Where we are today versus a year ago, and the Overvalued / Overbought Stock Market
At this point a year ago, President Bush and Treasury Secretary Paulson expected Stimulus One (those tax rebates) to generate 500,000 new jobs by the end of 2008.
Fed Chief Bernanke was looking for below trend growth, but growth non-the-less. And, FDIC Chair Sheila Bair said that the banking system was sound.
Then we had a cascade of unpredicted events with a crescendo in September, which were addressed with program after program that have not worked as intended, are still are being tweaked by regulators today.
The Great Credit Crunch began with problems on Main Street with the housing market and stress in community and regional banks, which have not yet been fixed.
Here are the things to worry about for the remainder of 2009, and they are related to the events of the second half of 2008:
Fannie (FNM) and Freddie (FRE) will cost the US Treasury and hence taxpayers over two trillion dollars. They will continue to tap their $200 billion lines of credit. Geithner does not have time to focus on the GSEs, but their portfolios have to shrink starting in 2010.
The FDIC will continue to see deteriorating real estate loans, and will have problems in figuring our how to structure bank failures - they panned the "too big to fail" banks, and are making it tougher for Private Equity and Hedge Funds from taking restructuring risk.
There are time bombs ticking in the $200 trillion in notional amount of derivative contracts.
More bad loans loom from all categories: Mortgages, Credit Cards, Home Equity Loans, C&D and CRE Loans, Commercial Loans, etc.
On Friday five banks were seized by the FDIC and two were publicly traded.
Peoples Community Bank (PCBI) in Westchester Ohio, and First Bank Americano (FAFL) in Elizabeth New Jersey were on the ValuEngine List of Problem Banks. The cause, as in almost all bank failures, is overexposure to C&D and CRE loans – you know the loans that are subject to regulatory guidelines that the US Treasury, Federal Reserve and the FDIC have ignored since being established in December 2006.
You may not think this is a big deal – It will be if you buy a publicly traded bank that subsequently fails, or you have one or more in your investment portfolios. I predict that 500 to 800 publicly traded banks will fail through 2011 / 2012. You can protect yourself with an $250 investment in the Quarterly ValuEngine FDIC Evaluation Newsletter – This report lists and analyzes the ValuEngine List of Problem Banks.
The technicals are strong for the S&P 500 but overbought, and equity Valuations are overvalued.
The S&P 500 is extremely overbought on its daily chart. My annual pivot is 967.1 with quarterly and daily resistances at 998.3 and 1002.8.
ValuEngine shows nine of eleven sectors overvalued. The 48% rally for the S&P 500 began with extremely undervalued Valuations readings, so most of the gains for 2009 have likely been seen after a five-month Bear Market Rally.
Disclosure: My Policy is to have No Positions in stocks that I cover.
