The Great Credit Crunch Is Deepening

 |  About: SPDR Dow Jones Industrial Average ETF (DIA)
by: Richard Suttmeier

Bank Assessments to Cover “Too-Big-To-Fail

Within the proposed banking reform bill the House Financial Services Committee wants banks and funds to make payments in advance for companies deemed “too-big-to-fail”.

This fund will be capped at $200 billion insuring that taxpayers will not wind up paying for a bailout should a big bank fail.

The Senate version permits bank regulators to use taxpayer funds to unwind a failure and later recoup from the banking industry.

Guess what? These costs will be passed unto consumers in terms of tighter credit standards and less favorable borrowing rates. This will extend “The Great Credit Crunch”.

Wall Street banks have record profits, while Main Street banks fail

This is the end result of the dollar carry trade. Wall Street will get record bonuses because of proprietary trading, while Main Street faces higher unemployment, reduced pay, mortgage defaults and foreclosures.

Why did this happen? Because we bailed out the “too-big-to-fail” banks while we ignored the risk guidelines that would have helped community and regional banks survive “The Great Credit Crunch”.

Housing Starts Fell Sharply In October

Housing Starts declined 10.6% in October sequentially and are down 30.7% year over year. So where is the housing recovery? The annual rate of starts is just 529,000 units annualized.

Single family homes, the beneficiary of the $8,000 first time home buyer tax credit fell 6.8% to an annual rate of 476,000 units. Will this be just a lull as the tax credit expired but then extended beyond November 30th? Go to contract by April 30th and to closing by June 30th to qualify.

It’s tough to keep a housing recovery going with community and regional banks choking on C&D and CRE loans, strapped to pay Deposit Insurance Fees and TARP Dividends. Bank failures will continue.

On Tuesday I will be dissecting the FDIC Quarterly Banking Profile for the third quarter, and predict that we will see continued deterioration in assets among most consumer and real estate loan categories.

For the Dollar Index there is a potential Weekly Key Reversal. The dollar reached a new low for the move on Monday at 74.75. A close this week above last week’s high of 75.88 defines a weekly key reversal. A Weekly Key Reversal followed by two weeks of higher closes confirms a dollar bottom.

The daily chart The Dow Industrial Average is overbought with the 50-day simple moving average as support at 9,893. Note that since March 6th there have been four mini-corrections to the 50-day.

The weekly chart for the Dow is also overbought with Ascending Wedge resistance at 10,458, and the down trend that goes back to October 2007 at 10,675.

Look at the 120-month simple moving average on the monthly chart. That resistance is at 10,476. Note that the October 2002 and March 2003 lows tested and held the 120-month simple moving average.

Disclosure: I Hold No Positions in the Stocks I Cover.