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.

- 10% GDP in Q1 2009?

Thus worries Joe LaVorgna...

He says there's a 'psychological free-fall", and that things are collapsing. I rather tend to agree.

But the problem is not just psychological (sorry Joe) - it's very, very real. And very sad. And it begins and ends with the 'consumer'. As we've noted before, folks have no savings, no equity - having been hammered in the twin crashes of stocks and real estate - cannot get credit (even if they wanted it, which they most assuredly do not), and are facing an epic employment crisis. To mention a few little nagging realities. Did I mention income and wage stagnation? The collapse of class mobility? The failure of k-12 education?

Indeed, It is worse than you think it is

Mostly cuz folks in the chattering class have not a clue about that engine of the economy - consumers. They believe that consumers can be lured, like puppies, to consume again. Wrong, and endlessly so.

"Consumers" are no longer such, and never again will be (at least in my most hopeful dreams).... Can us not be quaint and call them (us) what, Citizens? Parents? Patriots?