Tag Archives: American Political Instability

The Financial Crisis Revisited: The Bad Economic Slide is About to Begin Again

 

 

 

Are you ready for another perilous slide into banking and real estate hell?  Well there’s an ever growing concern about America’s banking industry again and once again the real estate sector both commercial and residential is about to voyage to the bottom of the toilet.  We’ve had a brief but welcomed respite from failing banks and sharply devaluing real estate but the road ahead is not looking good.  We’ve had a terror-free summer in terms of our banks failing but more and more Americans are wake up to the possibility that we have a committed Marxist in the White House in President Barak Husain Obama. 

As conditions deteriorate in the financial world again, perhaps spurred on by insane government spending, the transition to a socialist or communist economy, and the realization that our government has become our enemy: our political crisis means that there will be nobody home to deal with the next economic crisis.  Clearly the Obama administration is thrilled each and every time something fails because the ensuing crisis becomes an excuse to clamp down on the reins of power even harder.  It would seem that Obama doesn’t care about a finical crisis rearing its ugly head again because the worse such a crisis becomes…. the more dependant we become on the government.  If more banks fail and real estate tanks again Obama will blame it on Bush and create more massive and costly government intervention that won’t solve our problems but will make his hold on power unbreakable.

It’s much harder now to infer the state of the economy from the performance of the stock market because the crazy government intervention in the free market has distorted market reality beyond reason.  This much government interference in the economy means that the stock market is about as predictive of economic conditions as a weather forecaster trying to tell you what it’ll be like outside three months from today.  Nevertheless, I find it fascinating that the finance and mortgage giants like Fannie Mae are leading the current negative trend in today’s stock market news.

I guess the more things change the more they stay the same.

Consider this story from Bloomberg (and look for the economic crisis part II that most analysts say will be coming our way in the fall!)

 

Banks Lead Decline in U.S. Stocks on Concern Over More Losses

 

By Lynn Thomasson

the Standard & Poor’s 500 Index since June, as concern banks will post more losses overshadowed manufacturing and housing data that topped estimates.

Wells Fargo & Co., the San Francisco-based bank that received $25 billion in government bailout funds, slid the most in two weeks. Bank of America Corp., American Express Co. and Citigroup Inc. declined more than 3 percent to lead the Dow Jones Industrial Average lower. American International Group Inc. tumbled 16 percent and MetLife Inc. plummeted 5.5 percent after analysts said the insurers’ shares have risen too far, too fast. Europe’s benchmark index retreated 1.8 percent.

The S&P 500 lost 1.8 percent to 1,002.32 at 2:07 p.m. in New York, its steepest intraday decline since Aug. 17. The Dow industrials fell 157.12 points, or 1.7 percent, to 9,339.16.

“The future for the banks is not as muddy as it was two quarters ago, but it’s still not clear,” said Don Wordell, the Orlando, Florida-based manager of the RidgeWorth Mid-Cap Value Equity Fund that has outperformed 94 percent of rivals in the past five years. “The market can’t sustain these huge moves.”

Financial companies have led the S&P 500’s 48 percent rally since March 9, gaining 126 percent. September is historically the worst month for U.S. stocks, with the benchmark index losing 1.3 percent on average since 1928, according to data compiled by Bloomberg.

Economy

U.S. stocks fell even after the Institute for Supply Management said manufacturing expanded in August for the first time in 19 months and the National Association of Realtors said contracts to buy pending homes increased more than forecast in July. The gauge of factories climbed to 52.9 in August, the ISM said today, topping the average economist estimate of 50.5.

Valuations for U.S. stocks look “marginally stretched” compared with other developed markets, Credit Suisse Group AG said in a research report. Strategist Andrew Garthwaite cut his recommended allocation of American equities and predicted they will underperform when the Institute for Supply Management’s manufacturing index is above 50 and rising.

The surge in the S&P 500 made the index valued at about 19 times the profits of its companies as of the end of last week, the most expensive level since June 2004.

The benchmark index for U.S. stock options headed for its highest close since July 10. The VIX, as the Chicago Board Options Exchange Volatility Index is known, increased 9.7 percent to 28.54. The gauge, which measures the cost of using options as insurance against declines in the S&P 500, reached a record of 80.86 in November. The index is sill above the average over its 19-year history of 20.

Wells Fargo Slides

Wells Fargo dropped 3.2 percent to $26.65. Trading in the options market showed speculators were betting Wells Fargo shares will extend their decline. Trading of bearish Wells Fargo put options, which give the right to sell the stock, climbed to 162,000 contracts, triple the four-week average. More than four puts traded for each call option, which give the right to buy.

The most-active contracts were October $24 puts, which rose 67 percent to $1.25 and accounted for a quarter of today’s put trading. The shares haven’t closed below $24, or 13 percent less than yesterday’s closing price, since July 24.

AIG fell the most in the S&P 500, sliding 16 percent to $38.23. The insurer bailed out by the U.S. government was cut to “underperform” from “market perform” at Sanford C. Bernstein & Co., which said the government may reduce its support for the firm once AIG is no longer deemed a risk to the financial system. AIG surged 245 percent last month.

‘Dose of Reality’

Fannie Mae and Freddie Mac, the mortgage-finance companies under federal control, both tumbled more than 13 percent.

“Given the run that we’ve seen, where people could clearly care less about the fundamentals of the companies that were bid up, any dose of reality has to have a very chilling effect,” said Brad Golding, the New York-based managing director at Christofferson Robb & Co., which oversees $1.5 billion. “The financials have run so far, so much that they’ve gotten to levels that cannot be sustained in a choppy economy.”

MetLife dropped 5.5 percent to $35.68. The biggest U.S. life insurer was downgraded at Raymond James Financial Inc., after the company tripled in six months of New York trading.

Bank of America lost 4.5 percent to $16.80. American Express declined 3.8 percent to $32.54. Citigroup slumped 6.2 percent to $4.69.

Paul Tudor Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are among funds betting that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery. The firms oversee a combined $15 billion in so-called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.

 

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