I went long at 1.4619, after the sideways consolidation above the EMA10 unfolded as expected, and there is good potential for an upleg in late Asia / early Europe. Target is 1.4790, first resistance is 1.4718. Stop is set at 1.4497.
The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday, it’s no easy feat for the FDIC to stay ahead of the game.
Please consider Bank of America, Major Banks’ FDIC Premiums May Top $10 Billion.
The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. and three of the largest U.S. banks more than $10 billion.Bank of America, the biggest U.S. lender by deposits, may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums, based on the lowest assessment rate multiplied by the bank’s $900 billion in June 30 U.S. deposits.
“This seems like a very hefty amount,” said Tim Yeager, a finance professor at the University of Arkansas and former economist at the Federal Reserve Bank of St. Louis. “The FDIC’s projections of future losses are pretty severe, and they are trying everything they can to avoid tapping the Treasury.”
U.S. bank premiums range from 12 cents per $100 in deposits for the safest lenders to 45 cents for banks the U.S. considers risky, said Chris Cole, senior regulatory counsel for the Independent Community Bankers of America. The FDIC yesterday proposed asking banks to pay premiums for the fourth quarter and next three years on Dec. 30. The fees will raise $45 billion.
Based on the current assessment and each bank’s deposits, Wells Fargo & Co.’s fee may be $3.2 billion based on its $814 billion in deposits, JPMorgan Chase & Co. may pay $2.4 billion and Citigroup Inc. $1.2 billion. The estimates exclude the FDIC’s plan to boost the assessment rate by 3 cents per $100 in deposits in 2011 or the agency’s assumption that bank deposits will increase by 5 percent annually.
FDIC Is Bankrupt
Last month I wrote As of Friday August 14, 2009, FDIC is Bankrupt.
Although that is a realistically correct headline (Please see You Know The Banking System Is Unsound When…. for a justification), I did overlook things FDIC did to temporarily stay in the game.
Prepaid fees is yet another attempt to keep the game going. How much longer this can last is anyone’s guess. Those prepaid fees are going to hurt bank earnings 100% guaranteed. The fees may even push some struggling banks into bankruptcy.
Emails from a Bank Owner regarding FDIC
In regards to my post on FDIC bankruptcy I received Emails from a Bank Owner regarding FDIC and Under-Capitalized Banks.
ABO, who as been in the business 30 years, writes:This will certainly mark the end of the banking model using wholesale funding and aggressive deposits to fund commercial real estate projects. In other words this is going to come down hard on the FIRE economy.
I have been in banking for over 30 years and from my perspective this is much worse than anything I have seen. God help us if cap and trade passes!
Newfound Praise For Shelia Bair
At times, I have been extremely hard on Shelia Bair. She has said many things that I strongly disagree with. However, I have to commend her for two things.
1) Shelia Bair stood up to Geithner regarding the PPIP and banks being allowed to bid on their own assets. Clearly she recognized banks bidding on their own assets at taxpayer risk was outright fraud. Of course, I think the whole PPIP proposal was (and still is) fraud, but in retrospect I have to wonder if her stance caused this ridiculous program to go on the back burner. If so, Bair deserves a salute. Note that PPIP is still not up and running.
2) Shelia Bair is now refusing to borrow money from the treasury (taxpayers) to shore up FDIC. Instead, she has been raising fees and now is proposing pre-paid fees. In other words, she strives to make the riskiest banks pony up for their mistakes, as opposed to dumping the risk on taxpayers.
The easy way out for Shelia would have been to simply take money from the Treasury. However, she is taking a much tougher stance, at least for now. I reserve the right to change my opinion down the road based on future actions.
Perhaps, like many of the rest of us she simply cannot stand Geithner. However, regardless of motivation, she is now doing the right thing by making risky banks pay for the risk they undertook.
Is the system fair?
Is the system fair? Of course not. Citigroup and Bank of America received debt guarantees from the Treasury making their debt appear to be less risky, and their FDIC insurance payments less than they should be. Wells Fargo was the beneficiary of huge tax breaks.
However, those items are not Bair’s doing, so she should not take the blame.
The scorecard of Geithner and Paulson is a big fat zero. Yet, this is now the second thing major thing Bair has gotten correct. This is the best we can realistically expect.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
PIMCO’s Bill Gross has a switch of heart. He has gone from hating treasuries to liking them. Please consider Pimco’s Gross Buys Treasuries Amid Deflation Concern.
Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said he’s been buying longer maturity Treasuries in recent weeks as protection against deflation.“There has been significant flattening on the long end of the curve,” Gross said in an interview from Newport Beach, California, with Bloomberg Radio. “This reflects the re- emergence of deflationary fears. The U.S. is at the center of de-levering as opposed to accelerating growth.”
