Thursday, September 2, 2010

Problem bank list climbs to 829

( -- The government's list of troubled banks hit its highest level since 1993 during the second quarter, although the pace of growth continued to slow, according to a government report released Tuesday. The number of banks at risk of failing rose by 53 to 829, the Federal Deposit Insurance Corp. said in its quarterly survey of the nation's banking system. That increase marks the smallest rise since the first quarter of 2009.

However, it's still nearly double the 416 banks that were on the FDIC's watch list a year ago and is up from 775 in the first quarter of this year.

Banks that end up on the problem list are considered the most likely to fail. But few of the lenders on the list actually reach the point of failure. On average, just 13% of banks on the FDIC's problem list have been seized and shuttered by regulators.

So far this year, 118 banks have failed, with 45 closings during the last quarter. (more)

TCW Explains Why The Double Dip Has Arrived

A week ago TCW's chief economist announced he would hold a presentation for clients explaining why the Double Dip has arrived. Here is the powerpoint used by Komal Sri-Kumar on the call.

090110 Pres

Three back-to-school stock bargains

(MarketWatch) -- It certainly has been an exciting summer on Wall Street.

The stock market was choppy in June, surged in July and swooned in late August. The result is that the major indexes are more or less back where they started after the market correction in early May.

And unfortunately, it looks like Wall Street will continue to move sideways in September -- mostly because consumer spending remains weak and unemployment is persistently high.

There are more challenges ahead for the economy as retail sales are poised to decelerate and inventories start building once more. From a top-line perspective, underlying demand drivers look soft and margins look thin. That all adds up to continued trouble for consumers, retailers and the broader economy.

But don't think this means it's time to sell off everything and run for the bomb shelter. The most important fact to remember in a time like this is that we are investing in a market of stocks -- not "the stock market." There are always good companies doing well in the worst of times, and even in the heady days of a raging bull market there are losers that are bad for your bank account. (more)

IMF Sees G7 Net Debt At 200% Of GDP By 2030; 441% By 2050

The IMF has issued a series of papers today whose sole purpose is to assuage fears that the world is headed for a sovereign default driven inferno, authored by Carlo Cottarelli and two other staffers, which concludes that markets currently "significantly overestimate" the risk of sovereign debt default in the advanced economies. The idea for the papers, according to Cottarelli, was born out of a "sense of frustration" after talking to two financial market analysts in Europe who had "no focus on numbers, but more a feeling, a sensation things are going bad and would continue to go bad." Well, actually the numbers are there, and as the IMF itself concludes G7, debt to GDP for the G7 countries which is currently 77%, will reach 200% by 2030 and 441% by 2050. But since the IMF paper is only focusing on a few months into the future, it may very well be right. In the meantime, we will stick with Morgan Stanley's recent analysis on the topic by Arnaud Mares, which concluded that sovereign defaults will happen, and likely in dramatic numbers, the only question is how.

While the bulk of the paper is nothing but a validation that the author has never read any of the works of Reinhart and Rogoff, the only relevant chart is the one below. (more)

BNN: Top Picks

Charles Dillingham, portfolio manager, Morguard Financial, shares his top picks

click here for video

Look for Strong Returns in Soft Commodities

In my May 25th article I recommended the purchase of corn futures with the Teucrium Corn ETF (CORN). Since then, the price has risen double digits and now I believe there is further upside, but through a different trade. The first leg is long the Market Vectors Agribusiness ETF (MOO) with a second leg short the SPDR S&P 500 Trust ETF (SPY), a trade that seeks to benefit from the outperformance of agriculture stocks versus the overall stock market.

I have chosen the DB Powershares Agriculture fund for the sake of simplicity although there are a few well managed agriculture funds that may be more attractive. This is a particular space where I believe a money manager with extensive expertise in the agriculture sector can offer real value in excess of his management fees. I will spare you with the long-term investment case of emerging market demand on the back of rising incomes and increased protein consumption.

The trigger here is short-term and its name is China. The US is the largest producer and exporter of corn with 40% of world corn production and 60% of world exports. China accounts for both 20% of world corn production and demand as well as the second largest consumer of corn behind the US. This Chinese consumption/production ratio of about one clearly misses the mark on Buffet’s recommended margin of safety. (more)

Wheat pushes world food prices up

The UN Food and Agricultural Organization (FAO) says that world food prices have risen to their highest level in two years.

It says the increase is due partly to a drought in Russia and to government export restrictions which have brought about a surge in the price of wheat.

The Rome-based agency says that its food price index shot up 5% between July and August.

However, this is 38% down from its peak in June 2008.

The UN agency says there are sharp differences between the current situation and the spring of 2008, when the price of oil and demand for biofuels pushed world food stocks to their lowest levels since 1982.

It also reduced its forecast for global production of food staples in 2010.

The FAO now thinks that world cereal production will be 1.8% lower than its June forecast. (more)

McAlvany Weekly Commentary

Obvious or Subtle Default: Potentially Both

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Did JPMorgan Cover More Short Positions Yesterday?

Well, that little dip in the gold price in the wee hours of yesterday morning didn't amount to much... although it did set the low [around $1,231 spot] for the Tuesday trading session. The price began to move up sharply shortly before Comex trading began yesterday... and was up $14 by the time the London p.m. gold fix rolled around at 10:00 a.m. Eastern time. From that point, gold only tacked on another four bucks or so to its high of the day [$1,251.20 spot] around 2:00 p.m. in New York... and from there, gold slid a couple of dollars into the close of electronic trading at 5:15 p.m. Eastern time. (more)

Hugh Hendry On Agriculture And Potash BBC Video

Real Estate Cycle of Sentiment