So Bernake and Conference signaling a recovery?
Doom and Gloom? Plausable? You decide.
America is just a few days away from a possible day of reckoning. I again call attention to this day, August 25, when the Federal Deposit Insurance Corporation issues its 2nd Quarter report for 2009 on the state of health of American banks.
It has not particularly alarmed Americans that its growth and prosperity have been built upon debt. The American public is a bit desensitized, particularly since the Y2K threat fizzled. We must wait and see how Americans respond to the upcoming FDIC report.
The following charts tell the story. There are roughly 8400 American banks that set aside a small portion of their profits to aggregately insure bank depositors should their local bank fail. A plethora of bank failures has depleted the FDIC reserve fund from $52.8 billion in 2008 to $13 billion in the 1st Quarter of 2009. (See chart below)
The upcoming report will cover all but 19 of the biggest banks. The 19 which include Citigroup, Bank of America, Wells Fargo and other recipients of TARP money are covered in a later report. The report will show continuing weakness, perhaps more than Wall Street expects so the market reaction could be mildly negative. It will not show the wall falling down.
It's great to have you here and to get your input, as I personally feel your perspective is important to help keep us mindful of the many negatives that are out there in the financial world at the present time. But I suggest you read the following article in full, including the last paragraph in which Bernanke sounds some appropriate caution to counterbalance what is generally a somewhat hopeful view on his part:
I also want to make a couple of comments. You recently pointed out that you feel that the market's 50% rise from the March lows is overdone considering the current state of the economy. While I understand your point of view on this, I think it is important to remember that in the past two years the DOW fell all the way from over 14,000, and as such, the DOW in the 9000s may have priced into it the reality of what has happened and the many negatives that are still out there. In my opinion, the selloff to DOW around 6500 was overdone, and that with some stabilization in the economy now and signs of the global recession easing, the DOW in the 9000s has found an appropriate level, which as I said, is way down from the 14,000 level.
I remain very, very confident that I will win my $1,000 bet with you that the DOW will not break the March 2009 lows anytime between now and January 1st, 2011.
The media spin on Bernanke's comments were a little more positive than he may have intended them to be. His outlook was hopeful but balanced, but it was the hopeful part that got the air play. Bernanke acknowledged the difficulty people are having with credit, a story that is largely being ignored or at least downplayed in the financial press.
Bobgiamarco with his macroeconomic links and comments is an excellent addition to this board.
<In my opinion, the selloff to DOW around 6500 was overdone, and that with some stabilization in the economy now and signs of the global recession easing, the DOW in the 9000s has found an appropriate level, which as I said, is way down from the 14,000 level.>
What caused and justifies that the DOW should be at 9000 - an appropriate level? Are you suggesting that this is the new norm or benchmark which reflects the real economy - corporate profits?
Thanks for the chart, Bob. It helps confirm my belief that the Dow is appropriately priced near its historical average p/e ratio of 15/1. In a sense, the huge collapse from 14,000 could be seen as a massive crash-correction to a more appropriare p/e level for the DOW. And the rebound from the March lows was an appropriate bounce back from an excessive fear-induced oversold condition.
The DOW is right where it should be now, which is why it has been relatively stable for the past few weeks.
There is no need to be overly fearful at this time. Things have generally stabilized at this level and we are likely to see roughly sideways action on average for the remainder of the year, far above the March lows.
Stick around, you'll see!
Gina (the legendery, non-fear-driven, bet-winning, common sense market analyst with a balanced perspective)
If this chart doesn't scare the bejesus out of you then I'm not sure what will.
This is amount of massive credit that drove the last 10 years of unprecedented consumption and investment speculation which eventually led us towards an economic bubble. Do you really believe global financial institutions and organizations are finally stable with the fed bail outs?
Organizations are still in the process of unwinding down debt or counter party positions.
This depression's amount of leverage used is no comparison to that of previous depressions/ recessions.
Eliot Spitzer Takes On The Fed - MSNBC w/ Dylan Ratigan
Gina, Fly and Legend please tell me the implications of government continuos massive printing of money and mounting deficits as well as it's impact of the real economy and ultimately stock market?
Why bother asking those three to tell you? Your arguments have been so well thought out and so convincing that it should be clear to everyone who has been following you that the odds of a global economic disaster within the next two or three years are very, very high. Nothing of substance has been said by any of those three wannabe sages to rebut your excellent arguments. And you will win your thousand dollar bet with Gina by a wide margin. That girl was very foolish to make that bet with you and totally out to lunch to give you a one year extension, She had at least some chance of winning under the original terms of the bet.
Look at the media quotes and market pattern. It's eerily similar now and in 1933 crash. I'm not saying that the past predicts the future 100%. But one should not choose to ignore the past and learn from it as well as be prepared for potential serious downside risk..especially those who are retiring soon and have lost alot of wealth already - house and market.
8) .. a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall."
- HES, November 10, 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most."
- Irving Fisher, Professor of Economics at Yale University, November 14, 1929
"In most of the cities and towns of this country, this Wall Street panic will have no effect."
- Paul Block (President of the Block newspaper chain), editorial, November 15, 1929
"Financial storm definitely passed."
- Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
8) "I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress."
- Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence."
- Herbert Hoover, December 1929
"[1930 will be] a splendid employment year."
- U.S. Dept. of Labor, New Year's Forecast, December 1929
Check out this Chart eerily similar leading to 1933 crash. I believe we are only in the early innings of a melt down. As you can see with depression and recession it took years after the 1st major drop to play itself out.
