Tuesday, December 08, 2009

Well, that was close...

Japan announced their final GDP numbers for the third quarter - growth of 1.3% for the quarter vs. an initial estimate of 4.8%!!! That's a bit of a miss even for a government agency. This was somewhat telegraphed earlier this week when the Japanese started another $81 billion stimulus program. The initial reaction to this news was "Huh, they might know something that we don't know" and sure enough, it turns out they knew that their economy was growing at 1/3rd of the rate that they had initially reported.

“Consumer spending will probably start to decelerate in coming quarters,” said Seiji Adachi, a senior economist at Deutsche Securities in Tokyo. “People won’t keep purchasing durable goods just because the government has extended incentives.”

Keep this in mind when you consider estimates from the US Treasury regarding the TARP repayment. 3 months ago we were expected to lose $242 billion, now it's just $42 billion. By March it might be $242 billion again :)

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Mortgage Modifications just aren't working. One of the biggest pushes this year to improve home affordability has been to modify mortgages through a government program called HAMP.

However, for some reason many borrowers that have had temporary modifications have been unable or unwilling to complete the process to make their modification permanent.

"Currently servicers report that about 375,000 trial modifications will have finished a three month trial period with timely payments before 12/31/2009. Informal survey data from servicers indicate receipt of complete documents in about 30% of active trial modifications – these modifications where borrowers have returned all required documents need to be decisioned by servicers as quickly as possible. Thousands of borrowers have successfully converted trial modifications to permanent modifications – but this is a low number compared to the total number of trial modifications."

It sounds like the number of permanent modifications is running in the low single digits. Many people think that a major factor preventing more documents from being submitted is that borrowers are unable to document the salary data that they used to get their original mortgage.

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Meredith Whitney became a bit of a media superstar last year with her correct analysis that many of the banks were in worse trouble than they were reporting. I agree with her analysis that the banks are likely to continue to struggle in 2010 due to commercial real estate exposure, but I'm not sure I see the same reaction from the consumer right now....

"You're going to get a situation where you revert from a consumer standpoint," she added, "where those that had bank accounts for the first time, credit cards for the first time, homes for the first time get kicked out of the system and then fall prey to real predatory lenders."...

"I have 100 percent conviction that the consumer is not getting any better and there's not more liquidity," Whitney said. ... "For a 2010 prediction, which is so disturbing on so many levels to have so many Americans be kicked out of the financial system and the consequences both political and economic of that, it's a real issue. You can't get around it. This has never happened before in this country."

Spending is hard to gauge right now because the holiday's tend to drive additional spending that might otherwise not exist. We'll get a better feel for how the consumer is struggling or thriving in the first quarter of 2010.

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Finally, just a heads up to any customers of a certain large propane supplier that "resides outside of the city." If I hadn't been following propane prices closely I might not have noticed that they billed me at 2008 prices which are about 20% higher than current prices. They claimed that it was an honest mistake, but I'd make sure to check your bill closely if you're a propane user.

Cheers!

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