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Monday, December 7, 2009
Friday, December 4, 2009
Wednesday, December 2, 2009
Beige Book Summary dec 2nd
Prepared at the Federal Reserve Bank of New York and based on information collected on or before November 20, 2009. This document summarizes comments received from businesses and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials.
Reports from the twelve Federal Reserve Districts indicate that economic conditions have generally improved modestly since the last report. Eight Districts indicated some pickup in activity or improvement in conditions, while the remaining four--Philadelphia, Cleveland, Richmond, and Atlanta--reported that conditions were little changed and/or mixed.
Consumer spending was reported to have picked up moderately since the last report, for both general merchandise and vehicles; a number of Districts noted relatively robust sales of used autos. Most Districts indicated that non-auto retailers were holding lean inventories going into the holiday season. Tourism activity varied across Districts. Manufacturing conditions were said to be, on balance, steady to moderately improving across most of the country, while conditions in the nonfinancial service sector generally strengthened somewhat, though with some variation across Districts and across industries. Residential real estate conditions were somewhat improved from very low levels, on balance, led by the lower end of the market. Most Districts reported some pickup in home sales, though prices were generally said to be flat or declining modestly; residential construction was characterized as weak, but some Districts did note some pickup in activity. Commercial real estate markets and construction activity were depicted as very weak and, in many cases, deteriorating.
Financial institutions generally reported steady to weaker loan demand, continued tight credit standards, and steady or deteriorating loan quality. In the agricultural sector, the fall harvest was delayed in the eastern half of the nation due to excessively wet conditions during October and early November. Most energy-producing Districts noted a slight uptick in activity in the sector since the last report. Labor market conditions remained weak since the last report, though there were signs of stabilization and scattered signs of improvement. While some Districts reported upward pressure on commodity prices, they saw little or no indication of upward wage pressures or of any significant increase in prices of finished goods.
Consumer Spending and Tourism
Consumer spending strengthened since the last report, with sales of both general merchandise and autos improving across much of the country. Non-auto sales were reported to have picked up in the New York, Philadelphia, Cleveland, Richmond, Atlanta, Kansas City, and San Francisco Districts; sales were described as steady or mixed in the Boston, Chicago, Minneapolis, and Dallas Districts. St. Louis described retail sales as below expectations and down from a year earlier. Auto sales generally improved since the last report, in some cases rebounding from a brief dip after the "cash-for-clunkers" program ended. Increased vehicle sales were reported from New York, Philadelphia, Richmond, Chicago, St. Louis, and Dallas, while sales were described as flat or mixed in the Cleveland, Minneapolis, Kansas City, and San Francisco Districts. A number of Districts reported that used vehicles have been selling better than new ones.
Most Districts also noted that retailers were holding leaner inventories this holiday season, though some indicate that retailers have recently become more optimistic about the holiday-season outlook. Auto dealers' inventories, largely depleted during the cash-for-clunkers program, have been or are being rebuilt.
Tourism was mixed across those Districts reporting. Travel and tourism--especially leisure travel--was described as robust or improved in the New York, Dallas, and San Francisco Districts. Atlanta and Kansas City characterized tourism as sluggish, while Richmond and Minneapolis described it as mixed; Richmond noted that tourism has been adversely affected by severe and damaging coastal storms, while Kansas City characterized the outlook as "grim." New York indicated that business travel remained sluggish, but Minneapolis and Dallas note a slight pickup.
Nonfinancial Services
Activity in the service sector generally picked up since the last report, though results were mixed across Districts and across service industries. New York and Philadelphia reported that service-sector activity overall remained steady to up slightly, while St. Louis noted expanding activity. The information technology industry was reported to be showing improvement in the Boston, Minneapolis, and Kansas City Districts. A pickup in activity at staffing firms was reported by Boston and Dallas, whereas New York noted that activity remained sluggish. Strength in health services was noted in the Boston and Richmond Districts. Shipping activity was characterized as flat in the Cleveland, Atlanta, and Kansas City District, while Dallas reports some gain; however, Dallas and Atlanta both noted particular weakness in rail shipping activity. Professional and business support firms reportedly registered some improvement in the St. Louis and Minneapolis Districts but flat to declining activity in Richmond and San Francisco.
