The Economy Guy

Stocks surged again today, as Europe solves its “Greeks asking for gifts” problem.  Also, Congress was snowed in, so maybe they couldn’t do damage today.
Bonds continued their rise in interest rates, and have broken a key technical barrier.
The Dollar strengthened a little today, and gold surged (contrary movement) and oil rose (contrary movement) and gasoline fell (amazing).

In the news today……

Small Banks Struggling with Commercial Real Estate Loans – Soured commercial real-estate loans are still tripping up the economy, according to the Congressional Oversight Panel. Specifically, there are nearly 3,000 small banks that may have to dramatically cut their lending as losses on those loans may reach as high as $200B-300B. Concern about banks’ exposure to commercial real estate has been building for months, and Elizabeth Warren, head of the oversight panel, warns that those banks “are about to get hit by a tidal wave of commercial-loan failures.”  And, on the same note…..

FDIC and Commercial Banks - FDIC guidelines suggest that a bank whose commercial real estate holdings exceed 300% of capital is “overexposed” to the sector. Based on that metric, there is no shortage of candidates that the FDIC could seize in 2010. As of the end of the third quarter 2009, more than 1,200 banks had commercial real estate exposure of greater than 300% of capital, and 500 of these banks had exposure greater than 400% of capital. The assets of those banks total approximately $650 billion.  I hope that scares you.  I also hope you look at this as an opportunity (read next article).  The commercial real estate sector is the subprime mortgage crisis for 2010.

Commercial Real Estate Opportunity – What happens to those FDIC non-performing loans?  Well, someone buys them, and those people are making out like bandits.  The FDIC alone sold about 3,500 commercial real estate loans with a book value of more than $6.1 billion last year; that compares to commercial real estate loans sales in 2008 of just $153 million. Nonperforming loans went for 37 cents on the dollar last year but November and December 2009 sales prices coming in closer to 30 cents. Performing loans sold for about 57 cents on the dollar, but with the most recent sales coming in at 44 cents.   So that means you can buy a non-performing loan for 30 cents on the Dollar, and then foreclose on the property and take it over – and I bet there are some great ones to snap up at a 70% discount.  You won’t be the first one out there as private equity companies are already doing this.  Just a few hours of ROI analysis and all the necessary due diligence, and you too could be buying a true cash flowing bargain.

Discount Rate Hike?? – that’s what Ben Bernanke said would happen soon.  But, he was very careful to point out that any increase in the Discount Rate is NOT a signal that interest rates were rising.  As you all remember, the Discount Rate is what the FED charges banks who need emergency, short term money to cover their reserve requirements.  As such, any small hike wouldn’t adversely affect a bank’s balance sheet – so Bernanke could be telling the truth that it ISN’T a harbinger of higher interest rates in general.

The US Deficit – how bad is it?  You are hearing all about Greece and its debt, and how it must be bailed out by Europe.  Well, here is a great chart that shows the ratio of national debt to GDP for the US, Greece, Spain and Portugal.  The US looks like it is on the brink of being a “banana republic”, as it is WORSE than Portugal and catching up fast to Greece and Spain.  The problem is that the US doesn’t have any plan for reducing its deficit.  It is going to have $1TRILLION deficits from now until the foreseeable future, and that means we will default – plain and simple.

Manufacturing Employment – have you ever wondered if all those jobs really went overseas that everyone is complaining about losing???  Well, I always wanted to know how many, and when did this happen.  The following chart answers all those questions.  And more importantly, it tells me that if we want to get unemployment back down to “normal” levels, then we better get some of those jobs back into the USA.  But do we have politicians able to do that?  I doubt it.  You can see that the number of manufacturing jobs is now back to the levels seen right after WWII.  That is amazing.  No wonder we’re having a problem.

Tonight’s Dinner Conversation……

The following link was sent in by one of the readers.  It tells a tale of the FDIC and how it managed the breakup of IndyMac Bank in California.  While I cannot verify all of the details in the video, the story is still worth listening to.

Watch Video http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1013624

If there is any truth to the allegation that Goldman Sachs is benefitting from the sale of the IndyMac Bank, then it continues to show how close our government agencies are to Goldman, and it certainly makes you question who is running the government.

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,144 (up 106)
10 Year Treasury Bond – 3.73% (up 0.04%)
Euro – $1.3690
Gold – $1094 (up $18)
Oil – $75.28 (up $0.76)
Gasoline – $1.91  (down $0.02)