Turning Points

Above is my latest Elliott Wave update. Turbulence would be a great descrition of recent market activity. Many may be left, scratching their heads at Mr. Market's stubborn persistence in advancing with cunning and quick head fakes along the way. Along the way reports continue to rock the news, mostly bad, but with pom-pom spirited spins (greenshoots anyone?).

The topics of interest are summarized below with links:

Stress-Tested Banks May Struggle As Bad Assets Triple:

The tests on the 19 largest banks are likely to focus in part on loan quality as a measure of health. The lenders, which may need to raise $1 trillion in capital to cushion losses according to an April 23 KBW Inc. report, may have a hard time persuading investors to give them cash.
...
New York-based JPMorgan’s nonperforming assets grew 185 percent in the past year to $14.7 billion, or 0.7 percent of the firm’s total. Bank of America Corp., based in Charlotte, North Carolina, said bad assets increased 229 percent to $25.7 billion. Problem assets at New York-based Citigroup Inc. rose 128 percent to $27.4 billion, and San Francisco-based Wells Fargo & Co.’s jumped 180 percent to $12.6 billion.

Junk Bond Defaults To Reach Record By March, S&P Says:

Junk-rated companies have about $177.5 billion of debt maturing in 2009 and $179 billion coming due in 2010, including bonds and bank loans, S&P said. So-called junk bonds are rated below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s.

Sixty-one companies have defaulted this year as of April 17, three times as many as during the same period a year ago, and affecting $200 billion of debt, S&P said.

The record rate of defaults for high-yield, high-risk, or speculative-grade bonds is 12.5 percent in June 1991, S&P said.

IMF Puts Global Bank Losses From Financial Crisis At $4.1 Trillion:

the I.M.F. estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion in the value of their holdings as a result of the crisis.

Fannie & Freddie Delinquencies Soar (and they are going to get much worse)

All loans 60+ days delinquent increased from 834,831 as of November 30 to 1,229,051 as of January 31, representing an increase of 47 percent over the period. However, prime loans 60+ days delinquent increased by 69.6 percent while nonprime loans increased by 23 percent.

Fed's Losses Dominated By Commercial Real Estate:

The Fed wrote down the value of former Bear Stearns commercial-mortgage holdings by 28 percent to $5.6 billion and residential loans by 38 percent to $937 million as of Dec. 31, the central bank said today. Properties in California and Florida accounted for 45 percent of outstanding principal of the residential mortgages.

Amazing, the news continues to dominate towards the negative side. Even more amazing, analysts speak of "green shoots" because a few government statistics decreased slightly in the speed at which they are deteriorating...utter blasphemy. Furthermore, what really matters are losses. In 2008 we saw losses from bad assets falling in value. In 2009 we are seeing a rapid extension of what was only the beginning of credit losses that started in Q4 08'. (I'll soon post on this, with reference to credit outstanding in the flow of funds report).

What will be the effect?

With credit losses spreading and accelerating the economic reality and deflationary vortex is only going to increase in 2009. I trust not the economic predictions of economists who saw no crisis coming in the first place. The result...lower prices.


Getting back to my Elliott Wave analysis:


Forming is a clear diagonal, seemingly a leading diagonal. When formations like these appear and finally exhaust, look for explosive moves at the termination point, in this case to the downside. Me thinks this may finally exhaust near 880, possibly in tandem with the stress test results, good or bad.