Very bad data points to a deep and long recession

November 3, 2008

Today the Fed had has released its senior loan officers survey, the ISM has its survey of manufacturers. (Both of these are rarely revised, and are more reliable than preliminary estimates on GDP etc.) General Motors has declared October to be the worst month since 1945. U.S. consumer confidence fell to the lowest level on record in October as stocks plunged and banks shut off credit. The Conference Board’s confidence index tumbled to 38, which is the lowest reading since monthly records began in 1967. Meanwhile the Treasury is expected to borrow $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July, after a $530 billion record in the July-September quarter.

I quote mostly from Bloomberg:

The ISM data has showed the weakest level for U.S. export orders in the two decades the ISM has kept the data, a sign of slowdowns in Europe and Asia. The reading for October was the lowest since September 1982.

October’s ISM reading corresponds to a 0.7 percent annualized drop in GDP and the export gauge dropped to 41, the lowest reading since records for this component began in 1988.

GM reported today that its sales of cars and light trucks tumbled 45 percent from a year earlier. Ford Motor Co. reported a 30 percent decline and Toyota Motor Corp. posted a 23 percent drop. Honda’s were down 25 percent, Nissan Motor’s slid 33 percent and Chrysler’s fell 35 percent.

“If you adjust for population growth, it’s the worst sales month in the post-World War II era” for the industry, said Mike DiGiovanni, GM’s chief sales analyst, on a conference call.

Industrywide U.S. auto sales fell for the 12th straight month in October, extending the longest slide in 17 years.

Goldman Sachs projected $400 billion in Treasury borrowing needs for the final three months of 2008, followed by $375 billion for the first quarter next year. Those estimates don’t, however, include borrowing for the Fed’s supplementary financing program, which has already borrowed $220 billion since Oct. 1, Goldman Sachs economists said in a research note.


Blue Mountain Capital Management LLC froze its largest hedge fund after clients asked to pull a “meaningful percentage” of their money even as it outperformed the industry average by almost 10-fold this year.

The $3.1 billion Blue Mountain Credit Alternatives Fund declined 2.4 percent through October, compared with the 19.6 percent loss by the HFRX Global Index compiled by Chicago- based Hedge Fund Research Inc. Withdrawals were suspended so Blue Mountain wouldn’t be forced to sell assets in falling credit markets, the firm said today in a letter to clients.

“This shows that nobody is immune from the huge investor outflows in the industry at the moment,” said Matt Simon, analyst at New York-based Tabb Group, a financial-services consulting company.

Investors fleeing the worst financial crisis since the Great Depression have forced firms such as Deephaven Capital Management LLC and RAB Capital Plc to halt redemptions. In most cases, the funds have underperformed competitors. The Deephaven Global Multistrategy Fund was down 15 percent this year through September and lost an additional 10 percent this month.

Several of Blue Mountain’s fund-of-funds shareholders were under “liquidity pressures” from their own clients, Blue Mountain Chief Executive Officer Andrew Feldstein said in the investor letter, a copy of which was obtained by Bloomberg News.

“We are not comfortable with this state of affairs,” Feldstein wrote. “If we were to unwind or sell positions to meet current redemptions, the severe liquidation costs would be borne inequitably by the remaining investors.”

A spokesman for Blue Mountain, which oversees $5.5 billion from offices in New York and London, declined to comment.

Comment: There’s little need for comment on all these developments, except to note that the Treasury’s continued haphazard accumulation of government debt will make this crisis far worse eventually than what it is even now. There’s no reason to believe that in this environment of extreme volatility the interest rates on Treasury paper will remain this low forever. It may not happen today, nor in six months, but when it does happen, it will bankrupt the US government.


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