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Zacks Analyst Blog Highlights: Fannie Mae, Freddie Mac, Sherwin Williams, La-Z-Boy and Campbell Soup Co. – Press Releases

Zacks Market Commentaries — Tue, 24 Nov 2009 12:00:30 +0000

For Immediate Release

Chicago, IL – November 24, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Fannie Mae (FNM), Freddie Mac (FRE), Sherwin Williams (SHW), La-Z-Boy (LZB) and Campbell Soup Co. (CPB).

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Here are highlights from Monday’s Analyst Blog:

Existing Home Sales Soar Again

Lower mortgages rates -- greatly suppressed by the Fed’s policy of buying up $1.25 Trillion of mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) but that buying spree is expected to end at the end of the first quarter -- have also helped the existing homes sales market. In October, 30-year fixed rate mortgages fell to an average of 4.95%, down 2.17% from 5.06% in September and down 20.16% from the year-ago level of 6.20%.

A third and very important reason for the rebound in existing home sales is that prices have come down. Overall, median existing home prices are now $173,100, a 7.1% decline from a year ago. Existing single-family home prices have held up a little bit better, down 6.8% from a year ago, while prices for Condos are down 10.4% from last year.

Regionally, existing home sales were up by double digits for the month in every region but the West. The Midwest led the way with sales up 14.4% to an annual rate of 1.43 million. From last year, sales in the region are up 28.8%.

In the very important South region, sales rose by 12.7% and are up 25.7% from a year ago. Sales in the South were at an annual rate of 2.30 million, or 37.7% of the total. While that is well below the over 50% rate that the region accounts for when it comes to new home sales, it still makes it the largest region of the country by a wide margin.

The Northeast is the smallest region, with sales at an annual rate of 1.06 million, but that rate was up 11.6% from September and is up 27.7% from a year ago. The rebound was much more muted out West, where sales were up just 1.6% for the month and just 12.0% year over year. The West has also suffered by far the largest decline in median prices, down 14.7% from a year ago -- more than double the next largest decline (the South -- 14.7%).

In the Northeast, which is the most expensive market (median price of $235,400) prices are down just 2.6% year over year. In the Midwest, the most inexpensive market (median price $146,600) prices are actually up 1.1% from a year ago.

While the news on existing home sales is good, and the existing home market is FAR larger than the new home market, it is also far less significant to the economy than is the new home market. New homes directly stimulate residential investment, which is an important (and volatile) component of GDP. Lots of labor and materials go into building a new home.

Existing home sales have only an indirect effect on the economy. They stimulate sales of things like paint from Sherwin Williams (SHW) and furniture from La-Z-Boy (LZB) as people redecorate, but such spending is much smaller than building a whole new house. In other words, this is good news, just don’t get too carried away about its significance.

Campbell’s Beats, Raises Guidance

Campbell Soup Co. (CPB) reported fiscal first-quarter earnings of 87 cents per share, which was above the Zacks Consensus Estimate of 81 cents. Quarterly earnings were up 14.5% compared to the prior-year quarter.

Quarterly net sales declined 2.1% year over year due to a negative impact of 4% from volume and mix and 1% from increased promotional spending, partially offset by positive contributions of 2% from price and allowances and 1% from currency translation. Gross margin for the quarter expanded 170 basis points (bps) to 41.9% versus 40.2% in the year-ago quarter, reflecting productivity improvements and pricing benefits.

Sales of the US Soup, Sauces and Beverages segment decreased 5% year over year. US soup sales fell 3%, driven by sales declines in condensed, RTS and broth. Prego pasta sauce and Pace Mexican sales dropped due to competitive pressures, while beverage sales declined due to weak sales of V-8 vegetable juice.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Existing Home Sales Soar Again – Analyst Blog

Dirk Van Dijk — Mon, 23 Nov 2009 17:14:31 +0000

In October, existing home sales rose by 10.1% and are now 23.5% above the year-ago rate. Sales were at a seasonally adjusted annual rate of 6.10 million, up from 5.54% in September and a 4.94 million pace a year ago.

Existing single family home sales rose by 9.7% to a 5.33 million pace, while condo sales soared by 13.7% to a seasonally adjusted annual rate of 770,000. Sales have been greatly aided by the "first time" homebuyer tax credit, which while eventually extended and expanded, for most of the month looked like was about to expire. Thus, in October people were scrambling to try to get in under the wire.

This is the fifth straight month that existing home sales have exceeded year-ago levels. Even more impressive is the fact that actual, non-seasonally adjusted sales actually were higher in October than they were in September. This is highly unusual, since existing home sales are highly seasonal and sales normally drop sharply in October, as can be seen in the graph below (from http://www.calculatedriskblog.com/.) We are almost back up to the October 2007 level of sales on an actual, unadjusted basis (which is reasonable to look at when comparing the same month of the year).

There was even more good news in that inventories also declined by 3.7% from September, and are down 14.9% from a year ago. Combined with the rising sales pace, that brought the months supply down to 7.0 from 8.0 last month. We are almost at "normal levels" of inventory relative to sales, but not quite. Still where we are today is much healthier than the double-digit months tha prevailed for most of 2008, and this is the second sharp drop in a row. The graph below also comes from http://www.calculatedriskblog.com/.

Lower mortgages rates -- greatly suppressed by the Fed’s policy of buying up $1.25 Trillion of mortgages backed by Fannie Mae (FNM) and Freddie Mac (FRE) but that buying spree is expected to end at the end of the first quarter -- have also helped the existing homes sales market. In October, 30-year fixed rate mortgages fell to an average of 4.95%, down 2.17% from 5.06% in September and down 20.16% from the year-ago level of 6.20%.

A third and very important reason for the rebound in existing home sales is that prices have come down. Overall, median existing home prices are now $173,100, a 7.1% decline from a year ago. Existing single-family home prices have held up a little bit better, down 6.8% from a year ago, while prices for Condos are down 10.4% from last year.

Regionally, existing home sales were up by double digits for the month in every region but the West. The Midwest led the way with sales up 14.4% to an annual rate of 1.43 million. From last year, sales in the region are up 28.8%.

In the very important South region, sales rose by 12.7% and are up 25.7% from a year ago. Sales in the South were at an annual rate of 2.30 million, or 37.7% of the total. While that is well below the over 50% rate that the region accounts for when it comes to new home sales, it still makes it the largest region of the country by a wide margin.

The Northeast is the smallest region, with sales at an annual rate of 1.06 million, but that rate was up 11.6% from September and is up 27.7% from a year ago. The rebound was much more muted out West, where sales were up just 1.6% for the month and just 12.0% year over year. The West has also suffered by far the largest decline in median prices, down 14.7% from a year ago -- more than double the next largest decline (the South -- 14.7%).

In the Northeast, which is the most expensive market (median price of $235,400) prices are down just 2.6% year over year. In the Midwest, the most inexpensive market (median price $146,600) prices are actually up 1.1% from a year ago.

While the news on existing home sales is good, and the existing home market is FAR larger than the new home market, it is also far less significant to the economy than is the new home market. New homes directly stimulate residential investment, which is an important (and volatile) component of GDP. Lots of labor and materials go into building a new home.

Existing home sales have only an indirect effect on the economy. They stimulate sales of things like paint from Sherwin Williams (SHW) and furniture from La-Z-Boy (LZB) as people redecorate, but such spending is much smaller than building a whole new house. In other words, this is good news, just don’t get too carried away about its significance.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Read the full analyst report on "SHW"
Read the full analyst report on "LZB"
Zacks Investment Research

Zacks Analyst Blog Highlights: Bank of America, MGIC, Fannie Mae, Freddie Mac and Gymboree Corp. – Press Releases

Zacks Market Commentaries — Fri, 20 Nov 2009 12:42:27 +0000

For Immediate Release

Chicago, IL – November 20, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Bank of America (BAC), MGIC (MTG), Fannie Mae (FNM), Freddie Mac (FRE) and The Gymboree Corp. (GYMB).

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Here are highlights from Thursday’s Analyst Blog:

Mortgage Delinquencies: Record High

The delinquency rate is going up much faster than foreclosures are being started. With unemployment high and rising, it is hard to see a lot of those delinquencies getting cured. Either the lenders will have to let people live indefinitely in their houses without paying (unlikely that the banks would be so generous) or we will see another huge wave of foreclosures coming.

The absolute number of houses that are either in foreclosure or 90 days or more past due now exceeds the number of existing homes available for sale. That is a huge overhang of shadow inventory (although some of it is out of the shadows and currently listed for sale) that should continue to put pressure on housing prices, even with all the extraordinary government support trying to prop up housing prices.

While unemployment is one serious driver of mortgage foreclosures because it affects the ability to pay, falling home prices are another driver. An underwater home is a home that is at high risk of going into foreclosure. It is simply economically irrational to continue to make payments on a $500,000 mortgage that is secured by a property that is only worth $400,000. This, then, continues the vicious cycle, where falling prices lead to foreclosures, which leads to more distressed supply, which leads to further pressure on home prices that in turn leads to yet more foreclosures.

The entire mortgage complex is not yet out of the woods. That complex includes the big banks like Bank of America (BAC), the mortgage insurers like MGIC (MTG) as well as Fannie Mae (FNM) and Freddie Mac (FRE). My inclination is to avoid all of them.

Gymboree Beats, but Outlook Down

The Gymboree Corp. (GYMB) reported its fiscal third quarter results after the closing bell on Wednesday. The company posted earnings of $34.8 million, a growth of 12.6% from $30.9 million recorded in the year-ago period. Earnings per share came in at $1.15, which topped the Zacks Consensus Estimate of $1.13.

Gymboree is a specialty retailer offering apparel and accessories for children under the Gymboree, Gymboree Outlet, Janie and Jack and Crazy 8 Brands, as well as play programs under the Gymboree Play & Music brand. At the end of October 2009, the company operated a total of 951 stores across the U.S., Canada and in Puerto Rico.

The company reported a nearly 2% increase in total sales to $269.1 million during the quarter, compared to $264.1 million in the year-ago quarter. The expansion was primarily driven by the addition of 78 new stores in the last one year period, partially offset by a 4% decline in same-store sales. During the quarter, the company opened a total of 25 new stores including six Gymboree stores, four Gymboree Outlets and 15 Crazy 8 stores.

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DrStockPick.com Stock Report! 11/19/09, ABT, PSFT, AEP, EFX, FNM, LNC

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Mortgage Delinquencies: Record High – Analyst Blog

Dirk Van Dijk — Thu, 19 Nov 2009 19:46:41 +0000

The Mortgage Bankers Association (MBA) reported today that mortgage delinquencies hit a record high in the third quarter:

"The delinquency rate for mortgage loans on one-to-four-unit residential properties rose to a seasonally adjusted rate of 9.64 percent of all loans outstanding as of the end of the third quarter of 2009, up 40 basis points from the second quarter of 2009, and up 265 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey. The non-seasonally adjusted delinquency rate increased 108 basis points from 8.86 percent in the second quarter of 2009 to 9.94 percent this quarter." (For more, click here.)

Unlike the TransUnion report that came out yesterday, the definition of being delinquent is a bit more expansive in this report, covering all mortgages that are at least one payment behind, while the TransUnion report was for mortgages that were at least 60 days overdue (see "Mortgage Delinquencies Still Rising") but point in the same direction.

The MBA data does not include mortgages that have entered the foreclosure process, and those are rising as well. In the third quarter 4.47% of all mortgages were in some stage of the foreclosure process, up from 4.30% in the second quarter and 2.97% a year ago. The graph below (from http://www.calculatedriskblog.com/) shows the percentage of all prime loans that are in trouble (both fixed and ARMs).

Mortgage delinquencies and foreclosures are no longer just about subprime loans made by shady operators to people living on the wrong side of the tracks. As the late, great Tanta of Calculated Risk put it: "We are all subprime now."

When people are out of work and without a paycheck, it is very tough to pay your mortgage. The big driver of higher foreclosures now are what was supposed to be the safe stuff -- prime fixed-rate mortgages. They represented fully one third of all foreclosures started in the third quarter and 44% of the increase in foreclosures.

Looking a bit further down the troubled mortgage spectrum, they were 54% of the mortgages that were more than 3 months past due, but the banks had not yet started the foreclosure process on them. If one throws in adjustable-rate prime loans (which includes some of the crap like Option ARMs), things look even worse, as their performance is now even worse than that of subprime loans. There was actually a decrease in the rate that subprime loans were going into foreclosure.

The pig is making its way through the python. The FHA has taken over the role that the subprime mortgage brokers used to have, and it is getting much the same results. Eventually, the FHA is going to need a big bailout. While the rate of troubled mortgages is still much higher for subprime than for prime mortgages, there are far more prime mortgages outstanding than there are subprime mortgages. The second graph (also from http://www.calculatedriskblog.com/) shows the sorry state of subprime mortgages.

While the foreclosure problem has moved from the wrong side of the tracks to the gated communities, it is still concentrated in the same former bubble states as before -- places like Florida and California. Just four states (also Arizona and Nevada) had 43% of all foreclosures started in the third quarter, roughly the same proportion as in the second quarter and a year ago. In Florida, one out of four mortgages is now either in foreclosure or at least one payment late.

The delinquency rate is going up much faster than foreclosures are being started. With unemployment high and rising, it is hard to see a lot of those delinquencies getting cured. Either the lenders will have to let people live indefinitely in their houses without paying (unlikely that the banks would be so generous) or we will see another huge wave of foreclosures coming.

The absolute number of houses that are either in foreclosure or 90 days or more past due now exceeds the number of existing homes available for sale. That is a huge overhang of shadow inventory (although some of it is out of the shadows and currently listed for sale) that should continue to put pressure on housing prices, even with all the extraordinary government support trying to prop up housing prices.

While unemployment is one serious driver of mortgage foreclosures because it affects the ability to pay, falling home prices are another driver. An underwater home is a home that is at high risk of going into foreclosure. It is simply economically irrational to continue to make payments on a $500,000 mortgage that is secured by a property that is only worth $400,000. This, then, continues the vicious cycle, where falling prices lead to foreclosures, which leads to more distressed supply, which leads to further pressure on home prices that in turn leads to yet more foreclosures.

The entire mortgage complex is not yet out of the woods. That complex includes the big banks like Bank of America (BAC), the mortgage insurers like MGIC (MTG) as well as Fannie Mae (FNM) and Freddie Mac (FRE). My inclination is to avoid all of them.
Read the full analyst report on "BAC"
Read the full analyst report on "MGIC"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Mortgage Delinquencies Still Rising – Analyst Blog

Dirk Van Dijk — Tue, 17 Nov 2009 20:20:13 +0000

This morning Trans Union, the big credit bureau, released its quarterly report on mortgage delinquencies, and it was not pretty. Nationwide, 6.25% of all residential mortgages were at least 60 days past due in the third quarter, up from 5.81% in the second quarter and 3.96% a year ago. This was the 11th straight quarter that delinquencies increased.

Mortgage delinquencies are the first step in a house eventually going into foreclosure, so look for those to start heading up again. Foreclosures have been held down by trial modifications under the HEMP program, but very few of those have gotten to the stage of being final modifications. And even when mortgages are modified, there is a strong tendency for those people to again find themselves in financial trouble. Clearly people not paying on their mortgages is not good news for the big banks like Bank of America (BAC) and Wells Fargo (WFC) that lent them the money.

If there is a silver lining in the data, it is that the rate of increase seems to be slowing. The third quarter increase was "only" 7.6%, which is down from an 11.3% increase in the second quarter and a 14.0% increase in the first quarter. Of course, as the base increases, each additional percentage of increase means a bigger absolute number of delinquent mortgages.

There are huge regional disparities in the rate of mortgage delinquencies. The former bubble states continue to suffer mind-bogglingly high rates of delinquencies -- 14.5% of all mortgages in Nevada and 13.3% of all homeowners in Florida are at least two months behind on their mortgages. That is almost one in seven in Nevada and about two in every fifteen in Florida.

In contrast, states where very few people live are experiencing very low rates of delinquencies. North Dakota is holding up best, as it is on a number of economic indicators with a rate of only 1.7%. South Dakota is not faring all that much worse at 2.3% and in Vermont the rate is only 2.6%.

However, the gap is starting to close, and not in a good way. The fastest growth in delinquencies is now coming from areas where there was no real housing bubble. The biggest jump came in Wyoming where delinquencies jumped by 17.9% in the quarter, followed by Kansas at 17.4% and North Dakota at 16.0%. Still, it would take a long time for North Dakota to catch up to Nevada.

There are two key forces that are leading to people not paying their mortgages. One goes to a lack of desire to do so, and the other goes to lack of ability to do so. If your house is substantially underwater, i.e. your mortgage is for a lot more than the house is worth, it is not economically rational to continue to pay your mortgage. After all, most mortgages are non-recourse, which means that the worst thing that happens is that the house gets foreclosed on and you go rent.

At one point, there was a huge social stigma to being foreclosed upon, but as it becomes more common, the stigma diminishes. There are, of course, some non-economic costs associated with not paying and just living rent- or mortgage-payment-free for awhile, and in many areas of the country that can now be well over a year. Your kids might be upset with you since they would have to change schools and leave all their friends if you can’t rent in the same school district. People also develop emotional attachments to their houses. Those factors might be worth a $5,000 or $10,000. However, if the house is underwater by $100,000, most people will just tell little Billy that he will make new friends at his new school.

The second reason for rising delinquencies is unemployment. Quite simply, with no paycheck, it is harder to write the mortgage check. It is not a coincidence that states like Nevada, Florida and California, which have very high delinquency rates, also rank near the top in terms of unemployment -- and the Dakotas and Vermont have unemployment rates that are well below the national average. For the delinquency rate to start to fall significantly, we will need to see progress on both the employment front and on the housing price front.

The government has been doing everything in its power to re-inflate the value of houses. It is throwing money at homebuyers in the form of tax credits. Under the recent extension, you don’t even have to be a first-time home buyer to benefit from Uncle Sam’s generosity. Of course, giving money away to move up buyers does not even reduce the inventory of unsold homes, since for each one bought, another one goes on the market.

The Fed has been artificially depressing mortgage rates by buying up $1.25 trillion of mortgage-backed securities. In the absence of that program, rates on a 30-year fixed rate mortgage would probably be at least a full percentage point higher. The Federal government has also assumed the role of subprime mortgage lender through the FHA, which is offering mortgage loans with only 3.5% down, and the tax credit can be used for the down payment. That is exactly the same sort of behavior that got New Century Financial and Washington Mutual into trouble. It just goes to prove the power of a good lobby over economic rationality.

This gift to the realtors of the country is eventually going to come back and bite the country on the behind, resulting in a massive -- think Fannie Mae (FNM)- and Freddie Mac (FRE)-sized bailout -- of the FHA.

The massive actions have had some effect, and the Case Schiller index has shown some improvement in housing prices over the last few months. Also, housing prices are much closer to normal, relative to incomes and rents, than they were a few years ago at the peak of the bubble.

Notice that I said "closer to normal," not "below normal." In the absence of this extraordinary government support, there is still room for housing prices to fall without them becoming undervalued based on historical relationships. The fact that incomes are not growing much due to high unemployment, and rents are falling due to record high vacancy rates, does not help the situation.

This poses a bit of a dilemma, since new housing starts typically lead changes in unemployment. This can be seen in the first graph below (from http://www.calculatedriskblog.com/). In the graph, the unemployment rate is inverted to better show the relationship between it and the rate of housing starts, as well as the lag involved. The dot.com crash-induced recession of 2001 is the one case where the relationship does not seem to hold.

The good news is that it looks like we have seen the bottom for housing starts this cycle back in January. Based on the historical relationship, that means we might start to see some improvement in the unemployment rate by this coming spring.

The bad news, though, is that new housing right now is a classic case of mal-investment. With lots of vacant housing, the last thing we need as a country is more housing units. The second graph below (also from http://www.calculatedriskblog.com/) shows that the dramatic decline in housing starts has not yet begun to make a dent in the number of houses and apartments that are sitting vacant. Thus it seems unlikely that we will see housing starts return to anything like the 1.1 million a year that has historically been about normal for the country.

More likely the rebound will stall out around the levels that marked the bottom for new housing starts in past cycles of around 600,000 a year. Yes, that is a nice percentage gain from the lows of under a 400,000 rate, but it does not suggest a robust recovery.

Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Amdocs Ltd., Molina Healthcare, Inc., Fannie Mae, Freddie Mac and Ford – Press Releases

Zacks Market Commentaries — Wed, 11 Nov 2009 13:10:36 +0000

For Immediate Release

Chicago, IL – November 11, 2009 – Zacks Equity Research highlights Amdocs Ltd. (DOX) as the Bull of the Day and Molina Healthcare, Inc. (MOH) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Fannie Mae (FNM), Freddie Mac (FRE) and Ford (F).

Full analysis of all these stocks is available at http://at.zacks.com/?id=5506

Here is a synopsis of all five stocks:

Bull of the Day:

We maintain our Outperform recommendation for Amdocs Ltd. (DOX), following its strong results for the fiscal fourth quarter of 2009. The company has industry-leading technology integration products for managed services and large transformational projects.

We believe long-term fundamentals for Amdocs remain firm due to the transition of telecom service providers to converged and consolidated solutions. Amdocs maintains a very strong financial position with healthy order backlog.

Recently, the company has won a series of large managed services contracts in various parts of the world. Except Europe, operations in other regions have started gaining momentum.

Bear of the Day:

Molina Healthcare, Inc. (MOH) reported third-quarter earnings of $0.33 per share, which was well below the Zacks Consensus Estimate of $0.53. The company earned $0.60 in the year-ago quarter.

The decline in profit for the quarter was attributable to higher operating expenses coupled with losses from the company's California health plan. The increase in medical costs was attributable to the H1N1 flu virus and costs associated with recently enrolled members. The impact of the H1N1 epidemic is significant and has the potential to worsen in the coming quarters.

We are also concerned about the intense competition facing Molina. We have an Underperform rating on the stock with a price target of $19.

Notes on Janet Yellen Speech – Analyst Blog

Dirk Van Dijk — Tue, 10 Nov 2009 19:02:53 +0000

This morning, Janet Yellen, the President of the San Francisco Fed, spoke about the state of the economy. Below are key excerpts from the speech, as well as my reaction to them (spoiler alert: I am in overall agreement with her).

"This is the first talk I’ve given since the economy has officially been reported to be growing again. The economy’s return to growth after a year and a half of recession marks a major turn, and it looks like more than a flash in the pan. It seems to me that the economy has entered a sustained period of expansion.

"We’ve seen meaningful upturns in areas as diverse as housing, consumer spending, industrial production and foreign trade. And, a number of factors bode well for the future, including a better functioning financial system, low mortgage interest rates, a resurgent stock market, a stabilization of house prices and stronger growth abroad."

Yes, overall, things are much better now than they were a year ago, with the glaring exception of unemployment. Rising output, but done with fewer workers means that productivity is rising, but that is sort of a double-edged sword given the level of slack in the economy (see Economic Productivity Surges).

"All the same, I am not going to paint an entirely rosy picture for you. The strength and durability of the expansion is in question. Some of the rebound is due to temporary government programs and a swing in inventory investment that will not provide an ongoing source of growth.

"Financial conditions have improved markedly in some respects, but many financial institutions are still hobbled with bad loans. The outlook for consumer spending is in doubt because households remain burdened with debt, and they have taken enormous hits to their wealth from declines in house and stock prices in recent years.

"And it’s particularly sobering that labor markets continue to deteriorate badly, leaving many millions of our fellow Americans unable to find jobs. Just last week, we found out that the unemployment rate passed 10 percent in October. The 10.2 percent jobless rate is the highest since 1983.

"Today I will consider this mixed picture in some detail and focus on two subjects of professional interest to many of you -- the residential and commercial real estate markets. I want to stress that my comments are my own and do not necessarily reflect the views of my Federal Reserve colleagues."

It would be too much to ask to have everything perfect just a year after the biggest financial freeze-up in 70 years. Bad debt is still choking the system, particularly at the consumer level, which then flows back to the banks. This is going to take a long time to fix. And the burden of debt is, of course, much higher when you are unemployed than when you have a job.

"As we look at the national economy, it’s important to keep things in perspective. It’s not fun to ponder a subdued recovery. But a year ago, after the near-collapse of the global financial system, there was a real possibility of an outright depression.

"Fortunately, we avoided that. But what we did suffer through was bad enough -- the worst downturn since the Great Depression of the 1930s. The recession began at the end of 2007. Economic output has dropped by just over 3½ percent. Over seven million jobs have been lost in the nonfarm sector of the economy. And the unemployment rate has soared by over five percentage points.

"Few, if any, parts of the economy were unscathed. The labor market was devastated, and housing, consumer spending, business investment, exports and imports all fell off the table."

Imports "falling off the table" actually provided a substantial lift to the economy. The rest of the stuff falling really hurt, though. The decline in business investment, to the lowest share of the economy in the post-war era, is particularly troublesome (see The Shape of GDP).

"Against this backdrop, the nation’s third-quarter return to growth was a great relief. Real gross domestic product -- which is the economy’s total output of goods and services -- increased at a solid annual rate of 3½ percent. The recession hasn’t officially been declared over, but a wide array of data suggests that the corner has been turned.

"In the third quarter, residential investment -- which was at the center of the downturn -- rose at nearly a 25 percent annual rate, albeit from a very low level. Home sales, prices and housing starts are once again climbing. Meanwhile, manufacturing is also beginning to show signs of strength. This was helped by a rebound in motor vehicle production, boosted by the government’s temporary Cash-for-Clunkers program. Our exports surged as growth abroad picked up. And, importantly, consumer spending finally is growing."

