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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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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

DrStockPick.com Stock Report! 11/16/09, PSFT, CI, NVDA, CHFN, NPD, LLL

Dr. Stock Pick — Mon, 16 Nov 2009 15:52:08 +0000

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DrStockPick.com Stock Report! 11/16/09, FRE, CSRH, PRU, STHK, SCSS, NEOG

Dr. Stock Pick — Mon, 16 Nov 2009 14:35:57 +0000

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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
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Gov’t Program Boosts Freddie Mac – Analyst Blog

Zacks Market Commentaries — Tue, 10 Nov 2009 14:00:30 +0000

Freddie Mac’s (FRE) third quarter net loss (available to common shareholders) came in at $1.94 per share, compared to a net loss of 11 cents in the prior quarter and $19.44 in the prior-year quarter.

Results for the quarter exclude the preferred dividend of $1.3 million paid to the U.S. Department of the Treasury on the senior preferred stock. Though the results improved significantly over the prior-year quarter, the company expects its provision for credit losses to remain high during the fourth quarter of 2009.

The company is mainly focused on initiatives that support the Making Home Affordable Program (MHA Program) announced by the Obama Administration in February 2009. As a leading player, Freddie Mac continued to support the housing market during the third quarter of 2009, enabling more than 78,000 struggling borrowers to accept offers to modify their loans under the Home Affordable Modification program and approximately 69,000 borrowers to lower their payments under the Freddie Mac Relief Refinance Mortgage.

Net loss (excluding preference dividend) for Freddie Mac for the quarter was $6.3 billion, compared to a net loss of $25.3 billion in the prior-year quarter. During the reported quarter, provision for credit losses increased 32.9% year-over-year to $7.6 billion due to continued credit deterioration in the company’s single-family credit guarantee portfolio.

Net loss was partly offset by net interest income for the quarter, which increased 4.7% sequentially to $4.5 billion. The increase was primarily driven by lower short-term and long-term funding costs.

Management and guarantee income for Freddie Mac for the quarter increased 12.7% sequentially to $800 million. The sequential increase reflects higher amortization income related to certain pre-2003 deferred fees due to the decrease in forecasted interest rates, which resulted in an increase in projected prepayments.

Other non-interest loss for the quarter came in at $1.9 billion, compared to net interest income of $2.5 billion in the prior quarter. Other non-interest loss for the quarter included net mark-to-market gains of $42 million, compared to net mark-to-market gains of $5.2 billion in the prior quarter.

Credit quality significantly worsened during the quarter. Total single-family delinquency rate, excluding Structured Transactions increased 55 bps sequentially to 3.33%. At the same time, Single-family net charge-offs increased to $2.2 billion from $1.9 billion in the prior-quarter. Single-family non-performing assets increased to $91.6 billion at Sep 30, 2009 from $76.9 billion at Jun 30, 2009.

Net worth at Sep 30, 2009 was positive at $10.4 billion. This reflects an $8.5 billion gain in accumulated other compressive income (AOCI), primarily driven by improved values on the company's available-for-sale securities.

Freddie Mac has been among the hardest hit financial firms by the housing slump, credit crisis and ongoing recession. We do foresee the current expansion of the Home Affordable Refinance Program (HARP) to bring down losses from foreclosures in the upcoming quarters. The deterioration in the overall market condition continues to negatively impact Freddie Mac’s financial results. As a result, the company expects to request additional funds from the Treasury.

However, we expect the government conservatorship to continue for a long time and thus see no value in the company for common shareholders.
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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 [...]

Health Care REIT FFO Plummets – Analyst Blog

Zacks Market Commentaries — Thu, 05 Nov 2009 15:26:48 +0000

Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate, has reported dismal third quarter 2009 results with FFO (fund from operations) of 53 cents per share compared to 85 cents 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.

The year-over-year decrease in FFO was due to the loss on extinguishment of debts and impairment charges totaling 25 cents per share. Excluding one-time charges, FFO for the quarter was 77 cents per share compared to 86 cents in the year-ago period.

During the quarter, Health Care completed $156.3 million of gross new investments in large senior housing properties and state-of-the-art medical facilities. The company also strengthened its liquidity by raising $434.6 million of net equity proceeds. Year-till-date, Health Care received $177.4 million in proceeds from asset sale and loan-pay-offs, realizing net profit of $26.9 million.

During the quarter, the company prepaid $58.8 million of secured debt and repurchased $161.4 million of unsecured notes scheduled to mature in 2012. In addition, Health Care received $132.5 million of mortgage loans from Freddie Mac (FRE). At quarter end, Health Care had cash and cash equivalents of $102.4 million.

