Something Wicked This Way Comes
One of the advantages of being a trader of stocks and futures is that I get to do a lot of research about many different types of businesses and the economy as a whole.
There are incredible opportunities coming up despite a bad economy. And I’m going to be talking about some of them in upcoming issues.
But first I have some research on the current economic problem facing the US (with implications for other countries) I’d like to share with you what I’ve found.
You probably won’t hear anything like this on the evening news.
Right now, on average, 3 banks each and every week in the US are failing- going out of business- about 124 banks so far this year.
For the first six months of this year only about 45 banks failed. In the last 5 months about 79 banks have failed. So you can see that the trend is accelerating.
In fact in October 2009 alone over 20 US banks failed alone.
You can check the number of banks that have failed for yourself at:
http://www.fdic.gov/bank/individual/failed/banklist.html
Each Friday evening the list is updated if any new banks have failed.
They have data going back to the year 2000.
To give the current number of bank failures some historical perspective, only 32 banks failed between the years of 2000 to 2007. That’s 7 years and only 32 failures – total.
And in 2009 we’ve already had 124 banks fail in 11 months!
This has two implications.
#1: If you’re in the US you need to make sure your bank is safe. You can check the ‘troubled’ bank list. You can get that list on one of my favorite economic blogs: http://www.calculatedriskblog.com
They report on both the number of banks that failed and the banks on the troubled list each Friday evening around 9 PM EST.
The ‘troubled list’ is a list of banks that the FDIC have sent letters to becuase they are most likely in trouble with the FDIC in some way and are in danger of being closed down by them. This includes not having adequate capital ratios, reserves for loan losses or liquidity.
The implication is that the bank is in trouble. Period. If you have money in that bank it might make sense to move it someplace safer.
You might ask, “Dave, the bank is FDIC insured. Aren’t I covered even if they do go out of business?”
The FDIC… are you ready for this? Is operating with a negative fund balance. In other words they have already burnt through their reserves and now have a negative balance of about $8 Billion.
And contrary to what you may believe, the it is NOT insurance in the typical sense of the word. They can issue bonds to raise money but you can probably recognize that using debt to pay off debt (your deposits) is not a good idea.
That will make the FDIC much weaker and unable to fulfill it’s mission of protecting depositors funds.
In addition, the FDIC is not backed by the US Government. What?
That’s right. The FDIC has a ‘resolution’ adopted by Congress that does not guarantee they will fund or support the FDIC.
If a lot of banks start failing, there’s a question whether the FDIC can keep up with the demand of depositors looking for their money.
By the way: The FDIC is currently trying to raise a lot more money. Billions. Why? Because they know what’s coming and are preparing for it.
Congress has not allowed much of the discussion with the FDIC to be aired on TV. They have talked behind closed doors. I suppose if the public knew how bad things were about to get, they would panic and rush to the bank to get their money out.
#2: How bad is this going to get? What does this mean? And Why are all these banks failing?
First, more than one expert is saying that there could be over 1,000 bank failures in the US in 2010. There are about 8,500 banks in the US so for 1,000 of them to fail, that’s over 10% in one year and that’s really bad.
Second, this means that we are not yet out of the financial crisis that started in the last 2 years. Unemployment has risen to 10.2% with a real rate of unemployment hitting 18%. And while it’s slowed, it’s likely to climb to an official rate of 15% and *real* rate of 30%.
Third, many of the banks that are failing are small to medium size regional and community banks. Why? Because most of the commercial real estate loans where made at this level and commercial real estate is getting hit really hard by this recession/depression.
In many cases the value of those properties is 50% of the amount owed.
Commercial real estate is refinanced every 3-5 years and most of the commercial loans done in 2005 to 2007 (at the height of the real estate bubble) will be due for refinancing in 2010-2012. But guess what? If you can only get financing on 50% of what you owe, owners are not going to get the money they need.
What happens then? The bank takes the property and tries to sell it fast to get at least some of their money back. When that happens the banks lose money and the owner goes bankrupt.
Final thought:
You need to take action to secure the future of your income because your job and your money may not be safe.
Then you need to begin thinking of opportunities as this crisis begins to develop.
I’ll present a few of those in the next newsletter.
DO NOT click this link unless you want to make serious money:
SPECIAL
==================================================
« THINK & SUCCEED NEWSLETTER for December 07, 2009 | Home | Where to Buy Used, Rare Books For Pennies – Sell Them For Hundreds Of Dollars! »
Leave a Comment
You must be logged in to post a comment.