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Let's Be Frank About Fannie and Freddie


Barney Frank's idea to ensure government backing only on certain debt and mortgages will dislocate many investors and markets.

The Dow on the Rise, but Can Strength be Sustained?

The Dow ended last week above my annual pivot at 10,379, so this sets up a test of the January high of 10,730. The low end of the range was the February low of 9.835. Keep in mind that the NASDAQ and Russell 2000 set new year-to-date highs on Friday.

Source: Thomson / Reuters

Wouldn't it be interestingly devilish if the high of 666 for the Russell 2000 followed by one year the low of 666 for the S&P 500?

Source: Thomson / Reuters

Friday's Employment Report for February

Shedding 36,000 jobs and having an unemployment rate of 9.7% isn't bullish for stocks. The impact of the snowstorms during the survey was likely not a factor as all an employee has to do is work one hour during that week to be considered employed.

Job creation and increases in payrolls by at least 150,000 per month are required just to stabilize the labor market. The jobs picture isn't brightening when discouraged Americans continue to leave the labor force. The underemployment rate rose to 16.8% from 16.5%.

The key labor component to the market in my judgment is the construction industry, which lost 64,000 jobs. How can that improve with those troubled C&D and CRE loans on the books of our nation's banks? Where are those "shovel ready" projects? That's where the jobs created or saved are supposed to come from. The average workweek is a key component and it dropped to 33.8 hours from 33.9 hours in February. Now that holiday shopping is over, many stores are cutting back hours worked.

Bank Failure Friday

The FDIC closed four community banks on Friday with one publicly traded Sun American Bank, which is on the ValuEngine List of Problem Banks.

The 26 bank failures so far in 2010 have cost the Deposit Insurance Fund $4.7 billion, bringing the DIF Deficit to $25.6 billion. The FDIC has $46 billion in prepaid DIF fees for 2010 through 2012 that are earmarked for the DIF when scheduled.

The FDIC is having a tougher time finding a bank to take over a failed institution as one was set up as an FDIC Bridge Bank, and another bank just had its deposits moved to Zions Bancorp.

Three of the four banks had heavy overexposures to C&D and CRE loans with pipeline ratios between 87.9% and 100%, which was the case for the bank within regulatory guidelines for C&D and CRE exposures.

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No positions in stocks mentioned.
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