A Walk on the Dark Side

Just in case you were starting to feel good:

US delays accounting changes – Financial Times – Paul J Davies & Joanna Chung – 30/31 July 08

Banks have been given a one-year reprieve by US accounting standard-setters from having to take up to $5,000bn (£2,520bn) of debt assets on to their balance sheets, easing fears that they would be forced to raise large amounts of new capital quickly…Robert Herz, FASB chairman, said that the move was made reluctantly after a staff recommendation for a delay because there might not be enough time for all companies to adjust to the up-heaval…Lawmakers and banking industry groups have issued calls for a delay in recent weeks because of the potentially huge detrimental effect the changes could have on banks’ capital bases and their ability to raise new capital.

In other words, accurate accounting would force the banks to admit to their toxic deals that they hid off-balance sheet but this would upset the markets so we’ll let them continue their questionable accounting games for another year because analysts and investors are too stupid to realize what’s going on even though we’re going to announce it in the papers. I guess they think that no one important actually reads the Financial Times.

Real-estate stocks fall on lower earnings, outlook – Marketwatch.com – John Spence – 30 July 08

Shares of real-estate companies fell Wednesday as lower earnings than expected fueled fears that credit issues and slowing economic growth could cause the market to deteriorate further in the second half of 2008…CB Richard Ellis Group was down 20% in afternoon trading after the company reported a drop in earnings that missed consensus estimates by a wide margin…second-quarter profit fell nearly 80% from a year earlier…credit problems are spreading into commercial real estate…Jones Lang LaSalle reported its quarterly net income fell almost 70%…The stock was off 15%…exchange-traded fund tracking real-estate investment trusts, SPDR DJ Wilshire REIT was down more than 3% for the session.

Note the comment that CBRE’s drop in earnings “missed the consensus estimates by a wide margin” – analysts still aren’t dealing with the deterioration in the commercial real estate market.

Fraud in the 2008 Mortgage Vintage – Orange County Register via Calculated Risk – John Gittelsohn – 30 July 08

…if you were, like most people, working on the assumption that lenders and other industry participants had at least cleaned up their acts in time for the 2008 mortgage vintage to be worth something, think again…

In a Perfect Storm of Economic Stagflation, the Yachting Set Says: “Let Them Eat Pizza” – AlterNet – Joshua Holland – 31 July 08

Officially, “stagflation” is a thing of the past, but a deeper look reveals a different, very current reality for most Americans…The reality is that those who aren’t at the very top or the very bottom of America’s economic food chain have been mired in a long period of painful stagflation. But it’s a reality that’s obscured by the ways in which we measure our nation’s economic health….. the paychecks of 9 out of 10 Americans have actually declined over the past three decades…made dramatic changes to the way CPI is calculated in the 1980s and 1990s, resulting in a drop in the official inflation rate made with a stroke of the pen and with little fuss from the public…CPI as it was calculated before the Clinton-era changes went into effect was more than 8 percent last month. And that’s not including a whole other set of methodological changes made in 1983…

“When I use a word,” Humpty Dumpty said in a rather a scornful tone, “it means just what I choose it to mean — neither more nor less.” “The question is,” said Alice, “whether you can make words mean different things.” “The question is,” said Humpty Dumpty, “which is to be master — that’s all.” Through the Looking -Glass by Lewis Carroll

Revisiting Housing Seasonality & the Perennial Bottom Callers -  from The Big Picture – Barry Ritholtz – 28 July 08

…I was surprised to hear several commentators discuss the imminent turnaround in Housing…I said bluntly they both “got it wrong.”…led me to the inescapable conclusion that many finance journalists simply don’t understand statistics, especially seasonality…

Don’t steal Florida yet – National Post via Real Estate Bloggers – Diane Francis – 30 July 08

I wrote a series of posts this winter about cherry picking properties in Florida and other sunbelt regions which were cratering in terms of real estate prices. I suggested paying about 60% what the asking prices were, roughly the price at the 2004 peak of the bubble. Now that’s too high especially in these overbuilt regions…There are no bids for routine properties. There is no mortgage money to buy them either…Luxurious or special-feature real estate or regions are selling but slowly. Properties where owners can take back mortgages are moving, but at discounts. Medium or lower priced housing, including entire gated communities in Arizona or Nevada which were built on speculation, are shuttered without any closings on the horizon…The bottom line is that unless you want to buy something and stay in it for 20 years be very wary or rent. Things are going to get worse before they get better. The next shoe is beginning to fall as banks must go from merely writing down the defaulted interest on three months of mortgages to writing down the difference between their outstanding mortgage and what the properties fetch, or will fetch, on the market.

But a glimmer of hope:

Breaking Down the Case-Shiller Index – via Seeking Alpha – Wall Strategies – 31 July 08

…Perhaps, it is the media’s obsession with de-moralizing investors, or maybe it is our custom of judging all of our economic reports on a year over year basis, but we urge investors to take the headlines with a grain of salt (they are just trying to get your attention). Homebuilder stocks climbed 7% on average on Tuesday during trading following the report because, believe it or not, it was good news…

California’s Discount Foreclosure Sales Point to Housing Bottom – Bloomberg.com – Dan Levy and Daniel Taub – 31 July 08

California led the U.S. into the worst housing recession since the 1930s. Now the most populous state may be the first to find the bottom.