Right off the bat, I can tell you that I don't know. I've been as skeptical as anyone and said so in prior blogs. However, it appears POSSIBLE that we indeed are in the very early stages of some sort of recovery. But, the evidence remains a mixed bag. In addition, it's WAY too early to speculate as to how strong that recovery might become, if it's started at all.
On the positive side, a website called Shadow Stats (http://www.shadowstats.com/), which calculates various government-reported statistics and adjusts them for a variety of misleading alterations, has shown an actual slight "downtick" in the unemployment rate. Now, one month doesn't make a trend, but it IS the first time they show a drop since late 2007.
There is also the persistent strength in the stock market, which has historically led recoveries by 6 to 12 months. The stock market bottomed 9 months ago.
Another very reliable leading indicator is the money supply, which, thanks to Fed chief Ben Bernanke, has been exploding. Historically, high rates of growth in money supply have led to economic recovery within a period of between 6 to 18 months. All of the emergency stimulus and bailouts, which have caused the growth in money, began within the terminal months of the Bush administration, so they fall within the reliable historical precedent.
In addition, yesterday I became aware of a new program offered by certain banks of mortgage relief - EVEN FOR THE UNEMPLOYED! This was reported in an article by the Sacramento Bee, ironically titled "Mortgage relief program helps relatively few troubled homeowners". An unemployed friend of mine spent two hours talking to Wells Fargo, the holder of his mortgage, and found that this was indeed true. They went over his financial condition meticulously. They couldn't pre-qualify him for any immediate relief, but they are sending him a package requesting certain documents from which they can verify the information and consider the merits of his request.
Now, for the bad news! Retail sales remain DISMAL On "Black Friday", the day after Thanksgiving, one of the two most heavily trafficked shopping days of the year, Sacks reported a 26% DROP in year-over-year sales. Macy's and J.C. Penney also reported greater than estimated slides of about 6%. We don't yet know about Wal-Mart, as it has stopped reporting monthly sales statistics altogether! But, this bad news may be somewhat offset by some good news in online sales, which were UP 11% year-over-year.
According to the FDIC, six more banks were seized on Friday, with combined assets of $13.4 billion. And, as pointed out in recent blogs, the fortunes of states and municipalities continue to deteriorate.
So, the "recovery" theory remains quite speculative as the evidence is a mixed bag. However, I suspect that we will know the answer relatively soon. More evidence will arise after Christmas. Anecdotally, I know that most of my friends have, at most, a "token gift only" intention this holiday season.
Finally, the REALLY bad news is that any recovery is merely more evidence of a precursor to a vastly heightend level of inflation. Without exception, history shows that the "growth effect" of stimulus programs precedes the subsequent "price effect". And, as the "growth effect" tapers off, the "price effect" accelerates.
Therefore, we are sowing the seeds of an even greater crisis which is yet to be experienced.
I hope you found this essay useful, interesting and informative. I appreciate the rapidly growing readership and the questions, which I am delighted to answer.
Marko's Take
Showing posts with label banking. Show all posts
Showing posts with label banking. Show all posts
Saturday, December 5, 2009
Saturday, November 28, 2009
Are We Staring At ANOTHER Banking Crisis?
A few short days ago, Sheila Bair, the head of the Federal Deposit Insurance Corportion (FDIC), released details of the agency's quarterly report. The findings were downright alarming.
The FDIC operated "in the red" for only the second time in history, showing a quarterly loss of approximately $8 billion. The only other quarterly loss was in 1991 with a $7 billion shortfall. To be clear, this means that the amount "paid out" to depositors, along with the associated costs of doing so, were greater than the income earned from fees paid by banks for this insurance. The fees were raised last year and may have to be raised yet again.
Bair reports that, as of last quarter, it DOES still have $23.6 billion in cash, but private estimates project that ANOTHER $100 billion will be needed to be shelled out by 2013. Of course, at taxpayer expense!
This informtion isn't meant to scare you or anyone else. Fortunately, the FDIC has the ability, at its discretion, to access a substantial credit line from the Department of Treasury. Thus, as things stand, the deposit insurance of $250,000 per institution is not immeditely threatened.
