This is a pretty funny piece from Jay Leno. It is scary how little some people know about money basics. These people are great candidates for a job in the federal government.-Lou
Sad but true.-Lou
I said earlier in the week that the next shoe to drop in the credit crisis is commercial real estate. Wilbur Ross is a billionaire and savvy investor, he knows what he is talking about. Monday it will be announced that CIT Group, one of the largest financial companies in the country will file for bankruptcy. This company is the financier of middle America and many small to medium size businesses. The bankruptcy of CIT Group will be make availability of credit scarce for these companies and dampen economic growth.-Lou
Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash
Oct. 30 (Bloomberg) — Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate — the return that investors are demanding to buy a property — are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
The pace of bank failures is beginning to accelerate as expected. This Friday 9 banks were seized, the most on any day since the financial crisis began. Bank siezures now total 115 for the year. A $2.5 billion hit to the already depleted FDIC insurance fund is not good news. Please make sure not to exceed FDIC limits on your bank accounts. There is no doubt that the FDIC will need to get a bailout in 2010. The bank insurance fund will need to tap into the $500 billion credit line it has with the US Treasury. Nice newly printed money will be used to pay back lost savings. I’m hearing rumors that a large bank may be in trouble. We are so screwed.-Lou
9 more U.S. banks fail; $2.5 billion hit for FDIC fund
NEW YORK (AP) — Regulators on Friday shut California National Bank of Los Angeles and eight smaller related banks as the weak economy continues to produce a stream of loan defaults.
The banks closed by the Federal Deposit Insurance Corporation were in California, Illinois, Texas and Arizona. They were divisions of privately held FBOP Corp., a bank holding company based in Oak Park., Ill.
U.S. Bank in Minneapolis, a division of US Bancorp, agreed to assume the deposits and most of the assets of the banks. The banks had combined assets of $19.4 billion and deposits of $15.4 billion at the end of September, the FDIC said.
The nine banks had 153 offices, which will reopen as U.S. Bank branches Saturday.
FBOP Corp., itself wasn’t closed under the deal, grew from one bank with assets of $125 million in 1990. From 1990 to 2007 the company acquired 28 banks, according to its Web site.
The closing of nine banks in one day was the most the FDIC has shut since the financial crisis began taking down banks last year. The closings boost the number of failed U.S. banks this year to 115. In 1989, during the savings-and-loan crisis, the FDIC closed 534 banks, or about 10 a week.
California National Bank had 68 branches. About 100 FDIC employees arrived at the CalNational headquarters in downtown Los Angeles at around 6:15 p.m on Friday. They were seen fanning out into various offices around the building, a squat concrete structure that prominently displays the failed bank’s name.
The FDIC simultaneously arrived at the bank’s other branches, spokeswoman Roberta Valdez said. She said the FDIC would spend the weekend transferring the bank to U.S. Bank.
Besides California National Bank, the banks involved in the latest round were Bank USA, NA, in Phoenix; San Diego National Bank; Pacific National Bank in San Francisco; Park National Bank in Chicago; Community Bank of Lemont in Illinois; North Houston Bank, Madisonville State Bank, and Citizens National Bank in Teague, all in Texas.
Rick Hartnack, vice chairman of consumer banking for U.S. Bancorp, said the move complements its operations in California, Illinois and Arizona. The deal doubled the company’s branches in California so that more than 20 percent of U.S. Bank’s branch network will be in the state.
The company will have nearly 3,000 branches in two dozen states.
“California and Chicago turned out to be two of the most attractive markets in the country where we just didn’t have the branch density that we wanted,” he said.
US Bancorp in October reported a 4.7 percent increase in its third-quarter earnings and said it wasn’t seen bad loans grow as fast as they had been earlier this year. The company’s stock fell 99 cents, or 4.1 percent, to $23.22 as part of a broad slide in stocks Friday.
As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have cascaded and sapped billions out of the deposit insurance fund. It has fallen into the red.
The FDIC expects Friday’s closings will cost the fund $2.5 billion. The FDIC and U.S. Bank agreed to share losses on about $14.4 billion of the combined purchased assets of $18.2 billion.
Failures have been especially concentrated in California, Georgia and Illinois. While the pounding from losses on home mortgages may be nearing an end, delinquencies on commercial real estate loans remain a hot spot of potential trouble, regulators say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks, especially, hold large concentrations of these loans.
Also on Friday, agencies including the FDIC, the Federal Reserve and the Office of Thrift Supervision issued guidelines for banks modifying troubled commercial real estate loans. They emphasize the principle that modifying loans in a prudent manner is often in the best interest of both the bank and the creditworthy commercial borrower.
