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Friday, March 02, 2007

When It Rains, It Pours

Of course, right now I'm very grateful for pouring rain. I'm very glad about that. The house in GA should now be safe. It sounds like it may need a new septic system, though! They drove the heavy equipment over the drainfield in order to cut breaks for the neighbors. Well, first things first - people, animals and houses come before septic systems.

I was scared to death yesterday, because that line of storms was going to bring wind and fire it up again, but at least this time we got rain along with the wind.

Last night Chicago raised margins:
In setting margins levels, the Chicago Board of Trade Margin Committee along with the CME Clearing House monitors current and historical price movements covering short-term, intermediate and longer-term data using statistical and parametric and non-parametric analysis. Futures maintenance margin levels are typically set to cover at least the maximum one-day price move on 95% to 99% of the days during these time periods.
Hmm. Let's hope this doesn't mess up the financing for Hillary's presidential campaign.... In theory this should dampen down volatility; in practice I suspect it might take a few days for that to happen!

Initial unemployment claims yesterday weren't too hot. I am watching NSA continuing unemployment more than anything, which is now running higher than it was last year at this time and increasing. For comparison:
2/16/1991 - 4,036,931
2/15/1997 - 2,952,894
2/19/2000 - 2,520,055
2/17/2001 - 3,003,753
2/16/2002 - 4,270,421
2/19/2005 - 3,096,036
2/18/2006 - 2,905,648
2/17/2007 - 3,094,630
Early in economic transitions the continuing unemployment stat is a better indicator of what is happening than the initial claims. A strong economy can absorb initial claims without too much hassle, but a slowing economy doesn't. The four week moving average (SA) of initial claims increased again to 335,250. Many losses of jobs relating to a real estate decline will not show up as insured employment, so it should be interesting to compare this to the next household survey. Unemployment is forecast to rise this year whether the economy goes into recession or not.

We'd better hope that the underlying economy remains relatively strong, because a short glance at the trading headlines will show you that there is growing turmoil in the financial industry:
* Goldman, Merrill, Morgan Stanley Are Almost `Junk,' Their Own Traders Say
* Investors Should `Aggressively Underweight' Stocks, Dresdner Says in Note
* Poole Says U.S. Recession, While Possible, Isn't Federal Reserve Forecast
* Insider-Trading Ring Bust May Fuel Concern Over Hedge-Fund Ties to Brokers
* Yen Heads for Best Week in 14 Months as Investors Unwind Currency Wagers

The existing home sales report this week was pretty rough. For year over year comparisons, I use the non-seasonally adjusted numbers.

The trend for excessive slowing in the west is the problem. YoY (remember, we are now more than one year into this decline) the west saw sales for single-family decline another 9% and median prices declined 4.4%. The south also looks worse than average. Needless to say, claims that the housing market was stabilizing are being rebutted by reality.

Condos did even worse; YoY sales in the west were down 14.3% and median price was down 8.2%. The west will be battered by the changes in underwriting standards, and that will force prices down even more.

You can make a case that the housing market may be stabilizing in the northeast and midwest (although I don't believe that's so), but those two regions will not save the non-prime, non-GSE market (non-traditional mortgages). Now see Calculated Risk and make up your own mind.

The bright spot in all this is that the ISM manufacturing report picked up - it came in at 52.3%, which indicates expansion. The JPM Global manufacturing report also came in positively:
February data indicated that growth of the global manufacturing sector recovered from the sluggish trend seen at the start of 2007. The JPMorgan Global Manufacturing PMI rose from January's one-and-a-half year low of 52.4, to record a four-month peak of 53.7. The PMI was led higher by stronger trends in production, new orders and employment. Improved growth of international trade volumes also contributed to the latest expansion.
The six largest economies:
United States.....: 30.6
Japan................: 14.0
Germany...........: 05.6
China................: 04.9
United Kingdom: 04.5
France..............: 04.0
If Japan and Europe maintain a strong expansion, the global economy can decouple from the US. But usually, if the US economy slumps it will be felt globally.

ed in texas

You've been watching the after hours New Century/ Fremont/ HSBC debacle, of course...
You know, I bet some people who really, really hated me for my due diligence letters a few years back are now thinking of me with a certain fondness....
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