Tag Archives: FDIC

R.I.P. RECESSION PREDICTORS – YOU WERE DEAD WRONG!

DECEMBER 15, 2023 – First off, happy birthday to my dear wife.
Back in April and June, I mentioned that the wave theory I follow showed a strong rally ahead. It would require us breaking through the all-time highs by a wide margin. This week the Dow 30 achieved new highs and is above 37,000 for the first time ever. 40k and possibly 44k in 2024 are on the table. They have been for over 6 months.
With the information below it is time to 100% emphatically declare anyone that has forecast a recession for the past 18 months and into 2024 dead wrong. Their analysis is totally in error. Just fess up and admit with hat in hand you have no clue what you were talking about. You will feel better:) On to where the data stands and what it is telling us.
BANKS – To date, we have had two bank closures that I am aware of. One was strange as it was not FDIC-insured. We will be ending the year much closer to my forecast of 0-10 closures than the 176-200 closures forecast by many people. I think we will be able to say the same next December.
As for CRE loan defaults, I have dealt with about 5 bad loans. There has been no consistency as to why the loans went south. I am seeing nothing that indicates a lot of foreclosures nor anything specific to a property type.
Amazingly, the Regional Bank Index (KRE) is up 58% from its yearly low and is back above where it was before the SVB/SBNY closings. Remember, buy when there is blood in the streets. It worked again.
To reiterate, the market is saying that it does not believe there will be a CRE loan debacle for banks. Either not many CRE loans will default and/or banks are well prepared and capitalized to handle the defaults.
HOUSING – Home prices have been up all year and the rate of appreciation is increasing. It isn’t much. That is a good sign as it can be sustained into 2024.
The Homebuilders Stock Index was up over 5% one day this week and is now up an incredible 62% (!)from last year’s lows. On top of that, this is an all-time high.
Those who forecast a crash in the housing market continue to be way off the mark. As I said all along, 7% interest rates are nothing to worry about.
INTEREST RATES – Bonds bottomed on October 23rd. A strong rally has dropped rates by about 100bp already. A minor correction should start soon. Then after the new year, we will continue the decline in interest rates. The target is about 25-125bp lower than we are today.
INFLATION – The December report came in at 3.1%, well below my forecast of 3.6%. The 3-month annualized inflation rate is 0.0%. The 6-month annualized inflation rate is 1.9%. These figures are lower than the annualized rate (3.1%) and thus indicate the annual CPI should drift lower. However, continue reading.
Based on the data, my prediction for next month’s figure is 3.5%-3.6%. The January report should show annual CPI for 2023 to be around 3.5%. Then from the February report on into the Summer, the CPI should crumble towards 2%.
SUMMARY – With the Dow 30, bank, and housing stocks at their highs, the markets are saying all should be well through the first half of 2024. The economy is supposed to be looking good in an Election Year. That looks to be the case again.
I will reprint this statement from a post a few months ago: I put this hidden little sentence out there to refer back to in 12-18 months – The chance of a recession occurring looks to be 4th Quarter 2024 into 2025. The first year of the president cycle often sees an economic downturn. I suspect that a year from now the broken-clock recession mongers will have given up and admitted the economy is strong, et al. Just in time to be wrong again:)
Happy Hannukah, Merry Christmas, and Happy New Year!
Shalom,
The Mann

PRUDENTLY CONSERVATIVE VALUE IS THE NEXT MORTGAGE LENDING VALUE

MARCH 14, 2023 – The European Union appears to be headed towards adopting the ‘Prudently Conservative Valuation Criteria’ (PCVC) in accordance with Basel III. The concept is similar to Germany’s Mortgage Lending Value (MLV). However, the EU didn’t want to simply adopt a German concept.
For those interested in the concept, please read the article on Pages 6-10 of the latest issue of the European Valuer.

https://tegova.org/static/ea861b1ab7eae74037bb22655c7bc2fb/European%20Valuer%20(29)%20March%202023%20(desktop%20version).pdf

As expected, they make it clear that market price (what American appraisers estimate) and market value (I only know of one American appraiser that has estimated such in an assignment) are often different. What is new to me is they say value and market value are different. I will need to read up on that myself.
In one of my other posts I recommend that the FDIC deposit insurance be terminated as a way to make financial institutions safer. Another way would be to mandate the use of Mortgage Lending Value (MLV) instead of Market Value.
I hope you find the article interesting.
Shalom,
The Mann