In the short-term, growing consumer spending is a good thing, but in the long term it is the last thing we need. Sort of like a shot of Jack Daniels can help a bit with a hangover.

"To me, the explanation for this turnaround is clear: Massive and concerted responses by governments and central banks around the world rescued the financial system, brought down interest rates, provided emergency support and broke the economy’s downward spiral. On the monetary policy side, the Fed has pushed its traditional interest rate lever -- the federal funds rate -- close to zero. And, in order to provide additional stimulus, we put in place an array of unconventional programs to spur the flow of credit to households and businesses.

"These measures provided funding to banks and restored liquidity to a range of markets. We’ve increased the flow of credit for securities backed by small business loans, consumer loans, and other assets. Our large-scale purchases of Fannie Mae and Freddie Mac debt and mortgage-backed securities (MBS) helped lower mortgage rates and bolstered the housing market. We’ve also bought longer-term U.S. Treasury debt to help bring private borrowing rates down."

These policies are likely to stay in place for a while to come, and will only gradually be lifted, particularly the low fed funds rate. What happens to mortgage rates once the Fed stops buying every scrap of paper ever issued or backed by Fannie (FNM) and Freddie (FRE) is very much of an open question. Oh, the buying of longer-term treasuries was just to bring private rates down -- it had nothing to do with keeping the interest costs to the government down .

"These initiatives appear to have eased financial conditions. Clearly, the financial system is not yet back to normal, but it has bounced back notably. The stock market has soared since its low in the winter. That rally has helped households recover some of their lost wealth and provided a much-needed psychological boost.

"Investors perceive that economic risks are not as dire as they once seemed to be. Interest rates on corporate bonds -- especially for less-than-prime firms -- have dropped sharply and issuance has been brisk. And the markets that financial institutions and corporations rely on for short-term funding are functioning reasonably well again, due in part to Fed intervention."

Big firms that can tap the credit markets on their own are in much better position than small firms that have to rely on bank loans. Remember that spreads on low-grade corporate debt last winter were higher than the spreads during the Great Depression. While the Fed intervention has not helped everyone, it clearly has helped many.

"Federal government policies also have contributed, including the fiscal stimulus program passed by Congress in February. Tax cuts have raised disposable income, and government spending is directly adding to payrolls. Much of the stimulus money authorized by Congress remains to be spent and will spur growth in coming quarters. Other government initiatives contributed to the third-quarter expansion as well, including the Cash-for-Clunkers program and the $8,000 tax credit for first-time homebuyers.

"The normal dynamics of the business cycle have also turned more favorable. Demand for houses, durable goods such as autos, and business equipment is beginning to revive as households and businesses replace or upgrade needed equipment and structures. A particularly hopeful sign is that inventories of unsold goods, which have been shrinking rapidly, now seem to be in better alignment with sales. Manufacturers had slashed production dramatically in the face of slumping sales. Recent data suggest that this correction may be near an end, setting the stage for more production."

It is hard to tease out how much of the increased demand for housing and autos is due to the government subsidies, and how much is "real" pent-up demand. The October auto sales were somewhat encouraging in this regard, since Cash for Clunkers was not a factor. The rebound to profits at Ford (F) was real, even if it could be laid at the feet of the Clunkers program. The inventory bounce is real, but is probably temporary.

"The big issue is how strong the upturn will be. With such enormous reservoirs of slack in the form of high unemployment and idle productive capacity, we need a strong rebound to put unemployed people back to work and get underutilized factories, offices and stores humming again. Unfortunately, my own forecast envisions a less-than-robust recovery for several reasons. As the impetus from government programs and inventories diminishes in the quarters ahead, private final demand will have to fill the breach. The danger is that demand may grow at too anemic a pace to support vigorous expansion."

While many criticized the stimulus program as being too back-end loaded, as we move into next year people should be thankful that there is still some of it at work. However, it is the change in stimulus that provides the momentum for growth, which after all is the change in GDP. Thus as we move into the second half of next year, while the stimulus spending might be $75 billion in the third quarter, if it was $100 billion in the second quarter, it will be a net drag on growth.

"First, it may take quite a while for financial institutions to heal to the point that normal credit flows are restored. The credit crunch hasn’t entirely gone away. In the face of massive loan losses, banks have clamped down on underwriting and credit terms for both businesses and consumers.

"Smaller businesses without direct access to capital markets are particularly feeling the pinch. Lenders have had to run hard just to stay in place: Rising unemployment, business failures and delinquencies in real estate markets have fed additional credit losses and made it more difficult for financial institutions to get their balance sheets in good order.

"Second, households have been pummeled and prospects for consumer spending are cloudy. Consumers have surprised us in the past with their free-spending ways, and it’s not out of the question that they will do so again. But I wouldn’t count on them leading a strong recovery. They face high and rising unemployment, stagnant wages and heavy debt burdens. Their nest eggs have shrunk dramatically as house and stock prices have fallen, and their access to credit has been squeezed.

"It may be that we are witnessing the start of a new era for consumers following the harsh financial blows they have endured. We often hear the word 'deleveraging' used to describe the push by financial institutions to scale back debt and build equity. Households too have now begun to pay down debt and rebuild their savings. This phenomenon can be seen not only in the United States, but in most countries that experienced similar housing booms.

"The United States was hardly the only country where households borrowed heavily just before a severe housing bust set in. And those countries with greater increases in debt relative to income before the crisis experienced greater declines in consumption spending once the crisis began."

The consumer spending question is a huge conundrum. At almost 71% of the economy in the third quarter (a post-war record, by the way), it is hard to see how the economy moves forward if it is contracting.

However, it is simply not healthy to have such a large percentage of the economy based on consumption. We need more savings in the economy, and more productive capacity. By not saving we are eating our seed corn, but if we don’t eat that seed corn now, we will be malnourished. True, that it is happening in other countries as well, but the need for consumer deleveraging is much greater here than anywhere else.

Ideally, the savings rate would be rebuilt by income rising a lot, and spending growing very slowly. But if consumers are not spending, then companies will not hire, and incomes will tend to fall not rise, making it even harder to rebuild our savings.

"In the United States, the personal saving rate, which had fallen to an incredibly low 1 percent in early 2008, has averaged 4 percent so far this year and may well rise higher. In the current environment, such belt-tightening makes great sense from the standpoint of individual households. In fact, some households may have no other option because their access to credit has been crimped.

"Over the long run, higher saving is surely a good thing for our economy because it provides capital that can be devoted to modern infrastructure, technology and other productive investments that enhance our standard of living. All the same, the transition to a higher saving plane could be painful if it reduces the growth rate of consumer spending for an extended period."

Back in the 1950’s and 1960’s a savings rate of 9 to 10% was normal. That was the period when U.S. economic dominance was at its greatest. We have had the wind at our backs for decades now as the savings rate declined as a falling savings rate translates into higher economic growth, at least in the short term. We have finished coasting downhill, and now have to climb back up. You go slower and have to work harder to ride a bike up a hill than down it.

"Weakness in the labor market is another factor that may keep the recovery sluggish for quite some time. Payroll employment has been plummeting for more than a year and a half, and even though the pace of the decline has slowed, unemployment now stands at its highest level since 1983. In addition, many workers have seen their hours cut or are experiencing involuntary furloughs.

"To bolster earnings in the face of weak revenue growth, employers have been aggressive in cutting labor costs and jobs, and my business contacts say they will be reluctant to hire again until they see clear evidence of a sustained recovery. Weak demand for workers is also putting a lid on paychecks. Wages are barely rising. A well-known measure of overall employment costs rose by only 1¼ percent over the past year, the smallest increase in the history of the series. High unemployment, weak job growth and paltry wage increases are a recipe for sluggish consumer spending growth and a tepid recovery."

Yup, hard to save more when you are unemployed or have seen your hours cut back drastically. The only way is to spend less, and that means a slow recovery.

There was much more to the speech, you can read it in its entirety here: http://www.frbsf.org/news/speeches/2009/janet_yellen1110.html
Read the full analyst report on "FNM"
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Zacks Investment Research

Bimini Capital Management, Inc. (BMNM.OB) Up 47% Following QualityStocks Newsletter Highlight

QualityStocks — Mon, 09 Nov 2009 20:42:00 +0000

Bimini Capital Management Inc. is currently trading at $0.50 a share, up $0.16 a share or 47.06% in today’s trading. The company’s shares hit an intraday high of $0.62 a share and the volume is well above the average daily volume of about 291,000 shares. Bimini Capital’s shares were highlighted in the September 1st edition [...]

Is Warren Buffett Signaling a Housing Recovery?

Investment U — Thu, 05 Nov 2009 16:49:37 +0000

Is Warren Buffett Signaling a Housing Recovery? by Robert Williams, Publisher Thursday, November 5, 2009 Warren Buffett is teaming-up with Goldman Sachs as the investment bank attempts to buy $3 billion of tax credits from taxpayer-owned mortgage firm Fannie Mae. According to The Wall Street Journal, investments in low-income housing tax credits has waned dramatically in the face of [...]

An interview with Charlie Gasparino

Prieur du Plessis — Thu, 05 Nov 2009 09:46:25 +0000

Dan Holland has just interviewed Wall Street chronicler Charlie Gasparino's. Excerpts from the interview are published in this post.

BRE Properties’ FFO Declines – Analyst Blog

Zacks Market Commentaries — Wed, 04 Nov 2009 16:30:02 +0000

BRE Properties Inc. (BRE), a real estate investment trust (REIT) that operates apartment communities, has reported a decline in third quarter 2009 FFO (fund from operations) to $32.5 million or 59 cents per share compared to $36.3 million or 69 cents per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

Total revenues from continuing operations during the quarter were $86.5 million versus $87.9 million in the year-ago quarter. Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) were $55.7 million for the quarter, compared to $61.8 million in the prior year quarter.

Overall same-store net operating income decreased 7.9% during the quarter, primarily due to a 6.9% year-over-year decline in average same-store market rent from $1,540 per unit to $1,434. Average physical occupancy in the same-store portfolio during the quarter was 94.7% versus 94.9% in the year-earlier quarter.

The dismal same-store performance was largely due to the continued job losses in most of the BRE’s markets. About 74,200 jobs were lost in the core markets of BRE during the quarter. Stagnant job growth has negatively affected the demand for aparments, and high-end apartment homes could get hit the hardest as renters move down to less expensive ‘B’ class properties.

During the quarter, BRE completed three development communities totaling 801 apartment units in California and Washington. Currently, the company has two communities under construction (566 units) at an estimated total cost of $176.1 million. Also during the quarter, BRE sold a stabilized community in Sacramento for $15.4 million, realizing a gain of $7.3 million.

During the quarter, BRE repurchased $5.0 million of its 4.125% convertible notes at 90.3% of par, realizing a net gain of approximately $0.4 million. In addition, the company sold 1.5 million common shares at $28.00 each, raising total proceeds of $42.0 million. During the quarter, BRE also received the remaining $310 million of the $620 million secured credit facility obtained from Fannie Mae in Apr 2009. Bulk of the proceeds from the loan was utilized to repay debt.

The company declared a quarterly dividend of $0.375 per share, equivalent to an annualized basis of $1.50 per share. Since its inception in 1970, BRE has paid quarterly dividends uninterruptedly. For full year 2009, BRE has adjusted its earlier FFO guidance from $2.42 - $2.52 per share to $2.44 - $2.50.
Read the full analyst report on "BRE"
Zacks Investment Research

Goldman Mulls Fannie Tax Credits – Analyst Blog

Zacks Market Commentaries — Mon, 02 Nov 2009 22:51:55 +0000

Goldman Sachs Group Inc. (GS) is contemplating buying tax credits from Fannie Mae (FNM). However, it may be reasonable to assume that the U.S. Treasury may not approve of the deal.

Goldman hopes to receive approval this week for $1 billion worth of tax credits. Tax credits are incentives designed to bring more investment to low-income housing developments. This would help the company reduce its tax bill as well as bring some much-needed financial relief to Fannie Mae.

While financial details of the proposed transaction are not disclosed, Goldman could arrange other investors for the deal as well.

The Obama Administration, however, is opposed to the deal, as it will reduce Goldman's tax bill at a time when Wall Street is already facing intense public scrutiny.

Fannie Mae, a government-controlled mortgage financier, could get financial relief if Goldman bought the tax credits. As the housing market collapsed and mortgage defaults skyrocketed, the company faced billions of dollars in losses and was unable to remain afloat without major government support.

The Treasury Department had purchased $45.9 billion of preferred stock in Fannie Mae last year to support the troubled firm, giving taxpayers a substantial stake. The company continues to need funding from the government and its operations are closely monitored by its regulator.

Goldman reported third quarter 2009 (ended Sept. 25, 2009) earnings of $5.25 per share -- significantly ahead of the Zacks Consensus Estimate of $4.13.

Results reflected strong performance in the trading operations, which offset the decrease in investment banking division. The company also reported a drop in expenses on a sequential basis.

Goldman’s well-diversified business model coupled with a more favorable operating environment led to this strong growth. We think Goldman’s sturdy capital and liquidity will lead to increased profitability from newer opportunities once the economy recovers.

We continue to have an Outperform recommendation on the stock.
Read the full analyst report on "GS"
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Zacks Investment Research

DrStockPick.com Stock Report! 10/30/09, ARJ, CVAT, CFFI, AAI, FKYS, LG

Dr. Stock Pick — Fri, 30 Oct 2009 18:04:07 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Friday October 30, 2009 DrStockPick.com Stock Report! ************************************************************** Cavitation Technologies, Inc. (OTC Bulletin Board: CVAT) announced a 3-for-1 forward stock split effective at the market open Thursday, October 29th. CTI is a world leader in the development of technologies that represent a quantum leap [...]

Zacks Analyst Blog Highlights: Moody’s, Microsoft, Fannie Mae, Freddie Mac and ExxonMobil Corporation – Press Releases

Zacks Market Commentaries — Fri, 30 Oct 2009 13:30:41 +0000

For Immediate Release

Chicago, IL – October 30, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Moody’s (MCO), Microsoft (MSFT), Fannie Mae (FNM), Freddie Mac (FRE) and ExxonMobil Corporation (XOM).

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Here are highlights from Thursday’s AnalystBlog:

GDP Notes – In Depth

With massive amounts of space sitting idle in offices and empty strip malls littering the landscape, look for new investment in commercial real estate to continue to decline in coming quarters. Moody’s (MCO) has estimated that the value of commercial real estate has plunged by 41% since the peak a little over a year ago, and that is hardly an inducement to build more. If a business needs the space, it's far cheaper to just buy some that already exists.

Spending on Equipment and Software (E&S), on the other hand, is starting to come back, if only feebly -- rising 1.1% after a 4.9% decline in the 2Q and a 36.4% plunge in the 1Q. Look for some stability in this line going forward as the new Microsoft (MSFT) operating system will probably generate a new PC cycle, but with capacity utilization still around 70% I would not expect a boom in orders for new factory equipment.

The real star of Fixed investment, though, came on the residential side, which rose 23.4%. This is the first increase in almost four years, and follows declines of 23.3% in the 2Q and 38.2% in the 1Q. The long string of declines had brought residential investment to a record low share of GDP. The extraordinary support of the housing sector by the government, including the first-time buyer tax credit -- the Fed buying up $1.25 Trillion of Fannie Mae (FNM) and Freddie Mac (FRE)-backed paper to artificially suppress mortgage rates, and the FHA acting like the old New Century Financial or Washington Mutual on their worst days -- have played a big role in the turnaround. I seriously question the sustainability of it after the support is removed, and I don’t think the support can continue indefinitely.

Exxon Misses, Production Up

ExxonMobil Corporation (XOM) reported third quarter 2009 earnings of 98 cents per share, below the Zacks Consensus Estimate of $1.04 and year-earlier earnings of $2.58.

Though the earnings came in below expectations, the company maintained its quarterly dividend of 42 cents per share and repurchased $4 billion worth of XOM common stock. With a sound cash position, solid credit profile and diversity of its asset base, both in terms of business mix as well as geographical footprint, Exxon remains better positioned than any of its peers.

The steep fall in oil prices and weak product margins caused a 65% drop in earnings from the year-earlier quarter to $4.7 billion. The production of oil and natural gas averaged 3.69 million oil-equivalent barrels per day, up approximately 3% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was up about 5%. Its refinery throughput averaged at 5.35 million barrels per day, flat from the year-earlier level.

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GDP Notes – In Depth – Analyst Blog

Dirk Van Dijk — Thu, 29 Oct 2009 17:31:08 +0000

Senior strategist Dirk van Dijk, CFA has issued notes on this morning's GDP numbers. These notes will be published in two separate blogs -- Growth Rates and Contributions to Growth.

The recession is over!

In the third quarter, GDP grew by 3.5%, comfortably ahead of expectations for 3.0% growth. This is a huge improvement over the 0.7% decline in the second quarter and the 6.4% plunge in the first quarter.

The internals of the report were strong as well, although it appears that much of the growth came from things like the "Cash for Clunkers" (C4C) program and the extraordinary levels of support that are currently being given to the housing sector.

I will first go over the percentage growth rates for the main components of GDP, and then how much each part contributed (or subtracted from the 3.5% growth rate). This is probably the more important part since the size of the different parts of GDP are very different, and a small percentage change in a big component can have more impact than a large change in a small component.

Just as a reminder, GDP is equal to the sum of Consumer spending, Investment spending, Government spending and net exports, or Y = C + I + G + (X - M), and I will be using that framework for the discussion.

Growth Rates

The overall 3.5% growth of GDP was almost matched by its biggest component, Personal Consumption expenditures, or PCE, which grew 3.4% -- a big improvement over the 0.7% decline in the second quarter and the 0.6% increase in the first three months of the year.

It is important to note that during the recession consumer spending declined far less than did overall GDP, especially in the first quarter, so the consumer was becoming a much bigger part of the overall economy. This is not healthy over the long run, but at this point I think people are happy to get some growth wherever we can find it.

Consumers spend on both Goods and Services, and Goods are broken down into Durable and Non-Durable goods. The big mover in the third quarter were Goods, which increased by 8.1% following a decline of 5.6% in the 2Q and an increase of 2.5% in the 1Q. Spending on Durable goods was the real driver, growing at an annualized rate of 22.3% in the 3Q, following a 5.6% decline in the 2q and a 3.9% increase in the 1Q.

Spending on Non-Durable goods tends to be much more stable than spending on Durable goods. Non-Durable goods spending rose by 2.0%, reversing a 1.9% decline in the 2Q, which was in turn a reversal of a 1.9% increase in the 1Q.

Spending on Services tends to be even more stable than spending on Non-Durable goods. Service spending grew at an annualized rate of 1.2% in the 2Q, up from a 0.2% increase in the 2Q and a 0.3% decline in the 1Q. Historically, spending on Durable goods has been one of the key drivers to get us out of a recession, just as not spending on Durable goods has been one of the key reasons for falling into recessions. It is the volatility in the sector that makes it important more than its absolute size.

Now, you might wonder -- what caused the recession to be so nasty last winter when Consumer spending wasn’t really all that bad? The answer is that Investment really fell of a cliff. The good news is that it is starting to come back. Overall Gross Private Domestic investment grew at an 11.5% annualized rate in the 3Q, but it still has a lot of lost ground to make up from the earlier part of the year.

In the second quarter, overall Investment spending fell at a 23.7% annualized rate. Now here is the kicker; that was actually a dramatic improvement over the 1Q when investment spending absolutely collapsed -- falling 50.5% -- clearly the biggest collapse in investment spending since the Great Depression (and it came on the heels of a 24.2% decline in the 4Q of 2008). To anyone who understood what was going on, those were really terrifying times, and the turnaround from them is absolutely spectacular.

There are two basic types of Investment -- Fixed and Inventory -- and right now we are concerned with Fixed investment (I will cover Inventory later in the contributions to GDP part).

Fixed investment is broken into two parts, Non Residential or business investment, and Residential investment, which is mostly homebuilding. Overall Fixed investment rose by 2.3% following declines of 12.5% in the 2Q and 39.0% in the 1Q. Business investment, however, continued to decline, but at a much slower rate, falling 2.5% after 9.6% and 39.2% declines in the 2Q and 1Q, respectively.

With massive amounts of unused capacity, it is not surprising that businesses are cutting back on their capital spending still. Business investment comes in two flavors -- spending on structures like building new factories, malls and office buildings and spending on equipment and software to go into them. Spending on structures continues to be very weak, falling at a 9.0% annualized rate in the 3Q, but that marks an improvement over the 17.3% decline in the 2Q and the 43.6% collapse in the 1Q.

With massive amounts of space sitting idle in offices and empty strip malls littering the landscape, look for new investment in commercial real estate to continue to decline in coming quarters. Moody’s (MCO) has estimated that the value of commercial real estate has plunged by 41% since the peak a little over a year ago, and that is hardly an inducement to build more. If a business needs the space, it's far cheaper to just buy some that already exists.

Spending on Equipment and Software (E&S), on the other hand, is starting to come back, if only feebly -- rising 1.1% after a 4.9% decline in the 2Q and a 36.4% plunge in the 1Q. Look for some stability in this line going forward as the new Microsoft (MSFT) operating system will probably generate a new PC cycle, but with capacity utilization still around 70% I would not expect a boom in orders for new factory equipment.

The real star of Fixed investment, though, came on the residential side, which rose 23.4%. This is the first increase in almost four years, and follows declines of 23.3% in the 2Q and 38.2% in the 1Q. The long string of declines had brought residential investment to a record low share of GDP. The extraordinary support of the housing sector by the government, including the first-time buyer tax credit -- the Fed buying up $1.25 Trillion of Fannie Mae (FNM) and Freddie Mac (FRE)-backed paper to artificially suppress mortgage rates, and the FHA acting like the old New Century Financial or Washington Mutual on their worst days -- have played a big role in the turnaround. I seriously question the sustainability of it after the support is removed, and I don’t think the support can continue indefinitely.

Government spending grew by 2.3% in the 3Q, a big slowdown from the 6.7% increase in the 2Q, but more than the 2.6% decline in the 1Q. It was all at the Federal level, where spending rose at an annual rate of 7.9% down from a 11.4% increase in the 2Q, but up from the 4.3% decline in the 1Q. Remember this measure of government spending does not include spending on transfer payments like Social Security and Medicare, which are largely captured in the Consumption numbers.

Defense spending was the big driver -- remember we are still a nation fighting two wars. Defense grew at an annual rate of 8.4% down from a 14.0% rate of increase in the 2Q, but up from a 5.1% decline in the 1Q. Non-Defense spending rose at a 6.8% annual rate following a 6.1% increase in the 2Q and a 2.5% decline in the 1Q.

State and local spending, on the other hand, is constrained by balanced budget laws and falling tax revenues. It declined 1.1% in the 3Q following a 3.9% increase in the 2Q and a 1.5% decline in the 1Q. They were able to increase spending in the 2Q due to support for the Federal government as part of the stimulus package. Now that support looks like it is being overwhelmed by the plunge in property, income and sales taxes.

International trade has started to rebound, and we saw an increase in both imports and exports. Increasing exports are good for GDP and increases in Imports are bad for GDP, and unfortunately imports rose more than did exports. We were able to improve our overseas sales by 14.7% in the 3Q -- a nice turnaround from the 4.1% decline in the 2Q and the 29.9% plunge in the 1Q.

Unfortunately, we also increase what we bought from overseas by 16.4%, a big turnaround from the 14.7% decline in the 2Q and the 36.4% plunge in the first three months of the year. Keep in mind that we import a lot more than we export, so not only was the percentage increase bigger for imports, it was coming off a higher base.

Look for the Contributions to Growth blog to be uploaded shortly.
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Zacks Investment Research

Zacks Analyst Blog Highlights: Beazer, Lennar, Fannie Mae, Freddie Mac and WellPoint, Inc. – Press Releases

Zacks Market Commentaries — Thu, 29 Oct 2009 13:00:09 +0000

For Immediate Release

Chicago, IL – October 29, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Beazer (BZH), Lennar (LEN), Fannie Mae (FNM), Freddie Mac (FRE) and WellPoint, Inc. (WLP).

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Here are highlights from Wednesday’s AnalystBlog:

New Home Sales Sink, Credit Rising

For the month, median prices rose 2.45%, although they are still down 9.1% from a year ago. Average prices posted an even stronger rise, up 10.1% on the month and down just 1.6% from a year ago. That probably is mostly a reflection of the regional trends, as housing is far more expensive in the Northeast than it is in the South.

This report should take some of the wind out of the sales of the homebuilders like Beazer (BZH) and Lennar (LEN), which have had spectacular rallies off their lows earlier this year. While new home sales are just a small fraction of the total home sales (existing home sales were at an annual rate of 5.57 million in September while new home sales were at a rate of just 402,000), they do make a much bigger difference to GDP growth. Residential investment has been a consistent drag on GDP for almost four years now. Even with this month's weak report, the level of drag from housing on GDP should be much less in the third quarter than it has been in a long time.

One would have expected a much stronger month for new home sales with the end of the first-time home buyer tax credit looming at the end of November. It now looks like the credit is not only going to be extended, but it is going to be expanded.

The program so far has been extremely expensive and has for the most part rewarded people who would have bought anyway. It has also been riddled with fraud. However, the realtors are a strong lobby and have members in every Congressman’s district.

