Monday 27 July 2009

Lies, damn lies and statistics

Housing numbers......


Today’s release of New Home Sales brings about the usual euphoria (in the media at least) as they were up a whooping 11% at 384k houses, against the expected 350k.


34,000 houses are a lot of houses????? Well, we’re not actually talking about 34,000 houses, because this is a seasonally adjusted, annualized number - so without knowing what the seasonal adjustment is - the annualized part we can work out and in effect we’re getting excited because of less than 3,000 extra new houses sold in one month!


I read recently that there are 15-18 mill ‘vacant’ homes (as the Americans call them) in the US - these are either, newly constructed, repossessed, for sale, in the shadow inventory (banks hold back repossessed houses as not to flood the market), second homes, vacation homes etc, which all would come to the market should it improve.


Household formation is currently negative in the US according to Sanford Bernstein (that must be a first?) as kids are moving back in with their parents, at a faster rate than net immigration creates demand for houses. Clearly the kids will want to move out again at some stage, but for now the housing situation is getting worse, not better.


3,000 doesn’t really cut it, does it now?


Sunday 12 July 2009

CIT

Interesting story about this financing company. It received approval to turn itself into a bank holding company and it has received a TARP injection, but the FDIC has not yet approved its application to have new debt issuance guaranteed by the FDIC.

Most other bank holding companies have used this facility when the credit markets were more or less closed (for banks and finance companies) since last November and well into the spring.

As the FDIC approval hasn’t arrived CIT’s debt and equity have taken a severe beating - now the really interesting part is whether they will be allowed to fail - or whether the Fed and Treasury still deem the markets to be too fragile to handle and $65-70 bill bankruptcy.

As CIT has only been a bank holding company for a short time it only holds few (retail) deposits which are at least partially FDIC insured amounting to about $3.5 bill, so the rest of their liabilities are held by the market.

Clearly they are not ‘too big too fail” at a size of approximately 10% of Lehman’s balance sheet, but they are an important part of the financing system being a lender to small and medium sized businesses with 950,000 clients as well as being the third largest rail stock lessor in the US and the third largest aircraft lender in the world.

I have no idea what will happen to CIT, but I think the authorities response to their predicament will be worth watching.......!