Friday, February 20, 2009

A Financial Benchmark with the DOW; Can Cameron Read?; and... don't forget... it's 'Bank Failure Friday'

UPDATE: Bank Failure #14: Silver Falls Bank, Silverton, Orgeon (details below)

UPDATE: 6:00pm EDT and no word from the FDIC - a week without a failure perhaps?

UPDATE: DOW rallies after dropping to 7,257.75. Closes down only -100.28 at 7,365.67

Another week goes by and we watch developments in the economy with keen interest.

Yesterday the DOW closed at 7,465.95, a six year low.

In 2002, the lowest level that the Dow hit was 7,286.27.

If the market breaks down below that 2002 level, the DOW will have fallen back to 1997 levels, making it a lost decade for DOW investors (not counting dividends).

It brings to mind former US Federal Reserve Board Chairman Alan Greenspan's speech of December 5, 1996. Speaking to the American Enterprise Institute during the stock market boom of the 1990s, Greenspan made his infamous 'irrational exuberance' comment.

“ [...] Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? [...] ”

The phrase was interpreted by financial pundits as a typically cryptic warning that the market might be overvalued.

And where was the DOW on December 5, 1996? It closed that day at 6,437.

Twelve years later the market may well be on it's way to wiping out those years of 'irrational exuberance' and all the years that came afterwards.

If it does, is a DOW of 5,000 out of the question?

Can Cameron Read?

Two days ago we profiled BCREA's Chief Economist Cameron Muir's incredulous statements that now is a great time to buy real estate in Vancouver.

I wonder if Cameron read the front page of Wednesday's Washington Post newspaper?

"Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening. Japan is suffering it's worse downturn in 35 years. The British economy is facing it's sharpest decline in 30 years. Germany is slumping at it's worse pace in 20 years. Meanwhile the job market in the United States, at the epic-centre of the world downturn, is at it's worse in decades. And emerging economies are contracting at a pace few had predicted just months ago. Even China, whose economy is still growing at 6.8% annual pace is grappling and grasping with vast numbers of the unemployed, raising fears of unrest. The sharpness of the global showdown has alarmed economists who see no obvious engine for recovery. Most Western developed economies are going to see the deepest downturn they have seen in a number of decades, in some cases, possibly, since the Second World War."

Last night, while talking to Professor Nouriel Roubini, Mark Zandi chief economist for, and Fred Mishkin (ex-Fed Governor, Professor Columbia University), Charlie Rose called it 'scary stuff'.

Yet Cameron Muir calls it a great time to buy.

Okie Dokie!

Bank Failure Friday

As faithful readers know, we start off Friday's watching to see if it is once again Bank Failure Friday.

Bank failures in the US always seemed to be delayed until late on Friday afternoons, prompting Friday to be jokingly referred to as 'Bank Failure Friday' in many economic blogs.

2009 is off to a record breaking year with four more failures last Friday. That brings the year's total to 13.

(In 2008, 25 banks failed. In 2007, three failed. None failed in 2005 or 2006.)

We wait with eager anticipation for today's carnage... updates as they come in, check back late this afternoon.

Click here for our previous post: "US Bank Failures - Why We Care".

Bank Failure #14: Silver Falls Bank, Silverton, Oregon

From the FDIC: Citizens Bank, Corvallis, Oregon, Assumes All of the Deposits of Silver Falls Bank, Silverton, Oregon

Silver Falls Bank, Silverton, Oregon, was closed today by the Oregon Department of Consumer and Business Services, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens Bank, Corvallis, Oregon, to assume all of the deposits of Silver Falls Bank.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $50 million. The Citizens Bank acquisition of all the deposits of Silver Falls Bank was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. Silver Falls Bank is the fourteenth bank to fail in the nation this year. The last bank to fail in Oregon was Pinnacle Bank, Beaverton, on February 13, 2009.


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