Archive for August, 2010

August auto sales sluggish (Reuters)

Friday, August 27th, 2010 | Finance News

DETROIT (Reuters) – The U.S. auto industry felt like it dodged a bullet in July when retail sales to consumers held up and confounded forecasts for a drop, but then August came and that sense of relief went out the window.

With a still-critical last weekend of sales left that could change the outlook, August U.S. auto sales are expected to offer more evidence of a slower-than-expected industry recovery as General Motors Co (GM.UL) prepares its IPO.

Sales have risen from the worst depths of the downturn last year, but how much farther the rebound goes and how long that will take depends in large part on a strengthening in the economy that would boost consumer confidence and employment.

"We are crawling around," Jesse Toprak, an analyst at industry-tracking website TrueCar.com, said Friday. "It feels like we got a dead car to jump-start but we just can't get it to go over 20 miles an hour."

U.S. economic growth was revised down to a 1.6 percent annual rate in the second quarter, pointing to an even softer third quarter, but analysts so far do not expect the economy to slide back into recession.

TrueCar expects U.S. auto sales to be down 3 percent in August from July and nearly 20 percent from a year earlier when government "cash for clunkers" incentives drove demand. The annualized rate is expected to be about flat from July.

Edmunds.com expects Chrysler to report a 6.4 percent sales gain in August from July and Honda Motor Co (7267.T) a 3.4 percent gain from last month.

Edmunds expects GM sales to be down 5.8 percent in August from July, Ford Motor Co (F.N) down 3.2 percent, Toyota Motor Corp (7203.T) down 4.6 percent and Nissan Motor Co (7201.T) down 6.6 percent.

Analysts surveyed by Reuters forecast an average annualized sales rate of 11.6 million vehicles in August, with a range of 10.9 million to 11.9 million vehicles. That would be a slight increase from the 11.5 million unit rate in July.

SLOW GROWTH, OUTLOOK FLATTENING

Automakers face a dilemma in an environment where meeting broad sales targets has required increasing profit-sapping incentives on retail sales to consumers or adding to less-profitable fleet sales, analysts said.

U.S. auto sales are among the earliest snapshots of economic activity in a given month and nearly a quarter are booked in the last three days, making forecasting difficult.

"Yet another month with a sales rate in the mid-11 million unit range is unlikely to ease investors' doubts around the shape of the recovery for the auto industry," Barclays Capital analyst Brian Johnson said in a note on Thursday.

Barclays expects August U.S. sales at an 11.5 million unit annual rate with a retail sales drop offset by fleet sales.

A disproportionate amount of the gain in U.S. auto sales this year has been from fleet sales, though credit availability has improved, JPMorgan analyst Himanshu Patel said Wednesday.

Patel expects August U.S. auto sales to be "slightly down" from July and said a protracted soft patch or double-dip recession would suggest a flat to slightly lower annualized rate of sales as long as credit continued to flow.

TrueCar has forecast an 11.68 million unit annualized rate for August and Edmunds.com an 11.8 million rate.

U.S. auto sales hit bottom last year at 10.4 million vehicles, a drop from the most recent sales peak at nearly 17 million in 2005. The rate has averaged 11.2 million through July and analysts do not expect a return to peaks for years.

JD Power and Associates has trimmed its 2010 and 2011 U.S. auto sales forecasts, reflecting a "flattening of the recovery" and analysts have started to gauge the impact of a double-dip recession as economists cut U.S. growth forecasts.

"All the measures that we track that correlate very strongly with new vehicle sales have largely been negative, particularly in the last two weeks," TrueCar's Toprak said. "I think really what is being damaged here more than anything is the already very fragile consumer confidence."

(Reporting by David Bailey, editing by Matthew Lewis)

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Bernanke says Fed to act if needed (Reuters)

Friday, August 27th, 2010 | Finance News

JACKSON HOLE, Wyoming (Reuters) – U.S. Federal Reserve Chairman Ben Bernanke said on Friday the economic recovery has weakened more than expected and the Fed stands ready to act if needed to spur slowing growth.

Bernanke downplayed concerns that the economy might slip back into recession, predicting a modest expansion in the second half of this year, with the pace picking up in 2011.

