Bank Loan Losses Huge: “Mayo Gives Banks ’Underweight’ Rating on Loan Losses (Update 2)” is the Bloomberg.com for 4/07/09 (updated NY @ 00:18) by Michael J. Moore. We chose Mr. Moore’s piece over several from 4/06/09, while reading late 4/06, because we thought it the most comprehensive and because it included the views of former Oppenheimer analyst Meredith Whitney; a bank analyst almost without equal.

Here are some of the articles key points:

• “CLSA analyst Mike Mayo assigned an underweight rating to U.S. banks, saying loan losses may exceed Great Depression levels and the government may be forced to take over large lenders.”
• “While certain mortgage problems are further along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” said Mayo…” and “New government actions might not help as much as expected especially given that loans have been marked down to only 98 cents on the dollar on average.”
• “‘Nationalization of banks remains a possibility because government policy remains unclear,’ Mayo said on a conference call after releasing his report.”
• “Mortgage related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels.”
• “The nations largest banks may be transitioning from a financial crisis marked by write downs of capital to an economic crisis featuring large loan losses,” Mayo wrote, “The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets, Mayo wrote.”
• “Meredith Whitney, who left Oppenheimer & Co. to found Meredith Whitney Advisory Group LLC, said in a Forbes interview that banks will continue to write down their mortgage assets as home prices decline further than lenders expected. ‘Home prices are not done falling and will ultimately drop 50 percent from their peak,’ Whitney said today in a CNBC interview.”
• “The unemployment rate also has exceeded banks’ projections and could lead to further loan losses,” Whitney told Forbes.

Four Things Seem Clear: Our view here at Prudent Home leads us to the believe that, while the future is cloudy and uncertain, there are four things that currently appear to be pretty clear:

1. The people in charge of this financial/economic crisis really don’t know what they’re doing. (after all, they’re pretty much the same folks that got us into this mess) and although they’re doing their best: they’re just guessing.
2. Things are actually much worse, especially at the street level, than those “in-the-know” are aware of and/ or are willing to admit .
3. Americans in general are going to take a substantial cut in their standard of living and it’s probably going to be permanent.
4. The American people can expect a number of additional changes in government projections, pronouncements, and policies as regards this crisis as it continues to unfold. Most of these will be on the downside in the short run.

Until next time, keep your eyes on the horizon; the weathers changing fast.

com on January 2, 2009 entitled “Housing Will Get Even Worse, ” Fitch Says notes that, “Housing will continue to weaken well into 2009, as the economy deteriorates with no bottom before the second half, or even later, Fitch Ratings predicts in a new report.”

The article continues, noting that while pundits agree that housing will continue to fall in 2009, they can find no such agreement as to when the housing market will begin recovery. What does seem beyond agreement in this regard, is the observation by IMF Managing Director Dominique Strauss-Kahn that if housing deterioration should continue, deflation will become a real possibility.

FOOD–GOVERNMENT POLICIES: “Corporate and Government Policies Spark Food Crisis in America” is the title of the Barbara Minton piece from Natural News on 1-02-09 posted on infowars.net,1-03-09. The article opens, ”Americans are losing the ability to feed themselves. Nothing signifies this loss of the golden age in America more than our growing reliance on foreign countries for our food. Yet American’s happily buy their produce from Mexico and their fish from China without giving it a thought. These are the same American’s who bemoan the loss of our manufacturing base saying that we should have done something about it before it was to late. Why can’t they see the similarity to us losing our agricultural base ?  …

The article continues by giving examples of American food production businesses falling to cheap, overseas production and the apparent worldwide effort to accumulate farmland in order to effect price controls.

The article concludes by offering to two effective actions that individuals can take in response: one, become aware of where your food is produced, and two, buy locally.

Note: PrudentHome would like to add a third, grow your own!

FOOD–GREAT DEPRESSION LESSIONS: The Los Angeles Times offered this article (presented on energybulletin.net, 1-03-09) by Mary MacVean, “Food Lessons from the Great Depression”.

Ms. MacVean notes, “…At a time when Americans face frightening and disorienting economic uncertainty, the Great Depression provides valuable lessons….People who remember what it was like to eat during the Depression talk about thrift, growing their own, sharing with neighbors and learning to cope with what they had.”

Continuing, the author observes that making do was a kitchen art form as people were relegated to food that they could find, kill or grow and that leftovers were planned for future meals. The times ahead could become similar and require similar approaches.

