Wednesday, February 24, 2010
“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)
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)
“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)
“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)
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)
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)
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