Itsworsethanyouthinkitis

The IMF is on board: Financial Stability Report

$4.1Trillion in debt losses.

You think any banks (or the Market) have actually properly accounted for these losses? Methinks not. Certainly not based upon the phony 'earnings' statements we've all just been subjected to.

More inevitable badness around the corner. The similarities to exactly one year ago are getting ever more striking.....

No doubt CNBC hosts will profess to being surprised come the fall when things again melt down.

GE and Citi earnings reports - spring 2008 redux...

They, again, remind me of Spring 2008, post-Bear. Like the eye of a hurricane. There's much more bad stuff ahead, and few - esp Citi - seem willing to face reality.

In Citi's case, note that they put aside $2.7Billion in reserves for loan losses, whereas yesterday JPMChase put aside 4$billion. Anyone really think that Citi's portfolio is healthier than Chase's? Please speak up.

Some of the bad stuff clearly in our (and the banks') future:

1. The CRE disaster has only just begun. The largest real estate bankruptcy in the nation's history passed yesterday with nary a peep (General Growth Properties: Largest Real Estate Bankruptcy Thus Far ), but there's no reason to think that malls, office buildings, condo complexes, sports arena, entertainment complexes etc are gonna suddenly be in great demand
2. The consumer is getting sicker, not healthier. Much badness ahead on credit cards, student loans, car loans, and the ongoing decline in residential real estate shows no signs of bottoming, despite rumors to the contrary (Housing Construction Fell Again in March) Since the moratorium 'expired' foreclosures have surged.
3. Speaking of the consumer, unemployment is clearly headed towards 10+%, easy. Probably 11+%. Worse than the stress tests presume, and the Administration forecasts. Much more downward pressure on spending in the future, with subsequent problems for CRE, corporate loans, small business loans, etc etc....
4. Other Macro problems remain, esp in Europe and Japan. How bad can these get? Well, I'd be planning for the worst, as the worst has consistently been surprising people ever since august 2007. I rather took the Central and Eastern Euros at their word two months ago that their situation was dire. Not much has happened since then (save for more $ for the IMF from the G-20 - but the UK might suck that up) to cause one to think things there are materially better. If Central and Eastern Europe go down, dominoes fall, starting with Austria (65% leveraged to Eastern Euro banks), then Germany, France etc get very strained. not to mention the slow-motion disaster that the UK has become. Spain, Italy, Ireland, Iceland, Ukraine, Latvia, etc are already in the tank. As for Japan, well, see this: Japan Says Economy in ‘Severe' State, View Unchanged US Banks - esp Citi, remain extremely exposed to all these problems
5. Despite all the brave talk from Chase and Goldman about giving TARP money back, Citi (and BoA) do not have that luxury. And all banks will see the huge but temporary revenue gift from all the Agency purchases the feds dropped in their laps disappear next quarter. By late Q3, aerly Q4, these guys will be running on fumes, again.

Complacency at green shoots is very dangerous.

IMF fun

Well, not fun exactly.

But it is indeed fascinating to observe a normally staid and bureaucratic institution get all lathered up. But unprecedented and scary times tend to get even the most gray of organizations speaking forcefully. And speaking forcefully, and lathered up, the IMF indeed is.

They can be found here: http://www.imf.org/external/index.htm

Some recent and attention-getting missives from headquarters, emphases added:

1. World Faces Crisis Crossroads at G-20 Summit, Says IMF In a video conference with journalists based in London, Paris, and Washington, Strauss-Kahn outlined five key subjects on which the IMF wanted to see progress at the summit to combat the worst economic downturn in 60 years, in addition to considering how to improve regulation of the fractured global financial system.
2. IMF’s note for the G-20: “The prolonged financial crisis has battered global activity beyond what was previously anticipated. Global GDP is estimated to have fallen by an unprecedented 5% in the fourth quarter (annualized), led by the advanced economies, which contracted by 7%. GDP declined by around 6% in both the United States and Europe, while it plummeted at a post-war record of 13% in Japan. Growth also plunged across a broad swath of emerging economies … against this backdrop, global activity is expected to contract in 2009 for the first time in 60 years.”
3. Global Economic Slumps Challenges Policies A pernicious feedback loop between the real and financial sectors is taking its toll. The continuation of the financial crisis, as policies failed to dispel uncertainty, has caused asset values to fall sharply across advanced and emerging economies, decreasing household wealth and thereby putting downward pressure on consumer demand. In addition, the associated high level of uncertainty has prompted households and businesses to postpone expenditures, reducing demand for consumer and capital goods. At the same time, widespread disruptions in credit are constraining household spending and curtailing production and trade
4. Advanced Economies to Contract Sharply in 2009 Advanced economies will suffer deep recessions in 2009, the assessment said. Leading economies in the Group of Seven are expected to experience the sharpest contraction for these countries as a group in the post-war period by a significant margin (see table). The IMF said that in the fourth quarter of 2008 global GDP contracted by 5 percent at an annualized rate. The IMF is still working on its projections and will announce numbers for countries around the world on April 22.

Expect more colorful language in that April 22 report, as the writers at the IMF are seemingly only getting warmed up....