Reviewing my bearish calls on the economy and the markets
It was in mid-2005 when I predicted that the homebuilders were about to start their bear market.
It was in April 2006 when I first listed banks that I thought would be vulnerable to Construction and Development Loans. I even listed fifty banks that I described as dominos ready to fall.
Banks peaked in March 2007, and that’s when I first said that you can’t have a bull market for stocks with a bear market in financials.
It was also in March 2007 when I predicted that the US economy would be in Recession in 2008 / 2009 and that in current dollar terms GDP would be lower at the end of 2009 than at the end of 2008, which would be the first year over year decline since 1948 / 1949.
The broader market averages did not peak until October 2007, and my call then was “Beware of the Ides of October” and predicted that the next 2,000 points for the Dow would be down not up.
The FDIC seized four more banks on Friday, bringing the total for 2009 up to 57 and 82 since the beginning of The Great Credit Crunch at the end of 2007.
All four banks closed on Friday had severe overexposures to C&D loans, and two Vineyard Bank (VNBC) and Temecula Valley Bank (TMCV) were publicly traded and on the ValuEngine List of Problem Banks.
At ValuEngine we name names of Problem Banks, whereas the FDIC does not even disclose this information when a bank is closed. Check out the Quarterly ValuEngine FDIC Evaluation Newsletter.
The pace of bank failures is accelerating as a dozen banks were closed so far in July with two more Bank Closing Fridays ahead. Back in February ten banks were closed by the FDIC.
Before “The Great Credit Crunch” ends, 500 to 800 banks will fail.
My stock of the day as presented in the ValuEngine Morning Briefing is Zions Bancorp.
Zions Bancorp (ZION) was downgraded to SELL according to ValuEngine with the stock expected to decline by 24% over the next twelve months.
California Bank & Trust, a unit of Zions acquired the deposits of Vineyard Bank, one of four banks seized by the FDIC on Friday, which failed because of losses as builders defaulted on construction loans. Zions already overexposed to C&D loans with a risk ratio of 141% versus the regulatory guideline of 100%.
The FDIC thus allowed a bank in violation of regulatory guidelines to assume assets of a failed bank. I think it’s ridiculous that the US Treasury, Federal Reserve and FDIC come up with joint regulatory guidelines at the end of 2006, and then ignore them. Why is this not being covered in the media?
The daily chart for Zions Bancorp shows rising momentum with Friday’s close below the 21-day simple moving average at $11.79. The 50-day is resistance at $13.63. Zions is well below its May 8th high.
The daily chart for the S&P 500 remains positive with rising momentum.
My annual pivot is 910.8 with the June 11th high of 956.23. My weekly and annual resistances are 957.9 and 967.1.
Disclosure: No positions.