Gross had said during the midst of the credit crunch that Treasuries offered little value as investors seeking a refuge from turmoil in global financial markets drove yields to record lows in December. He boosted the $177.5 billion Total Return Fund’s investment in government-related bonds to 44 percent of assets, the most since August 2004, from 25 percent in July, according data released earlier this month on Pimco’s Web site. The fund cut mortgage debt to 38 percent from 47 percent.
Yield Curve Flattening
click on chart for sharper image
I am very familiar with the yield curve flattening. The above chart is one I run constantly, in real time, on my computer. The curve represents weekly closes. The flattening from the actual peak is even greater. The intraday high in the 10-Year Treasury Note is just over 4%.
What’s The CPI?
Properly adjusted for housing, I have the real CPI as of July at -6.2%. That number is arrived at by substituting the Case-Shiller CPI for Owners Equivalent Rent (OER) in the CPI. Please see What’s the Real CPI? for details.
Inquiring minds might also be interested in Real Treasury Yields Highest In History. If real treasury yields are high, it should be no wonder that Bill Gross in interested in them.
Rents Falling Everywhere
Given that the official measure of CPI is based on rents not housing prices, please consider the following collection of links courtesy of Lanser on Real Estate: Really? Rents fall almost everywhere.
Look for downward pressure on the official CPI because of falling rents.
As I have said before, the treasury market is increasingly skeptical of the reflation effort taking hold. Bill Gross is clearly in agreement.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List
The FDIC is struggling mightily to stay solvent. Given that there are bank failures every Friday it's no easy feat for it to stay ahead of the game.Please consider Bank of America Major Banks’ FDIC Premiums May Top $10 Billion. “The Federal Deposit Insurance Corp.’s plan to rebuild its reserves may cost Bank of America Corp. (BAC) and three of the largest US banks more than $10 billion.“Bank of America the biggest US lender by deposits may owe $3.5 billion under an FDIC proposal that banks prepay three years of premiums based on the lowest assessment rate multiplied by …
Go to Source
A sign of a top is when your Short list is growing One of the best ways to know if the market is topping and ready for a correction or a crash is when your list of stocks to short starts growing longer than your buy list. When your long list is getting longer and your short list is getting shorter look out above. However our short list has been growing by the day this last week regardless of whether the market is up or down on any given day. This is a clear sign to me that the …
Go to Source
We have many resources at elliottwave.com that help you learn Elliott wave analysis — but nothing helps you learn faster than watching a good teacher. Watch this free 6-minute clip from a live webinar Elliott Wave International's Senior Currency Strategist Jim Martens held for his subscribers last year. Here's what Jim talked about…
Following up on the quick mention now that I have a story to cite from Amherst:
Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.
Let's put some numbers on this.
There are roughly 125 million single-family homes in the US.
Of those, roughly 30% have no mortgage on them at all. This leaves 87.5 million single-family homes with mortgages.
Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity. This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)
These numbers are, with a high degree of confidence (90%+) low – that is, losses will exceed these estimates, perhaps dramatically so. It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.
From this we can develop a "cocktail napkin" view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar "commercial" paper.)
$200,000 X 40% = $80,000 loss per foreclosure.
87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.
10,867,500
x 80,000
=============
$869,400,000,000
or $869 billion in losses remaining in single-family mortgages alone. 
What if the average outstanding is higher and negative equity greater than 20% (which is likely)? Losses will almost certainly be well north of a trillion dollars.
The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is "eating", is insolvent. These facts are why the government is lying – they're well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.
(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more – as was seen with Colonial.)
It gets better. The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has – contrary to its mandate – been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its "guarantee" should they default.
Care to argue with the math folks?
World News Article
Go to Source
We got a bounce slightly ahead of the former channel line, a bullish sign. If prices grind sideways for the rest of the day while staying above the hourly EMA10 or 1.4610 for the most part, I will consider going long if momentum picks up in late Asia. A top at 1.4841 may well be in place, but I do expect at least one rally to test it.
WASHINGTON (Reuters) – The U.S. economy contracted at slower pace than previously thought in the second quarter as improved consumer and business spending cushioned the impact of a record decline in inventories, according to a government report on Wednesday.
Forex News![[Most Recent Charts from www.kitco.com]](http://www.kitconet.com/charts/metals/gold/t24_au_en_usoz_4.gif)
![[Valid RSS]](http://www.kangarootail.com/valid-rss.png "Validate my RSS feed")
We donate 5% of our trading profits to charity:water and 5% to Inner Light Ministries. Charity: water is a non profit organization bringing clean, safe drinking water to people in developing nations. 100% of the money raised is funding sustainable clean water solutions in areas of greatest need. Inner Light Ministries is an Omnifaith outreach ministry dedicated to spiritual transformation. Inner Light embodies spiritual Oneness and supports environmental sustainability and social justice.
IMPORTANT NOTE: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts. Past performance is not necessarily indicative of future results. Copyright © 2009 Kangarootail.com. Powered by WordPress and A Dream to Host theme by Art of Blog.
Subscribe by RSS