Tuesday December 30, 2008 Navivest

The Federal Reserve announced on today, that it expects to begin purchasing mortgage-backed securities (MBS) in early January and that it has selected BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Company, to act as its agents in implementing the program.

According to the Federal Reserve, the program is being implemented to help foster improved conditions in mortgage markets. The purchases will be financed by the creation through the creation of additional bank reserves.

Under the program, only fixed-rate agency MBS securities that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae will be considered eligible assets that can be purchased. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. Not eligible under the program, are CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

The Federal Reserve is projecting a very limited

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Hewlett-Packard Co. (NYSE:HPQ) is making big strides even as the economy falls deeper into recession. HP’s superior products and exemplary execution are key factors behind this trend, says Horacio Marquez. And with the stock beaten down by broad market panic, Horacio says the company is a steal. He recommends building up a position in increments over the coming four months.

This from Money Morning:

There is no doubt that the global economic environment presents a very bleak outlook.  The National Bureau of Economic Research (NBER) last week announced that the U.S. economy has been in a recession since last December – a situation that appears to be getting worse, given that the economy lost half a million jobs lost half a million jobs in November. Interestingly, the market traded up both those announcements.

On Nov. 24, Hewlett-Packard Co. (NYSE:HPQ) reported a quarterly profit of $1.03 a

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Another week and another batch of fascinating video clips about bailouts, economic woes and other crisis-related matters. As to be expected, the good-news videos are in rather short supply. A number of the more interesting clips that have attracted my attention are shared below.

Some of my favourites included in this compilation are: “Peter Schiff uses analogies to describe crisis” (first one up) and “Dr Doom [Marc Faber] - Buffett’s approach to investing is dead” (further down). If you want to view only two of these clips, make sure to see these two.

Please post any interesting video links that you would like to share with the Investment Postcards community, in the comments section.

YouTube: Peter Schiff uses analogies to describe crisis “Ron

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HIDDEN VALUE

Dear Value Seeker,

Yesterday, the “Big Three” automakers came to Washington with a plan: ask for even more money.

GM wants $18 billion, with $4 billion for December’s bills.

Chrysler says it needs $7 billion in the next few months.

Ford is after $9 billion…but only as a precaution. It feels pretty confident it can make it without help.

After all, Ford’s sales fell only 31% year-over-year in November. GM and Chrysler both saw sales for the same period tumble by over 40%.

In exchange for $34 billion in taxpayer money, the automakers promised major restructuring, reduced labor costs (that’s right, it’s promising to fire employees in return for taxpayer backing) and the sale of some product lines.

The CEOs even said they would even work for $1. (Never mind that their salaries only make up about 10% of their overall pay packages.)

But decades of waste and mismanagement aren’t forgotten

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PIMCO today launched its Global Multi-Asset Fund (GMAF), a global asset allocation portfolio designed to outperform the traditional 60% stock/40% bond asset allocation approach. It uses a wide variety of index-based derivatives as a core hedging technique to accomplish that outperformance.

The fund of funds may cater to an appetite for more-diversified, risk-averse funds after investors took a wallop during the recent market tailspin. However, from PIMCO's perspective, the fund is not being launched to exploit short-term market conditions, but rather, because traditional noncorrelation approaches have not worked. Ten of the 11 major asset classes have been in negative territory during the recent market route, and that is evidence of a larger breakdown in conventional asset allocation philosophy, PIMCO CEO Mohamed El-Erian noted in a statement accompanying the fund's launch.

The Global Multi-Asset Fund, a fund of funds, will invest in PIMCO underlying portfolios that use S&P 500,

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by Edward Hugh: Barcelona Keynes, however, once semi-seriously proposed, as an anti-deflationary measure, that the government fill bottles with currency and bury them in mine shafts to be dug up by the public. Ben Bernanke, Deflation: Making Sure "It" Doesn't Happen Here Many of the macro-economic fundamentals of Spain today are very different from those of ten or fifteen years ago...........A lot of factors look better this time around. Compared to its history, Spain has low interest rates, low unemployment and a strong fiscal position........the 2007 levels of government debt, unemployment and interest rates are about half the level of 1993. Equally, a lot of factors related to debt levels, housing and bank funding are worse versus the last downturn. For instance, the relative size of mortgage debt or total private sector debt to GDP, or the size of the construction sector to GDP, were all about 60% bigger in 2007 than in 1993. As was the bank system’s loan-to-deposit ratio. And the housing PE has expanded almost as much. So when Spanish bank management’s argue that the world today is not like the early 1990s, they are right: some things are better, but others are worse. As Mark Twain noted many years ago, history may not repeat itself but it does rhyme. Spanish Banks, How Bad Can It Get? - Citigroup, September 2008 As I suggest in the title, the contents of this post resembles more an online training session about how the recent proposals to refloat and reinforce the Spanish banking sector may work out in practice than a conventional blog post, but still, this is the weekend, and at weekends, as well as all that interminable football, hiking and tapas snacks in bars, people are supposed to enjoy complementary and value-enhancing activites like going on courses, aren't they? So why don't we have a try. But remember, this topic is only for those with the sternest of stomachs, and the greatest of abilities to find - now what was the word Krugman recently used, ah yes, beauty - in that otherwise most arid of landscapes, the world of financial book-keeping. So, as is the custom in all good training sessions, let's all start by watching a video, just to get us in the mood, and into the swing of things as it were. I think after the viewing what follows may be a lot more digestable, and certainly it should be more comprehennsible. (The version is conveniently supplied with substitles in Castellano the benefit of any Spanish speaking readers who might drop by).

Wednesday’s market action was filled with choppy price movements as Wall Street was trying to figure out if WM or LEH or both would go under that day.  LEH and WM are about to be worthless as traders continue to hammer the stock and Wall Street firms back away from both.  Bill Gross was on CNBC stating PIMCO still had LEH as a counterparty.  This is far from the truth, more than likely his firm PIMCO has a few termed trades that were put on back in March.  Technically, they are still a counterparty but he is hardly putting on new positions with LEH.  Washington Mutual (WM) continues to deal with bad loans and to no surprise they are about to be wiped out.  Yesterday’s action was merely an oversold bounce with volume coming in well below Tuesday’s level.  Again, this market is very sick and will continue to slide.

Do

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Several Money Morning readers have written to ask about steel-sector stocks, which have taken investors on a roller-coaster ride in the past year. After analyzing the sector, I came to one very strong conclusion: With its terrific fundamentals, Nucor Corp. (NYSE: NUE) is poised for significant gains. Steel stocks, which had seen a 36% climb this year, have sold off dramatically and are now down about 16% for the year.  That’s a 42% drop from their peak. Wow! Shares of the Charlotte, N.C.-based Nucor could not escape the carnage and have endured an even bigger swing: From their low of $50.30 a share in early January, the shares of the No. 1 U.S. steelmaker soared 66% to a trade at a high of $83.56. From their peak, Nucor’s shares have declined 42%, closing Friday at $48.45. They’re down 18% for the ...

Sometimes it’s better to listen than to talk.  That’s where we are today concerning the current market turmoil.  The following are excerpts from the PIMCO montly letter and a piece in Fortune Magazine called “Crisis Counsel” .