Page 8
The Great Money Panic!

REITs will get clobbered. Construction stocks will plunge.
Bank profits will disappear!

This is a no-brainer. These three sectors - REITs, construction and banking - are among the most vulnerable to a real estate debacle.

REITs and REIT funds: A REIT is like a mutual fund, only it deals in real estate, not equities. Real Estate Investment Trusts purchase and manage income property and/or mortgage loans. Now, they're going to get slammed, with those concentrated in California and other high-tech areas especially hard hit.

Construction companies: Construction companies are exceptionally vulnerable to the downturn in real estate for obvious reasons. Overcapacity and dwindling demand for new office space and shopping malls means less projects to build, and therefore, declining earnings. Companies like Devcon International, and Abrams Industries will see their shares get hit.

Bank stocks: Losses from large syndicated loans by US banks tripled in 2000 to more than $5 billion. And we've already seen bad-loan fallout poison the earnings of Bank of America and First Union. A real estate recession will make previous problems look like a walk in the park for these stocks.

I'm not the only one issuing warnings. A recent study by Salomon Smith Barney forecast that loan defaults will total about $33 billion this year, with most of that bad debt showing up on the books in the first half. I think they're understating the potential damage. But even if they're right, the impact on the financial institutions holding these debts will be dramatic.

FDIC Chairman Donna Tanoue says that 9% of banks are "very vulnerable" to a real estate downturn. Another 16% are "somewhat vulnerable." More bad news from the FDIC:
  • Commercial and industrial (C&I;) credit quality indicators at banks have deteriorated for eight consecutive quarters. Noncurrent C&I; loans - those that are in trouble - rose 13% from the first quarter to the second quarter of last year, to $14.5 billion.
  • Large banks, particularly those active in syndicated lending, are bearing the brunt of the pain from failing commercial and industrial loans ... Just as Bank of America and First Union took it on the chin from the $1 billion they loaned to Sunbeam, so other big banks could potentially find themselves up to their eyeballs in bad debts.
Among the most vulnerable banks, in my opinion: Eastern Savings Bank, FSB (Hunt Valley, MD), Ocwen Federal Bank FSB (Fort Lee, NJ), Bank One NA (Columbus, OH), and Matrix Capital Bank (Las Cruces, NM). Avoid them like the plague. Each of these banks has more bad real estate loans than total equity capital.

The Coming ENERGY

It's no secret that this country is in the early stages of an energy crisis. Even President Bush admitted it in his State of the Union address.

But precious few people - including the President - have any idea how deadly this crisis is shaping up to be.

Last time around - in 1973 and '74 - an oil shortage drove the Dow down by nearly in half and flattened the economy for nearly two years.

This time around, it's not just oil. The US is running chronically short on the lifeblood of our high-tech civilization: Electricity.

Oil prices have already tripled from their 1998 lows. Electricity prices have already soared by 200% ... 300% -- up to 800% from Florida to California. Natural gas prices have more than DOUBLED from $2.00 in January 2000 to $4.22 today.

Together this triple crisis will cripple the US economy in ways we couldn't even imagine during the last energy crisis. Ultimately, they are helping to smash US industry ... kill the digital revolution ... even plunge some of our cities into darkness. Here's what just about nobody else is telling you about America's energy disaster ...

To the Safe Money Report website
Next Page
[ Page 1 | Page 2 | Page 3 | Page 4 | Page 5 | Page 6 | Page 7 | Page 8 | Page 9 | Page 10 ]

© 2001 Weiss Incorporated
4176 Burns Road
Palm Beach Gardens FL 33410
toll free: 800-236-0407
tel: (561) 627-3300
fax: (561) 625-6685