Thursday May 20, 2010

The parallels to the 1930's seem to be growing more apparent (to some that is) and the 'stickiness' of the jobs situation seems to be glossed over as 'we just have to wait and watch it grow slowly'...and yet we keep spending (fed, state and local governments) like drunken sailors....add to it the issues in Europe (more stress based upon irresponsible 'social' spending) and then China and its growing issues (inflation, cutting bank lending, et al) and it appears that with what we have going on (and those who are in power) this will continue to be a WILD RIDE....

prb

Date: Thu, 20 May 2010
From: Stone & Youngberg Portfolio Strategy Group


* Yesterday (5/19), the Federal Reserve released the minutes of its April 28 FOMC meeting. Although there were no surprises in the 10 pages, the minutes reflected what can best be described as frustration on the part of Fed, that its accommodative monetary policy has not produced a more robust recovery. One of the impediments to economic growth in the US is tight credit conditions especially for small businesses. From the minutes... many participants (Fed board members) noted that while financial markets had improved, bank lending was still contracting and credit remained tight for many borrowers. Smaller firms in particular reportedly continued to face substantial difficulty in obtaining bank loans. Because such firms tend to be more dependent on commercial banks for financing, participants saw limited credit availability as a potential constraint on future investment and hiring by small businesses, which normally are a significant source of employment growth in recoveries. Small businesses do not have the access to the capital markets that larger firms do and as such are almost entirely dependent on bank loans for both working capital and investment capital for expansion. Unless and until businesses have easier access to credit, the economic recovery will remain weak.


* The turmoil in Europe continues unabated, and market concern is being manifested throughout the financial system. This unrest in being seen in small, but steady increases in LIBOR. When the Greek crisis began to unfold in mid-April, three month US LIBOR was 0.30%, +5 basis points over the fed funds target rate of 0.25%. LIBOR is typically a few basis points in excess of the fed funds rate. Since then it has climbed steadily higher. At this morning's(5/20) close in London, three month LIBOR was 0.48%, a +18 basis point run-up in roughly 30 days. Although many factors may influence the level of LIBOR, it appears that financial institutions are becoming nervous over the unrest in Europe and the "cost" of lending among such banks is rising.

* The Department of Labor reported this morning (5/20) that initial jobless claims for the week ended May 15, rose +25,000 to 471,000. This represents a reversal of a trend in which initial claims had declined in each of the past four weeks, and today's figure was noticeably above the consensus projection of 440,000. Many areas of the country are still in the grips of the economic downturn and the labor markets are weakening. For example, in California there was an increase of 8,351 in initial claims from last week, bringing the total to 73,800.


* The Labor Department reported an encouraging development in continuing claims, which fell -40,000 to 4,625,000 for the week. There was also a drop of -73,000 in extended benefits to 5.34 million.



* Although somewhat encouraging, the jobless claims data continues to paint a rather bleak picture of the US labor markets overall. Some progress is being made, with both initial and continuing claims down significantly from a year ago; however, things seem to have stalled out and the current level of claims remains stubbornly high. Given the fact that we have had three consecutive quarters of positive GDP growth and the end of the recession was probably in July of 2009, 11 months ago, we should be seeing more job growth at this stage in the business cycle - but we are not.


* The Treasury market is staging a big rally in early trading this morning, Wednesday May 20. However, it has less to do with today's jobless claims data than with surge in Treasury buying from overseas and a substantial sell-off in equities both here and abroad. The 30 year UST long bond is now a full +2 points higher in price since yesterday's close and the yield is 4.12%. By way of perspective, the last time the long bond was yielding 4.12% was 7 months ago in mid-October 2009.