Manufacturing
Most Districts reported mixed to moderately improving manufacturing conditions since the last report. New York, Philadelphia, Cleveland, Minneapolis, Kansas City, and San Francisco all noted modest increases in manufacturing activity within their Districts. Manufacturing conditions in the Boston and Dallas Districts were characterized as mixed, with some improvement noted for biopharmaceuticals companies in Boston and high-tech manufacturing firms in Dallas. By contrast, Richmond and Chicago both reported that manufacturing activity had leveled off since the last report, while activity continued to decline in the Atlanta and St. Louis Districts, although at a somewhat slower pace than the last report. Tighter credit limited the ability of customers to place new orders in the Richmond District, while in the Chicago District, contacts noted a slowdown in the restocking of inventories. Increases in activity related to the transportation industry were cited in the Chicago, St. Louis, Cleveland, and Kansas City Districts, although such activity was mixed in the Dallas District and reported as declining in the San Francisco District. Several Districts noted an uptick in food-related production.
Many Districts reported that their contacts were optimistic about the near-term outlook. Manufacturers in the Boston, New York, Philadelphia, Atlanta, Minneapolis, and Kansas City Districts expected business conditions to improve in the coming months, while producers in the Cleveland District expressed uncertainty about near-term conditions. The outlook in the Dallas District was mixed, with most manufacturers expressing cautious optimism about the near term and construction-related manufacturers expressing pessimism about the future largely due to expectations of prolonged weakness in commercial real estate.
Real Estate and Construction
Home sales and construction activity improved across much of the nation, though prices were generally said to be flat or still declining somewhat. A majority of Districts reported that the lower-priced segment of the housing market has outperformed the high end. Increases in sales activity were reported in the Boston, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts, whereas sales were described as steady or mixed in the New York and Philadelphia Districts. Multifamily housing markets deteriorated further in the New York and Chicago Districts. More broadly, a number of eastern Districts reported continued declines in home prices--specifically, Boston, New York, Philadelphia, and Richmond. In contrast, prices were said to have firmed somewhat in the Dallas and San Francisco Districts and stabilized in the Chicago and Kansas City Districts. Most reports maintained that the lower end of the market has outperformed the higher end: New York, Philadelphia, Richmond, Atlanta, Minneapolis, and Kansas City all noted relative weakness at the high end of the market, with relative strength at the lower end; in most cases, this strength was largely attributed to the homebuyer tax credit (which was recently reinstated and expanded to include existing owners).
Despite the firming in sales, the level of new residential construction activity was generally characterized as weak, though recent trends have been mixed--Atlanta, Kansas City, and Dallas noted some pickup in home construction, whereas the Chicago and St. Louis Districts reported declines. Residential construction was described as flat or stabilizing by Cleveland, Minneapolis, and San Francisco.
Commercial real estate conditions were widely characterized as weak and, in many cases, deteriorating further. Market conditions were reported to have weakened in virtually all Districts, with rising vacancy rates, downward pressure on rents, and little, if any, new development. Expectations for 2010 were also quite low. Boston characterized the commercial real estate outlook as "bleak," Dallas noted that construction was at "historically low levels," and Kansas City described the sector as "distressed." Still, some Districts noted scattered signs of encouragement: Cleveland and Chicago referenced public-works projects as a source of increased business, Richmond noted signs of increased leasing activity from the health and education sectors, Atlanta indicated a modest pickup in new development projects, Minneapolis noted some recently started hotel and retail development, and San Francisco cited slight improvement in availability of financing for new development.
Banking and Finance
Banks reported steady to softer conditions in most Districts. Loan demand was said to have weakened in the New York, Philadelphia, Cleveland, St. Louis, Kansas City, and Dallas Districts. New York noted particular weakness in demand for home mortgage loans, whereas Richmond and St. Louis reported this to be the strongest segment of late. For the most part, the weakness appears to have been concentrated in the commercial sector, though Boston and Chicago reported some pickup in commercial real estate lending--largely refinancing. Credit quality showed signs of deteriorating in the New York, Philadelphia, Dallas, and San Francisco Districts but was described as stable or mixed in Cleveland, Chicago, and Kansas City, with Chicago reporting some improvement outside of commercial real estate. Increasingly tight credit standards were reported in the New York, Richmond, Chicago, St. Louis, Dallas, and San Francisco--largely on commercial loans.