The extension is even worse economics than the original program and just plain bad when it comes to equity, as it will be available to move-up buyers now, including people who are earning as much as five times the median household income. At least with first-time buyers it was moving people from being renters to being owners. While that will have some adverse unintended consequences of driving up rental vacancy rates and putting more pressure on rents (and thus making commercial real estate even more of a mess than it is now), at least it does sop up some fo the inventory of formerly foreclosed homes.

With move-up buyers there is no impact on inventories, as they will be putting one house on the market for every one that is taken off. Now it is just subsidizing people who want to move up to a bigger house.

Why should taxpayer money be spent for this? I see no social good that comes from this expenditure, except that it props up the value of housing assets. With millions of vacant houses across the country, and millions of people homeless, why is the nation so afraid of housing that people can actually afford?

Trying to use tax money to prop up asset values, especially for an extremely large asset class is in the long run doomed to failure. What happens after April of 2010 -- do we expand this turkey of a program even more? If not, housing prices are likely to resume falling then. By then as well, the Fed is supposed to be finished with its $1.25 Trillion purchase program of mortgage backed paper issued by Fannie Mae (FNM) and Freddie Mac (FRE).

When that program ends, mortgage rates are likely to rise sharply. We could be looking at some serious ugliness come next spring as a result. In the meantime, at a time of very problematic federal deficits, we are spending billions to subsidize the relatively well-off for what, in most cases, they already would have done.

WellPoint Beats, But Revenue Dips

WellPoint, Inc. (WLP) reported third quarter earnings of $1.78 per share, which was above the Zacks Consensus Estimate of $1.39, and the year-ago earnings of $1.58.

Total operating revenues declined 0.7% to $15.2 billion. The decline was primarily attributable to the lower fully insured enrollment in 2009, including WellPoint‘s withdrawal from certain State Sponsored programs.

Operating gains for the Commercial Business segment decreased 30.9% to $628 million in the reported quarter. The decline was due to higher overall administrative costs, a reduction in fully insured enrollment and an increase in the benefit expense ratio for the Local Group business. Operating gains for the Consumer Business segment increased 115.2% $520.0 million in the quarter.

Operating improvements in the senior business helped drive growth in this segment. The Other segment reported a 68.8% year-over-year increase in operating gains, which was driven by growth in the company’s NextRx pharmacy benefit management operation.

We were disappointed to see a significant decline in medical enrollment in the reported quarter. Medical membership for the quarter came in at 33.9 million, which represented a decrease of 4.2% from the year-ago quarter.

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Housing Prices Up Again – Analyst Blog

Dirk Van Dijk — Tue, 27 Oct 2009 16:47:33 +0000

Helped by the "first-time home buyer" tax credit and other forms of government assistance, home prices -- as measured by the Case Schiller Composite 20 index -- rose for the third straight month, up 0.97%, but still down 11.36% on a year-over-year basis, and off 29.89% from its May 2006 peak (note below when I reference peak levels they are from May 2006, not from the individual city peaks, which might have been a few months before or after the national peak).

Since home prices do exhibit a fair amount of seasonality, I am working with the seasonally adjusted numbers. Most of the press has a habit of tracking the unadjusted numbers, which I feel is a mistake. So realize that the numbers presented here might be different from what you read in the newspaper tomorrow.

A total of 16 of the 20 cities registered price increases, so the gains were widespread. The older Composite 10 index registered a similar 1.03% gain for the month and is down 10.67% on a year-over-year basis, and off 30.85% from the peak.

The first graph below (from http://www.calculatedriskblog.com/) shows the history of both the Composite 10 and the Composite 20 indexes. The first-time homebuyer tax credit provides up to $8,000 to buyers of houses, but is scheduled to expire at the end of November. To claim the credit, the closing must be by that date, so any house that is going to qualify pretty much had to be under contract by now, and even in August (the data is released with a 2-month delay) people were scrambling to make the deals in time to qualify.

When a subsidy is given for a purchase, it is very much of an open question as to how much of that subsidy goes to the buyer, and how much goes to the seller. To the extent any of it goes to the seller, then what the Federal government is doing is using tax dollars to prop up housing asset values.

One would expect that a large portion of the subsidy ended up in the hands of the sellers. The acid test will be what happens to housing prices once that subsidy is removed. The Fed is also helping by its purchase of $1.25 Trillion in Fannie Mae (FNM)- and Freddie Mac (FRE)-backed mortgages, which is artificially holding down mortgage rates.

What happens to mortgage rates when they stop in March? Or will they continue to just keep the printing presses turned on and continue to buy every mortgage out there? The HAMP mortgage modification program is helping to keep the number of foreclosures down, even as delinquency rates continue to skyrocket. This keeps the supply of distressed houses for sale down. However, many of these mortgage modifications are likely to eventually fail, especially if the principal left on the mortgage remains higher than the value of the house. It is a game of "extend and pretend."

Geographically, some of the best gains came from California, which has been among the states hardest hit by the collapse of the housing bubble. San Fransciso saw prices rise by 2.59% for the month, although prices are still down 12.49% on a year-over-year basis and off 40.00% from the peak. San Diego rose 1.52% for the month and is now down just 8.86% for the year and down 39.33% from the peak. Los Angeles saw a 1.27% rise for the month, bringing the decline since last year to 12.00% and is 39.70% below peak levels.

There were also two winners in the Midwest, with Minneapolis seeing a 2.32% gain for the month, but down 13.83% year-over-year and down 30.00% from the peak, and Chicago saw a 1.22% monthly gain. Windy City housing prices are down 12.72% from a year ago and off 22.74% from the peak.

The second graph has a somewhat different way of presenting the city performance information. It shows the declines through different dates on a cumulative basis. Thus, if the final red bar is shorter on the down side than the yellow middle bar it means that prices in that city are actually up year-to-date. It shows that many of the cities that were hit hardest early in the downturn (large blue bars) continued to suffer even bigger declines in 2008, and are for the most part still suffering declines on a year-to-date basis.

Meanwhile, cities that largely sidestepped the bubble on the way up, and which held up well as the national housing market started to turn south, such as Dallas and Denver, suffered only minor losses in 2008 and have already started to see housing prices rebound on a year-to-date basis.

While enormously expensive, the government support of the housing market is working. If housing prices continue to fall, it means more and more people will end up underwater on their homes, and being underwater is the single best predictor if a house will end up being foreclosed upon. This is already a huge problem as illustrated by an analysis by First American Core Logic.

"More than 15.2 million U.S. mortgages, or 32.2 percent of all mortgaged properties, were in negative equity position as of June 30, 2009... June’s negative equity share was slightly lower than the 32.5 percent as of the end of March 2009 and it reflects the recent flattening of monthly home price changes. As of June 2009, there were an additional 2.5 million mortgaged properties that were approaching negative equity. Negative equity and near negative equity mortgages combined account for nearly 38 percent of all residential properties with a mortgage nationwide."

As housing prices rebound, it means that some people who were underwater are able to catch a breath, and many who were on the cusp of going underwater will stay above the waves -- at least for now. The actions have served to slow the trainwreck, and that is a good thing since it gives people time to adjust and for banks to try to earn their way out of the mess (the extremely steep yield curve that is a consequence of the Fed Funds rate near zero is a very big part of that).

However, I am not convinced that the housing market has turned for real, that it will not start to fall again after the supports are removed. Prices are still above normal when measured relative to both incomes and rents, although not nearly as out of whack as they were a few years ago.

But rents are now falling, which will put additional pressure on the price to rent ratio, and with the official (U-3) unemployment rate at 9.8% and rising, with the underemployment rate (U-6) at 17.0% the income side of the price to income ratio is not looking so hot either.

Still, this is a welcome report, I just worry that it will not be sustained. I hope I am wrong about that.
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Zacks Industry Outlook Highlights: American Capital Agency Corp., Fannie Mae, Freddie Mac, Vornado Realty Trust and Simon Property Group Inc. – Press Releases

Zacks Market Commentaries — Fri, 23 Oct 2009 13:00:25 +0000

For Immediate Release

Chicago, IL – October 23, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the REITs sector, including American Capital Agency Corp. (AGNC), Fannie Mae (FNM), Freddie Mac (FRE), Vornado Realty Trust (VNO) and Simon Property Group Inc. (SPG).

Here is the latest on the REITs sector:

The credit freeze will have a positive effect on commercial real estate down the road; new office, apartment and retail construction has slowed considerably, which will benefit owners in a couple of years. Many companies that we cover have stopped all-new construction.

In this environment, we like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (AGNC), a mortgage REIT that invests exclusively in agency securities for which the principal and interest payments are guaranteed by U.S. government agencies like Ginnie Mae, Fannie Mae (FNM) and Freddie Mac (FRE). During the second quarter of 2009, American Capital reported net spread of 3.66% with 39.8% return on equity (ROE), and is one of the few companies to have increased the dividend.

Another stock worth mentioning is Vornado Realty Trust (VNO), the largest publicly traded office REIT in the New York region concentrating on Class A office properties. The core properties of Vornado are still performing at a high level, maintaining strong occupancies and increasing rents in most property formats. We believe this puts the company well ahead of many competitors, and warrants upside potential.

We would also like to mention Simon Property Group Inc. (SPG), the largest publicly traded retail real estate company in North America, with assets in almost all retail distribution channels. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income. Furthermore, Simon Property’s international presence gives it a more sustainable long-term growth story than its domestically focused peers.

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Real Estate Investment Trusts – Zacks Analyst Interviews

Zacks Market Commentaries — Fri, 23 Oct 2009 05:00:00 +0000

Equity REITs rebounded nicely in the third quarter, recording total returns of 33% (total return FTSE NAREIT Index) vs. a 15% gain each for the S&P and the Dow. The strong third quarter returns marked the second consecutive record-setting performance of equity REITs after a dismal performance in the first quarter of 2009.

In what has been a volatile year, equity REITs gained approximately 29% (total return FTSE NAREIT Index) in the second quarter after falling 32% in the first quarter. So far in October, equity REITs are down about 1%; the worst performing sectors in October have been Self Storage (- 3.4%), Retail (-1.6%), Industrial/Office (-1.6%), and Residential (-0.8%).

OPPORTUNITIES

Many REITs are still trading at discounts to NAV (net asset value), traditionally a good "buy" signal. Over the past seven or so years, REITs have traded near or in excess of NAV.

With dividend cuts and share price gains, the average yield for equity REITs during the third quarter was about 4%. Although yields have exceeded that of the 10-year Treasury, the spread has narrowed considerably over the past quarter. Most companies have been raising cash through asset sales and equity financing, with the proceeds being used to pay down debt.

In this environment, we like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (AGNC), a mortgage REIT that invests exclusively in agency securities for which the principal and interest payments are guaranteed by U.S. government agencies like Ginnie Mae, Fannie Mae (FNM) and Freddie Mac (FRE). During the second quarter of 2009, American Capital reported net spread of 3.66% with 39.8% return on equity (ROE), and is one of the few companies to have increased the dividend.

Another stock worth mentioning is Vornado Realty Trust (VNO), the largest publicly traded office REIT in the New York region concentrating on Class A office properties. The core properties of Vornado are still performing at a high level, maintaining strong occupancies and increasing rents in most property formats. We believe this puts the company well ahead of many competitors, and warrants upside potential.

We would also like to mention Simon Property Group Inc. (SPG), the largest publicly traded retail real estate company in North America, with assets in almost all retail distribution channels. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income. Furthermore, Simon Property's international presence gives it a more sustainable long-term growth story than its domestically focused peers.

WEAKNESSES

REITs still depend on access to capital to fund growth, and with the credit markets still not fully back to normal, it is difficult to raise money for new developments/acquisitions. In this scenario, most REITs are raising capital through property level debt, dividend reductions and equity offerings. Although both debt and equity financings provide the much-needed cash infusion, they could potentially burden an already leveraged balance sheet and/or dilute earnings. Property level debt is also harder to obtain and more expensive as commercial real estate prices continue to remain under pressure.

Fundamentals are declining in many suburban office markets as corporate expansion continues to slow. More and more corporations are putting off leasing decisions until the economy recovers. Recent employment trends are also not encouraging as the U.S. economy continues to shed jobs at a rapid pace. To date, the U.S. has lost about 7.2 million jobs since the start of recession in December 2007. The national unemployment rate has surged to 9.8%. As the U.S. economy struggles with the economic downturn, REITs will have trouble holding tenants and leasing new space.

Given the market uncertainties, we are bearish on Developers Diversified Realty Corporation (DDR), which is primarily engaged in owning and leasing shopping centers across the U.S., Puerto Rico, Brazil, Russia and Canada. The current recession has led to increased tenant bankruptcies, which in turn have led to a decline in occupancy and an increase in vacancy rates. The possibility of store closings at many Developers Diversified centers further adds uncertainty to the earnings, and it might have to re-let large "big-box" spaces at significantly lower rents in a very tough leasing environment.

We would also avoid Post Properties, Inc. (PPC), an apartment REIT relying heavily on low-barrier markets such as Atlanta, Dallas, Houston, Orlando and Tampa. We think the company will have a difficult time continuing to raise rents in a faltering economy, and expect flat rental rates and negative same-store revenue growth in 2009. Zacks Investment Research

Real Estate Investment Trusts – Industry Outlook

Zacks Market Commentaries — Fri, 23 Oct 2009 05:00:00 +0000

OPPORTUNITIES

Many REITs are still trading at discounts to NAV (net asset value), traditionally a good "buy" signal. Over the past seven or so years, REITs have traded near or in excess of NAV.

In this environment, we like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (AGNC), a mortgage REIT that invests exclusively in agency securities for which the principal and interest payments are guaranteed by U.S. government agencies like Ginnie Mae, Fannie Mae (FNM) and Freddie Mac (FRE). During the second quarter of 2009, American Capital reported net spread of 3.66% with 39.8% return on equity (ROE), and is one of the few companies to have increased the dividend.

WEAKNESSES

Real Estate Investment Trusts – Industry Outlook

Zacks Market Commentaries — Thu, 22 Oct 2009 18:06:40 +0000

Amid positive signals emanating from the uptick in housing prices and an improving outlook for consumer spending, the housing sector is gradually stabilizing. Both new and existing home sales have increased during the last four consecutive months and are now 32% and 17% above their recent lows, respectively. Single-family housing starts have also risen 37% from their low point, and inventories of homes-for-sale have fallen sharply.

Equity REITs rebounded nicely in the third quarter, recording total returns of 33% (total return FTSE NAREIT Index) vs. a 15% gain each for the S&P and the Dow. The strong third quarter returns marked the second consecutive record-setting performance of equity REITs after a dismal performance in the first quarter of 2009.

In what has been a volatile year, equity REITs gained approximately 29% (total return FTSE NAREIT Index) in the second quarter after falling 32% in the first quarter. So far in October, equity REITs are down about 1%; the worst performing sectors in October have been Self Storage (- 3.4%), Retail (-1.6%), Industrial/Office (-1.6%), and Residential (-0.8%).

OPPORTUNITIES

Many REITs are still trading at discounts to NAV (net asset value), traditionally a good "buy" signal. Over the past seven or so years, REITs have traded near or in excess of NAV.

With dividend cuts and share price gains, the average yield for equity REITs during the third quarter was about 4%. Although yields have exceeded that of the 10-year Treasury, the spread has narrowed considerably over the past quarter. Most companies have been raising cash through asset sales and equity financing, with the proceeds being used to pay down debt.

The credit freeze will have a positive effect on commercial real estate down the road; new office, apartment and retail construction has slowed considerably, which will benefit owners in a couple of years. Many companies that we cover have stopped all-new construction.

In this environment, we like well-capitalized companies that have adequate liquidity and manageable near-term debt maturities. Currently, we are bullish on American Capital Agency Corp. (AGNC), a mortgage REIT that invests exclusively in agency securities for which the principal and interest payments are guaranteed by U.S. government agencies like Ginnie Mae, Fannie Mae (FNM) and Freddie Mac (FRE). During the second quarter of 2009, American Capital reported net spread of 3.66% with 39.8% return on equity (ROE), and is one of the few companies to have increased the dividend.

Another stock worth mentioning is Vornado Realty Trust (VNO), the largest publicly traded office REIT in the New York region concentrating on Class A office properties. The core properties of Vornado are still performing at a high level, maintaining strong occupancies and increasing rents in most property formats. We believe this puts the company well ahead of many competitors, and warrants upside potential.

We would also like to mention Simon Property Group Inc. (SPG), the largest publicly traded retail real estate company in North America, with assets in almost all retail distribution channels. The geographic and product diversity of the company insulates it from market volatility to a great extent and provides a steady source of income. Furthermore, Simon Property’s international presence gives it a more sustainable long-term growth story than its domestically focused peers.

WEAKNESSES

REITs still depend on access to capital to fund growth, and with the credit markets still not fully back to normal, it is difficult to raise money for new developments/acquisitions. In this scenario, most REITs are raising capital through property level debt, dividend reductions and equity offerings. Although both debt and equity financings provide the much-needed cash infusion, they could potentially burden an already leveraged balance sheet and/or dilute earnings. Property level debt is also harder to obtain and more expensive as commercial real estate prices continue to remain under pressure.

Fundamentals are declining in many suburban office markets as corporate expansion continues to slow. More and more corporations are putting off leasing decisions until the economy recovers. Recent employment trends are also not encouraging as the U.S. economy continues to shed jobs at a rapid pace. To date, the U.S. has lost about 7.2 million jobs since the start of recession in December 2007. The national unemployment rate has surged to 9.8%. As the U.S. economy struggles with the economic downturn, REITs will have trouble holding tenants and leasing new space.

Given the market uncertainties, we are bearish on Developers Diversified Realty Corporation (DDR), which is primarily engaged in owning and leasing shopping centers across the U.S., Puerto Rico, Brazil, Russia and Canada. The current recession has led to increased tenant bankruptcies, which in turn have led to a decline in occupancy and an increase in vacancy rates. The possibility of store closings at many Developers Diversified centers further adds uncertainty to the earnings, and it might have to re-let large "big-box" spaces at significantly lower rents in a very tough leasing environment.

We would also avoid Post Properties, Inc. (PPS), an apartment REIT relying heavily on low-barrier markets such as Atlanta, Dallas, Houston, Orlando and Tampa. We think the company will have a difficult time continuing to raise rents in a faltering economy, and expect flat rental rates and negative same-store revenue growth in 2009.Zacks Investment Research

Sprott: US Gov Dead Man Walking

Alex Stanczyk — Wed, 21 Oct 2009 19:20:36 +0000

I have been talking for a time about the US Gov buying its own debt. I do not think they will stop with the QE. They cant. They cant because they will not be able to keep the lights on for one, but also because they cant allow a major financial institution to fail or we have [...]div class="feedflare" a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:F7zBnMyn0Lo"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=elvC96Ycda0:xn0bTNwcC3I:F7zBnMyn0Lo" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:7Q72WNTAKBA"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=7Q72WNTAKBA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=elvC96Ycda0:xn0bTNwcC3I:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:qj6IDK7rITs"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=qj6IDK7rITs" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:l6gmwiTKsz0"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?d=l6gmwiTKsz0" border="0"/img/a a href="http://feeds.feedburner.com/~ff/YourFinancialFuture?a=elvC96Ycda0:xn0bTNwcC3I:gIN9vFwOqvQ"img src="http://feeds.feedburner.com/~ff/YourFinancialFuture?i=elvC96Ycda0:xn0bTNwcC3I:gIN9vFwOqvQ" border="0"/img/a /div

UDR Reports Modest Quarter – Analyst Blog

Zacks Market Commentaries — Tue, 20 Oct 2009 15:49:41 +0000

Despite challenging macroeconomic conditions, UDR Inc. (UDR), a leading multifamily real estate investment trust (REIT), reported relatively modest third quarter results with an increase in rental revenues and comparatively high same-store occupancy rates at 95.6%. Although rental revenues during the quarter increased to $150.3 million from $147.4 million in the year-ago period, year-over-year same-store revenues and net operating income decreased 3% and 3.7%, respectively.

During the quarter, UDR reported FFO (fund from operations) of $29.8 million or 19 cents per share compared to $49.6 million or 33 cents per share in the year-earlier quarter. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. The decrease in FFO was primarily due to non-cash equity loss on an unconsolidated JV and loss relating to a debt tender offer. Excluding the one-time items, FFO during the quarter was 31 cents compared to 30 cents in the year-earlier quarter.

UDR made rapid strides during the quarter on automating its business, which resulted in a 7% decline in same-store marketing and advertising costs, reduced collection costs, and improved cash management through use of electronic payments. Furthermore, the company originated 64% move-ins during the quarter compared to 53% in the previous year, due to the increased use of the resident internet portal.

Currently, UDR has six active development projects and two redevelopment projects under construction, totaling 2,666 homes at a total cost of $405 million. The company anticipates delivering most of its projects in the next fiscal year. However, the company does not plan to start any new development projects in 2009. The company bought a 289-home community in Dallas during the quarter for $28.3 million under its pre-sale agreement.

During the quarter, UDR obtained a $200 million 10-year secured credit facility from Fannie Mae at a blended interest rate of 5.28%. The company utilized the proceeds to repay all of its 2010 secured debt. The company also sold approximately 2.3 million shares at a weighted average price of $14.89 each. In addition, UDR formed a $450 million joint venture with Kuwait Finance House to invest in key markets in the U.S.

At quarter end, UDR had a liquidity of over $1 billion through a combination of cash and available capacity under its credit facility. Additionally, the company had a $3.2 billion of unencumbered asset base to raise more funds if required. By the end of the quarter, UDR had a total debt of $3.3 billion and a fixed charge coverage ratio of 2.1x. In accordance with the current uncertainty in the market, UDR has revised its guidance for 2009, and currently expects FFO in the range of $1.14 to $1.20 per share.
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Zacks Industry Outlook Highlights: Fannie Mae, Freddie Mac, Commerce Bancshares Inc., Wilmington Trust Corporation and Zions Bancorp – Press Releases

Zacks Market Commentaries — Wed, 14 Oct 2009 12:35:52 +0000

For Immediate Release

Chicago, IL – October 14, 2009 – Zacks.com announces the latest Industry Outlook. Today, Zacks Equity Research discusses the U.S. Banks sector, including Fannie Mae (FNM), Freddie Mac (FRE), Commerce Bancshares Inc. (CBSH), Wilmington Trust Corporation (WL) and Zions Bancorp (ZION).

Here is the latest on the U.S. Banks sector:

While the state of the economy is showing signs of recovery, a lot remains to be done. The Treasury continues to have huge direct investments in institutions like Fannie Mae (FNM) and Freddie Mac (FRE).

We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting their profitability. We think that the financial crisis is far from over and we have to wait for a while to write the end line of the crisis story.

The Treasury’s requirement of focusing banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

We favor Commerce Bancshares Inc. (CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were in the negative direction.

The financial system is going through massive de-leveraging. Banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years. Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are absorbed by larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL) and Zions Bancorp (ZION), will remain under pressure.

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Long-awaited second edition of Prechter’s bestseller, Conquer the Crash, is finally here

Jim Musselwhite — Wed, 14 Oct 2009 01:30:41 +0000

Mark Hulbert’s Sept. 11, 2009, column for MarketWatch.com says, Robert Prechter “came the closest … to forecasting what was about to take place.” One thing the noted financial columnist left out was that many of Prechter’s forecasts still lie in the future. The long-awaited second edition of [...]

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Tue, 13 Oct 2009 19:19:14 +0000

After enduring extraordinary shocks in 2008, the U.S. banks entered an exceptional state of turmoil in 2009. Starting as a credit issue in the subprime segment of the mortgage market, the sticky situation spread to almost the entire financial services industry, and all corners of the globe. In other words, the financial crisis ultimately morphed into a massive economic crisis, which has had major ramifications across the whole world.

Although the banking industry is dealing with liquidity and confidence challenges, it now has financial support from the U.S. government. The government has taken several steps, including programs offering capital injections and debt guarantees, to stabilize the financial system.

We believe that the worst of the credit crisis is now probably behind us. After almost a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis, but the banking system is not yet out of the woods as there are persistent problems that need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain its growth momentum once these issues are resolved.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still in a very weak financial state and the Federal Deposit Insurance Corporation’s (FDIC) list of problem banks continues to grow. In the second quarter of 2009, the number of banks on the FDIC's list of problem institutions grew to 416 from 305 in the first quarter. This is the highest number since the savings and loan crisis in 1994.

Despite the government’s heavy efforts, we continue to see bank failures. Increasing loan losses on commercial real estate are expected to cause more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years. Furthermore, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending will continue to hurt margins, though the low interest rate environment should be beneficial to the banks with a liability-sensitive balance sheet.

Out of the $240 billion given to banks, $70 billion has come back as the healthiest banks have started repaying TARP funds. The Treasury Secretary estimates that banks will repay another $50 billion over the next 12 to 18 months. Also, taxpayers have received decent returns on many of its financial-sector investments. Repayments under the TARP have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the financial institutions that have already repaid the bailout money include JPMorgan Chase (JPM), American Express (AXP), Goldman Sachs (GS), Morgan Stanley (MS), Capital One (COF), BB&T (BBT) and US Bancorp (USB). Also, banks like Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) are expected to exit TARP over the next 12 to 18 months.

However, the situation is going to be reversed as regulators are considering asking healthy banks to bail out the government soon, in order to replenish the FDIC’s coffers. The increasing number of bank failures has caused a rapid decline in the FDIC’s funds as it has been appointed receiver for the failed banks.

