Skittish???

Is anyone out there just a bit skittish?? I ask as I am seeing a lot of press, yes even mainstream press, about how far the market has rebounded so fast and how the P/E on the S&P is at its highest level in half a decade. Main stream press is wondering out loud whether this rally can last, whether this is a V shaped recovery, a U shaped recovery or a double-dip recession. The Wall Street Journal also carried a piece this week discussing how the markets seem to traditionally have doldrums in the fall, roughly late August through the end of October, with September being quite the culprit. Reading all this, and seeing the markets reaction to a worse than expected Consumer Sentiment number today, I have to think people are a bit skittish, as in walking on egg shells, as in on the edge of their seat, as in worried. Sure, no one wants to miss a V shaped recovery, but no one wants to be there if the V is simply a Bear rally destined for a massive plunge in the fall. If you read my blog, you know where I stand.

And if you are not skittish yet, I highly recommend reading this short post at Calculated Risk. Some very nice charts show just how far we have come and how we are in almost identical alignment with a bounce during the Great Depression. Graham Summers at Seeking Alpha noted the other day that the alignment to that bounce has a .8 correlation, which is very high. I am not saying we will retrace the Great Depression, but I am a bit skittish.

http://www.calculatedriskblog.com/2009/08/market-and-bank-watch.html

And Another One Down . . .

I was a big Queen fan in high school. I know this dates me, but, as my wife says, I am still a kid at heart. In any event, Queen apparently predicted our current banking crisis. And those that follow bank failures know that the FDIC pretty much always announces the bad news on a Friday after the markets close so they have the weekend to clean up the mess. Well, this week in particular, we have a pretty big failure - the largest since WaMu. Colonial Bank went under, with $25 billion in assets. This is the sixth largest bank failure ever.

http://www.nakedcapitalism.com/2009/08/colonial-bank-fails-biggest-since-wamu.html

Now I highly recommend going to the linked post at Naked Capitalism as there are a couple of other points worthy of note discussed in more detail there. First, is the point that the FDIC, despite government backing for any buyer, had a difficult time finding any institution willing to take over Colonial's operations. They did find an institution, but apparently there were few bidders. Second, another Alabama bank, Regions Bank, has more than five times the assets of Colonial and, if you read their latest quarterly report, they basically admit that the loans on their books are being carried $22 billion over what they are worth, which is a good $4 billion over shareholders equity. I noted yesterday that the government has gone out of its way to allow financial institutions to say whatever they want about the assets on their books and this is a good example.

Mind you, Regions Bank is not alone in this. As noted in this linked post, 150 institutions are in serious trouble yet most are reporting themselves as well capitalized. Go figure.

http://www.nakedcapitalism.com/2009/08/guest-post-more-than-150-us-banks-are.html

And Colonial Bank was not alone in yesterday's pain. The norm is now to have several failures each Friday and this Friday was no exception. Here are some details on four other banks to fold.

http://www.calculatedriskblog.com/2009/08/bank-failures-75-77-union-bank-national.html

http://www.calculatedriskblog.com/2009/08/bank-failure-73-dwelling-house-savings.html

Commercial Jingle Mail

I noted yesterday how the Congressional Oversight Panel on TARP had issued a report noting that financial institutions could suffer big time if commercial real estate were to take a dive. I also noted that in fact it already is. As further proof for this proposition, here is a discussion on how hotel owners who are under water are simply walking away. The delinquency rate for CMBS tied to hotels in the second quarter was up to 4.75%, up from a mere .5% last year. And Fitch Ratings predicts this rate will climb to 10-15% by year end.

http://www.calculatedriskblog.com/2009/08/hotel-owners-walking-away.html

Yep, green shoots everywhere.

Disclosures: None