Health Care declared a cash dividend of 68 cents per share during the quarter, which marks the 154th consecutive quarterly dividend payment. For full year 2009, the company has revised its normalized FFO guidance to $3.10 − $3.12 per share from its earlier projections of $3.07 − $3.14 per share.
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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.

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

Evaluating the new tools of monetary policy

James Hamilton — Sun, 25 Oct 2009 14:03:13 +0000

Last week I participated in a conference hosted by the Federal Reserve Bank of Boston, at which I discussed the new lending programs and asset acquisitions pursued by the Federal Reserve over the last two years. Previously I shared with Econbrowser readers empirical evidence on the effects these targeted liquidity operations seem to have had. Below I reproduce my remarks from the conference on the underlying motivation for using such measures, in which I suggested that the critical question is what was the underlying cause of the financial stress to which the Fed was responding. I distinguished between two possible interpretations of how the financial crisis arose.

Perspective 1: Everybody just panicked
The first interpretation of what went wrong is that financial markets were pricing risk correctly in 2006 but began to overprice risk in 2007. Keister and McAndrews analyzed a situation in which banks out-of-the-blue stop lending to each other, while Gorton interpreted events in terms of a classic bank run, in which the liquidation value of entities is feared to have fallen below their short-run liabilities, creating an incentive for lenders to refuse to renew short-term credit. In the benign version of this theory, the troubled entities would in fact be solvent if it were not for the "fire-sale" prices at which distressed assets must be sold in such an environment. If allowed to proceed unchecked, these fears could prove self-fulfilling and result in a rapid collapse of credit.

In terms of appropriate policy responses to this problem, I would distinguish between actions that might have helped if implemented earlier in the decade and options that were available if we begin the analysis in the fall of 2007. If we are looking at what might have been done years earlier that could have helped, the obvious answer is to consider regulatory reforms that might have prevented financial markets from reaching a point at which the liquidation spiral could be set off in the first place. Bank panics are not an inevitable result of private financial intermediation. The key principle for avoiding them is to ensure that the liabilities of financial institutions consist not just of short-term borrowing, but also of equity contributed by the owners. As long as this equity cushion exceeds potential liquidation losses, there is no incentive for short-run creditors to rush to get their cash back, and no insolvency for the bank in the event that the bank does experience a run. It was a regulatory failure to allow an explosion of off-balance sheet entities that borrowed short and lent long but were immune from bank capital requirements.

On the other hand, if we ask what policy options were available after we had entered the fall of 2007, this particular policy prescription is of no help, as the horses were already out and the barn had no capital. Since there are profound negative externalities from simply watching asset prices and lending collapse, there would seem to be a clear case for the Fed to fulfill the function of lender of last resort, lending and buying assets where others won't until the panic subsides and rational valuations return, and trying to do so in such a way that otherwise solvent enterprises were shielded from a panic bankruptcy.
Perspective 2: The core problem in credit markets preceded the crisis
An alternative perspective is that risk was incorrectly priced in the years leading up to the crisis with rationality only returning in 2007-2008. During 2004-2006 there was $2.7 trillion in new subprime and alt-A mortgage debt generated; (Ashcraft and Schuermann). Much of this was extended without documentation of the borrowers' income, little or no money down, negative amortization, and called for huge increases in the borrowers' monthly payments a few years into the loan. Yet somehow through the magic of securitization, this debt was repackaged into tranches that overwhelmingly received AAA credit ratings.

Such massive capital flows only made sense if one believed that house prices would continue to expand rapidly. Because this process was funneling such huge sums into the U.S. housing market, for a while house prices did just that, more than doubling between 2000 and 2005 according to the Case-Shiller 20-city house price index. U.S. household mortgage debt tripled in a little over a decade. According to this second interpretation, when house prices inevitably came crashing down, they brought with them defaults not just on the hybrid subprime and alt-A mortgages, but also put many otherwise sound borrowers underwater.