Also, following the U.S. Treasury’s announcement requiring the world’s banks to maintain stronger capital and liquidity standards by the end of next year to prevent a re-run of the global financial crisis, 15 large banks that control the majority of derivative trading worldwide have committed themselves to maintaining greater transparency in the $600 trillion market that needs stricter oversight in the interest of the global financial system.

However, there are lingering concerns related to the banking industry as well as the economy. Continued asset-quality troubles are expected to force many banks to record substantial additional provisions for the remainder of 2009 and all of 2010. This will be a drag on the profitability of many banks for extended periods and will further add stress to their capital levels.

For the last few quarters, the banks have mainly suffered due to the losses in mortgages and Commercial Real Estate (residential construction loans). Housing prices have continued to decline, and given the sharp increase in the level of unemployment we anticipate continued losses in these portfolios.

Furthermore, deterioration in other Commercial Real Estate loans is now rising at a rapid pace and the downturn in this class is also likely to emerge as a major challenge. Given the negative macro backdrop, we expect losses to continue to increase in the other asset classes as well, especially in consumer-related loans.

While the state of the economy is showing signs of recovery, a lot remains to be done. The Treasury continues to have huge direct investments in institutions like American International Group (AIG), Fannie Mae (FNM) and Freddie Mac (FRE).

We expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions in the coming quarters, affecting their profitability. We think that the financial crisis is far from over and we have to wait for a while to write the end line of the crisis story.

OPPORTUNITIES

The Treasury’s requirement of focusing banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

We favor Commerce Bancshares Inc. (CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were in the negative direction.    

WEAKNESSES

The financial system is going through massive de-leveraging. Banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years. Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are absorbed by larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (WL), KeyCorp (KEY) and Zions Bancorp (ZION), will remain under pressure.

Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Pozen, Inc., Hain Celestial, Equity Residential, Fannie Mae and Freddie Mac – Press Releases

Zacks Market Commentaries — Mon, 12 Oct 2009 13:00:39 +0000

For Immediate Release

Chicago, IL – October 12, 2009 – Zacks Equity Research highlights Pozen, Inc. (POZN) as the Bull of the Day and Hain Celestial (HAIN) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Equity Residential (EQR), Fannie Mae (FNM) and Freddie Mac (FRE).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676

Here is a synopsis of all five stocks:

Bull of the Day:

Pozen, Inc. (POZN) is one of our top-picks for small-cap biotech. We see the fundamentals as strong and the valuation as low. We are pleased to see the NDA for Vimovo (PN-400) filed and now accepted by the U.S. FDA. FDA acceptance earned Pozen a $10 million milestone from AstraZeneca in August.

We expect sales of Treximet to ramp in the coming quarters now that the groundwork has been laid. And finally, phase III trials on the very exciting PA program should start in the fall.

The company is financially well positioned and fundamentally strong with respect to the pipeline. We recommend being buyers at this level.

Bear of the Day:

The natural and organic food industry, including Hain Celestial (HAIN), is facing the brunt of the economic slowdown and escalating costs. The ongoing turmoil and the battered financial market are exerting pressure on consumer disposable incomes triggering a shift in focus from higher priced organic products to cheaper private label brands.

Consequently, retailers and distributors are being compelled to reduce inventories, thus exerting pressure on the company's sales growth. Furthermore, a strong U.S. dollar continues to moderate results, adversely impacting the top-line.

In the most recent quarter, earnings were well below the Zacks Consensus Estimate, and were down 17.6% year over year.

Is the FHA Going Broke? – Analyst Blog

Dirk Van Dijk — Fri, 09 Oct 2009 19:31:06 +0000

This morning’s New York Times has an important article on the Federal Housing Administration. The FHA has stepped in to back up mortgage loans as the private sector has stopped making them.

Essentially, it is playing the role of a sub-prime lender, and appears to be making many of the same mistakes the fallen or defunct sub-prime lenders made. For starters, it is allowing people to buy with down payments of only 3.5%. Further, people can use the $8,000 first time homebuyer tax credit for that 3.5%. Buy a house and walk away from the closing with a check in your pocket.

The historical record of people who bought houses with the assistance of charitable down payment assistance programs (DAP) is not a pretty one when it comes to default rates. The tax credit is acting like a massive DAP.

The agency now insures 5.4 million mortgages worth a total of $675 billion. Its reserves are down to just $30 billion. A total of 411,000 FHA loans are in default, up 76% from 233,000 a year ago. Recent loans are defaulting at far higher rates than older loans.

Private lenders, on the other hand, have gotten religion and have returned to the safer, more conservative and traditional 20% down payments. The graphic from the story below speaks volumes. The number of loans being insured has soared, and so have the number of loans that are defaulting.

The number of defaults should come as no surprise, since the policy is to make loans to people who will have very little skin in the game. When housing prices are declining, it means that the homeowner is almost immediately in an underwater situation. Owing more on your house than what it is worth is the single biggest risk factor in defaulting on your mortgage.

The huge increase in risky loans by the FHA is a deliberate policy to try to prop up house prices nationwide. In a remarkable quote, this was admitted to by Rep. Barney Frank (D-MA) who chairs the House Banking Committee:

“I don’t think it’s a bad thing that the bad loans occurred," he said. “It was an effort to keep prices from falling too fast. That’s a policy."

The question is, can such a policy be sustained? Residential housing is a very big market, and trying to place a price floor under it can get very expensive.

On the other hand, one has to realize that if the FHA were not out there being as aggressive as it is, there would probably be no residential housing market at all right now. Very few people can come up with the $40,000 in cash needed to buy a $200,000 home with 20% down. In the past, people who were selling a previous home at a big profit during the boom years could easily do so, but the pool of potential buyers with that kind of cash is very small now.

From the anecdotes in the story, it seems like many of these FHA buyers really have no business being homeowners in the first place, and are being set up to fail.

In effect, the very low down payment policy of the FHA is an attempt to move people from being renters to being owners. It clearly has had some success in doing that. However, it really doesn’t do anything to encourage household formation or do anything to diminish the supply of housing units. It just shifts people out of rentals at a time when the rental vacancy rate is heading higher. This will put downward pressure on rents.

Since a house is an asset, and the value of an asset is determined by the discounted value of all future cash flows, it will put further downward pressure on housing prices. After all, what are the cash flows from owning a house but the value of not having to pay rent for a similar house to live in?

The ratio of home prices to rents was one of the biggest red flags out there that we were in a housing bubble. Since the top, that ratio has come back towards more normal historical levels, but it is still near the high end of normal. If rents start to fall significantly, it will be shooting at a moving (falling target).

In other words, we are shifting the problem, not curing it. While the big apartment REIT’s like Equity Residential (EQR) or Apartment Investors (AIV) might not go broke, it sure will not help them. Smaller landlords could start defaulting on their holdings. Thus, banks are able to find buyers for the homes they have foreclosed on, but will be hit with higher defaults in their commercial real estate portfolios.

The FHA is heading down the same path that eventually killed Fannie Mae (FNM) and Freddie Mac (FRE) as well such dearly departed as Downey S&L and Washington Mutual. While the head of the agency claims that there will be no need for a bailout, those other institutions also insisted on their solvency -- almost right up until the day they went under.

The FHA has done some social good in slowing the decline of housing prices, but it has come at a cost -- one that taxpayers may end up paying. The massive federal propping up of the housing market makes one question if the recent increases in the Case Schiller home price indexes are for real, or are just a temporary blip.
Read the full analyst report on "EQR"
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Zacks Investment Research

5 reasons THIS is the BIG correction

Shishir Nigam — Mon, 05 Oct 2009 13:01:46 +0000

The market has definitely improved much since March, 09, but has it improved for the right reasons? Should investors still be bearish? In this article, I explore the biggest justifications held out by the “bears”. “What’s with the insiders?” Insiders are those people who have access to non-public information about a company – ie. Employees, senior management, [...]

Initial Jobless Claims Rise – Analyst Blog

Dirk Van Dijk — Thu, 01 Oct 2009 14:46:41 +0000

In the last week, initial claims for unemployment insurance rose by 17,000 to 551,000. This reverses the previous week's gains.

The four-week moving average fell by 6,250 to 548,000. The four-week average is now more than 100,000 below its April peak, and seems unlikely to surpass it in this cycle.

Historically, a peaking in initial claims has been a good indication that a recession is over. This time around, the peak in initial claims came well before other end-of-recession indicators began to emerge. In recent weeks however, progress on claims has stalled out and become erratic from week to week.

We have seen this movie before, following both of the two most recent recessions. These long periods of jobless recovery can be clearly seen in the graph below (from http://www.calculatedriskblog.com/). Claims would come off the peak then hover at high levels for a couple of years.

We may have found our hover spot between 500,000 and 550,000 claims. That is simply not going to be good enough -- we need to get initial claims back down to the 400,000 area to indicate that the economy is, on balance, adding jobs. We will need to get it substantially below that if we hope to make up for the 7 million jobs that have already been lost in this recession.

We did get some apparent good news on the continuing claims side, which fell 70,000 to 6.090 million. However, that number only tracks people getting regular state benefits, which run out after 26 weeks. After that they move over to federally subsidized extended benefits, under two different programs.

Combined, those two programs are helping 3.718 million, an increase of 104,500 from the prior week (there are actually timing differences with the regular continuing claims data one week behind the initial claims data, and the extended claims an additional week behind). Thus, if we ignore the timing differences, the total number of people receiving unemployment benefits rose by over 34,000 in the last week.

Large numbers of people, up to 1.5 million, are scheduled to run out of even their extended benefits by the end of the year. The House has passed a 13-week extension for people living in high unemployment states (sorry, North Dakota), but it has yet to pass the Senate.

What will happen to the people who exhaust even their extended benefits? They have probably already maxed out their credit cards, or will after a few weeks of no income at all. Then they will just stop paying and go into bankruptcy, leaving a big headache for the card companies like Capital One (COF) and American Express (AXP).

They will stop paying their mortgage, especially if they are underwater in their homes, much to the dismay of Fannie Mae (FNM) and Freddie Mac (FRE) and ultimately to you, the taxpayer and thus owner of 80% of those “fine institutions."

Those people, if they were once middle class they will no longer be, and their chances of climbing back up into it are slim. It's not like others are climbing into the middle class; rather we are losing it, and developing an economic structure that looks more and more like, say, Brazil, with a relatively small number of people of extraordinary wealth, and masses of people just holding on by their fingernails. This process has been under way for a long time, but is being accelerated by the current downturn.

Read the full analyst report on "COF"
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Zacks Investment Research

Initial Jobless Claims Rise – Analyst Blog

Dirk Van Dijk — Thu, 01 Oct 2009 14:46:41 +0000

Long-Term Stock-Market Uptrend to Continue

Contrarian Profits — Mon, 28 Sep 2009 17:15:04 +0000

pStocks moved lower for the third consecutive day on Friday, something that hasn’t happened in more than three weeks, as the bulls just couldn’t capitalize on a short-term overbought condition. Measures of selling pressure eased as the bears rested their knuckles after a two-day pummeling./p pInvestors are worried. The big question – as always – is whether the primary uptrend remains intact./p pAnd the answer is yes./p pTo understand just what that target should be, let’s take a look at where we are right now./p pJust before Wednesday’s sell-off, measures of the supply of stocks moved to new lows, while demand moved to new highs. This means bull-market-trading rules remain in effect. But as the cyclical bull market matures a little, we need to#8230;/p

How the Government is Setting Us Up for a Second Subprime Crisis

Shah Gilani — Wed, 23 Sep 2009 14:43:27 +0000

pIs the government creating another subprime-mortgage bubble?/p pThe first time around, the three-headed federal serpent – the Bush administration, the Treasury Department and the U.S. Federal Reserve – used Fannie Mae (NYSE: a href="http://www.google.com/finance?q=fnm"FNM/a) and Freddie Mac (NYSE: a href="http://www.google.com/finance?q=fre"FRE/a) to “legitimize” trillions of dollars worth of toxic financial waste known as subprime mortgages./p pThe result was the worst financial crisis since the Great Depression – a mess that was global in nature./p pAnd we’re now headed for a repeat performance./p pSome of the players may have changed since the first a href="http://en.wikipedia.org/wiki/Subprime_mortgage_crisis"subprime-mortgage crisis/a, but the game apparently remains the same. With banks currently unwilling to lend, the new federal triumvirate of the Obama administration, the Treasury and the Fed are trying to inflate the moribund U.S.#8230;/p

Fed Staying on Hold, Housing Up – Analyst Blog

Dirk Van Dijk — Tue, 22 Sep 2009 16:00:06 +0000

Tomorrow afternoon all eyes will be on the Federal Reserve, which is currently holding one of its every-six-weeks get togethers. I and probably the rest of the world expect no change in the Fed Funds rate. It is currently near zero, so there is no room for further cuts, and it is extremely premature for them to raise rates again.

The real interest will be in deciphering the policy statement. I would expect a more upbeat tone about the pace of economic growth and continued confidence that they have inflation under control. There is about a mile of economic slack in the system, and while there are some indications that it is starting to be reeled in (for example, capacity utilization up two months in a row) we are a long, long way from any tension on the line.

As the graph below (from http://www.calculatedriskblog.com/) shows, historically the Fed has waited until well after unemployment peaks to start tightening up interest rates. After the 1991 recession they waited 18 months after unemployment peaked to start raising rates, and after the 2001 recession they waited a full year. Keep in mind, in both cases unemployment peaked well after the recession was over.

Currently unemployment is still rising, and is already at much higher levels than in either of the last two peaks. The earliest the Fed is likely to increase rates is probably the end of 2010.

Tomorrow afternoon, we will publish a paragraph-by-paragraph comparison and interpretation of the new Fed statement versus the pervious statement.

One of the key things to look for will be if they are going to end their quantitative easing programs soon. They have just about filled up their previously announced quota of buying Treasuries, so they may announce that they are done there. Through mid-September, they had bought $285 billion of the $300 billion of longer-term treasuries they planned to buy through the end of October.

On the Fannie Mae (FNM)- and Freddie Mac (FRE)-backed securities front they have already bought $840 billion of the $1.25 Trillion planned by the end of the year. That far exceeds the total amount of GSE-backed paper issued this year (about $440 billion), and when completed will represent almost 25% of all outstanding paper. The buying of MBS paper is a substantial deviation from classic central banking practice.

This has been a huge prop to the mortgage (and by extension, the housing) market. But what happens when the program is completed? The timing will roughly coincide with the expiration of the first-time buyer tax credit (11/30).

So far this year we have seen some stabilization and even signs of recovery in the housing market. For example, existing home sales were 15.2% higher in July than they were in March. The August data on used homes is due out on Thursday morning.

Even on the pricing front there are some signs that things are turning around. This morning the FHFA housing index, which tracks the prices of repeat sales of houses backed by the GSEs, showed a month-to-month gain of 0.3%. While that was less than the 0.5% consensus expectation, it was still up. On the other hand, prices were still down 4.2% year over year.

The FHFA index has a bigger weight on lower-priced homes than does the Case Schiller index, which is due out early next week, and which through June had shown a 15.4% year-over-year decline. The CS index is generally considered the gold standard of house price indexes.

There is a very real risk that the housing could slip back after these artificial supports are removed. That would be bad news, since historically housing is one of the key locomotives pulling the economy out of recessions. While absolute housing inventories (both new and used) are now relatively low, relative to sales they are still very high -- if not as awful as earlier in the year.

I still fear a big second wave of foreclosures will add to those inventory levels. Mortgage delinquencies are still rising, and unemployed people in houses that are worth less than the amount of the mortgage have every incentive in the world to simply walk away from their house, or simply live rent and mortgage free until the sheriff shows up at the door. This is one of the key reasons that I expect the economic recovery to be very anemic, especially after a short-term inventory bounce is out of the way.

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Zacks Investment Research

Global Stocks Retreat

Contrarian Profits — Mon, 21 Sep 2009 17:30:55 +0000

pWorld stocks retreated further from last week#8217;s 11-month high on Monday as lower energy and commodity prices and caution ahead of a Federal Reserve meeting and G20 summit prompted investors to trim risky trades./p pLeaders of the Group of 20 meet on Thursday and Friday in Pittsburgh and U.S. President Barack Obama said on Sunday he would push world leaders for a reshaping of the global economy in response to the crisis./p pWorld stocks, measured by MSCI have risen over 26 percent this year, recouping more than half of last year#8217;s losses, underpinned by repeated pledges by G20 policymakers to keep emergency support for the economy in place./p p#8220;The market might look slightly overbought near term, but the economy is definitely improving, corporate#8230;/p

This Indicator Will Warn You Before Stocks Fall

Daily Wealth — Mon, 21 Sep 2009 13:00:00 +0000

BBy Tom Dyson/BBRBR In December 2005, Citigroup announced a new 10-year, $100 million bond issue...BRBR At any time, Citigroup has hundreds of different bond issues trading in the markets. Right now, for example, my Bloomberg terminal shows over 500 different Citigroup bonds. There was nothing special about this 2005 issue...BRBR The housing market was rising, Wall Street's mortgage machine was in full swing, and America was enjoying the peak of its prosperity. At the time, you and I were paying 6% to borrow money secured against our houses. Citigroup would pay 5.3% to borrow money, unsecured.BRBR For two years, these bonds traded in a narrow band between $95 and $105. Then in March 2008, Bear Stearns failed and prices started to erode...BRBR Citi's bonds broke $90 in July, when Fannie Mae and Freddie Mac failed. They broke $80 in September, when Lehman failed. And by March 2009, when it seemed Citigroup itself might fail, they had fallen to $62...BRBR Here's the thing: In the last six months, the credit markets have made a remarkable recovery. This bombed-out Citigroup bond issue now trades for $99 again. In other words, investors are pricing these bonds as if the credit crisis never happened. Amazing.BRBR This chart of the investment-grade bond fund LQD is even more amazing. It shows prices of top-quality corporate bonds have surged and are now back to 2006 levels...BRBR Most people don't know this, but the bond market is far more important to America's economy than the stock market. For one thing, the bond market is over five times as large as the stock market. For another thing, institutions dominate the bond market. They may not be the shrewdest investors in the world, but they are sophisticated, they trade billions, and they trade with less emotion. The stock market is a roadside casino in comparison, reflecting the hopes and dreams of a million gamblers.BRBR I don't recommend you buy LQD or corporate bonds in general. They're expensive now. Besides, government support is the only reason the bond market is soaring and Citigroup's bonds are trading back at par. If the government withdraws this support for some reason, the bond market will collapse again.BRBR Instead, use the bond market as an indicator. Russell Napier, a well-known stock market historian, studied market tops and bottoms over the last 100 years and showed corporate bonds tend to lead the stock market by several months at important turning points.BRBR Today, the trend is clearly up. So for now, stock market investors have nothing to worry about. But keep an eye on LQD. It should give us advance warning of the next trend change in the stock market.BRBR Good investing,BRBR TomBRBRdiv class="feedflare" a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:yIl2AUoC8zA"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?d=yIl2AUoC8zA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:7Q72WNTAKBA"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?d=7Q72WNTAKBA" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:V_sGLiPBpWU"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?i=vJmceZwuYZE:-ADsDtdCa04:V_sGLiPBpWU" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:gIN9vFwOqvQ"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?i=vJmceZwuYZE:-ADsDtdCa04:gIN9vFwOqvQ" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:TzevzKxY174"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?d=TzevzKxY174" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:69LSlcDtVW8"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?d=69LSlcDtVW8" border="0"/img/a a href="http://feeds.feedburner.com/~ff/dailywealth/rss?a=vJmceZwuYZE:-ADsDtdCa04:qj6IDK7rITs"img src="http://feeds.feedburner.com/~ff/dailywealth/rss?d=qj6IDK7rITs" border="0"/img/a /divimg src="http://feeds.feedburner.com/~r/dailywealth/rss/~4/vJmceZwuYZE" height="1" width="1"/

Economy Out of the Woods? – Analyst Blog

Zacks Market Commentaries — Fri, 11 Sep 2009 14:01:38 +0000

After almost a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis.

Though the economy is in far better shape now than a year ago, there are persistent problems which need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain the growth momentum once these issues are resolved.

On Thursday, U.S. Treasury Secretary Timothy Geithner said that the government won't provide additional funds to stabilize the financial markets and the government’s economic team has removed a $750 billion line item from the federal budget projections, since it is unlikely to be necessary.

The TARP panel members, however, are not happy as most of the taxpayer-provided money was provided to financial institutions. But this is what was required as financial institutions are the backbone of the economy and they were the primary victims of the recession. However, we continue to see bank failures, with the tally reaching 89 so far this year.

Out of the $240 billion given to banks, $70 billion has come back as the healthiest banks have started repaying TARP funds. The Treasury Secretary estimates that the banks will repay another $50 billion over the next 12 to 18 months. Also, taxpayers have received decent returns on many of its financial-sector investments. TARP repayments have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the financial institutions that have already repaid bailout money include JPMorgan Chase (JPM), American Express (AXP), Goldman Sachs (GS), Morgan Stanley (MS), Capital One (COF), BB&T (BBT) and US Bancorp (USB). Also, banks like Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) are expected to exit from TARP over the next 12 to 18 months.

Earlier on Thursday, The Federal Deposit Insurance Corporation (FDIC) said that it may offer a six-month emergency extension to its debt-guarantee component of the Temporary Liquidity Guarantee Program (TLGP) that guarantees more than $270 billion of debt sold by U.S. banks.

The FDIC is considering two alternatives. Under the first, as planned, the program would expire Oct. 31 with the FDIC's guarantee for such debt issued through the program expiring before Dec 31, 2012. According to the second alternative, the debt guarantee program will end Oct. 31, but for an emergency the FDIC would extend the guarantee facility by six months. The proposed extension is intended to address emergency circumstances for insured depository institutions and some other entities participating in the program.

In our view, though the domestic credit and liquidity markets appear to be normalizing, an extension of the debt guarantee facility will be helpful to speed up the complete recovery process.

However, there are lingering concerns related to the banking industry as well as the economy. In its latest banking industry update Moody's Investor Service (MCO) repeated Thursday that the U.S. banking system will continue to suffer at least through the end of next year.

The ratings agency maintains a negative outlook for the banking industry. The agency cited that asset-quality troubles will force many banks to record substantial additional provisions for the remainder of 2009 and all of 2010, which will be a drag on the profitability of many banks for extended periods. This will further add stress to their capital levels.

While the state of the economy is showing signs of recovery, a lot remains to be done. The Treasury continues to have huge direct investments in banks like American International Group (AIG), Fannie Mae (FNM) and Freddie Mac (FRE). Also, as unemployment, housing and consumer spending remain stretched and masses of bank debt are going bad.
Read the full analyst report on "JPM"
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Read the full analyst report on "COF"
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Read the full analyst report on "USB"
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Currencies Hold Their Gains…

Contrarian Profits — Wed, 09 Sep 2009 19:32:44 +0000

p Consumer Borrowing Collapses#8230;What#8217;s up with sterling? Option ARMs get ready to reset#8230;Gold falls back to below $1,000#8230;And Now#8230; Today#8217;s Pfennig!/p pGood day#8230; And a Wonderful Wednesday to you! Well#8230; The currencies, for the most part, kept the heat on the dollar throughout the day and in the overnight markets. The euro, did rise to 1.45 and change yesterday, while it is hovering right at that figure this morning, so it did give a little bit back./p pThere were no big announcements last night like we saw on Monday, so the currencies didn#8217;t have anything to push them further. In fact, there may be a #8220;letting the dust settle#8221; period of time, with the Big Dog, euro, before we see any further advancement,#8230;/p

Ocwen Opts for Delloite – Analyst Blog

Zacks Market Commentaries — Tue, 08 Sep 2009 20:35:29 +0000

On Sept. 4, Ocwen Financial Corp. (OCN) said that its Board of Directors approved the dismissal of PricewaterhouseCoopers as its independent public accounting firm. The vote took place on Aug. 31 and the dismissal was effective the same day. It said there were no disagreements with PricewaterhouseCopers or reportable events.

In place of PricewaterhouseCoopers, Ocwen has hired Deloitte & Touche as its independent public accounting firm.

Ocwen and several other subprime lenders recently became subject of the Center for Public Integrity’s critical report. Records showed that 21 of the top 25 participants in a $21 billion federal program to bail out home borrowers were involved in the subprime crisis. Furthermore, Ocwen is undergoing about 64 lawsuits accusing it of abusive collection practices.

Ocwen is a financial services company engaged in the servicing of residential and commercial mortgage loans. It acquires mortgage-servicing rights for performing, sub-performing and non-performing residential mortgage loans, for which it earns fees like annual servicing fee and late fees. The company has been approved as a loan servicer by the Department of Housing and Urban Development, Freddie Mac (FRE) and Fannie Mae (FNM).

Last month, Ocwen completed its public offering of 32.2 million shares of common stock, receiving nearly $275.3 million in net proceeds. Its second-quarter profit of $17.6 million, or 26 cents per share, reported on Aug. 4, beat the Zacks Consensus Estimate on strong sales and cost-reduction initiatives. As such, we are maintaining our Outperform recommendation on the stock.

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Treasury: Up Standards for Banks – Analyst Blog

Zacks Market Commentaries — Fri, 04 Sep 2009 14:45:32 +0000

The U.S. Treasury on Thursday said that it wants the world’s banks to maintain stronger capital and liquidity standards by the end of next year to prevent a re-run of the global financial crisis from which the financial sector is gradually recovering.

