Many banks are now close to the point of no return

Consumer confidence declined due to job concerns. Banks are close to the point of no return as toxic loans exceed 5% of many bank's holdings.
Stocks in U.S. fell as and a consumer Confidence Drop Adds to evidence the recent Rally is unsustainable.
David Tice, Federated Investors Inc.’s chief portfolio strategist said U.S. stocks are “dramatically overpriced” because the fallout from the financial crisis continues to hurt consumer spending. The Fund that Tice founded returned 27 percent last year. He predicts that the S&P 500 will eventually slump to 400. Tice told Bloomberg TV, “After a big decline like we had, it’s not unexpected to have a big rally.”

Tice said he’s the most confident ever that the stocks will fall beneath their March low and a drop to 400, a 61 percent plunge from yesterday’s close, is likely within a year. Tice said that predictions for an economic recovery led by a rebound in consumer spending are unrealistic because falling real estate prices have destroyed wealth, “The consumer has had a diminution of net worth like we’ve never seen,” he said. “That’s going to impair spending.”

Missed payments by consumers, builders and small businesses so far have pushed 72 lenders into failure this year, the most since 1992. Problem banks stood at 305 in the first quarter. Even excluding the stress-test list, at the end of the first quarter banks with nonperformers above 5 percent had combined deposits of $193 billion, according to Bloomberg data. That is more than 14 times the size of the FDIC’s deposits insurance fund that is supposed to bail out depositors. The FDIC will probably impose an emergency fee on the more than 8,200 banks it insures in the fourth quarter to replenish the insurance fund, the second special assessment this year, Chairman Sheila Bair said last week.

Bloomberg said, More than 150 publicly traded U.S. lenders own nonperforming loans that equal 5 percent or more of their holdings, a level that former regulators say can wipe out a bank’s equity and threaten its survival. The number of banks exceeding the threshold more than doubled in the year as real estate and credit-card defaults surged. Almost 300 reported 3 percent or more of their loans were nonperforming, a term for commercial and consumer debt that has stopped collecting interest or will no longer be paid in full.

The biggest banks with nonperforming loans of at least 5 percent include Wisconsin’s Marshall & Ilsley Corp. and Georgia’s Synovus Financial Corp., according to Bloomberg data. Among those exceeding 10 percent, the biggest in the 50 U.S. states was Michigan’s Flagstar Bancorp. All said in second- quarter filings they’re considered financially sound.

“These numbers are off the charts,” said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon. Banks are losing the “ability to try and earn their way through the cycle.”


Market forces August 17

President Obama has stated that we must be more like the European socialists and he now completely controls the American political machinery. It is going to get a lot worse if Obama succeeds with his legislation. Word at this hour is that socialist democrats are re-thinking these health-care forums. Some want to junk discussing health care and ram it through.

Democrat Dick Durbin all but said they're a waste of time and he'd rather not get sucker-punched for defending the bill. Socialist-democrats would rather arrogantly scrap the democratic forums than the un-democratic health-care proposals they're pushing.



Market Outlook

A panic sell off of 25% in one day similar to 1987 is now a growing risk.

Chinese stocks today plunged to their lowest level in two months, on renewed concerns over the economic outlook, government policy, and the lack of transparency into their communist system that pirates technology, lacks truthfulness, and produces much of the worlds junk and unsafe products.

After running share prices up by more than 90 percent this year by early August, the benchmark Shanghai Composite Index shed 176.24 points, or 5.8 percent, to close at 2,870, the lowest since June 18 - while the smaller Shenzhen Composite Index sank 6.6 percent to 955. Property shares were among the biggest losers, with China Vanke falling by 9.95 percent and Poly Real Estate slipping 7.4 percent.

Analysts say investors are concerned about a liquidity crisis. But the decline also reflected the broader economic outlook that American consumer confidence is weakening which could mean less demand for Chinese exports. Today's losses even extended the declines that took the Shanghai benchmark 6.6 percent lower last week.

The long rally in share prices had begun to raise worries that loose credit was fueling an unsustainable bubble in a market long prone to gyrations.

We definitely see bubble psychology everywhere again. We would not buy at these elevated prices but instead seek alternative investments such as corporate bonds except when individual stocks correct (more than 10%) and offer real buying opportunities. The market is in an extremely overbought and exhausted position again. If you have been buying stocks when they were low you are finding you have some large profits now. You need to consider selling them (or enough to capture just their costs) if you do not want to lose capital when the next market panic occurs.

Last night Asian markets were down: Communist China down -7.8%, socialist Japan down -3.1%, oligarchy Hong Kong down -3.6%, and socialist India down -4.1%.

Today most of the socialist European markets are down in a range of -1.7% to -2.4%

US futures are down 2% now at 7:30 EST before the market opening this morning. The financial sector is particularly overbought with commercial debt about to crash through the roofs.

We anticipate a panic spike down any time now as a potential buying opportunity. We must be capturing profits on the rallies and then finding better buys on the declines. That is called cherry picking the best buys. We will continue cherry picking mostly into and now also out of the market rotating before or when the funds rotate through the sectors. We expect the decline will be a typical rotation with sharp drops in some individual stocks/sectors while other stocks/sectors bottom out or rise and then decline so the change in the market indices will be much smaller. The advances will be similar but opposite.

Investing time is now compressed and hence investing requires more trading skill. We watch the sectors carefully because hedge funds seem to deflate one sector at a time and then let investors pump them back into overbought territory. They can do that best during the kind of rallies we see in this sideways market. Buy after they deflate a sector when there are bargains. The hedge funds move quickly in and out so after they move in it is usually too late.