The Long Crisis

Posts Tagged ‘Meredith Whitney’

Meridith Whitney is one of the most respected financial analyst in the business. She was one of the few analyst who called the market top in 2008 and was bold and honest enough to make her views public.

In this interview on CNBC Meridith states that she has not been so bearish on the stock market in a year and that she can make no sense out of current evaluations.

Here are a few other points that Meridith makes in the interview:

* 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. Meredith said she feels that there is still a much bigger risk related to residential mortgage exposure in 2010, 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.

It is interesting that Meridith was speaking on a day when new highs for the rally move were being made for the year. It is good to keep in mind that over the past few years Meridith Whitney’s timing and market insights have been spot on.

Do not trust the rally in this market. Wall Street loves suckers who buy over valued stocks.

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Meredith Whitney made a name for herself as being one of the first financial analysis to warn of a pop in the housing bubble and a resulting crisis in mortgages and the housing market. Now she is warning of a soon to come banking crisis with a credit card crunch.

“Few doubt the importance of consumer spending to the U.S. economy and its multiplier effect on the global economy, but what is under appreciated is the role of credit-card availability in that spending,” Whitney recently wrote in the Wall Street Journal.

Ms. Whitney said that though credit was extended “too freely over the past 15 years” and rationalization of lending is unavoidable, what needs to be avoided was “taking credit away from people who have the ability to pay their bills.”

Whitney stated that available credit lines were reduced by nearly $500 billion in the fourth quarter of 2008 alone, and she estimates over $2 trillion of credit-card lines will be cut within 2009, and $2.7 trillion by the end of 2010.

“Inevitably, credit lines will continue to be reduced across the system, but the velocity at which it is already occurring and will continue to occur will result in unintended consequences for consumer confidence, spending and the overall economy,” Whitney said.

Banks are very concerned about the escalation of the default rate for credit card debt that is recently running at about 8.3%. That is extremely high by historical standards. However, the actions of many of the banks are making matters worse. The banks have cut credit lines and increased interest rates and fees to good customers as well as to those customers who have financial problems. The altitude seems to be to soak the good accounts to attempt to make up for losses on poor accounts.

No doubt that as the economy falls further in a long crisis depression banks will be pressured from all directions. If credit default swaps don;t bring them down the added weight of credit card debt not being repaid just might. Within a year or two the banking system in the United States will be structured far differently than it is today. I expect that Meredith Whitney would agree with that statement.

Get ready for rapid change and the survival of the few as the long crisis continues.

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