Monday, November 7, 2011

notes on the week ended Nov 5th

 Percent Job Losses During Recessionsas has become the norm, the unemployment report for october released by the BLS on friday was nothing to write home about; according to the more reliable establishment survey, only 80,000 non farm jobs were added, with 24,000 government job losses subtracted from the 104,000 jobs added by the private sector (remember, these numbers are from a small sample and inexact)...the silver lining was another substantial revision in the jobs added in the 2 previous months, with september being revised up to 158,000 from 103,000, and august revised up from 57,000 to 104,000, which is pretty spectacular if you recall that august originally reported a goose egg...the jobs added in those 3 months together are just about enough to cover the increase in the working age population & no more, so about all we're doing is treading water...the household survey, from an even smaller sampling of only 60,000 households, reported an increase of 277,000 jobs, and although the labor force increased by 181,000, that was enough to lower the headline unemployment rate to 9.0%...earlier in the year, the household survey was showing lower numbers than the establishment survey, but they've reversed that over the past three months, & i'd guess the two surveys would now be pretty close if annual numbers were compared...  

Seasonal Retail Hiring

other stats from the report include the average workweek unchanged at 34.3 hours, and the average private hourly pay up 5 cents to $23.19 (remember what we know about averages; this could be one exec & 100 peons at minimum wage)...nonetheless, adjusting for inflation, weekly earnings are down about 2% over last year...sectors contributing the most jobs included business services, health care, and retail, and of course state & local government was the big negative…the employment/population ratio increased to 58.4% from 58.3%, but the labor force participation rate remained unchanged at 64.2%....there was also improvement in other areas that have been problems; the U-6 measure, which includes those forced to accept part time work when they want full time work, declined from 16.5% to 16.2%, as the involuntary parttimers decreased by 374,000 to 8.9 million, and the number of long term unemployed, ie., those who've been out of work more than half a year, declined from 6.2 million to 5.9 million, although there arent statistics differentiating those who got a job from those who quit looking and thus arent counted... the adjacent chart is our first read on seasonal hiring, with red indicating annual october hires, yellow showing november hires, & blue those hired in december…in october, retailers hired 141,500 seasonal workers, which is about par for a normal holiday season…the chart at the top, also from calculated risk, shows total jobs losses from the beginning of this recession compared to the other post war recessions…both charts should expand to full size in a new tab or window if you click on them...

Foreclosure Sales

also released this week was the monthly mortgage monitor from LPS Analytics, which is the one report which probably tells us more about the mortgage crisis & condition of the housing sector than all the rest of the housing reports put together…you’ve heard this story before; people stop paying on their mortgages for years and although foreclosure notices are sent out, the process stalls & homeowners remain in limbo…this report, for september, showed that the number of days homeowners remain in their homes while in foreclosure has again lengthened, to an average of 624 days; that timeline has increased every month this year and is now 140 days more than the same month last year; in judicial states, where the laws force banks to foreclose through the courts, the average is even longer, at 761 days, or over two years…of the 2.17 million loans in foreclosure, which is now 4.18% of all mortgages, 72% havent made a payment in a year, and 40% havent made a payment in 2 years; in the accompanying chart, which shows the number of loans in foreclosure by length of delinquency, you can see that there has never been a monthly decrease in the orange segment, ie, those not making a house payment for over 2 years…moreover, new problem loan rates increased sharply over the last two months, with 1.6 percent of loans that were current six months ago now 60 or more days in arrears, so the number entering foreclosure is likely to increase; there are now 1.84 million loans over 90 days delinquent, & 2.36 million loans less than 90 days delinquent, in addition to those in foreclosure…

