Economic Shocks

[DaisyDuke]

So, everything I have read is that any shock to our economy can be the straw that sends us into a recession . . . does anyone have any thoughts about our Citrus Freeze being just enough of a shock to do that?

[lindismith]

That’s a good question. I think it depends on how long this weather continues.

I checked the 10-day forecast, and it looks like these temps are due again next week.

I think it will have some effect on our economy, but people will give up the guacamole before the gasoline, so effectively it will have some impact, but perhaps not enough to push us over the edge.

I think the big impacts are terrorism and gas prices. But, it is interesting to watch something as seemingly benign as climate change take it’s toll.

[waiting hawk]

“The US Federal Reserve will need to slash interest rates three times this year as the housing slump goes from bad to worse and the American consumer begins to buckle, Goldman Sachs has warned. ‘Americans have shown a complete lack of self-control. The personal savings rate is at its lowest point ever, and has actually been negative since April 2005.’”

“‘We believe that housing will soon become the proverbial ’straw that breaks the camel’s back’,’ said David Kostin, the investment bank’s US strategist.”

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/15/bcngold115.xml

My website tracking Inland Empire

[bigtrouble]

What about layoffs?

GMAC Rescap announced plans today to close the San Diego Servicing site, as well as other lesser consolidations. It expects that the “reduction in force” to come to 800 jobs, plus 200 current openings that will not be filled.

Remember that GM has been finalizing GMAC’s sale, so I expect that this is why the cuts are coming sooner, rather than later. I expect many more companies in the industry to be announcing layoffs. And for companies with multiple sites, the California site are usually first to go.

[lindismith]

you’re right bigtrouble.

We had a thread last Fall about all the lay-offs hitting our local market. Companies were relocating out of SD. I’m not sure what happened to them… Anyone know?

[BuyerWillEPB]

I remember a story about SAIC moving all the employees to their Virginia building.

Then there was a San Diego biotech relocating to China.

Unrelated to San Diego, but Intel is also moving operations to Vietnam.

And me personally, if after 2 years I still can’t buy a semi-decent SFR in Clairemont or Mira Mesa, then I’ll be relocating out of state too.

[PerryChase]

BuyerWillEPB, 2 years is too soon. You should extend your time frame for buying a house to 5 years.

[PD]

Maybe he should leave for 5 years and then come back. 🙂

[bigtrouble]

Here is an article on the layoffs. They don’t mention that most of the losses are coming from closing the San Diego Homecomings servicing site.

GMAC ResCap to Cut 1000 Jobs
Tuesday January 16, 5:53 pm ET
GMAC ResCap to Cut 1000 Jobs in Mortgage-Related Business, Blames Slowdown

NEW YORK (AP) — Residential Capital LLC, the real-estate financing company owned by General Motors Acceptance Corp., said it will eliminate 1,000 positions by October as it grapples with “the continued deterioration” in the subprime mortgage sector.
ADVERTISEMENT

The Minneapolis-based company, known as ResCap, said in a filing with the Securities and Exchange Commission that it will reduce its work force by 800 jobs and will not fill 200 open positions in its U.S. mortgage business. It has 14,000 employees worldwide.

ResCap estimated that it would incur about $10 million in severance and related costs associated with the cuts, but expects to save $65 million in 2008.

The company attributed the move to a number of factors including slower loan originations, a cooling housing market, a challenging interest-rate environment and the continued deterioration in the business of lending to people with less-than-perfect credit histories.

Detroit-based General Motors Corp. now owns 49 percent of GMAC, with the rest owned by an investor consortium led by Cerberus FIM Investors LLC.

http://biz.yahoo.com/ap/070116/gmac_rescap_job_cuts.html?.v=1

[bob007]

The US economy will be in good shape in the short run (next 2-5 years) thanks to external forces.

China has the 2008 Olympics.

Japan and West Europe based MNCs will buy US assets to hedge against their declining populations

friendly OPEC powers will keep crude low to squeeze Iran and to help USA.

None of this will prevent implosion in housing market. My personal view is that all those “buyers on the sidelines” will stay on the sidelines until prices decline. But buyers cannot expect the housing market to collapse because of macro-economic problems in the US economy. AT least not for 5 years.

[sdnativeson]

no, it certainly isn’t going to help, but I don’t see it as the straw that breaks the camels back. While everyone who buys citrus products will feel the pinch in higher costs, the most economic pain will be in California.

[bigtrouble]

GMAC-Resi layoffs are truly going to happen industry wide. They are not the most exposed of the mortgage heavyweights; in fact, they are very diversified, and the subprime market freefall we are about to see only affects their subsid Homecomings. They acquired Homecomings and its portfolio (and locations and staff) in whole a number of years ago, and are just now fully integrating all their companies (GMAC Mortgage, Homecomings, GMAC-RFC, master servicing)under the ResCap umbrella. GMAC-RFC is the largest warehouse lender in the country, as well as one of the biggest players in the MBS/ABS market.

Countrywide, WaMu, have much bigger exposure issues. Not only is the subprime market a big exposure, but I would bet that the REO areas are under huge pressure to restructure. Can you blame them–think of what’s in the pipeline. Think of trying to forecast this market and estimating the reserves necessary to cover your losses. When you’re wrong, its millions of dollars wrong.

[Author]

Posts