The 115 failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $25 billion so far this year, and hundreds more bank failures are expected to raise the cost to around $100 billion through 2013.
To replenish the fund, the FDIC wants the roughly 8,100 insured banks and savings institutions to pay in advance about $45 billion in premiums that would have been due over the next three years.
Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. The FDIC still has billions in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion — $100 billion of which does not require Treasury’s approval.
The Obama administration recently proposed a plan to provide infusions of money to small banks at low interest rates, provided they agree to increase lending to small businesses. Banks and credit unions that serve low-income areas would get aid at even lower rates to help small businesses in the hardest-hit rural and urban areas. The aid would come from money still available in the $700 billion federal bailout fund, which went mostly to large banks.
The 115 bank failures this year compare with 25 last year and three in 2007.
Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.
The number of banks on the FDIC’s confidential “problem list” jumped to 416 at the end of June from 305 in the first quarter. That’s the most since June 1994. About 13 percent of banks on the list generally end up failing, according to the FDIC.
My mother told me when I was young that “life is not fair”, boy was she right.-Lou
What’s Still Wrong with Wall Street
Are you furious? If not, you should be. The giant financial institutions that make up Wall Street have been bailed out, thanks to trillions of dollars of our money, and are on track to hand out record-breaking multibillion-dollar bonuses while millions of regular folks are hurting. Even outside the gilded halls of Wall Street, there’s no shortage of good cheer: many economists say the Great Recession has ended, and Federal Reserve Chairman Ben Bernanke keeps seeing “green shoots” in the economy.
But the only green shoots that many non–Wall Street types have seen lately are the weeds sprouting in the parking lots of abandoned malls. Unemployment is marching toward 10%, and house foreclosures are still rising. If you’re a day late with your credit-card payment or overdrawn by a few bucks on your ATM card, the bank (which your tax money helped bail out) is still sticking you with obscene fees and charges. Hence the question that so many of us are asking: Where’s my bailout? (See 25 people to blame for the financial crisis.)
Welcome to Round 2 of Main Street vs. Wall Street. The divide is the worst I’ve seen in my 40 years of writing about finance. In a new TIME poll, 75% of the respondents say they believe Wall Street will revert to business as usual, 67% want the government to force pay cuts, and 59% want more government regulation. (See a PDF of TIME’s exclusive poll data.)
Main and Wall are never going to love each other. And they probably shouldn’t, because their interests aren’t identical. But if we’re going to get through this mess as a society and regain our prosperity, Main Street and Wall Street need to understand each other. And they don’t. (See how Americans are spending now.)
Too many people on Wall Street are acting in an arrogant, clueless and tone-deaf way, huffily treating any criticism of their pay and practices and perks as an attack on the free-enterprise system. Wall Streeters like to say (and may even believe) that they’re helping humanity — which occasionally happens, but only by accident — rather than being out to make the most money they can.
Without a doubt, the financial meltdown and its ensuing horrors began on Wall Street. However, Main Street is not a totally innocent lamb in all this. Yes, the greedheads tempted us with mortgages and other products we couldn’t afford. But you could have said no, as many of us did. And you could have tried to live within your means or, better yet, below them, instead of falling prey to financial fantasies.
It is nice to see a positive number on 3rd quarter GDP. Much of the increase in economic activity was the result of massive government stimulus including “Cash For Clunkers”, and the $8,000 home tax credit. I’m not sure this economy can stand on it’s own without the crutch of massive stimulous. Well the stock market liked it rising 200 points and bounced nicely of the uptrend line we discussed yesterday. So far it looks like a successful test of a very important technical level, next week we will know.-Lou
Economy growing but recovery could be at risk
Economy grows again in 3rd quarter, but worries about staying power of the recovery persist
WASHINGTON (AP) — Fueled by government stimulus, the economy grew last quarter for the first time in more than a year. The question now is, can the recovery last?
AP – In this Oct. 27, 2009 photo, a contractor worker installs a sprinkler system that uses recycled water at …Federal support for spending on cars and homes drove the economy up 3.5 percent from July through September. But the government aid — from tax credits for home buyers to rebates for auto purchases — is only temporary. Consumer spending, which normally drives recoveries, is likely to weaken without it.
If shoppers retrench in the face of rising joblessness and tight credit, the fragile recovery could tip back into recession.
For the Obama administration, the positive report on economic growth is a delicate one: It wants to take credit for ending the recession. On the other hand, it needs to acknowledge that rising joblessness continues to cause pain throughout the country.
