San Diego Housing Bubble News and Analysis

After just spotting the headline of this WSJ story and then reading the first paragraph or two, it seemed a sure target for ridicule, particularly since that's what is done around here most of the time. But, after reading the whole report, that view had to be reconsidered.
Chávez Discounts Accuracy of GDP
President Hugo Chávez wasn't pleased with data released this week that showed the Venezuelan economy tumbling into a recession. So the populist leader came up with a solution: Forget traditional measures of economic growth, and find a new, "Socialist-friendly" gauge.

"We simply can't permit that they continue calculating GDP with the old capitalist method," President Chávez said in a televised speech before members of his Socialist party on Wednesday night. "It's harmful."
...
The Venezuelan president isn't alone in suggesting traditional economic-output measures are too rigid. French President Nicolas Sarkozy recently said his country, in addition to measuring GDP, would start gauging prosperity by including factors such as vacation time, health care and family relationships.

An economic commission headed by Nobel Prize winner Joseph Stiglitz supports such moves, saying every country should design its own basket of indicators that would include factors such as unemployment, security, and income inequality.

Both France and Venezuela argue their citizens are better off than economic data suggest. French workers have generous social-security benefits and vacations. Mr. Chávez said free health care in Venezuela isn't counted in economic output because money doesn't change hands.

The most famous example of this line of reasoning is the tiny Himalayan kingdom of Bhutan, which has tried to measure gross national happiness instead of GDP.
Food for thought, though, they've got to come up with something better than "gross national happiness" if they really want to be taken seriously.

This is an unofficial list of Problem Banks compiled only from public sources.

Changes and comments from surferdude808: The Unofficial Problem Bank List increased by a net six institutions to 513 while aggregate assets declined to $302.3 billion from $304 billion.

There were 12 institutions added to the list with an average asset size of $194 million. The largest among the new faces include Modern Bank, National Association, New York, NY ($601 million); Eagle National Bank, Upper Darby, PA ($284 million), and The First National Bank of Wynne, Wynne, AR ($275 million). The OCC issued a Prompt Corrective Action order on September 30, 2009 to Marshall Bank, National Association, Hallock, MN ($60 million).

Six institutions were removed this week with half being failures last Friday including Orion Bank ($2.6 billion) and Century Bank, a Federal Savings Bank ($756 million). Three other banks were removed when their enforcement action was terminated including The First National Bank of Manchester and The Morris County National Bank of Naples. The only other change to the list this week is the OCC’s change in action against First National Bank in Pawhuska ($37 million) from a Formal Agreement to a Cease & Desist Order on October 22, 2009.The list is compiled from regulator press releases or from public news sources (see Enforcement Action Type link for source). The FDIC data is released monthly with a delay, and the Fed and OTC data is more timely. The OCC data is a little lagged. Credit: surferdude808.

See description below table for Class and Cert (and a link to FDIC ID system).

For a full screen version of the table click here.

The table is wide - use scroll bars to see all information!

NOTE: Columns are sortable - click on column header (Assets, State, Bank Name, Date, etc.)





Class: from FDIC The FDIC assigns classification codes indicating an institution's charter type (commercial bank, savings bank, or savings association), its chartering agent (state or federal government), its Federal Reserve membership status (member or nonmember), and its primary federal regulator (state-chartered institutions are subject to both federal and state supervision). These codes are:

N National chartered commercial bank supervised by the Office of the Comptroller of the Currency

SM State charter Fed member commercial bank supervised by the Federal Reserve

NM State charter Fed nonmember commercial bank supervised by the FDIC

SA State or federal charter savings association supervised by the Office of Thrift Supervision

SB State charter savings bank supervised by the FDIC Cert: This is the certificate number assigned by the FDIC used to identify institutions and for the issuance of insurance certificates. Click on the number and the Institution Directory (ID) system "will provide the last demographic and financial data filed by the selected institution".

Real estate news and views from around the globe that make you go, “Really?”