The times we’re facing, and apparently about to face, will require great efforts on the part of the family to sustain itself and to thrive. It’s the goal of PrudentHome to provide some of the tools necessary to help the family to achieve these two objectives.

Until our next post, keep your eyes on the horizon.

THE BAD : “ Just when you thought it might be safe to go back into the water “ … along comes several Money News ( NewsMax.com) articles from : 1. Mohammed El-Erian ( on Friday, 8/1/08 ) co-exec officer of PIMCO (w/nearly ¾ of a TRILLION $ IN ASSETS under management ) that U.S. unemployment in headed upwards toward 6% while the economy faces simultaneous pressures from the housing, consumer, and financial sectors. , 2. Former White House economist & NYU Prof Nouriel Roubini estimates the current financial problems will produce credit LOSSES between 1 & 2 TRILLION $ with the U.S. taxpayer bearing the cost. 3. Former White House economic adviser Martin Feldstein predicts that the U.S. dollar will continue to decline in value with the worlds economic system eventually failing to support the huge U.S. trade deficits ( nearly ¾ TRILLION $/year). , and finally, 4. Allen Sinai, chief economist for Decision Economics, predicting a worsening U. S. recession ( he says we’re already in one! ) based on continuing weak jobs growth and an economy dependent ( 70% ) on consumption by consumers.

THE SCARY : The Middle-East always seems to be in some sort of turmoil. This probably wouldn’t appear as ugly a condition as it is except for the fact that the Middle-East is OIL COUNTRY.

The current and most pressing concern at the moment is the possible flash point between Israel and Iran

The probabilities at this flash point seem to be : 1. The international community won’t be able to offer meaningful/effective sanctions to alter the direction of Iran’s nuclear enrichment efforts. 2. Israel views Iran’s nuclear enrichment program as an attempt to develop a nuclear weapon and this, coupled with Iran’s bellicose statements towards Israel , creates the Israeli conclusion that Iran poses an existential threat., and 3. There will in all likelihood be a military confrontation between Israel and Iran. The effects of this confrontation will be far reaching. At the very least oil prices and availability will be dramatically effected in a negative way for an uncertain period of time.

This coming Friday, August 8, we’ll be talking about some more preparation sources for the prudent home as well as the “ WEATHER”.

In the meantime , keep your eyes on the horizon.

Like the weather, economic, political, and environmental events are beyond our individual capabilities to control but like the weather too, we’re somewhat able to predict their coming and prepare. So what does the weather look like as it begins to move toward us just at the horizon ? Our economy thrives on cheap, available credit and fossil fuels (oil). Now, if credit is cheap it is certainly less than readily available while oil is not cheap and probably becoming less available.

Three major European banks and a major U. S. investment house are predicting a financial situation , in the U. S. and the world , during the coming months characterized by words like “crisis” and “catastrophic” . This while our own central bank, “ The Fed”, is described as an institution “ without credibility “.

World food stocks, primarily grains, are at a half-century-plus low with major countries preventing grain exports altogether or heavily discouraging those exports thru taxes. While world production is currently at a marginally adequate level, it is fragile. Any significant economic, climate, or geo-political interruption could spell famine on a large scale.(Note: Both China and Saudi Arabia are currently buying farmland in places like Africa and South America)

World oil production levels are nearly maximized though they are currently pretty stable. This stability however, exists in the face of an increasing world demand with it’s attendant price increases.

World fresh water stocks seem to be in about the same shape as food and oil : marginally adequate at current levels barring interruption.

Climate change (warmer, more variable and uncertain weather) brought about by, or significantly influenced by, human activities appears to be a generally accepted scientific position. This change could effect world food production in both the short and long term.

Geo-politically, the world seems to be stumbling along about as usual however, current potential conflicts in major oil producing areas of the middle-east and Africa cause special concerns regarding world oil production interruptions with their attendant price increases.

Now we come to the shy, retiring, 800 pound gorilla in the room…population . While critical world resources, though stretched thin , might be adequate in the short-term we’re adding a population to the world equal to that of the U. S. every 48 months!

What does all this mean to the family and the prudent home? In a word, PREPARATION. This is the same response the family and prudent home gives to any severe weather challenge.

More specific discussion about the “weather” and family responses to it will be found here next week on Tuesday, July 8.

Meanwhile, keep your eyes on the horizon.