If it is claimed that the run-up in house prices and mortgage debt were a horrible miscalculation, what were the market failures that produced it? There is a long list of contributing factors. The originate-to-distribute model left the loan originators and securitizers with profits and lesser-informed buyers with the losses, creating agency problems; (Ashcraft and Schuermann). Intra-firm compensation schemes left decision-makers personally with the upside and stockholders with the downside, inducing excessive risk-taking; (Diamond and Rajan; Bebchuk and Spamann). The public-private GSEs Fannie Mae and Freddie Mac were woefully undercapitalized, giving private players the upside and the taxpayers the downside, and perhaps emboldening private securitizers to take even bigger risks (Hamilton). Both the compensation and procedures of the ratings agencies may have contributed to inaccurate perception of the safety of MBS (Ashcraft and Schermann), as did the mistaken perception that entities like AIG had the ability to insure against aggregate default risk. Moral hazard problems induced from the (ex post correct) belief that the U.S. government would absorb the downside on such gambles may have been another factor inducing excessive risk-taking.

If this perspective is the correct one, we can again distinguish between policies that would have made sense earlier in the decade and policies that were realistic options once we entered the crisis phase in 2008. If the above list of contributing market failures is correct, obviously addressing these with regulatory reforms before we reached the crisis point would have been the first-best option. On the other hand, if we condition on previous policy mistakes and ask what could have been done with options available in the fall of 2008, I disagree with those who reason that the way to correct the moral hazard problem is to hang tough in this situation and simply watch the losers go down. There are huge macroeconomic externalities from the resulting collapse of credit, which is why the government claiming it will not bail out the gamblers is not a credible strategy. Instead, this perspective suggests that the key policy question once we find ourselves in the fall of 2008 is how to allocate the necessary capital losses among lenders, stockholders, and the taxpayers in a way that minimizes the disruptive externalities of a credit collapse. If this is the correct perspective, the primary effect of targeted liquidity measures is simply to allocate these potential losses to the Federal Reserve. It is far from clear that this is the appropriate way for a democratic society to answer the question of who should bear the losses.
Finding the middle ground
I laid out the two perspectives above as diametrically opposed views. I nevertheless believe that the correct interpretation of events would acknowledge that each account contains some truth. It is hard to deny that there was some degree of misallocation of capital in the explosion of house prices and mortgage debt or that the resulting real estate price collapse was a key cause of the devaluation of securities and loss of bank equity that precipitated the banking panic phase. The remarks I presented at the Jackson Hole conference in August 2007 laid out precisely this scenario. We might disagree on how much of that $2.7 trillion in new subprime and alt-A debt represented a malfunctioning capital market, and characterize the middle ground between the two views in terms of choice of a number between 0 and 2.7. If that number is big enough, it may be that no realistically feasible level of bank equity would have been sufficient to assure solvency in the face of a deterioration of confidence, and there is certainly the potential for fire-sale asset price deterioration and a necessary role for the Federal Reserve to fulfill its role of lender of last resort. But obviously from this hybrid perspective, the Fed is performing a combination of liquidity provision and residual loss absorption through these operations, and would want to undertake the latter only with extreme care and thoughtfulness.
Conclusions
Participants in this session were asked to address two basic questions. The first is whether the Fed's targeted liquidity operations were necessary and effective. My answer is probably yes, though I would have a hard time persuading someone if they were not already convinced of that. The second question is whether such operations should be considered an important part of central banks' arsenal of tools in the future. To that my answer is categorically no. From virtually any perspective of our current problems, it would have made far more sense to address these problems with proper regulatory supervision prior to the crisis instead of targeted liquidity operations after the crisis unfolds.

You can view my complete set of comments prepared for the conference here.

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

How to Prepare for the Coming Crash and Preserve Your Wealth

Susan C. Walker — Fri, 16 Oct 2009 01:20:04 +0000

New Edition of Conquer the Crash to Be Released in Late October Bob Prechter first released Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression during a stock-market high in 2002, and it quickly became a New York Times–bestseller. Now he has updated the book with 188 new pages for a [...]

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.
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Zacks Investment Research

Watching Bonds and Treasury Notes

QualityStocks — Thu, 08 Oct 2009 15:32:54 +0000

The bond and treasury markets are at times confusing to investors. Generally they are considered a safe form of income in relatively stable economic times. Investors enjoy a small but stable flow of income. In today’s environment, however, there may be a bit of uncertainty. The Federal Reserve has reduced interest rates to help spur [...]

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.

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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"
Read the full analyst report on "AXP"
Read the full analyst report on "GS"
Read the full analyst report on "MS"
Read the full analyst report on "COF"
Read the full analyst report on "BBT"
Read the full analyst report on "USB"
Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "C"
Read the full analyst report on "AIG"
Read the full analyst report on "FRE"
Read the full analyst report on "FNM"
Zacks Investment Research

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.

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

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

PennyOmega.com Stock Report! 9/03/09, ACC, HRZ, SUN, PNBC, PDOS, HTDS

PennyOmega.com — Thu, 03 Sep 2009 18:36:50 +0000

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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.

