The Operative Term–Total Insured Unemployment
Precision and the end of the Great Depression are widely regarded as mutually exclusive concepts. The end of the 1930s arrived, and the economy in the United States was still reeling. The start of World II ignited a burst of spending on borrowed dime; industry cranked up to arm troops and operate a wartime society. Call it distraction, or the illusion of prosperity, but this period of a few years during the war finally put an end to a decade of economic woe and job stagnancy.
Although we’re now getting used to anomalies at every turn, there’s no reason to think the current economic crisis will end at a single definable moment any more than downturns of the past. Right now, focus is justifiably on the “second derivative” of trends in unemployment claims and housing prices.
- Calculated Risk reminds us to keep our eye on the ball.
- Lest you are skeptical of the analysis of a skeptic, the Wall Street Journal records other analysts’ take on the latest jobless data.
Once the rate of deterioration slows–sustainably–there can be reason for hopefulness around a bottoming of the flows and forces that most impact consumer confidence and sentiment. Government spending can serve as a band-aid.
Consumer spending at a healthy, responsible clip will be the real sign of an economy on the mend.
‘Twas the Night before FY
‘Twas the Night Before FY
(Beware CFOs with open tabs… apologies to Clement Clarke Moore)
‘Twas the night before FY, we’re now at the bar.
Our guidance is dreadful; we’re no NVR.
And fresh off a WebEx with dame Ivy Z,
We’ve spun metrics, pro formas, even fibbed a degree.
First-time buyers are mirages, our banks are a mess,
And privates are all creaking with signs of distress.
The free-markets free-fall, the jobless claims mount,
FCF’s but a trickle, backlog’s down for the count.
We’ve right-sized and downsized and hammered our trades,
Zeroed out our revolver, still our gross margin fades.
We’ve taken out talent, cut our costs to the bone,
Still we can’t move the houses; there just aren’t the loans.
When Ben lowers Fed rates, it scarce makes an impression.
We seem headed straight for much worse than recession.
We’ve combed through our inputs, we’ve slashed costs and burned,
We’ve walked, and we’ve mothballed, and to impairments we’ve turned.
We’ve reset all our prices, again and again,
‘Til a dollar’s worth pennies in just a stroke of a pen.
We’re waiting for bottom, for signs of a trough,
We need the absorptions, we’ve had quite enough.
Now Dreier! Now, Mizel! Now Dugas! Now Miller!
Hovnanian! Hilton! Mezger and Eller!
On Tomnitz! On Toll, McCarthy, and Schar!
On chairman of StanPac, whoever you are!
For we are the publics, the world needs our good health,
We’ve sworn off our bonuses, toned down our wealth.
Our community counts are but half what they were,
We’re exiting markets so fast it’s a blur.
I’ve worked spreadsheet magic, I know my job well.
Just look at our leverage and the huge NOL.
We’ve got tons of dry powder, we’ve cut down our debt,
Not an analyst doubts, we can weather this yet.
We’ll miss old Ken Neumann, Dunmore, Legend and Trend,
Royce, Village and Barratt, and all our BK friends.
We’ll bet they’re not done; they’ll be back around,
From OldCo to NewCo, when fresh capital can be found.
Until then, you don’t have to guess where we’ll be!
Right here at the pub, I run t&e!
We’ll hope for good earnings, we’ll pray for the jobs,
We’ll pray people buy Fords, Chevys, Volvos, Hondas and Saabs.
We’ll raise our glass too, to the men of Wall Street.
So gracious in triumph, so gallant in defeat.
They’ll find new employment in less well-paid posts,
Then they’ll buy up our houses on East and West Coasts!
For Barack is coming, just wait ‘til you see,
A non-stop flight, Honolulu to DC.
He’ll head to the Oval, all rested and tan,
With a dream team Cabinet and a trillion dollar plan.
He’ll rebuild the bridges, he’ll repave the roads,
He’ll wire all the schools, even add wi-fi nodes.
He’ll start in on health-care, and insure one and all.
For New Deal Number Two, no order’s too tall!
With Geithner, and Volcker and Rahm at his side,
Obama won’t give in ‘til he’s turned the tide.
