Thursday November 13 Housing and Economic stories

TOP STORIES:

Fannie Mae's Future Looking Downright Scary - (www.cnbc.com) Nothing like starting off a new week with a $29 billion net loss for the nation’s largest mortgage investor. Fannie Mae [FNM 0.72 -0.02 (-2.7%) ] is currently under government guard, with the conservatorship instituted in September, but it still apparently can’t keep its balance sheet from joining the ranks of other massive mortgage meltdowns that seem to be par for today’s course. According to today’s filing, Fannie has “experienced reduced demand for our debt obligations from some of our historical sources of that demand, particularly in international markets. There are several factors contributing to the reduced demand for our debt securities, including continued severe market disruptions, market concerns about our capital position and the future of our business (including its future profitability, future structure, regulatory actions and agency status) and the extent of U.S. government support for our business.” And there you have it. I was also looking through what they call the “Credit Supplement” in the filing, specifically to see just how all those Fannie loans are doing, now that we’re all about modifications and saving the housing planet and all. It appears the 2006 and 2007 vintages of loans held or guaranteed by Fannie are on life support. Together they now make up 66 percent of the company’s Q3 credit losses. Were Fannie underwriters out for coffee for two years or what?? Remember, Fannie supposedly doesn’t do subprime loans. They did, however, do Alt-A loans, that is the low doc, no doc, don’t tell anyone anything about your ability to actually repay anything borrower. As one analyst put it to me this morning: “They just waved it in, yeah, they stopped underwriting - That is what Alt-A was.”

Stock Market To Fall Another 20%-25%: Roubini - (www.cnbc.com) The economy will worsen in the coming months and cause the market to fall another 20 to 25 percent in the United States and abroad, said Nouriel Roubini, a New York University business professor, on CNBC’s “Squawk Box” on Monday. “There's going to be negative growth all the way to the end of 2009," he said. “The surprises from now are going to be on the downside, for the economy, for earnings, for the financial system." (See video of Roubini, left.)

Circuit City Files for Chapter 11 Bankruptcy - (www.cnbc.com) Circuit City Stores, the No. 2 U.S. consumer electronics retailer, filed for bankruptcy protection Monday just a few weeks before the start of the key holiday shopping season, becoming the largest retailer to file under Chapter 11 this year. Circuit City [CC 1.02 0.77 (+308%) ] fell victim to tighter credit terms from vendors and a loss of market share to Best Buy [BBY 25.21 -0.38 (-1.48%) ] , Wal-Mart Stores [WMT 55.18 0.79 (+1.45%) ] and other rivals. (See Scott Cohn's report on Circuit City, left.). The retailer and 17 affiliates filed for Chapter 11 protection from creditors with the U.S. bankruptcy court in Richmond, Virginia, where it is based.

DHL Parent Slashes US Operations, Cuts 9,500 Jobs - (www.cnbc.com) Deutsche Post said on Monday it was shutting down its U.S. domestic express parcel business and cutting a further 9,500 jobs, severing ties with a service that has been a drain on earnings since 2005. To counter a slide in demand in the United States that has accelerated with the credit crisis, Europe's biggest mail and express delivery company said it will now focus its U.S. operation on international shipping, leaving a rump of 3,000-4,000 DHL staff in the country. The move increases the group's job cuts in the United States to 14,900 and will reduce its air shipments to fewer than 100,000 per day from 1.2 million.


