Westfield Results Demonstrate Decline In U.S. Mall Market

Westfield Results Demonstrate Decline In U.S. Mall Market: "

Westfield, the world's largest mall operator, announced results earlier today, which demonstrated substantially accelerating real estate writedowns, primarily in the US. For the six month period ended June 30, Westfield announced $2.5 billion in property revaluations, after posting $2.6 billion in comparable charges for the entire 2008 year period: the company is finally marking its asset book to something vaguely resembling reality. 

As a result of deteriorating operations, the company also announced it would reduce its dividend payout from 100% of earnings to 75%, in anticipation of a liquidity crunch resulting from over $19 billion in debt maturing between 2010 and 2014.

Other notable data: U.S. retail sales on a per square foot basis declined by 6.2% from $437 to $410 just over the past six months, and by 10.8% from June 2008: the worst deterioration of any of the company's regional properties.

Furthermore, cap rates have increased by over 0.3% across Westfield's four regions over the last 6 months, with the U.S. surprisingly representing the highest end range.

Also, notably the weakest retail categories were jewelry, fashion and leisure, all of which declined by over 10% year over year.

Net-net: the news that the deterioration in the U.S. mall market shows no indication of abating, and rent capacity is substantially deteriorating, not only for the company's 8,889 US malls, but for bankrupt GGP and its competitors, will likely be sufficient reason for other garbage REITs with deteriorating performance metrics to see their stocks jump once again for no other reason aside from... well, no other reason, which seems to be same principle that drives stock trading each and every day in all other garbage sectors.

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NY Fed Launches Interactive Maps Of Economic Collapse

NY Fed Launches Interactive Maps Of Economic Collapse: "

The kind folks at the New York Fed have launched a useful service whereby citizens can look at the collapse of the credit economy in real, interactive time as they buy Fannie, Freddie and Citi stock (which at last check had a pro forma market cap higher than Bank of America).

The link for the maps can be found here in case anyone needs ongoing confirmation of the prevlance of red shoots.

At first glance, it seems that delinquent auto loans is where much more red is still due, while the bloodletting in mortgages has reached quite epic proportions and shows no sign of abating.

The charts below demonstrate the year over year deterioration across four key credit verticals:

Auto Loan Delinquency Rate 60 + Days:

Bank Card Delinquency Rate 60 + Days:

Mortgage Delinquency Rate 90 + Days:

Student Loan Delinquency Rate 90 + Days:

For the full interactive charts, don't be shy and check out the Fed's website.

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No way out

Federal Reserve Has No Strategy to Unwind Easy Monetary Policy - WSJ.com

We're beginning to wonder if the Ben Bernanke Federal Reserve isn't populated with French existentialists. A la Jean-Paul Sartre, they have a "no exit" strategy when it comes to unwinding their extraordinarily easy monetary policy. At least they gave no signs of restraint in yesterday's statement after their August Open Market Committee meeting, keeping short-term interest rates close to zero and again promising to maintain current policy for an "extended period."

The Fed is keeping the money pumping even though it also conceded that "economic activity is leveling out," which is an acknowledgment that the recession is all but over. This policy is justified, the FOMC statement said, because the economy still has "substantial resource slack" that will keep cost pressures under countrol "for some time." Unsaid by the Fed, but understood by everyone, is that Mr. Bernanke isn't about to tighten money while he's still auditioning for re-appointment to a second four-year term as Chairman. Fed chiefs who tighten money tend to be unpopular with Wall Street and the political class, though not with the middle class.

The one hint of discipline was the Fed's suggestion that it won't expand its program to buy $300 billion in Treasury debt. The Fed will stretch out its purchases for an additional month into October, but this is probably to reduce the chance of market disruptions when it stops its purchases. The good news here is that the Fed seems to be admitting that this decision to directly monetize the national debt by buying long-end Treasurys was a mistake. It failed to keep rates down and may even have helped increase them as holders of U.S. debt wondered about the Fed's independence from the politicians at Treasury and on Capitol Hill.

Overall, though, the Fed's policy is to keep pressing the money accelerator to the floor. We agree it's hardly time to put the brakes on. But the Fed would be wiser to at least begin slowing to, say, 160 miles per hour from its present Indy car speed of 200 mph. It's a lot safer to slow down gradually than have to screech to a halt to avoid another asset bubble.

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Faber and Roubini

Nouriel Roubini: Risk of Double-Dip Recession Not Quite Past Yet - Economy * Europe * News * Story - CNBC.com

"My view is that the Fed and the other central bankers will leave interest rates far too low and far too long," Faber said.

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Farmland price decline in the USA

Calculated Risk: Farmland Values Decline

From the WSJ: Farm Real-Estate Values Post Rare Drop

The U.S. Agriculture Department said in its annual report that the value of all land and buildings on U.S. farms averaged $2,100 an acre Jan. 1, down 3.2% from last year. The decline in farm real-estate values was the first since 1987, the agency said.

The Chicago Fed had a similar report a couple of months ago: Farmland Values and Credit Conditions

There was a quarterly decrease of 6 percent in the value of “good” agricultural land—the largest quarterly decline since 1985—according to a survey of 227 bankers in the Seventh Federal Reserve District on April 1, 2009. Also, the year-over-year increase in District farmland values eroded to just 2 percent in the first quarter of 2009.

And here was a graph I posted in May based on the Chicago Fed report:

Farmland Prices Click on graph for larger image in new window.

This graphs shows nominal and real farm prices based on data from the Chicago Fed.

In real terms, the current increase in farm prices wasn't as severe as the bubble in the late '70s and early '80s that led to numerous farm foreclosures in the U.S.