So let’s toast the new Prez. Let’s hope we’ve seen the worst,
He’s still got to learn, we’ve got to fix housing first!
Data Ba-da Bing
11.2 — months supply
4.2 million — number of unsold homes
4.02 million — homes sold on an annual basis
8.6% — drop in sales from a month earlier
10.6% — drop from a year ago
$181,300 — median price, down 13.2% from a year ago
11.5 — months supply of new homes
407,000 — annualized new home sales for November
35.3% — drop from a year ago
$220,000 — median price for a new home, an 11.5% drop from November 2007
- Here’s the Wall Street Journal take on the data.
- Take a look, too, at Calculated Risk’s analysis of existing homes data and new homes data.
- Here’s Calculated Risk’s update on new housing data releases. Big stinking revelation here: numbers for 2008 new home sales are the worst they’ve been since the Census started tallying the number in 1963.
Sources: National Association of Realtors, U.S. Commerce Department, and U.S. Census.
Slides
This dumbs things down, which we need and like. It’s from Johannes Bhakfi’s slideshow on the credit crisis.
Johannes Bhakfi's Credit Crisis
This is thanks to a hat tip from friend Peter Durand at AlphaChimp. Also, check out XPlane’s Savings & “mis”-Trust: A Credit Crisis Explanation.
Legal Tender Tenderer
The weekend provided no shortage of talk-of-the-town analyses.
In addition to the NY Times piece we feature below, The Wall Street Journal published a treatise by James Grant, editor of Grant’s Interest Rate Observer, a surgically performed evisceration of Federal Reserve Chairman Ben Bernanke’s money and interest rate strategy.
This one has the economically waggish at their waggishly wittiest, and has created an astonishingly–at times, even intentionally–amusing verbal food-fight among them.
Housing Crisis: Is the Solution in the Cause? Or Who’s to Blame?
Coverage of the housing crisis, and the broader economic crisis that the housing crisis triggered, has begun to reveal something profound about a way American society attempts to solve its macro social problems.
In one expansive sphere, rancor and cacaphony create a din about the effects of the problem. In another, a few outliers focus attention on the root cause.
The symptoms of the financial meltdown, a dysfunctioning credit system, and a paralyzed housing market are dire in and of themselves, and sometimes, as we see in medicine, it’s necessary to treat the symptoms in order to buy time and clarity to deal with the root cause.
Today’s New York Time’s coverage of the outgoing President’s role as an accelerant in a real estate wildfire that has laid waste a vast swath of turf stretching to a far horizon, ultimately dooms a high-qualilty business analysis to political partisanship and ideology, thanks to its editing and packaging. Further, the story promises readers it will help them understand the cause of our present horrific predicament, with the assumption that understanding the cause will illuminate a path toward healing, self-help, redemption, and eventual recovery.
Mind you, we think this article is necessary reading, as it shows us an important characteristic of our society’s struggle to dig itself out of a traumatic set of circumstances.
We think it’s also important to read Barry Ritholtz’s The Big Picture analysis today, which shows an equally important example of how economics and financial expertise interact with and counterpunch the mainstream media’s belief system that to understand is to begin to solve. It’s interesting the way two things happen as you read Barry’s take, which is more unapologetically that of an idealogue. One is that, as a lay-reader, you do come away with a greater understanding of the context, the drivers, and the triggers of the housing crisis than you do from reading the Times piece.
The other experience from reading TBP’s interpretation is that we see the same philosophical approach that the Times and virtually all press takes–albeit with more discipline and precision. Importantly, in getting to the “roots,” it seems inevitable that someone or ones to blame are an essential part of that illumination. As if “he did it” will get us to “here’s what we need to do next.”
If the problem, however, is so democratic in its genesis, its accountability, its ramifications, even its culpability, we might have a better chance at getting to our AHA! moment.
The perspective that Harvard’s Joint Commission on Housing Studies executive director Eric Belsky and his JCHS collegue Nicolas Retsinas offer makes the case for collective blame, pervasive pain, and uninversal onus of responsibility to act, not to fix up what’s broken, but to ease unreasonable dislocations currently stressing future generations. Their newly published collection of analyses, “Borrowing to Live: Consumer and Mortgage Credit Revisited,” from Brookings Insitution Press, talks clearly about the causes without pointing political fingers.
