Manhattan real estate gets hammered

• The number of signed contracts for co-ops and condos in Manhattan dropped 57% in July compared with a year ago, according to a report from Miller Samuel and Douglas Elliman.
• The high-end of the market is getting especially hard hit, with co-ops priced at $4 million to $10 million down over 75%.
• The number of unsold apartments is now at the highest level in almost a decade, according to Jonathan Miller, CEO of Miller Samuel.

Read the rest here.

They need to close the financial markets

Trump should issue an emergency decree and close the financial markets for the next thirty days. The global economy is slowing to a near halt in some sectors. There are reports of a run on banks and ATMs for cash. There is no reason to allow the rapidly spreading panic to cause even more economic damage.

How bad is it really?

• Banks are now sending out pre-declined credit card notices
• When I hit the drive thru the other day the kid in the window asked me "can you afford fries with this?"
• The latest big business deals are now being made on the 18th hole at Bert's mini-golf.
• If your bank returns your check marked "Insufficient Funds" you have to call them to clarify whether they meant you or the bank.
• Stock prices are higher for Hot Wheels and Matchbox than GM.
• Parents in Beverly Hills and Hollywood are firing their nannies and learning their kids' names.
• A truckload of Americans were caught trying to sneak into Mexico.
• Dick Cheney took his broker hunting.
• Motel Six is no longer leaving the light on for you.
• The Mob is laying off judges.
• Congress is investigating Bernie Madoff.  Yes, that's right.  The man who made $50 billion disappear is being investigated by the men who made $15 trillion disappear.
• A buddy was so depressed about the state of the country and the economy that he called the suicide prevention line.  He was connected to a call center in Pakistan.  When he told them he was having suicidal thoughts they got very excited and asked if he could drive a truck.

EU urged to block Greece bail-out

European leaders have been urged to scrap plans for a second Greek bail-out – regardless of how Athens' politicians vote on the country's tough austerity measures.

Leading London-based think tank Open Europe has claimed that a fresh bail-out, expected to be around €120bn (£106bn), will almost triple taxpayers' existing exposure to Greek debt.

"Despite a second Greek bail-out being EU leaders' preferred option, it is only likely to increase the economic and political cost of the eurozone crisis," said Open Europe in a report.

The warning came ahead of a crucial vote of confidence in the Greek government. The vote, which was set for midnight on Tuesday night, came at the end of a three-day debate on George Papandreou's unpopular package of spending cuts and asset sales, which face another vote on June 28. The prime minister has just a six seat majority in the 300-member parliament.

On Sunday, European leaders said they would not release the next €12bn tranche of international aid unless Greece passes the measures. Without the cash injection, which is the fifth instalment from the €110bn international bail-out package agreed last May, Greece will run out of money in mid-July. A failure to pass the measures is also likely to scupper plans for a second bail-out.

Read the rest here.

Help Wanted: Apply on Wall Street

While much of the country remains fixated on the bleak employment picture, hiring is beginning to pick up in the place that led the economy into recession — Wall Street.

The shift underscores the remarkable recovery of the biggest banks and brokerage firms since Washington rescued them in the fall of 2008, and follows the huge rebound in profits for members of the New York Stock Exchange, which totaled $61.4 billion in 2009, the most ever. Since employment bottomed out in February, New York securities firms have added nearly 2,000 jobs, a trend that is also playing out nationwide at financial companies, commodity contract traders and investment firms.

Read the rest here.

Will Califronia Default?

Thomas Pindelski asks:

Given that CA now has the lowest credit rating of all the states, does that make the high rates CA is offering in recent auctions something to avoid, owing to the risk of default, or something to cherish on the lines of ‘too big to fail’.

This is something which came up in conversation today, unsurprisingly, in the wake of my talk to the regional bond dealers. One of them came up to me and indignantly told me that he’d been a muni bond dealer for 38 years, and that of course he knew all about credit risk, as had his forebears before him. To which the natural response is: well, if you’re pricing California debt at these levels, then you must reckon that there’s a pretty substantial probability of default.