Millions of Americans have yet to feel a real-world benefit from the recovery in the form of job creation or an easier time getting a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.
President Barack Obama called the report “welcome news” in remarks prepared for a small-business group but acknowledged that “we have a long way to go to fully restore our economy” and recover from the deepest business slump since the 1930s-era Great Depression.
“The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well,” Obama said.
The rebound reported Thursday by the Commerce Department ended the record streak of four straight quarters of contracting economic activity.
The news lifted stocks on Wall Street. The Dow Jones industrials average gained about 150 points in afternoon trading and broader indices also rose.
But whether the recovery can continue after government supports are gone is unclear. Many economists predict economic activity won’t grow as much in the months ahead as the bracing impact of the government’s $787 billion package of increased government spending and tax cuts.
October 29, 1929 was a scary day for America.
From 1921 to 1929, the Dow Jones rocketed from 60 to 400! Millionaires were created instantly. Investors were buying stock on margin at a rate of 9-1. For every dollar an investor had he would borrow 9 more and leverage his bets. It all came crashing down over 5 days in late October culminating on Black Tuesday, October 29, 1929. The crash of the market ushered in The Great Depression. Here is what happened 80 years ago today. Deja Vu anyone? -Lou
From the book “The Stock Market Crash of 1929″
Market Conditions Prior to the Crash of 1929
Following WWI, the United States experienced a broad economic expansion that was fueled by new technologies and improved production processes. Between the years 1927 and 1929, industrial production output increased 25%. Electricity was more widespread and the purchases of electrical appliances – as modern conveniences – took hold. Ford had created assembly lines that allowed cars to be produced at lower cost. The Roaring 20s were an age of rebirth for most Americans.
So how did this roar come to a screeching halt? What exactly contributed to or caused the great stock market crash of 1929?
Events Leading up to the 1929 Stock Market Crash
Many people blamed investors for taking speculative approaches to the market and driving stock prices well in excess of fundamental values. But was that really true? Let’s take a quick look at the three most infamous days of that era.
October 24, 1929 – Black Thursday
The stock market really crashed over a period of five days. The first sign of trouble was on Black Thursday – October 24th, 1929. At that time, the stock exchange typically traded around 4 million shares each trading day. But on Black Thursday, a record 12.9 million shares were exchanged.
The systems for tracking the market prices could not keep up with the trading volume and that may have contributed to panic selling on that day. At one point, ticker tapes were running nearly 90 minutes behind the market. By the end of the day, the market had fallen 33 points or around 9%.
October 28, 1929 – Black Monday
Following Black Thursday, the market bounced back a bit on Friday. This lead to a sense of security over the weekend as investors felt the market could rebound. However, market conditions quickly deteriorated again on Black Monday – October 28th, 1929 – and high trading volumes once again put pressure on the flow of information.
On Black Monday, trading volumes were near 9.25 million shares and market confidence declined sharply. By the end of the day, the market was down another 13%.
October 29, 1929 – Black Tuesday
Black Tuesday – October 29th, 1929 – is that day that most historians agree dealt the final blow to the Roaring 20s and was the starting point of the Great Depression. On Black Tuesday, a record 16.4 million shares changed hands. The ticker tape machines fell behind by nearly 3 hours. With all hopes of a market recovery now gone, panic selling continued and the market fell another 12%.
Recovering from the 1929 Stock Market Crash
Over the next month the market continued to decline sharply, however, the market would not bottom out until July 1932, when the Dow hit 41 from a high of 381 in 1929. That’s a decline of nearly 90%! Even as the market started to rise in 1932, it would take another 22 years before the Dow would climb above the levels seen in 1929.
Why Did the Market Crash?
Interestingly, economists that have later examined the fundaments from the 1920s believe there was not a stock market bubble ready to burst by 1929. In fact, most of the stock values had merely tracked the rise in expected dividend payments. The economy was expanding rapidly and companies were enjoying this expansion. Those same companies that were enjoying these prosperous years had increased dividends and were expected to continue to do so.
The stock market continued to track the economy following the crash of 1929 – this time in the negative direction. Since consumer outlook was decidedly pessimistic, the economy contracted sharply. Companies were hard hit by the decrease in consumer spending and this trend would continue for nearly three years.
Therefore, apart for the panic selling on those few days in October of 1929 that would cause sharp price declines in common stock, there was nothing unusual or “inflated” about stock prices in the days preceding or following the stock market crash of 1929. Panic selling brought the market to the ground. The simple laws of supply and demand were in place – with no one left willing to buy stocks and everyone trying to sell at the same time, the market had nowhere to go but down.