Agriculture and Natural Resources
Excessively wet conditions during October and early November were reported in a number of Districts. As a result, the fall harvest was delayed in many parts of the Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City Districts. Flooding from Tropical Storm Ida and a November "nor'easter" damaged crops and delayed planting throughout the Richmond District, and Virginia health officials closed fishing in all Chesapeake Bay tributaries and temporarily banned the harvesting of shellfish due to potential storm water contamination. By contrast, rainfall in the Dallas District helped alleviate drought conditions experienced in many parts of the region. Contacts in the Chicago, Minneapolis, and Kansas City Districts noted that corn and soybean prices rallied over the past month, although a wide variation in margins was expected for crop farms due to differences in input costs. Losses for livestock operations occurred in the Chicago and Kansas City Districts.
Most energy-producing Districts reported a slight uptick in activity in extraction industries since the last report. Contacts in the Cleveland, Atlanta, Dallas, Minneapolis, Kansas City, and San Francisco Districts noted steady to increasing oil and natural gas production within their regions, albeit from low levels of production observed earlier this year. Contacts in the Cleveland District also reported that a sharp decline in coal production had leveled out since the last report. In general, oil prices increased somewhat, while reports on the price of natural gas were mixed due in large part to differences in inventory levels across Districts. Mining activity in the Minneapolis District increased.
Employment, Wages, and Prices
Labor market conditions remained weak since the last report, with further layoffs, sluggish hiring, and high levels of unemployment in most Districts. However, contacts in the Atlanta, Cleveland, and Richmond Districts reported that the pace of job cuts generally slowed in their regions, and most contacts in the Dallas District reported stable employment levels. Despite generally weak employment conditions, some signs of improvement were noted. For example, contacts in Boston reported that they were beginning to hire and reverse pay cuts or freezes that were implemented earlier in the year, and contacts in the St. Louis District reported that the service sector had started to expand recently. Expectations for the holiday season were mixed across Districts, with contacts in the New York and Dallas Districts reporting lighter-than-normal seasonal hiring and/or increases in the hours of existing employees, as opposed to hiring temporary workers, to meet the seasonal demand. On the other hand, most retailers in the Richmond District have hired the usual number of seasonal workers this year.
Districts generally reported little or no upward wage pressures, while some Districts noted upward pressure in commodity prices, and most Districts reported stable selling prices. Wages were largely reported to be holding steady in the Boston, Cleveland, Richmond, Chicago, Minneapolis, Kansas City, Dallas, and San Francisco Districts. Most Districts reported stable prices overall, although some reported higher input prices, largely for energy and other commodities used in production, with a limited ability to raise selling prices. Prices were reported as moderately lower in the Kansas City District, and downward price pressures were cited for some professional services and intermodal transportation firms in the Dallas District. Some makers of food products and chemicals in the Philadelphia District reported raising prices, and the prices of computer memory chips continued to firm in the San Francisco District. Retailers in several Districts indicated that they have managed inventory levels in an effort to prevent the steep price discounting that occurred last year, however, some promotional price discounting is expected through the holiday season.
http://www.federalreserve.gov/fomc/beigebook/2009/20091202/default.htm
Tuesday, December 1, 2009
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Saturday, November 28, 2009
SEC Obtains Asset Freeze in Minnesota-Based Foreign Currency Trading Scheme
FOR IMMEDIATE RELEASE
2009-253
Washington, D.C., Nov. 24, 2009 — The Securities and Exchange Commission has obtained an emergency court order freezing the assets of a self-proclaimed Minneapolis-based money manager, a nationally syndicated radio personality and four companies they controlled in a foreign currency trading scheme that raised at least $190 million from more than 1,000 investors.
Additional Materials
The SEC alleges that Trevor G. Cook and Patrick J. "Pat" Kiley sold unregistered investments through shell companies by misrepresenting that they would deposit each investor's funds into a separate account in the investor's name to trade in foreign currencies and generate annual returns of 10 percent to 12 percent. They also misrepresented that their foreign currency trading program involved little or no risk and that investors' principal would be safe and could be withdrawn at any time. Kiley pitched the investments on his financially themed "Follow the Money" show that he hosted on radio stations nationwide.
According to the SEC's complaint, filed in U.S. District Court for the District of Minnesota, Cook and Kiley instead pooled investors' funds in bank and trading accounts in the names of entities they controlled. The foreign currency trading they did conduct resulted in millions of dollars in losses. Moreover, they misused approximately half of investor funds collected to make Ponzi-like payments to earlier investors and pay for Cook's gambling losses and purchase of the historic Van Dusen Mansion in Minneapolis.
"Cook and Kiley told investors that their money would be invested safely and profitably," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office. "Instead, they went on a $40 million-plus spending spree with investors' money and lost another $40 million in risky foreign currency trading."