Where else but …

• FUMBLE: Football stadium near Detroit a 99% loss for city (istockanalyst) MORE HERE!
• OUCH! GM job shift would add to downtown Detroit woes (Detroit Free Press) MORE HERE!
• SUPPLY: Fewer homes unsold in Detroit area (Detroit Free Press) MORE HERE!
• BETTER: Michigan foreclosures decline slightly for October (MLive.com) MORE HERE!
• PUZZLE: Michigan’s young people: To stay or not to stay? (MLive.com) MORE HERE!

Post from: Lansner on Real Estate

Inquiring minds are watching The Geography Of A Recession, a time lapse unemployment visualization from the start of the recession until now.

Click on the link to play. This is undoubtedly my shortest post ever.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Turkey on table
Carved up by the Central Bank
MMMM Commerce Bank, Yum!
by Soylent Green is People
From the FDIC: Central Bank, Stillwater, Minnesota, Assumes All of the Deposits of Commerce Bank of Southwest Florida, Fort Myers, FloridaCommerce Bank of Southwest Florida, Fort Myers, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. ...

As of August 28, 2009, Commerce Bank of Southwest Florida had total assets of $79.7 million and total deposits of approximately $76.7 million. ...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $23.6 million. .... Commerce Bank of Southwest Florida is the 124th FDIC-insured institution to fail in the nation this year, and the twelfth in Florida. The last FDIC-insured institution closed in the state was Orion Bank, Naples, on November 13, 2009. Off to a quick start ...

Citigroup is whining that new regulations eliminate pricing for risk. So what does it do? Jack up rates is the answer. To lower interest rates, Citi customers must spend more.
For Citibank credit card holders, there is one way to escape the bank's rate hikes currently under way: Meet a monthly spending requirement.

Those who meet the spending minimum -- in some cases $750 a month -- will be able to get a rebate on their total interest charges for that month. The rebate could cover some or all of the interest rate hike. Customers also need to make payments on time to qualify for the rebate.

Without giving specifics, Citi said the monthly spending requirements and interest rate hikes will vary depending on the cardholder's credit history.

About half of its customers will be able to erase 50 percent to 100 percent of their rate increases through the rebates. Citi said its rebates will be based on interest charges for an entire balance, not just monthly charges.

With 92 million credit cards in circulation last year, Citi was the second largest card issuer in the country, according to CreditCards.com. Chase was the largest with 119.4 million cards, and Bank of America was third with 80.2 million cards.

The change by Citi comes as the industry rushes to adjust to sweeping reforms to start in February that will limit when and how much card issuers can hike interest rates. In a statement, Citi said the actions were necessary given elevated losses from souring loans and "regulatory changes that eliminate repricing for that risk."

The bank also noted that "customers who do more business with us will have the most opportunity to reduce their rates." Of course, consumers could need to spend more than they otherwise would to qualify.Disingenuous Whining

Notice how Citigroup is whining they cannot price for risk.

So what do they do but lower rates for those clients taking on more risk by charging more. Common sense would say that the lower the balance the less the risk.That's the case for Lindsey Pappas, a 25-year-old public relations professional in San Francisco. She received a letter from Citi Wednesday that her interest rate was being hiked to 19.99 percent, up from 14.99 percent.

If she spends $750 a month, however, she can get a refund for part of the higher interest rate charges. The problem is that Pappas is trying to pay off a $5,000 balance on the card, so she tries not to charge any money on it.

"I'm just going to have to deal with the higher interest rate. Spending that much would be irresponsible," she said. "Spending that much would be irresponsible" said Lindsey Pappas. Indeed it would be. The irony is Citigroup complains about "regulatory changes that eliminate repricing for that risk" then voluntarily turns around and encourages customers to take on more risk while pricing less for it.

Such policies will drive away less risky clients while keeping the poor ones.

Is it any wonder Citigroup is in trouble?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Today, the Bureau of Labor Statistics (BLS) released thier latest installment of the Mass Layoff Report showing continued weakness in nation’s job market with 2127 mass layoff events resulting in 217,182 initial unemployment claimants on a seasonally adjusted basis.

On a seasonally un-adjusted basis, the mass layoff events totaled 1934 with 193,904 initial claimants.

The BLS considers a mass layoff event to be a condition where there are at least fifty initial claims for unemployment insurance originating from a single employer over a period of five consecutive weeks.