The FDIC insures nearly 8,100 banks. Of these, they now consider 552, or about 7%, to be on its "problem list", up from 416 at the end of the second quarter. The "problem" institutions are not disclosed for fear of triggering bank runs, but their assets total nearly $350 billion!
Bank industry profits were $2.8 billion in the third quarter, which represents a stark reversal. However, losses are expected to resume in the 4th quarter as large write-offs are expected. Unfortunately, according to research by the Associated Press, 40% of the "profit" could be accounted for by a one-time mystery accounting gimmick.
The problems don't come close to ending there. The Office of Thrift Supervision, which monitors an entirely different set of institutions, reported that its "problem list" rose from 40 to 43 in the third quarter. Thrifts differ from banks in that they are subject to a requirement that mandates 65% of their lending be done in the form of consumer loans and mortgages. That requirement makes them heavily dependent on housing and unemployment.
Among the most disturbing aspects of the FDIC report was its disclosure of lending activity. Loan balances FELL by the largest amount in any quarter since the data began to be compiled in 1984: $210 billion or 3%. To be fair, a large part of the decline is a result of stricter regulations meant to ensure greater prudency.
Finally, the growing banking problems extend to Europe as well. Last week, as reported by Dominique Strauss-Kahn, chief of the International Monetary Fund, or IMF as it's more commonly known, HALF of the losses suffered by European banks could still be hidden in THEIR bank balance sheets.
I hope everyone had an enjoyable Thanksgiving. I have a number of topics I plan to cover in the upcoming days and weeks, including regular updates on Gold and Silver. And, this coming Monday, Part 2 of my essay on the California Fiscal Crisis will be published. I welcome your comments, pro or con and will respond to each and every one of them.
Marko's Take
The FDIC operated "in the red" for only the second time in history, showing a quarterly loss of approximately $8 billion. The only other quarterly loss was in 1991 with a $7 billion shortfall. To be clear, this means that the amount "paid out" to depositors, along with the associated costs of doing so, were greater than the income earned from fees paid by banks for this insurance. The fees were raised last year and may have to be raised yet again.
Bair reports that, as of last quarter, it DOES still have $23.6 billion in cash, but private estimates project that ANOTHER $100 billion will be needed to be shelled out by 2013. Of course, at taxpayer expense!
This informtion isn't meant to scare you or anyone else. Fortunately, the FDIC has the ability, at its discretion, to access a substantial credit line from the Department of Treasury. Thus, as things stand, the deposit insurance of $250,000 per institution is not immeditely threatened.
The FDIC insures nearly 8,100 banks. Of these, they now consider 552, or about 7%, to be on its "problem list", up from 416 at the end of the second quarter. The "problem" institutions are not disclosed for fear of triggering bank runs, but their assets total nearly $350 billion!
Bank industry profits were $2.8 billion in the third quarter, which represents a stark reversal. However, losses are expected to resume in the 4th quarter as large write-offs are expected. Unfortunately, according to research by the Associated Press, 40% of the "profit" could be accounted for by a one-time mystery accounting gimmick.
The problems don't come close to ending there. The Office of Thrift Supervision, which monitors an entirely different set of institutions, reported that its "problem list" rose from 40 to 43 in the third quarter. Thrifts differ from banks in that they are subject to a requirement that mandates 65% of their lending be done in the form of consumer loans and mortgages. That requirement makes them heavily dependent on housing and unemployment.
Among the most disturbing aspects of the FDIC report was its disclosure of lending activity. Loan balances FELL by the largest amount in any quarter since the data began to be compiled in 1984: $210 billion or 3%. To be fair, a large part of the decline is a result of stricter regulations meant to ensure greater prudency.
Finally, the growing banking problems extend to Europe as well. Last week, as reported by Dominique Strauss-Kahn, chief of the International Monetary Fund, or IMF as it's more commonly known, HALF of the losses suffered by European banks could still be hidden in THEIR bank balance sheets.
I hope everyone had an enjoyable Thanksgiving. I have a number of topics I plan to cover in the upcoming days and weeks, including regular updates on Gold and Silver. And, this coming Monday, Part 2 of my essay on the California Fiscal Crisis will be published. I welcome your comments, pro or con and will respond to each and every one of them.
Marko's Take
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