<Well I admire your courage in staying long and trying to time the market in that fashion when you anticipate a big decline is coming.>
Gina, a prudent approach is to go cash now. My indicators say if DOW reaches anywhere between 9000-10,500 then pull out. But as I told you many times the market could suddenly fall off the cliff immediately or go down in several wave cycles over a period time. I suspect the latter. I can't predict exact timing. Could be months. Could be years. But I do know it will tumble once it reaches maximum bullish sentiment of 90-99%.
As I said there is a method to my madness. Currently bullish market sentiment is at 86%. Market has a bit further to go before it goes to extreme Bullish sentiment where the herd mentality piles in. (90-100%). It's all psychology. Remember Warren famous words " Be Greedy when those are fearful. Be fearful when those are greedy.
That is why it's interesting to see "recovery" from powerful Media, Analyst, Feds and Pundits. This is the tiny snowball which starts the herd mentality on the masses. Very predictable. This takes time to play itself out. Hence why I decided to push our bet out to end of 2010. For all I know it can take longer. Once Bullish sentiment reaches over 90%, I take contrarian position and wait it out for months or years?
I've done this many times with many stocks including Ebay at $10.
Well, the fact that you believe it is prudent to go to cash now makes me feel even better about the fact that I actually did go to 100% cash in both of my accounts on Friday.
Bob, your posts are excellent and you obviously are very involved in the market and you bring a ton of experience to the table. It would be great if this board could join in with a greater focus on market discussion and investing. It appears that this is already starting to happen. We have a lot intelligent minds here and any differences we have only enriches the variety of perspectives that can be shared.
I don't know what my own next investment moves will be, but I am fine with being on the sidelines right now even if the market decides it wants to thumb its nose at me and make further advances in the short term.
This is key to a sustainable recovery. No confidence. No consumption. No recovery.
EW YORK (Reuters) - U.S. consumer confidence fell to its lowest in four months in August on worries over high unemployment and dismal personal finances, though the mood managed to improve from earlier this month, a survey showed on Friday.
The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for August fell to 65.7 from 66.0 in July.
That was the lowest since 65.1 in April but above economists' expectations for 64.5 and also higher than this month's preliminary reading of 63.2
"Confidence rebounded in late August as consumers increasingly expected improved conditions in the national economy even as they reported the worst assessments of their finances since the surveys began in 1946," the report said.
Consumers rated the current economic conditions the worst since March, when the stock market hit 12-year lows. This index fell to 66.6 from 70.5 in July. However this was also an improvement from 64.9 earlier this month.
The details are surface noise. The big picture is that many consumers can't get credit, or fear for their jobs or don't have them. Can you say double-dip recession? Cash fro clunkers is a tiny blip. Auto sales are going to be lousy in the next few months.
If there is just one time you want to take a lesson from history, it is RIGHT NOW. The parallels between today and the Great Depression are numerous and strikingly similar. This 5-minute history lesson might be the best investment you'll ever make.
Watch out! Even this rally parallels the Great Depression
The first leg of the Great Depression reduced the Dow Jones (DJI: ^DJI) by 48%. The first leg of the 2007 bear market reduced the Dow Jones by 53%. Both times, the initial declines were followed by powerful and persistent rallies.
The five-month rally from November 1929 to April 1930, lifted the Dow Jones (NYSEArca: DIA - News) by 49%. So far, the five month rally from the March 2009 lows has lifted the Dow Jones by some 46%. The time frame and percentage gains are certainly too close for comfort.
NEW YORK (Reuters) - Taylor, Bean & Whitaker Mortgage Corp filed for Chapter 11 bankruptcy protection and said it may liquidate, three weeks after it closed its mortgage lending business and was suspended by a federal agency.
The Ocala, Florida-based company, which was the nation's 12th-largest U.S. mortgage lender from January to June, filed for protection from creditors on Monday with the U.S. bankruptcy court in Jacksonville.
Saying its business has been "crippled," Taylor Bean said it plans to operate on a scaled-down basis as it works to recover, restructure and possibly liquidate its assets.
It named Neil Luria of Navigant Capital Advisors as chief restructuring officer, and restructuring specialists Bruce Layman and Bill Maloney to its board.
"The speed of its collapse has been stunning," Luria said in a statement.
According to the bankruptcy petition, Taylor Bean has more than $1 billion of both assets and liabilities, and between 1,000 and 5,000 creditors.
The Federal Housing Administration said it suspended Taylor Bean on August 4, citing its failure to submit a required annual financial report, its having "misrepresented" that it had no unresolved issues with its auditor, and "irregular transactions that raised concerns of fraud." The FHA also proposed to sanction the company's chief executive and its president.
Shortly afterward, Freddie Mac (Pacific:FRE - News) and the Government National Mortgage Association, also known as Ginnie Mae, suspended Taylor Bean as an issuer of mortgage securities.
These events led Taylor Bean to lay off 2,000 employees. They followed the company's failed effort to invest $300 million in Colonial BancGroup Inc (Other OTC:CBCG.PK - News) to help keep the troubled Montgomery, Alabama-based lender afloat.
U.S. regulators seized Colonial's banking operations on August 14 and sold its assets to BB&T Corp (NYSE:BBT - News), the Winston-Salem, North Carolina-based regional bank.
Taylor Bean said it cannot access its Colonial bank accounts, and is in talks with the Federal Deposit Insurance Corp to let it process payments for its mortgage borrowers.
The company made $17 billion of mortgage loans from January to June, for a 1.7 percent market share nationwide, according to the newsletter Inside Mortgage Finance.