Problems getting worse in China:
· Half of China's toy exporters out of business - (www.chinadaily.com) A total of 3,631 toy exporters or 52.7 percent of the industry's businesses shut down in 2008. They were mainly small-sized toy producers with an export value of less than $100,000.
· China Unveils Nearly $600 Billion Stimulus Plan - (www.cnbc.com)
· Thousands of toy makers laid off - (www.chinadaily.com) Workers at a toy factory in Guangdong have become the latest victims of the worldwide financial tsunami. More than 6,000 employees lost their jobs when Smart Union, a major toy manufacturer in Dongguan, closed earlier this week. "The main reason for the closure is we are too dependent on the US market, which has become sluggish," said Xu Xiaofang, a Smart Union human resource worker. After losing money for the first half of the year, its cash flow finally dried up. Machinery normally busy churning out toys for major US toy brands Mattel and Disney now sits idle.
· 50% of toy firms 'gone in 2 years' – (www.chinadaily.com) Speaking in an interview with Guangzhou Daily, Wang Zhiguang, vice-chairman of the Dongguan Toy Industry Association, said: "Of the 3,800-odd toy firms in Dongguan, no more than 2,000 are likely to survive the next couple of years." Xiao Yong, the owner of a Dongguan firm that sells Christmas trees and gifts, is equally worried about what the coming winter might have in store. "One of the main problems is that many toymakers in Dongguan rely too much on orders from the US and Europe. The financial crises there have led directly to a reduction in orders," he said. The number of orders his firm has received for this Christmas is about half what it reported last year, he said.
· Sub-contract factories fall victim to US crisis - (www.chinadaily.com) Two sub-contract manufacturing factories under one global toy maker in South China's Guangdong Province have collapsed, in the first bankruptcy case for the substantial economy in China, according to today's National Business Daily. The two factories, located in Zhangmutou Town of Dongguan City, were toymakers for Smart Union Group (Holding) Ltd, one of the world's largest manufacturing and trading companies in toys and recreational products on an original equipment manufacturer basis. All the products were being sold to the United States.
· Economy rocks China factories - (www.usatoday.com) The speedy rise — and speedier fall — of River Dragon is a depressingly familiar story in China these days. Thousands of Chinese factories have shuttered in the past year, done in by: •An export-killing global slowdown that began with the collapse of the U.S. housing market and the ensuing financial crisis. •Rising materials costs that have squeezed profit margins. •A deliberate Chinese government campaign to regulate sweatshop factories out of business. The Chinese economy is absorbing another blow beyond crumbling exports: collapsing home prices. Nicholas Lardy, senior fellow at the Peterson Institute for International Economics in Washington, D.C., reckons a slowdown in construction could shave another 1 to 2 percentage points off China's economic growth. "The property bubble is already starting to burst," says Yan Yu, a business management scholar at Peking University, researching the export center of Dongguan in southern Guangdong province. "House prices here in Dongguan have fallen by up to 50% this year," leaving many homeowners owing more on their mortgages than their homes are worth. "People have worked all their lives and believed the hype and bought overvalued properties, then saw their savings vanish," says independent economist Andy Xie in Shanghai. "That carries more political risk" than rising joblessness.

Wall St jobs axe threatens 70,000 - (www.ft.com) The financial industry is bracing for a fresh round of job cuts as Wall Street banks slash costs to cushion the blow of further market turbulence and deepening economic woes in 2009. Executives and analysts say the redundancies – to be finalised this month as banks prepare next year’s budgets – could top 70,000 among US groups alone and add to the estimated 150,000 jobs already lost by the financial sector worldwide.

Shari Redstone resigns as chairwoman of Midway Games - (www.latimescom) She says she must focus on talks to restructure the massive debt that threatens National Amusements, the media family's holding company. Shari Redstone, the daughter of media mogul Sumner Redstone, resigned Friday as chairwoman of beleaguered Midway Games Inc., saying she needed to focus more attention on negotiations with bankers to restructure the family business' massive $1.6-billion debt. The move underscores the pressure the powerful media family is under to make an $800-million payment by Dec. 19. Shari Redstone has been leading discussions with lenders on behalf of the family holding company, National Amusements Inc. At stake is the potential breakup of National Amusements, which holds Sumner Redstone's controlling shares of Viacom Inc., CBS Corp. and Midway Games, along with slot machine maker WMS Industries Inc. and a 1,500-screen theater circuit run by Shari Redstone. Sumner Redstone owns 80% of National Amusements while his 54-year-old daughter owns the remainder. A month ago, National Amusements was forced to sell $233 million in shares of Viacom and CBS when their falling stock prices violated debt covenants. Sumner Redstone has been adamant that he does not intend to sell any more Viacom or CBS stock. He hinted this week that the profitable theater circuit might be on the block or that the valuable real estate that the theaters sit on might be used to secure the debt. Unloading Chicago-based Midway Games could be another option. Midway, a laggard in the game business, is the least valuable of National's assets, worth only $52.3 million. Once fetching more than $26 a share, Midway's value has cratered since late 2005, and its shares closed Friday at 56 cents. "Midway's stock isn't worth much, and I'm not sure who would want to buy it," said Michael Pachter, a game industry analyst with Wedbush Morgan Securities.

AIG receives $150bn state bail-out - (www.ft.com) AIG is to receive a new $150bn US government bail-out that will allow the troubled insurer to reduce interest payments and give it more time to sell assets and save itself from collapse. The new deal will increase the government’s aid to the stricken insurer from $123bn to $150bn but leave the federal authorities to reap most of the gains if AIG’s troubled assets recover in value. People close to the situation said the new plan – which comes less than two months after the Federal Reserve took an 80 per cent stake in AIG in exchange for an $85bn rescue loan – could be announced on Monday, with the insurer’s third-quarter results. The renegotiation of the bail-out, which could be politically controversial, came after AIG rapidly used up most of the government original facility, raising fears that it could run out of cash.