so what can we make of this?  i think it’s safe to assume that in markets where houses are not moving, banks would rather have the houses they claim they own occupied than vacant (remember, they cant prove ownership anymore); a separate report from Housing Pulse showed nearly 15% of foreclosed homes damaged so seriously they needed major repairs before they were habitable, reducing their marketable price by 20-30%; we might also guess that in judicial states, where the banks have to “show the note” in court, they know they cant produce paperwork without forgery, because paperwork doesnt exist, they never recorded the mortgage assignments, & they are reluctant to proceed until they get the immunity from prosecution promised them by the deal worked out for them by the administration (specifically, Treasury & the OCC) and the majority of attorneys general who are taking part in the negotiated foreclosure fraud settlement...and there's been a recent change proposed to that deal which on the surface might give it more traction; originally, the banks were to pay a relatively small fine ($25 billion), say 5 hail marys, promise to sin no more, and all their sins would be forgiven; however, in the new version, only $3.5 to $5 billion of the fine would be paid in cash; the rest would consist of credits to banks that agree to reduce the amount of principal owed on mortgages;  however, the banks have no legal authority to write-downs loans that they service on behalf of investors, so less than 20% of underwater mortgagees might be helped by this settlement, still leaving the rest - nearly 9 million homeowners - still stuck with the terms they now have...moreover, the banks have not given up the practice of fraudulently fabricating mortgage assignments and there is no indication that this settlement even addresses that ongoing crime...

Freddie Mac & Fannie Mae also reported serious delinquency rates on the mortgages that they hold; for Fannie, serious single family delinquencies were down to 4.00% in september from 4.03% in august, and down from 4.56% a year ago; Freddie Mac reported an increase from 3.49% to 3.51%, compared to 3.80% a year ago...Freddie Mac also reported a 3rd quarter loss of $4.4 billon, and in turn asked for an additional $6 billion bailout from taxpayers, bringing their total cost since they were put into receivership to $72.2 billion...and outgoing Freddie Mac CEO Ed Haldeman will receive a $4 million bonus for a job well done...

we’re getting close to the time the congressional supercommittee must come up with a deficit-cutting plan, lest the automatic $1.2 trillion in “sequestered” budget cuts be enacted; even though they’ve been quiet about their negotiations, social security is clearly on the table, since they havent received much in the way of under the table cash from the old folks…they heard from catfood commission chairmen simpson & bowles this week, who seemed to advise raising the eligibly age for medicare…a tiny tax on financial speculation which has been requested by european leaders is getting no traction…since whatever plan they might come up with will have to be scored by the CBO before it can go to the full congress, a process which could take a couple weeks, it would seem that any delay past this coming week would be cutting it close, since this must be passed by thanksgiving…considering that half the sequestered cuts are to defense, which hasnt been mentioned in committee discussions, i think our best hope is that the committee fails to compromise…

also in congress, the portion of the obama jobs act that involved a $60 billion funding of transportation infrastructure projects was introduced in the Senate, but it failed to get the 60 votes needed to reach the floor….congressional democrats introduced a bill in the house to renew the extension of unemployment rations that was passed last december, which would give those in the worst hit states up to 99 weeks of rations instead of the standard 26 weeks, but it has not yet been taken up, because the house was busy with other critical legislation, such as re-affirming “in God We Trust” as the national motto, and debating silver & gold commemorative coins for baseball

the Fed also held an (FOMC) Open Market Committee meeting this week, which they do approximately monthly (dates for future meetings are set at the meetings), at which they re-committed to holding interest rates low, re-affirmed operation twist, and made virtually no changes to their post meeting statement; much to the dismay of the econo-bloggers who feel that major monetary intervention is needed; there were at least 2 dozen posts advising or advocating changes to monetary policy, if you’re interested, links to them are at the beginning of this week’s blog post…my reason for mentioning this Fed meeting here is in the adjacent table, which shows the changes to the Fed’s economic forecasts for this year and beyond (pdf) from those they made at the June FOMC meeting; notice that they’ve reduced the projected GDP growth rate considerably, and now expect unemployment to remain near 8% through 2013…yet, in the face of this forecast, and projections of below par inflation as far as the eye can see, they took no action