Zacks Investment Research

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.
Read the full analyst report on "GS"
Read the full analyst report on "MS"
Read the full analyst report on "AXP"
Read the full analyst report on "NTRS"
Read the full analyst report on "BK"
Read the full analyst report on "STT"
Read the full analyst report on "BBT"
Read the full analyst report on "USB"
Read the full analyst report on "C"
Read the full analyst report on "BAC"
Read the full analyst report on "AIG"
Read the full analyst report on "FNM"
Read the full analyst report on "FRE"
Zacks Investment Research

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

Zacks Analyst Blog Highlights: Mylan, Sanofi-Aventis, Gilead Sciences, GlaxoSmithKline and Freddie Mac – Press Releases

Zacks Market Commentaries — Mon, 31 Aug 2009 13:45:01 +0000

For Immediate Release

Chicago, IL – August 31, 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: Mylan (MYL), Sanofi-Aventis (SNY), Gilead Sciences (GILD), GlaxoSmithKline (GSK) and Freddie Mac (FRE).

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Here are highlights from Friday’s Analyst Blog:

Mylan’s Portfolio Strengthens

We are pleased to hear that Mylan (MYL) has begun to market the generic version of BenzaClin (1% Clindamycin and 5% Benzoyl Peroxide Gel) for acne treatment, which was originally manufactured by Sanofi-Aventis (SNY). The drug has been developed under an agreement between its subsidiary, Mylan Pharmaceuticals and Dow Pharmaceutical Sciences, a subsidiary of Valeant Pharmaceuticals International.

Earlier this month, Dow received the US Food and Drug Administration (FDA) approval for the generic drug. Although the approval is good news for the company, we do not expect it to contribute significantly to the top line since BenzaClin had total U.S. sales of about $221 million for the 12 months ending June 30 (as per IMS data).

This is the third approval for Mylan in the month of August. A few days back, Mylan’s subsidiary Matrix Laboratories received tentative approval from the FDA under the President's Emergency Plan for AIDS Relief (PEPFAR) for launching the generic version of Gilead Sciences’ (GILD) Atripla meant for HIV treatment. This means Matrix' product meets all the agency's standards related to manufacturing quality, safety and efficacy. Although Matrix will not be able to market the product in the U.S. due to Gilead’s existing patents, the drug can be sold in many developing countries. Atripla is one of the best selling HIV drugs, which recorded $1.6 billion sales in 2008.

Apart from this, Mylan also received the FDA approval earlier this month for the generic version of GlaxoSmithKline’s (GSK) migraine treatment drug Imitrex, which recorded ₤687 million (about $1120 million) sales in 2008.

FRE Marks Rising Mortgage Rates

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.

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

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.

Colonial Officially Files – Analyst Blog

Zacks Market Commentaries — Wed, 26 Aug 2009 15:39:23 +0000

Less than two weeks after Federal Deposit Insurance Corporation (FDIC) seized Colonial BancGroup’s (CBCG) banking operations, the holding company filed for Chapter 11 bankruptcy protection yesterday. Most of Colonial’s banking assets were sold to BB&T Corp. (BBT).

The shutdown of Colonial BancGroup’s banking operations is the biggest bank failure so far this year, and the sixth-largest in U.S. history.

The estimated cost of Colonial BancGroup’s failure to the deposit insurance fund would be $2.8 billion. The FDIC and BB&T have signed an agreement to share losses on about $15 billion of Colonial BancGroup’s loans and other assets.

BB&T expects losses in the loan portfolio acquired from Colonial BancGroup’s banking operations of $5 billion will not have a negative impact on its earnings because of its loss-sharing agreement with the FDIC.

For the last several quarters the holding company posted losses as a result of its write-down of millions in residential construction and mortgage loans related to the impacted markets in Florida.

According to the filing, Colonial BancGroup had $45 million of assets and $380 million of debts as of August 14.

A planned $300 million outside investment from Taylor, Bean & Whitaker Mortgage Corp. could have supported its capital base. But Taylor itself filed for bankruptcy protection on Monday due to recent actions taken against it by the Department of Housing and Urban Development, and mortgage financiers Freddie Mac (FRE) and the Government National Mortgage Association (Ginnie Mae).