US transit authority deals sour - (www.ft.com) Public transport agencies in big US cities are seeking help from the government to avoid default and billions of dollars of payments on leasing contracts that have soured amid problems at AIG and monoline bond insurers. More than 30 transit authorities in 17 states are at risk of default, according to a letter to the US Treasury and the Federal Reserve from leaders of the congressional transportation committee. The letter says that up to $4bn (€3.1bn, £2.5bn) of deals are immediately at risk. The agencies, their trade association and various US legislators want the Treasury to guarantee the leasing deals, which could move to technical default after credit rating downgrades for AIG and other insurers. The US Treasury has not decided whether to assist the agencies. It has been besieged by requests for help from state and local governments, and may be reluctant to open the floodgates. It is also unclear whether stepping in to help local transport agencies in their contractual disputes with financial services firms is critical to preserving US financial stability. The issue could come to a head this week when a US district court rules on whether the Washington Metropolitan Area Transit Authority, which runs trains and buses in the Washington DC area, is in default and must pay KBC Bank of Belgium $43m to terminate a lease-back contract guaranteed by AIG. The decision could set a precedent for other lease-back deals.

Village Homes of Colorado goes Ch. 11 - (www.rockymountainnews.com) Builder blames credit crisis and depressed housing market. Greenwood Village-based Village Homes of Colorado, the largest privately held home-building company in the metro area, has filed for bankruptcy protection. The 24-year-old company blames the credit crisis and the depressed housing market for its filing for reorganization under Chapter 11. "There is no question about it," said Garry R. Appel, the attorney for the company, which has built more than 10,000 homes in Colorado since it was founded by John Osborn in 1984. "It is the credit crunch and the downturn in the housing market, which has created this enormous problem for homeowners and home builders across the country. "Village Homes is facing the same problems that have fueled this crisis." Matt Osborn, John Osborn's son and the 2008 president of the Home Builders Association of Metro Denver, agreed.

General Motors is on the Brink of Default and Bankruptcy - (www.ml-implode.com) - Right at the close of trading Fitch and the other rating agencies cut General Motors debt ratings. In particular Fitch was quite specific that GM will either be bailed out or will be forced to default and restructure. "Given the current liquidity level of $16.2 billion and the pace of negative cash flows, Fitch expects that GM will require direct federal assistance over the next quarter and the forbearance of trade creditors in order to avoid default."

Latvia Takes over Second Largest Bank - (www.cnbc.com) The Latvian government announced on Saturday the surprise takeover of the country's second largest bank, Parex, as the global financial crisis hit the small Baltic state where economic growth has fallen sharply.
Prime Minister Ivars Godmanis said after a late night government meeting that if necessary the former Soviet state, a member of the European Union and NATO since 2004, would approach the International Monetary Fund or the EU for aid in the future. The government said it was forced to take 51 percent of Parex, one of the first Latvian banks to be formed after the collapse of the Soviet Union, as it hit problems in the global liquidity crunch. "We have to do everything in order not to allow any troubles, not only for concrete banks which are important to the system due to their size in Latvia, but for the banking system as a whole," Godmanis told reporters. He saw no need for action to support other banks apart from Parex, which had assets of 3 billion lats ($5.42 billion). Asked if he saw a need for funding from the IMF or the EU, Godmanis said: "We have looked carefully at questions about capital strengthening and about liquidity. If there will be such a need, we will take that step."

Top hedge fund managers 'funereal' in midst of financial crisis - (www.marketwatch.com) Steve Galbraith, a partner at Lee Ainslie's Maverick Capital, read about 25 letters other hedge funds sent to their investors in October. "The tone of the discourse was funereal," he wrote in Maverick's own Oct. 9 letter to clients. "The global economy has already entered a grim recessionary period akin to those of the '90s and '80s rather than the shallow post tech bubble recession of 2001-2002." The Maverick Fund, Ltd. was down more than 7% last month through Oct. 17, leaving it off roughly 26% so far this year, according to a hedge fund performance report compiled by HSBC's private bank. In Maverick's Oct. 9 letter to investors, the firm reported that its funds lost between 14.4% and 40.6% during the third quarter. "I cannot find words to describe our disappointment, embarrassment and shock over the above results," Ainslie wrote. Oct. 1 marked the 15th anniversary of Maverick Capital, during which time Ainslie has outperformed the S&P 500 handily. But Maverick couldn't shelter from what Ainslie called a "perfect storm" of hedge fund de-leveraging and failure, short selling bans, slumping equity markets, faltering prime brokers and a spike in volatility.

