Hard to disagree with any of these points about the coming double dip recession.
By Daniel at 16 November, 2009, 11:56 pm
“Oof. Financials
are taking a hit after Meredith Whitney told CNBC that she “hasn’t been this bearish in a year.”
She’s also calling for a “double dip” recession.
StreetInsider bullet-points her comments:
* the banking sector is “not adequately capitalized today”
* sees another leg down in the residential real estate market when mortgage rates/prices begin moving lower. To this point, Meredith said she feels that there is still a much bigger risk related to residential mortgage exposure, rather than commercial.
* says that this market makes “no sense” to her and that there is no fundamentals behind the recent rally in stocks
* within the banking sector the major difference between the market today and last year is that there is no mark-to-market now.
* “banks will go back to tangible book value”
* sell the banks
* would sit on cash until another leg down in valuation, estimates
* “everything’s expensive right now”
* expecting a double dip recession, although the second part of “W” will not be as severe
”
http://www.businessinsider.com/meredith-whitney-i-havent-been-this-bearish-in-a-year-2009-11
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Whitney was looking for more clues as to the Fed’s exit strategy from Bernanke today and says there is no fundamental reason for the recent rally in stocks, not only in the financial sector but also consumer. Whitney believes the residential housing market is more important than the commercial real estate market. Whitney recommends reducing weighting in the large-cap banks
Why the Fed cannot raise rates.
there has been much speculation recently as to when the Fed may begin raising rates. I don’t believe they can tighten other than maybe 2 or 3 token .25% hikes and here is why. The Treasury has $12 Trillion of “funded debt” and over $60 Trillion (possibly more than $100 Trillion) of unfunded debt. Using just the “funded” number if the Fed were to raise rates 1% it will cost the Treasury roughly $120 Billion more in interest each year. Let’s say they raised rates to the unheard of level of 5%, now were talking $600 Billion more in interest each year. The Treasury simply cannot afford this!
We are dangerously close to the point where the marketplace will do this mathematical exercise and realize the Treasury and more importantly our currency is untenable. The budget deficits have blown out the debt levels to a point where the Fed has NO as in ZERO options of ever returning the U.S. interest rate structure to normal levels. The Fed will not be able to raise rates to keep pace with other central banks once they begin to raise rates nor will they be able to raise rates to defend the Dollar’s value should it start breaking down further in the FOREX markets. In a nutshell they are backed into a corner where their only tool left is more quantitative easing.
This is a car with only one pedal, THE GAS! Unfortunately the Fed is now in a position where they can’t even lift their foot fear of stalling. So when you hear someone from government touting the Fed beginning to tighten, don’t believe them.
- goldstandard
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