Leonard Ortiz/The Register

About 17,520 Orange County property owners have signed up this year to fight the county’s assessment of their real estate’s value in an effort to lower their property taxes.

That compares to 16,231 as of Nov. 19 last year, said Pat Martinez, head of the county’s assessment appeals division for the county Clerk of the Board of Supervisor’s Office.

The increased pace of tax appeals likely reflects the dismal state of home prices at the start of the year. This year’s tax assessments are based on property values on or around January, when local home values apparently hit bottom.

Leonard Ortiz/The Register

The median home price dropped to $370,000 in January, according to MDA DataQuick. That compares to a median home price of $520,000 in January 2008, the prior year’s “tax lien” date.

Last month, the median was $436,500, up 18% since prices began their upwards stair-step trend in February.

Property owners are entitled to a lower assessment when the market value of their property falls below the taxable value.

The Orange County Assessor’s Office already lowered tax assessments on more than 200,000 of the county’s 897,000 parcels of land. Those who believe their assessments weren’t lowered enough are entitled to appeal their assessment, upon which property taxes are based.

Orange County Clerk of thee Board Darlene Bloom projected earlier this year that tax appeals would be 85% higher, but that increase failed to materialize.

Previous property tax news …

• 15,000 owners fighting their property taxes
• O.C. property tax fights up 23%
• Homeowner tax appeals jump about 85%, clerk estimates
• O.C. tax values see biggest drop in 34 years
• How accurate is that home appraisal?
• Steepest property tax-value dips hit Santa Ana
• Beach-city homes get fewer property-tax cuts
• O.C. commercial property-tax values off $2 billion
• Watch mail for your property tax update
• 179,000 O.C. homes won’t see taxes go up
• O.C. property tax values face 1st drop in 14 years
• Requests for property tax reviews up 160%
• Site identifies properties getting tax reviews
• Placentia called hotbed of inflated home assessments
• Assessor warns of dubious help to cut property taxes

Post from: Lansner on Real Estate

Rep. Alan Grayson (D-Florida) speaking yesterday during the House Finance Committee hearing that resulted in a much weaker amendment by Rep. Melvin Watt (D-NC) being replaced by one backed by Ron Paul (R-Texas) and Grayson.


Uh-oh! From Alex Jones: Fed Sicks Attack Dogs on Ron Paul after Audit Bill Passes.

By Edward Harrison of Credit Writedowns.

A reader at Naked Capitalism asked us to respond to a recent article from the Christian Science Monitor asking Does US need a second stimulus to create jobs?

Marshall Auerback has already done some heavy lifting – and taken all of the heat in the comments. He says emphatically yes.

Now I want to take a crack at this. My short answer is no. But before I go into this, as an aside, I wanted to mention Marshall’s new smiling, happy picture up at the great blog New Deal 2.0 where he now writes.  Earlier, when Credit Writedowns was hosted at Blogger, he used a picture best described as a mug shot in his profile, but he has changed that one too (although he smiles there a little less). He thinks we haven’t noticed this sleight of hand.  Well I have! Once upon a time, Marshall wrote with a man I called all bearish, all the time this summer. Take a look at that post; you don’t see him smiling now do you? We have Lynn Parramore, New Deal 2.0’s editor to thank for making Marshall Auerback into an optimist.

Different policy choices

But all teasing aside, I do want to take the opposite side of this trade.  You see I too was a deficit hawk. And while I may have been backing fiscal stimulus, I have felt conflicted for doing so. Here’s how I see it.

You have four options:

1. No stimulus. Let the chips fall where they may. Yves Smith calls this the ‘Mellonite liquidationist mode.’ The thinking here is that trying to avoid the inevitable bust only makes it that much larger. And the economic policies during recessions in 1991 and 2001 seem to bear that out. The Harding Recession of 1921 is commonly seen as gold standard response.
2. Monetary stimulus only. Quantitative easing mania. My understanding is this is what Ambrose Evans-Pritchard has been advocating.   The thinking here is that the flood of money and the low rates will eventually jump start the economy. No deficit spending needed.
3. Monetary and fiscal stimulus.  Full tilt Keynesian. This is the Krugman view. The thinking here is that one needs to credibly commit to higher inflation and close the output gap to avoid a deflationary spiral. If that is insufficient, then one needs to go full bore on fiscal stimulus aka deficit spending. And if that doesn’t work, subsidize jobs. The New Deal is commonly seen as the gold standard response.
4. Fiscal stimulus only. Deficit spending. I have been talking up this view. The thinking here is that we need to both close the output gap to prevent a deflationary spiral and revive private sector savings in order to promote deleveraging.

