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VIDEOHousing, Banking Woes Point to Double-Dip Recession
Housing data is horrific, and banks are falling like dominoes.
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Why I Forecast a Double-Dip Recession.
We began this economic mess in 2007 when our banking regulators said subprime mortgage loan problems wouldn't spread to the real economy.
Now we have a worse economic condition with Adjustable Rate and Negative Amortization Mortgages within their re-set windows. These loans are too far underwater to be helped by mortgage modification programs.
Recent housing data for both existing and new-home sales were horrific and ignored by the FOMC in last week’s Fed Statement. Community and regional banks are falling like dominoes as bad loans cascade on and off bank balance sheets. This wave is worse than the subprime era, and plants the seeds for the double-dip recession.
The FDIC Closed Six More Banks on Bank Failure Friday.
All six banks were overexposed to C&D and CRE loans. Three of the six were publicly traded and on the ValuEngine List of Problem Banks.
In 2008 there were 25 bank failures, in 2009 there were 140, in January 2010 there were 15, which brings the total for “The Great Credit Crunch” to 180. At this pace of closures, 2010 will total 180 bank failures, which lines up with my prediction that 150 to 200 banks will fail this year.
Assuming the FDIC collected $45 billion in Deposit Insurance Fees for 2010 through 2012, this fund is down to approximately $23.1 billion. This lines up with another one of my predictions for 2010, which states that the FDIC will have to tap its $500 billion temporary line of credit with the US Treasury.
The publicly traded failed banks are First National Bank of Georgia, Florida Community Bank, and First Regional Bank.
Another one of my predictions is that 500 to 800 banks will fail through 2012 into 2013 and the ValuEngine List of Problem Banks names banks by name.
Monthly Key Reversals and Confirming Weekly Key Reversals
The Dow, S&P 500, NASDAQ, and Dow Transports traded to new highs for the move in January and closed below December’s lows. These are rare monthly key reversals. The Emerging Markets Index Fund (EEM) also had a monthly key reversal.
Weekly key reversals were confirmed by the SOX, EEM, QQQQ and Nymex crude oil. Lower weekly closes this week confirm key reversals for the Dow and S&P 500. I show the weekly chart for the Dow.
Fourth-quarter 2009 GDP rose 5.7%, but driven by business inventories adjustments.
Back on March 1, 2007 I predicted that the US economy would be in recession in 2008 and that GDP would show its first year over year decline since 1948 / 1949. Real GDP declined 2.4% in 2009 and current dollar GDP declined 1.3%.
Fourth-quarter GDP faces downward revisions if trade deficit levels widen. If you believe the power of this GDP growth the FOMC should raise rates. Otherwise we have a “Job-Loss Recovery."
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