In another sign of sluggishness in the mortgage markets, home-loan applications fell by 6.5% last week after adjusting for seasonal factors, the Mortgage Bankers Assn. says in its latest report.

The decline occurred despite lower interest rates, according to the trade group, which reported Wednesday that the average contract rate for 30-year fixed-rate mortgages decreased to 4.84% from an even 5%. It was the third straight week that the rate went down, the MBA says.

The weekly report tends to jump around, but the overall trend is down: A four-week moving average of mortgage applications is down by 2.5%.

With distress sales dominating the housing market, vulture investors are using cash to buy many homes, so it may be no surprise that applications for purchase-money home loans are falling.

But despite the sub-5% rate — the trigger, once, for refinancings — the refi share of mortgage activity decreased to 64.9% of total applications from 65.7% the previous week.

Source article LA Times

Wall Street is making money, while consumers aren’t, Harajchi told CNBC.

“We have seen the G20 coming out with cross border capital injections of $5 trillion this year… But a lot of this money hasn’t really come down to Main Street,” he said.

“When it comes down to corporate America, corporate Europe or even in Asia, in Japan, we are not seeing Main Street making any money,” he said. “Consumers are losing their jobs. They are struggling with their mortgages, buy prozac online with their credit. And we are just seeing this continuing.”

The $5 trillion injection is “monetary expansion,” according to Harajchi. “At some point, which we believe to be 2010/11, some of the central banks are going to recall some of that money and that will turn from monetary expansion to monetary contraction.”

He also said he doesn’t see the corporates or the public “being able to pay back that debt.”

“We see 2010 becoming a much more risky year than 2009,” he said.

Harajchi said unemployment data are “a leading indicator” instead of a lagging indicator.

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 Mike Lenhoff, chief strategist at Brewing Dolphin Securities, told CNBC that the recovery will depend on the improvement in cyclical sectors.

“The sooner companies generate their profits, and I think it is moving towards mainstream, it’s not just the financials now,” Lenhoff said. “If present trends continue, we’re talking about jobs being created sometime in the second quarter of next year. That could do a lot for consumer confidence.”

Weak Dollar is Everybody’s Friend

It is no longer up to the U.S. but more to the rest of the world to decide about the dollar’s status as the global reserve currency, Harajchi said.

China and the Gulf countries which have their oil pegged to the dollar “would like to see some other currencies, maybe the euro, playing a more dominant role,” he said.

Lenhoff disagreed with Harajchi, saying he believes the dollar will continue to play a dominant role in global trade and global finance.

Central banks will continue to keep interest rates very low in order to avoid a depression, he said. The reason for the dollar’s recent weakness “is really down to Fed policy,” he added.

“The Federal Reserve has made it crystal clear that interest rates are staying where they are for an extended period of time. We’re getting to see a more confident tone to global growth, to a recovery, and as a result of that, we’re seeing the tolerance towards risk aversion drop and that in turn has washed back onto the dollar as investors go in search of risk assets,” he said.

“This is something we’re going to see for a while, until there is a change in Fed policy. That doesn’t seem imminent and certainly it doesn’t seem at all likely until sometime in the latter half of next year.”

The dollar’s depreciation will help boost the S&P 500 index over the coming quarters, Lenhoff told CNBC.

“A weak dollar is everybody’s friend,” he said.

“If the dollar serves the role of an additional stimulus in reflating the U.S, then I think that it’s very good,” he said.

Job losses for September are higher than expected and almost six times greater than in August, state officials say. L.A. County joblessness soars to 12.7%.

California posted higher-than-expected job losses in September, a sign that the state’s employment woes continue even amid indications of a broader economic recovery.

Employers cut 39,300 workers from their payrolls last month, according to figures released this morning by the state Employment Development Department. That’s nearly six times the number of jobs the state now says were lost in August, led by cuts in construction and government.

A separate survey of joblessness showed that California’s unemployment rate was 12.2% in September, down from a revised 12.3% in August. The unemployment rate in September 2008 was 7.8%.

