This past year we have written several times about the
health of our nation's banks. We sent letters with the ratings of all the banks
in California
and followed up with an email in December. We started getting very suspicious
about some of the weaker banks which prompted the email and advice. Well, it
happened just as we anticipated. County
Bank in Merced, California was seized by the FDIC on Friday
(Friday is FDIC discount shopping day for the blue light specials!) along with
two others. The other banks were Alliance Bank in Culver
City, California and FirstBank
Financial in Georgia.
Those of you who read and heeded the email and letter have
avoided aggravations. County Bank has been taken over by West America Bank. Alliance
Bank in California
was taken over by California Bank and Trust. Fortunately, the transitions
should be rather smooth. On the other hand, last week, MagnetBank in Salt Lake City, Utah
was seized but no one wanted it. This means the FDIC is forced to liquidate and
send checks. This can be rather inconvenient for depositors to have to wait for
their money.
In April of 2008, we sent out a letter. Alliance Bank was
listed as a D rating. A is best and F is failing. County bank was not listed
since we only sent a list of the A, D and E ratings. In July, we sent some
updates and both were listed as a D. When we sent the email in December, both
were listed as E+ so things eroded fast and things are continuing to change
very, very quickly. Right now, there are two other California banks that are very risky. They
are the First Bank of Beverly Hills
and San Diego National Bank.
We will continue to be vigilant and tireless in our expose
of banks so we can assist in protecting your wealth. For those of you who would
like more frequent updates or live in other states, the ratings we use can be
found at www.thestreet.com. In the
toolbar, you will see a tab labeled, "Portfolio and Tools." When you click the
tab, there will be a drop down box. Toward the bottom are "Banks and Thrifts"
ratings. Click that and follow the instructions.
I had no idea this service would be so controversial. I have
been accused of trying to ruin banks, stop commerce and prevent people from
spending. In addition, I dropped out of a professional networking organization
because of pressure because of our bank rating emails and the newspaper stories.
The hate mail and criticism has been unbelievable and it is sad that people are
so narrow minded and short sighted. Fortunately, it is not our clients complaining;
it is those who are not our clients but live in our local community. However, I am committed to you and your money
and will continue to speak the truth as I see it. Our job is just beginning!
|
|
Last week was pretty ugly for job losses. Just like in
December, the reports came out that we had lost the most jobs in over 30 years.
Wall Street loves this kind of stuff. While most of us are scratching our heads
wondering why the victory dances, it turns out that the celebration is because
things are so bad that it will force Congress to pass a stimulus package. These
buffoons on Wall Street are hoping for anything and soon and care not one whit
if it is a good bill. Fast action equals stock market rally which leads to
further erosion in the financial fabric.
The earnings of companies are weakening. Analysts and
economists continue to revise their earnings estimates downward but remain
behind the curve in their forecasts. If you take the total earnings as an
aggregate of the S&P 500 companies, you can do a reasonable job of
estimating the market indexes in the future. Some of the more savvy analysts
are predicting the forecasts for 2009 to drop from a consensus estimate of $82
to $64 based on the weakening economy. Using a price/earnings multiple of 10
which is normal in recessionary periods, that implies an S&P 500 index of
about 640 which is almost 25% lower than today. We have consistently been forecasting
the S&P 500 to drop about 65% from its high point on October 9, 2007. Things are still in
flux and the recession continues to deepen. You don't need to understand all
the jargon above but just know that we could see more pressure on the financial
markets.
There is another crisis brewing on the horizon and that is China. We have
written on China
before and things continue to erode rapidly. My concern is four-fold: 1) the
unemployment rates 2) our dollars, 3) their currency and our hostilities and 4)
drought.
China
is moving rapidly to shore up their economy. With 100,000 factories closing in
the past year, social unrest is escalating as is unemployment. There are about
120 million migrant workers who have left the fields, traveled east and gone to
work in factories where they are paid about three times more than they made on
the farm. Today, 20 million (1 in 6) are out of work and returning to fields
left fallow and in disrepair. This is causing concern that social unrest and
rioting will be all but uncontrollable.
Our profligate bonehead-can't pay his taxes-can't manage his
money-and tried to get away with it by way of statute of
limitations-dishonorable Treasury Secretary, Tim Geithner has a big shoe
(probably one that was tossed at him) in his mouth. Speaking of mouth, that
last sentence was a mouthful! He has already offended the Chinese by accusing
them of manipulating their currency. Naturally they have denied this allegation
and fired a salvo in Davos that the U.S. is responsible for this mess.
Essentially, we are making them mad and setting ourselves up for problems. Good
old Tim forgot that China
single-handedly financed our spending binge over the past ten years. He must
not have had a dog growing up or he would have learned about biting the hand
that feeds!
Since we (our administration) have increasing contempt for China, the
likelihood of problems are rising. They do, as I mentioned, have a lot of our
treasury bonds which are becoming more worthless with each passing second. I
think they are going to stop financing our spending although the recession
seems to be doing that anyway and they are going to sell back our treasury
bonds. Selling treasury bonds will lead to higher interest rates which will
constrict our mortgage market and cause credit to be even harder to obtain. It
seems like we need to replace the spreadsheet simpletons with Dr. Phil! Maybe
some gentle words and a slight smothering of kindness would ease some of their
concerns.
My last concern is drought. China is experiencing its worst
drought in 50 years. This is not good. They have a large population living on
the fringe of starvation and poverty. A drought will only exacerbate the
problems. Furthermore, it may cause China to sell off our treasury
bonds to shore up their own economy, provide subsistence for their people and
build their own infrastructure which will help their unemployment. As a side
note, why hasn't our Congress addressed what I think is a dire need and that is
public transportation. We continue to rescue the auto makers and airlines but
seem oblivious to the obvious which is mass transit and public transportation.
In the 1930's, General Motors bought up and destroyed much of the railroad
tracks in America,
ostensibly to promote unfair competition. If they want a bailout, I say make
them lay track!
Most of this coming week is about the stimulus bill,
posturing among dogs lined up in front of big fire hydrants, and rescuing banks
and others who just realized that times are tough. The economic news is light
this week which is a nice relief.
Retail sales for January are coming out on Thursday.
Analysts expect a drop of 0.7% after December's 2.7% decline. If the numbers
are not massaged too much, I expect these numbers to be worse. Americans are
starting to cut back severely and not by meager drops. They are cutting
dollars, not pennies! I have lost faith in government statisticians. They are
doing us a great disservice by trying to tell us that spending has only
declined ever so slightly. Because of these numbers, Congress continues to
promote "stimulus." What government does not realize is buyers are on strike.
You cannot stimulate those who have lost jobs, who are worried about jobs and
have seen their personal net worth plummet 50% - 60% in the past year between
the stock market and housing. Seriously, I wonder how many of our readers have
cut back as dramatically as the government indicates. A drop of 0.7% means you
spent $100 before but now spend only $99.30. Just cutting out my $4 lattes has
more of an impact on my budget than 0.7%!
It should be an interesting week. The stimulus bill will
probably be passed. It is just a small down payment of things to come. Just for
the banks, most analysts (at least those we respect and tell the truth) believe
that it will take an additional $1 to $2 trillion more just to prop up the
banks. Our guess is that will need to be doubled to continue with more stimuli
during the rest of the year. When all is said and done and the smoke clears, we
think the total damage to the taxpayer's wallet will be $5 to $10 trillion and
more. There are $10 trillion in home mortgages. With these numbers, they would
have been better to have paid everyone's mortgage which would give us all
plenty of cash to stop the recession dead in its tracks. Thank goodness for future generations who can
deal with it later after the rest of us are long gone.
|
|