The Treasury would require banking institutions to focus more on higher-quality capital that will help them absorb big losses. Capital requirements for all banking institutions should be increased. Also, financial institutions, which are large enough to affect the overall financial system, should be required to hold more capital than smaller firms.

The Treasury intends to reach a comprehensive agreement on new international capital and liquidity standards by December 31, 2010 and put into effect the new rules by 2012. According to the Treasury, banking institutions should be forced to stick to non-risk-based limits on leverage and conservative liquidity standards.

As the financial institutions largely contributed to the recent global financial crisis by investing in risky assets without maintaining sufficient reserves, regulators are calling for sturdier supervision for them.

The U.S. government was forced to pass a $700 billion package through Troubled Asset Relief Program (TARP) last year to rescue the struggling institutions, which was facing massive losses due to the subprime crisis and housing collapse.

Though some of the biggest banks have fully repaid their obligations from TARP, government money is still locked in some very big companies like Citigroup (C), Bank of America (BAC), American International Group (AIG), mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE), and automakers General Motors and Chrysler. Repayment of TARP money by these companies still remains uncertain.

The new rules, if enacted, would somewhat limit bank profitability, but a proper implementation would bring stability to the overall sector. Also, the rules would likely drive institutions to sell more equity, which would dilute shareholders wealth, but would mitigate the risk of collapse.
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Stock Market News for September 2, 2009 – Market News

Zacks Market Commentaries — Wed, 02 Sep 2009 14:15:15 +0000

A pair of positive economic news failed to lift sentiments on the Street as mounting worries that the six-month old rally has gone ahead of the economic recovery led to a nervous selling and all major indexes closed sharply lower. That September has historically been a rough month for stocks is also a factor why investors appear disinclined to jump into the fray and many say a break in the six-month old rally is on the cards.

On Tuesday, the Dow Jones industrial average, after gaining over sixty points in the morning, nose-dived 185.68 points, or 2%, to 9,310.60. Since Friday, the index has lost 270 points, or 2.8%. The S&P 500 fell 22.58, or 2.2%, to 998.04, while the Nasdaq composite index fell 40.17, or 2%, to 1,968.89. Treasuries, which usually benefit from a fall in stocks, could garner only moderate gains. Volume picked up on the NYSE where 1.63 billion shares exchanged hands as declining stocks beat those that advanced five to one. The market’s measure of volatility, the CBOE Vix, shot up 12.1% to 29.2.

The decline in stocks was broad based as all but one DJIA component ended in the red. Only Wal-Mart (NYSE:WMT) showed some resistance, edging up 0.2%. Financial stocks took a beating, hurt by analyst comments and rumors of a bank failure. Leading the Dow average lower was Bank of America (NYSE:BAC), which slipped 6.4% to $16.46. American Express (NYSE:AXP) slid 5.4% to $31.98 while another Dow component JP Morgan Chase (NYSE:JPM) retreated 4.1% to $41.67. Citigroup (NYSE:C), though not in the Dow average, was another notable loser as its shares lost 9.2% to $4.54.

A Sanford Bernstein downgrade sent shares of AIG (NYSE:AIG) down 20.6%. The plunge wiped off much of the recent gains in AIG stocks. Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) lost 17.6% and 17.0%, respectively, as traders decided to book profits after the recent advance in the shares. Wells Fargo (NYSE:WFC) shares dropped 4.8% even as the company announced plans to repay government bailout funds "shortly," without selling shares; the firm received $25 billion in TARP funds. E*Trade Financial Corp. (NASDAQ:ETFC) slid 15% to $1.50.

This afternoon’s release of the FOMC minutes could be of interest, as investors weigh its wording for recovery and growth expectations, as well as sign posts of exit strategy plans.

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The Undead of the Banking World

Bill Bonner — Wed, 02 Sep 2009 11:11:17 +0000

pHey, the economy is not only recovering…it’s becoming better than ever before!/p pstrong“Banks recover to their levels before the fall of Lehman,”/strong is a headline in this Monday’s emEl Pais/em from Madrid./p p“Public assistance enables the world’s largest 15 financial firms to return to the capitalization they had in September 2008,” the article continues. The largest of the largest, HSBC, is now judged to be worth $186 billion, according to the stock market. China’s ICBC is on its heels, with a market cap of $178 billion. BNP Paribas is 7th at $87 billion./p pstrongWe will overlook the compromising detail that banks actually lost money in the last quarter – more than $3 billion./strong And let’s forget that China’s major banks are sitting on mega-losses from more#8230;/p

The U.S. Housing Market’s False Dawn

Martin Hutchinson — Tue, 01 Sep 2009 18:10:43 +0000

Why Did These Companies Cream the S&P 500? Is the U.S. housing market truly at a turning point, as investors seem to increasingly believe? Or is this actually a false dawn, meaning that there are problems and pain ahead for those who turned bullish too soon? New home sales jumped almost 10% in July, while the Case-Shiller [...]

U.S. Profits from Bailed-Out Banks – Analyst Blog

Zacks Market Commentaries — Mon, 31 Aug 2009 18:47:18 +0000

The U.S. government has already retrieved about $4 billion in profits from 8 of the biggest banks that have fully repaid their obligations from the $700 billion Troubled Asset Relief Program (TARP).

The government has recorded profits of about $1.4 billion from its investment in Goldman Sachs Group Inc. (GS), $1.3 billion from Morgan Stanley (MS) and $414 million from American Express Company (AXP).

Furthermore, the government has also reaped profits in the range of $100 million to $334 million from its investments in each of the following five banks: Northern Trust Corporation (NTRS), The Bank of New York Mellon Corporation (BK), State Street Corp. (STT), US Bancorp (USB) and BB&T Corp. (BBT). It also collected about $35 million in profits from 14 smaller banks that have paid back their loans.

TARP was introduced in October 2008 to rescue the struggling banking industry, which was facing massive losses due to the sub-prime mortgage crisis and housing collapse. The payback of the bailout money by the above-mentioned banks has triggered optimism that the U.S. government may soon get out of the banking business. Earlier, taxpayers were doubtful of reaping any profits under the program, and were concerned that it could take years for the banks to repay the loans.

However, government money is still locked in some very big companies like Citigroup Inc. (C), Bank of America Corporation (BAC), insurance giant American International Group Inc. (AIG), mortgage lenders Fannie Mae (FNM) and Freddie Mac (FRE), and automakers General Motors and Chrysler. Repayment of TARP money from these companies remains uncertain.
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Stock Market News for August 31, 2009 – Market News

Zacks Market Commentaries — Mon, 31 Aug 2009 14:12:41 +0000

A sharp plunge in Shanghai Composite Index Monday sent Asian stocks sharply lower as nervous investors went on a selling spree, reflecting a growing unease that the six-month old rally has gone ahead of any economic recovery.

The Shanghai Composite Index, which had declined nearly 3% on Friday, plunged 6.7% to 2,697. Hong Kong's Hang Seng retreated 1.9%. In Japan, the Nikkei 225 stock average, which was up 200 points earlier in the session, fell 41.61 points, or 0.4%, to 10,492.53. In Yesterday’s landslide victory, the Democratic Party of Japan came to power ending an almost half-a-century rule by the Liberal Democratic Party. The yen strengthened, helped by the election results.

This morning’s U.S. stock futures show Wall Street is headed for a lower opening. Dow Jones industrial average futures fell 59, or 0.6%, to 9,477. Standard & Poor's 500 index futures fell 5.70, or 0.6%, to 1,021.70, while Nasdaq 100 index futures fell 11, or 0.7%, to 1,631.50.

On Friday, U.S. stocks closed mostly lower after a report showing a drop in consumer confidence offset a rally in technology stocks that was fueled by better-than-expected results from Intel (NASDAQ:INTC) and Dell (NASDAQ:DELL). Also, Apple (NASDAQ:AAPL) announced that it entered into a deal with China Unicom to launch the iPhone in the country. The rally in tech shares was also helped by signs of a bottoming in the personal computer market after Intel (NASDAQ:INTC) raised its third quarter sales forecast to at least $8.8 billion from its prior forecast of $8.1 billion. The firm also raised its outlook on gross margin expectations.

The Dow Jones industrial average lost 36 points, or 0.4%. The S&P 500 index retreated 2 points or 0.2%. The Nasdaq composite added 1 point, or 0.1% and rose to its fresh 2009 high, closing at the highest point since October 1. Trading was light as most traders remained out of the market due to the summer vacations.

Among the S&P500 industry groups, financials led the gainers rising 1.2% during the week; consumer services shares rose 1.2%, followed by technology shares (+0.8%), industrials (+0.1%), and telecommunication stocks (+0.1%). The week saw financial stocks recording huge gains, helped by advances in AIG (NYSE:AIG), Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE).

Among the week's losers, basic material and consumer goods shares fell 0.8%; utilities declined 0.7%; oil and gas shares dropped 0.3%, and health care issues retreated 0.2%.

Gains in retail stocks helped shares of consumer services companies record some gains. Luxury jeweler Tiffany (NYSE:TIF) reported better-than-expected earnings for the quarter, and also raised its full-year guidance. Housing shares showed some strength, helped by a report on new home sales, which revealed a more-than-expected, 9.6% advance in July.

Zacks Investment Research

FRE Marks Rising Mortgage Rates – Analyst Blog

Zacks Market Commentaries — Fri, 28 Aug 2009 19:16:26 +0000

Freddie Mac (FRE) announced Thursday that U.S. mortgage rates for 30-year fixed home loans rose 0.02 basis points this week, as the year’s record low borrowing costs produced the biggest jump in new home purchases in four years.

The average 30-year rate increased to 5.14% from 5.12% in the previous week. The mortgage rate was significantly higher than the record low of 4.78% set at the week ending April 2.

Long-term mortgage rates remained flat this week, near historical lows, which is helping sustain a high level of affordability in the home-purchase market.

Climbing mortgage rates may threaten a gain in home sales spurred by falling home prices, a government tax credit for first-time buyers, and a Federal Reserve program designed to lower borrowing costs. New home sales jumped more than expected in July and sales of existing homes rose to their highest level in almost two years.

Last year, the Federal Reserve decided to lower mortgage rates by buying bonds backed by home loans. It increased the size of its program to $1.25 trillion in March. These bonds purchased from Fannie Mae (FNM), Freddie Mac and Ginnie Mae brought down yields on mortgage-backed securities and allowed lenders to reduce rates on new loans while still selling the securities backed by them at a profit.

The plan helped cut mortgage rates to a record low 4.78% in April. Sales Increase Rates started climbing in May along with Treasury yields due to investor concerns that higher government debt would fuel inflation. The 30-year mortgage rate climbed to 5.59% in the week ended June 11 and has since fallen back.

The mortgage rates seem to be stabilizing now and indicate optimism after a long time.
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Reflections on the Causes and Consequences of the Debt Crisis of 2008

Menzie Chinn — Thu, 27 Aug 2009 05:17:42 +0000

From "Reflections on the Causes and Consequences of the Debt Crisis of 2008," in the La Follette Policy Report by Menzie Chinn and Jeffry Frieden:

In late 2008, the world's financial system seized up. Billions of dollars worth of financial assets were frozen in place, the value of securities uncertain, and hence the solvency of seemingly rock solid financial institutions in question. By the end of the year, growth rates in the industrial world had gone negative, and even developing country growth had declined sharply.

This economic crisis has forced a re-evaluation of deeply held convictions regarding the proper method of managing economies, including the role of regulation and the ideal degree of openness to foreign trade and capital. It has also forced a re-assessment of economic orthodoxy that touts the self-regulating nature of free market economies.

The precise origin of this breathtaking series of events is difficult to identify. Because the crisis is such an all-encompassing and wide-ranging phenomenon, and observers tend to focus on what they know, most accounts center on one or two factors. Some reductionist arguments identify “greed” as the cause, while others obsess about the 1990s era amendments to the 1977 U.S. Community Reinvestment Act that was designed to encourage banks and other financial institutions to meet the needs of the entire market, including those of people living in poor neighborhoods. They also point to the political power of government-sponsored entities such as Fannie Mae and Freddie Mac, agencies designed to smooth the flow of credit to housing markets.
In our view, such simple, if not simplistic, arguments are wrong. Rather, we view the current episode as a replay of past debt crises, driven by profligate fiscal policies, but made much more virulent by a combination of high leverage, financial innovation, and regulatory disarmament. In this environment, speculation and outright criminal activities thrived; but those are exacerbating, rather than causal, factors.

Figure 2: Current account to GDP ratio (blue, left axis) and end-year net international investment position to GDP ratio (red, right axis). Source: BEA June 2009 release, 2008 NIIP release, author's calculations.

The subsequent sections are: (1) History Repeats, Again; (2) The United States; (3) Facilitators of American Excess; (4) Consequences, and; (5) Long Term Prospects. From Long Term Prospects:

We are now witnessing the unwinding of this process of debt accumulation. Households and firms are busily trying to reduce their debt loads, in the face of dimmer prospects for income and profits. For households, savings rates are rising, but at the cost of stagnant consumption. For firms, the reduction of debt load is consistent with a reduced rate of investment in plant and equipment.
In some sense, this process of retrenchment is necessary. For many years, the United States consumed more than it produced. We borrowed and for a while thought that the old rules had been suspended. But now it turns out that we do have to pay back what we have borrowed. The attendant higher saving rate and lower investment rate will lead to a substantial improvement in the current account balance, or in other words, the paying off of our debt.
More broadly, though, this also means that the United States cannot rely upon the driver of growth that has sustained it over the past three decades—namely consumption. But the consequences extend beyond the nation’s border. The world can no longer rely upon the American consumer. Who will take up this role remains to the next big question.

The entire article, which draws on a book the authors are writing, can be read here.

Freddie’s Volume Metrics in July – Analyst Blog

Zacks Market Commentaries — Wed, 26 Aug 2009 15:12:04 +0000

Freddie Mac (FRE) reported its monthly volume metrics for July 2009. Highlights for the month are as follows:

The total mortgage portfolio decreased at an annualized rate of 3.3% in July to $2.2 billion.
Refinance-loan purchase volume was $34.1 billion in July, down 33.0% from $50.9 billion in June.
The aggregate unpaid principal balance of mortgage-related investments portfolio decreased to $799.1 billion at July 31, 2009 from $829.8 billion at June 30, 2009.
The net amount of mortgage-related investments portfolio mortgage purchase (sale) agreements entered into during the month of July totaled $11.0 billion, up 11.1% from the $9.9 billion during the month of June.
Total guaranteed PCs and Structured Securities issued decreased at an annualized rate of 2.1% in July.
The measure of FRE’s exposure to changes in portfolio market value averaged $556 million in July.
Delinquencies, which reflect loans whose payments are overdue and its increase adds to stress on the company's capital, increased to 2.95% of its book of business in July from 2.78% in June and 1.01% in July 2008. However, the multifamily delinquency rate remained flat at 0.11% in July compared to June, but increased significantly from 0.03% in July 2008.

Freddie Mac reported a surprise profit in the second quarter of 2009 and indicated that it may not need additional federal aid in the near term.

In September 2008, the U.S. government took control of Freddie Mac and its larger sibling, Fannie Mae (FNM), after they reported huge losses and shrinking capital caused by plummeting U.S. house prices. The government is now relying heavily on Fannie Mae and Freddie Mac in their efforts to stimulate the U.S. housing market by buying more mortgage loans, easing refinancing and helping homeowners avoid foreclosures.

Given the uncertain near term outlook for Freddie Mac, we maintain an Underperform recommendation on the stock.

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Obama Backs Big Ben – Analyst Blog

Dirk Van Dijk — Tue, 25 Aug 2009 16:05:16 +0000

President Obama has decided to reappoint Fed Chairman Ben Bernanke to a second term. On balance, I think this is the right move. In many ways, his reappointment makes more sense than his original appointment.

The worst marks against Bernanke’s record come from when he was serving on the Fed board under Alan Greenspan, did nothing to stop the bubble forming and was almost willfully blind in seeing it coming. While as Chairman, he was a little slow off the mark in addressing the crisis, once engaged he took the needed steps to pull the world back from the brink of the abyss.

The role of Fed Chairman has two major components. First and foremost, he (along with the board of Governors) is responsible for monetary policy. This is the raising and lowering of the Fed Funds rate and regulating the overall money supply.

On that front, I think he has done an excellent job under the most trying of circumstances. He faced a raging wildfire of deleveraging in the financial system after the demise of Lehman Brothers and the near collapse of several other major financial institutions, including American International Group (AIG), Fannie Mae (FNM), Freddie Mac (FRE), Merrill Lynch -- now part of Bank of America (BAC) and Citigroup (C).

He responded by quickly lowering the Fed Funds rate to almost zero, and then going a few steps further by engaging in quantitative easing, or buying mortgage-backed securities and long-term T-notes. These actions dramatically increased the size of the Fed balance sheet and with it the size of the monetary base. He responded with a slew of innovative alphabet soup programs, such as the TALF program, to stabilize the system.

At the core of the problem is that deleveraging dramatically slows the velocity of money, or the rate at which it moves from one hand to another. Banks want to hold onto as much cash as possible and do not want to lend it out.

Since nominal GDP can be defined as the supply of money times the rate at which it turns over, if the money supply is not increased, then GDP will fall precipitously. This comes from the basic monetarists equation of M*V = P*Q, where M is the money supply, V is the velocity, P is the price level (inflation) and Q is the quantity produced (real output).

Once engaged, Bernanke saw the scope of the problem and unleashed a fire hose of liquidity on the problem. While the economy is clearly not in good shape, I shudder to think about the condition we would be in had he not taken these actions. Most people fail to appreciate just how close we came to financial Armageddon last fall. It was the economic equivalent of the Cuban Missile Crisis.

Sopping up all that liquidity is going to be extremely tricky, and the timing is going to have to be just right. If it is removed too soon, then the economy will slip right back into its downward trajectory.

The actions of the Fed prevented a second Great Depression, but that does not mean the threat has totally disappeared, just that the medicine is working. Stopping the medicine too soon would cause a relapse.

The best example of this in history was in the 1930’s. Few people realize that the greatest growth in GDP and industrial production in U.S. peacetime history was from 1933 through 1936. Unfortunately, worried about the potential for inflation and unprecedented budget deficits, both Monetary and Fiscal policy turned concretionary in 1937, resulting in a very nasty recession, a relapse that took WWII to cure.

On the other hand, if velocity starts to pick up and all that monetary base is still out there, then the movement on the other side of the equation will be as much or more from the P, inflation, as it is from the Q, a pick up in real economic activity. If Bernanke does not act quickly enough, inflation could easily return to mid-1970’s levels or worse.

Bernanke is betting that right now real activity is depressed enough that when V starts to pick up, the bulk of the adjustment will be in real output, or Q. With capacity utilization at near record lows, there is a very good justification for this view.

Certainly recent inflation reports have been not been on the too-hot side. Heck, we just saw the biggest year-over-year drop in producer prices on record! Changing horses in midstream is not a good idea, and until this river of liquidity is removed, we will not get to the other side.

The other major role of the Fed Chairman is to be one of the most important bank regulators. Here I would give him much weaker marks. The banks acted outrageously leading up to the crisis. They used taxpayer-backed deposits and effectively went to Las Vegas with them. Their casino of choice was highly leveraged bets on exotic forms of mortgage-backed securities.

Another favorite table game were derivatives, most notably Credit Default Swaps (CDS) which were essentially life insurance contracts on companies. When they were winning the bets, they paid out bonuses that were beyond lavish. They did not set aside sufficient reserves for when the bets turned bad.

The Fed, along with the Treasury, simply threw money at the banks with very few strings attached. The taxpayer got very little in return. This was one of the greatest transfers of wealth -- welfare, if you will -- in human history. It did not go to the poor or the sick; it went to the wealthy and the powerful. In the process, it set up a moral hazard problem of epic proportions.

Bankers now know that they can make huge bets, and if they lose, the taxpayer will cover them. If they win, they get to keep it all. This will encourage banks and other financial institutions to be even more irresponsible in the future.

An overhaul of the financial regulatory structure would help, and the recent proposals by the Obama Administration are a decent first step in that regard. Unfortunately, the proposals are more likely to be watered down in Congress than strengthened. This is exactly the sort of issue where lobbyists hold the most sway -- dry and complicated issues where a very powerful group has a huge interest in the outcome.

The net result is that down the road -- not next year or the year after, but maybe in a decade -- we will face another massive crisis in the financial system. And where the actions of the last administration with regard to the banks were beyond scandalous, the actions of the current administration towards the banks have been a huge disappointment. "Change we can believe in" has, at best, become change around the edges.

In his second term, Bernanke will have to become a much tougher regulator. Part of the regulatory reform would put even more power in the hands of the Fed as a systemic risk regulator. I agree that such a regulator is needed, and the Fed is one of the two obvious candidates for the job (the other being the FDIC).

The opposition the Fed has shown in giving up part of its regulatory power -- the consumer protection part -- is extremely disappointing, and smacks of more interest in bureaucratic turf than the interests of the American people or the economy. The Fed has done a lousy job in protecting the consumer from predatory practices at the banks, and a separate agency is desperately needed.

The experience of Alan Greenspan should warn us loudly about the lionization of a Fed Chairman. For most of his tenure, Greenspan was lionized as the “Maestro." Now it is clear that he truly was a failure whose actions led to the near total collapse of the entire world economy.

Thus, I have no desire to lift Ben Bernanke up to Mount Olympus. Still, given his excellent handling of monetary policy during the most difficult of times, Bernanke deserves to finish the job he started, and Obama is making the right move in reappointing him.
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How Over-Regulating Goldman Sachs Will Lead to Higher Oil and Commodity Prices

Contrarian Profits — Fri, 21 Aug 2009 20:19:19 +0000

pAfter earning hefty profits on its commodities trading for nearly 18 years, heavyweight trader Goldman Sachs Group Inc. (NYSE: a href="http://www.google.com/finance?q=gs" target="_blank"GS/a) now finds itself on the hot seat, defending this crucial source of revenue. And while that may not be good for Goldman, it’s also bad for investors. Let me explain…/p pIt all started back in 1991, when a href="http://en.wikipedia.org/wiki/Goldman_Sachs#1980.E2.80.931999" target="_blank"J. Aron #38; Co/a., Goldman’s commodities-trading division, recommended that a large institutional client invest about $100 million in commodities. The vehicle “du-jour” was Goldman’s own investment vehicle, the Goldman Sachs Commodity Index (now the a href="http://www2.goldmansachs.com/services/securities/products/sp-gsci-commodity-index/tables.html" target="_blank"S#38;P GSCI Commodity Index/a)./p pThe GSCI is a 24-commodity dollar-weighted index, comprised of 70% energy (oil and natural gas), 8% industrial metals (aluminum, copper, lead, nickel and zinc), 3% precious metals#8230;/p

Bernanke Speaks at Jackson Hole – Analyst Blog

Dirk Van Dijk — Fri, 21 Aug 2009 18:24:41 +0000

In a long speech to the annual Kansas City Fed gathering at Jackson Hole, Wyoming, Fed Chief Ben Bernanke gave a history lesson about the recent financial crisis. It is worth reading in its entirety since it reminds us of just how close we came to absolute catastrophe.

He recounts the demise of Lehman Brothers and the decisions to bail out Fannie Mae ([/url]), Freddie Mac ([url=http://www.zacks.com/stock/quote/fre]FRE) and American International Group (AIG), as well as the shotgun marriages of Bank of America (BAC) with Merrill Lynch and J.P. Morgan (JPM) with Washington Mutual.

The full speech can be read here: http://www.federalreserve.gov/newsevents/speech/bernanke20090821a.htm.

While most of the speech focused on the recent past, he gave the following assessment of the current situation:

“Overall, the policy actions implemented in recent months have helped stabilize a number of key financial markets, both in the United States and abroad. Short-term funding markets are functioning more normally, corporate bond issuance has been strong, and activity in some previously moribund securitization markets has picked up.

"Stock prices have partially recovered, and U.S. mortgage rates have declined markedly since last fall. Critically, fears of financial collapse have receded substantially. After contracting sharply over the past year, economic activity appears to be leveling out, both in the United States and abroad, and the prospects for a return to growth in the near term appear good.

"Notwithstanding this noteworthy progress, critical challenges remain: Strains persist in many financial markets across the globe, financial institutions face significant additional losses, and many businesses and households continue to experience considerable difficulty gaining access to credit.

"Because of these and other factors, the economic recovery is likely to be relatively slow at first, with unemployment declining only gradually from high levels."

I have to agree with his basic assessment that the economy is stabilizing, but that the recovery will be exceptionally anemic. As a central banker, he is obligated to speak in soft tones and not say anything that has the potential to alarm markets. If he were back teaching at Princeton, he would probably use stronger language.

Historically, sharp downturns are followed by sharp and strong recoveries. That is not likely to happen this time around. Still, we have seen some encouraging signs, most recently the pick-up in existing home sales and the tentative rebound in industrial production.

These signals probably mean that the NBER will eventually say that the recession ended around now. They will not get around to doing so until perhaps the first quarter of next year, just as they did not tell us the recession started in December of 2007 until November of 2008, when any fool could tell we were in a recession.

Bernanke only touched lightly on what was likely going forward and did not really address how the programs of the last year will be unwound -- the timing of which will be extremely difficult. If the Fed acts too quickly, we could easily be back where we were last fall. If it waits too long, inflation expectations will rise, and given the huge amount of excess reserves the Fed has injected into the system, inflation could rapidly get out of control.