* The price of the 10 year UST is also surging and is now up +¾ of a point and the yield is 3.27%; down -10 basis points from yesterday's (5/19) close. The 2 year UST is also up in price and the yield is now 0.72%; down
roughly -5 basis points in yield from yesterday.

community banking sector

Regulatory burden continues to weigh heavily upon the community banking sector in terms of mega doses of time, financial resources, increasing levels of frustration and inefficient efforts that do not benefit the customer (try explaining Reg Z to a customer in addition to the landslide of paper that it now takes to 'disclose'!). It is being used as leverage by the regulators to accomplish their own agendas (just look at CRA!). And now we are all awaiting the newest addition to the quagmire...financial reform 2010 - the way they are adding amendments this may look like the healthcare bill before it is all said and done!

prb

From: "BBW Capital"
Subject: BBW Capital Weekly Market Monitor
Date: Mon, 17 May 2010 18:09:09 -0600

As the riots rage in Greece, and protesters gather in the streets of Spain and elsewhere to rally against financial responsibility, community bankers here in America ought to be girding for a battle of their own. Lest anyone be confused about Market Monitor’s concern over our government’s position vis-à-vis small business and small banks, let’s be clear that we are in the obsessively paranoid camp, with plenty of cause. A front page article last week in the American Banker repeated one of the many reasons for that paranoia: rising fixed costs of regulation. One industry advisor was quoted as
saying “I think the regulators are less likely today to let small banks off the hook with all the regulations, and the costs are just becoming too enormous to bear.”
Another, noting the high number of banks per capita in the United States versus other industrialized countries, correctly points out that “It’s great for the consumer, great for the businessman…” before finishing the sentence with a moronic thought that is probably, sadly, representative of Beltway thinking these days, “…but as an economic system, I’m not sure I think that’s entirely healthy.” Brace yourselves.

Fannie Mae requested another $8.4 billion from the federal government

May 10, 2010
'FNMA - Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury…'

Another one of the 'elephants in the room' that our esteemed federal legislative representatives (I use that term very loosely these days - more like career power brokers) ignore. And the heart of the issue falls back to the entitlement mentality - everyone deserves to own their own home, no matter whether they can afford it or not! With Fannie and Freddie leading the way with such risk hungry mortgage underwriting that made getting a car loan look like dealing with the SBA (for those of you who have ever dealt with SBA will know what I mean) in comparison.
And the beat goes on…the continued slide in the stability of the housing market steadily erodes community bank's balance sheets, eats away at the true American Dream, further pushes the envelope of irresponsibility, creates an even higher level of entitlement in the psyche of Americans, creates more blame casting and further divides our country.
The unwinding of the leverage that created the mortgage debacle will take time to work through - as I have said before, when this all started - there is no magic bullet that will instantly put us on the level path to restoration, it took time to get here, it will take time to get back. Yet since we live in the micro wave age, the age of instant gratification, we have our fearless leaders attempting to do just that to appease and assuage us…inevitably creating another potentially deeper crisis down the road.
What do we need? Level headed, future thinking, fiscally responsible leadership.
What will we get? Probably more of what we have had - politically motivated, in the moment thinking, 'open buffet' fiscal policy.
prb

NEW YORK (CNNMoney.com) -- Fannie Mae requested another $8.4 billion from the federal government on Monday, saying that it expects its deficits to continue due to trends in the housing and financial markets.
The government-controlled mortgage giant said it lost $13.1 billion applicable to common shareholders in the first quarter of 2010. In the year-earlier quarter, Fannie suffered a $23.2 billion loss, but an accounting change makes comparing the year-over-year losses difficult.

Fannie's request for more federal funds comes just four days after Fannie's twin Freddie Mac also asked for a handout - to the tune of $10.6 billion - after posting an $8 billion quarterly loss.
In using Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) to prop up the mortgage market, the government in December lifted a $200 billion limit on their bailouts, essentially giving the twin housing lenders a blank check. Fannie Mae has already received $76.2 billion from the federal government and Freddie has gotten $50.7 billion.
"In the first quarter, we continued to serve as a leading source of liquidity to the mortgage market, and we made solid progress in our ongoing efforts to keep people in their homes," Fannie Mae President and CEO Mike Williams, said in a press release.
Fannie's bottom line took a greater hit from credit losses, as it saw the single-family delinuqency rate increase to 5.47%, up from 5.38% in the previous quarter.
While the rate increased, the company said the improved employment picture is at least slowing the pace at which the delinquency rate grows. Mortgages that remain "seriously delinquent" continue to do so for extended periods, the company also said.
As for the future, Fannie said it expects to continue to post losses and ask for government handouts in upcoming quarters.
"Due to current trends in the housing and financial markets, we continue to expect to have a net worth deficit in future periods, and therefore will be required to obtain additional funding from Treasury pursuant to the senior preferred stock purchase agreement," the company's press release said