A short-term oversold rally as stocks and commodities trend lower longer term! More evidence of stress in real estate loans! Fannie Mae (FNM) and Freddie Mac (FRE) debt and mortgages remain off budget. Where are those “shovel ready” projects? The bailout bucks pile higher.
The Dow, gold and crude oil are alleviating oversold conditions on their daily charts- The daily chart for the Dow is oversold as traders protect Dow 10,000. Weekly and annual resistances are 10,341 and 10,379. The 21-day and 50-day simple moving averages are set for a negative cross-over at 10,455 and 10,435 as the new market ceiling.
Click to enlarge: 
Chart Courtesy of Thomson / Reuters
Option ARM Mortgage Problems Projected to be Worse than Subprime- The housing market and banking issues will face the challenge of an industry estimate of $134 billion of Option ARM mortgage resets over the next two years. Homeowners with these types of mortgages face resets of both a higher mortgage rate and a higher principal on their mortgage. With home values down homeowners with Alt-A mortgages are highly likely to simply walk away from their homes.
According to the Case-Shiller Housing Market Index, home prices are still 50% higher than they were at the beginning of the 21st century. To me this indicates additional downside risk. Builders and developers owe banks $492 billion in Construction & Development Loans for planned but not finished homes and land developed for communities around the country.
Sources say that $770 billion in commercial real estate loans will be underwater between 2010 and 2014, which further extends “The Great Credit Crunch”. Not surprising based upon my observations of the recent FDIC Quarterly Banking Profiles.
The Congressional Oversight Panel (COP) estimates that the price-per-square-foot of office space has declined by 50% through 2009. The decline in commercial real estate values exceeds that for home prices, which has been buoyed by the $8,000 and $6,500 tax credit programs.
Fannie Mae and Freddie Mac Still Off U.S. Balance Sheet - The President’s budget keeps the estimated $6.3 trillion in mortgages and debt of Fannie and Freddie out of the budget. This is significant as the U.S. Debt Ceiling has just been increased by $1.9 trillion to $14.3 trillion. To include Fannie and Freddie the debt ceiling would have to be $20.6 trillion.
As I have reported U.S. taxpayers are on the hook for all losses of Fannie and Freddie through 2012 on top of the $111 billion cost though the third quarter of 2009. The U.S. Treasury projects this extra cost to be $54.4 billion in the current fiscal year ending September 30, 2010 and another $23 billion in 2011. I predict that the U.S. Treasury is too optimistic.
For now Fannie and Freddie are considered as “non-budgetary” items not counted as federal liabilities because “they are privately owned and controlled”. That’s not what Conservatorship is all about.
Where are the “Shovel Ready” Projects? Construction Spending dropped sharply in December by 1.2% and down 12.4% in 2009. No sign of jobs created or saved in this statistic. The labor market is not as strong as economists are telling us. The 4-week moving average of Initial Jobless Claims is on the rise again with last week’s reading of 470,000. In addition, 43 states say that unemployment rose in December.
Bailout’s such as TARP total $485 billion of taxpayer money according to ProPublica.org. This money has been allocated of promised to 770 companies and 11 programs.