The more interesting response was, basically, “my moral hazard trumps your moral hazard”. In other words, it’s true that because California has insured itself against default, there’s moral hazard there: whenever anybody is insured against anything, the likelihood of that thing happening goes up. But at the same time, there’s a bigger moral hazard at play: the federal government will never let California default, it’s too big to fail. And so when push comes to shove, California will get a federal bailout before it defaults on its bondholders.

I suspect, however, that the moral hazard seniority works the other way around: the fact that California’s bondholders are insured means that it’s not too big to fail, and that in fact a payment default by the state would have very little in the way of in-state systemic consequences. (I have no idea what it might do to the monolines, but if they can’t cope with a single credit defaulting, they really shouldn’t be in the business they’re in.) The federal government might step in to mediate the negotiations between the monolines and the state, but it’s not even obvious why it would want to do that.

The more powerful argument why California won’t default is that a payment default is illegal under state law: California’s simply not allowed to default on its bonds. But what are the monolines going to do, sue? If California defaults on say a $1 billion payment which the monolines have to pay, then California owes the monolines $1 billion. If the monolines sue the state and win, then California owes the monolines $1 billion. It’s not clear that they’ve advanced very far. Could they start attaching state assets? I doubt it, somehow.

Read the rest here.

Rise in Jobless Poses Threat to Stability Worldwide

PARIS — From lawyers in Paris to factory workers in China and bodyguards in Colombia, the ranks of the jobless are swelling rapidly across the globe.

Worldwide job losses from the recession that started in the United States in December 2007 could hit a staggering 50 million by the end of 2009, according to the International Labor Organization, a United Nations agency. The slowdown has already claimed 3.6 million American jobs.

High unemployment rates, especially among young workers, have led to protests in countries as varied as Latvia, Chile, Greece, Bulgaria and Iceland and contributed to strikes in Britain and France.

Last month, the government of Iceland, whose economy is expected to contract 10 percent this year, collapsed and the prime minister moved up national elections after weeks of protests by Icelanders angered by soaring unemployment and rising prices.

Just last week, the new United States director of national intelligence, Dennis C. Blair, told Congress that instability caused by the global economic crisis had become the biggest security threat facing the United States, outpacing terrorism.

“Nearly everybody has been caught by surprise at the speed in which unemployment is increasing, and are groping for a response,” said Nicolas Véron, a fellow at Bruegel, a research center in Brussels that focuses on Europe’s role in the global economy.

Read the rest here.

The dangers of deflation

Hundreds of thousands of people are being laid off. The nation’s leading banks and carmakers need bailouts. The stock market has had an ugly 2008.

Well, here’s something else to worry about: deflation. This week, the government announced that prices fell in November for the second month in a row.

It might seem hard to understand what the problem is with falling prices. If all they mean is that we can buy our Christmas presents for less this month than we could have a month ago, maybe we can get the decked out Mac after all. What’s there to worry about?

A lot. If prices persist in their decline, they could be devastating to the economy — not primarily because of their impact on consumers’ spending habits but because of their impact on consumers’ ability to service their debts.

Think of it this way: Say you earn $50,000 a year, and have a $200,000 mortgage. If there is heavy deflation, prices and salaries fall. Your salary might go down to $40,000, but your mortgage would remain the same. Suddenly, making those mortgage payments has gotten a lot tougher.

Read the rest here.

8 really, really scary predictions

Nouriel Roubini
Known as Dr. Doom, the NYU economics professor saw the mortgage-related meltdown coming.

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.

Things are going to be awful for everyday people. U.S. GDP growth is going to be negative through the end of 2009. And the recovery in 2010 and 2011, if there is one, is going to be so weak - with a growth rate of 1% to 1.5% - that it's going to feel like a recession. I see the unemployment rate peaking at around 9% by 2010. The value of homes has already fallen 25%. In my view, home prices are going to fall by another 15% before bottoming out in 2010.

