Recession Proof Cities: Raleigh makes the list

With over 40,000 people moving to the RTP area each year, the Raleigh area has made another list - America's Recession-Proof Cities. Charlotte (NC) also made the top 10 list, as well as many cities in Texas.

Surprising many, San Jose (CA) is also on the recession proof city list due to the strength of the Silicon Valley economy. However Forbes offered the following note of caution regarding San Jose.

And in the San Jose area, the median home sale price is over $830,000. That's 11% higher than it was in the fourth quarter of 2006, helping to land the area at No. 4 on our list. Problem is, that growth has since cooled, and it remains to be seen whether pricey homes coupled with a 5.3% unemployment rate will cause trouble for homeowners this year.

Just how bad is the situation with local banks?

Well bad enough that the FDIC is adding jobs to prepare for the upcoming crisis. The FDIC is bringing back 25 hired veterans to deal with the situation and hiring additional full time & contract staff. Some are describing the upcoming problem as a calamity that will exceed the scope of the S&L crisis during the late 1980s.

‘Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia," said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.’

An earlier HingeFire article touched on the subject of shorting local banks. When agencies are gearing up to deal with a developing crisis; this advice appears to be even more pertinent.

An evaluation shows that the bulk of financial weak banks that are publicly-held are located in California. Despite the large population of the state, the ratio of troubled banks within California still stands out as a warning sign for depositors. Other states with significant housing problems such as Florida, Arizona, Ohio and Nevada appear to have much smaller financial exposure in the banking sector relative to the size of their state populations.

The publicly-traded troubled institutions in California with safety ratings of “D” or below include:

• Friendly Hills Bank (FHLB.OB)
• Fresno First Bank (FSNF.OB)
• Folsom Lake Bank (FOLB.OB)
• Fremont General Corporation (FMT)
• Focus Business Bank (FCSB.OB)
• Discovery Bancorp (DVBC.OB)
• Desert Commercial Bank (DCBC.OB)
• Coronado First Bank (CDFB.OB)
• Cornerstone Commercial Bank (CRSB.OB)
• Commerce Bank Folsom (CBFM.OB)
• Bank of Santa Clarita (BSCA.OB)
• Charter Oak Bank (CHOB.OB)
• Bank of Napa (BNNP.OB)
• Atlantic Pacific Bank (APFB.OB)
• Americas United Bank (AUNB.OB)

Florida and Arizona merely have three or less publicly held local banks each with low financial strength ratings. In Florida, the Marco Community Bank (MCBN.OB) and Old Harbor Bank (OHBK.OB) make the list. Likewise in Arizona, the Gold Canyon Bank (GCYO.OB) is an example of an institution with a low financial strength rating.

California stands as an example of the state with an oversized list of publicly traded local banks which have low financial strength rates. This concentration of questionable institutions in a single state, where a large amount of lending has been provided to real estate developers, likely means that a good number of these banks will face liquidity troubles over the coming year as these commercial loans go sour.

Most of these banks are thinly traded on the OTC and putting on a short position may be difficult to implement without excessive slippage in the transaction. The other difficulty is that the majority of these banks have already dropped significantly in price over the past year, in many cases leaving little possible further profit for short-sellers. The most liquid stock, Fremont General (FMT) has already dropped from over $13 to near $2; this bank holding company is already buried in debt downgrades, regulatory troubles, and non-performing sub-prime loans.

Will all of these banks fail – probably not. However in the current economic and credit crimped environment, the risk is leaning in that direction. In California’s Silicon Valley stock option rich environment, executives like to talk about how they “think outside the box”. Looking at the list of financially weak “at risk” institutions in the state, you have to wonder if the entire banking system within California “thinks outside the box”.

California has already been properly depicted as “ground zero” for the subprime crisis. The state was home to dozens of subprime mortgage lenders that imploded; many which appeared to have lax oversight from the state in their greed-driven business. Should there be any expectation that the banks are in any better shape?

At minimum the list above should serve as a warning to depositors that have money at any of these institutions. As outlined in Bank Safety matters more now than ever, paying attention to the financial rating of the institution where you do your standard banking is more important now than any other time in the past years.

Tide of Dollars Floods Over Silicon Valley Startups

It seems like Web 2.0 is forming Bubble 2.0. Companies with minuscule sales are being given valuations that rival industry giants.

Is Google really worth more then IBM, a company with eight times their revenue? Is Facebook worth $15B? This trend continues with smaller companies in Silicon Valley that are flush with venture capital cash.

Recently eBay concurred that they greatly overpaid for Skype. At some point, valuation of companies needs to be tied to how much revenue they generate instead of the size of their web audience. It is likely that the Web 2.0 bubble focused on tying valuation to advertising potential before generating a single dime of revenue is a bubble that is ripe to deflate.

However at this point the exuberance, and Web 2.0 buzz, is continuing. Venture Capitalists are pouring money into the start-ups and larger companies are continuing to purchase them at lofty valuations.

Silicon Valley Start-Ups Awash in Dollars, Again
http://www.nytimes.com/2007/10/17/business/media/17bubble.htm

It's time to play Bay Area Mortgage Meltdown

I have regularly been informed that the Bay Area is immune to a mortgage meltdown and the housing prices are still humming along. The statistics and information appear to demonstrate a different story.

"Of the Bay Area's 236 ZIP codes, 25 are foreclosure hot spots - places where more than eight of every 1,000 homes were repossessed by lenders this year."

MORTGAGE MELTDOWN
NEIGHBORHOODS CRUMBLE IN WAVE OF FORECLOSURES
LOCAL TROUBLE ZONES: Epidemic repossessions hit several ZIP codes
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/10/14/MNVPSEMVQ.DTL

In today's counter-intuitive news

Stock Options for CEOs Harm Company Results
http://biz.yahoo.com/rb/071012/column_lifting_ceo.html?.v=1&.pf=career-work

This may get the vote for today's very odd business article. It claims that "option heavy" CEOs under-perform CEOs with less options. 'Companies with "options-heavy" CEOs had an average annual shareholder return of 26 percent versus 36.5 percent for companies run by "options light" CEOs during the study period.'

One interesting point is that the study period was from 1993 to 2000, a time when the market was booming, and included 950 companies. The study did not focus on the tech sector, nor did it take a look at the impact of broad-based stock employee stock option plans implemented by many tech firms. It does however bring the immediate question to mind if broad-based employee stock option plans help or hinder the bottom line for shareholders.

Interesting Take on Entrepreneurship

This article is interesting because it reflects the changes in perspective regarding Entrepreneurship. It draws some interesting comparisons regarding the old and new ways of thinking when it comes to starting your own business.

Mastering the New Entrepreneurship
http://finance.yahoo.com/expert/article/careerist/27680