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  • normlasky normlasky Jun 25, 2011 7:30 AM Flag

    Old trader.

    I share your frustration but I'm positive on both the banking sector and bbt management. If you sell and reinvest I think you should carefully consider the tax consequences. Could be onerous.

    Yes, Dodd-Frank, Tarullo recent comments, and all the negative press on the banking sector and the economy seem like good reasons to throw in the towel. But I think it is precisely the wrong time.

    Even though residential housing makes up around 2% of gdp, the economy will not show a robust recovery until home prices start to recover. Until that happens think we'll bounce along at a 2 to 3% annual gdp pace. Reductions in gov't spending should be more than offset by improvements in business spending and balance of trade. Also, nonresidential and residential construction can only go up - can't get any worse. Multiplier effect is huge.

    Imo not much credence to the double dipper camp. Durable good orders continue to improve. Ytd through May 2011, orders are up 10%, shipments 8% and inventories 13%. Last week aar stats on freight cars, container and trailer shipments continue to be positive. Current pace of business of container and trailer shipments is at the highest level since 2006, the all time high.

    Through mid June, stats from the Fed on the banking sector are unexciting but certainly not a disaster. Loans have stopped shrinking - they're growing about 2% annualized. If you back out real estate loans, loan growth for the second qtr. 2011 is about 9%. Deposits are growing nicely, up 9% annualized pace for the qtr. Allowance for loan losses continues to shrink - down won about 7% for the 2nd qtr. vs. 1st. This is double the reserve release for the 1st qtr. and reflects improved credit metrics.

    Bbt has many positives going forward. Don't enjoy the price shellacking we've been taking. Added to my position last week. I think you're dead wrong about Kelly King.

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    • Norm - quote all the pluses you want about rail cars, durables, etc. Reality is that about 25% of home buyers are under water (they owe more on the mortgage than it is worth).

      From this alone you will continue to see a negative feedback loop in housing because some of those under water are going to mail the keys to the bank. So housing prices can absolutely go lower and many of the real estate pros are saying 5-10% lower over the next year beacause of inventory and shadow inventory (houses where the banks are not receiving payment and will foreclose, as well as people who want to sell but don't put the home on the market given current conditions).

      The second item is employment. With 9+% unemployment and 16-17% underemployment you have removed a large portion of the population from the house buying market. In order for many of these people to find work they may/will need to relocate. And - when things get dire enough they will (more keys mailed to the bank?). You cannot have a vibrant housing market with these levels of unemployment.

      Finally - yes many companes are back close to historical levels of production, but they are doing it with fewer people (more technology and automation) so you have a structural employment problem until you have a massive retraining program which will take years - not months.

      Can we have a double dip with fairly robust levels of production? I believe we can as the commerical paradigm has changed in the past 5-6 years.

      I appreciate a difference of opinion as I know you do.

      • 1 Reply to inlet_boater
      • We'll see. Always heathy to consider pros and cons. Couple of comments:

        My understanding is that 30 to 40% of homes have no mortgages. Also, the negative home equity situation is extreme in Arizona, Nevada and Florida (50% or higher). In about 2/3 of states, negative equity is 10% or less of mortgages outstanding. Also, Case Shiller index is significantly biased by the high percentage of distressed property sales - exclude them and the balance (60% or so) show no change in average price in last year.

        This week we get pending home sales. Last month was a disaster. I look for a rebound. Also, I think home prices will start to inch up some as we go into a seasonally stronger market.

        Since Lehman, US population has increased 9 million or around 3 million additional family units. These folks have to live somewhere. Mom and Dad can only take it for so long. Rentals are in strong demand and rents are moving up. Also, I see that there has been recently a pick up in multifamily construction.

        Yes, we have very serious problems in a multitude of areas but I think we'll come out ok.

        In the case of bbt, bad mortgage loans are still a serious problem but they have not been the big driver of charge-offs. Also, bbt alt a and subprime loans are way down and by year end will probably only make up 10% of their mortgage portfolio.

        As I said we will not see a robust recovery until housing recovers and will likely bump along at 2/3% annual gdp.

 
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