There is no magic bullet here.  We are living through a situation unique in time with few historical precedents. And there are a lot of competing ideas being tossed about. So policy makers are groping around, desperately seeking the holy grail of depression-busting economic policy.  In that regard, I don’t envy them. They are certainly going to make a lot of mistakes. It may seem at times that I don’t realize this given the harshness of my critiques, but I do.

Deficit hawks are misguided

However, there are some policies which could work and others which are flat out wrong.  One policy which is flat out wrong is the concept that we need to reduce deficit spending in order to avoid a double dip recession. This flies in the face of basic economics which says that more spending and less taxes equals greater demand and recovery/boom. More taxes and less spending equals less demand and recession/depression.

Now, it’s not as if we didn’t see this line of argument coming. As far back as November 2008, I heard the chatter (see my post here). So you knew this we-have-to-stop-or-we’ll be-bankrupt nonsense was coming. The problem is it’s just not true.  Here are a few data points:

• Private sector debt (incl. financial firms) was 292% of GDP as of Q2 but public sector debt (incl. state and local municipalities) was 67.2%. Who’s more indebted – the private sector by a factor of 4.
• Adding unfunded liabilities to any public debt number when talking about spiking treasury rates is inaccurate and artificially inflates the number. A lot of people do this to make the public debt scenario look worse. The issue at hand is whether a supply/demand imbalance in Treasury securities spikes interest rates. Unfunded liabilities have absolutely nothing to do with this.
• Cash and bonds are fungible. They are both obligations of the federal government to be repaid in full with a specific sum of fiat money. The Treasury could literally stop issuing government debt altogether and just start crediting accounts electronically to ‘fund’ its purchases. There is no operational constraint to government spending. the U.S. government is not going broke involuntarily. See my post here.

The real issue with deficits causing a double-dip has to do with inflation and overheating. If inflation increases because the economy begins to overheat, interest rates spike and the Fed raises rates to choke off inflation. That’s not going to happen any time soon – although it may be a problem down the line.  The issue at hand now is deflation not inflation. At least Morgan Stanley understands this when they take a deficit hawk position.

And as for the Chinese, they are not going to pull the plug on Treasuries unless they want to tank their export boom. The reason they must buy Treasuries is the dollar peg; they must re-invest in U.S.-based assets in order to prevent their currency from appreciating. This has caused a huge rise in their U.S. dollar reserves. If they changed the peg, their currency would almost certainly rise and this would choke off exports.

No more stimulus, just jobs

I have said my piece about the need for stimulus in the past. So I won’t repeat it here. If you are interested, see my December 2008 posts “Confessions of an Austrian economist,” “What does Mises say about trying to stimulate the economy out of recession,” and “A brief philosophical argument about the role of government.”

But, on the whole, I look at long-term deficits in a dubious light. There are practical constraints to deficit spending – and they lead to inflation, currency depreciation and lower standards of living. This is not national bankruptcy but it is default by inflation and it makes you and me less well off.

This, of course, is over the long-run. In the short run, it is the spectre of a deflationary spiral we care about. Stimulus was important to stop this. I said in February that Obama was making a big mistake with his stimulus measures.

My view here is that Obama is forging a middle path that leads to a dead-end. The stimulus is not nearly enough by half to get the job done. The proposed deficit reduction measures for 2013 are outright scary as they risk repeating a mistake from the 1930s. And the banking sector and mortgage plans, both of which I failed to mention, are dubious half-measures as well. One needs to act aggressively and proactively or not at all.

If you are going to deficit spend you need to do it in a big way. You need to stop the deflationary spiral.  That means hitting the reset button by promoting private sector savings and deleveraging and purging all built-up malinvestments. The risk in addressing the situation this way, of course, is replacing the imperfect invisible hand of markets with the imperfect hand of politicians and legislative fiat.

