The Worst of Bank Failures are on the Horizon. Low mortgage rates, but banks are reluctant to lend. Looking at the Gold bubble, rising dollar and sliding Crude Oil! No Breakout yet for stocks.
FDIC Chair Sheila Bair says worst of bank failures not over yet
The FDIC expects that bank failure will accelerate in 2010, which plays into my standing prediction that 500 to 800 banks will fail into 2012 / 2013.
The Deposit Insurance Fund will pick up $45 billion from members by year end. This inflow is a pre-payment of regular fees for 2010 through 2012. FDIC Vice Chair Martin Gruenberg says that this money will be enough to cover bank failures for the next three years, but I say, no way!
The FDIC Deposit Insurance Fund is $16.8 billion in arrears, so 37% of the $45 billion has already been pre-spent. With $5.3 trillion in insured deposits, the DIF needs to exceed $54 billion at the end of June 2013 to be above the 1.15% ratio required by law. Since June 2008 insured deposits are up $168 billion per quarter. Given this growth rate insured deposits could top $9 trillion in mid-2013, which required Deposit Insurance Fund to be above $100 billion, and is the total the FDIC projects the total cost of failures to be. This money will have to come from the FDIC’s lines of credit from the US Treasury.
This justifies my suggestion that the remaining TARP funds be deposited into the Deposit Insurance Fund to provide capital to the banking industry, not to specific community banks.
While three banks failed last Friday, five Credit Unions and two S&L’s received TARP money under the Incentive Payments for Home Loan Modification Program. One bank Sterling Savings Bank (NASDAQ:STSA) got $2.3 million, and they are overexposed to C&D and CRE loans, with the bank is on the ValuEngine List of Problem Banks. This program will prove to be another waste of taxpayer money.
FDIC Chair Bair says that the current crisis will not close as many banks as the 1988 to 1992 experience. Of course not – The number of FDIC-insured institutions is currently 8,031, which is 61% of the total of 13,221 at the end of 1993. This is another ridiculous spin of regulatory Fuzzy Math.
Mortgage Rates are low, but banks are reluctant to refinance
Tight credit not only hurts homeowners, but also adversely effects consumer spending, which is needed to fuel economic recovery. Lower monthly mortgage payments would be a boon to consumer spending. It is estimated that 60% of mortgages have rates that exceed the current 4.8% going rate for mortgages. In 2009 refinancing activity may reach a trillion dollars, well below the $2.8 trillion in 2003. Mortgage applications to purchase a new home have recently fell to the lowest level in twelve years.
The Gold Bubble, the rising dollar and the Slide in Crude Oil
Gold shifts to negative on its weekly chart on a close this week below the five-week modified moving average at $1110. This week’s resistance is $1178. Charts courtesy of Thomson / Reuters
The Dollar Index is positive on its weekly chart with weekly support at 76.05 and quarterly resistance at 78.65. Remember that I predicted a Thanksgiving low for the dollar.
Crude oil is negative on its weekly chart and my annual pivot at $68.81 has held as support as expected. My weekly resistance is $72.13, as we are in the tenth week of the downward slide.
The Dow is still BEARLY below the multi-year bear market down trend.
The weekly chart for the Dow is positive but overbought with this week’s pivot is 10,435, down trend resistance at 10,520 and this month’s resistance is 11,035.
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That’s today’s Four in Four. Have a great day.
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Chief Market Strategist
Chief Market Strategist
As Chief Market Strategist at ValuEngine Inc, my research is published regularly on the website www.ValuEngine.com. I have daily, weekly, monthly, and quarterly newsletters available that track a variety of equity and other data parameters as well as my most up-to-date analysis of world markets. My newest products include a weekly ETF newsletter as well as the ValuTrader Model Portfolio newsletter. I hope that you will go to www.ValuEngine.com and review some of the sample issues of my research.
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