If that forecast proves overly optimistic, however, he said the Fed has sufficient ammunition left and could support growth by purchasing more government debt or by promising to keep rates exceptionally low for a longer period than currently priced in by financial markets.

"The committee is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly," Bernanke told a Fed conference, held in Jackson Hole, Wyoming.

Bernanke's comments, in an address to an annual conference of global central bankers hosted by the Fed, came as the government reported the economic growth rate in the second quarter was weaker than it had originally estimated.

Bernanke made clear that the U.S. central bank has not decided what would prompt additional easing.

"At this juncture, the committee has not agreed on specific criteria or triggers for further action," he said.

"The overall tone was one of watch and wait," Goldman Sachs economist Jan Hatzius wrote in a note to clients, "despite ongoing signs that U.S. economic activity has not only dropped below its potential growth rate but has a significant probability of weakening further."

Stocks initially fell after Bernanke's remarks, but reversed course and the three major indexes closed up 1.7 percent. The dollar was little changed against a basket of currencies after Bernanke's lack of a firm commitment for additional easing, which could put downward pressure on interest rates. Prices for government bonds tumbled.

OTHER OPTIONS

While Bernanke focused on near-term issues in the U.S. economy, the head of the European Central Bank, Jean-Claude Trichet, also speaking at the Jackson Hole conference, addressed long-term global challenges.

He urged governments and central banks to ensure that the transition from very high debt levels incurred in response to the global financial crisis and its economic fallout takes place in an orderly fashion and without compromising economic growth.

"The primary macroeconomic challenge for the next 10 years is to ensure that they do not turn into another 'lost decade,'" Trichet told the conference.

Trichet avoided any direct references to current monetary policy ahead of next week's meeting of the ECB.

In Japan, which has experienced decades-long stagnant growth, the Bank of Japan is examining holding an emergency meeting early next week to ease monetary policy as the strong yen threatens the country's fragile economic recovery, a source familiar with the matter said.

An emergency meeting may be held as early as Tuesday, when BOJ Governor Masaaki Shirakawa is back in Tokyo after his return from the Fed conference in Wyoming.

Hopes for a speedy U.S. recovery have been dashed by a string of disappointing reports on employment, housing and manufacturing. Economists have slashed third-quarter growth forecasts in the past couple of weeks and now see the change of a double-dip recession at 25 percent, up from 15 percent in early July, according to a Reuters poll on Friday.

With interest rates held at ultra-low levels since December 2008, the Federal Open Market Committee, the Fed's policy-setting body, has turned to other measures to bolster growth, pumping about $1.7 trillion into the economy.

Bernanke said the U.S. central bank's purchases of longer-term securities have been effective in lowering borrowing costs and that he believes the benefits of buying more such assets, if needed, would outweigh any disadvantages.

He said other options to spur economic growth -- such as committing to hold interest rates exceptionally low for an even longer period than is currently priced in to financial markets, or raising the Fed's inflation targets -- would be less effective in the current environment.

Bernanke stressed that the high jobless rate remains a concern to policy makers, and said the Fed would be vigilant against deflation -- a dangerous downward spiral in prices that chills economic growth by making both businesses and consumers reluctant to make purchases-- even though it is not currently a risk in the United States.

"Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability," he said.

Investors and economists said Bernanke's remarks indicated that he favored more quantitative easing measures.

Despite the rather sober tone of much of his remarks, which were unusually policy-heavy for a conference that tends to focus on loftier academic matters, Bernanke said he was confident the U.S. recovery would not stall.

He said while the exit from recession was driven primarily by fiscal and monetary stimulus measures and inventory rebuilding by businesses, a "hand-off" to consumer demand appeared to be under way.

(Editing by Leslie Adler)

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Marquee homes languish on Calif. housing market (AP)

Friday, August 27th, 2010 | Finance News

LOS ANGELES – Southern California's homes-sale listings are beginning to resemble an index to the country's most famous mid-20th-century architects, as marquee properties languish on the market as the well-heeled become increasingly reluctant to buy.

