Meredith Whitney Comments on Housing Double Dip

Meredith Whitney was a guest host on CNBC at 8AM ET talking about an anticipated housing double dip. The videos are below.

A few comments first.  Whitney was late to the recovery party in 2009 in my view. But I found the recent Rip Van Whitney piece by banking insider Thomas Brown a bit patronizing.

Brown leads in with the sexist subtitle:

Our girl Meredith, bearish as ever, seems to have snoozed through the past twelve months.

I have to condemn this sort of thing – calling a woman who is almost 40 years old "our girl Meredith" with obvious sarcasm – as offensive. I really need to point this out because this is the sort of thing you see in the financial services sector all the time, making for a hostile work environment.

That said, I don’t find his (bullish) economic arguments convincing. He says "economic growth over the past year has been wildly better than anyone had dared expect." That is not true. Analysts have been saying growth would be fairly robust for some time. Even I have been bullish on economic growth since at least April or May of 2009. The question is not the growth but the sustainability of that growth. This forward-looking perspective is what was missing in Brown’s commentary.

As for Whitney, she is looking forward. She already expects housing to double dip. But she added that fiscal austerity will precipitate a “very rough second half” of 2010. On the jobs front, she sees structurally high unemployment as a continued problem. However, I would note that both she and David Rosenberg had been talking about unemployment in the teens in 2009. Obviously that won’t happen unless we get a full economic double dip and she demurs on making a double dip call in the interview.

From her perspective, all of this is bearish for bank stocks because it will weaken balance sheets. She makes some compelling points on why banks balance sheets are still problematic with residential housing still a worry. Is that why the cautious JPMorgan still refuses to pay a dividend?


  1. Dhaf48 says

    Hello. Unemployment has been in the teens since the crisis. It’s just nobody wants to say so.

    1. Edward Harrison says

      Whitney and Rosenberg are referring to the official U-3 rate. The U-6 rate is well into the teens already and has been flashing depression for sometime.See here:

  2. Dcarlo says

    “Whitney was late to the recovery party in 2009 in my view.” Come on!!!

    I get so violently upset at these types of comments about anyone that didn’t predicted a 2009 huge run-up. YOU and everyone else knows why we went straight up since March and that is FED/TREAS intervention and manipulation. This is absurd that you can make this statement at all. Common sense would tell you that Whitney and others that shows you the truth about the toxic assets of SO MANY banks and multinational should not be trading where they are without the hidden hand of the manipulators. The larger point is all their predictions and analytics are true and the market would be in the gutter…no under the gutter if it weren’t for the unprecedented manipulation. Again, COME ON, please. Also, how about that obvious and blatant currency (over-night) manipulation on a world scale. Do you think that would have a direct impact on the stock prices (each day) to prop the stocks up day, after day, after dat, after day, leading up from March to present day. Look at how MS & GS & Big Brother intervene to POUND spot Gold down as it rears its ugly head by reaching new highs. Today’s over-night currency action and GOLD off-the-cliff dive (after reaching new highs) is just jaw dropping and sad.

    Now after this commentary, you surely must have the feeling that your statement is just bunk.

    Whitney and others are simply telling the truth and can’t make a legitimate call when the market is rigged (COMPLETELY)…. Do you not agree?

    1. Edward Harrison says

      No, I don’t agree. She recognized later than some that the recovery in the economy and bank stocks had begun. I don’t fault her for that because her fundamental view has been very good throughout. However, she missed a large percentage of the run-up in bank stocks in April-July.

      It is indeed difficult to call these markets when much of it depends on government action and Whitney has said as much.

  3. Rahul Deodhar says

    Two parts – skipping mortgage payments is going to come back to haunt the people and only those with savings and financial backup will survive this.

    The part to highlight is that all this time she is speaking of domestic US fundamental problems.

    Yet that is not yet a concern for the market. At this point markets are ignoring the fundamental issues. The problem will be if bad news comes with consolidation markets are likely to see soon. It will be bad news and bad market – that will make it a blood bath.