For the next 12 months I would stay away from risky assets. I would stay away from the stock market. I would stay away from commodities. I would stay away from credit, both high-yield and high-grade. I would stay in cash or cashlike instruments such as short-term or longer-term government bonds. It's better to stay in things with low returns rather than to lose 50% of your wealth. You should preserve capital. It'll be hard and challenging enough. I wish I could be more cheerful, but I was right a year ago, and I think I'll be right this year too.

Read the other seven predictions here.

Nouriel Roubini is a man I respect. I am not going to say he is infallible. But like Peter Schiff (see here & here) he has some credibility on this subject that is not exactly widespread these days. Thus when he speaks I pay attention. And very frankly what he is saying scares the &%!! out of me.

I really really hope that he is (finally) wrong.

Is the Worst Over? "No" says Peter Schiff

The man who was laughed at over the last 2-3 yrs for predicting the current economic crisis (see the previous post) made an appearance on CSNBC on November 20th. When asked if the worst was over he gave a frankly grim prediction for the future. This man has been dead on in his predictions thus far and his prognostications for the next couple years sound pretty well reasoned to me. I really hope that he is wrong this time. But I would not put money on it. Not even a dollar that might not be worth the paper it's printed on.

A Prophet Scorned

A Depression coming? Kipplinger says not likely...

Expect to see a recession similar to those in the 1970s and early 1980s.

What are the odds that this economic slump will deepen into a genuine depression not seen since the 1930s? In my judgment, it's not likely. Instead, I foresee a moderately severe recession.

We're all hearing more and more comparisons being drawn to the Great Depression. Yes, we're in the worst financial crisis since that era, but by no means the worst economic crisis since then -- not comparable to, say, the mid-1970s.

Former Goldman Sachs chairman John C. Whitehead got a lot of attention last week with his statement that the federal government could face a downgrading of its credit rating, aggravating the recession. The result, he said, "would be worse than the Depression." Now, "would" is a squishy word in forecasting, but the headlines screamed, "Whitehead Sees Slump Worse Than Depression."

Whitehead, a distinguished American of 86 years, was an adolescent during the 1930s, so he should remember those horrible times well. I wasn't born until after World War II, so my knowledge of the Depression comes largely from books. Here are some things I've learned:

The Great Depression was a global economic collapse of unfathomable magnitude, and today's statistics of pain would have to be multiplied manyfold to match those of the 1930s.

And the Depression was preventable -- if governments worldwide had responded earlier and smarter after the stock market crash of 1929. The lessons learned since then greatly reduce the likelihood of a reprise of that decade of hardship.

Read the rest of this very interesting and detailed article here.

Wall Street Bracing

From today's New York Times

Nation’s Financial Industry Gripped by Fear
Fear and greed are the stuff that Wall Street is made of. But inside the great banking houses, those high temples of capitalism, fear came to the fore this weekend.

As Lehman Brothers, one of oldest names on Wall Street, appeared to unravel on Sunday, anxiety over the bank’s fate — and over what might happen next — gripped the nation’s financial industry. By late afternoon, Merrill Lynch, under mounting pressure, entered into talks to sell itself to Bank of America.

Dinner parties were canceled. Weekend getaways were postponed. All of Wall Street, it seemed, was on high alert.

In skyscrapers across Manhattan, banking executives were holed up inside their headquarters, within cocoons of soft rugs and wood-paneled walls, desperately trying to assess their company’s exposure to the stricken Lehman. It was, by all accounts, a day unlike anything Wall Street had ever seen...

In Frantic Day, Wall Street Banks Teeter

In one of the most extraordinary days in Wall Street’s history, Merrill Lynch is near an 11th-hour deal with Bank of America to avert a deepening financial crisis while another storied securities firm, Lehman Brothers, hurtled toward liquidation, according to people briefed on the deal...

Update at 2200 PDLT: Lehman Bros has filed for bankruptcy protection.