In addition to Cook and Kiley, the SEC charged their unregistered companies UBS Diversified Growth LLC, Universal Brokerage FX Management LLC, Oxford Global Advisors LLC, and Oxford Global Partners LLC.
The SEC alleges that Cook and Kiley misappropriated $42.8 million of investors' money, including $18 million that Cook used to buy ownership interests in two trading firms; $12.8 million that Cook and Kiley transferred to Panama to purportedly finance the construction of a casino; $2.8 million that Cook used to acquire the Van Dusen Mansion and $4.8 million that Cook lost through gambling. Cook and Kiley also misspent approximately $51 million to make Ponzi-like payments to earlier investors. The SEC further alleges that Cook and Kiley placed $108 million of investors' funds into banking and trading accounts in the names of their various shell companies and used some of this money to trade foreign currencies, resulting in losses of at least $48 million.
The Honorable Michael J. Davis of the U.S. District Court for the District of Minnesota issued an Asset Freeze Order against all assets of Cook, Kiley, and the Defendant Companies on Nov. 23, 2009. The court also issued an asset freeze order against several relief defendants for the purposes of recovering investor funds in their possession: Basel Group LLC, Crown Forex LLC, Market Shot LLC, PFG Coin and Bullion, Oxford FX Growth L.P., Oxford Global FX LLC, Oxford Global Managed Futures Fund L.P, UBS Diversified FX Advisors LLC, UBS Diversified FX Growth L.P., and UBS Diversified FX Management LLC. The court also entered a freeze order against certain assets of Cook's in-laws, relief defendants Clifford and Ellen Berg, who received investor funds from Cook. In addition, Judge Davis issued an order appointing a receiver over all of these assets. The court issued the freeze and receivership orders under seal while the assets were being secured, and the seal has now been lifted.
The SEC's complaint charges Cook, Kiley, and their companies with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief already obtained, the complaint seeks preliminary and permanent injunctions and disgorgement from all defendants as well as financial penalties from Cook and Kiley, and disgorgement of ill-gotten gains from the relief defendants.
None of these entities using the UBS name are affiliated with UBS AG, the Switzerland-based global financial services firm.
The SEC acknowledges the assistance of the Commodity Futures Trading Commission, the Swiss Financial Market Supervisory Authority, the National Futures Association, and the Minnesota Attorney General in this investigation.
# # #
For more information about this enforcement action, contact:
Timothy L. Warren
Associate Regional Director, SEC's Chicago Regional Office
(312) 353-7390
Greece tests the limit of sovereign debt as it grinds towards slump
Greece is disturbingly close to a debt compound spiral. It is the first developed country on either side of the Atlantic to push unfunded welfare largesse to the limits of market tolerance.
Monday, November 23, 2009
3 Hebrew Boys guilty of $82 million Ponzi scheme
http://www.thestate.com/local/story/1037492.html
3 Hebrew Boys guilty of $82 million Ponzi scheme
You don't use God if you're going to defraud people'
The jury needed little time Friday to convict the Midlands men who called themselves the 3 Hebrew Boys for running a debt-relief ministry that turned out to be an $82 million Ponzi scheme.
The seven women and five men saw through the lies of Joseph Brunson, Tim McQueen and Tony Pough, one of the jurors said after the trio was convicted on 58 counts of mail fraud, money laundering and transporting stolen goods.
After two weeks of testimony, the jury reached a verdict in less than three hours.
"You don't use God if you're going to defraud people," said a juror who declined to give her name. "They never were helping people. They were just helping themselves."
The jury also ordered the 3 Hebrew Boys to repay $82 million. The men showed no emotion as the clerk read the word "guilty" 174 times. They face up to 30 years in prison when sentenced early next year.
The men called themselves the "3 Hebrew Boys" after the biblical tale of men who survived an inferno because of their faith.
Since 2004, the men had lured at least 7,000 investors from two dozen states, including many from military bases and churches, with promises to help pay off debt at a fraction of its cost. They also offered monthly lifetime residuals on investments.
They claimed to earn money from investing in foreign exchange markets using secrets known only to banks.
Their presentations banned attendance from anyone working in law enforcement, government agencies or the media. Investors had to sign a confidentiality agreement with a $1 million penalty for violating it.
Authorities said less than $100,000 was ever invested in foreign exchange markets - and that money was lost.
By the time they were arrested in 2007, the 3 Hebrew Boys would have had to pay investors more than $1 billion over the next two years and had just $17 million in bank accounts.
