Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Housing and Banking Aren't Out of the Woods Yet


Despite officials' attempts to push them out, these sectors seem cozy in the forrest.

Editor's Note: This article was written by Richard Suttmeier, chief market strategist at, which is a fundamentally-based quant research firm in Princeton, New Jersey, that covers more than 5,000 stocks every day.

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

  • 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

Send me your comments and questions to

< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos