Skip to comments.The "Real" Economy Is Dying: Q4 "Going to Be a Bloodbath," Whalen Says
Posted on 10/05/2009 11:58:22 AM PDT by BenLurkin
Stocks rallied to start the week thanks to a better-than-expected ISM services sector report and a Goldman Sachs upgrade of big banks, including Wells Fargo, Comerica and Capital One.
But all is not right in either the economy or the banking sector, according to Christopher Whalen, managing director at Institutional Risk Analytics. In fact, Whalen says most observers are drawing the wrong economic conclusions from the stock market's robust rally.
"Why is liquidity going into the financial sector? It's because the real economy is dying [and] everyone is fleeing into the stocks and bonds because they're liquid at the moment," Whalen says. "That's not a good sign."
The banking sector's assets shrunk by about $300 billion per quarter in the first half of 2009, a sign of banks hoarding cash in anticipation of additional future losses, according to Whalen. "The real economy is shrinking because of a lack of credit."
The shrinkage will continue into 2010, Whalen predicts, suggesting the banking sector hasn't yet seen the peak in loan losses. Institutional Risk Analytics forecasts the FDIC will ultimately need $300 billion to $400 billion to recoup losses to its bank insurance fund. (In other words, the $45 billion the FDIC sought to raise last week by asking banks to prepay fees is just a drop in the bucket.)
"Investors should think about this because the fourth quarter in the banking industry is going to be a bloodbath," says Whalen, who believes smaller and regional banks like Hudson City Bancorp may come into favor vs. larger peers, which have dramatically outperformed since the March lows.
"When you see the markets rallying when the real economy is shrinking that tells you this [recovery] is not going to be very enduring," Whalen says.
(Excerpt) Read more at finance.yahoo.com ...
While we were backing away, somebody moved “da brink” around behind us.
Lets hope the banks are hoarding cash to get the government monkeys off their backs.
This guy and I do agree somewhat, though. We're a long way away from getting out of this mess. A lot depends on Gov't not digging the hole deeper with Cap and Tax, Health Care, VAT, etc etc etc etc etc etc etc etc etc etc.
Getting DC to take a break for about 12 months would do more to end the current economic misery than anything else.
I hope all the smiley face folks at FR don't have their money deep in equities that no one will be buying when the crash comes.
They are hoarding cash, and the Fed is paying them to do so.
Their hoarding of cash is one of the things that is killing the economy. The banks refuse to confess and admit how much of their debt portfolios are crap and will go to default, so they’re plumping up their balance sheets with hoarded cash — at the expense of the real, productive economy.
“Hey mister, how much gold for that doggie in the window”?
Interesting, I was wondering about this. I've brought alot of PMs, but I still have money left over. Instead of letting sit with BofA or Chase I was thinking of putting most of it in a simple savings account or even a CD in a small regional (Champlain National) bank near where I grew up figuring if the banks go south again at least I will be somewhat safer with a smaller bank. BofA and Chase I have no trust in.
We’ve gotta use this to torch Dems next November.
I hate to see family and frieds suffer, but at least a good election in 2010 will result.
Yep, we were in recession, and because of Obama, Geithner, Pelosi and Reid’s inteference we will be in Depression....within 2 years. Probably half that time...
The single worst thing (bar the federal reserve act) that has happened to this nation was the rise of the national NYC and SF banks.
They should have collapsed last year and cleaned the system of the corruption, but instead they limp on on your tax dollars, dragging everything else down with them.
Christmas season is going to be miserable ,, you can’t sell what you don’t have and imports have been non-existant for seasonal merchandise... I see big layoffs beginning in January rather than the usual late Feb/March timeframe and a LOT of store closings... just in time for the expected commercial real estate problems...
This must be those green shoots we have been waiting for.
And at the same time, blaming private sector households for the mess the creditors created for themselves.
(there was, to a great extent, a lack of personal responsibility on both sides though)
Our only chance is to STOP the takeover of medical insurance and STOP Cap and Trade cold. Then we need to rejigger the Stimulus to actually stimulate the economy. Even then, we will suffer many years of depressed economic woes.
Just as an example, we could freeze the Stimulus and take the $500billion left and declare a tax holiday for 6 months. We have lost the money from the tax coffers anyway, but we must use it for job creation instead of paying off union cronies. Try to imagine small business hiring if they knew all the money they made in the next 6 months was theirs. That would create real jobs instead of paybacks to some building union waiting for a bridge contract.
Obviously, if Obama isn't stopped, we will loose our economy and go into Marshall law. People haven't even realized what his plans are for America. We may do better with Hugo Chavez in control. IMHO, these socialistic plans are not an accident. He doesn't want capialism to work. He may accomplish what the Soviet Union, Cuba, North Korea, and Viet Nam couldn't.
>This must be those green shoots we have been waiting for.
Green-tipped ammo? Is it steel-core?
>Obviously, if Obama isn’t stopped, we will loose our economy and go into Marshall law.
If that happened, then things could get very interesting very quickly.
>People haven’t even realized what his plans are for America.
Given his arrogance, I wouldn’t be surprised if he really _didn’t_ have a plan; and yet on the other hand, given my cynicism [towards our political class], I wouldn’t be surprised if history should find that he was actively working to destroy America.
>We may do better with Hugo Chavez in control.
Honestly, I’m not so sure of that. But in any case, I’d rather have a good leader than one that was “the lesser of two evils”.
>IMHO, these socialistic plans are not an accident.
Someone, somewhere, had to have penned the laws that are being produced, therefore we can conclude that it is indeed not an accident.
>He doesn’t want capialism to work.
Come on now, CHINA is more capitalistic than we are.
>He may accomplish what the Soviet Union, Cuba, North Korea, and Viet Nam couldn’t.
Maybe, but it wouldn’t be a solo act; he’s had a lot of help with it from politicians of the past and a people who are ignorant/apathetic/complacent.
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