Winston Holliday, who helped prosecute the case for the government, said the scheme was attractive because it used an investment few understand - foreign exchange markets - and gave early investors big returns.
"It was exotic," he said. "People might have been skeptical, but that didn't matter after they saw the results. Once the money started to flow, people figured they had to join or get left behind."
The scheme also was helped by sales representatives who spread the word about the 3 Hebrew Boys' programs to worshippers at their churches and troops under their command, even in Iraq.
"They were trusted, so it must be good," Holliday said.
Even on the trial's last day, the 3 Hebrew Boys continued to argue their prosecution was unjust.
Without the knowledge of their court-appointed attorneys, they submitted a court filing Friday that accused Walt Wilkins, the U.S. attorney in South Carolina, of treason and committing an act of war against them.
The men have argued federal law does not apply to them because they are descendants of people who lived in the country before the colonists arrived.
U.S. District Judge Margaret Seymour revoked their bail and ordered them into custody after their convictions. The men handed over necklaces, rings, watches, money and wallets to family members before being escorted out of the courtroom.
At one point after the verdict was read, Brunson, pastor at a Northeast Richland church, turned to the gallery of friends and family and whispered: "Don't walk by what you see. Walk by what you know."
"I'm completely shocked because of the complete and total injustice," Brunson's wife, Isolde, said while leaving the courtroom.
Some 3 Hebrew Boys "depositors" - as they were called - did get returns on their investments that, in some cases, paid off mortgages, credit cards and cars. They received about $23 million.
But the men also spent about $25 million on a home near Walt Disney World, three Atlanta condos, three luxury stadium boxes in Charlotte and Atlanta, more than 20 cars, eight lots at a Northeast Richland subdivision, 20 acres of Orangeburg County land, a $1 million motor coach, and a $5 million personal jet.
Their court-appointed defense attorneys argued the trio planned to use all those purchases to raise money for their debt-relief programs. Their attorneys would not say Friday whether they planned an appeal.
The case came to light in 2007 when state authorities seized $17 million in cash from bank accounts tied to the 3 Hebrew Boys. The men also face state charges of securities fraud, failure to file state income tax returns and selling unregistered securities.
A federal court-appointed receiver is trying to sell the assets to repay investors. Claim forms could be available in a few weeks, the receiver said.
However, at least seven cars bought by the 3 Hebrew Boys are still missing, including two Mercedes roadsters valued at more than $330,000, authorities said.
The case was investigated by agents of the FBI, IRS, and the Defense Criminal Investigative Service. FBI special agent Ron Grosse pored over 14,000 pages of documents, Holliday said.
"We have been living this case for two years," he said. "We're glad to get complete justice."
Bank Enforcement Cease and Desist Actions Quickly Rising
Bank Enforcement Cease and Desist Actions Quickly Rising The financial crisis is causing a dramatic rise in the number of cease and desist orders by bank regulators and should be a warning sign for bank managers and directors, according to analysis by the Regulatory Fundamentals Group. By Melanie Rodier
More from this author November 20, 2009
The financial crisis is causing a dramatic rise in the number of cease and desist orders by bank regulators and should be a warning sign for bank managers and directors, according to analysis by the Regulatory Fundamentals Group (RFG). "Regulators are concentrating on the failure to meet basic standards for safety and soundness, such as capital adequacy and liquidity," Deborah Prutzman, CEO of RFG, stated. "We encourage senior management and directors to be especially vigilant about their governance program until the economy turns around." The report shows that federal banking agencies have issued 302 Cease and Desist Orders as of September 30, 2009, compared to 168 in all of 2008. In the third quarter alone, 159 Cease and Desist orders were issued. RFG analyzed the 159 Cease and Desist orders and found the majority of the orders (130) indicate banks were operating with an inadequate level of capital protection for the volume, type, and quality of the assets held. One hundred of the banks were ordered to reduce their level of criticized assets; 93 banks were ordered to cease operating with an inadequate methodology for determining the appropriate allowance for loan and lease losses; 83 orders required banks to develop a three-year business plan and goals based on sound banking practices; 75 banks with brokered accounts were required to adopt a written plan to eliminate reliance on brokered funds and/or stop accepting deposits. Adequacy of management was also a key issue for bank regulators. Of the 159 orders reviewed by RFG, 99 stressed the importance of adequate management and 51 focused on adequate board supervision. Interestingly, the number of orders directed at individuals, primarily civil money penalties and removal and prohibition orders, did not increase significantly during this time period. This indicates that the federal banking regulators are devoting resources to deal with the consequences of the recent financial crisis at the present time, the release said. The orders were issued by the Federal Deposit Insurance Corporation (FDIC); Office of the Controller of the Currency (OCC), Office of Thrift Supervision (OTS) and the Board of Governors of the Federal Reserve System (FED). You can read the entire report at www.RegFG.com.
