FDIC and Consumer Confidence

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Approximately two weeks ago, I did a webinar for the McCombs Alumni.  I discussed my view of the economy.  If you want to listen, it lasts approximately one hour.  You do NOT need to be affiliated with McCombs in order to access this.  You can find it at the following link:

Webinar Link




Now, on to what I read…




1. Markets

The Dow dropped 100.97 points.  The bad news was highlighted by the consumer confidence numbers and the FDIC report.  Cyclical stocks such as Caterpillar and Alcoa dropped the most.  Gold, oil and higher yielding currencies all fell – in other words, there was a flight from risk to safety.  Some large retailers (Home Depot, Macy’s and to some extent Nordstrom) reported good numbers.  But, retailers warned of slow sales gains in coming months.




2. Economy

Consumer confidence plummets! The Conference Board’s index of consumer confidence dropped from 56.5 in January to 46 in February.  (Expectations had been for a reading of 54.8.)  The present situation index dropped from 25.2 to 19.4.  This was the lowest reading in 27 years.  Future expectations (next six months) dropped from 77.3 to 63.8.

The cutoff for the consumer confidence data was February 17th.  The market was trending lower during the survey period and my guess is that this is what got captured in this survey.




Approximately 47.7% of people described jobs as “hard to get.” There were 3.6% of people who described jobs as “plentiful!”  My guess is that these people would describe the 15MM unemployed people as “picky.”  Only 13.4% of respondents expect more jobs in the six months ahead.




There were 17.2% of people who expect their income to fall over the next six months.  At the same time, 9.5% expect an increase.




The S&P / Case-Shiller Home Price Index was 2.5% lower in Q4 YOY.  Of course, this is better than the 18.2% drop that was recorded a year ago.  On the positive side, seasonally adjusted prices increased .3% in December (a .2% drop without the seasonal adjustment).  This was the same increase as November.  Prices fell in five of the 20 markets, increased in 14 and stayed the same in one.




Home prices seem to be stabilizing if not rebounding. If you look closer at 2009, home prices fell 11% for the six months ending Apri 2009 and then rose 5% for the next six months.  But, as I’ve said loads of times, we have no idea what will happen to home prices when the subsidies end.




Robert Shiller, who co-founded the index (and teaches at Yale) said that his biggest fear is that angry homeowners will start to walk away from homes.  If you want to understand another reason why people have problems with bank bonuses – this is it.  It promotes the feeling of maximizing my own value rather than doing the right thing.




When will the Fed start raising rates? The WSJ reported that the Fed waited approximately 33 months (on average) after the last two recessions before raising rates.  In addition, this recession is much worse.  The WSJ pointed out that when they started raising rates in 1994, the credit card charge-off rate was 4.6% (currently 11.2%), the high yield bond default rate was 3.7% (currently 13.6%), bank held loans were increasing at a 5.9% annualized rate (currently decreasing 5.3%) and the mortgage foreclosure rate was .96% (currently 4.58%).




Greenspan described the economy in the same way that Jenny describes me: “unbalanced.”  He said that it was driven largely by high earners benefiting from recovering stocks and large corporations.  He said that small business and the unemployed are getting killed.  He doesn’t see how we can have a strong recovery when car sales and the housing market are both weak.




Fly away! After 14 months of decline, passenger revenue at US airlines rose 1.4% in January.  The industry is seeing benefits of reduced seats and slight pricing power.  Cargo revenue for December was 17% higher than December in 2008; but the January cargo numbers are not yet available.




Don’t die! Casket sales are down.  They peaked at 1.9MM in 2000.  For the year ending September 2009, sales totaled 1.69MM.  Approximately 37% of families choose cremation.  There has been a long-term move towards cremation – some of which may be economic.  The average cost of a burial is $7,200, while a cremation is $1,400.  Jenny said that she wants to spend the money and bury me so that she has someplace to walk the dog.




3. FDIC and Banking

In Q4, the FDIC’s insurance fund dropped $12.6 billion to negative $20.9 billion.  The situation sounds similar to my net worth.




The number of problem banks increased from 552 in Q3 to 702 at the end of Q4.  This is the largest number of banks on the list since June 1993.  These banks have $402.8 billion of assets.   FDIC Chair Sheila Blair predicted that 2010 would see more bank failures than 2009 (140).




Loan losses for banks increased for the 12^th straight quarter. The quarterly net charge-off rate was the highest level recorded in the 26 years of data, as was the total number of loans that were 90 days delinquent.  More than 5% of all loans were at least three months past due ($391.3 billion of loans).




Loan balances for banks fell.  It’s been reported that banks recorded their largest full-year decline in total loans outstanding in 67 years.  But, that’s misleading since the total loans outstanding grows each year (so you really need to look on a percentage basis).




Banks have reserves equivalent to 58.1% of noncurrent loans.  That’s down from 60.1% in Q3.




On the positive side, banks reported a $914MM profit in Q4 (after losing $37.8 billion in Q4 of 2008).




The FDIC may start selling bonds tied to the assets of failed banks.  They currently hold $40 billion of assets from failed banks.




Wall Street bonuses for the NYC securities industry increased 17% to $20.3 billion in 2009.  While higher than the $17.4 billion in 2008 (when the industry lost $42.6 billion), it’s significantly less than the $32.9 billion paid in 2007.




Happy bankers. In late 2008 / early 2009, Credit Suisse gave bonuses in the form of an interest in a pool of “toxic” securities.  These were mostly commercial mortgage-backed securities and leveraged loans.  Some bankers complained.  But, this portfolio increased 72% during the past year.  You can look at this in either of two ways: (1) they took the crap that no one else wanted; or (2) the shareholders rode the securities down and the employees rode them up.




Securities industry jobs dropped by 31,500 from November 2007 to August 2009 – a drop of 17%.  But, there were 3,900 jobs added in the last four months of the year.




4. Europe

Bad news about Europe. Bank of England Governor Mervyn King said that the UK is facing a big risk: their largest trading partner (the EU) is showing signs of a weak recovery.  German business confidence fell in February, Italy consumer confidence fell (in February) more than expected and French consumer spending fell (unexpectedly) in January.




Here’s what happens when the world gets tired of funding your bad spending habits. Greece is considering raising their value-added tax, cutting civil service entitlements and raising taxes on luxury goods.  In addition, the EU wants Greece to cut one of the two extra months pay that public employees receive (in addition to their 12 month salary).  Both the public and private sector unions are planning a general strike for Wednesday.




5. Random

ABC News is cutting approximately 25% of their staff (300 – 400 out of 1,500).  We’re going to get to the point that one person is reporting / investigating and the rest of us are commentating.  The reality is that we’re starting to see the “free” model of the internet go away (slowly).  But, it’s still wreaking havoc with the mainstream media.




Toyota’s US President said that their recall may “not totally” fix the sudden acceleration problem! Does this mean it “sort of” fixes it?  This is really quite shocking.  It sounds like, “we’ve got to do something even if it’s not quite right.”  There was testimony from a customer about how her Lexus accelerated to 100 MPH for six miles before finally slowing down.




After my comment about the Canadians beating us in curling (and that should make them feel better about losing in hockey), I received a few emails reminding me that they also beat us in “Ice Prancing” on Monday night.  Congratulations.




Tonight is a big night for me.  I’m trying to feign interest in the Women’s Short Program to get Jenny’s interest in my version of the men’s short program.




I’ve received countless emails asking whether I have a joint appointment at NYU. The answer is no, but this certainly could have been written by me… (click below for an amusing story):

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