US Banks Brace for Lossess

U.S. banks brace for losses related to mortgages. Most major banks in the U.S. have repaid their government aid and generally seem to be plugging away, but a threat is emerging in the form of mortgage losses. Amherst Securities Group estimated that losses on nonagency mortgage securities will be more than $700 billion. Meanwhile, investors are demanding that banks buy back mortgages and eat much of the related losses. Barron's (free content) (20 Nov.)

Barron's Article

Interesting Post from Cullen Roche

It is titled Three Things I Think (I Think About the Current Economic Climate). The post focuses on the following:

1) The recession IS over. But WHICH recession?

2) What really caused the equity markets to rally since September?

3) Is this the ultimate hedge?

I agree with a majority of the post. It is my belief that a larger portion of the stock market rally was due to dollar debasement (QE2) than economic improvements. I am not sure how much of an overall sustainable economic improvement we can have with continued high unemployment and a likely double dip in housing. I do agree with his comments about gold acting more like currency. David Eihorn of Greenlight Capital has the same sentiments. Check out the latest Market Watch on PBS.

SeekingAlpha Post Link

Analyst Predicts Shrinking Universe of Banks

Meredith Whitney predicts U.S. banks will close 5,000 branches. As profit shrinks and loan demand falls during the next 18 months, U.S. banks will close 5,000 branches, analyst Meredith Whitney said in a report. "The most regrettable unintended consequence of some of the quickly written regulatory reform, we believe, will be the inevitable 'debanking' of the U.S. financial system," she said. Bloomberg (22 Nov.)

Bloomberg Link

October Core CPI

U.S. core inflation is the lowest ever measured. U.S. core inflation is at its lowest level since the government started collecting consumer-price data in 1957, the Bureau of Labor Statistics said. October was the third consecutive month that core inflation, a benchmark for the price of a basket of consumer goods that excludes energy and food, was zero. CNNMoney.com (17 Nov.) , NYTimes.com/Economix blog (17 Nov.) , Bloomberg (17 Nov.)

Hence the reason the Fed is doing everything they can to create inflation. Their biggest concern is DEFLATION.

Article Link

Housing Foreclosures a System Risk to Banking

Foreclosure crisis might be a systemic risk for banking. The U.S. Treasury Department was "premature" in assuring that the foreclosure crisis presents little systemic risk to the banking system, the Congressional Oversight Panel said in a report. The discovery of inaccurate and fraudulent documents used in foreclosure proceedings calls into question the ownership of millions of properties that aren't in foreclosure, the panel said. "Clear and uncontested property rights are the foundation of the housing market," according to the report. "If these rights fall into question, that foundation could collapse." The Washington Post (16 Nov.) , The New York Times (free registration) (16 Nov.) , Housing Wire (15 Nov.)

Washington Post Article Link

NY Times Article Link

Is The American Dream Lost?

A major of American retirees believe their children and grandchildren will not participate in the "American Dream" and afford retirement. A survey by Protect Seniors.Org (www.ProtectSeniors.org) finds. The survey finds that three quarters of the retirees believe their children and grandchildren will be worse off.

Link to Survey Report

Housing - Double Dipping

According to Zillow.com the housing market is Double Dipping. A few key facts:

1) U.S. home values continued to decline in the third quarter, falling 4.3 percent year-over-year, and 1.2 percent quarter-over-quarter.
2) With home values 25 percent below their 2006 peak and 17 consecutive quarters of declines, the length and severity of the current downturn is unprecedented since the Great Depression.
3) Negative equity rose to 23.2 percent of single-family homes with mortgages, the highest it has been since Zillow began tracking it in the first quarter of 2009.
4) In five markets, all in California – Los Angeles, San Diego, San Francisco, San Jose and Ventura – home values turned negative quarter-over-quarter after five quarters of gains.
5) Foreclosures reached an all-time high at the end of the third quarter, with more than one out of every 1,000 homeowners losing their homes to foreclosure in September.

Zillow Article Link

QE2 = Partial Default?

Analysis: Fed's quantitative easing is a partial default. The Federal Reserve's latest round of quantitative easing is quite different from cutting interest rates, which is nothing more than monetary policy, according to The Economist. The U.S. is a debtor nation that borrows U.S. dollars from other countries. "Printing money to repay those debts ... is, in essence, a partial default," the magazine notes. "It is as if you tried to pay your supermarket bill with Monopoly money, on the grounds that it was the only paper money you could find in the house." The Economist/Buttonwood's Notebook blog (08 Nov.) , iMarketNews.com (08 Nov.) , Forbes/The Bottom Line blog (08 Nov.)

Economist Link

Forbes Link

QE2 -- Uncharted Territory

Fed will purchase $600 billion in government debt over 8 months. Federal Reserve policymakers addressed a faltering economic recovery in the U.S. by launching another round of quantitative easing. The central bank said it will buy $600 billion in Treasurys during the next eight months and is ready to expand the program if the economy remains persistently weak. The aggressive move is considered a risky one for the Fed because it might make the central bank a target of the new Congress. The Wall Street Journal (03 Nov.) , Bloomberg (03 Nov.) , The New York Times (free registration) (03 Nov.) , The Washington Post (04 Nov.)

NY Times Article Link

Portfolio Impact Article Link

Home Ownership Lowest Since 1999

Census Bureau: U.S. home ownership is at its lowest since 1999. Home ownership in the U.S. was 66.9% in the third quarter, down 0.7% compared with the same period last year and the lowest rate since 1999, according to the Census Bureau. The high point for home ownership came in the fourth quarter of 2004, when it reached 69.2%. Fitch Ratings said it will take the housing market more than three years to absorb a shadow inventory of lender-owned houses, properties in foreclosure and homes with mortgages that are delinquent. Housing Wire (02 Nov.) , The Atlantic (02 Nov.)



Hosing Wire Article Link

The Atlantic Article Link

Deflation or Inflation???

Good question. The Fed is doing anything and everything to create inflation. QE2 being the latest effort to motivate inflation. But with a deleveraging consumer, top line revenue growth will be soft for US focused companies. They will be pressured to produce earnings growth through additional cost cutting, i.e. wages and maybe additional layoffs.

The following is a interesting article providing additional insight into the argument.

Article Link

Markets Await the Fed

Market braces for an expected move by the Federal Reserve. Wall Street is focused on a possible plan from the Federal Reserve to accelerate a struggling recovery in the U.S. Traders are bracing for volatility Wednesday because the central bank's announcement would come while the market is still considering the effect of Tuesday's midterm election. For the moment, the U.S. dollar and market interest rates are down, while gold and stocks are up. The New York Times (free registration) (31 Oct.) , The Wall Street Journal (01 Nov.)


NY Times Article Link