This is a risk I no longer see as worth taking. I have bailout and deficit fatigue just like most Americans. It is abundantly clear that this Administration has absolutely zero intention of purging any malinvestment or promoting any deleveraging. All they want to do is continue business as usual and go back to the asset-based economy that caused this mess. This is why we have seen bailout after bailout coupled with easy money. It makes for record profits on Wall Street but it does nothing for the unemployed.

Moreover, the political process in the U.S. is such that any stimulus money will be diverted to pet projects and used to pay off political constituents. While this may increase aggregate demand, it does so at the risk of serious social unrest as the outrage will certainly spill over into populism.

So I say no to a second (third) stimulus package.  What the President needs to focus on is jobs. The reason Obama’s poll numbers are shrinking is because he now owns this economy.  And people are not benefitting from this fake recovery.  They are angry at the bailouts and distrustful of government – and with good reason.

Cut payroll taxes, subsidize job creation, divert some military spending to direct job creation by ending the foreign wars. But stop the madness.

A House Financial Services Committee amendment that passed this week would empower federal regulators to dismantle financial firms considered “too big to fail.” The amendment, authored by House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises chair Paul Kanjorski (D-PA), was included to the Financial Stability Improvement Act with a vote of 38-29. The [...]

From Globe St.: Values Off 43% From 2007 Peak Prices nationwide have fallen 42.9% from their October 2007 peak, according to the latest Moody’s/REAL Commercial Property Price Index report issued Thursday, while Real Capital Analytics says total transaction volume for 2009 will be the lowest of the decade. The November Moody’s/REAL report ... covers transactions through Sept. 30 ... September’s index represented a 3.9% value decline compared to August.
...
"Further price declines are almost certain over the short term," says Nick Levidy, Moody’s managing director, in a statement. "However, it is notable that the pace of deterioration appears to be moderating." Here is a comparison of the Moodys/REAL Commercial Property Price Index (CPPI) and the Case-Shiller composite 20 index.

Notes: Beware of the "Real" in the title - this index is not inflation adjusted. Moody's CRE price index is a repeat sales index like Case-Shiller - but there are far fewer commercial sales - and that can impact prices.

Click on graph for larger image in new window.

CRE prices only go back to December 2000.

The Case-Shiller Composite 20 residential index is in blue (with Dec 2000 set to 1.0 to line up the indexes).

This shows residential leading CRE (although we usually talk about residential investment leading CRE investment, but in this case also for prices), and this also shows that prices tend to fall faster for CRE than for residential.

The Federal Reserve Bank of New York bought another $16bn of agency mortgage-backed securities (MBS) in the week ending November 18. The Fed’s gross weekly purchases totaled $17.2bn. The Fed bought $5.9bn from Freddie Mac (FRE: 1.14 -1.72%), $4.55bn from Fannie Mae (FNM: 1.02 -0.97%) and $6.77bn from Ginnie Mae. The Fed also sold $1.23bn of agency [...]

It's a good thing that the folks at the FHA (Federal Housing Administration) know what they're doing. Otherwise, their tiny capital reserves as compared to the nearly $700 billion in home loans they guarantee might be cause for concern, especially after reading a story like this one that, if you were to change some of the names and dates, sounds a lot like the stories you heard a few years ago when the housing bubble was fully inflated.
With F.H.A. Help, Easy Loans in Expensive Areas
By DAVID STREITFELD

SAN FRANCISCO — In January, Mike Rowland was so broke that he had to raid his retirement savings to move here from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”

In its efforts to prop up a shattered housing market, the government is greatly extending its traditional support of real estate, including guaranteeing the mortgages of middle-class and even upper-class buyers against default.Surely, the FHA knows what they're doing, don't they? Just because one in six FHA borrowers is now behind on their payments shouldn't be cause for concern after the agency quadrupled the number of loans it guarantees and now has capital reserves below the minimum level mandated by Congress.

Here is some national data on home buyer financing in October. This is from a survey by Campbell Communications (excerpted with permission) released today.

