Recession watch: April

Wells Fargo issued guidance today predicted a profit of $3 Billion for 1Q 2009. They will report their full results later this month.

Spoiler :

NEW YORK (CNNMoney.com) -- Wells Fargo delivered a much-needed bit of good news for the banking sector Thursday, saying it expected to book a better-than-expected profit of approximately $3 billion in the most recent quarter.

The announcement not only sent Wells Fargo (WFC, Fortune 500) stock 25% higher in midday trading, but boosted shares of many other big banks as investors bet that Wells' peers may also post results that exceed Wall Street's estimates. Bank of America (BAC, Fortune 500), which will report its results on April 20, gained 30%.

Originally slated to deliver its results later this month, the San Francisco-based Wells Fargo issued guidance for the first quarter, saying it expected to report a record profit of about $3 billion, or 55 cents per common share. Expectations are for the company to book a profit of 28 cents a share, according to Thomson Reuters.

"Our business momentum is strong, and we expect our operating margins to remain at the top of our peer group," Wells Fargo CEO John Stumpf said in a statement.

Wells Fargo attributed the strong results to healthy lending margins driven by lower interest rates, fewer additional costs related to its purchase of Wachovia and a boom in mortgage activity.

Mortgage applications surged during the quarter, with the company reporting $83 billion in applications during the month of March alone.


Their only quarterly loss was last quarter, losing $2.7 Billion.

Wells Fargo seems to be by far the healthiest of the big banks, being the only bank to maintain a AAA rating by the S&P and having profited $2.6 Billion for the full year 2008. Hopefully they aren't blowing smoke out of their ass, and the other big banks report positive results as well!

The beauty of accounting! Write off Wachovia loan losses one quarter so you have the worst quarter ever, and then come out the other side with the best ever.

The truly nauseating part of this whole situation is that there is a distinct desire and complete mental shift by some people that mortgages and banks (and all the small parts that make those up) are the only things that matter right in regards to economic health. Once the banks are better the economy will follow suit...or not.
 
The beauty of accounting! Write off Wachovia loan losses one quarter so you have the worst quarter ever, and then come out the other side with the best ever.

The truly nauseating part of this whole situation is that there is a distinct desire and complete mental shift by some people that mortgages and banks (and all the small parts that make those up) are the only things that matter right in regards to economic health. Once the banks are better the economy will follow suit...or not.

Well WF absorbed a huge bank, Wachovia, bigger in many aspects than itself. I don't really see it as a "trick" of accounting. They swallowed their medicine last quarter, so they could move on. Hopefully they don't have any more write-offs but who knows.

And of course people want banks to be profitable. They banking sector suffered by far the most this recession, it having being triggered by the housing bust. They are certainly going to lead the way back out of the recession; in every recession financials are one of the first sectors to rally anyway. This time they happened to lead us into recession as well :lol:
 
Chronic,

The financial sector is almost always a leading indicator of the economy, both into and out of recessions.

MRT144,

If the effect of the policies didn't enable WFC to post a profit, we would be FUBAR'ed. Keep in mind alot of that profit is going to go either to shareholders or to the government due to bailout agreements. WFC also absorbed Wachovia to keep that bank afloat.
 
I was slightly sarcastic here. It is funny how mainstream "experts" and analysts are slowly changing their predictions from "light recession" to something more and more grim. And after all if someone was predicting "light recession", why we can not expect predictions about "light depression"? :lol:

Except, I've never done that. I've maintained that this is roughly similiar to 79-81, and I continue to stand by that approximation. Clearly there are degrees of business cycle downturns. We use terms for simple labels.
 
Chronic,

The financial sector is almost always a leading indicator of the economy, both into and out of recessions.

MRT144,

If the effect of the policies didn't enable WFC to post a profit, we would be FUBAR'ed. Keep in mind alot of that profit is going to go either to shareholders or to the government due to bailout agreements. WFC also absorbed Wachovia to keep that bank afloat.

Or put another way, the major reason they have a profit is because policies enabled them to. ;)

Im just incredulous given the fun and games banks have played over the past 18 months in regard to stating their financial positions and health. This isn't a liquidity issue, this is a trust issue. And because a few annointed banks have good qaurters in comparison doesn't mean we're on the up and up. The selected action at selected banks only reinforces my belief that using them as an indicator of general economic health is wrong and myopic. It also seems to set the tone that there is nothing wrong with how banks came to the place they are at now.

And I'm curious to see what happens to cash flows on CRE and REITs in the next few months if unemployment continues to go up along with office vacancies and whether stating lower loan loss provisions right now comes home to roost...
 
Monthly budget review from Treasury, and CBO's alternate methodology.

