The FDIC Quarterly Banking Profile will not jive with GDP. The yield curve will flatten in anticipation of a higher federal funds rate by year’s end. Bank Failure Friday returns. The Dow is above 10,379.
The FDIC will be releasing its Quarterly Banking Profile for the fourth quarter of 2009 tomorrow.
The FDIC Quarterly Banking Profile is the most important leading indicator for the US economy as I believe that it's the balance sheet for US GDP. I predict that we will see bad loans rising, which I will consider disconnected with the Q4 GDP of 5.7%, which could be revised upward this Friday.
The QBP will not be supportive of a GDP growth rate at that pace. Since the QBP is a leading indicator, my conclusion is that the US economy is extremely vulnerable for a Double-DIP.
My analysis of the QBP began in the fourth quarter of Q4 2005 after predicting the mid-2005 peak for the home builders. Because of the deterioration I observed in subsequent quarters in the FDIC data, I correctly predicted the 2008 / 2009 Recession on March 1, 2007, and I predicted that a bear market would begin before the end of 2007.
Wall Street does not even read the QBP and it’s not on anyone's economic calendar except mine. The FDIC Quarterly Banking Profile is typically released 55 days after the end of the quarter.
I predict that any further steepening of the US Treasury yield curve will be limited, and that the yield curve will anticipate the eventual rise in the funds rate with a flattening trend. Given the larger auction sizes, yields will be rising, particularly given the lessening demand from overseas investors.
Banks that bought the 2-Year through 5-Year maturities to lock in these spreads will become sellers. Hopefully before gains become losses, adding to the woes of community banks on Main Street.
If small banks raise cash in this manner, they will be able to offer consumer and small business loans. Those that won't take that risk will likely add to the 201 bank failures we have seen since the end of 2007.
I reiterate my predictions that 150 to 200 banks will fail this year alone, with 500 to 800 bank failures before "The Great Credit Crunch" ends.
Bank Failure Friday Shudders Four - Four small community banks were closed by the FDIC last Friday with one being a publicly-traded institution on the ValuEngine List of Problem Banks. Almost every publicly traded bank that has failed during “The Great Credit Crunch” has been on our list of problem banks and we name names.
The total number of bank failures for 2010 is up to 20, bringing the total since the end of 2007 to 201. There are 380 publicly traded banks overexposed to C&D loans, and another 372 overexposed to CRE loans. That’s 752 publicly traded banks that are candidates for the ValuEngine List of Problem Banks.
The FDIC continues to drain its Deposit Insurance Fund, as shown on this chart. So far this year the failures have cost the DIF $4.3 billion. I estimate that the fund is down to about $22 billion. With member fees already collected for 2010 through 2012, I predict that the FDIC will have to tap its $500 billion line of credit with the US Treasury this year.
The Dow has returned to my annual pivot at 10,379 and closed last Friday above that threshold.
Two weeks ago on February 8th I predicted that the Dow would not stay below 10,000, and I reflected that in ValuEngine’s ValuTrader Model Portfolio by overweighting the portfolio to the long side for the first time since October 9, 2009. As long as closes are above 10,379, the upside is back to the January high at 10,729.89. This week’s support is 10,105 with today’s resistance at 10,562.
Chart Courtesy of Thomson / Reuters
Disclosure: No Positions