The Banking System and Bank Lending
March 5, 2010
The headlines in the Wall Street Journal shout out at us this morning, “Bank Lending Keeps Dropping” (See http://online.wsj.com/article/SB124019360346233883.html#mod=testMod.) The bank lending they are referring to is the lending at “the nation’s biggest banks”, the banks that were the biggest recipients of government money. The results: the biggest recipients of taxpayer money “made or refinanced” 23% less in new loans in February than in October, the month the Treasury kicked off the Troubled Asset Relief Program (TARP).
This is just one more piece of information that the banking system still has major problems.
Be Careful What Bandwagon You Jump Onto
March 3, 2010
The Financial Times printed excerpts of an interview with Duncan Niederauer, the Chief Executive of NYSE Euronext. (See “NYSE chief cautious over March rally”, http://www.ft.com/cms/s/0/ae73a390-29e6-11de-9e56-00144feabdc0.html.) In the interview he stated that the recent rally in the stock market was being driven by short-term traders trying to take advantage of the high volatility that currently existed in the financial markets. He continued that the high trading volumes achieved where concentrated in a “handful of stocks.”
CIT and Getting Out Of This Mess
February 24, 2010
CIT is an example of the kind of problems still facing the economy. CIT has taken on legal counsel in order to determine whether or not it should go into bankruptcy. The problem, the company has $2.7 billion in debt coming due through year end and its credit-rating has been cut “deep into ‘junk’ territory.” (See http://online.wsj.com/article/SB124744080839729811.html#mod=testMod.) It has been seeking liquidity help from the Federal Government but has not received approval yet.
The Clogged Banking System
February 17, 2010
The Federal Reserve is doing almost everything it can to get commercial banks to start lending again. Just a quick look at the data reveals what is happening in the banking system where the rubber hits the road. Let’s take a look.
The State of the Banking System
February 11, 2010
There are three preliminary indicators that the banking system is coming along on its way to recovery. First, there is the “letting go” of CIT Group, Inc. The government must feel that it does not need to extend itself to help out this institution given its present troubles. (See my recent post on the CIT situation: http://seekingalpha.com/article/148730-cit-s-debt-issues-show-why-the-economy-won-t-be-picking-up-any-time-soon.) We’ll see if they continue this approach with other troubled institutions as additional situations arise.
Uncertainty: The King of the Market and what to do about it
January 28, 2010
This is a time that is particularly conducive to impulsive or instinctive behavior. It is a time that behavioral economists love because it proves their case about irrational human behavior. People react and they react on the basis of a gut feeling or a snap judgment.
These researchers tell us that this type of behavior is what has helped the human species survive. However, it is not necessarily the kind of behavior that leads to decisions or actions that are in our best interest when investing. “Relying only on intuition in finance can lead to very bad outcomes, not only for individuals but also for markets.” (This quote comes from David Adler’s new book “Snap Judgment”: see my post that reviews this book, http://seekingalpha.com/article/145660-book-review-snap-judgment-by-david-e-adler.) Yet we humans, individually and collectively continue to perform in this way.
A Tipping Point?
June 17, 2009
Almost everyone is looking for a tipping point. At this time we are looking for signs that the decline in the economy and in the financial markets is lessening and that we might be somewhere near the bottom. If this is the case then can the turn to recovery be far behind? Read more
General Growth Finally Goes Down
April 20, 2009
Early Thursday morning, the managers of General Growth Properties [GGP: 14.75, +0.31 (+2.15%)] opted to file for Chapter 11 Bankruptcy protection. General Growth has been the poster child of extreme overleveraging in the real estate industry. The filing totals approximately $24 billion in debt and is the largest real estate bankruptcy in U.S. history. General Growth had been working for months to try and settle it’s debt obligations outside of bankruptcy court. It had been working with creditors to try and relax the terms of the agreements, through not paying interest and extending the time period it would have to repay the debt. However, no accross the board resolution was reached. It was only on March 31st that the front page of the Marketplace section of The Wall Street Journal had a large article on how General Growth had avoided Chapter 11. So what should you look at going forward and how will this impact the commercial real estate market in general? Read more
Do as Simon Says
April 2, 2009
Among the battered real estate industry there are a few REITs that are situated to take advantage of the carnage and profit in the long run. Simon Property Group [SPG: 95.05, +1.49 (+1.59%)] is going to be poised to snatch up properties at rock bottom prices from sellers who simply want to pay down their enormous debt loads.With a market cap of $7.59 billion, SPG is the largest public real estate company in the United States. As of December 31, 2008, SPG owned or held an interest in 324 income-producing properties in the U.S. It owns, operates and develops its portfolio of properties with an emphasis on high quality retail real estate. Read more
Making Housing Affordable Will Make Investing Unaffordable
March 12, 2009
Last week President Obama unveiled his Make Housing Affordable Plan (MHA), which helps those homeowners who either owe more money than their house is worth, or who face imminent risk of default. Those owing between 80% and 105% of their house may refinance at a low, fixed-rate for 15 or 30 years. Those who are in default or face imminent default may be eligible to restructure their mortgages with interest rates as low as 2%, loan terms as long as 40 years, and principal reductions. The government will also reduce principal by $1,000 per year if borrowers remain current on the lower, updated loan payment for up to five years. There are many who claim that this plan increases moral hazard, and will create an artificial bottom which will only temporarily delay the market from finding a true market bottom. These arguments are absolutely valid; however there are larger risks that come with the MHA, the risks to the MBS market. Read more
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