2009's "Once in a Blue Moon" Events
There's a series of these that took place.
Before 2009 ends we will have a "blue moon." It seems that we can summarize 2009 in a series of "once in a blue moon" events.
The auto bailout isn't over, and extends into the mortgage market.
GMAC will receive another $3.5 billion in tax payer money through TARP, bringing this portion of the auto bailout up to $16 billion.
The additional bailout is required because of losses related to its mortgage operations. In 2010 there will be more losses and we'll find out that many car buyers who turned in usable clunkers will be in default on the auto loans associated with that part of the bailout.
It will be a drag on those who participated as the $4,500 received from the US Treasury is considered taxable income. As it turns out, car buyers would have done better with dealer incentives.
The Dow began 2009 continuing the multi-year bear market.
The Dow began 2009 at 8,776 and declined 26.3% to 6,470 into March 6. The Dow held a multi-year up trend and satisfied a long term Fibonacci retracement level. From this low, the Dow rallied 63.5% to 10,580 this week. The end result was a gain of about 20% for the year confirming the end of the multi-year bear market. Even so, the Dow is still 25.7% below its October 2007 high of 14,198.
2010 won't be as volatile, but the upside for the Dow should be limited to the 11,250 to 11,500 rolling six month risky area. With or without this strength, the downside risk is to the 7,500 to 6,750 rolling six month value area.
I'm an "outside the box thinker" and on March 6, with the S&P at 666 I pounded the table with a call for a 40% to 50% rally. That weekend Barron's said Dow 5,000, Roubini said Dow 6,000, and Jim Cramer said the Dow's fair value was "5,000-something."
I reiterated this prediction on Fox Business Live the following week and they conducted a poll as I explained why I was bullish; 88% disagreed, 7% had no opinion, and only 5% agreed. That made me even more bullish. Now the opinion polls are in reverse. It seems like the bulls are back just as they were at the end of 2007.
I predict that the consensus will be proven wrong with regard to the global growth story. Stocks end 2009 both overvalued fundamentally and overbought technically.
As a strategist I look at facts and figures and graphs using a Green Visor, while economists view things through rose-colored glasses.
The Housing and Financials have priced in economic recovery but bailout money has been misdirected.
TARP is being wasted on public and private community banks and many are doomed for failure.
Keep in mind that the America's Community Bankers Index (ABAQ) is down 21% in 2009 and 52.8% below its December 2006 high. The Regional Banking Index (BKX) is down 3.4% in 2009 and 64.7% below its February 2007 high.
The number of homeowners in mortgage default rose for the sixth consecutive quarter in the third quarter as late prime mortgages more than doubled year over year to 3.6%. This makes it more difficult for community and regional banks to help struggling borrowers make mortgage modifications.
Meanwhile, US banks that paid lobbyists, or had political connections in Washington were rubber-stamped to receive TARP funding. Make a political contribution, get TARP -- even if the bank is overexposed to C&D and/or CRE loans. Nearly 3,000 community banks have overexposures to C&D and CRE loans, which is why 165 banks have failed since the end of 2007. Failures will grow to 500 to 800 by the end of 2012.
The FDIC Quarterly Banking Profile is the balance sheet for the US economy.
I say that this FDIC data is a leading economic indicator as the Total Assets in the banking system declined $596 billion since the end of 2008 through the end of the third quarter of 2009. This decline occurred even as insured deposits rose. This puts tremendous pressure on the Deposit Insurance Fund. Note the decline in assets since the end of 2007, when "The Great Credit Crunch" began.
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