Some insight into this timing would have been nice in this speech, but I didn’t find it. Still it was a useful history lesson. Here is his conclusion:

“Since we last met here, the world has been through the most severe financial crisis since the Great Depression. The crisis in turn sparked a deep global recession, from which we are only now beginning to emerge.

"As severe as the economic impact has been, however, the outcome could have been decidedly worse. Unlike in the 1930s, when policy was largely passive and political divisions made international economic and financial cooperation difficult, during the past year monetary, fiscal and financial policies around the world have been aggressive and complementary.

"Without these speedy and forceful actions, last October's panic would likely have continued to intensify, more major financial firms would have failed, and the entire global financial system would have been at serious risk. We cannot know for sure what the economic effects of these events would have been, but what we know about the effects of financial crises suggests that the resulting global downturn could have been extraordinarily deep and protracted.

"Although we have avoided the worst, difficult challenges still lie ahead. We must work together to build on the gains already made to secure a sustained economic recovery, as well as to build a new financial regulatory framework that will reflect the lessons of this crisis and prevent a recurrence of the events of the past two years. I hope and expect that, when we meet here a year from now, we will be able to claim substantial progress toward both those objectives."

The effort the build an new regulatory framework is going to be critical, and is something that the public has to be aware of. Since it is a highly complex and difficult subject, it is just the sort of thing where lobbyists can have the greatest influence.

Already the effort to create a new agency focused on consumer protection from abusive financial products seems to be floundering under intense opposition from the banking lobby. The country did an enormous favor to the banking industry last year, but in the final analysis it was in the public interest to do so (as a general proposition of stepping in, the actual implementation was FAR too nice to the banks).

It would be nice if those efforts led to changes that would prevent a reoccurrence of this disaster. So far, there is little evidence of that happening.

The regulatory overhaul as proposed by the Obama Administration would be a good first step, but needs to be strengthened as it moves through Congress. However, it seems more likely that as the bank lobby sets its teeth in, it will be substantially weakened instead.

Thus, we will face another crisis like the one we had last year, maybe not this year or next, but 10 or 20 years down the line. Let us hope that Bernanke is right and a year from now we will see substantial progress towards these objectives, but I fear that we will not.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Read the full analyst report on "AIG"
Read the full analyst report on "BAC"
Read the full analyst report on "JPM"
Zacks Investment Research

Zacks Analyst Blog Highlights: Kroger, Citigroup, Bank of America, Fannie Mae and Freddie Mac – Press Releases

Zacks Market Commentaries — Fri, 21 Aug 2009 13:20:44 +0000

For Immediate Release

Chicago, IL – August 21, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Kroger (KR), Citigroup (C), Bank of America (BAC), Fannie Mae (FNM) and Freddie Mac (FRE).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Thursday’s Analyst Blog:

New Jobless Claims Disappoint

According to the National Unemployment Law project, 500,000 people will exhaust their extended benefits by the end of September, and 1.5 million will do so by the end of the year. With the extensions, these folks have been out of work for well over a year at this point. That means they have probably already run through all their savings and borrowed against or drained what ever 401K and IRA plans they have. They have probably also maxed out their credit cards. They are left with almost no financial resources.

Soon they will be left with no (legal) income at all. Thus, they will have to rely on food banks and soup kitchens rather than going to Kroger (KR) to get food. Food banks are already overwhelmed and are running low on supplies. The country needs a food bank bailout as much as it needed a bailout of Citigroup (C) and Bank of America (BAC).

If these people are homeowners, they will be foreclosed upon, or will simply stop mailing in the mortgage check and wait for the sheriff to show up at the door. This will severely hurt the holders of mortgage-backed securities and the banks. Ultimately it will hurt the taxpayers, since many of these mortgages are backed by Fannie Mae (FNM) and Freddie Mac (FRE), and we the taxpayers own 80% of both of them, as well as having extended them $200 billion in credit. Poverty, already a major problem in this country, is going to be a much bigger issue going forward than it has been in the past.

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Zacks Investment Research

New Jobless Claims Disappoint – Analyst Blog

Dirk Van Dijk — Thu, 20 Aug 2009 15:20:56 +0000

Initial claims for unemployment insurance rose to 576,000, an increase of 15,000. This was in stark contrast to the expected decline to the 550,000 level.

The four-week moving average rose by 4,250 to 570,000. This is the second week in a row it has risen. To be sure, we are well below (by 89,000) the peak levels set back in mid-April, and it seems unlikely to me that we will surpass that level in this cycle. Historically, a peak in the four week average of initial claims has coincided with the end of recessions.

It appears that we are starting the pattern we saw in the last two recessions (see graph from http://www.calculatedriskblog.com/ below) where rather than coming straight down off the peak, there is an initial decline and an uneven jagged plateau after the peak. In the recessions of the 1970’s and the 1980’s after the recession was over, initial claims quickly retreated to the pre-recession levels once the economy was on the mend.

In the last two downturns, claims stayed elevated for about two years after the recession officially ended -- a symptom of the jobless recoveries we had. The rise in jobless claims does not negate the idea that the recession is over, but it does throw cold water on the idea of a vigorous recovery.

Continuing claims also rose. There are now 6.241 million people getting regular state unemployment benefits. However, they run out after 26 weeks. Thus, changes in that number can have as much to do with the number of people getting laid off six months ago as it does with people getting jobs now.

Fortunately for those people, there is the federally subsidized extended benefits program. There are now 2.878 million people who are being helped by that program, and increase of 92,000 from last week. (There is a bit of a time difference in the reporting here, as continuing claims are one week behind initial claims and the extended benefits are one week behind continuing claims.)

It seems pretty clear that the economy is continuing to drop jobs in August. The drop in the unemployment rate in July was a bit of a statistical anomaly caused by a reduction in the civilian participation rate in the economy, not by robust job growth.

The rate of job loss has slowed from the horror show that was last winter, but it is still very large. Keep in mind that the population is growing -- just to keep up, the economy really needs to add well over 100,000 jobs a month.

Yes, getting job losses down to 245,000 is a HUGE improvement over losing them at a 700,000-a-month clip, but is not a sign of a healthy economy. Even the extended benefits will not last forever.

According to the National Unemployment Law project, 500,000 people will exhaust their extended benefits by the end of September, and 1.5 million will do so by the end of the year. With the extensions, these folks have been out of work for well over a year at this point. That means they have probably already run through all their savings and borrowed against or drained what ever 401K and IRA plans they have. They have probably also maxed out their credit cards. They are left with almost no financial resources.

Soon they will be left with no (legal) income at all. Thus, they will have to rely on food banks and soup kitchens rather than going to Kroger’s (KR) to get food. Food banks are already overwhelmed and are running low on supplies. The country needs a food bank bailout as much as it needed a bailout of Citigroup (C) and Bank of America (BAC).

If these people are homeowners, they will be foreclosed upon, or will simply stop mailing in the mortgage check and wait for the sheriff to show up at the door. This will severely hurt the holders of mortgage-backed securities and the banks. Ultimately it will hurt the taxpayers, since many of these mortgages are backed by Fannie Mae (FNM) and Freddie Mac (FRE), and we the taxpayers own 80% of both of them, as well as having extended them $200 billion in credit. Poverty, already a major problem in this country, is going to be a much bigger issue going forward than it has been in the past.

As for health care, COBRA has probably lapsed, even if they could afford it (the stimulus package actually made COBRA affordable to many people). They will either end up on Medicaid or just using the Emergency Room for all their medical needs. Either way, the taxpayers will take it in the wallet.

Read the full analyst report on "KR"
Read the full analyst report on "C"
Read the full analyst report on "BAC"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Company News for August 7, 2009 – Corporate Summary

Zacks Market Commentaries — Fri, 07 Aug 2009 14:33:07 +0000

• AIG International (NYSE:AIG) reported its first interim profit since the third quarter of 2007, beating estimates with adjusted earnings of $2.57 a share, topping projections of $1.67 on revenues of $2.95 billion ahead of revenue estimates of $19.9 billion

• Fannie Mae (NYSE:FNM) asked for an additional $10.7 billion cash infusion from the government, following its quarterly post of a $2.67 per share loss, or $15.2 billion

• NVIDIA (NASDAQ:NVDA) reported second quarter earnings of 7 cents a share, 9 cents ahead of estimates of a loss of 2 cents per share on revenues of $776.5 million, which beat estimates of $710.18 million

• Piper Jaffray (NYSE:PJC) upgraded shares of Crocs (NASDAQ:CROX) to "over-weight"

• Morgan Stanley (NYSE:MS) announced repurchase of $950 million of its warrants from the US Treasury, providing a 20% annualized return to US taxpayers

• CBS (NYSE:CBS) reported second quarter earnings of 8 cents a share, one penny ahead of estimates, on revenues of $3.01 billion

Zacks Investment Research

Stock Market News for August 6, 2009 – Market News

Zacks Market Commentaries — Thu, 06 Aug 2009 14:26:00 +0000

US markets closed marginally lower Wednesday, capping a four-day rally, as some lackluster economic data kept investors from taking big positions. Investors appeared to be cautious ahead of the government’s monthly report on job losses and the unemployment report, which comes out on Friday. Yesterday’s pullback reversed Wall Street’s recent run, which has been spurred by better-than-expected corporate earnings and hopes that the worst of the economic crisis has passed.

The Dow Jones industrial average declined 39 points, or 0.4%, the Standard & Poor's 500 lost 3 points, or 0.3%, and the tech-heavy Nasdaq composite retreated 18 points, or 0.9% after disappointing data on private payrolls and the services sector dented some optimism. However, the Commerce Department reported an unexpected 0.4% rise in orders for manufactured goods in June. On the NYSE, volume was a moderate 1.53 billion as decliners outpaced advancing shares by 8 to 7

Treasuries fell, with the 10-year declining 19/32 and the corresponding yield rising to 3.762%. Commodity prices rose, with crude prices up 55 cents to $71.97 per barrel, rebounding from initial declines posted after weekly inventory stats showed a larger-than-estimated build of 1.67 million barrels.

Seven of the ten S&P industry groups declined. Financials again were the leading gainers on the S&P 500, rising 2.9%, as investors assessed the favorable impact of gains in mortgage applications and expectations that loan losses may have reached their peak. On the DJIA, Bank of America (NYSE:BAC) rose 6.5% and was the leading gainer in the Dow average. American Express (NYSE:AXP) added 5.8% and JP Morgan (NYSE:JPM) increased 3.9%. American Express (NYSE:AXP) reported a 5.8% increase in credit card defaults, representing a smaller pace for the second straight month, due in part to a lower-than-anticipated number of bankruptcies. This morning, Keefe, Bruyette & Woods analysts noted that Bank of America (NYSE:BAC) may report slight losses in the third and fourth quarter before turning profits in 2010.

Procter & Gamble (NYSE:PG) slid 2.8% after the company reported an 18% decline in quarterly profit. World’s second-largest video game publisher Electronic Arts (NYSE:EA) fell 6.8%.

On the S&P 500, troubled-insurer AIG (NYSE:AIG) shares rallied 62.7% as Radian's (NYSE:RDN) $231.9 million quarterly profit helped sentiments. Radian's (NYSE:RDN) shares surged 83%. AIG is expected to report quarterly results on Friday. Fannie Mae (NYSE:FNM) rose 29.8% and Freddie Mac (NYSE:FRE) jumped 31.1% on news of the impending resignation of the director of the Federal Housing Finance Agency. Citigroup (NYSE:C) trading action marked a one-day, single-stock NYSE record Wednesday as 347 million shares traded. The firm launched its $2.5 billion 5-year note sale.

Leading the decliners on the S&P 500 were telecommunications (off 1.6%), health care (-1.3%), oil and gas (-1.1%), utilities, consumer goods and technology (-0.9%), industrials (-0.8%), consumer services (-0.5%). Helped by a rise in commodity prices, only basic material shares showed some strength, adding 0.6%.

As expected, the Bank of England held benchmark interest rates unchanged at 0.5%; however, it also expanded its asset purchase plan $84 billion. Meanwhile a Chinese central banker indicated interest rates could go up, advising of plans to "fine tune" credit policy. As global rate talk swings between hawkish and accommodative, risk assumptions may sway as well, with the more hawkish tone suggesting brighter recovery prospects near at hand.

An unfavorable weather is expected to have hurt retailers' comparable sales results last month, with Costco's (NASDAQ:COST) sales down 7%, Big Lots’ (NYSE:BIG) declining 2.4%, Stage Stores’ (NYSE:SSI) declining 11.9% and Limited Brands’ (NYSE:LTD) decreasing 7%.

Zacks Investment Research

PEGA, SNH, AGU Stock-PR Stock Report

Stock-PR — Wed, 05 Aug 2009 18:58:41 +0000

CRWENewswire.com is pleased to announce a stock highlight on Pegasystems Inc. (NASDAQ: PEGA), Senior Housing Properties Trust (NYSE: SNH), Agrium Inc. (TSX:AGU) (NYSE:AGU) We encourage investors to join and receive CRWENewswire.com FREE e-mail news and stock watch alerts at http://www.crwenewswire.com/?p=2546 and view our full disclaimer. Pegasystems Inc. (NASDAQ: PEGA), the leader in Business Process [...]

LH, SNH, ABK Stock-PR Wednesday August 5, 2009 Watch List!

Stock-PR — Wed, 05 Aug 2009 13:43:53 +0000

Laboratory Corp. of America Holdings (LH) Laboratory Corporation of America® Holdings, a S&P 500 company, is a pioneer in commercializing new diagnostic technologies and the first in its industry to embrace genomic testing. With annual revenues of $4.5 billion in 2008, over 28,000 employees worldwide, and more than 220,000 clients, LabCorp offers clinical assays ranging from [...]

Barry Ritholtz: Analyzing the analyzers

Prieur du Plessis — Sat, 01 Aug 2009 08:25:05 +0000

"One of the more fascinating things about a crisis and its resolution is the post-mortems: The after-the-fact analyses that some folks do to explain what occurred. These analyses are fascinating for what they reveal about the beliefs, methodologies, biases and cognitive failures of the many crisis watchers," said Barry Ritholtz in this guest contribution. Read on for a thought-provoking conclusion.

Zacks Industry Outlook Highlights: Avalon Bay Communities, Inc., Fannie Mae, Freddie Mac and Vornado Realty Trust – Press Releases

Zacks Market Commentaries — Fri, 31 Jul 2009 13:37:55 +0000

For Immediate Release

Chicago, IL – July 31, 2009 – Zacks.com announces the latest Industry Outlook. Today’s outlook from Zacks Equity Research analyst Greg Sukenik discusses the REIT sector. Highlighted stocks include: Avalon Bay Communities, Inc. (AVB), Fannie Mae (FNM), Freddie Mac (FRE) and Vornado Realty Trust (VNO).

Here is the latest on the REIT sector:

In this environment, we like well-capitalized companies that have adequate liquidity to fund maturing debt at least through 2010. One name we still have a Buy on is Avalon Bay Communities, Inc. (AVB), an apartment REIT with low debt and assets in infill markets where little new supply will be coming on board. Fannie Mae (FNM) and Freddie Mac (FRE) are still heavy lenders for apartments, which gives buyers and sellers access to capital; as such, transaction volumes in multifamily are not as depressed as other sectors.

In addition, we like Vornado Realty Trust (VNO), another company with low comparative debt, lots of cash and class-A office assets in some good long-term, heavily supply-constrained areas.

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REIT Industry – Zacks Analyst Interviews

Zacks Market Commentaries — Fri, 31 Jul 2009 05:00:00 +0000

Equity REITs rebounded nicely in the 2nd quarter, when equity REITs posted total returns of 29% (total return FTSE NAREIT Index), vs. a 15% gain for the S&P and an 11% gain for the Dow. So far in July, REITs are down about 8%; the worst performing sectors in July have been Regional Malls (-10.9%), Industrial (-9.8%), office/industrial (-9.6%) and apartments (-9.7%). Overall, REITs are still down 19% YTD in 2009 and 43% over the past year.

OPPORTUNITIES

Many REITs are still trading at discounts to NAV (net asset value), a good buy signal. Historically, over the past seven or so years, REITs have traded near or in excess of NAV.

Even with dividend cuts and share price gains, the average yield for equity REITs is still near 6%. Yields are well in excess (280 bps) of the 10-year Treasury, although the spread has narrowed considerably over the past quarter.

Most companies have been shoring up balance sheets by raising cash through equity and asset sales, with the proceeds being used to pay down debt.

The credit freeze will have a positive effect on commercial real estate down the road; new office, apartment and retail construction has slowed considerably which will benefit owners in a couple of years. Many companies that we cover have ceased all new construction.

In this environment, we like well-capitalized companies that have adequate liquidity to fund maturing debt at least through 2010. One name we still have a Buy on is Avalon Bay Communities, Inc. (AVB), an apartment REIT with low debt and assets in infill markets where little new supply will be coming on board. Fannie Mae (FNM) and Freddie Mac (FRE) are still heavy lenders for apartments, which gives buyers and sellers access to capital; as such, transaction volumes in multifamily are not as depressed as other sectors.

In addition, we like Vornado Realty Trust (VNO), another company with low comparative debt, lots of cash and class-A office assets in some good long-term, heavily supply-constrained areas.

WEAKNESSES

REITs still depend on access to capital to fund growth, and with the credit markets still tight, it is difficult to raise money for new developments/acquisitions.

Going forward, many REITs will raise capital through property level debt, dividend reductions, and equity offerings. Property level debt is harder to obtain and more expensive as commercial real estate prices continue to plummet. Many companies are writing down the value of assets. Share offerings are generally dilutive at low prices, which will depress near-term earnings.
Dividend cuts make the sector less attractive to income-oriented investors. Many REITs cut their dividends in 2009, and the pain is not over. We expect more cuts as 2009 progresses.

A few companies are now paying a large portion of their dividends in new shares, which we view as a negative. This could become more common over the next few quarters if fundamentals decline and bank lending does not increase.

REITs will be dependent on asset sales to raise cash. Overall commercial sales volumes have decreased dramatically this year. There is still a large bid-ask spread between sellers and buyers and sales will be low throughout 2009.

Expect share prices to be volatile over the next two quarters. Job growth and consumer spending patterns have been dismal so far this year, and there is no evidence that either are improving. Declining fundamentals will continue to weigh on the sector. Specifically, we are negative on suburban office and industrial going forward. Suburban office and industrial vacancies are ticking up at a rapid pace, and absent job growth, filling space will be difficult.

We still have sell ratings on Liberty Properties Trust (LRY), a suburban office/industrial REIT and Post Properties (PPS), an apartment REIT. While both companies have addressed balance sheet concerns, operationally, we think they will lag peers throughout 2009.Zacks Investment Research

REIT Industry – Industry Outlook

Zacks Market Commentaries — Fri, 31 Jul 2009 05:00:00 +0000

OPPORTUNITIES

Many REITs are still trading at discounts to NAV (net asset value), a good buy signal. Historically, over the past seven or so years, REITs have traded near or in excess of NAV.

Most companies have been shoring up balance sheets by raising cash through equity and asset sales, with the proceeds being used to pay down debt.

The credit freeze will have a positive effect on commercial real estate down the road; new office, apartment and retail construction has slowed considerably which will benefit owners in a couple of years. Many companies that we cover have ceased all new construction.

In this environment, we like well-capitalized companies that have adequate liquidity to fund maturing debt at least through 2010. One name we still have a Buy on is Avalon Bay Communities, Inc. (AVB), an apartment REIT with low debt and assets in infill markets where little new supply will be coming on board. Fannie Mae (FNM) and Freddie Mac (FRE) are still heavy lenders for apartments, which gives buyers and sellers access to capital; as such, transaction volumes in multifamily are not as depressed as other sectors.

In addition, we like Vornado Realty Trust (VNO), another company with low comparative debt, lots of cash and class-A office assets in some good long-term, heavily supply-constrained areas.

WEAKNESSES

REITs still depend on access to capital to fund growth, and with the credit markets still tight, it is difficult to raise money for new developments/acquisitions.

Going forward, many REITs will raise capital through property level debt, dividend reductions, and equity offerings. Property level debt is harder to obtain and more expensive as commercial real estate prices continue to plummet. Many companies are writing down the value of assets. Share offerings are generally dilutive at low prices, which will depress near-term earnings.
Dividend cuts make the sector less attractive to income-oriented investors. Many REITs cut their dividends in 2009, and the pain is not over. We expect more cuts as 2009 progresses.

A Couple of Afternoon Links

Michael E. Brisky — Thu, 30 Jul 2009 19:45:00 +0000

Found a couple of things I wanted to pass along. (Both from Bloomberg)br /br /br /1) a href="http://www.bloomberg.com/apps/news?pid=20603037amp;sid=a.pZggcuVEp8"Chinese Stocks to Recover From Plunge, Fisher Says/a.br /br /blockquoteChinese a href="http://www.bloomberg.com/apps/quote?ticker=SHCOMP%3AIND" onmouseover="return escape( popwQuoteShort( this, 'SHCOMP:IND' ))"stocks/a will recover from their steepest drop since November and end the year higher as speculation that the government will limit bank loans is unfounded, billionaire investor a href="http://search.bloomberg.com/search?q=Kenneth+Fisheramp;site=wnewsamp;client=wnewsamp;proxystylesheet=wnewsamp;output=xml_no_dtdamp;ie=UTF-8amp;oe=UTF-8amp;filter=pamp;getfields=wnnisamp;sort=date:D:S:d1" onmouseover="return escape( popwSearchNews( this ))"Kenneth Fisher/a said. pThe nation’s economy is “gangbusters compared to the rest of the world, why would they try to kick that?” said Fisher, who has about $900 million invested in Chinese shares among the $28 billion he manages as chief executive officer of Fisher Investments Inc. in Woodside, California. “They have zero incentive” to curb lending, he said. /p/blockquotepbr //ppZero incentive? How about the incentive to avert a massive bubble that when it deflates causes major financial problems? Let's see, I know we've seen this somewhere before. You don't even need to be a financial "expert" (like our Federal Reserve) to see that coming after what has happened in the US and Europe. I generally like what Ken Fisher has to say, but I believe hes just being a cheerleader and trying to attract assets. /ppbr //ppbr //pp2) a href="http://www.bloomberg.com/apps/news?pid=20601110amp;sid=aEwoLtQMHq5Y"Fannie, Freddie Won't Repay All Aid, Lockhart Says/a./pa href="http://www.bloomberg.com/apps/quote?ticker=FRE%3AUS" onmouseover="return escape( popwQuoteShort( this, 'FRE:US' ))"/ablockquotea href="http://www.bloomberg.com/apps/quote?ticker=FRE%3AUS" onmouseover="return escape( popwQuoteShort( this, 'FRE:US' ))"Fannie Mae/a and Freddie Mac, the largest U.S. mortgage-finance companies, won’t be able to repay all of the $84.9 billion in federal aid they have received since being seized by the government last year, their regulator said. p“Some assets and senior preferreds will have to be left behind as they come out of conservatorship, and that means some of those losses will never be repaid,” Federal Housing Finance Agency Director a href="http://search.bloomberg.com/search?q=James+Lockhartamp;site=wnewsamp;client=wnewsamp;proxystylesheet=wnewsamp;output=xml_no_dtdamp;ie=UTF-8amp;oe=UTF-8amp;filter=pamp;getfields=wnnisamp;sort=date:D:S:d1" onmouseover="return escape( popwSearchNews( this ))"James Lockhart/a said at a speech in Washington today. “Their book is so large, it’s hard for me to see that they will be able to repay all of that.” /p/blockquotepbr //ppI think everyone saw this one coming. Its just unfortunate. That's my only comment here./ppThe market is enjoying another strong day as the bulls still have all the momentum and Samp;P 1000 looks easily attainable. I'm still interested to see what happens post-earnings, but for now the market is jumping on the recovery bandwagon. I'm holding all my longs and might trim a few if we see prices run up much higher. I have some stocks I'd like to buy, but hate chasing them.br //ppbr //pdiv class="blogger-post-footer"img width='1' height='1' src='https://blogger.googleusercontent.com/tracker/819581243324579563-6878111188745218900?l=briskycapital.blogspot.com'//div

Zacks Analyst Blog Highlights: Pulte Homes, D.R. Horton, Beazer, Fannie Mae and Freddie Mac – Press Releases

Zacks Market Commentaries — Tue, 28 Jul 2009 13:30:59 +0000

For Immediate Release

Chicago, IL – July 28, 2009 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Pulte Homes (PHM), D.R. Horton (DHI), Beazer (BZH), Fannie Mae (FNM) and Freddie Mac (FRE).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513

Here are highlights from Monday’s Analyst Blog:

More Good News in Housing

Keep in mind that the inventory data (and the sales numbers, for that matter) is a raw number and is not normalized by population growth. For well over a year now, my housing mantra has been, "more new starts bad, more new home sales good." Increasing housing starts had simply been adding to the inventory and making the problem worse.

At this point, though, that should be changing. Going forward, an increase in housing starts will be evidence of a real recovery in the economy. This news should get the homebuilders flying. For a quick trade, consider some of the financially stronger builders like Pulte Homes (PHM) and D.R. Horton (DHI). I would still shy away from some of the more leveraged names like Beazer (BZH).

I am not expecting a sharp increase. However, residential investment has been regularly subtracting 1.0 or more points from GDP growth in recent quarters on a direct basis. The absence of a negative is a positive, and the slower decline in residential investment will be a big part of the reason that second quarter GP will show a much smaller decline in activity than we saw in the fourth or first quarters.