Treasury - FY2009 to date (through March 2009, $ millions)
Receipts: $989,834
Expenditures: $1,946,632
Deficit: $956,799

CBO - FY2009 to date (through March 2009)
Receipts: $986 billion
Expenditures: $1,939 billion
Deficit: $953 billion

Congressional Budget Office said:
CBO estimates that the Treasury will report a deficit of about $953 billion for the first half of fiscal year 2009, compared with a shortfall of $313 billion recorded for the same period last year.

CBO recently issued new estimates for the budget outlook for 2009 and updated its baseline budget projections for fiscal years 2010 to 2019. The deficit for 2009 is projected to total $1.7 trillion if current laws and policies remain unchanged and $1.8 trillion if the President’s proposals for the current fiscal year are enacted. Additional information about those estimates can be found in A Preliminary Analysis of the President’s Budget and an Update of CBO’s Budget and Economic Outlook.
 
Oregon's unemployment is now past 12 percent, which I believe makes it the highest in the nation.

Link

"Oregon's unemployment rate has now risen in each of the last 14 months," the Employment Department reported, "dating back to January 2008, when the rate was 5.3 percent."

Dang...I hope it doesn't continue to rise. :sad:
 
From Zero-Hedge

EPS: $3.23/share due primarily to Fixed Income, Currency and Commodities which generated record quarterly net revenues of $6.56 billion, 34% higher than its previous record, more than double the first quarter of 2008, "reflecting strength across most businesses, including record results in interest rate products and commodities." Wonder if GS' AIG CDS unwind trades falls into this group (never mind, that is rhetorical).

There are two worlds right now; the one of Goldman Sachs and other financials reporting all time record profits for the Q1 of 09, and the non financial world rife with bankruptcy, declining cash flows, rising unemployment.

Who is really being fooled by all these financial company earnings? It is plainly obvious that the juice is loose merely to allow stock offerings to increase capital...which still puts many of these companies in a less deep hole.
 
EPS: $3.23/share due primarily to Fixed Income, Currency and Commodities which generated record quarterly net revenues of $6.56 billion, 34% higher than its previous record, more than double the first quarter of 2008, "reflecting strength across most businesses, including record results in interest rate products and commodities." Wonder if GS' AIG CDS unwind trades falls into this group (never mind, that is rhetorical).

I'm assuming "interest rate products" = Credit Default Swaps........
 
From BBC

US retail sales fell in March after two months of rises, tempering hopes that consumers are becoming more confident about the economy.

Sales fell by 1.1% from February, and by 9.4% compared with a year earlier.

Sales at electronics and appliance stores were hit hardest, falling by 5.9%. Car and auto parts dealers saw sales fall by 2.5%.

Many analysts had expected sales to rise after the encouraging figures in the first two months of the year.

Driven by heavy discounting, sales rose by 1% in January and by 0.3% in February.

"We were expecting improvement and we got a huge decline. The report was weak across the board," said Jacob Oubina at Forex.com.

"This throws some cold water on the idea that we're carving out a bottom," he added.

The official estimates were released by the US Commerce Department.


Hmm.... this was unexpected
 
I'm assuming "interest rate products" = Credit Default Swaps........

And also a one time deal. I don't imagine that there will be another cash cow like AIG for the next 2 quarters and we'll be back at the exact same place we were at last year in November.
 
I guess the reason GS's results were higher than expected was because they decided not to realise as many losses as they could have done during this quarter of AIG-induced windfalls. That is, they could have decided to hide a bunch of losses on toxic assets behind AIG's CDS unwind winfalls; instead, they decided not to realise those losses now, and put them off for a while.
 
I guess the reason GS's results were higher than expected was because they decided not to realise as many losses as they could have done during this quarter of AIG-induced windfalls. That is, they could have decided to hide a bunch of losses on toxic assets behind AIG's CDS unwind winfalls; instead, they decided not to realise those losses now, and put them off for a while.

It's a sad picture of our current state when how and when a company decides to write off losses determines their profitability.
 
It's a sad picture of our current state when how and when a company decides to write off losses determines their profitability.

That sentence took a second read for comprehension, but I'd drink to that.

If I had anything to drink. :(
 
Has anyone seen TLO36 lately? Because Poland is asking for $20 bn from the IMF. :p
 
from reuters

MIAMI (Reuters) - Right-wing extremists in the United States are gaining new recruits by exploiting fears about the economy and the election of the first black U.S. president, the Department of Homeland Security warned in a report to law enforcement officials.

The April 7 report, which Reuters and other news media obtained on Tuesday, said such fears were driving a resurgence in "recruitment and radicalization activity" by white supremacist groups, antigovernment extremists and militia movements. It did not identify any by name.

DHS had no specific information about pending violence and said threats had so far been "largely rhetorical."

But it warned that home foreclosures, unemployment and other consequences of the economic recession "could create a fertile recruiting environment for right-wing extremists."