Sunday, November 22, 2009
Thinking different in a new economy
http://www.triplepundit.com/2009/11/sustainability-lessons-learned-hitchhiking-the-real-estate-cosmos/
By Martin Melaver
Recently, I've been reading with my son The Hitchhiker's Guide to the Galaxy. We're at that point in the story when our travelers arrive on the planet of Magrathea. Magrathea, you may recall, made a name for itself millions of years ago by specializing in building designer planets for the super-wealthy. Then, out of the blue, a severe economic recession hit the galaxy and demand for Magrathea's high-end product vaporized. The citizens of Magrathea decided to mothball the planet until market demand returned. Fast-forward five million years, and the Magratheans are still waiting. Talk about an allegory for our time.
In a recent webcast, Stephen Blank, Urban Land Institute's Senior Resident Fellow for Real Estate Finance, expressed what many in real estate already know and fear: that the downturn in residential real estate in 2007-8 was nothing compared to the tsunami coming at us in 2010 in the commercial sector. Values are likely to dip to 40 percent from three years ago, a commercial resurgence is not likely to occur until 2012, and the financial markets will continue to remain frozen except for the vulture plays stepping in with all-cash, low-ball purchases of distressed assets. Of the total $3.5 trillion in commercial debt out there, $900 billion is held in the problematic CMBS market. Thirty-nine billion dollars of that debt will be due in 2010; $150 billion by 2012.
http://www.reuters.com/article/GlobalFinance09/idUSTRE5AH5FM20091118
By Joseph A. Giannone
NEW YORK (Reuters) - Sooner or later, office buildings and other commercial real estate financed during the credit bubble will generate hurricane-scale losses for banks.
Banks in recent years have been hammered by losses on home mortgages, buyouts and corporate defaults. Now, lenders face big losses from loans backed by commercial real estate, where a stagnant economy will eventually take its toll, financial services executives told the Reuters Global Finance Summit.
"The commercial real estate business still has not been marked down. It's not been marked to market," Cantor Fitzgerald LP Chief Executive Howard Lutnick said. "The economy can't, in my opinion, grow fast enough that the tenants are going to go out and start hiring and growing and building and take up all these rents at $60 a foot. It's nonsense."
U.S. banks held $1.65 trillion of commercial real estate loans on their balance sheets as of November 4, according to the Federal Reserve. Total assets were $11.8 trillion.
Yet banks have postponed their day of reckoning, extending loans in hopes the economy will improve and demand for space will rebound. Banks have resisted selling assets, or taking them away from underwater borrowers, in fear of setting a new and lower market price.
It is a strategy neatly summarized as "a rolling loan gathers no loss," Lutnick quipped.
Lutnick, whose firm is now building out a real estate restructuring business, noted the equity invested in almost every transaction during the peak bubble years of 2005 through early 2007 has been wiped out. Lenders are under deep stress, because the value of their collateral has fallen.
FRIENDLY FED
But there is a limit to how long landlords can hold out for the old pre-recession rents. And once one building is marked down to reflect lower rents, neighboring buildings also should fall in value.
Lutnick added most commercial loans come in the form of five-year balloon loans, so a wave of 2005-vintage assets will test creditors next year.
"When you're in the eye of the hurricane, it sure feels good until you look at the TV screen and then you say, 'look, the hurricane is all around you,'" Lutnick said.
Banks do have a few things going in their favor. Chief among them is a friendly Federal Reserve, whose policy of free money lets banks reap windfall lending profits.
"The Fed has pushed interest rates down to nothing. The spreads on portfolios and securities are generating a huge amount of net interest income," Broadpoint Gleacher Securities Group (BPSG.O: Quote, Profile, Research, Stock Buzz) Chief Executive Lee Fensterstock said at the Summit. "That will enable them to resolve some of their commercial real estate positions."
The commercial real estate problem also pales in size next to the previous waves of mortgage, leveraged loan, credit card and other consumer loan losses.