In the first half of 2009, bankruptcy protection filing increased 64% year over year to more than 30,000. Also, according to the American Bankruptcy Institute, the number of Chapter 11 business reorganizations increased 113% year over year to 7,396, and Chapter 7 business liquidations jumped 57% year over year to 20,375. Continued financial stress on both consumers and businesses due to the market turmoil was the reason for increase in bankruptcy filings this year.
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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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Taylor Bean Files for Bankruptcy – Analyst Blog

Zacks Market Commentaries — Tue, 25 Aug 2009 17:40:00 +0000

Yesterday, Taylor, Bean & Whitaker Mortgage Corporation filed for Chapter 11 bankruptcy protection after it was forced to shutter its mortgage lending operations earlier this month.

The Ocala, Florida-based company had captured 1.7% market share nationwide by creating $17 billion of mortgage loans from January to June, 2009. On that basis, it was the 12th largest mortgage lender in the U.S.

Taylor was also one of the largest U.S. home loan providers not owned by a large bank. As a result, there was lack of significant amount of deposits that could help cushion its capital position in the troubled market environment.

The company filed for bankruptcy due to recent actions taken against it by the Department of Housing and Urban Development, and mortgage financiers Freddie Mac (FRE) and the Government National Mortgage Association (Ginnie Mae).

Further, the negative developments at Taylor were related to various investigations surrounding the failure of Colonial Bank, which was Taylor’s primary bank for years. Colonial froze about 100 Taylor Bean bank accounts earlier this month.

On Aug 14, Colonial BancGroup was seized by the Federal Deposit Insurance Corporation (FDIC). It is the biggest bank failure so far this year, and the sixth-largest in U.S. history. Colonial’s $20 billion in deposits, 346 branches and about $22 billion of assets were sold to BB&T Corporation (BBT).

According to the bankruptcy filing, Taylor has more than $1 billion of both assets and liabilities, and between 1,000 and 5,000 creditors.

In the first half of 2009, bankruptcy protection filing increased 64% year over year to more than 30,000. Also, according to the American Bankruptcy Institute, the number of Chapter 11 business reorganizations increased 113% year over year to 7,396, and Chapter 7 business liquidations jumped 57% year over year to 20,375. Continued financial stress on both consumers and businesses due to the market turmoil was the reason for increase in bankruptcy filings this year.
Read the full analyst report on "FRE"
Read the full analyst report on "BBT"
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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.
Read the full analyst report on "AIG"
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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

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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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

DrStockPick.com Stock Report! 8/18/09, CMCSA, AOB, WYNN, COMS, IBM, FRE

Dr. Stock Pick — Tue, 18 Aug 2009 17:45:15 +0000

DrStockPick.com Stock Report! Tuesday August 18, 2009 ************************************************************** Comcast Corporation (Nasdaq: CMCSA, CMCSK), the nation’s leading provider of entertainment, information and communications, today announced that customers who subscribe to its Triple Play of digital cable, high-speed Internet and digital voice services in Michigan can now view incoming caller information on their TV and [...]

BofA Sues Colonial – Analyst Blog

Zacks Market Commentaries — Fri, 14 Aug 2009 16:25:56 +0000

Bank of America Corp. (BAC) sued Colonial Bancgroup Inc. (CNB) to protect its claim on certain loans after the troubled company refused to return more than $1 billion it owed to Freddie Mac (FRE).

Bank of America filed the lawsuit at a federal court in Florida, asking for a temporary restraining order prohibiting Colonial from using the proceeds it received from Freddie Mac for buying mortgage and other loans owned by Ocala Funding LLC.

Bank of America was the collateral agent for the Ocala Funding loans and Colonial held them as custodian, agent and bailee. On the whole, Bank of America was a trustee to parties that provided financing for Colonial's mortgage business.

On Thursday, the court decided in favor of Bank of America and ordered Colonial to freeze $1 billion in assets.

Colonial appears to be on the threshold of collapsing as a going concern and has reportedly been subject to criminal investigation for alleged accounting irregularities. The lawsuit is an additional concern for Colonial as it will face further financial trouble.

According to the Colonial management, the company will not be able to file its second-quarter financial report as alleged accounting irregularities now being investigated. The company has informed the Securities and Exchange Commission to this effect.

The Alabama State Banking Board is expected to ask Colonial for permission to allow the Federal Deposit Insurance Corporation (FDIC) to take it over. If the bank fails, the FDIC would find a new owner for it as quickly as possible. If Colonial collapses, it would be the largest bank failure this year. Its potential buyers include BB&T Corp. (BBT) and SunTrust Banks Inc. (STI).