Here’s a snippet from Eric himself on his book’s thesis:
New Book by JCHS's Belsky & Retsinas
Look back, or look ahead. As society’s households, businesses, and government work through months and months more of pain, toward an eventual redemption from the economic crisis, we’re going to need to take a harder look at a fundamental change we introduced into our cultural fabric in the past three decades: people who borrow to live.
Since at least the 1970s, Americans have increasingly come to rely on credit to fuel both consumption and investment. More and more people started to use credit for basic needs, attain luxuries, and buy homes as the centerpiece of their investments. During the late 1990s and accelerating this decade, people previously denied credit because of past problems paying their bills were able to get subprime credit cards, auto loans, and mortgage loans.
As homeownership surged, people also started substituting mortgage debt for consumer debt, tapping their equity both for necessities and simply to splurge. For a time, mortgage credit was extended to such borrowers on tight terms and only with more traditional products like a 30-year fixed rate mortgage. But around about 2003 and 2004, investor appetite for mortgage debt and homebuyers willingness to take great mortgage risks to get in on the hottest housing markets of a generation simultaneously led to a massive relaxation of underwriting standards and an explosion of risky products. By 2006, one in five mortgage originations was a subprime loan. And about one in five loans made that year was either an interest-only loan or a loan that gave borrowers the option to make a minimum payment and roll the difference into the principal balance much like a credit card. Many were made with teaser rates that fell away a year or two after origination and led to sharply higher payments.
Investors took high risks that at first came with high a return. As long as prices were rising, borrowers that got in trouble paying high interest rates or when the payments on their loans reset could always just refinance or sell their homes at a profit. Investors were made whole. When prices finally stopped soaring, the music stopped and mortgage investors could not find a safe chair. By early 2007, Bear Stearns had two hedge funds built on securitized investment vehicles for subprime loans go kaput. It hasn’t stopped.
The problem, we know today, was that all along the pipeline, three essentials were missing. One was a truing up or proper quantification of the risk to lenders, investors, businesses, and governments. Another was proper regulation and oversight by third parties of the juggernaut set in motion as financial product development got more and more creative. A third was enough capital among counterparties to make good on obligations.
Ultimately, the outcome was people borrowing to live as never before and for many a substitution of the mortgage debt which cannot be discharged in bankruptcy for consumer debt that could have been.
There are three big conclusions in the book. One is that we need sounder financial practices to assess risk’s magnitude in a business plan; two, is that we need more effective regulation of parties whose enterprises profit from expanding the homeowner universe; three, is that we have to ensure that counterparties to all the debt and risk have enough capital to cover their obligations.
We’re all holding the bag, so we might as well work on solutions from that point of view.
We Like “Stayers,” but We Like “Movers” More
Mobility makes economies whir. Rents get pricing power as people flow in for jobs, and flow to other local economies for better jobs. Moving is an American kind of thing, or at least it was until what’s going on now started going on. About one in 5 of us [adults] moved households each year through the 1960s. Now it’s about one in 7.
There are reasons, most of which make a lot of sense. What it means, though, is that the ebb and flow of economies, including turnover and replenishment, and new household formation, is all slowing down.
Part of that is that we’re getting older as a population. Part of it, of course, is that a downturn in economics means that jobs don’t open up, they close down. That adds to stagnancy.
A lot of these issues get illumination in a new study from the Pew Research Center. One of the study’s authors D’Vera Cohn wrote about immigration issues for the Washington Post for a long time, and has contributed to Big Builder magazine, which covers the new Pew data and Census Bureau numbers in its news line-up.
Here’s a topline comment from her:
The Census Bureau’s Current Population Survey indicates that the number of people who moved between 2006 and 2007, 38.6 million, was the lowest since 1982-83. That earlier period included part of a 16-month recession that ended in November 1982. The annual migration rate, which held at 20% through the mid-1960s, has drifted downward since then before hitting its low last year, with the recent housing market slowdown perhaps playing a part.