How Thundering Merrill Faltered and Fell - (www.cnbc.com) “We’ve got the right people in place as well as good risk management and controls.” — E. Stanley O’Neal, 2005. There were high-fives all around Merrill Lynch headquarters in Lower Manhattan as 2006 drew to a close. The firm’s performance was breathtaking; revenue and earnings had soared, and its shares were up 40 percent for the year. And Merrill’s decision to invest heavily in the mortgage industry was paying off handsomely. So handsomely, in fact, that on Dec. 30 that year, it essentially doubled down by paying $1.3 billion for First Franklin, a lender specializing in risky mortgages. The deal would provide Merrill with even more loans for one of its lucrative assembly lines, an operation that bundled and repackaged mortgages so they could be resold to other investors. It was a moment to savor for E. Stanley O’Neal, Merrill’s autocratic leader, and a group of trusted lieutenants who had helped orchestrate the firm’s profitable but belated mortgage push. Two indispensable members of Mr. O’Neal’s clique were Osman Semerci, who, among other things, ran Merrill’s bond unit, and Ahmass L. Fakahany, the firm’s vice chairman and chief administrative officer.



OTHER STORIES:

China Unveils $586 Billion Economic Stimulus Plan - (www.nytimes.com) China announced plans to spend billions on a wide array of infrastructure and social welfare projects in a bold move aimed at bolstering its economy.
White-Collar G.M. Retirees Scramble as Care Is Cut - (www.nytimes.com) To conserve cash, General Motors will cut lifetime health care for management retirees at the end of this year.
What Crisis? Some Hedge Funds Are Gaining - (www.nytimes.com) Bernard V. Drury is a rarity on Wall Street: a hedge fund manager whose fund is up 60 percent since Jan. 1.
Goodbye Seduction, Hello Coupons - (www.nytimes.com) As the economy rapidly deteriorates, marketers are scrambling to remake their advertising so products seem affordable and sensible.
Finance Chill Freezes Plans for High-Rise in Russia - (www.nytimes.com) Plans for a controversial skyscraper that would have towered over St. Petersburg’s low-slung Baroque skyline have been delayed because of the financial crisis.
Market’s Collapse Echoes in a Manhattan Tower - (www.nytimes.com) Many tenants who signed leases at a 41-story office tower overlooking Bryant Park are now trying to break them.
The Reagan Counterrevolution - (www.seekingalpha.com) - Though in practice much of the Reagan revolution never materialized, at least in theory his basic premise was sound. In contrast, the country has now hitched its wagon to the views of Barack Obama. We don’t know much about what he truly believes about economics, but the little that we do know is not encouraging.

Pelosi, Reid Press for TARP Aid for Auto Industry - (online.wsj.com) - "House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid sent to send a letter to Treasury Secretary Henry Paulson urging him to assist the Big Three auto makers by considering broadening the $700 billion Troubled Asset Relief Program to help the troubled industry."
Economy's Illness Will Keep Spreading - (www.cnbc.com)
What's Wrong with Goldman? - (www.cnbc.com)
Hyundai Motor Denies Interest in Chrysler Assets - (www.cnbc.com)
Dem Leaders Want Bush to Help Ailing Automakers - (www.cnbc.com)

IRS rule could sap retirees' already depleted savings - (www.latimes.com) Regulation requiring withdrawals from IRAs and 401(k)s by those over 70-1/2 add insult to stock market injury.
Here's your tutu, Mr. Governor - (www.latimes.com) Schwarzenegger discovers budget reality a bit late
Is that a housing market bottom or a mirage? - (www.latimes.com) Is it pointless to ask whether a bottom is near?
Music gear maker Groove Tubes is closing after nearly 30 years - (www.latimes.com) The San Fernando manufacturer, which was sold to industry giant Fender Musical Instrument Corp. in June, is closing its inventory sale Saturday.
Lenders push for fresher 'comps' in home valuations - (www.latimes.com) Sales may be knocked off track as appraisals come in lower than contract prices.

Budget deficit swells after financial bailout - (www.ml-implode.com)
The Ties That Bind: Unemployment and Housing - (www.ml-implode.com)
The Problem With Deleveraging - (www.ml-implode.com)
Fed Stonewalling on Giving Details About Collateral Accepted for Loans - (www.ml-implode.com)
The Real Unemployment Numbers - (www.ml-implode.com)
Countrywide closes 40% of remaining wholesale fulfillment centers - (www.ml-implode.com)
2008 The Black Hole Gets Bigger: AIG Back for Yet Another Bailout - (www.ml-implode.com)
The Housing Crisis Is Over - (www.ml-implode.com)
Capital One Shuts Overland Park, KS Center, Cuts 320 Jobs - (www.ml-implode.com)