Expect FOMC to Maintain Status Quo
This will leave Fed policy virtually unchanged for a year at record low rates.
Look for the FOMC to Maintain Status Quo
I expect the Federal Reserve to maintain the zero to 0.25% federal funds rate for an "extended period." This would leave Fed policy virtually unchanged for a year at record low rates. The Fed will re-iterate that quantitative easing will end at the end of March 2010. The Fed will ignore the November readings for inflation and re-iterate that inflationary pressures remain subdued. PPI was up 1.8% in November.
Credit card delinquencies are rising again, as credit card debt declines on the books of banks.
Credit card debt is down $29.5 billion to $393 billion on the third-quarter FDIC Quarterly Banking Profile. This loan category declined 4.5% year over year accelerating from just 0.6% year over year in the second quarter, as Americans attempt to save more and pay down all types of revolving credit loans.
At Capital One Financial (COF), credit card charge-offs jumped to 9.6% in November from 9.0% in October. JPMorgan (JPM) reported its charge-offs rose to 8.81% in November from 8.02% in October. At Bank of America (BAC) the charge-off rate fell to 13% from 13.22%.
Demand for Foreclosure Homes Down as Supply Grows
The hidden costs of buying a foreclosed home, such as repairing damages, have hurt the sale of such properties. So far, the renewal and extension of home buyer tax credits haven't kicked in to stimulate demand. The pending glut of foreclosed properties will result in a renewed down trend for housing.
Government programs to keep homeowners in their homes have helped only about 4% of those who appear to qualify because of red tape, and the deteriorating economy on Main Street. As these programs begin a phase-out, another wave of foreclosures will follow. If the unemployment rate stays in double-digit territory, defaults and foreclosures will continue, which will begin a new leg down in prices. Keep in mind that home prices are still up 50% since the beginning of the decade.
The increase in foreclosures has reduced demand for new homes, which is reflected in the December reading for the National Association of Home Builders Housing Market Index, which fell to 16 from 17, with a reading of 50 as break even. Sources say that foreclosure notices will end the year at more than three million from 2.3 million in 2008, and could reach four million in 2010.
Most unwanted homes will wind up as Other Real Estate Owned on the books of our nations bank. This line on the FDIC Quarterly Banking Profile reached $37.2 billion in the third quarter up 206% since "The Great Credit Crunch" began at the end of 2007. This asset category will soon zoom above $40.5 billion which was the total at the end of the 1988 to 1992 FDIC Asset Meltdown.
The Daily Charts for Gold, Crude Oil, the Euro and the Dow
Gold held support at $1110 and has rebounded to my quarterly pivot at $1135 with the 21-day at $1160.
Crude oil is oversold and held my annual pivot at $68.81 with weekly resistance at $72.13.
The euro is oversold with support at 1.43 and resistance at 1.475. The dollar bottomed on Thanksgiving.
The Dow held my weekly pivot at 10,435 on Tuesday, and remains poised to breakout above the down trend resistance at 10,520. The Fed Statement could be the catalyst for a breakout or fake-out.
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