Read the full analyst report on "BAC"
Read the full analyst report on "CNB"
Read the full analyst report on "FRE"
Read the full analyst report on "BBT"
Read the full analyst report on "STI"
Zacks Investment Research

Paying for design flaws

James Hamilton — Wed, 12 Aug 2009 04:27:48 +0000

Updates on what this is going to cost you and me.

Let's start with Fannie Mae, the government-sponsored enterprise that was allowed to function as a quasi-private company from 1968 to 2008 and is currently under conservatorship of the Federal Housing Finance Agency. Prior to conservatorship, Fannie earned a profit two ways. First, it used borrowed funds to purchase mortgages that it held directly. Because investors perceived the GSE's debt to be implicitly backed by the federal government, Fannie's borrowing costs were very low, and it had an incentive to engage in arbitrage on a huge scale, borrowing cheap and buying as many mortgages as regulators would allow. As of June 2009 these assets came to $793 billion. Second, Fannie would bundle mortgages into securities on which it provided a guarantee of timely payment of principal and interest, in exchange for which it received a modest fee, and assumed a staggering off-balance-sheet liability. As of June 2009, Fannie's guarantees involved an additional notional liability of $2.4 trillion. Fannie's equity was never remotely sufficient to make such guarantees credible, and this game, too, is best interpreted as arbitraging an implicit government obligation to pick up the tab should things turn sour.

On August 6 Fannie reported (hat tip: Calculated Risk):

Total nonperforming loans in our guaranty book of business were $171.0 billion on June 30, 2009, compared with $144.9 billion on March 31, 2009, and $119.2 billion on December 31, 2008.

This doesn't mean that taxpayers are now out $171 billion, because the salvage value on these properties is not zero. On the other hand, more defaults could be ahead.

Fannie's GSE brother, Freddie Mac, had over $2 trillion in mortgages held outright or guaranteed, last time I checked. Freddie reported $15 billion in non-performing assets that it holds outright and an additional $62 billion in non-performing assets on which it has issued guarantees (Table 2 in their second-quarter 10Q). But on top of this is the imminent bankruptcy anticipated from mortgage originator Taylor, Bean & Whitaker, following last week's allegations of "irregular transactions that raised concerns of fraud". Freddie Mac filed this report (hat tip: CR):

TBW accounted for approximately 5.2% and 2.7% of our single-family mortgage purchase volume activity for full-year 2008 and the six months ended June 30, 2009, respectively. We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us. The amount of our losses in such event could be significant.

And the Federal Housing Administration is stepping in where Fannie and Freddie leave off. A recent report from the Office of Inspector General noted that the FHA's current single-family insured exposure totals over $560 billion and invites preventable fraud. TBW was the third biggest originator of FHA loans, with the overall delinquency rate on FHA-guaranteed loans now up to 7.42%.

Then there's the $1 trillion in mortgage exposure that Ginnie Mae is about to take on.

Company News for August 11, 2009 – Corporate Summary

Zacks Market Commentaries — Tue, 11 Aug 2009 14:29:52 +0000

• Fluor (NYSE:FLR) on Monday reported second quarter earnings of 93 cents a share versus $1.12 a share on a revenue decline of 8% to $5.3 billion

• Freddie Mac (NYSE:FRE), which had reported its first profit in two years, yesterday warned that the Taylor, Bean & Whitaker Mortgage Group collapse might cause it "significant" losses

• State Street (NYSE:STT) cautioned that $625 million that it set aside to address claims from losses linked to subprime mortgages might be exhausted

• General Motors (NYSE:GM) and eBay (NASDAQ:EBAY) announced hundreds of California dealers are starting online car auctions

• Cumberland Pharmaceuticals announced that an initial public offering of its 5.0 million shares was priced at $17 per share. The stock will start trading with the symbol CPIX

• American Capital Agency priced its 3.75 million common offering at $23.30 per share with the symbol AGNC

• Tellabs (NASDAQ:TLAB) announced a $200 million share buyback plan; its Chairman plans to sell 3 million shares

• Deutsche Bank (NYSE:DB) initiated Kroger (NYSE:KR) with a "buy" rating and a $28 price target

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

Zacks Analyst Blog Highlights: Freddie Mac, J.P. Morgan Chase, Barclays Capital, Inc., Deutsche Bank Securities, Inc. and International Business Machines – Press Releases

Zacks Market Commentaries — Thu, 06 Aug 2009 13:10:43 +0000

For Immediate Release

Chicago, IL – August 6, 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: Freddie Mac (FRE), J.P. Morgan Chase (JPM), Barclays Capital, Inc. (BCS), Deutsche Bank Securities, Inc. (DB) and International Business Machines (IBM).

