Thursday, June 05, 2008

Goldilocks Economy - News Roundup

U.S. stocks rose the most in almost two months today, led by energy companies and retailers. I imaging the following issues weren't taken into consideration:

U.S. Mortgage Delinquencies, Foreclosures at Record

June 5 (Bloomberg) -- The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their homes.

The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.

Equity in Americans’ homes falls to historic low

The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.

Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.

The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.

Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.

At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.

MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating (Update3)

June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor's, taking with them the ratings on more than $1 trillion of securities they guaranteed.

The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending ``clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.''

UBS Plans to Close Its Municipal Bond Business

UBS said Thursday it would close its municipal bond business after failing to find a buyer for what was the third-largest underwriter of American state and local government debt last year.

“UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,” the company said in a statement.

Richmond Federal Reserve Bank President Jeffrey Lacker Says Fed Loans to Wall Street Risk More Crises

June 5 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker, challenging Chairman Ben S. Bernanke's unprecedented actions to stem a financial panic, warned that lending to securities firms raises the risk of future tumult.

``The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,'' Lacker said in a speech to the European Economics and Financial Centre in London. That ``in turn could give rise to more frequent crises,'' he said.

Lacker urged that the central bank now ``clearly'' set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails ``in a costly way.''

The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression.

Federal Reserve Vice Chairman Donald Kohn Says Writedowns to Rise, Losses May Spread (Update3)

June 5 (Bloomberg) -- Federal Reserve officials expect some U.S. banks to report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Vice Chairman Donald Kohn said.

The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn testified today to the Senate Banking Committee. Banks ``must be prepared for the possibility'' that they may find it harder to borrow if financial-market turmoil continues or credit availability declines further, he said.

``We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns,'' Kohn said during a hearing on the banking industry. Banks aren't increasing reserves enough to keep pace with losses, he said.

US banks fear $5 trillion balance impact

US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets.

Analysts at Citigroup warn the planned tightening of accounting rules for off-balance sheet vehicles would force US banks to reconsider arrangements and could result in up to $5 trillion (₤2.5 trillion) of assets coming back on to their books.

‘We think it is very likely that these vehicles will come back on balance sheet.’ Birgit Specht, head of securitisation analysis at Citigroup, told Financial Times.

Ford Cutting Salaried Expenses By 15%; Delaying Merit Raises

DETROIT -(Dow Jones)- Ford Motor Co. (F) notified its U.S. salaried workers that it will trim expenses in its white-collar work force by 15% through layoffs, attrition and a hiring freeze on some open positions.

All moves, which will include trimming contract jobs, are slated to be completed by Aug. 1, Ford spokesman Mark Truby said Thursday. Truby also confirmed that merit raises for North American salaried workers, due to be paid in July, will be delayed until October. The auto maker will also suspend its U.S. tuition assistance program.

U.S. Auto Sales May Fall 1 Million in 2008, Ross Says (Update1)

June 5 (Bloomberg) -- U.S. auto sales may fall by 1 million vehicles this year and 350,000 more in 2009, said billionaire investor Wilbur Ross, who has been buying up suppliers of parts to the industry.

``The American consumer is tapped out and burned out,'' Ross said today in speech at the Ward's Auto Interior Show in Detroit. ``The pressure on consumers has been intensified by the loss of jobs and the high price of gas.''

Airlines Lose A Decade To Fuel

All airlines can do is cut, cut, cut. There is just no money left after dealing with increasingly rising fuel costs to continue at current levels.

"Based on a look at industry domestic capacity among legacy carriers, regional airlines, and low cost airlines, we expect 2009 domestic capacity will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers," said McKenzie.

Summer airfares double, triple, quadruple

The law of supply and demand is kicking in for airline passengers this summer — and not in their favor.

Despite a string of price increases this year, demand for summer flights remains strong and the USA's big airlines are continuing to fill more than 80% of their seats.

This week, six Airlines (American, United, Delta, Northwest, Continental, US Airways) raised prices again for flights on many domestic routes where there's no non-stop competition from low-fare carriers. The result, says travel price guru Tom Parsons of, is that the cheapest tickets available on many routes in July are 100% to 300% higher than a year ago.

These are historic rates for fare increases, but even with that, airlines are failing to keep up with their rising fuel costs.

Americans' net worth took a dive in the first quarter

Yes, you have gotten poorer. And at an accelerated pace.

The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.

The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion from year-end. That was more than three times the $530-billion drop in the fourth quarter.

More Troubles for the US Dollar? : Trichet Says ECB May Consider Raising Rates in July

June 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials may raise interest rates next month to combat the fastest inflation in 16 years, sparking a surge in the euro and pushing bond yields to the highest level since 2001.

``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,''

Not really important, but indicative of the times we live in, so I figured I'd post it anyway:

Boxer Holyfield Joins List of Celebrities Facing Foreclosure

June 5 (Bloomberg) -- Evander Holyfield, the former heavyweight boxing champion, faces losing his home to foreclosure, joining fellow athlete Jose Canseco and former ``Tonight Show'' sidekick Ed McMahon among celebrities struggling to pay mortgages.

Holyfield's estate in Fairburn, Georgia, will be put up for auction July 1 to repay a mortgage on the property with an original principal of $10 million, according to a legal notice published yesterday in the Fayette Daily News. Washington Mutual Inc., the biggest U.S. savings and loan, filed the notice, which identifies Holyfield as the property's owner.


Very nice "Goldilocks Economy" rally in US Stocks today. Certainly hope all the bad news has been digested.



1 comment:

Anonymous said...

What is good for Wall St. is bad for you.