In addition to working full time, adopting a two year old son three weeks ago, having a five year old daughter, having my sister visiting with her four and six year olds and needing to walk and feed the dog, I have not had the optimal amount of time to do my financial reading, much less posting. So I have decided to take the weekend for this groupint as I have been reading some very significant pieces and am a bit worried about a few possibilities, short, medium and long term.
Let me begin with installment one, let me begin with the number 40.
40 and Counting
I just checked the FDIC website (it is Friday night at 10:15) and three more banks down. That makes 40 this year down, with three this week. They seem to be falling fast. With mounting problems in:
- commercial real estate;
- alt-A mortgage defaults;
- prime mortgage defaults; and
- increasing credit card defaults
It is no wonder that small and regional banks are quickly becoming toast. I have noted before, but it is worth repeating, prime mortgages involve bigger dollars than subprime so their increasing default rate, while smaller in the number of defaults, can still be big for banks in terms of dollars. Just ask Calculated Risk.
http://www.calculatedriskblog.com/2009/06/california-survey-of-loan-servicers-q1.html
But hey, the dollar is toast, so who cares if you are losing dollars.
The Dollar is Toast You Say?!
As Graham Summers at Seeking Alpha puts it, when everyone seems to be going out of their way to say the dollar is fine, it is time to figure out why they need to be reassuring us.
Now what happens if the people start forgetting what these people are saying and decide to flee the U.S. dollar? Not a good scenario. We have trading partners with trillions invested in Treasuries that could become very very bad investments quickly if the dollar devalues, and they know it. If the devaluation begins in any serious fashion, they are heading for the lifeboats and the dollar sinks while this government's ability to fund any further fiscal stimulus evaporates. Kinda scary, ain't it.
Retail in Big Time Trouble
I went to our local mall yesterday. Overall, there were several empty spaces but only about 5%. I was impressed it was not worse; no major stores gone. Now I am in New Hampshire where unemployment and other problems are not as severe, but I was still impressed. Nonetheless, what I did notice for the remaining stores was that virtually every store had a sale. And when I say sale, I am not talking 10% off. We are talking 30-70% off. A lot of clearance signs around. Disney had a significant sale. My wife and mother-in-law had been there the week before buying thing for my new son and the woman there was very busy bringing them dozens of on sale items my son would like (I know - I asked when I got home if anything was left in the store). Not a big surprise for me to learn today that CDS protection on Disney was up significantly this week - as it was on a number of companies.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aTpao1gy3_Ts
Indeed, it would seem that credit protection on a number of companies was up a lot this week. Many the most up in months. Yep, in my mind that spells recovery - not. After all, especially on the retail side, you have the consumer prices down the most in my lifetime - year-over-year - so there is no price support. Commodities over the past couple of months have risen, as has oil, due in no small part to a weakening dollar (see above) so the manufacturers and retailers are not getting cheaper products to support their cheaper prices. In short, retailers are likely now or soon paying more for products due to a weak dollar yet they have to severly discount the prices to get sales. So why are retailers doing so poorly, let us count the ways:
- As I said above their prices wholesale are likely increasing while their prices retail are decreasing, so they are in survival mode;
- Unemployment is still on the rise and is nearing double digits on a national scale. In many states it is already there. Either way it is still climbing and people with job security spend less;
- People, due to job issues or otherwise, are reducing debt on an individual level. Individuals had debt at record levels and this is needed but, unfortunately, has just begun. It will take years, not days, weeks or months. (Let me note here that individuals reducing debt is probably our only possibility for salvation here); and
- Credit companies reducing credit lines and/or increasing rates is making borrowing more difficult for individuals and small businesses. For small businesses in particular this will have a serious knock-on effect.
http://www.nakedcapitalism.com/2009/06/credit-card-squeeze-hits-small.html
It is late and I have a big day tomorrow, so night all. Sleep well and be well.
Post two of this series will hopefully follow tomorrow.
Disclosures: None.
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