I highly recommend that you read this entire article by Tyler Durden from the excellent Zero Hedge website. He says that the entire stock and bond market is being manipulated with the Fed’s funny money. His conclusion (and you should read the entire article even though it’s a bit deep and long} is to sell ALL stocks and exit the market. This may be the most important financial article you will read in a long time. Is it is true, and I believe it is, we are in deep shhhtuff.-Lou
An Overview Of The Fed’s Intervention In Equity Markets Via The Primary Dealer Credit Facility
Recently, Zero Hedge presented a snapshot analysis of the various securities that made up the triparty repo agreement involving JPM, Lehman and the Fed. We uncovered numerous bankrupt companies’ equities that were being pledged as collateral for what ultimately was taxpayer exposure. To our surprise, this discovery is not an exception, and in fact in the days immediately preceding the collapse of Bear Stearns first, and subsequently, Lehman Brothers, the Federal Reserve established and refined a program that permitted banks to pledge virtually any security as collateral, including not just investment grade bonds and higher ranked securities, but also stocks of companies, the riskiest investment possible, and a guaranteed way for taxpayer capital to evaporate in the context of a disintegrating financial system, all with the purpose of bailing out Wall Street’s major institutions. On two occasions last year: on March 16, 2008, and subsequently on September 14, 2008, the Federal Reserve first established what is known as the Primary Dealer Credit Facility (PDCF), and subsequently amended it, so that the Fed, in becoming the lender of last resort, would allow any collateral, up to and including stocks, to be funded by the Federal Reserve’s credit facility, in order to prevent the $4.5 trillion repo financing system from imploding. By doing so, the Federal Reserve effectively gave a Carte Blanche to primary dealers to purchase any and all equities they so desired, with such purchases immediately being funded by the US taxpayer, via the PDCF. In essence, this was equivalent to the Fed purchasing equities by itself through a Primary Dealer agent.
This should help the housing market a bit. I’m sure my brother Mark is happy (real estate agent).-Lou
Deal struck to expand home-buyer tax credit
WASHINGTON (MarketWatch) — Senators have struck a deal to extend a popular tax credit for home buyers beyond those buying their first house, Senate Majority Leader Harry Reid’s office said Wednesday.
Legislators also have agreed to extend the tax credit through the end of April, according to a Reuters report.
An $8,000 credit for first-time home buyers is set to expire at the end of November. Under a compromise reached by senators, the credit would be expanded to those who have lived in their home for five consecutive years, a Reid spokeswoman said.
The credit for repeat buyers would be $6,500.
The credit reportedly would be available for individuals making up to $125,000 a year and couples earning up to $225,000 per year, up from the current income limits of $75,000 and $150,000, respectively.
Reid wants to attach the tax-credit measure to a bill that would extend unemployment benefits.
The Stock Market At A Critical Juncture
The historic move up from the March lows could be coming to an end. The above chart of the S&P 500 clearly shows that the market is rolling over and is at critical technical levels. With today’s 20+ point decline the S&P has broken it’s 50 day moving average. Not a big breakdown but the first soldier to fall. The more important area of support is 918, where the 200 day moving average is. I expect to see the market test the 200 day and it better hold or a serious decline is likely. Stock market averages are sitting right at the up-trendline drawn from the March lows. A trendline break is one of the more powerful forces in markets as they tend to accelerate in the direction of the trend break, in this case that’s down. MACD has a bearish crossover indicating lower prices may be ahead.
Let’s take a look at the Transports
The Transports started falling before the Dow and SP 500 and look to have just completed a double top around 4,000. This market is also about to break the up-trend line and looks like it’s going much lower. Time to be very cautious in the stock market.
US Dollar looks to have made a short term (may be very short term) low and looks ripe for a bear market bounce. Since the US Dollar Index hit a low of 74.85 last week it has rebounded to 76.46. I expect a bit of follow up dollar buying but the highest I see the dollar going is 80-82, then the scary decline begins.
Here is a chart of the Euro ETF as you can see the Euro looks like it wants to roll over against the dollar.
Lastly Gold and Silver have retreated from record highs as the dollar has bounced. A further correction in gold and silver is to be expected. $1,000 should prove to be strong support, if it doesn’t hold we can see a more serious decline. Gold and silver will bottom and start back up to record highs when the dollar’s bear market mini-rally is over. Here is the chart of the Gold ETF- GLD.-Lou
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