“It is discouraging,” said Esmael Adibi, an economist at Chapman University. “We want to see job losses go down and the pace slow down, but we didn’t see it.”

California’s unemployment rate is well above the national rate of 9.8%.

The state’s job losses were especially pronounced in construction, which lost 14,100 jobs over the month, and government, which lost 12,700.

Cutbacks in government employment, which includes public schools, are partly to blame for the state’s lackluster performance this month, said Stephen Levy of the Center for the Continuing Study of the California Economy.

“We are disproportionately hit in the government sector because our state and local governments are having worse budget shortfalls than in other states,” he said.

Los Angeles County’s unemployment rate soared to 12.7%, up from 12.2% the previous month. The county has lost 164,200 jobs over the last year.

Unemployment rates in the other four counties in Southern California all declined in August. Orange County’s jobless rate was 9.4% in September, down from a revised 9.8% in August. Hard-hit Riverside and San Bernardino counties posted an unemployment rate of 14.2%, down from 14.6% in August.

Ventura County’s unemployment rate was 11%, down from a revised 11.3% in August. San Diego’s unemployment rate dipped to 10.2% in September from 10.6% in August.

Imperial County continued to have the highest rate in the state, and one of the highest in the country, in September at 30.1%. Others were Merced County at 15.7%, Trinity County at 15.9%, and Yuba County at 17.8%.

The state has lost 732,700 jobs over the last year, with 144,000 of those losses occuring in construction. California’s construction sector has shed more than 300,000 jobs since its pre-recession peak in early 2006.

A year after Washington rescued the big names of American finance, it’s still hard to get a loan. But the problem isn’t just tight-fisted banks.

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On Life Support

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Tightening the Credit Strings

The continued disarray in debt-securitization markets, which in recent years were the source of roughly 60 percent of all credit in the United States, is making loans scarce and threatening to slow the economic recovery. Many of these markets are operating only because the government is propping them up.

But now the Federal Reserve has put these markets on notice that it plans to withdraw its support for them. Policy makers hope private investors will return to the markets, which imploded during the financial crisis.

The exit will require a delicate balancing act, government officials said.

“You do it incrementally, where and when you think you can, and not sooner,” said Lee Sachs, a counselor to the Treasury secretary, Timothy F. Geithner.

The debt-securitization markets finance corporate loans, home mortgages, student loans and more. In good times, they enabled banks to package their loans into securities and resell them to investors. That process, known as securitization, freed banks to lend even more money.

Many investors have lost trust in securitization after losing huge sums on packages of subprime mortgages that had high default rates. The government has since spent more than $1 trillion trying to restore the markets, with mixed success.

Until more of the securitization market revives, or some new form of financing takes its place, a wide range of loans needed to secure a lasting economic recovery will remain elusive, experts said.

“Given the imperative for securitization markets to fuel bank lending, we won’t have meaningful economic growth until securitization markets are re-established,” said Joseph R. Mason, a professor of banking at Louisiana State University. Mr. Sachs agrees: “It’s very important these markets come back to get credit to businesses and families who need it, and also as a sign of confidence.”

Enormous swaths of this so-called shadow banking system remain paralyzed. Depending on the type of loan, certain securitization markets have fallen 40 to 100 percent.

A once-thriving private market in securities backed by home mortgages has collapsed, from $744 billion in 2005, at the peak of the housing boom, to $8 billion during the first half of this year.

The market for securities backed by commercial real estate loans is in worse shape. No new securities of this type have been issued in two years.

“The securitization markets are dead,” said Robert J. Shiller, the Yale University economist and housing expert who predicted the subprime collapse. The government is supporting them, he said, but it’s unclear what will happen when it extricates itself. “We’re stuck,” he said.

Despite the running problems, federal officials hope to start weaning the securitization markets off government support next spring. The Federal Reserve has spent about $905 billion buying government-guaranteed mortgages in an effort to keep mortgage rates low. It will continue buying until it reaches its target of $1.25 trillion.

Complicating the Fed’s plan, banks — the other source of credit next to the securitization markets — continue to rein in lending, according to data from the Federal Reserve. And next year, banks face accounting rule changes and capital requirements that could further restrict their ability to make loans.