Homes by the likes of Frank Lloyd Wright, Richard Neutra and Rudolph Schindler that once sold briskly to architectural aficionados for stratospheric prices are now selling at a loss — if at all.

"Those days of easy money and money-is-no-object artwork kinds of prices are gone," said architect and real estate agent Brian Linder, who has a listing for a 1937 condo unit by Austrian emigre designer Richard Neutra that's had its price cut to $675,000 after hitting the market in May for $815,000.

It's a big change from just a few years ago, when the housing-finance bubble that inflated property values throughout the country earlier in the decade showed itself even more prominently among architecturally significant homes. Those homes often sold for many times what their less notable neighbors fetched.

Pierre Koenig's late 1960s Case Study House No. 21, for example, sold in December 2006 after barely a week on the market for $3.2 million, or around $2,400 a square foot. That compares to an average of $500 to $600 per square foot for neighboring homes at the time, Linder said.

But the prices of many of these pedigreed homes hasn't yet come down to the level where buyers would be willing to make a purchase.

A 1949 home built in the foothills of the Verdugo Mountains outside Los Angeles by John Lautner, best known for the octagonal Chemosphere that looms over the Hollywood Hills, has been on the market for about two years.

The asking price for the airy redwood-and-glass structure, called the Schaffer Residence, debuted at around $2 million, but has since been cut to about $1.5 million.

In the trendy Silver Lake neighborhood, the Austrian-born Schindler's sparse, concrete How House hit the market in September 2008 at around $5 million. Its last listing was at $1.9 million.

Meanwhile, in the hills overlooking the neighborhood of Los Feliz, Wright's Ennis house, which has been featured in such movies as "Blade Runner," and "House on Haunted Hill," has had its price reduced from $15 million last summer to about $7.5, and it still hasn't found a buyer.

The 1924 home's current owner, the nonprofit Ennis House Foundation, began seeking a buyer for the home in the Mayan-ruins-inspired "textile block" style after spending some $6.5 million to fix damage from the 1994 Northridge earthquake.

Another of Wright's Mayan-influenced homes, the Millard House in Pasadena, has had its price cut from nearly $8 million to around $5 million during the two years it's been for sale.

Its current owners, who bought the home about 12 years ago, even entertained a proposal by an art dealer whose Japanese client considered buying the home, dismantling it block-by-textile-block and shipping it to Japan.

"We have a priceless treasure at a bargain price and it's not as well understood at home probably as it is around the world," said the home's listing agent, Crosby Doe.

High-priced homes by brand-name architects don't seem to be selling any better in other parts of the country.

Wright's 60-year-old concrete-and-mahogaony Fawcett House, on 80 acres of farmland in California's northwest San Joaquin Valley, went on the market nearly two years ago at $2.8 million.

Real estate agent Zack Anawalt said his firm, which recently took over the home's sale, plans to relist it next week at about $2 million.

And in the Highland Park suburb of Chicago, the modernist glass-and-steel box-shaped home best known as the launching point of a character's father's red Cammarro in 1986's Ferris Bueller's Day Off has languished on the market for more than a year.

The house, built in 1953 by Mies van der Rohe-protege A. James Speyer, was first listed for $2.3 million in May 2009. Last month, its price was cut to about $1.7 million.

James Ebert, a property appraiser who specializes in architecturally significant homes, said prices would have to come down even more in order to attract buyers for these homes, many of which are in disrepair and require expensive maintenance to keep their historic integrities intact.

"When the economy was in better shape, people were willing to spend a little extra for a work of art," he said. "In the recession we're in now, that architectural, creative edge tends to dissipate and buyers become more concerned for basic shelter."

Doe, meanwhile, attributed some of the difficulty selling these homes to a post-meltdown change in the rules governing property appraisals, under which appraisers must be chosen at random.

Since appraisers can't be selected based on their architectural backgrounds, many ignore homes' design pedigrees in their valuations and compare them to less notable surrounding homes based only on quotidian aspects like floor space and kitchen amenities.

Consequently, those appraisals come in lower than in the past, which discourages banks from offering loans large enough to cover asking prices.

"It's the same thing as taking a Picasso and a paint-by-numbers and saying they're the same," he said.

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