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Here are highlights from Wednesday’s Analyst Blog:

Freddie Mac Issues 3-yr Notes

Freddie Mac (FRE) announced its plans to issue a new series of 3-year Reference Notes that will be due September 21, 2012. The issue will be priced today and will settle tomorrow at a benchmark size. The company refrained from disclosing the size of the issue.

J.P. Morgan Chase (JPM), Barclays Capital, Inc. (BCS), Deutsche Bank Securities, Inc. (DB) have been appointed as dealers and managers to the sale. The company also plans to apply to list the security on the Euro MTF market of the Luxembourg Stock Exchange.

Freddie Mac has been among the hardest hit financial firms by the housing slump, credit crisis and ongoing recession. We do foresee the current expansion of the Home Affordable Refinance Program (HARP) to bring down losses from foreclosures in the upcoming quarters.

IBM Drives on Analytics

In a recent press release, International Business Machines (IBM) announced the launch of its Analytics solution center in China. IBM is trying to address the need for growing analytics capabilities and help its clients strengthen their business systems, which will in turn enhance their decision making capability.

The new analytics center located in Beijing, China will gather experts from analytics and optimization, mathematics modeling, software engineering and architecture research and consulting departments of IBM. The company has selected China, as the country is a global center for economic development and has a good talent pool of professionals, essential for the analytics solution center.

This solution center will support IBM’s clients in the Greater China region, and resolve business problems relating to hardware, software, consulting services and research. It will also focus on supply chain management, water management, transportation and traffic management issues.

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Zacks Investment Research

Freddie Mac Issues 3-yr Notes – Analyst Blog

Zacks Market Commentaries — Wed, 05 Aug 2009 17:16:17 +0000

J.P. Morgan Chase (JPM), Barclays Capital, Inc. (BCS) and Deutsche Bank Securities, Inc. (DB) have been appointed as dealers and managers to the sale. The company also plans to apply to list the security on the Euro MTF market of the Luxembourg Stock Exchange.

However, we expect the government conservatorship to continue for a long time and thus see no value in the company for common shareholders. As such, we maintain our Sell recommendation on the stock.

Read the full analyst report on "FRE"
Read the full analyst report on "JPM"
Read the full analyst report on "BCS"
Read the full analyst report on "DB"
Zacks Investment Research

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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Zacks Investment Research

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).

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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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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

About Zacks

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

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Visit: www.zacks.com

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"
Zacks Investment Research

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"
Zacks Investment Research

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

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 ...

PennyOmega.com Stock Report! 7/20/09, NOC, GD, CDI, XRIT, FRE, NRTLQ

PennyOmega.com — Mon, 20 Jul 2009 15:30:25 +0000

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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

U.S. Banks – Zacks Analyst Interviews

Zacks Market Commentaries — Tue, 14 Jul 2009 05:00:00 +0000

While the bigger banks benefited greatly from the various programs launched by the Federal Reserve, the Treasury and the FDIC and are now in a much better shape, many smaller banks are still in a very weak financial state and the FDICÕs list of problem banks continues to grow. Further, the Government efforts have not succeeded in restoring the lending activity at the banks.ÊLower lending activity will continue to hurt the margins though the low interest rate environment should be beneficial to the banks with a liability sensitive balance sheet. Ê

For the last few quarters, the banks have mainly suffered due to the losses in the 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. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace and the downturn in this class is also likely to be very challenging. Ê

With the deterioration in the overall economic environment, and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in the consumer related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of the 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 the profitability. Despite increased provisioning over the past several quarters, the ratio of allowance for loan losses to non-performing loans dropped to 70% at March 31, 2009 from 100% a year ago.ÊAs a result of these substantial asset quality deterioration and the need to build reserves further, many banks will continue to be unprofitable in 2009.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company could be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor, and the servicer. OCN was appointed by a major GRE as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front. Ê

WEAKNESSES

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

We also continue to maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Tue, 14 Jul 2009 05:00:00 +0000

OPPORTUNITIES

WEAKNESSES

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

We also continue to maintain Sell recommendation on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.Zacks Investment Research

U.S. Banks – Industry Outlook

Zacks Market Commentaries — Mon, 13 Jul 2009 15:39:02 +0000

We think that the worst of the credit crisis is now probably behind us, but the banking system is not yet out of the woods -- there are still many significant challenges ahead. The banks are now able to tap the debt markets without the FDIC’s support, and also access the equity markets as the investor confidence returns in the stronger banks. Many banks have already repaid the TARP funds to the Treasury.