And as I noted in the earlier post, it was not surprising that John Mellencamp wrote "Rain On The Scarecrow" in 1985 after the farm bubble burst.

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Yuan growing fast very fast

China moves to internationalise its currency - Times Online

China moves to internationalise its currency
Leo Lewis, Asia Business Correspondent



China is rapidly accelerating its efforts to internationalise its currency with a series of manoeuvres that could see the renminbi soar to become one of the top three traded monetary units in the world.

By 2012, say analysts in Shanghai, as much as $2 trillion (£1.69 trillion) worth of trade flows may be settled using the “redback” as China stretches its commercial tentacles throughout the commodity-producing world and the emerging economies of Asia, Latin America and the Middle East.

The radical change in attitude may arise from a desire to protect China from the “dollar trap” — the problem that emerges when exporting countries are effectively forced to shovel large chunks of their reserves into the US treasury and suffer the consequences in times of high volatility.

The rising financial power of the renminbi may also prove to be the salvation of Hong Kong in its intensifying rivalry with Shanghai for international relevance.


The former British colony, say economists at Barclays Capital, may be able to secure its status as a premier global financial hub by rebranding itself as China’s offshore renminbi banking centre. Renminbi internationalisation is essential if Hong Kong “is to have any long-term hope of being like London or New York,” according to the bank.

Political analysts believe full international currency status for the renminbi could take some time to become politically acceptable to the full spectrum of views within the Communist Party, warning that there would be significant policy hurdles surrounding the perceived loss of currency control.

However, China’s soaring economic growth and global financial turmoil could be pushing the process ahead faster than the market expects. Recent measures, including currency swap agreements with several central banks and the allowing of renminbi-denominated crossborder trade, have significantly changed the environment, HSBC said in a research note.

If, as some predict, China overtakes Japan to become the world’s second biggest economy next year, the pressure for the renminbi to internationalise will mount faster. Wensheng Peng, chief China economist at Barclays Capital, believes that market turmoil and the Wall Street crisis has changed the terms of a debate on the renminbi that has been brewing for years.

“The global financial crisis, and along with it increased concern from the Chinese perspective on the reliance of the global monetary system on the US dollar has brought to the fore the importance of increasing the use of the renminbi in international trade and finance,” he said.

A consensus among policymakers has grown from the grudging acceptance that one of the fundamental reasons the country has fallen into the dollar trap is that China’s currency is not international and the global crisis has made the dollar less predictable.

Others believe that raw economic growth makes the globalisation of the renminbi inevitable. “If the history of sterling and the dollar’s ascendancies as international currencies are any guide, said Hongbin Qu, HSBC’s chief China economist, the internationalisation of the renminbi is “long overdue” because of China’s rising economic power relative to the limited use of the renminbi overseas.

Most significant are the policy gambits in the past few months as the global financial crisis has given motive and opportunity for Beijing to test out renminbi internationalisation. China has signed bilateral currency swap agreements with Korea, Malaysia, Indonesia, Belarus and Argentina worth 650 billion renminbi (£57 billion). Last month, China selected five mainland cities — accounting for 45 per cent of the country’s foreign trade — that can trade with Hong Kong and Macau in renminbi. The programme, said Mr Qu, could be rolled out to cover all of China’s trade with Asia except Japan.

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OK

Dr. Doom Sees Double-Dip Recession Risk, in Remarks Down Under - Real Time Economics - WSJ

By WSJ Staff

By Elisabeth Behrmann

Advanced economies are showing signs of bottoming in response to massive financial and fiscal government stimulus but the global economy will stay in a recession until the end of the year, U.S. economist Nouriel Roubini said Monday in Kalgoorlie, Australia.
roubini20090803_E_20090803035728.jpgBloomberg News/Landov
Nouriel Roubini delivers the keynote address at the Diggers and Dealers Mining Forum in Kalgoorlie, Australia, on Monday

His comments came a day after Alan Greenspan said in an ABC interview that he is “pretty sure we’ve already seen the bottom” and that “Collapse now, I think, is off the table.”

In Roubini’s remarks, he predicted the global economy would contract by 2% in 2009, staying in a recession until the end of the year, but would grow by 2%-3% next year, he said.

That will offer a boon to commodity prices, which should trend higher from current levels but still run the risk of a correction should the global recovery surprise on the downside.

“In addition to the green shoots, we see worrying signs. There’s a risk of relapse, of a double-dip recession in the second half of next year,” Roubini said, tipping U.S. house prices to contract another 13% next year, on top of a drop in prices of 27% since their highs in 2006.

With the U.S. still the world’s largest economy by far, consumption trends will be key for the global recovery, and signs from labor markets and the outlook for consumer demand remained worrying, he said.

He said he expects U.S. unemployment to rise further to reach 11% next year - unemployment had reached 9.5% in June - and that, while the labor market continued to show signs of severe weakness, the U.S. consumer would remain ’shopped out’ and keen to increase the rate of household savings.

With the global economy tipped to recover next year, commodity prices should benefit and trend higher. However, there’s a risk of correction should that recovery surprise on the downside, while waning Chinese restocking and strategic inventory builds during the second half of this year should take some steam out of commodity markets. Turning to record levels of Chinese bank lending during the first half of this year, Roubini said he wasn’t concerned about a financial crisis on the scale of the U.S. crisis happening in China, but said that excessive liquidity was wasteful and ultimately damaging to the economy. The Chinese government’s stepping up bank lending was necessary but it’s time for the excessive lending to be scaled back, Roubini told reporters.

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