Analysts say migration has declined because the U.S. population is getting older and most moves are made when people are young. Another brake on moving is the rise of two-career couples, because it is more difficult to coordinate a relocation when two jobs are involved.
The Census Bureau just released a lot more data on mobility. Blogger Calculated Risk does his analytics thing with this data, calculating the risk associated with a more stagnant labor force.
TOUSA, Standard Pacific–Big Builder Called it
Here’s what Big Builder reported February 14, 2008.
The other home builders show, mostly offsite, is happening at a nearby high-end hotel. There are no booths, no demonstrations, no powerpoints, no little logo-ed promotional premiums to walk away with. Here’s what there are: Suits, drinks, hearty laughter, lots of slaps on the back, business card exchanges, and promises to reconnect, mostly in New York. Among the denizens there are David Matlin, a principal at MatlinPatterson Global Advisors and Art Falcone, who’s re-entered Florida’s home building arena with a company called Americrest, that looks in its near-term future footprint, uncannily similar to Transeastern, the company that brought TOUSA to its knees.
To quote a blogger we admire, “WHOCUDAKNOWED IT?” Fresh off installing MatlinPatterson’s Ken Campbell to replace Jeffrey Peterson as president and CEO of StandardPacific, we see the tie to TOUSA, even as Art Falcone’s Americrest Group fades out of the scene. Somehow, the land Falcone sold to TOUSA in 2005 as part of the Transeastern acquisition is still a sore spot. MatlinPatterson owns major shares of TOUSA, so the blend with StanPac makes spreadsheet sense if it can be rid of its legacy Transeastern poltergeists.
IRVINE, Calif., Dec. 19 /PRNewswire-FirstCall/ — While it is the policy of Standard Pacific Corp. (NYSE: SPF) not to comment on market rumors or speculation, the Company has decided to issue the following statement:
“Although the homebuilding industry is experiencing challenges at this time, we believe that there may be attractive land and corporate opportunities worth considering. We continuously review acquisition and other strategic opportunities which could enhance value for our stockholders. To this end, the Company is engaged in preliminary discussions and the exchange of information with TOUSA, Inc. regarding a possible transaction. There can be no assurances that any transaction will occur, or as to the timing, structure or terms of any transaction. That said, the Company does not anticipate having any further comment unless and until a definitive agreement for a transaction is reached.”
Standard Pacific Corp., one of the nation’s largest homebuilders, has built homes for more than 103,000 families during its 42-year history. The Company constructs homes within a wide range of price and size targeting a broad range of homebuyers. Standard Pacific operates in many of the largest housing markets in the country with operations in major metropolitan areas in California, Florida, Arizona, the Carolinas, Texas, Colorado and Nevada. The Company provides mortgage financing and title services to its homebuyers through its subsidiaries and joint ventures, Standard Pacific Mortgage, Inc., SPH Home Mortgage and SPH Title. For more information about the Company and its new home developments, please visit our website at: http://www.standardpacifichomes.com.
Consolidation is and will be a byproduct of this downturn. MatlinPatterson and companies like it pencil their deals with different math models than those of home builder/developers to make them make financial sense. Right now, they’re stewards of operations that can bring value to both homeowners and to communities in the environs of both TOUSA and Standard Pacific communities. By making the debt to both companies less expensive, and extracting overhead costs, this deal can make sense, especially as volume is so slow.
We’ll see more of this soon.
Fore and After
Fore.
Not so long ago, it used to be that quaint, faint sound you’d recollect having heard from a misty distance, shortly before or more often after a wayward tee shot bounced off your golfcart, missing your best cart driving hand by nano-meters.
In its compound form, fore has long stood for something altogether anatomically else, not mentionable in a family blogging environment like this one.
Now, however, fore has come to the fore as inseparably linked to an insidious other word, closure.
Make no mistake, foreclosures depress home prices, which makes housing make that great sucking sound far and wide. Efforts to fix foreclosures, even if they’re painstaking and fits and starts, and even if they only meet with grudging success, need to be the focus if the tide of bad news is to be reversed.
Money for Nothing
TARP has triggered $335 billion of capital infusions into banks, Wall Street intitutions, and AIG.
The infusions are now going no where fast.
That much we know.