While the bigger banks benefited greatly from the various programs launched by the Federal Reserve, the Treasury and the FDIC and are now in much better shape, many smaller banks are still in a very weak financial state and the FDIC’s list of problem banks continues to grow. Further, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending activity will continue to hurt margins, though the low interest rate environment should be beneficial to the banks with a liability-sensitive balance sheet.

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. Further, deterioration in other Commercial Real Estate loans is now rising at a rapid pace and the downturn in this class is also likely to be very challenging.

With the deterioration in the overall economic environment and rising job losses, we anticipate the losses will continue to increase in all the other asset classes as well, especially in consumer-related loans. It was recently reported that U.S. credit card delinquencies rose to a record high and are expected to rise further. We expect the asset quality deterioration to continue at least through the end of FY09.

As a result of 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. Despite increased provisioning over the past several quarters, the ratio of allowance for loan losses to non-performing loans dropped to 70% at March 31, 2009 from 100% a year ago. As a result of these substantial asset quality deterioration and the need to build reserves further, many banks will continue to be unprofitable in 2009.

OPPORTUNITIES

We recently upgraded our recommendation on Ocwen Financial Corp (OCN) to a Buy, as this company could be a major beneficiary of the President's Home Affordable Modification Plan, which provides incentives for loan modifications to the borrower, the investor, and the servicer. OCN was appointed by a major GRE as one of the servicers for the new pilot initiative launched to identify borrowers who are at a risk of foreclosure. Recently the Treasury extended TALF to include securities backed by servicing advances, which will provide comfort on the liquidity front.

WEAKNESSES

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

We also maintain Sell recommendations on Freddie Mac (FRE) and Sallie Mae (SLM) as we anticipate rising losses and increased provisions during FY09.

Zacks Investment Research

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"
Read the full analyst report on "FRE"
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.

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

Zacks Analyst Blog Highlights: Freddie Mac, MGIC, Bank of America, Nanosphere Inc. and Lear Corporation – Press Releases

Zacks Market Commentaries — Wed, 01 Jul 2009 13:48:15 +0000

For Immediate Release

Chicago, IL - July 1, 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: Freddie Mac (FRE), MGIC (MTG), Bank of America (BAC), Nanosphere Inc. (NSPH) and Lear Corporation (LEA).

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 Tuesday's Analyst Blog:

Housing Prices Still Falling

The April Case/Schiller Index shows that the decline in housing prices is not over yet. The best that can be said is that the rate of decline is slowing.

As the Freddie Mac (FRE) presentation pointed out yesterday (see Foreclosure Waters Rising Fast), 17% of all homeowners (well, those that have mortgages that Freddie is involved with) owe more on their homes than they are currently worth. An additional 11% have less than 10% equity. Even this much improved rate of decline in April would mean that by the end of the year, most of that 11% would be underwater as well.

The people who are already slightly underwater would be pushed to the point where not ruthlessly defaulting becomes not a mark of honesty and integrity, but of stupidity. It is one thing to stick it out and continue to pay on your mortgage if you house is worth $5,000 less than your mortgage. You signed a contract and you want to honor your commitments. You have ties to that community, and you value your credit rating.

However, when the mortgage is $50,000 or $100,000 more than the house is worth...lets just say everything has its price. Add in loss of income from hours being cut or one or both earners being laid off, and defaults and foreclosures are bound to continue to rise. This means that the pressure on the mortgage related companies, including but not limited to the mortgage insurance companies like MGIC (MTG) and the banks like Bank of America (BAC) is not going to let up any time soon.

Nanosphere Sales Growth In 2H 2009

With the Verigene System and 2 currently approved assays not receiving approval until late-2007, Nanosphere Inc. (NSPH) currently generates little in the way of revenue relative to their cost base. We expect the company to generate negative operating income for the foreseeable future as SG&A and R&D expenses remain elevated to support newly-approved products and the company's pipeline.

Manufacturing efficiency programs and economies of scale through higher production volumes should benefit gross margins and help offset increased operating expenses. Grants and government contracts, which had provided 25% of revenue in 2008, will likely be immaterial in 2009 and beyond.

Lear May File for Bankruptcy

Lear Corporation (LEA) may file for bankruptcy protection no later than Jul 1.

The company has until Tuesday, Jul 30 to make $38 million in loan interest payments or face the possibility of filing for Chapter 11 protection. The debt holders are preparing for a Chapter 11 bankruptcy filing.

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