Source: October Trends in Existing Home Sales, a presentation from Campbell/Inside Mortgage Finance Monthly Survey on Real Estate Market Conditions.

Thomas Popik, Campbell Surveys Research Director, highlighted several key trends from the survey in October:

Investor Purchases of REO Are Declining

First-Time Homebuyers Largely Support the Market

First-Time Homebuyers Dependent on FHA Financing

If FHA Guidelines Get Tougher, Look for Large Impact

Short Sale Inventory and Transactions Are Booming

First-Time Homebuyer Traffic Is Starting to Ease Click on graph for larger image in new window.

The first chart shows the type of financing used in October.

The cash buyers were mostly investors (frequently buying damaged REOs), and the FHA buyers were mostly first time homebuyers.

The second graph shows the financing breakdown by buyer type.

According to the survey investors bought 15% of homes in October. About 72% of these purchases were cash.

Current homeowners bought 38% of homes sold in October and used a mix of financing.

First-time homebuyers accounted for 47% of purchases and were mostly buying using FHA insured loans.

This property in Bonsall is on the court house steps today. 

Here is the MLS description from when it sold for $490,000 in 2002:

Working horse ranch, huge corral, 2 stalls w/shelter plus extra second corral and miles of trails nearby.  Open floor plan that is mostly single level with a few steps up and down.  Large balcony off home with spa.  Land is fenced, mostly usuable – small fruit orchard.  No garage but 900sf pad.

And it features my favorite street sign in the beginning!

This clip is from an interview with blogger Mike Stark. Apologies for the poor sound quality. While Dodd indicates that he is “inclined to be supportive” of Bernanke, he is surprisingly cautious about making a broader statement, a sign of a shift in sentiment.

From Paul Krugman writing in the NY Times: The Big Squander During the bubble years, many financial companies created the illusion of financial soundness by buying credit-default swaps from A.I.G. — basically, insurance policies in which A.I.G. promised to make up the difference if borrowers defaulted on their debts. It was an illusion because the insurer didn’t have remotely enough money to make good on its promises if things went bad.

... by the time A.I.G.’s hollowness became apparent, the world financial system was on the edge of collapse and officials judged — probably correctly — that letting A.I.G. go bankrupt would push the financial system over that edge. So A.I.G. was effectively nationalized; its promises became taxpayer liabilities.

... it seemed only fair for [the financial companies] to bear part of the cost of the bailout, which they could have done by accepting a “haircut” on the amounts A.I.G. owed them. Indeed, the government asked them to do just that. But they said no — and that was the end of the story. Taxpayers not only ended up honoring foolish promises made by other people, they ended up doing so at 100 cents on the dollar. Krugman argues that government officials have squandered the trust of the American people by treating the financial industry with kid gloves. He argues that this make it more difficult to pass another stimulus packaged focused on job creation.

Yesterday Dallas Federal Reserve President Richard Fisher threw a little cold water on the V-shaped recovery madness everyone seems to be buying into these days.

Please consider Fed's Fisher: GDP Growth In Third Quarter Likely Lower Than Reported.Speaking at a conference in Tyler, Texas, Fisher said he was willing to venture that the increase would not be "as robust as originally reported."

He did say, however, that the growth rate would still be positive - though it would be closer to a rate of 2.5 percent - and that growth would also be positive for the fourth quarter.

Even though he said economic growth would be positive, Fisher cautioned that the high unemployment rates would cause recovery from last year's financial crisis to be slow. Managing Expectations

Got the idea the Fed is attempting to manage expectations? If so, that is precisely what the Fed is doing.
When asked about the dollar at a question and answer session following his speech, Fisher said that lower interest rates have not increased the risk of the dollar declining in value. Rather, he said, the weakening of the dollar was due to other major currencies entering the world's economic system.

"You'd expect with more participants that there might be some kind of rebalancing," but such evolution would be orderly and gradual, he said.Let me get this straight: The dollar is falling because "other major currencies [are] entering the world's economic system".

Is he serious? What this proves is these guys absolutely cannot think beyond their prepared remarks.

The Effect of Stimulus

A $trillion in stimulus (not counting bank bailouts) and other stimulus measures not labeled "stimulus" because everyone is getting tired of the word, only got us 2.5%-3.0% of GDP growth.