It is possible that we will even see some positive GDP growth in the third quarter, although I am still leaning towards a small decline in the third quarter and a small positive number in the fourth quarter. However, for a change, residential investment will not be at the core of our problems. Commercial Real Estate will be the big problem going forward, not residential.

What was responsible for the jump in sales? Certainly the first time homebuyer tax credit (part of the stimulus package) played a role. Sales of new houses priced under $200,000 jumped to 48% of the total sales up from 37% a year ago. First-time homebuyers tend to buy low-priced starter homes, not higher priced McMansions. The mix shift (and possibly some price cutting) caused the median price of a new home to fall to $206,200 from $219,000 in May and $234,000 a year ago.

Even as activity starts to pick up, I would expect prices to remain under pressure for the rest of the year. Lower mortgage rates in May also likely played a role (there is a bit of a lag), so it will be interesting to see if the backing up in mortgage rates in June will put a damper on July sales. The action by the Fed in buying up lots of Fannie Mae (FNM) and Freddie Mac (FRE)-backed paper is getting some traction in the real economy.

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About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517

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Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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Zacks Investment Research

More Good News in Housing – Analyst Blog

Dirk Van Dijk — Mon, 27 Jul 2009 17:24:47 +0000

In June, new home sales shot up by 11.0% relative to May. The seasonally adjusted annual rate was 384,000 up from 346,000. Granted, that is still 21.3% below the 488,000 level a year ago -- and not even in the same area code as the peak of almost 1.4 million back in late 2005 (see the first chart from http://www.calculatedriskblog.com/, which is the source of all three charts in this post). Still it is a very good sign.

Just as importantly, the level of inventories continues to drop, with 282,000 houses available for sale, down 2.8% from May and down 35.2% from a year ago. This has dropped the months-of-supply metric to just 8.8 months from 10.2 in May and 10.7 months a year ago (see the second graph). While this is still well above the 6.0 months that would indicate a healthy market (months of supply were generally around 4.0 during the bubble, but I would not expect a return to those levels), we are clearly making very significant progress in clearing the inventory overhang.

Just one note of caution -- the inventory numbers do not include high-rise condos, so in those markets where condo towers are a big part of the housing market, the inventory numbers are probably understated.

Historically, residential investment is a key driver in getting an economy out of a recession, with the pick-up in new house sales actually starting during the recession, clearing out inventories and allowing new construction to start again in an economically viable way. As the third graph shows, the absolute level of new housing inventory is actually very low now by historical standards.

Keep in mind that the inventory data (and the sales numbers, for that matter) is a raw number and is not normalized by population growth. For well over a year now, my housing mantra has been, "more new starts bad, more new home sales good." Increasing housing starts had simply been adding to the inventory and making the problem worse.

At this point, though, that should be changing. Going forward, an increase in housing starts will be evidence of a real recovery in the economy. This news should get the homebuilders flying. For a quick trade, consider some of the financially stronger builders like Pulte Homes (PHM) and D.R. Horton (DHI). I would still shy away from some of the more leveraged names like Beazer (BZH).

I am not expecting a sharp increase. However, residential investment has been regularly subtracting 1.0 or more points from GDP growth in recent quarters on a direct basis. The absence of a negative is a positive, and the slower decline in residential investment will be a big part of the reason that second quarter GP will show a much smaller decline in activity than we saw in the forth or first quarters.

It is possible that we will even see some positive GDP growth in the third quarter, although I am still leaning towards a small decline in the third quarter and a small positive number in the fourth quarter. However, for a change, residential investment will not be at the core of our problems. Commercial Real Estate will be the big problem going forward, not residential.

Digging deeper into the numbers, the increase in sales was widespread, with three out of the four regions participating and doing so with gusto. Only the extremely large South region posted a decline of 5.3% on a month to month basis, and are down 34.4% from a year ago. New home sales in the Midwest soared by 43.1% and are now up 5.8% on a year over year basis. The small Northeast region also posted an eye-popping 29.2% increase for the month, but sales levels remain 11.4% below year ago levels. Out West, sales were up by 22.6% for the month and are 9.6% below June of 2008.

It is important to recognize just how important the South is to the new home market -- even with the decline, it was responsible for 46.1% of all new home sales; a year ago it was responsible for 55.3% of sales. The weakness there masks the dramatic improvement in the rest of the country.

What was responsible for the jump in sales? Certainly the first time homebuyer tax credit (part of the stimulus package) played a role. Sales of new houses priced under $200,000 jumped to 48% of the total sales up from 37% a year ago. First-time homebuyers tend to buy low-priced starter homes, not higher priced McMansions. The mix shift (and possibly some price cutting) caused the median price of a new home to fall to $206,200 from $219,000 in May and $234,000 a year ago.

Even as activity starts to pick up, I would expect prices to remain under pressure for the rest of the year. Lower mortgage rates in May also likely played a role (there is a bit of a lag), so it will be interesting to see if the backing up in mortgage rates in June will put a damper on July sales. The action by the Fed in buying up lots of Fannie Mae (FNM) and Freddie Mac (FRE)-backed paper is getting some traction in the real economy.

It now seems likely that we have reached the bottom in housing at least in terms of activity. Pricing will take a bit longer, and we still are at a very low level of activity, but it does not seem likely to fall further. Things are not great, but they now look like they are getting better, not worse.

This is a very important green shoot for the economy. It is the most positive housing report we have seen in about two years, and housing has been at the core of the economy’s problems.

Read the full analyst report on "PHM"
Read the full analyst report on "DHI"
Read the full analyst report on "BZH"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
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Freddie Mac Offering Incentives – Analyst Blog

Zacks Market Commentaries — Tue, 21 Jul 2009 19:00:17 +0000

Freddie Mac (FRE), a U.S. residential mortgage finance giant, said on July 20, 2009 that it will pay incentives to buyers seeking to buy single family HomeSteps homes as their primary residence. These incentives will potentially save thousands of dollars in transaction costs of qualified buyers.

We think that the company is taking this step to reduce the inventories built up since 2007 as the housing crisis and U.S. recession increased foreclosures.

As part of the incentives, the company will pay up to 3.5% of the sale price with a comprehensive two-year warranty on homes purchased under the time-specific offering, which began on July 17 and is scheduled to end on October 30, 2009.

The warranty will be provided by Cross Country Home Services, a national home warranty and home service related company with almost 30 years of experience, for almost all repairs and maintenance. This will help buyers save unexpected and recurring repair costs at least for the next two years.

This can be viewed as an effort on the part of Freddie Mac to achieve the goals of the Obama Administration's economic recovery effort by addressing impacted markets. However, this is also a more effective approach to release huge inventories, which are expensive to maintain. Adjusted for the cost of promotion this initiative will also help the company reduce its foreclosure-related losses.

During the first quarter of 2009, Freddie Mac purchased or guaranteed $148 billion of mortgage loans and mortgage-related securities, which helped prevent foreclosure for 40,000 homeowners. The company is continuing with new initiatives to further support the Making Home Affordable Program (MHA Program) announced by the government on February 18, 2009 to lay out the expanded role for the two GSEs – Freddie Mac and Fannie Mae (FNM).

However, the homes in Freddie Mac’s real estate portfolio have increased significantly to reach 29,145 homes as of March 31, 2009. As a result, till date, the company has received $51.7 billion from the Treasury.

We expect HomeSteps homes offering with lucrative incentives will definitely be a big help for the company to cut back the expensive and increasing inventory.

As the housing situation continues to worsen, we anticipate higher losses in the upcoming quarters. Also, the government conservatorship is expected to continue for a long time and thus we see no value in the company for common shareholders.

As such, we maintain our Sell recommendation on the shares.

Read the full analyst report on "FRE"
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Ocwen Distributing Altisource – Analyst Blog

Zacks Market Commentaries — Tue, 21 Jul 2009 17:58:21 +0000

On July 20, 2009, Ocwen Financial Corporation (OCN) announced the record and distribution dates for the pro rata tax-free distribution of the common shares of Altisource Portfolio Solutions (ASPS) to all Ocwen shareholders.

On August 10, 2009, Ocwen shareholders will receive a pro rata distribution of one share of Altisource common stock for every three shares of Ocwen common stock they hold as of July 30, 2009. As of July 15, 2009, there were 67,512,096 shares of Ocwen common stock issued and outstanding.

Shares of Altisource common stock are expected to begin trading on The Nasdaq Global Select Market starting on August 10, 2009, the distribution date.

Ocwen Financial Corporation is a financial services company engaged in the servicing of residential and commercial mortgage loans. Ocwen acquired mortgage-servicing rights (MSRs) for performing, sub-performing and non-performing residential mortgage loans, for which it earns fees such as annual servicing fee and late fees.

Ocwen is approved as a loan servicer by the Department of Housing and Urban Development, Freddie Mac (FRE) and Fannie Mae (FNM).

Ocwen rescheduled the release of its second-quarter earnings results on August 4, 2009 from August 6 announced earlier. We think the company may be a major beneficiary of President Obama’s loan modification plan. Ocwen was also recently appointed by FRE as a special servicer for the new pilot initiative launched to identify borrowers who are at risk of foreclosure.

Further, the Government is considering the inclusion of securities backed by servicer advances in the expanded TALF program. We expect these initiatives to be significantly accretive to both Ocwen’s revenue and earnings in 2009 and beyond, as they will also improve liquidity.

Ahead of the second-quarter results, we are maintaining our Buy recommendation on the shares.

Read the full analyst report on "OCN"
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Rebecca Wilder: A review of house price indices

Prieur du Plessis — Tue, 21 Jul 2009 08:28:49 +0000

In this guest post, Rebecca Wilder compares three competing home price indices and comes to the conclusion that the monthly growth in home values is not as dire as suggested by the S&P Case Shiller Composite 20. Read on ...

Here’s Why It’s Time to Ban Credit Default Swaps

Contrarian Profits — Wed, 15 Jul 2009 14:15:09 +0000

div class="entry" pAsk U.S. Rep. Maxine Waters, D-CA, about credit default swaps and she’ll offer this warning: Ban them now or expect a reprise of the ongoing global financial crisis – which the derivative securities helped create. When it comes to elected officials, Congresswoman Waters is not one I would typically feel that I have a lot in agreement with. /p pA representative of a low-income district in Los Angeles, Waters is a senior member of the House Committee on Financial Services and has distinguished herself in the past by her sharp attacks on the financial sector and capitalism in general – what her own Web site describes as her “a href="http://www.house.gov/waters/bio/" target="_blank"no-holds-barred style of politics/a.”/p pHowever, Congresswoman Waters’ bill to prohibit a href="http://www.investopedia.com/terms/c/creditdefaultswap.asp" target="_blank"credit default swaps/a – introduced last Friday#8230;/p/div

The 10 Reasons You Should Be Mad as Hell Right Now

Contrarian Profits — Tue, 14 Jul 2009 21:27:05 +0000

pDo you remember the first time you saw a rain drenched Peter Finch a title="scream" href="http://www.youtube.com/watch?v=QMBZDwf9dok" target="_blank"scream/a, “I’m as mad as hell, and I’m not going to take this anymore!”? We do. We were too young to see emNetwork/em in the cinema (the movie came out the year we were born: 1976). Instead, we watched it late one night on TV. And we’ll never forget the moment when Finch’s character, news anchor Howard Beale, arrives in the television studio in his tan raincoat with a deranged look on his face and begins to speak to camera./p p/p blockquote ulI don#8217;t have to tell you things are bad. Everybody knows things are bad. It#8217;s a depression. Everybody#8217;s out of work or scared of losing their job. The dollar buys a#8230;/ul/blockquote

Aspire Misery Index for the Week Ended July 10, 2009

Small Cap Pulse — Sat, 11 Jul 2009 22:03:01 +0000

July 10, 2009 ndash; Another mixed week of economic data, which left Wall Street in doubt about whether the economy is going to rebound any time soon. Fridayrsquo;s downtick in consumer sentiment was a stark reminder that Main Street is not doing well and isnrsquo;t particularly optimistic. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Consumer Sentiment ndash; The University of Michigan Consumer Sentiment (preliminary) index decreased to 64.6, the lowest level since March, from 70.8 in June. The forecast was for a reading of 70. With respect to Americanrsquo;s perceptions about their financial situation, and whether it is a good time to buy big-ticket items, the reading fell to 70.4 from 73.2. The index of consumer expectations for six months from now fell to 60.9, the biggest drop since October, from 69.2. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; US Import and Export Price Indexes - The U.S. Import Price Index rose 3.2 percent in June, the Bureau of Labor Statistics of the U.S. Department of Labor reported today, led by higher petroleum prices.nbsp; The June increase followed a 1.4 percent advance in May.nbsp; Export prices also increased in June, rising 1.1 percent after advancing 0.5 percent in the previous month. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Wholesale Trade Data: Sales/Inventories Sales. The U.S. Census Bureau announced today that May 2009 sales of merchant wholesalers, except manufacturersrsquo; sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $311.3 billion, up 0.2 percent (+/-0.5%)* from the revised April level, but were down 19.9 percent (+/-1.4%) from the May 2008 level. The April preliminary estimate was revised upward $1.4 billion or 0.4 percent. May sales of durable goods were down 0.2 percent (+/-0.7%)* from last month and were down 23.0 percent (+/-1.6%) from a year ago. Sales of metals and minerals, except petroleum were down 8.1 percent for last month, while motor vehicle and motor vehicle parts and supplies were up 4.4 percent. Sales of nondurable goods were up 0.5 percent (+/-0.9%)* from last month, but were down 17.2 percent (+/-1.8%) from last year. Sales of petroleum and petroleum products were up 4.6 percent from last month and sales of drugs and duggists' sundries were up 1.4 percent. Inventories. Total inventories of merchant wholesalers, except manufacturersrsquo; sales branches and offices, after adjustment for seasonal variations but not for price changes, were $402.2 billion at the end of May, down 0.8 percent (+/-0.4%) from the revised April level and were down 7.6 percent (+/-1.2%) from a year ago. The April preliminary estimate was revised upward $0.2 billion. End-of-month inventories of durable goods were down 1.5 percent (+/-0.4%) from last month and were down 8.2 percent (+/-1.6%) from last May. Inventories of metals and minerals, except petroleum were down 5.2 percent from last month and inventories of lumber and other construction materials were down 3.2 percent. End-of-month inventories of nondurable goods were up 0.3 (+/-0.7%)* from April, but were down 6.6 percent (+/-1.6%) compared to last May. Inventories of farm product raw materials were up 6.1 percent from last month, while inventories of paper and paper products were down 2.2 percent. Inventories/Sales Ratio. The May inventories/sales ratio for merchant wholesalers, except manufacturersrsquo; sales branches and offices, based on seasonally adjusted data, was 1.29. The May 2008 ratio was 1.12. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Budget Deficit - The federal budget deficit was $1.1 trillion for the first nine months of fiscal year 2009, CBO estimates, more than $800 billion greater than the deficit recorded through June 2008. Outlays are 21 percent higher than they were in the first three quarters of 2008, but revenues have fallen by 18 percent. The estimated deficit reflects outlays of $147 billion for the Troubled Asset Relief Program (TARP), recorded on a net-present-value basis, and spending of $83 billion in support of Fannie Mae and Freddie Mac.The Treasury reported a deficit of $190 billion for May, about $9 billion higher than CBOrsquo;s estimate for May on the basis of the Daily Treasury Statements. The difference occurred largely because outlays were higher than expected for the TARP and for the Department of Education. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Consumer Debt ndash; The American Bankers Association said that consumer loan delinquencies increased in the Q1 to another record high, to 3.23%. Credit card delinquencies increased to 4.75%. While the percentage of all outstanding debt on cards hit a record high of 6.60%. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Consumer Credit - Consumer credit decreased at an annual rate of 1-1/2 percent in May 2009.nbsp; Revolving credit decreased at an annual rate of3-3/4 percent, and nonrevolving credit decreased at an annual rate of 1/4 percent. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Housing Market ndash; Realtor.com announced a survey which showed that almost 53% of consumers planning to buy a home in the future said they arenrsquo;t ready to do so now. About a third cited concern about their jobs. Concerns about selling their home was cited by 16% of those surveyed and 8% cited concerns about home prices that keep falling. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; And the Homeless ndash; The Housing and Urban Development Department says in its annual report to Congress released Thursday that about 1.6 million people used a homeless shelter or lived in transitional housing between Oct. 1, 2007, and Sept. 30, 2008 -- about the same as the year before. But within that group, the number of families grew 9 percent, from about 473,000 to 517,000. middot;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp;nbsp; Job Cuts ndash; PPD (cutting 227 jobs); Monster (cutting 160 jobs); Covidian (cut 119 jobs); Courier-Journal (44 jobs, or 7% of work force); Arizona Republic (cut 100 jobs);

Ocwen Refunds $700K in MD – Analyst Blog

Zacks Market Commentaries — Fri, 10 Jul 2009 14:48:12 +0000

Ocwen refunds $0.7 million to Maryland mortgage borrowers

Ocwen Loan Servicing, a subsidiary of Ocwen Financial Corp. (OCN) voluntarily refunded $674,137 to more than 180 Maryland borrowers after a state examination found violations of Maryland law restricting the imposition of prepayment penalties.

Prepayment penalties are clauses in mortgages that require borrowers to pay a financial penalty to the lender if they pay off their mortgage before the due date.

Ocwen cooperated with the state agency’s examination and voluntarily conducted its own review of its entire Maryland loan portfolio. On completion, it made refund payments around the end of June, 2009.

In November 2008, Ocwen Financial and the government of Maryland had signed an agreement under which Ocwen agreed to help reduce the number of foreclosures in the state. Ocwen services about 7,072 mortgages in Maryland and about 341,000 mortgages nationwide.

Ocwen Financial Corporation is a financial services company engaged in the servicing of residential and commercial mortgage loans. Ocwen acquired mortgage-servicing rights (MSRs) for performing, sub-performing and non-performing residential mortgage loans, for which it earns fees such as annual servicing fee and late fees. Ocwen is approved as a loan servicer by the Department of Housing and Urban Development, Freddie Mac (FRE) and Fannie Mae (FNM).

Ocwen is scheduled to release its 2Q09 earnings results on August 6, 2009. We think the company may be a major beneficiary of President Obama’s loan modification plan. Ocwen was also recently appointed by FRE as a special servicer for the new pilot initiative launched to identify borrowers who are at risk of foreclosure.

Further, the Government is considering the inclusion of securities backed by servicer advances in the expanded TALF program. We expect these initiatives to be significantly accretive to both Ocwen’s revenue and earnings in 2009 and beyond, as they also improve liquidity.

Ahead of the 2Q09 results, we are maintaining our Buy recommendation on the shares.
Read the full analyst report on "OCN"
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Read the full analyst report on "FNM"
Zacks Investment Research

It’s Tough Being A (Small) Speculator

IndexUniverse Staff — Thu, 09 Jul 2009 23:48:56 +0000

Dave, social exclusion is the least of your problems if you’re a speculator.

The same activity, undertaken in Russia or China in the not-too-distant past, could easily lead to a bullet in the head, or at least a 10-year stretch in the gulag.

For those of us trading in the “free” markets of the West, it’s just a matter of money. Unfortunately, getting stung by having the rules of the game changed when you’re already set in a trading position is a painful reality. It happened to me last July when I had a short position in JP Morgan shares, and the SEC’s emergency order against “naked” short selling (whatever that is) in the securities of Fannie Mae, Freddie Mac and 17 primary dealers caused a huge price spike in all those companies’ shares.

The US$10 jump in JP Morgan’s shares that resulted was enough to blow through my stops, turning a decent profit into a loss. Tough luck for me, but it’s still galling in hindsight, when you see that those short-selling restrictions didn’t do a whole lot of good for investors in Lehman Brothers, Fannie Mae or Freddie Mac, to name three of the companies on the list, and the reason for the introduction of the rules was given as the need to prevent downward pressure on the banks’ share prices.

So when you see the CFTC start to take a look at position limits in futures for all “commodities of finite supply”, watch out. Incidentally, the only commodity I can think of that is not in finite supply is helicopter Ben Bernanke’s US dollar, but I suppose it’s too much to ask for the US authorities to turn that tap off.

We’ll have to wait a bit longer to see what the CFTC comes up with, but if they are in the business of trying to stop energy price “manipulation”, why don’t they take a look at the oil price recommendations put out by Goldman Sachs since the beginning of last year?

To recap, the US bank forecast a “super spike” in the price of crude to $150-200 a barrel last May, not long before the oil price hit a peak of $147. Then, in January this year, the bank predicted a dip in prices to below $30 a barrel, just before the bottom in the crude price. On 4 June, it raised its 2009 price forecast to $85 a barrel, showing uncannily wrong timing again, since the price of WTI crude has since fallen back from over $73 a barrel to the current $60.

Suggestions that the bank has been saying one thing and trading in the opposite direction itself are not new—Forbes ran a story on this a few months ago—but are notoriously difficult to prove. Let’s just say that, if the bank’s proprietary traders had been following their own analysts’ advice, it’s unlikely that the press would be talking about record bonuses in 2009 for Goldman employees.

I’m not holding my breath that the regulators will even turn an eye to this—after all, conflicts of interest in large securities firms have long been endemic. Unless regulators are willing to bite the bullet and fully separate trading and investment banking activities from advisory ones, markets can hardly be seen as a level playing field. Eliot Spitzer had a go at changing things a few years ago, but with little success.

From past experience, unfortunately, complaints against “speculators” are likely to be used as an excuse to favour one group of market participants over another. And the small guys that invest in index-tracking products are unlikely to wield the same clout as the big players in determining how these rules are set.

Fed Lending Mortgage Agcy Debt – Analyst Blog

Zacks Market Commentaries — Thu, 09 Jul 2009 16:36:39 +0000

Fed Starting to Lend Mortgage Agency Debt

Starting today, the Federal Reserve will make available to lend the debt it owns that was issued by mortgage agencies Fannie Mae (FNM), Freddie Mae (FRE) and the Federal Home Loan Bank system owns. The Fed’s agency securities are held in its Open Market Account, which has been comprised of the various debt issues the Fed has acquired as part of monetary policy activity.

The Fed has long lent out its holdings primarily for the purpose of ensuring the smooth functioning of the repo market (where primary dealers go to finance their trading positions by borrowing U.S. Treasuries overnight from the U.S. central bank's holdings). This borrowing or lending program allows dealers to use these borrowed securities to raise short-term cash and/or settle trades.

In recent months, the Fed’s holdings of agency debt, bought as a part of its effort to lower borrowing costs in the housing sector in past quarters, have experienced significant appreciation.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
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Fannie LTV Loans: Yikes or Phew? – Analyst Blog

Zacks Market Commentaries — Wed, 08 Jul 2009 19:12:56 +0000

Fannie Mae Permitting 125% LTV Loans

Recently, the mortgage agency Fannie Mae -- the Federal National Mortgage Association (FNM) -- announced that it would be making some changes to its Home Affordable Refinance Program (HARP). FNM has now provided information that permits refinancing of existing Fannie Mae loans with up to 125% loan-to-value (LTV) available for delivery on or after September 1, 2009.

Previously, FNM’s HARP permitted loans up to 105% LTVs. The expansion for eligible borrowers will be through FNM’s Refi Plus manual underwriting option. For loans above 105% LTV, borrowers must refinance into 15-30 year fixed-rate mortgages with the existing servicer.

In addition, for the LTV eligibility expansion, FNM will offer a "special" 50 basis point reduction in the loan-level price adjustment charged for loans with LTVs above 105% and loan terms of 20-25 years. The reduction is intended to incentivize borrowers to select shorter terms and build positive equity in their homes sooner than with a typical 30-year mortgage.

So far, many borrowers have been precluded from being able to refinance due to the substantial declines in property values across the nation. While this modification could prevent borrowers with "good" credit the ability to stay out of foreclosure -- a good thing -- unless there are significant improvements in the economy and employment trends, this might just push off the potential of the foreclosure process 6-12 months. We are hoping it is the former rather than the latter.
Read the full analyst report on "FNM"
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The Options Market: Overcome Your Fear And Embrace These Lucrative Instruments

Contrarian Profits — Tue, 07 Jul 2009 18:04:09 +0000

pStock market-wise, I wish we were back in July 2008. At that time, a 1% swing in the market was an anomaly. Today, it’s the norm. And even though we’ve seen volatility calm down somewhat in recent weeks, don’t be fooled. As we enter another earnings season, we’ll see volatility pick up again. So what are you going to do?/p pParalysis is not an option. Neither is making 1% or less on your cash every year when there is a high probability of out-of-control inflation in the years ahead./p pYou need to have a plan that can take advantage of what the market offers. And simply put, that means employing strategies that work both the long and short sides…/p pstrongExpand Your Investment Horizons/strong/p pUntil recently, most#8230;/p

More Unemployment, Longer – Analyst Blog

Dirk Van Dijk — Thu, 02 Jul 2009 17:44:41 +0000

One of the most important aspects of this recession is the length of time people are out of work once they get their pink slips. The average length of time someone who is out of a job has been looking is now up to 24.5 weeks -- a dramatic increase from the 22.5 weeks last month and 17.6 weeks a year ago.