  4. Skip90291 says

    Thanks for calling him on the blatant sexism. Yes, the world is falling apasrt, and survival is paramount. But we can still endeavour to become a better world. I’m so tired of the boys’ club in finance. I am going to write a letter to Business Insider and tell them to include some beefcake with all that cheesecake in their Top 10 Things You Need to Know Before the Opening Bell. We’re not all boys. Or straight for that matter. Some of the best analysts I know aren’t either of those things.

  5. Amit Chokshi says

    I would argue that she is wrong re weakness at money center banks. These banks have raised a ton of capital over the past year. I would argue from what I have specifically seen at C, that during the zenith of the crisis in late 08/early 09, when these banks were raising capital, they were scared out of their wits and wrote down assets more aggressively than they would normally do.

    Citigroup for example is levered at about 10:1 with a high level of bad assets that are rolling off (Citi Holdings). This is like S&L leverage levels. In addition, they along with other banks have set aside a ton of loan loss provisions quarter after quarter and net charge offs appear to have peaked in Q2-Q309. So while the loan loss reserve can still be a huge percentage of assets at this point, the actual NCOs have been down considerably relative to 2009. If this trend continues, then you will see reversals in subsequent quarters which will juice EPS.

    Right now for some regional banks I follow, the Loan Loss Prov eats up about 50% of Net Interest Income. That is not a trivial amount. If one expects that the economy to be weak but not in dire straits, I think the Loan Loss Prov improves and that will take some bears on banks by surprise.

    Another item to note is that banks have tossed everything into the non performing loan category. Some banks I look at on the regional level have high levels of loans current on principal and interest classified as NPLs primarily due to the fear factor when they received TARP. Meaning they wanted to clean house as aggressively as possible and if anything looked questionable, they tossed it into the NPL category. So again, I think as crazy as it may sound (and i thought it until I looked at the company level rather than be scared by the macro), I think a lot of banks have overreserved for losses.

    This actually requires one to do real homework on the balance sheets and earnings outlook. But when you can get banks for <1.0x tangible book and can get comfortable with the credit exposures and loss reserves, there's money to be made in that sector.

    Yes CRE is a problem but what matters is the provision of loss levels. You can have the most toxic asset on your balance sheet but if you have fully reserved for it to fail, then you are generally ok.

    There are many regional banks with Tier I ratios of 10%+ and have plenty of liquidity whereby Loan/Deposit ratios are under 80% in some case. That's a LOT of free cash that bank have. It's politically untenable but it's almost a free ticket to conduct massive share repurchases.

    Barring a double dip that was worse than the -6% GDP we had in Q408, if someone takes a 2 year time horizon on a number of regionals, they can make 50-100% on those.

    Tom Brown is the luckiest SOB on the planet. Hard to find someone that can have been as wrong as he was, be a financial services hedge fundie, loss around 80-90% and still be in business. It's a sad commentary on the fund industry that this guy can get media time and be considered an expert. If only we could have been coming of age in say 1982-2000, basically any buffoon could be a genius back then.

    1. Hedgie says

      At the Value Investors Congress in November 2007 I saw Tom Brown give an impassioned recommendation of First Marblehead, then at $38 and now at $2.59. At the same conference Richard Pzena said that Freddie Mac was the best investing value he had seen in his entire career. Both men had a total and absolute trust in the tangible book values recorded in the financial statements, and both angrily denied that write-offs could ever seriously impair those book values. If these two investors were doctors or lawyers, this level of incompetence and recklessness would have led to their being stripped of their professional credentials.

      1. Amit Chokshi says

        I was there too. I saw some other guy recommend American Apparel too. The VIC is a scam, value investing works if you isolate yourself from the rest of the value investing universe. Right now it’s a bunch of lemmings chasing each other’s 13Fs and pretending to be individual thinkers.

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