Wednesday, February 24, 2010

Jay Taylor: Turning Hard Times Into Good Times

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U.S. Stock Slump Fits With Bull-Market Pattern: Chart of Day

U.S. stocks are falling into “a recurring pattern” of volatility this year as the economy’s rebound gains momentum, according to Jeffrey Kleintop, chief market strategist at LPL Financial.

“The environment may be more like that of 1994 and 2004, the last two times the economy transitioned from recovery to sustainable growth,” Kleintop wrote yesterday in a report.

The CHART OF THE DAY shows how the Standard & Poor’s 500 Index’s performance since the beginning of last year compares with its movement during 2003 and 2004. The report featured a similar chart.

Between Jan. 19 and Feb. 8, the S&P 500 lost 8.1 percent. The magnitude of the decline was in line with its setbacks six years earlier, depicted in the chart. The index slid 5 percent to 10 percent three times during 2004, as it did in 1994, even though a bull market was in progress. (more)

Commercial Real Estate Apocalypse 2011-2012

Over the next few years, a wave of commercial real estate loan failures could threaten America’s already-weakened financial system. The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation’s mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.

Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms. Nearly half are at present “underwater” – that is, the borrower owes more than the underlying property is currently worth. Commercial property values have fallen more than 40 percent since the beginning of 2007. Increased vacancy rates, which now range from eight percent for multifamily housing to 18 percent for office buildings, and falling rents, which have declined 40 percent for office space and 33 percent for retail space, have exerted a powerful downward pressure on the value of commercial properties. (more)

Chart Of The Day

Shilling: Euro Poised to Plunge 27 Percent

Economist and money manager Gary Shilling says the euro is likely to drop about 27 percent from current levels.

“I think the currency could go back to 1-to-1 versus the dollar,” he says.

“The problem is that Europe has a one-size-fits-all monetary policy but very different fiscal statuses in individual countries. Greece is the poster boy, but you have the rest of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) right behind it,” he told Bloomberg.

Greece, for example, has a budget deficit totaling 12.7 percent of GDP.

“It’s really an insoluble problem because these economies are very different,” Shilling said. “They’re much weaker; they need to issue all these sovereign debts. And ratings agencies are downgrading them.” (more)

Whitney: Shares of Big Banks Will Drop 15 Percent

Banking analyst Meredith Whitney says her profit expectations for big banks are 30 percent below Wall Street expectations for a very basic reason: asset declines are everywhere.

“On average, lending portfolios are down four-to-20 percent, and we think they’re going to be down another 10-to-15 percent for all the big banks this year,” Whitney told CNBC.

“Your good borrowers don’t want to borrow, and your bad borrowers, you’re trying to kick out of the system.”

Higher capital levels mandated by impending banking law reforms are a given, Whitney says, which means lower returns for the banks. (more)

Banks at risk of going bust tops 700

More than 700 banks, or nearly one out of every 11, are at risk of going under, according to a government report published Tuesday.

The Federal Deposit Insurance Corp. said that the number of banks on its so-called "problem list" climbed to 702, its highest level since June 1993.

The number of banks under scrutiny by regulators has moved steadily higher since the recession began. Just 76 financial institutions were on the list in the fourth quarter of 2007.

Banks that end up on the problem list are considered the most likely to fail because of difficulties with their finances, operations or management. (more)

Wall Street Is Running A Casino

America Just Declared The Recovery Over So You'd Better Get Ready For The Double Dip

Today's bleak consumer confidence number is undoubtedly bad news for the economy. The bigger than expected drop suggests that consumers have lost confidence in the recovery, which will drive down home prices and consumer spending.

Consumer confidence is typically our "first look" at the state of the economy. While most government aggregated data come out with a two-month lag, or more, consumer confidence hits with just a one month lag. Studies have shown that consumer confidence is a good predictor of consumer spending numbers. Basically, people surveyed seem to be good at accurately reading their own economic situation, and those surveyed accurately reflect the broader economy. When consumer confidence drops to such deep unexpected levels--today's were the worst in 27 years--then it is a flashing red-light about the economy. (more)

Keiser Report №19: Markets! Finance! Scandal!

The Triple Dip?

Home prices are falling again, says the latest rendition of the Case-Shiller home price index. National home prices fell 2.5% year over year in the fourth quarter of 2009, the group claims. Both the 10-city and 20-city indexes dropped 0.2% from the previous month.

That puts the average home price down 29% from its 2006 peak, back to prices typical of summer 2003. Ouch.

“This isn’t a forecast, but it’s a worry,” Robert Shiller, founder of the index, told unwilling ears on CNBC, “that home prices might drop substantially from here foreword, once this [government] support is taken away… Mortgage rates will go up, the economy might double dip, the expectations for housing -- which helped drive the markets -- might change suddenly when people see the support being withdrawn. Some people were buying because of the homebuyer tax credit. When that’s withdrawn, a lot of people will be absent the market. There is substantial downward risk right now.

“But on the other side,” he added, unable to control laughter sprung from true insanity of it all, “we’ve seen a bubbly nature in the market recently. So I think just uncertainty is at a maximum right now.” Agora Financial