Bernanke: Markets Are Still Far from Normal

Today Fed Chairman Bill Bernanke said that the financial markets are still “far from normal” and that the Fed is ready to lend money to banks as needed to help them maintain their liquidity. Bank of America (BAC), the second largest US bank, might want to give Bernanke a call, as it said that it estimates losses of over 2.5% in its $118 billion home-linked loan portfolio. Putting it in dollar amounts, it would be a loss of over $2.95 billion - a paltry sum compared to some of the other writedowns we’ve seen lately, but nonetheless worse than they had previously expected.

Adding to the overall market gloom is the report that the U.S. median price for a single-family home fell 7.7% in Q1. The biggest decline took place in Sacramento, California, with a 29% fall in home prices. And as expected, homes in neighborhoods with a large amount of subprime loans have taken the worst price hit as repossessed homes have been sold at fire-sale auctions which have pushed down the prices of other houses in the neighborhood.

During this time of financial uncertainty, you’d think consumers would be shopping for bargains, and indeed they have. Wal-Mart (WMT) reported a 7% increase in profit to $3.02 billion, or 76 cents a share, from $2.83 billion, or 68 cents per share. This increase was due to a 10% increase in sales, and a 22% increase in international sales. This would seem to be in line with what Bank of America said: that spending of bare necessities had increased overall spending on their credit card portfolio. We can just imagine that Wal-Mart, Visa (V), and Mastercard (MA) are benefiting from this. Despite this, Wal-Mart lowered its expectations for the next quarter leaving investors wondering just how stretched consumers really are if even Wal-Mart, one of the cheapest retailers, is expecting slower growth.

Comments

[User18358:]

Where is my Kung Pao chicken?

2008 May 13 05:52 PM

[Otto Rock:]

dear seeking alpha

please permanently ban the commenter "fan"

2008 May 13 06:21 PM

[Bill West:]

The most telling comment is regarding Visa and Mastercard:
"......This would seem to be in line with what Bank of America said: that spending of bare necessities had increased overall spending on their credit card portfolio. We can just imagine that Wal-Mart, Visa (V), and Mastercard (MA) are benefiting from this. "

2008 May 13 06:35 PM

[hook:]

I was wondering what exactly the fed was trying to communicate by saying the markets are far from normal. Everyone knows Libor has been high etc. but I'm wondering if the collateral the ibanks have been posting with the fed in the Tafs is losing value rapidly and what it could mean for some of the smaller ibanks like Lehman and Merrill. any thoughts?

2008 May 13 09:12 PM

[SoCal Scott:]

go easy on fan. he's just intimidated by an attractive woman with brains.

2008 May 14 02:55 AM

[User 9759:]

hey fan, go back to the dark ages where you belong

2008 May 14 01:08 PM

[billddrummer:]

Back on topic:

Lower guidance from WMT is a sign that the sales mix now favors necessities over luxuries, and that translates into narrower gross and operating margins, even while inventory turn remains brisk.

It's an instructive metric for tracking the state of the economy for the foreseeable future--next two quarters.

The stimulus checks will be saved or used for necessities, not spent on discretionary items. So the Coach stores of the country won't see a pickup in traffic, but WMT will. For its base products.

2008 May 14 01:13 PM

[vaduz:]

there is no way out from being pessimistic about the real economy.
are the monnies given by the fed just enough to prevent stock markets from realising that?

2008 May 14 02:16 PM