it was a wild week in europe; stories changed daily or even more often, leaving many of the analytical US blog posts dealing with the ramifications of a story reported earlier already overtaken by events by the time they were posted and hence made moot...early in the week, there were reports that both ireland & portugal wanted to renegotiate a writedown of their debts similar to the haircut enforced on greek investors, while sarkozy & the head of the euro bailout fund, Klaus Regling, went hat in hand to china and japan to ask for their participation in the expansion of the EFSF (financial stability fund) from €440bn to €1 trillion...meanwhile, the euphoria over the agreement of last wednesday waned in the face of higher italian borrowing costs, with 5 year rates climbing to euro-era highs at 5.80% and the 10-year over 6% & rising daily despite continued ECB buying of italian debt...but the wheels really came off the euro-bus when greek prime minister george papandreou, facing an increasingly disgruntled public, unexpectedly called for a referendum on the rescue package & a vote of confidence, & the markets, especially banks exposed to greek debt, went to hell...opposition politicians, as well as several in papandreou's own party condemned the move, and euro-group chairman juncker warned of of a greek bankruptcy if such a vote failed to ratify the bailout...with the greek government in chaos, and rumors of a possible coup, the defence minister quietly replaced the country’s top 4 generals (army, navy, air force, & natl defense) with party loyalists (that athens news story has since been changed to say it had been planned earlier)...with the bailout package unraveling, a first attempt to float a relatively small $3 billion 10 year bond to fund the irish bailout & expand the EFSF had to be withdrawn "due to market conditions"...subsequently, merkel & sarkozy (now dubbed merkozy) threatened to withhold funds or expel greece from the eurozone if greek citizens were allowed an opinion on their slavery, the greek cabinet split, and the finance minister, Evangelos Venizelos, went straight from his hospital bed to plead the Greek case before the G20 without consulting the prime minister and to argue for greek submission without the referendum...so papandreou caved, scrapped the plans for a vote, and called an emergency meeting with his opposition, and thus europe's elites were saved from a referendum...even though he survived the confidence vote on friday, word is that  papandreou will now step aside and venizelos is expected to form a new government...while all this was going on, similar political wrangling was going on in italy, where scandal ridden prime minister silvio berlusconi was holding a tighter rein and refusing to cooperate with the troika; merkozy responded by sending eurozone inspectors to italy to go over the country's books...facing deteriorating economic conditions across the eurozone, newly installed ECB chairman Mario Draghi cut interest rates by .25 to 1.25%, giving some hope for relief from the tight policies of his predecessor Jean-Claude Trichet, who will likely go down as one of Europe's greatest villains when all is said & done...but after a few hours of euphoria about the rate cut, bond rates in europe headed up again, some to new records after Draghi gave a speech reminiscent of trichet & indicative that ECB policies wouldnt be changing that much after all...economically, europe is going to hell in a handbasket...german manufacturing, which contracted for the first time in 2 years, led the overall eurozone manufacturing index into negative territory, with Italy's index dropping 5 points to 43.3 (50 is break even)...overall unemployment in europe went up as well, to 10.2%, with austerity measures driving spain's rate to 22.6% and greece's rate to 17.6...although the ECB is holding their forecast for european growth to slow to zero, JP Morgan is now forecasting a "longer & deeper' recession in europe, with all the peripherals save ireland experiencing severe austerity imposed contraction...it's hard to say how a collapse in europe might affect us; morgan stanley has often been mentioned as a major counterparty at risk as a writer of CDS (insurance) on european debt; MF global has already failed betting one peripheral debt, & certainly JP Morgan & Goldman Sachs are heavily involved in selling insurance on the PIIGS as well...are the banks betting europe is too big to fail, or that the Fed will bail them out if it does? it doesnt seem like the ECB is prone to massive monetary intervention, but one wonders what they’ll do if the euro-countries start falling like dominoes...the austerity imposed on the peripherals by the core countries almost assures they cant meet their deficit targets, so further defaults seem to be inevitable…& what about US multinationals that have significant sales in europe?  although there was a big push at the G20 meetings to have the IMF print more of its Special Drawing Rights in an effort to backstop the EFSF, world leaders failed to agree on additional funding, so it appears europe will be on its own for the time being...the rest of the world aint doing so hot either; in china, their Industrial PMI (Purchasing Managers’ Index) fell to its lowest in nearly 3 years at 50.4, and in britain, an influential think tank estimates that they have a 70% of returning to a recession, after cutbacks ostensibly intended to control their deficit backfired..

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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