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Tuesday, May 12, 2009

Great Recession Roundup — May 12, 2009

Items of Interest:

Andy Kessler / Wall Street Journal:
Was It a Sucker's Rally? — You can have a jobless recovery but you can't have a profitless one. The Dow Jones Industrial Average has bounced an astounding 30% from its March 9 low of 6547. Is this the dawn of a new era? Are we off to the races again? ...

discussion:
Barry Ritholtz / The Big Picture: Can You Have a Profitless Recovery ?
Henry Blodget / Clusterstock: Kessler: It Was A Classic Suckers' Rally And You Fools Fell For It
Michael Laprarie / Wizbang: The April Numbers Are In ... and there's not a lot of great news.
Guy Lerner / Technical Take: It Takes Bulls To Make A Bull Market
Burrows & Swarts / SmartMoney: Can This Rally Keep Going?
Bill Fleckenstein / MSN Money: Where You'll See Real Recovery First
Shawn Tully / Fortune: Two Bellwethers Are Pointing Toward a Recovery
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Richard Suttmeier / Minyanville:
"Four in Four" -- Eight reasons why the Bank Stress Tests can’t be trusted:
  1. How can anyone trust the results of any kind of test where the results are negotiated?

  2. The stress tests cover 2009 and 2010, when the problem loans will be increasing right through 2011.

  3. Why did the Stress Tests not include exposures to Construction & Development Loans? This 590 billion dollar loan category is already causing significant problems on bank balance sheets, and this category lost 54.7% during the 1988 to 1992 bank crisis.

  4. Commercial loans in default rose 43% in the first quarter to 3,678 buildings according to Real Capital Analytics Inc., a New York-based research firm.

  5. Commercial property values have declined by approximately 30% since its 2007 peak and will likely fall another 18% this year according to the real estate investment unit of Deutsche Bank (DB).

  6. One of five homeowners is now underwater on their mortgages. More defaults and foreclosures are on the way. Home prices continue to decline and mortgage rates have reached a trough.

  7. According to the ValuEngine Stress Tests, Credit Card Companies American Express (AXP) and Capital One (COF) will need more capital, as will BB&T Bank (BBT) with its exposures to C&D and CRE loans.

  8. Geithner and Bernanke did not create confidence they created an investment trap. There are $4.8 trillion in potential problem loans - mortgages, home equity, credit card, commercial and construction & development and at least 25% will go bust over the next two to four years...
To summarize, I show numerous signs that the Economic Green Shoots are wilting.
related:
John Hussman / Hussman Funds: Banks Pass Test, But Regulators Fail
Douglas Elliott / Brookings Institute: Implications of the Bank Stress Tests
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Medicare Goes Broke in 8 Years

Timothy F. Geithner / ssa.gov:
A MESSAGE TO THE PUBLIC: — Each year the Trustees of the Social Security and Medicare trust funds report on the current and projected financial status of the two programs. This message summarizes our 2009 Annual Reports. — The financial condition of the Social Security and Medicare programs remains challenging...
discussion:
Megan McArdle / The Atlantic Business Channel: The Problem with Social Security
Michael D. Tanner / Cato @ Liberty: The Social Security Trustees Report
Mike Lillis / The Washington Independent: Just in Time for the Health Reform Debate...
W. James Antle, III / AmSpecBlog: Medicare, Social Security: Too Big To Fail?
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LA Times:
Report: Medicare fund eight years from insolvency -- The trustees' prediction is the bleakest assessment in years for the nation's health plan, which will soon face further pressures as baby boomers enter the system.

Reporting from Washington -- Underscoring the urgency of the current push in Washington to rein in skyrocketing healthcare costs, Medicare's trustees warned today that the program's biggest fund would run out of money in just eight years.

The prediction -- issued in an annual report on Medicare and Social Security finances -- offered the bleakest assessment of Medicare's future in years and reflects growing concerns among policy experts that the nation's healthcare spending is unsustainable...
discussion:
Sarah Axeen / New America Blogs: COST: The News About MedicareJohn Steele Gordon / Commentary: Ization Nation — The Obama Administration is bent on taking …
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CNNMoney.com:
Home prices slide 14% -- National median home price falls to $169,000 in first quarter, due to market flooded with lower-priced foreclosures and short sales.

The steep slide in home price accelerated at a record pace during the first three months of 2009, according to an industry report issued Tuesday.