SILICON VALLEY BANK SUPPORTS MY SUGGESTION

UPDATE MARCH 15, 2023 – An interesting investment class. Over the past 10 years, this is how this asset class has moved. From June 2013 to July 2016 it went up 26%. A simple annual increase around 8.5%. From July 2016 to October 2018 it declined 21%. A simple annual decline around 10%. From October 2018 to July 2020 it went up 33%. A simple annual increase around 18%. From July 2020 to October 2022 it went down 34%. A simple annual decline around 15%. That is a sum of 114% in moves up and down, which equates to about 11%/year. If you could have only timed those moves, you would have made a killing. As an investor, how would you rate this asset class? Low risk? Moderate risk? High risk? The point is the next time someone says U.S. Treasuries are a ‘safe’ haven, tell them about the above data. The next time someone says U.S. Treasuries represent a ‘safe’ rate of return, tell them about the above data. The above movements were made by the 30-Year U.S. Treasury Bonds. With the yield over the past 10 years probably averaging around 3%, that means you either gained or lost 3x-4x that simply due to the movement of yields!!!! Our government made treasury bonds act like a risky asset. It is not a low-risk asset. It is doubtful it ever will be again.

UPDATE MARCH 14, 2023 – We will see if Monday’s low in the SPDR S&P Regional Bank ETF (Symbol: KRE) at $41.92 is the panic low for banks. If you want to see a neat chart of an index slowly going over the waterfall and then collapsing look at KRE for the past month. You can see people were bailing out well before last Thursday when the news about SVB became a headline. As an aside, for those curious about this, I heard that depositors at SVB had requested $42 Billion in withdrawals. As many banks loan out over 100% of their deposits, SVB obviously didn’t have the funds available without selling their unhedged, unrealized losses 30-year treasury bonds. BTW, KRE declined 46% from its all-time high in late 2021. That is when the market predicted interest rates would increase significantly. It declined 36% in the past few months. This is into the low on Monday.

The pundits are predicting the next sector to get hit hard will be commercial real estate (CRE). And banks with a large portfolio of CRE loans may be the next to go under. So, for those interested in the banks with the highest CRE Loans/Total Assets ratios they are as follows. The only one above 50% is Valley National Bank. Home Bancshares and Glacier Bancorp are just below 40%. Signature Bank was at 30%. EastWest Bank is at 30%. Those between 20% and 30% include Webster Financial Corporation, First Citizens Bancshares Inc., M&T Bank Corp, Prosperity Bancshares, Western Alliance Bancorp, and Central Pacific Financial Corp. That doesn’t mean these banks will go under. Many other factors come into play. Most importantly, how large on their reserves. What are their Tier 1 Capital Ratios. That said, history shows that banks with the highest CRE Loan ratios are more likely to fail in a significant economic downturn. I have not looked at their stock prices. But, I wouldn’t be surprised these stocks are down the most already. It isn’t like this is new news to investors. If any of the above close down, you at least knew about it as of today:) FYI, SVB was down near 0% for this ratio. That wasn’t their weakness obviously.

UPDATE MARCH 13, 2023 – Total deposits in American banks is about $18 Trillion. I heard that about 1/3 of those deposits are NOT insured. Thus, about $6 Trillion in deposits at financial institutions are at risk if banks close in mass. If those deposit holders decide the risk of losing 100% of their money is too real and start withdrawing their funds, there simply is no way our banking industry can survive. To return those funds, banks would have to sell their treasury bonds and realize the unrealized losses (about 30%-40% of the original purchase price) they have – that is what was happening to SVB in its last days. Somehow the FED has to convince the holders of the $6 Trillion in uninsured bank deposits not to move their funds elsewhere. If they fail, the 2008 Crisis will look minor in comparison. I think they will succeed…for now. Afterall, where would the $6 Trillion move to that would be any safer than where it is now? Fun times eh:)

