Housing and Banking Aren't Out of the Woods Yet
Despite officials' attempts to push them out, these sectors seem cozy in the forrest.
I support the Volcker Rule -- In a battle of wits the White House wants the Volcker Rule to phase in over the next two years, but Congress isn't yet on board. The Volcker Rule will ban proprietary trading at major financial firms considered "too big to fail", and would prevent these firms from sponsoring hedge funds and private equity ventures. "Too big to fail" banks wouldn't be allowed to grow to be above 10% of the liabilities of the banking system.
I say that the big banks shouldn't be allowed to hold more than 10% of the total assets as reported in the FDIC Quarterly Banking Profile. JPMorgan (JPM) and Bank of America (BAC) are the only two in this predicament, and should be asked to reduce assets to 10% or less by the end of 2012.
Pending home sales show another measure of drag on the housing market. Some blame the snowstorms; some, like me, blame the pending end to the homebuyer tax rebates. The window for going to contract closes at the end of April and buyers must close on the house by the end of June.
The National Association of Realtors reported that its pending home sales declined 7.6% in January to a reading of 90.4, the lowest since last April when the first-time home buyer incentives began to take off. Keep in mind that cancellations aren't adjusted from the index.
The Status of the Bailout according to ProPublica.org:
- Outflows: $514.8 billion including only $30 million for foreclosure relief -- banks $244.9 billion, Fannie Mae (FNM) and Freddie Mac (FRE) $125.9 billion, auto companies $82.8 billion, AIG $45.3 billion, and toxic asset purchases just $15.9 billion, when that was the original intent of the TARP.
- Inflows: $197.7 billion -- refunded $173.6 billion with revenues of $24.1 billion.
- Net Outstanding: $317.1 billion.
FDIC Chairwoman Sheila Bair is looking through rose-colored glasses -- Bair says, "After three long and difficult years for housing and mortgage finance, I think we're seeing some progress in stabilizing our housing markets." She cited the improvement in the Case-Shiller Home Price Index, which I say is set to decline again.
She talks about rising home affordability, based on lower prices and low interest rates. While this may be true, mortgage rates aren't low enough for most to refinance, home prices are still 50% above the levels of 1999, and property taxes are up as is home insurance rates.
Then she takes off the rose-colored glasses to state that problem mortgages and long-term stability of the housing markets aren't out of the woods. "Problem mortgages continued to grow through year-end, while new sources of credit distress have emerged. The Mortgage Bankers Association reports that total past due mortgages amounted to just under 9.5% of outstanding loans at year-end." She realizes that interest-only and negative amortization mortgages will reset to higher monthly payments right though 2012. She referenced a Moody's estimate that almost 16 million US mortgages are underwater.
Dow: The Dow is well below its 200-week simple moving average at 11,142 with declining momentum that's flattening. The weekly chart remains neutral on a close this week above its five-week modified moving average at 10,295. I now favor a trading range between the February 5 low if 9,835.09 and the January 19 high at 10,729.89.
Source: Thomson / Reuters
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