Here we go again. The last day of February this year is a Leap Day, the 29th, and all that means is another dismal Friday in the markets.
Yesterday’s affirmation that the economy went to almost a dead stop in Q4 2007 shouldn’t surprise anybody, but the real problem is that excluding the bump in exports from a free-falling dollar giving a boost of 0.9%, the economy would have officially receded by 0.3%.
In other words, we’ve been in a recession for most of the holiday shopping season on, and it’s gotten significantly worse in 2008.
Today’s news has all but sealed the deal on the recession.
Manufacturing, what little we have left in this country, is contracting at a nasty pace…
U.S. Midwest business activity contracted sharply in February in a report showing even the
areas of the country least affected by the boom-bust housing cycle are feeling ripples from the crisis.The National Association of Purchasing Managers-Chicago said on Friday its index of regional business conditions tumbled to 44.5, its lowest since December 2001, from 51.5 in January. That was well below forecasts centering around 49.7.
The data bolstered the view that the economy is heading for a recession, since manufacturing had been one of the few holdouts in an otherwise grim economic picture.
…and consumer confidence is in the crapper not just here, but in Europe too.
European economic confidence fell more than economists forecast in February on concern soaring food and energy costs will keep inflation at record levels even as the euro’s strength threatens to slow economic growth.
An index of executive and consumer sentiment in the euro area declined to 100.1, the lowest since November 2005, from 101.7 in January, the European Commission in Brussels said today. Separate reports showed energy and food-price inflation accelerated last month and unemployment stayed at a record low.
Foods including wheat, soybeans and corn as well as crude oil rose to records this month. That has pushed up inflation and prevented the European Central Bank from cutting interest rates at a time when economic growth faces the additional threat of the euro’s gains to an all-time high against the dollar.
Meanwhile in Monoline Land, the Great Ambac Bailout has hit…surprise…a slight hitch.
The bailout of troubled bond insurer Ambac has hit a significant snag, after rating agencies demanded more capital from the consortium of banks involved in the bailout effort, CNBC has learned.
Oh, nobody saw THAT one coming. Nope.
People close to the deal are confident that it will still happen, because the banks and the rating agencies are aware that, if it collapse, there will be a huge decline in the stock market.
The Monoline Nuke is a great motivator.
The snag was hit Wednesday, when raters said they wanted to see more capital injected in the bond insurer if it is to get a triple-A rating, after the consortium of banks had agreed to come up with $2.5 billion in capital.
Too Big To Fail in action, folks. Everybody wants their cut of the coming government bailout billions, and everyone on Wall Street is now expecting to get them.
When the hyper-inflation bubble explodes and drags the economy down into a massive deflationary spiral, it will take far more than the Monolines with it. It will almost certainly knock the globe into a deep recession and the US into a Greater Depression.
Much like a chess game where mate is declared in a number of moves before the end, the King and his pieces still thrash about mindlessly, playing through the moves until the inevitable occurs. The problem is this time, as the King flails about in impotent fury, he’s going to take the rest of us down with him.
And all this goes back to the worst housing depression in generations.
Almost 200,000 newly constructed single-family homes are sitting empty in the U.S., the most since Commerce Department statistics began in 1973. Partially completed developments reduce revenue for cities and towns and hurt businesses, said Nicolas Retsinas, the director of Harvard University’s Joint Center for Housing Studies. Rising foreclosures and falling property values may cut tax revenue by more than $6.6 billion for 10 states, including New York, California and Florida, the U.S. Conference of Mayors said in a November report.
“Half-filled developments are an advertisement for a failing housing market,” said Retsinas, a former assistant secretary for housing at the U.S. Department of Housing and Urban Development. “It also has a spillover effect on the surrounding community.”
Falling Prices
About 370,000 new homes are for sale because people who initially contracted to buy them backed out, according to estimates in a Feb. 15 report from analysts at New York-based CreditSights Inc. An additional 216,000 homes are under construction, according to Commerce Department data.
In January 1973, the number of finished new homes for sale was 97,000, when the U.S. population was about 212 million, according to the U.S. Census Bureau. In December 2007, 197,000 completed homes were on the market and in January 2008 there were 195,000. The current population is 303.5 million.
Home prices may fall at least 8 percent nationwide and by as much as 26 percent from the third quarter of 2007 before hitting bottom, according to a Feb. 13 report from New York- based Deutsche Bank AG analyst Karen Weaver, the firm’s global head of securitization research.
26 percent? How many homeowners will that put out onto the streets?
We’re about to find out.
