KPIG Radio November 10

Stocks struggled in early trade and enter the final hour mixed on little real news. For what it’s worth the NAR reported that the median home price gained 6.4% on an annualized basis last quarter, this marks the first national price increases since 2007. Some notable standouts form the NAR Metro report, San Francisco +17.9% during the same period while LA and Miami both added 8.2%. The latest chapter in the credit bust saga comes to us from Atlanta Fed President Dennis Lockhart during a speech titled Economic Recovery, Small Business, and the Challenge of Commercial Real Estate voiced his concerns regarding commercial real estate losses and the effects on small to mid-sized banks. While he noted that the CRE market held 3.5 trillion in outstanding mortgages at the end of the 2nd quarter, while considerably less than the 11 trillion in outstanding residential loans, they are concentrated amongst smaller banks, who provide nearly 40% of small business credit, while they hold only 20% of banking assets they posess a disproportionately large almost 50% of commercial mortgages. So the losses while not nearly as broad or directly connected to consumer spending like residential loans will have a severe negative impact on small business credit. A credit sector already reeling from the bankruptcy of CIT Group and Advanta . Mr. Lockhart went on to state that small businesses accounted for a significant portion of job creation and as such they were critical to the economic recovery. In other lending news the October Senior Loan Officer Survey showed that demand for loans continues to fall nearly broadly, the one exception being Prime real estate loans as demand increased for a 3rd consecutive quarter. Credit standards continue to tighten across the board however. Once again this report indicates the credit bust script is alive and well with banks, badly burned by loan losses, reluctant to lend. While consumers and business remain reluctant to borrow absent government stimulus funds and in the case of real estate despite terrible fundamentals and numerous reports of further price declines.