Friday, May 22, 2009

It's coming...

Are you ready for hard times?

U.S. to 'eventually' lose AAA rating

    May 22 (Bloomberg) -- Treasury Secretary Timothy Geithner committed to cutting the budget deficit as concern about deteriorating U.S. creditworthiness deepened, and ascribed a sell-off in Treasuries to prospects for an economic recovery.

    “It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television yesterday. He added that the target is reducing the gap to about 3 percent of gross domestic product, from a projected 12.9 percent this year.

    The dollar extended declines today after Treasuries and American stocks slumped on concern the U.S. government’s debt rating may at some point be lowered. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade.

Fed: High Inflation on the Horizon

    May 22 (Bloomberg) -- Federal Reserve Bank of Philadelphia President Charles Plosser said prices may rise 2.5 percent in 2011, a rate well above central bankers’ preferred range, and cautioned against complacency on inflation.

    “The economy may be at greater risk of inflation than the conventional wisdom indicates,” Plosser said in a speech yesterday in New York. “While inflation expectations appear to remain anchored, we should not become sanguine about our credibility. It can be easily lost.”

    The bank president’s inflation forecast for 2011 exceeds central bank officials’ long-run preferred range of 1.7 percent to 2 percent, and contrasts with the concerns of some officials and economists that the economic slump may provoke a broad decline in prices.

Notice that inflation is the Fed's policy and that deflation - defined by them as lowering prices (which of course is incorrect) is characterized as bad, even though for the average person lower prices are a good thing, especially in hard economic times. What do they have against poor and middle class people?

Dollar Weakens

What a crazy concept: when you print up a bunch of money, it drastically loses value!

    May 22 (Bloomberg) -- The dollar fell to a four-month low against the euro after Eric Rosengren, president of the Federal Reserve Bank of Boston, said America’s recovery may be “slow” and Standard & Poor’s threat to strip Britain’s AAA debt rating stoked concern that U.S. bonds may also be downgraded.
    [...]
    The dollar declined 0.5 percent against the euro and 0.4 percent to the lowest in nine weeks versus the yen as of 11:38 a.m. in London. The MSCI Asia Pacific Index slipped 0.1 percent and Europe’s Stoxx 600 Index was up 0.2 percent. Futures on the Standard & Poor’s 500 Index gained 0.6 percent.

    The pound weakened against all but three of the 16 major currencies after S&P lowered the outlook on the U.K.’s AAA rating yesterday to “negative” from “stable,” citing the nation’s slowing economy and growing debt burden. Governments around the world are selling more bonds than ever to battle the worst recession since World War II. The U.S. Treasury will auction about $101 billion of securities next week, and Goldman Sachs Group Inc. estimates the government will sell a total of $3.25 trillion in debt this fiscal year to finance President Barack Obama’s economic stimulus measures.

    ‘Triple Whammy’

    “Speculation has increased that the U.S. could potentially face a credit rating downgrade and in doing so, lose its AAA rating,” Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in an e-mailed report today. Investors in U.S. assets may face a “triple whammy of falling U.S. equities, U.S. government debt and the dollar,” he said.

Recession Turns Malls Into Ghost Towns

This - the commercial real estate crash, as has been warned, is the next hammer to drop on the U.S. economy, and it will make the housing crash look like a trip to Disney Land.

    CHARLOTTE, N.C. -- Malls, those ubiquitous shopping meccas that sprang up in the 1950s, are dwindling in number, with many struggling properties reduced to largely vacant shells.

    On the low-income east side of Charlotte, N.C., the 1.1-million-square-foot Eastland Mall recently lost a slew of key tenants, including a Dillard's and, next month, a Sears. Sales per square foot at the venue fell to $210 in 2008 from $288 in 2001.

    The Metcalf South Shopping Center in Overland Park, Kan., is languishing after plans to redevelop it into an open-air shopping district fizzled. The stretch of shops that connects the two largest tenants -- a Sears and a Macy's -- stands mostly vacant, patrolled by security guards.

    With their maze of walkways and fast-food courts, malls have long been an iconic, if sometimes unsightly, presence in the American retail landscape. A few were made famous by their sheer size, others for the range of shopping and social diversions they provided.

    But the long recession is helping to empty out the promenades. Some analysts estimate that the number of so-called "dead malls" -- centers debilitated by anemic sales and high vacancy rates -- will swell to more than 100 by the end of this year.
    [...]
    The industry's woes are worsening. Thinning customer traffic, and subsequent hits to tenants' sales and profits, prompted Standard & Poor's Corp. last month to lower the credit ratings of the department-store sector. That knocked Macy's Inc. and J.C. Penney Co. into junk territory and pushed others deeper into junk. Sears Holdings Corp., a cornerstone tenant at many malls, is expected to close 23 stores this month and next.

    General Growth Properties, which owns more than 200 U.S. malls, filed for bankruptcy protection April 16, due mainly to its failure to refinance billions of dollars of debt coming due. While the real-estate investment trust has said the filing will have no impact on its mall business, analysts say a prolonged bankruptcy proceeding could make retailers nervous about sticking around once their leases expire.

    The severity of the recession is turning some malls that were once viewed as viable into potential casualties. "Any mall that's sitting on life support is probably going to get its plug pulled" as the economy stalls, says Michael Glimcher, chairman and CEO of Glimcher Realty Trust, which owns 23 U.S. properties, including Eastland Mall in Charlotte.

Florida's BankUnited fails, will cost FDIC $4.9B

    WASHINGTON (AP) - The federal seizure of struggling Florida thrift BankUnited FSB is expected to cost the Federal Deposit Insurance Corp. $4.9 billion, representing the second-largest hit to the FDIC's insurance fund since the financial crisis began felling banks last year.

    The costliest was last year's seizure of California lender IndyMac Bank, on which the bank insurance fund is estimated to have lost $10.7 billion.

    The Office of Thrift Supervision, a Treasury Department agency, said Thursday that BankUnited FSB reported $1.2 billion in losses last year as defaults on loans piled up. The thrift "was critically undercapitalized and in an unsafe condition to conduct business," the agency said in a statement.

    Coral Gables, Fla.-based BankUnited FSB is the 34th federally insured institution to be closed this year, and the biggest. Florida's largest banking institution with about $13 billion in assets as of May 2 was sold for $900 million to an investor group led by former North Fork Bancorp Chairman and CEO John Kanas. It will reopen as a newly chartered savings bank called BankUnited on Friday, with Kanas at the helm.