Economic Review

3/8/2010

The Equity market closed out the week with a bang but so did another indicator…bank failures. So what’s up with that?

The Equity market closed out the week with a bang as the major indexes look to be primed to take another shot at the highs for the year. However, on the other side of the economic story is a very disturbing indicator in the realm of banking, where last week posted the number of failed US banks which reached 25 in 2010. This rate just about matches the same pace set in 2009 and far exceeds that pace set in 2008. Problems such as foreclosures, anemic lending, trouble with existing real estate loans and a looming problem in commercial real estate are a few reasons for the problem.

So how the heck can this be you ask…that US Stocks post noteworthy gains and many analysts are cheering a continued economic recovery, yet bank failures continue at an alarming pace. And the answer is….of course it doesn’t make sense. However, at the moment, many financial markets are simply not reacting to the massive increase in our national debt, budget deficits and ongoing planned spending. Will there be a day of reckoning? Remember the old adage, the markets always seem to adjust at some point to reestablish an equilibrium with fundamentals. Let’s just see how long current market trends last.

Stephan Kudyba (MBA, PhD) THE MARKET DOCTOR

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