This simply blows away the previous record (other than last month) of 21.2 weeks, which was touched in July of 1983. Of course, there is a skewed distribution of unemployed duration since there is no limit on the upside, but you can't be unemployed for less than 0 weeks. The median length of unemployment has also been rising, though, now up to 17.9 weeks from 14.9 weeks in May and 10.1 weeks a year ago. It is also at a record with the worst levels prior to this recession, being just 12.3 weeks hit in May of 1983.

While the absolute number of people who are out of work is a record of 14.7 million, to some extent that should be expected, given the growth of the workforce since the last really bad downturn in the 1980's. The previous peak was 12.0 million at the tail end of that recession. However while the current level of overall unemployed is 22.5% above its previous peak, the number of long-term unemployed is truly at unprecedented levels.

The number of people out of work for 27 weeks or longer is now 4.281 million, 51.8% higher than the previous peak of 2.885 million (6/83). It is also 11.0% higher than it was just a month ago, and 170% higher than it was just a year ago. The ratio of long-term (27 weeks or longer) unemployed to short-term unemployed (less than 5 weeks) is now at 1.37. Prior to April, the ratio had never exceeded 1.0.

The history of this ratio is shown below. While the graph does not include recession bars, I would note that in the past this ratio tended to peak after the recession formally ended, thus it seems likely that it will continue to increase for a while longer.

Being out of work for more than six months is a very different experience than being out of work for two or three weeks. In many states, it means that your unemployment benefits have run out (although the stimulus bill has extended benefits for most). The extended benefits from the stimulus bill have been a vital lifeline to millions of people.

Long-term unemployment will do serious permanent damage to a person's financial situation. To have this happening in conjunction with weak asset prices can be devastating. In prior recessions, people had the ability to tap the equity in their homes as a potential liquidity lifeline.

Now with so many homeowners underwater, that option is no longer available. At one point they might have been able to have drawn on their savings, however for years we as a country went with a savings rate that was close to zero, as people used asset appreciation as a substitute. Now that the asset appreciation has turned to asset depreciation, there is not much there to fall back on.

For awhile, they will fall back on plastic, but eventually the cards max out. At that point, the only real option becomes bankruptcy. The big credit-card-issuing banks like American Express (AXP), J.P. Morgan (JPM) and Capital One (COF) realize this, which is why they are aggressively lowering the limits on many card holders. From their perspective, it is better to get stiffed on $5,000 than on $15,000.

If someone is faced with the double problem of being underwater on their house and being out of work for an extended time, then walking away from the house, or simply not paying the mortgage until the sheriff knocks on the door, becomes an increasingly attractive option. The result is more distressed homes on the market, and more pressure on housing prices, which in turn puts more homeowners underwater.

This is not an attractive prospect for any company exposed to the mortgage area, including the big banks and Fannie Mae (FNM) and Freddie Mac (FRE). That means bad news to the taxpayers as well, since we are the proud owners of majority stakes in them.

Read the full analyst report on "AXP"
Read the full analyst report on "JPM"
Read the full analyst report on "COF"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Foreclosure Waters Rising Fast – Analyst Blog

Dirk Van Dijk — Mon, 29 Jun 2009 18:13:10 +0000

There is more data showing that we are far from out of the woods on the housing/mortgage front.

The graph below (From a Freddie Mac (FRE) presentation, by way of http://www.calculatedriskblog.com/) shows the changing composition of FRE backed mortgages by Loan-to-Value (LTV) over time. What is striking is the rapid growth of the top yellow group in the graph from near zero in 2006, to 17% of the portfolio at the end of the first quarter. These are the people who are underwater on their houses, and represent the greatest risk for default or foreclosure. In addition 11% of homes have less than 10% equity.

If we extrapolate out the 17% to the 51.6 million houses with mortgages, then there are currently 8.8 million houses underwater. However, the Freddie portfolio is much better than average, so this has to be considered the absolute low estimate of underwater houses. The numbers at Fannie Mae (FNM) should be similar to those at FRE. The real problems were the loans that went into the private label mortgage backed securities.

One good measure of how much better the FRE portfolio is than average is the 90+ day delinquency rate. At the end of the first quarter it was running 229 basis points for all FRE single family houses. By comparison the Mortgage Bankers Association (MBA) puts the nationwide prime conventional delinquency rate at 479 basis points.

The worst problems FRE has is with mortgages which were initiated in 2007, 34% of which are now underwater, followed closely by those initiated in 2006, where 32% are underwater. However, it takes time for serious delinquencies to show up, and the rate at which they did so was much faster for the 2007 vintage loans than for the 2006 vintage loans. The scary thing is that the 2008 loans so far look even worse (given their seasoning) than the 2007 loans.

Foreclosures are going to be a serious drag on the results of the banks with big exposure to mortgages, like Bank of America (BAC) and Wells Fargo (WFC) for the foreseeable future. The recovery in housing will be very slow, and since residential investment is usually the key locomotive in pulling the economy out of the ditch at the end of recessions, progress on the economy will be very slow this time around.

Read the full analyst report on "FRE"
Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "FNM"
Zacks Investment Research

Frank Pushes Fannie and Freddie to Take On More Risky Loans

Contrarian Profits — Thu, 25 Jun 2009 20:58:43 +0000

p class="MsoNormal"Man of the people Barney Frank is proving how difficult it is for elected officials to learn the lessons of history. In a move that goes beyond dumb, Frank has written a letter to government-backed mortgage lenders Fannie Mae and Freddie Mac asking them to relax recently tightened mortgage standards for condominiums./p p class="MsoNormal"What part of “subprime crisis” doesn’t blustering Barney get? In March, Fannie Mae said it would no longer guarantee mortgages on condos in buildings where fewer than 70% of the units have been sold, up from 51%. And Freddie Mac is due to implement similar policies next month./p p class="MsoNormal"But according to Frank this #8220;may be too onerous#8221; and could lead condo buyers to shun new developments, according to the paper./p p class="MsoNormal"Frank’s#8230;/p

All Eyes on the Fed – Analyst Blog

Zacks Market Commentaries — Wed, 24 Jun 2009 16:00:34 +0000

All eyes are currently on the statement due for release later today at the end of the Federal Reserve's Open Market Committee (FOMC) meeting.

The Fed is almost certain to hold the rate at record lows of between zero and 0.25%, but the market will mainly respond to the Fed's outlook on the economy and whether it is considering any changes to its massive programs to purchase treasuries and mortgage-backed securities.

On one hand, interest rates have started to creep up leading to an expectation that the Fed may ramp up its purchases of treasuries and mortgage-backed securities to keep a lid on interest rates. But on the other hand, there are also expectations that the Fed may try to scale them back to avoid igniting any of inflation.

The Fed has plans to spend up to $300 billion to buy long-term government bonds, and so far it has bought about $177.5 billion in Treasury bonds. The Fed also plans to buy up to $1.25 trillion worth of securities issued by Fannie Mae (FNM) and Freddie Mac (FRE), of which about $456 billion worth of securities have been purchased.

Slowing down the purchases could help avert any possible market disruptions due to the Fed's exit strategies once the economy rebounds, but could also hurt the prospects for an economic recovery. Chairman Bernanke expects the recession to end later this year and there have been signs of some improvements, but even after the recession ends the recovery is likely to be anemic, and unemployment will continue to rise for some time.

Till the statement is released and dissected, the market will keep guessing.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Obama’s Regulatory Reform Plan – Analyst Blog

Zacks Market Commentaries — Wed, 17 Jun 2009 18:55:45 +0000

President Obama "unveiled" his regulatory reform plan today. Most of the details of the plan had already been revealed earlier and the "near-final" draft was released by the Administration last evening.

The administration has focused on five key areas for reform, which we have highlighted below along with the important actions proposed in those areas:

1) Promoting Robust Supervision and Regulation

Raising capital and liquidity requirements
Supervision by the Fed for all "too big to fail" firms
Establishing a council of regulators for better coordination
New National Supervisor to supervise all federally chartered banks
Registration of hedge funds with the SEC
Enhanced oversight of insurers

2) Establish Comprehensive Regulation and Supervision of Financial Markets

Enhanced regulation of securitization markets
Stronger regulation of credit-rating agencies
Regulation of all OTC derivatives
Payment & Settlement systems to be overseen by the Fed

3) Promoting Consumer and Investor Protection

Establishing a new Consumer Financial Protection Agency

4) Improving Tools for Managing Crises

Resolution mechanism for the orderly resolution of "too big to fail" financial companies
Improving accountability of Fed's emergency lending powers

5) Improving international regulatory standards and coordination

The plan greatly extends the supervisory powers of the Federal Reserve as it would become a consolidated supervisor over all large financial institutions such as Goldman Sachs (GS), JP Morgan Chase (JPM), AIG (AIG), etc., whose problems pose potential risks to the economic system. However, the Fed would be required to receive approval from the Treasury for emergency lending under "unusual and exigent" circumstances.

The proposal will most likely be debated strongly as many critics of the Fed argue that its loose monetary policy and failure to exercise the existing powers over banks ultimately led to the current crisis.

In order to fill in regulatory gaps and coordinate with the various agencies, the plan would create a council of regulators headed by the Treasury Secretary.

The plan also requires all hedge funds and private equity funds to register with the SEC and open their books to regulators.

Some of the existing regulatory agencies' powers to oversee mortgages, credit cards and other kinds of consumer debt are proposed to be given to a new regulator, called the Consumer Financial Protection Agency.

The Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, to create a single agency to supervise all banks with national charters.

The plan would impose tighter rules for securitization. It would also require the companies that issue mortgages to retain at least 5% of them on their books to discourage companies from marketing unsuitable loans.

The proposal also mentions that Treasury will work with other agencies to determine the future role of GSEs, Fannie Mae (FNM) and Freddie Mac (FRE) and a report will be presented at the time of 2011 budget release.

Read the full analyst report on "GS"
Read the full analyst report on "JPM"
Read the full analyst report on "AIG"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

Obama’s Regulatory Reform Plan – Analyst Blog

Zacks Market Commentaries — Wed, 17 Jun 2009 18:55:45 +0000

The administration has focused on five key areas for reform, which we have highlighted below along with the important actions proposed in those areas:

1) Promoting Robust Supervision and Regulation

Raising capital and liquidity requirements
Supervision by the Fed for all "too big to fail" firms
Establishing a council of regulators for better coordination
New National Supervisor to supervise all federally chartered banks
Registration of hedge funds with the SEC
Enhanced oversight of insurers

2) Establish Comprehensive Regulation and Supervision of Financial Markets

Enhanced regulation of securitization markets
Stronger regulation of credit-rating agencies
Regulation of all OTC derivatives
Payment & Settlement systems to be overseen by the Fed

3) Promoting Consumer and Investor Protection

Establishing a new Consumer Financial Protection Agency

4) Improving Tools for Managing Crises

Resolution mechanism for the orderly resolution of "too big to fail" financial companies
Improving accountability of Fed's emergency lending powers

5) Improving international regulatory standards and coordination

In order to fill in regulatory gaps and coordinate with the various agencies, the plan would create a council of regulators headed by the Treasury Secretary.

The plan also requires all hedge funds and private equity funds to register with the SEC and open their books to regulators.

The Office of Thrift Supervision will be merged into the Office of the Comptroller of the Currency, to create a single agency to supervise all banks with national charters.

Zacks Analyst Blog Highlights: Government Properties Income Trust, Cypress Sharpridge Investments, Freddie Mac, Fannie Mae and LoopNet. – Press Releases

Zacks Market Commentaries — Mon, 15 Jun 2009 14:06:14 +0000

For Immediate Release

Chicago, IL - June 15, 2009 - Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Government Properties Income Trust (GOV), Cypress Sharpridge Investments (CYS), Freddie Mac (FRE), Fannie Mae (FNM) and LoopNet (LOOP).

Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=4579.

Here are highlights from Friday's Analyst Blog:

2 New REIT IPOs

Two new recent REIT IPOs launched in June. Government Properties Income Trust (GOV) began trading earlier this month. The company priced 10 mm shares @ $20.00 per share. The company is a subsidiary of HRPT Properties Trust, an office REIT based in Massachusetts. HRPT owns 49.9% of GOV.

GOV will focus on owning office properties leased to the US government. The company currently has 29 office properties with 3.3 million square feet. 25 of the company's properties are leased to the US government, and the remainder are leased to various state governments.

Cypress Sharpridge Investments (CYS) priced 9.1 mm shares @ $11.00 per share on June 11. Cypress invests exclusively in agency fixed and adjustable rate RMBS, which are mortgages guaranteed by the US government or a government agency, Freddie Mac (FRE), Fannie Mae (FNM).

LoopNet Market Weakens

The Federal Reserve released its Beige Book this week, and the news for LoopNet (LOOP), which operates an online marketplace for commercial real estate, remains challenging.

Commercial real estate transactions remain at historically low levels, and we expect this trend to continue to put pressure on LoopNet's operations.

The Fed noted that "commercial real estate markets continued to weaken across all Districts." This is certainly not a positive sign for LoopNet's business, and the lack of transaction activity is our primary concern regarding the company's outlook.

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Zacks Investment Research

Talk vs. Action: Russia’s Currency Dilemma Continues

Robert Amsterdam — Mon, 15 Jun 2009 04:29:58 +0000

I'm a few days behind on this as I've been busy with other parts of this website, but there have been a number of developments since my post last week regarding how Russia discusses its currency maneuvers. The specific language...

All this money … going, going, gone!!

Trading School — Fri, 12 Jun 2009 02:30:00 +0000

I found this by chance on CNN. It’s just plain scary to me. What do you think? Adam Troubled ASSET RELIEF PROGRAM Financial rescue plan aimed at restoring liquidity to the financial markets Program Committed Invested Description American International Group * See complete AIG bailout below $70 billion $69.8 billion $40 billion in preferred shares were converted to so-called non-cumulative shares that more closely resemble common stock. [...]

Stock Market News for June 11, 2009 – Market News

Zacks Market Commentaries — Thu, 11 Jun 2009 14:19:58 +0000

U.S. stocks declined Wednesday, as a disappointing auction of benchmark 10-year Treasury notes concerned investors that high bond yields would cause interest rates to spike. As investors shied away from Treasury debt, fresh worries surfaced that creeping interest rates would hurt prospects of a budding economic recovery. Although stocks managed to pare losses, they still closed lower. The S&P, which had declined 1.4% at one point, recovered slightly to close off 0.4%. The DJIA slipped 0.3% and the NASDAQ eased 0.4%. Crude oil prices continued their advance, rising $1.32 to $71.33.

Yield on the benchmark 10-year jumped to as high as 3.99%, the highest since August, worrying investors that mortgage rates would continue to rise on the back of higher yields on government debts. Higher yields also heightened fears that today's auction of $11 billion in 30-year bonds might face difficulties. Fears of rising interest rates hurt financials and homebuilders, with sectors sensitive to interest rates also bearing the brunt. Yesterday saw mortgage rates rising higher with Fannie Mae's (NYSE:FNM) 30-year coupon hitting a high of 5.08%. Shares of companies that make automotive parts were, however, up as Chrysler was cleared to sell most of its assets to Fiat.

A weekly US inventory report that revealed crude inventory had fallen 4.38 million barrels after recording a 2.87 million increase the previous week, also dampened hopes of an incipient economic recovery. The national average price for a gallon of gasoline rose to its highest since late October, hitting $2.63 per gallon, and increasing concerns that consumer spending will be affected. This morning the International Energy Agency added its bullish comments, trimming oil demand contraction estimates for the year.

The release of the Fed's Beige Book helped curtail some of the losses yesterday. The report on regional economies suggested the pace of economic decline in some areas was showing signs of slowing. The waning optimism is also partly due to the fears of inflation and government's financing needs. Rising interest rates, too, are a cause for concern. Although long-term rates have spiked, they, nevertheless, are modest by historical standards, with the 10-year well below its historic highs of 15% recorded in the early 1980s. And while sufficient to overshadow earlier gains in Asian markets, release of the Fed's Beige Book later in the afternoon curtailed the market's fall. According to the monthly report of 12 Fed bank districts, economic conditions remained weak, or showed signs of further deterioration from mid-April through May; however, five noted signs of moderation and several asserted expectations had improved.

Today's retail sales numbers are likely to show their first gain in three months, although helped by the gains in gasoline prices and higher demand for cars and trucks. Weekly jobless claims are estimated to have fallen 6,000 to 615,000 last week. Business inventories are likely to have matched March's drop of 1%.

Zacks Investment Research

Zacks Bull and Bear of the Day Highlights: Chunghwa Telecom, Central Garden & Pet Co., Fannie Mae, Freddie Mac and MGIC. – Press Releases

Zacks Market Commentaries — Mon, 08 Jun 2009 14:14:44 +0000

For Immediate Release

Chicago, IL - June 8, 2009 - Zacks Equity Research highlights Chunghwa Telecom (CHT) as the Bull of the Day and Central Garden & Pet Co. (CENT) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Fannie Mae (FNM), Freddie Mac (FRE) and MGIC (MTG).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2676.

Here is a synopsis of all five stocks:

Bull of the Day:

Chunghwa Telecom (CHT), the largest integrated telecom operator in Taiwan, declared first quarter 2009 financial results below our estimates. This was mainly due to an increase in employee bonus payouts and lower revenue as a result of weak economic conditions.

However, Chunghwa commands a significant market share in Taiwan for traditional voice and dial-up services, VoIP, IPTV and broadband. Aggressive rollout of fiber-to-the home and 3G network technologies, in our opinion, places the company ahead of the competition.

Bear of the Day:

Management at Central Garden & Pet Co. (CENT) is addressing a difficult environment of weak retail sales, adverse weather and higher costs, which have affected the company's sales and profitability.

The benefits from the strategy of expanding the operating margin through a positive mix shift towards higher margin products and the optimization of the supply chain has taken hold in the second quarter of fiscal 2009. However, management continuously lowered both sales and earnings guidance throughout fiscal 2008, and sales were $15 million below expectations.

The shares of Central Garden & Pet are rated a Sell. This represents a 12 P/E multiple on trailing 12-month EPS.

Latest Posts on the Zacks Analyst Blog:

Unemployment Duration Stays Up

Long-term unemployment has skyrocketed. There are now 3.95 million Americans who have been out of work for more than half a year, up from 3.68 million in April and just 1.57 million a year ago. The next group down, those who have been out of work between 15 and 26 weeks, is also swelling rapidly -- rising to 3.054 million in May from 2.531 million in April and just 1.238 million a year ago.

If the long-term unemployed are people with mortgages, it is hard for me to see how they will continue to pay them. This means there is still more pain in the pipeline for firms closely tied to the mortgage industry like Fannie Mae (FNM), Freddie Mac (FRE) and the mortgage insurers like MGIC (MTG). In the past, they might have been able to refinance their houses and tap the equity to have the cash to continue to pay the monthly mortgage bill (not a great long-term strategy, but it could tide you over). That option is now closed off as most people have very little equity left in their houses.

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About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

About the Analyst Blog

Updated throughout every trading day, the Analyst Blog provides analysis from Zacks Equity Research about the latest news and events impacting stocks and the financial markets.

About Zacks Equity Research

Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.

Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today by visiting http://at.zacks.com/?id=2677.

About Zacks

Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks InvestmentResearch is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=4582.

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Contact:
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Web Content Editor
312-265-9380
Visit: www.zacks.com

Zacks Investment Research

Unemployment Duration Stays Up – Analyst Blog

Dirk Van Dijk — Fri, 05 Jun 2009 19:41:06 +0000

The big under-reported part of the unemployment situation is the increasing duration of unemployment. Being out of work for three weeks is very different than being out of work for 30 weeks. While over half the states and more than half the population does have extended unemployment benefits, it is a very scary prospect to not only be without a paycheck, but also having already exhausted your unemployment benefits. That means no income coming in, and given how low the savings rate has been over the past decade, likely no money period.

Economically it further depresses your spending, and psychologically it is just plain depressing. The average length of unemployment rose to 22.5 weeks in May from 21.4 weeks in April, and is up from 16.8 weeks a year ago. The median length of unemployment has also gone up sharply, reaching 14.9 weeks in May versus 12.5 weeks in April and 8.3 weeks a year ago. While the duration of unemployment always goes up during a recession, it has been particularly pronounced in this one (and the last expansion was noteworthy in how little it fell).

As can be seen in the graph below, on both measures the duration of unemployment far exceeds previous peaks. Also note that these measures normally continue to increase well past the end of the recession, which indicates to me that they are not about to stop rising any time soon.

We now have the unprecedented situation where the number of long-term unemployed (27 weeks or more) now outnumbers the short-term (less than five weeks) unemployed. Prior to last month this had never happened (well, the records were not kept during the Great Depression, but at least post-war it is unprecedented). The ratio of long-term to short-term rose to 1.21 from 1.10. That ratio has averaged 0.32 in the post-war period, and before this cycle the record was 0.78 hit in 1983.

A year ago, the ratio was an above average, but unexceptional 0.48. The number of short-term unemployed actually fell in May to 3.275 million from 3.346 million in April, and is virtually the same as a year ago (3.257 million). Short-term unemployed now represent just 22.4% of the unemployed versus 38.1% a year ago.

Long-term unemployment has skyrocketed. There are now 3.95 million Americans who have been out of work for more than half a year, up from 3.68 million in April and just 1.57 million a year ago. The next group down, those who have been out of work between 15 and 26 weeks, is also swelling rapidly -- rising to 3.054 million in May from 2.531 million in April and just 1.238 million a year ago.

If the long-term unemployed are people with mortgages, it is hard for me to see how they will continue to pay them. This means there is still more pain in the pipeline for firms closely tied to the mortgage industry like Fannie Mae (FNM), Freddie Mac (FRE) and the mortgage insurers like MGIC (MTG). In the past, they might have been able to refinance their houses and tap the equity to have the cash to continue to pay the monthly mortgage bill (not a great long-term strategy, but it could tide you over). That option is now closed off as most people have very little equity left in their houses.

If people still have room on their credit card limits, they will tend to max out the cards, not on frivolous stuff, but just to keep the lights on. Once the cards are maxed out, the next step is bankruptcy. This is not welcome news for big card issuers like Capital One (COF). Expect bankruptcy filings to continue to soar.

However, even bankruptcy does not help people that much since so many of the big debts that people have are non dischargeable. Thanks to hefty campaign contributions to key Senators (of both parties -- 13 Democrats went along with almost the whole GOP in caving to the banks), the terms of a mortgage on a primary residence cannot be changed even if you file (terms on the vacation house or the yacht can be changed, though). Student debt, taxes and child support payments also cannot be affected by the judge.

This recession has made almost all Americans (well, actually almost all people regardless of nationality given the worldwide nature of the downturn) poorer. However, it is long-term unemployment that tends to lead to destitution. Poverty is not a subject that comes up often when people talk about the market.

Since poor people don't have money, they don't count as far as the markets and the overall economy is concerned. After all, if the poorest 10% of the population were magically able to double their spending, it would hardly move the needle in terms of overall aggregate demand.

Where this increase in poverty is likely to show up is in the budgets of all levels of government. State and local governments are already under severe budgetary constraints, and California is teetering near the edge of bankruptcy. More desperately poor people are not going to help the situation. However, unless we want to see massive tent cities, and malnourishment bordering on starvation in this country, these people will either have to be taken care of by the government (Section 8 housing, food stamps, etc.) or they will have to find jobs.

Yes today's jobs report was far better than I had expected; however, let us not lose sight of the fact that the economy is still losing jobs at a historically very high rate. The rate of layoffs has slowed, but the pace of new hiring has not picked up. It will be a long, long time before the number of jobs surpasses the last peak of 115.8 million private sector jobs we hit in November of 2007. Until then, there will be plenty of pain from sea to shining sea.
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Read the full analyst report on "MTG"
Read the full analyst report on "COF"
Zacks Investment Research

More CRE Mortgages Going Bad – Analyst Blog

Zacks Market Commentaries — Fri, 05 Jun 2009 15:24:31 +0000

CRE mortgage delinquencies on the rise

If you didn't have enough, here is more evidence that commercial real estate continues to deteriorate.

It is no surprise that commercial loan delinquencies are increasing at a fast pace. According to a report released this week by the MBA (mortgage bankers association) commercial/multifamily loan delinquency trends for six major investor groups are as follows:

30 day+ delinquencies rose in 1Q09 in CMBS to 1.85%, up 68 bps from the 4Q08 and a 137 bps increase from 1Q08.
60+ days delinquencies on Fannie Mae (FNM) apartment loans rose in 1Q09 to 0.34% from 0.30% at the end of 4Q08 and 0.09% in 1Q08.
60 + day delinquencies at life insurance companies rose to 0.12% in 1Q09, up from 0.07% in 4Q08 and 0.01% in 1Q08.
90+ day delinquencies at banks and thrifts rose to 2.28% up from 1.62% in 4Q08 and 1.01% in 1Q08.
90+ day delinquencies rose on Freddie Mac (FRE) apartment loans to 0.09% up from 0.01% in 4Q08.

According to the report, these investor groups hold 80% of outstanding multifamily/commercial debt. Multifamily loans appear to be holding up better than other commercial property loans, which we would expect as office, retail and industrial sectors are taking the heaviest beating so far in the recession. Apartment owners have the benefit of a weak residential market, which has created a larger pool of potential renters.

As 2009 progresses, commercial delinquencies and foreclosures will undoubtedly increase, which will continue to stress banks balance sheets. The good news is that property prices are coming down, so there are plenty of cheap or REO commercial properties to buy for those looking to get into commercial real estate.

Although, it might be prudent to wait, as we are probably not near the bottom, and commercial properties will probably become cheaper closer to the end of this year.

Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research