FBR Capital Markets analyst Paul Miller, while generally negative on banks, on Wednesday played down the danger of commercial real estate losses. Continued...
GLOBAL ECONOMY WEEKAHEAD-A glimpse into the mind of the U.S. Fed
11.22.09, 3:00 PM ET
United States -
By Emily Kaiser
WASHINGTON (Reuters) - The Federal Reserve is about to provide a little more insight into how long an extended period of time might be.
The U.S. central bank, has been repeating that "extended period" phrase since March to signal that it intends to keep its benchmark short-term interest rate near zero for the foreseeable future.
With the U.S. economy now growing again, there is considerable debate about how far that horizon stretches.
After its last policy-setting meeting in early November, the Fed spelled out more clearly the economic conditions that it thought justified ultra-low rates -- namely high unemployment and subdued inflation trends and expectations.
On Tuesday, the Fed will release minutes from that meeting, offering a glimpse into its closed-door discussions that may provide more clues about when rates will go up.
A recent Reuters poll of economists found they expect the Fed to hold interest rates steady until the third quarter of 2010, even though the economy is likely to keep growing.
"We think the Fed will want to see several quarters of strong growth and a falling unemployment rate before it is willing to raise rates," said Barclays Capital economist Dean Maki, who expects modest tightening starting in September.
The Fed got three months of above-average growth in the third quarter, although revised figures coming Tuesday are expected to show the pace was not quite as peppy as the 3.5 percent annual rate that was initially reported.
Revised figures for Britain's economy, slated for release Wednesday, are expected to show its third-quarter contraction was not as deep as first thought, although the fact the economy was still shrinking has kept pressure on the Bank of England to do more to spur activity.
As for U.S. unemployment, that stands at a 26-year peak of 10.2 percent and is widely expected to stay abnormally high at least through 2010.
The Fed itself has predicted the jobless rate will remain above normal at least through 2011. Tuesday's minutes will include updated forecasts for economic growth and employment, and may show the central bank taking an even gloomier view.
Its June forecasts pegged unemployment in the range of 9.8 percent to 10.1 percent for 2009, but the actual figure has already exceeded that. Its 2010 forecast for 9.5 percent to 9.8 percent unemployment may also be nudged higher.
CHILLING WAKE-UP CALL
Some private economists think this recession has done even deeper structural damage to the job market, pushing the longer-run "normal" level of unemployment to somewhere around 6 percent rather than the 5 percent range that Fed officials had thought.
Indeed, the Fed's June forecasts show at least one of its policy-setting committee members thinks longer-run unemployment may now be 6 percent. If more officials have shifted to that view, the Fed's longer-run forecast could get bumped up.
For financial markets, a Fed promising cheap money indefinitely has helped to lift stock markets and steepen the yield curve, making lending more profitable for banks.
But global markets developed a case of the jitters last week after eight months of relative calm, reflecting a bit of uncertainty about the health of the economy and what that might mean for central banks' ultra-loose policies.
Lena Komileva, an economist with Tullett Prebon in London, thinks the recent market unrest may be an early warning of worse to come next year.
The Fed and its counterparts in Europe and elsewhere have cut interest rates to record lows and poured trillions of dollars into special lending programs to try to prop up the economy. Komileva said that succeeded in turning investor attention away from the sort of depression scenarios that were prevalent last year, but the effects may be temporary.
Reports last week showing the U.S. housing market still suffering from soaring defaults "made for a chilling wake-up call," she said. Investors responded by pulling money out of assets seen as risky.
If the recent wobbles are showing markets had assumed a healthier and speedier economic recovery than what has materialized, central banks will have to decide whether they can provide more assistance without sowing the seeds of future problems such as runaway inflation.
"In financial (market) valuations, the global economy now looks a bit too perfect," she said. "It appears that the effects of central banks'... anesthetic for global financial risks are beginning to wear off." (Editing by Neil Stempleman)
Copyright 2009 Reuters, Click for Restriction
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Sunday, November 15, 2009
The Worst is yet to Come: Unemployed Americans Should Hunker Down for More Job Losses
From the Daily News:
Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.
While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.
Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.
So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.
There's really just one hope for our leaders to turn things around: a bold prescription that increases the fiscal stimulus with another round of labor-intensive, shovel-ready infrastructure projects, helps fiscally strapped state and local governments and provides a temporary tax credit to the private sector to hire more workers. Helping the unemployed just by extending unemployment benefits is necessary not sufficient; it leads to persistent unemployment rather than job creation.
