Here's wishing my readers, a Very Very Happy New Year.
However, how the new year pans out is anybody's guess. I, for one, is not overtly optimistic though. Here's why:
1) According to Orin Kramer, Chairman of New Jersey’s pension fund, the U.S. public pension plans face unfunded liabilities of over $2 trillion. Citing his own experience of running Jersey’s fund, he said that for every dollar the average public fund has promised, it has only 60 cents on hand. In other words, 40% of people with public pensions technically have no money saved on their behalf
2) Yesterday's data on pending home (for November) showed a sharp drop of 16%. The market is gungho about the data since the pending home sales index is actually 15% higher than the same time last year. This many pindits believe is signal enough that the market has gained momentum. Really? As per the press release, the NAR cited the imminent withdrawal of the first-time homebuyer tax credit as the reason behind the larger-than-expected November fall. Meaning, the market cannot even stand on its own without the steroid and here are people talking about market gaining momentum
3) According to Real Estate Econometrics LLC, a property research firm in New York, the default rate on commercial mortgages held by U.S. banks more than doubled to 3.4% in the third quarter. As a result, the default rates in the first three quarters of 2009 have been the highest since 1993. Adding to that, a Bloomberg report says that losses on commercial real estate loans pose the biggest risk to U.S. banks this year. “Losses from commercial real estate will be quite high by historic standards,” said Eugene Ludwig, former Comptroller of the Currency who is now chairman of Promontory Financial Group, a Washington-based consulting firm to financial institutions. “Hundreds of banks will fail or will be resolved over the course of the cycle.” Federal Reserve Governor Elizabeth Dukesaid in a Jan. 4 speech that credit conditions in commercial real estate “are particularly strained.” The failure of loans backing malls, hotels and apartments may impede the U.S. recovery as small- and medium-sized banks reduce lending and conserve capital to absorb losses, analysts said. Tight credit could slow the cycle of investment and hiring that is critical for sustained growth, they said. Fed Chairman Ben S Bernanke, in a Dec. 7 speech, cited tight credit among “formidable headwinds” likely to hinder growth. Total loans and leases by banks in the U.S. fell to $6.79 trillion in November from $7.23 trillion in the same month a year earlier, according to Fed data
4) The European Central Bank executive board member, Jürgen Stark, recently commented that the European Union would not save Greece from its fiscal problems. So, other potentially bankrupt countries, beware
So, hold onto your nerves dear readers as the new year unfolds