August 16, 2010: Macro Reflections
August 16th, 2010
There was one bank failure last week which brought 2010’s total to 110 with a cost to the FDIC Insurance Fund of $19 Billion. At this point in 2009, there had been 77 banks seized by regulators with an Insurance Fund cost of $18.34 Billion.
Approximately fifty-days after the end of each quarter (that would be August 24), the FDIC publishes its Quarterly Banking Profile. In that very detailed report, the “problem bank” list is updated. At the end of Q1, there were 775 banks on that list, (up 10.4% from the previous quarter and up 154% from the end of Q1 2009). Assets for banks on that list were $431 Billion at the end of Q1 (up 6.9% from the previous quarter). The report can be found at .
While that is a lot of percentages and statistics and those data can be interpreted a lot of different ways, we believe that the information in the upcoming report represents yet another substantial psychological hurdle for the market to work through. So far, the assumption has been that the FDIC (and other government agencies) will continue “assisting” the financial sector with a variety of supposedly stimulative measures.
Conventional wisdom holds that Financials generally lead the broad market trends. Looking at the S&P Financials, the past five days have produced a decline of 5.45%; the worst performance of any S&P sector. Over the trailing 52 weeks, the sector is also the weakest (-0.12%) out of the major S&P sectors and the only one with a loss during that period.
Another interesting development in the sector is that money flow has been somewhat concentrated. Out of the eighty names in the index, thirty-three are above their respective 200 Day Moving Averages. Of that thirty-three, nine of the top ten names in term of margin above their Average are real-estate related names. Investors are clearly making a bet that either the general real estate market has fully recovered and no more bad news is coming or that Federal stimulus into the sector will continue for a long time to come.
Those nine names and the margin of extension above their respective 200 Day Moving Averages are: AVB +15.61%, EQR +15.36%, CBG +14.21%, PSA +12.21%, AIV +11.46%, BXP +11.26%, VNO +10.97%, SPG +10.52%, HCP +9.40%.
Any policy shift in terms of interest rates or government’s active role in capital markets could have a significantly negative impact on Financials in general and specifically the names above.
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