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