Top Ten Predictions for 2010
Main Street woes will trump Wall Street hype.
1. Fannie Mae (FNM) and Freddie Mac (FRE) will continue to drain taxpayer money as the Treasury provides unlimited lines of credit through 2012. The costs will exceed $50 billion for each in 2010.
2. The FDIC will close 150 to 200 banks in 2010 on the way to 500 to 800 by the end of 2012 into 2013. Banks in receipt of TARP will continue to join the failed bank list.
3. The FDIC will tap its $500 billion line of credit in 2010, as the three-year Deposit Insurance Fund prepaid fees of $45 billion will run dry.
4. Loan defaults and foreclosures will continue to rise due to waves of Alt-A mortgage resets and as unemployment pulls prime mortgages into default.
5. The FDIC list of problem banks will exceed 700, as the FDIC attempts to keep up with the nearly 3,000 community banks overexposed to C&D and/or CRE loans.
6. House prices will resume a decline as the $8,000 and $6,500 tax credit programs sunset for contracts by the end of April and for closings by the end of June. After all, home prices are still 50% above the levels at the beginning of the twenty-first century.
7. Emerging Markets and China will fail to provide sufficient economic strength to pull the US and global economies out of recession. China will cut purchases of US Treasuries, as Americans reduce purchases of Chinese goods.
8. US economic growth will be muted by drags in Housing and Financials. Banks must gradually raise capital to eventually bring back toxic off balance sheet assets and liabilities to their balance sheets by the end of 2012. There are many time bombs ticking in $206 trillion in notional amount of derivative contracts in the US and $800 trillion around the globe.
9. The FDIC Quarterly Banking Profile is the balance sheet for the US economy and its deterioration is a leading indicator that economic growth will muted to negative in 2010. I see bad loans rising throughout 2010 and beyond.
10. The multi-year bear market for stocks is arguably over, but a new bull market isn't in the cards. There cannot be a bull market for stocks with nine of 11 sectors overvalued according to ValuEngine. The Dow could trade to annual resistance at 11,235, but with or without this move the risk is to quarterly support at 6,705.
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