The national median home price of single family homes sold during the first quarter fell 13.8% to $169,000 year over year, and 6.2% compared with the last quarter 2008, according to the National Association of Realtors (NAR). That was the largest year-over-year decline in the 30-year history of the report...
related:
HousingWire:
House Prices Slip 1% in March -- House prices across the US in March fell an average 1% from February and are down 13.9% from the same time last year, according to a monthly report released moments ago by Integrated Asset Services (IAS)...
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Ylan Q. Mui / Washington Post:
Prices Fall To Match A New Frugality — Retailers Respond To Shopping Habits Forged in Recession — The nation's retailers have begun to embrace the new cost-conscious consumer, developing products they can sell at lower prices without driving themselves out of business in the post-splurge era.
discussion:
Libby Spencer / The Impolitic: Retailers drop prices to win sales
Sara K. Smith / Wonkette: Price Cut On Hobo Beans
----
Fannie Mae And Freddie Mac Will Need To Burn Another $100 Billion In 2010John Carney / Business Insider:
Fannie And Freddie Will Need Almost $100 Billion In 2010 -- The Office of Management and Budget released a report yesterday on the budgets and proposed overhauls of Fannie Mae and Freddie Mac that included the possibility of liquidating their assets. But don't get your hopes up.

The two government run mortgage finance companies have been scandalously costly for tax-payers, costing Americans far more in bailout money than they ever saved in cheaper mortgages. The OMB says that the two companies will need at least $92.2 billion more in fiscal 2010. This is on top of the $78.2 billion in aid they've received since they were taken over by the government in September...
related:
Bloomberg:
Options for Fannie, Freddie May Include ‘Wind-Down’ -- Options for overhauling Fannie Mae and Freddie Mac, the government-run mortgage-finance companies, may eventually include liquidating their assets, according to an analysis released today by the Obama administration...
----
Richard A. Epstein / Forbes:
The Deadly Sins Of The Chrysler Bankruptcy — Why mortgage priorities matter. — The proposed bankruptcy reorganization of the now defunct Chrysler Corp. is the culmination of serious policy missteps by the Bush and Obama administrations. To be sure, the long overdue Chrysler bankruptcy is a welcomed turn of events.
discussion:
Matt Welch / Reason: Richard Epstein: Chrysler Bankruptcy “should be struck down on …
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Paul Ingrassia / Wall Street Journal:
How Ford Restructured Without Federal Help -- The company is now at a disadvantage to its less prudent rivals.

You're forgiven if you think the Chrysler Bailout is a hot new car that competes with another model called the GM Rescue. Then there is the Ford Forgo, brought to us by the only Detroit auto maker to forgo government assistance, at least so far.

That's good for the taxpayers and for Ford, right? Well, maybe not. While General Motors and Chrysler will emerge from the government restructuring wringer with significantly reduced debt, Ford will still likely be obliged to repay its lenders. This could put Ford at a competitive disadvantage -- an unfortunate irony for the one Detroit car company that has gotten the decisions mostly right in the last few years...
discussion:
Founding Bloggers: Is It Unpatriotic To Buy A Ford?
Tom Bevan / Real Clear Politics: My Minivan's Haircut

related:
LA Times: World's Carmakers Racing To Form Alliances
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NY Post: Gotti Go - Foreclosure Wacks Don's Daughter, Victoria GottiNY Post:
NOW SHE'S EVICT-ORIA GOTTI -- Mafia Princess Losing TV Castle to Foreclosure after Stiffing Bank Out of $650,000 ...

Despite a vast fortune amassed by her late father, Gambino boss John "Dapper Don" Gotti, the flashy Mafia princess has skipped two years of loan payments and will lose her home in tony Old Westbury, according to court records.

The 46-year-old former reality-TV star owes $650,000 to lender JPMorgan Chase -- a debt secured by a mortgage on the nearly $4.2 million mansion that she won in her divorce with ex-husband Carmine Agnello...
discussion:
NY Times Development blog:
Victoria Gotti, Latest Celebrity to Face Foreclosure

related:
An Angry New York State Sen. Kevin Parker attacks NY Post photographerNY Post:
FORECLOSING ON POL -- State Sen. Kevin Parker -- a vocal supporter of foreclosure relief for troubled homeowners -- has good reason to take that position.

His own two-story Flatbush house is in danger of being repossessed.

According to court papers, Parker, a four-term Democrat representing Brooklyn's 21st Senatorial District, hasn't paid a dime in more than a year toward the $488,000 mortgage he took out in 2006...

NY Post:
SEN. PARKER ARRESTED IN FOTOG ATTACK -- Brooklyn state Sen. Kevin Parker was busted last night after allegedly attacking a New York Post photographer who was trying to take his picture, police said...
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Declan McCullagh / CBS News:
It's A Good Time To Work For Uncle Sam — President Obama's call last year for “shared sacrifice” doesn't extend to federal employees, at least based on the details of his administration's 2010 budget released this week.

At a time when the official unemployment rate is nearing double digits, and 6.35 million people are receiving unemployment benefits, the U.S. government is on a hiring binge …
discussion:
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