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We've Only Just Begun, To Experience Financial Stress

runners at begining of the race
Run Forest Run

Things are great, markets are up, and that is the best indicator of current economics, lets all celebrate and go out and buy stuff. Wrong... when you dig a little deeper, you might realize just how much financial stress banks are under.

5 banks failed several months ago, and now some 168 are on a watch list to see which ones fail next. Yes the FDIC pulled a rabbit out, but they did so at a steep cost. Reports indicate the FDIC has hefted a premium on all the other banks to pony up and rebuild the rescue fund, putting even more pressure on banks and financial institutes to make money and pay the hefty dividends that they promise.

The biggest stress now is in the commercial Real Estate Sector. We simply don't need all that office space, so nobody is buying, and nobody needs loans... and guess who suffers.

Loans are drying up, as borrowing costs stay high, with no relief in sight. We still have 6 months to go, and already several financial institutes are reported to be close to failure. Today with internet banking, you don't need to go line up... the collapse of these banks will be electronic, and fast, and in fact just like stock market plunges (Black Friday) it may even be automated with bots.

Comerica Incorporated (CMA) and Huntington Bancshares Incorporated (HBAN) are but 2 that stand out, and in this booming stock market, these investments are trying to hold on with dividends only, which is a fools game. A 5% dividend doesn nothing to protect you from a 50% loss of capital, it would take years and years of dividends to replace the loss's. So you do the math... its not hard.

These US banks, and even the Canadian Banks are suffering from underfunding, and have been forced to raise their capital reserves in preperation for loan loss's, and liquidations, both commercial and consumer. Banks are not stupid. With the current whim of the Fed, and BOC, they will wait until we are scraping the ground before pulling back on the stick, 6 months or so? And even then we are talking 1/4 of a point at best, which will not be enought to save the banks at that point.

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