The long-term picture for workers and families is even worse than current job loss numbers alone would suggest. Now as a way of sharing the pain, many firms are telling their workers to cut hours, take furloughs and accept lower wages. Specifically, that fall in hours worked is equivalent to another 3 million full time jobs lost on top of the 7.5 million jobs formally lost.
This is very bad news but we must face facts. Many of the lost jobs are gone forever, including construction jobs, finance jobs and manufacturing jobs. Recent studies suggest that a quarter of U.S. jobs are fully out-sourceable over time to other countries.
Other measures tell the same ugly story: The average length of unemployment is at an all time high; the ratio of job applicants to vacancies is 6 to 1; initial claims are down but continued claims are very high and now millions of unemployed are resorting to the exceptional extended unemployment benefits programs and are staying in them longer.
Based on my best judgment, it is most likely that the unemployment rate will peak close to 11% and will remain at a very high level for two years or more.
The weakness in labor markets and the sharp fall in labor income ensure a weak recovery of private consumption and an anemic recovery of the economy, and increases the risk of a double dip recession.
As a result of these terribly weak labor markets, we can expect weak recovery of consumption and economic growth; larger budget deficits; greater delinquencies in residential and commercial real estate and greater fall in home and commercial real estate prices; greater losses for banks and financial institutions on residential and commercial real estate mortgages, and in credit cards, auto loans and student loans and thus a greater rate of failures of banks; and greater protectionist pressures.
The damage will be extensive and severe unless bold policy action is undertaken now.
Roubini is professor of Economics at the Stern School of Business at New York University and Chairman of Roubini Global Economics.
Saturday, November 14, 2009
Wall Street Spends $1.8 Billion A Year on Data Centers, Tabb Group Says
Wall Street Spends $1.8 Billion A Year on Data Centers, Tabb Group Says
Proximity attracts a hefty premium from ultra-low-latency trading firms; 82% of firms say power is their overriding concern.
By Penny Crosman
April 01, 2009
With financial markets firms investing an average of $1.8 billion annually on data center space, power and cooling — sell-side firms and execution venues alone spend nearly 75% of that total — power, location, connectivity, flexibility and security are critical elements in the creation and selection of financial data centers. According to research from Tabb Group in a new report published today, "Financial Services Data Centers: Power, Proximity and Profit," 66% of the current US equity trading volume is driven by fewer than 1% of the firms deploying ultra low latency strategies that physically require being located within feet of an execution venue matching engine.
The report is based on interviews with front-office staff and technologists at bulge bracket broker-dealers, proprietary trading firms, execution venues and IT solution providers. "Once hidden only in basements of downtown Manhattan buildings and staffed with people in ripped jeans and sneakers, today's data centers contain some of the world's most bleeding-edge technology, run by some of the industry's best and brightest," says Kevin McPartland, senior analyst and TABB and author of the IT research report. "These centers house the heart of nearly every financial services business. From high-speed trading to derivatives pricing, the soaring need for compute power has made data center space the virtual replacement of Wall Street."
Although data centers will remain the realm of engineers, the front office has grown acutely aware of their importance, forced to recognize the impact of the world's changing politics and economics, specifically how cutting-edge hardware requires considerable electricity to run. Multiply that need, says McPartland, by tens of thousands of servers used in any given data center, which explains why 82% of those interviewed ranked power as their most pressing concern, surpassing connectivity and cost.
He cites an example using a single blade server that consumes about 100 watts per hour, same as an incandescent light bulb. With 30 blades per rack and an estimated 100 racks in a single data center cage, 300,000 watts per hour would be used, approximately the same amount of power used by 3,000 suburban homes in the U.S., excluding additional energy to heat and cool the servers. The 300,000 watts must then be multiplied by 24 hours, multiplied by seven days, multiplied by 365 days — all for one cage of one firm's data center. Reinforcing the point, he says, "Financial services data centers are the largest users of power in the State of New Jersey."
The TABB report covers data center business models, third-party product and service solutions, power density, carrier density, security and proximity. For this last point, he explains that the trading engine needs to be optimized, market data must by gathered with the least latency possible and the hardware this runs on must be perfectly suited for the task. "Except for a dozen or so firms at the top of the low-latency trading world, very few have a correctly optimized infrastructure to benefit from such close proximity to an execution venue's matching engine."
In the not-so-distant future, the shared services facility business model will move beyond common power, heating and cooling into the area of cloud computing where firms can rent CPU cycles and memory-on-demand.
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