Signs of the Recessionary Times

Earlier this week, Bernanke asserted that the U.S. economy’s decline was slowing. Yesterday, the Fed released the results of its Beige Book, which (surprise, surprise) backed Big Ben’s assessment.

The business survey showed that the contraction is slowing or showing signs of stabilization across many regions, including San Francisco, New York, Chicago, Kansas City and Dallas.

In addition, the Beige Book said that while “housing markets remain depressed overall…there were some signs that conditions may be stabilizing,” including an increase in “potential buyers.”

Well, these ‘potential buyers’ will certainly have a lot to choose from. RealtyTrac reported today that total foreclosure filings – which include default papers, auction sale notices and repossessions – reached 803,489 in the first quarter, up 24% from the same time in 2008. Of these filings, they continue, 341,180 happened in March – a 17% increase from February and a 46% jump from March 2008.

“In the month of March we saw a record level of foreclosure activity – the number of households that received a foreclosure filing was more than 12% higher than the next highest month on record,” said James J. Saccacio, chief executive officer of RealtyTrac, in a statement.

In other housing news, the Commerce Department reported today that building permits fell to a record-low level and construction on new homes dropped sharply last month, after a big gain in February. On top of that comes news that housing starts fell 10.8% in March – the second lowest rate since the 1940s.

Wowee…the good news just keeps on coming. It’s amazing to think back to the housing heyday…when people thought home prices would just keep going up and interest rates would never rise.

But now, the home ATM has run dry…and the aftershocks of the ‘pop heard round the world’ are still being felt.

As you know, dear reader, the economic meltdown we face today was sparked by the first wave of subprime mortgage defaults. Homeowners that were in over their head with mortgages they couldn’t afford in the first place began to default on their loans in droves last year.

Rob Parenteau, who has recently taken the helm of the reincarnation of The Richebächer Letter, warns that we are in for the second wave of these toxic mortgages ahead. The first time subprime mortgages reset at a higher rate was in 2008 and the subsequent flurry of defaults sent banks into a tailspin.

Well, get ready, warns Rob. We still have “Option ARM” and “Alt-A” loan resets to look forward to…and those resets will peak in 2011.

“Just like subprime,” explains Rob, “these loan contracts also carry a ‘reset’ risk in the fine print, when already high monthly mortgage payments could as much as double – right at the height of the second biggest market meltdown since the Great Depression.”

Just as his predecessor, Dr. Kurt Richebächer did, Rob is giving his readers ample time to prepare for these events – and make sure their wealth doesn’t get wiped away.

Now, we turn to Addison with more news on the Fed’s Beige Book:

The mob on Wall Street is taking the bait,” reports Addison in today’s 5 Min. Forecast. “The Beige Book release yesterday helped push the Dow and S&P 500 up over 1.3% yesterday, their fourth rally in the last five days.

“Bad news from Intel and UBS was overshadowed by nice earnings from CSX, a dividend boost by Proctor & Gamble and this news from American Express: Growth in souring credit card loans slowed in March. It’s still growing, of course, but focus on the ‘slower’ part… and buy!

“Even the decrepit IPO market showed a sign of vitality yesterday, too. Rosetta Stone, the folks who promise to teach you French or Swahili with software, went public yesterday at a price above its expected range. That hasn’t happened in 11 months. Underwriters had set a range of $15-17 a share, but bidding ended up starting at $18 a pop.

“This morning, the stock opened at $25. Formidable!


“That’s the third successful IPO in April. Not bad, considering there have only been two others since August of last year.”

Addison brings readers The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments – in five minutes or less.

Now back to Kate in Charm City:

The signs of the economic downturn, whether you want to call it a ‘recession’ or a ‘depression’, are all around us.

Take, for example, 11 Times Square. This 40-story tower in Midtown Manhattan has everything going for it, reports the NYT.

“Floor-to-ceiling windows, still relatively rare for an office building; six terraces; a thick concrete core that reduces the need for view-obstructing columns; and many of the latest in energy-efficient technology.”

There is only one thing this building lacks: tenants.

With sky-high rents, the possibility of this kind of space flourishing is dwindling…and it’s not just this one building. The NYT cites two planned redevelopment projects in Lower Manhattan and SoHo that have been postponed indefinitely due to no construction financing – and no tenants.

Belt-tightening is happening everywhere…even in the city that was one of the leaders in the housing frenzy of yesteryear. Vacancies are climbing and rents are on the decline.

As Addison pointed out last week, “Preliminary first quarter data show a 60% annual crash in Manhattan co-ops and condos.”

Recessionary signs are spilling over to New York City restaurants as well. Reports come in that once bustling restaurants are sitting nearly empty and that ‘dining incentives’ such as ‘BYOB Night’ are popping up more frequently.

These pictures, below, were taken within a two-block on Ninth Ave in Manhattan:






Just a sign of the times…

Until tomorrow,

Kate Incontrera
The Daily Reckoning