Community and Regional Banks face continued stress of bad consumer and real estate loans. Taxpayers face unlimited costs from Fannie (FNM) and Freddie (FRE), while lending standards tighten. The message from the daily charts for yields, gold, crude oil and the dollar. Stocks are in that difficult state where the oil of fundamentals does not mix with the water of technicals.
The America’s Community Bankers Index (ABAQ) is just below breakeven year to date and just above its 200-day simple moving average at 146.34.
Chart Courtesy of Thomson / Reuters
ABAQ is an index of more than 500 publicly traded community banks and many are overexposed to Construction and Development Loans and Nonfarm, Nonresidential real estate loans where the three categories define a risk category called CRE loans.
Four of my ten predictions for 2010 are the result of the fact that nearly 3,000 community banks are overexposed to C&D and / or CRE loans.
The FDIC will close 150 to 200 banks in 2010 on the way to 500 to 800 by the end of 2012 into 2013. Banks in receipt of TARP will join the failed bank list. 181 banks have failed since the end of 2007.
The FDIC will tap its $500 billion line of credit in 2010, as the three year Deposit Insurance Fund prepaid fees of $45 billion will run dry. I estimate the DIF to total $23.1 billion at this time.
Loan Defaults and Foreclosures will continue to rise due to waves of Alt-A mortgage resets and as unemployment pulls prime mortgages into default.
The FDIC List of Problem Banks will exceed 700, as the FDIC attempts to keep up with the nearly 3,000 community banks overexposed to C&D and / or CRE loans.
The Regional Banking Index (BKX) is still up 3.3% year to date, but these bigger banks are subject to the “Volcker Rule” and other measures to remove the mantra of being “too big to fail”. The BKX has been above its 200-day simple moving average at $42.29 since July 27th, but this support appears vulnerable given exposures to European countries such as Portugal, Ireland, Italy, Greece and Spain (PIIGS).
Chart Courtesy of Thomson / Reuters
When the FDIC releases its Quarterly Banking Profile for the 4th quarter on 2009 later this month we will see that away from the profits resulting from the zero percent funds rate, bad loans are rising and reserves for future losses are rising as well. Banks must gradually bring off balance sheet trusts back on their books beginning this year through 2012.
Total assets in the banking system should continue to decline as a leading indicator that after strong GDP growth in Q4 2009, that GDP will be vulnerable for a double dip in 2010.
Another one of my predictions for 2010 is that Fannie Mae and Freddie Mac will continue to drain taxpayer money as the Treasury provides unlimited lines of credit through 2012. The line of credit to the two GSEs will be $400 billion plus all losses over the next thirteen quarters. The FHFA estimates that the hit will be around $55 billion in 2010, which seems optimistic to me.
The yield on the 10-Year US Treasury favors continued risk aversion with that yield richer than my semiannual pivot at 3.675. Monthly resistance is 3.504. today risk aversion is tested with the auction of $40 billion in 3-Year notes. My annual pivots are 1.292 and 1.139.
Comex gold has been above its 200-day simple moving average at $1020 since January 23, 2009 with resistances this week at $1083 and $1085.
Chart Courtesy of Thomson / Reuters
Nymex crude oil held its 200-day simple moving average at $70.75 with the 200-week simple moving average as resistance at $76.18.
The Dollar Index has exceeded its quarterly resistance, now a pivot at $80.23. Last week’s close was at the 200-week simple moving average at $80.55. This week’s resistance is $80.90. The euro is below its 200-week simple moving average at 1.3872.
Chart Courtesy of Thomson / Reuters
The weekly chart for the Dow is negative with the broken Ascending Wedge and with the Dow back below the down trend that goes back to October 2007. That’s the breakout followed by the fake-out.
Chart Courtesy of Thomson / Reuters
The 21-day simple moving averages are below the 50-day simple moving averages for the Dow, S&P 500, Dow Transports and the Philadelphia Semiconductor Index (SOX). A negative crossover is highly likely for the NASDAQ today and for the Russell 2000 on Wednesday.
ValuEngine shows eight of eleven sectors as undervalued which means that the oil of more positive fundamentals is not mixing with the water of negative technicals. I am not going to become a bull on stocks until all eleven sectors are undervalued as they were on March 5, 2009, when the undervalued readings were between 32% and 42%.
Disclosure: No Positions