Dave Rosenberg was talking about GDP in today's Breakfast with Dave
Heightened appetite for risk does not mean that credit problems have gone away as we see the global speculative-grade corporate default rate rise 12 basis points in October, to 9.71%. And Fitch just published a report indicating that the U.S. banks can expect to see 10% of their $1.1 trillion of direct commercial real estate loans default and that the regional banks can expect to see “significant” cuts in their credit ratings.

DOWNGRADE TO GROWTH FORECASTS? THAT DOES SEEM TO BE THE CASE

Dallas Federal Reserve Bank President Fisher suggested yesterday that the Q3 real GDP print will be taken down from 3.5% at an annual rate to 2.5% — despite massive government stimulus. (Is that all you get for your money?) And the Philadelphia Fed survey of professional forecasters shows that this collection of 41 economists just took down their 2010 Q1 GDP call to 2.3% from 2.5% and for next year’s Q2 to 2.4% from 2.8%.

Meanwhile, the S&P 500 is currently trading as if the economy is going to expand at nearly a 5.0% rate in the coming year. If the consensus is right, then fair-value in the S&P 500 is closer to 900 than it is to 1,100. This by no means suggests that the speculative run is over; it only means that the folks allocating their capital to the stock market today do not adhere to the adage of ‘buying low and selling high’ and are very likely the same folks who were buying at the top back in 2007 when “excess liquidity” themes were all the rage.The Stall Rate

I am of the belief that the first 2.0-2.5% of GDP is fluff hedonics, imputations, distortions, and unproductive spending that does nothing nor produces anything.

Heck, it is likely much higher than that, but Bernanke has stated that the economy needs to grow faster than 2.5% to gain any jobs. Now bear in mind the name of the game is not just to gain jobs, but to gain 100,000 jobs or more because that is his estimate as to how fast the labor market is expanding. Please see Bernanke's Outlook For Recovery and What It Means For Jobs for details.

At 2.5% GDP or even higher, unemployment will keep rising even as the effect of the stimulus is starting to drop off. Meanwhile the much touted ECRI leading indicators dropped 1.4 points and hit an eight week low. Those green shoots (which was in reality nothing more than government throwing money around), are starting to die on the vine, even as Obama is concerned about rising deficits and inflation hawks on the Fed are rattling cages about removing stimulus.

Those touting a "V-shaped recovery" are forewarned: Shockingly bad news is on the horizon and it is the shape of an "L" or "WWW".

Addendum:

I quoted Rosenberg above as saying "And Fitch just published a report indicating that the U.S. banks can expect to see 10% of their $1.1 trillion of direct commercial real estate loans default and that the regional banks can expect to see “significant” cuts in their credit ratings."

What the report actually said was "possible" not "expect" although it is entirely possible that Rosenberg was reading between the lines as to what Fitch meant. Here are the actual pertinent statements in the report as sent to be by one of the major brokerages.
Therefore, Fitch expects rating actions taken as a result of its CRE review will be concentrated among the midsized regional and smaller banks. In most cases, rating actions will likely be limited to one notch, but more significant downgrades are quite possible among the banks with the greatest exposure.

Banking companies that see their TCE/TA ratios fall below the 4% threshold will likely see ratings downgraded by a notch, with further downgrades possible for those firms that fall considerably below that level. That being said, Fitch acknowledges that it has already taken a number of rating actions on banks in the past year, so further downgrades may not be imminent for all firms low on capital, as their current rating levels may already reflect that risk.

Fitch does not intend to use the severe stress to help determine a specific rating level; however, results of the severe stress may help the rating committee determine the appropriate Rating Outlook for a specific company. Fitch anticipates that most banks or thrifts that would generate TCE/TA ratios far below the 4% benchmark under the severe stress will likely see their Rating Outlook remain at or move to Negative in the future. Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Total US asset-backed commercial paper (ABCP) outstandings were at $455bn as of November 4, a 35% decline from the beginning of 2009, according to market commentary by Fitch Ratings. The fall in ABCP outstandings comes at a time when the industry is anticipating financial accountancy changes in January and the effect of global risk management regulations [...]