for a bailout: About $530 billion of commercial mortgages are coming up for refinancing in the next three years, with about $160 billion maturing in the next year.
The refinancing isn't a surprise as these loans were structured to refinance after 5 to 10 years with a big balloon payment at the end. What has caught developers off guard is the stress in the credit markets and the likelihood they won't be able to get nearly enough financing when the loans are set to expire. The report said that delinquencies on commercial mortgages jumped to 0.96% in November, up from a 0.62% rate in September.
The industry is asking commercial real estate loans be included in the $200 Billion Fed program recently established to buy consumer loans. With that plus the second $350 billion TARP fund yet to be allocated, there probably will be a handout for commercial developers.
Will the bailout madness ever end?
Earning News Monday
Companies seeing 2009 as the most challenge year in their history, and the economic outlook is uncertain. Companies slashing their forecast, tightening their investment, reducing cost, and suspending expansions, aiming a bleak economy in the future. No one knows when will be the bottom, and there is no optimistic and confidence.
Walgreen 1Q profit falls 10 percent on store costs
Drugstore operator Walgreen Co. said Monday its profit fell 10 percent in its fiscal first quarter, short of Wall Street expectations, because of costs opening more than 200 new stores. The company said it plans to slow the opening of new stores to save $500 million in response to the recession.
Bleak December spurs Manpower to withdraw profit forecast
Staffing services company Manpower Inc withdrew its fourth-quarter profit forecast on Monday, saying demand for temporary workers had been light in December as a spreading global recession prompted U.S. industrial firms to idle plants to cut costs.
Caterpillar plans to cut 2009 compensation for executives by up to 50 percent amid downturn. The world's largest maker of mining and construction equipment also said it will reduce compensation for senior managers by 5 percent to 35 percent in 2009. Other management and support staff will see a reduction of up to 15 percent.
Walgreen 1Q profit falls 10 percent on store costs
Drugstore operator Walgreen Co. said Monday its profit fell 10 percent in its fiscal first quarter, short of Wall Street expectations, because of costs opening more than 200 new stores. The company said it plans to slow the opening of new stores to save $500 million in response to the recession.
Staffing services company Manpower Inc withdrew its fourth-quarter profit forecast on Monday, saying demand for temporary workers had been light in December as a spreading global recession prompted U.S. industrial firms to idle plants to cut costs.
While businesses across all sectors of the economy are laying off workers to cope with the recession, others are trying to cut costs without firing as many people. Detroit's troubled automakers General Motors Corp, Chrysler and Ford are extending their holiday plant shutdowns longer than usual. Package-delivery company FedEx Corp last week said it would impose a 5 percent pay cut on most salaried workers and suspend its contributions to employee retirement accounts.
Caterpillar scales back executive pay in 2009Caterpillar plans to cut 2009 compensation for executives by up to 50 percent amid downturn. The world's largest maker of mining and construction equipment also said it will reduce compensation for senior managers by 5 percent to 35 percent in 2009. Other management and support staff will see a reduction of up to 15 percent.
The company said the cuts reflect planned reductions in its incentive program and equity-based compensation. It has instituted a hiring freeze and plans to suspend merit pay increases for managers and support employees. Caterpillar also said it was offering incentives to U.S.-based management and support employees to leave the company voluntarily. Eligible employees have until Jan. 12, 2009, to join the program. It will continue to implement cost-saving measures, including temporary factory shutdowns and more layoffs, as needed.
From Calculated Risk: NY Times: More Part Time Workers
Toyota to post first ever operating loss in history
Toyota Company has revised down their forecast for the second time. It forecast a consolidated operating loss of 150 billion yen ($1.7 billion), for the fiscal year ending March 31, the first in the automaker's history since the Second World War, compared to a 2.27 trillion yen profit a year earlier. Toyota had forecast a 600 billion yen operating six weeks ago, which was revised down from its May forecast of 1.6 trillion yen.
Endo said Honda Motor Co and Nissan Motor Co. were also likely to post operating losses in the second half, if not the full year, reflecting the difficult operating conditions faced by car makers across the board.
Toyota would likely report back-to-back annual operating losses through the fiscal year ending March 31, 2010 because of the likely continued appreciation of the Japanese currency and deteriorating economic conditions in the U.S. and Europe.
Toyota said it expects net income of 50 billion yen, down 91% from its earlier estimate of a 550 billion yen profit. It also lowered its full-year unit group sales forecast, to 7.54 million vehicles from its reduced estimate of 8.24 million vehicles in November.The latest sales forecast marks an 18% decline over the 8.9 million units it sold in the year ended March 31, 2008. Toyota is considering cutting its annual dividend for the fiscal year ending March 2009, which would be the first since the automaker was listed on stock exchanges in 1949.
The company now expects U.S. sales of 2.17 million units -- 250,000 units lower than its previous projection -- while Japan sales are forecast to drop by an additional 70,000 units to 2.01 million. Europe sales were expected to drop even more sharply, to 1.04 million units from 1.21 million forecast earlier.
From Calculated Risk: Japan Exports Decline 27%:
Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed. Exports fell 26.7 percent from a year earlier, while imports fell 14.4%. And this isn't just because of exports to the U.S. or Europe: Exports to Asia fell 27 percent, the most since 1986, after the first decline in six years in October. Shipments to China, Japan’s largest trading partner, fell 25 percent, the steepest drop in 13 years.
From Calculated Risk: Japan Exports Decline 27%:
Japan’s exports plunged the most on record in November as global demand for cars and electronics collapsed. Exports fell 26.7 percent from a year earlier, while imports fell 14.4%. And this isn't just because of exports to the U.S. or Europe: Exports to Asia fell 27 percent, the most since 1986, after the first decline in six years in October. Shipments to China, Japan’s largest trading partner, fell 25 percent, the steepest drop in 13 years.
Sunday, December 21, 2008
Economic News Next Week
Tuesday - Consumer Sentiment, GDP (Q3 Final), Existing Home Sales, New Home Sales
Wednesday - Durable Goods Order, Jobless Claims
Wednesday - Durable Goods Order, Jobless Claims
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