To be sure, certain corners of the securitization market are percolating again, thanks to the government’s Term Buy Acomplia Asset-Backed Securities Loan Facility, or TALF, which provides attractive financing for investors who buy the securities.

Bonds backed by consumer debt — credit card debt, auto loans and some student loans — are being issued at costs close to those before the financial crisis, an indication that the market is functioning again.

But the program applies only to borrowers with stellar credit. It does not cover credit card debt or auto loans for people with blemished credit histories.

“The market is coming back, but a lot of it is because of TALF,” said Hyun Song Shin, a Princeton economist who studies securitization. “The big question is, Will the private issuance market stand on its own two feet without TALF, or has there been a fundamental change in the market that it is somehow hobbled permanently?”

That question is hard to answer as long as the government is dominating certain securitization markets. So far, the Fed has been most aggressive in supporting the market for mortgage-backed securities, which plays a crucial role in housing finance. The Fed is virtually the only buyer for these instruments, purchasing about $905 billion worth of government-guaranteed mortgage-backed securities through mid-September. Industry analysts estimate that is about 80 to 85 percent of the market.

“This is public support,” said George Miller, executive director for the American Securitization Forum, which represents the industry. “At the end of the day, the mortgage risk is held by the taxpayer.”

Investors are particularly concerned about the commercial real estate market. A big worry is that $50 billion of securitized commercial property loans are due to be refinanced in the next year. If that can’t be done, a toxic mix of declining property prices and maturing loans could lead to fresh losses at many banks.

“If there’s no mechanism, those properties will default,” said Arnold Phillips, who oversees mortgages and structured securities for the $50 billion in fixed-income investments managed by the California Public Employees’ Retirement System.

As long as the market remains closed, banks will be reluctant to make loans for commercial real estate, since they would have to hold on to them, rather than package them into securities.

Meanwhile, the programs the government has started have not changed securitization practices that many investors say were a cause of the financial crisis. Lawmakers remain concerned that when securitization comes back, it does so in a way that doesn’t put the financial system at risk.

“Our challenge is to have a robust securitization process that adds value to the economy and doesn’t undermine it,” said Senator Jack Reed, Democrat of Rhode Island and chairman of the Banking Subcommittee on Securities, Insurance and Investment. He plans to hold a hearing on securitization next month to find out why consumers and businesses are still having so much trouble getting loans.

Source Article

Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate (9.8 percent) continued to trend up, the U.S. Bureau of Labor Statistics reported today. The largest job losses were in construction, manufacturing, retail trade, and government.

Click on graph for larger image.

This graph shows the unemployment rate and the year over year change in employment vs. recessions.

Nonfarm payrolls decreased by 263,000 in September. The economy has lost almost 5.8 million jobs over the last year, and 7.2 million jobs during the 21 consecutive months of job losses.

The unemployment rate increased to 9.8 percent. This is the highest unemployment rate in 26 years.

Year over year employment is strongly negative.

buy medicine src=”http://4.bp.blogspot.com/_pMscxxELHEg/SsXzzDSUSqI/AAAAAAAAGfM/PWX-2daRZ0w/s320/EmploymentJobLossesRecessions.jpg” border=”0″ alt=”Percent Job Losses During Recessions” /> The second graph shows the job losses from the start of the employment recession, in percentage terms (as opposed to the number of jobs lost).

For the current recession, employment peaked in December 2007, and this recession was a slow starter (in terms of job losses and declines in GDP).

However job losses have really picked up earlier this year, and the current recession is now the worst recession since WWII in percentage terms, and 2nd worst in terms of the unemployment rate (only early ’80s recession was worse).

The economy is still losing jobs at about a 3.2 million annual rate, and the unemployment rate will probably be above 10% soon. This is a very weak employment report – just not as bad as earlier this year. Much more to come …

Note: The the preliminary benchmark payroll revision is minus 824,000 jobs. (This is the preliminary estimate of the annual revision – this is very large).