MARCH 13, 2023 – I have long said that the simplest solution to prevent financial institutions from making bad loans, poor policy decisions, etc., is to eliminate FDIC insurance for deposits. That simple.
If the public knew that every dollar they put in a bank or credit union could be lost, they would be extremely careful where they deposited their money.
Financial institutions would have to be beyond 100% transparent and show convincingly they were 100% safe. There would be no liar loans, 120% LTV loans, etc.
The companies that deposited more than $250,000 in SVB deserve to lose their money. How can an unnamed company put $480 million of cash in one bank? That CFO wouldn’t have a job if I were in charge. All of these startups are crying about their deposits at SVB. Did they overlook the FDIC Insurance print on every SVB document? $250,000…hello…$250,000 maximum. What is it you don’t understand about that!
I seriously doubt we will get rid of FDIC deposit insurance in my lifetime. But, it would solve alot of problems if we did.
Lastly, SVB was unique in that it had less than 10% of its deposits from retail customers and chose not to hedge its interest rate risk. The data does not suggest any other banks in America are like it. Signature Bank of NY was closed over the weekend and it also had less than 10% of its deposits from retail customers. But, I do not know if it refused to hedge its interest rate risk. The only remaining bank with less than 10% of its deposits from retail customers is Citigroup. But, they have probably been like this for 40+ years as they mainly deal with governments around the world.
I do not expect any other banks to go under from a run on their deposits. As usual, we shall see.
Shalom,
The Mann

NEW INTERAGENCY ADVISORY ON EVALUATIONS

March 7, 2016 – For the first time since December, 2010, the Agencies have issued a statement on Evaluations.  I will include the FDIC link below, albeit the Federal Reserve and OCC have similar links.

My feeling is nothing new has been added.  There is a bit more talk about how to use tax assessments – hopefully, this will once again become more common now that The Great Depression II has run most of its course.   Also, they make it clear that market value must be of real property only.  FF&E in apartments and going concern properties must be valued separately, just like in appraisals.

Please pass the link below along to your bank contacts so everyone can stay informed.  Thanks.

https://www.fdic.gov/news/news/fi

nancial/2016/fil16016.html

THE BIG SHORT – A Movie All Americans Need To See

January 16, 2016 – I went to see The Big Short today.  I encourage everyone to go see it.

After seeing this movie, you will know why I list Banks among The World’s 3 Greatest Evils (I won’t go into the other 2 at this time).  You will know why I took on Fifth Third Bank and suffered for 7 years to achieve vindication.  And why I look so forward to all of the other whistleblowers out there getting their share of that and many other banks.

For me, it was an emotional movie.  I lived it and knew it at the time.  I can totally relate to Mark Baum, and really the others who went short, as it was an obvious winning bet – but, to win, the American public had to be decimated and we knew banks and Wall Street would be bailed out by the taxpayer.  Corporate Socialism I heard it called recently.

It was good to see the few other people that forecast what I termed in June 2005 The Great Depression II (c).  Unlike them, I just didn’t make a few billion dollars:(  I am glad they did at the cost of ‘the smart money’ on Wall Street.  Yes, a few of us can be right and 99.99% of the World can be wrong.   Remember Mann’s Axiom….

Money will be made shorting the current Echo Bubble during this Echo Depression(c).  It just won’t be as much as last time since the bullish housing people know what the shorts are doing this time around.

I was interviewing with the OCC in the Summer of 2008 and they asked me if I thought banks had learned their lesson.  I said ‘NO’ and that as soon as the pendulum swung back to optimism they would do everything all over again.  I have been told things are even worse today than in the bubble years.  Scary.  The OCC then asked me what it would take to stop banks from being so wreckless.  My answer was to enforce the FIRREA penalties that would allow the government to fine and imprison individuals – the corporate veil does not protect employees that violate FIRREA.  I won’t give it away, but the movie tells us how many bankers have been arrested for the housing debacle – you won’t be surprised, but should be disappointed in the system.

Today, my solution to get banks to clean up their act is simple – eliminate the FDIC deposit insurance.  The public would demand 100% transparency and total safe lending and practices before they would put their money in a bank.  Of course, and saying this I sound like Mark Baum for sure, this would just move all of the unethical and greedy people from banks to non-bank lenders.  The scum keeps moving to where it can thrive.

Speaking of which, the scum have renamed CDOs today as ‘Bespoke Tranche Obligations (BTOs).  Also, a residential lender told me that lenders are starting to do ‘Statement Loans.’  They simply look at your bank statement to see your income and don’t request your tax return.  This is the first step in the direction of the old NINJA-type loans.

I encourage anyone in the industry that encounters these products to collect all of the info you can and go to the authorities so these people can be prosecuted when the time comes – I will be glad to advise you on what steps to take.  Also, investors should remember a rose is a rose is a rose.

Please go see the movie.  Please tell everyone you know to go see the movie.