"To the extent that these factors persist, right-wing extremism is likely to grow in strength," DHS said.

The report warned that military veterans returning from Iraq and Afghanistan with combat skills could be recruitment targets, especially those having trouble finding jobs or fitting back into civilian society.

The department "is concerned that right-wing extremists will attempt to recruit and radicalize returning veterans in order to boost their violent capabilities," the report said.

DHS spokeswoman Sara Kuban said on Tuesday the report was one of an ongoing series of threat assessments aimed at "a greater understanding of violent radicalization in the U.S."

A similar assessment of left-wing radicals completed in January was distributed to federal, state and local police agencies at that time.

"These assessments are done all the time, this is nothing unusual," Kuban said.

The Department of Homeland Security was formed in response to the September 11 attacks of 2001 and has focused largely on threats from Islamist extremists.

The report said domestic right-wing terrorist groups grew during the economic recession of the early 1990s but subsided as the economy improved.

Government scrutiny disrupted violent plots following the April 1995 bombing of a federal building in Oklahoma City by Army veteran Timothy McVeigh which killed 168 people.

LONE WOLVES

"Despite similarities to the climate of the 1990s, the threat posed by lone wolves and small terrorist cells is more pronounced than in past years," the report said.

The Internet has made it easier to locate specific targets, communicate with like-minded people and find information on bombs and weapons, it said.

Extremist groups are preying on fears that President Barack Obama, the first African American U.S. president, would restrict gun ownership, boost immigration and expand social programs for minorities, the report said.

It said such groups were also exploiting anti-Semitic sentiment with accusations that "a cabal of Jewish financial elites" had conspired to collapse the economy.

"This trend is likely to accelerate if the economy is perceived to worsen," the report said.
 
Oregon's unemployment is now past 12 percent, which I believe makes it the highest in the nation.

Link



Dang...I hope it doesn't continue to rise. :sad:

...surpassing Michigan... For some reason, I thought it would feel better when Michigan finally did better than at least ONE state. Somehow having the "second" highest unemployment for the first time in years doesn't feel any different than all these years we topped the list. :sad:

edit - posted a couple hours too soon! Michigan's probably still on top in March. 12.6% :sad:
 
I'm assuming "interest rate products" = Credit Default Swaps........

And also a one time deal. I don't imagine that there will be another cash cow like AIG for the next 2 quarters and we'll be back at the exact same place we were at last year in November.

I guess the reason GS's results were higher than expected was because they decided not to realise as many losses as they could have done during this quarter of AIG-induced windfalls. That is, they could have decided to hide a bunch of losses on toxic assets behind AIG's CDS unwind winfalls; instead, they decided not to realise those losses now, and put them off for a while.

It's a sad picture of our current state when how and when a company decides to write off losses determines their profitability.
If you listened to the conference call that's not the case at all. Earnings from FICC were broad based and virtually all of the revenue trading was in very liquid products. P&L was rounded to zero from AIG and very little was related to a reversal of negative marks. Average real loan marks was in the high 50s for their commercial real estate and low 50's for their leveraged loan (which is a joke considering these are senior collateralized loans).

The fact is credit spreads are huge and the competitive landscape has rewarded the survivors with Wachovia, Lehman, Bear and Merrill either consolidated or gone from trading. IE most of the Merrill traders were kept but the B of A traders have either been moved to other products or were let go. This doesn't even include the foreign institutions that are either distressed or gone from the competitive landscape.



Anyhow on to some other things. 5 of my 16 macro indicators are signaling upside to the market, but 8 of the 16 indicators point to possible downside.

However, there is one that bears watching very closely.

Historically, the ratio of the "coincident-to-lagging indicators" from the Conference Board has done a very good job at predicting turning points in the business cycle. The coincident-to-lagging ratio almost always bottoms at the lows in the S&P 500 so its a great timing and confirming barometer. It has never been off by more than two months (since the report started in the 60's). The level that coincided with a market low was 93.2 (range of 90.9 to 94.2). Currently, the index is at 90.3; so view this is as a positive sign for the equity market and a bottom may have been put in early last March. Head fake? Maybe.
 
austrianbanks.png


Aha. It seems that I have reached the stage where I create a stir by saying the obvious. On Monday I held a Princeton-sponsored event at the Foreign Press Club, and was asked about Austria’s Eastern European exposure. I responded by saying what everyone knows: Austrian lending to Eastern Europe is off the charts compared with anyone else’s, and that means some serious risk given that emerging Europe is experiencing the mother of all currency crises.

Is Austria doomed? Of course not. It’s not as outrageously leveraged as Iceland, or even Ireland. But it may need a bank bailout that will seriously strain the country’s resources. So what I said at the event — that after those two, it’s probably the advanced country at most risk from the financial crisis — shouldn’t even be controversial.

Paul Krugman
 
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