Tuesday, May 05, 2009

Green shoots get munched...

There remains a decidedly positive bias in the market and the media's interpretation of data. Including this story Where Home Prices Crashed, Signs of a Rebound which is not quite as rosy as the headline would indicate. As I've said, home sales might show some slight reversal in very depressed and low-end markets, but those are unit sales. Prices remain depressed and when people talk about the how the housing market fueled the economy over the past 5 years, they aren't talking about $73,000 fixer-uppers in Clayton. The person that bought a $400,000 house in San Francisco that they sold for $1.1 million was suddenly flush with cash and able to fuel the economy (even if their house was never really worth more than $400k).

"Sales volume tends to recover long before prices. In fact, some analysts think price declines in many markets are accelerating. First American CoreLogic, a real estate data firm, reported that “the depth and breadth of price declines continued to worsen in February.” Fitch Ratings recently revised its estimate of future declines to 12.5 percent, from 10 percent, saying the drop would extend to the end of next year. . .

When the market peaked and the ability to refinance all those costly mortgages dried up, the carnage began. There have been 28,898 foreclosures in Sacramento County since 2005.”

A true recovery in housing can not exist in an environment of a shrinking workforce.

"One of the large credit bureaus just released a report that says 4.7% of payments for bank-issued credit cards were late sixty days or more in March, an increase of 38% over the same month last year. According to Reuters, “In March, lenders closed 20 million card accounts, sending the total down by 58 million since the peak in July 2008 to 380 million.”

This recession has been so devastating and so swift that it's left many observers looking like "Survivorman" after a week in the Australian outback. People are so delirious from the bad news that any bit of data can be twisted to fit a positive thesis.

Remember the horror, the faux-outrage, the anti-AIG rallies when they had the gall to pay some bonuses last year (about $165 million). Well, for whatever reason, when the news broke today that those bonuses were ACTUALLY about $454 million in 2008, there was deafening silence. Huh? Here's the deal - AIG should have been Chryslered, but that didn't happen. AIG needs to pay retention bonuses to stay viable. Any outrage is misplaced, but why people lost their minds over a $165 million and can't seem to muster any fake outrage over $454 million is strange. Maybe tomorrow they'll be using Manchester United AIG jerseys to make tea at the next tea party....:)

"Embattled insurer American International Group paid some $454 million in previously undisclosed performance bonuses to employees for 2008, the company said in answers to questions from a U.S. lawmaker that released on Tuesday.

AIG was widely criticized for paying out some $165 million in retention bonuses after it received some $180 billion in government bailout aid. Some of the retention bonuses were returned by employees after the firestorm of criticism.

Payments ranged from an average of $5,403 to employees of its property-casualty group, to $51,026 on average for those in its asset management group.

The payments are in addition to an about $120 million corporate bonus pool designated for holding company employees and executives at subsidiary companies."

I mentioned last week that I couldn't understand the move in GM stock. If the terms of the agreement were to be believed it sounded like stockholders were going to get 1% of the restructured company. Well, that's confirmed in today's SEC filing:

"existing GM common stockholders would hold approximately 1% of the pro forma outstanding GM common stock."

Thus, the stock that is currently trading at $1.85 is ultimately worth a little less than $0.02 per share. Now stocks can and will trade irrationally for some time, but it seems like unless this plan is completely dead on arrival, the stock you see trading under the symbol GM is going to start a steady march toward zero.



Anonymous said...

I wish the local assessors in Lewis County would read your article. Values continue to climb double digits, including this year! When asked how this is possible all I hear is "the housing crisis hasn't made its way to the north country yet."

The Artful Blogger said...

Housing prices remain elevated in the North Country although the data is mixed. Sales seem to be down but the prices have actually continued to climb. The $8,000 tax credit is probably a factor.

If you're considering a $500,000 split ranch in Connecticut - $8,000 is a drop in the bucket. However, when the median price in the North Country is $90-$130k, the $8k credit can be 6% to 10% of the purchase price and that's real money.

I don't have hard stats to back up this theory, but I suspect that a surprisingly large percentage of the North Country's workforce is tied to public sector jobs. US Dept of Defense, schools, local governments, etc. The budgets for these large government bodies tend to lag the rest of the real economy. So, when the economy was doing "well" in 2003-2006 there was little change in the North Country but by 2007-2008 the increase tax revenues had flowed to the budgets of various gov't entities that spurred job growth in the North Country. State and Federal budgets are going to eventually get squeezed and squeezed hard in 2010 and beyond. I think this could make for a very difficult environment in the North Country despite the national economic outlook.

Thanks for the kind words.