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3Q GDP Growth Revised to 2.8% – Analyst Blog

Dirk Van Dijk — Tue, 24 Nov 2009 16:29:18 +0000

This is a revision to the post I put up when the first cut at the GDP report came out on 10/30. In it the new numbers are in bold and the original estimates are put in parentheses, thus a number in parentheses does not mean that it has a negative value (those will have a minus sign in front of them, numbers relating to the first or second quarters are left unchanged. New text will be in italics. This should give the reader a clear sense of not only how strong GDP and its components, but also how the latest numbers match up.

The recession is over! In the third quarter GDP grew by 2.8% (3.5%), slightly below (comfortably ahead) of expectations for 2.9% (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 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 to, or subtracted from, the 2.8% (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 2.8% (3.5%) growth of GDP was almost matched by its biggest component, Personal Consumption expenditures, or PCE, which grew 2.9% (3.4%), a big improvement over the 0.9% 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 where ever 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 7.2% (8.1%) following a decline of 3.1% 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 20.1% (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 1.7% (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 1.0% (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 getting us out of a recession, and not spending on durable goods 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 8.4% (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 0.3% (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 4.1% (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 15.1% (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 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 existing space.

Spending on Equipment and Software (E&S) on the other hand is starting to come back, if only feebly, rising 2.3% (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 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 19.5% (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 (FNM) and Freddie (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 3.1% (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 8.3% (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 -- we are still a nation fighting two wars. It grew at an annual rate of 8.3% (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 6.9% (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 0.1% (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 17.0% (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 20.8% (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.

Contributions to Growth

The biggest part of the economy is the Consumer or PCE, over all it contributed 2.07 (2.36) of the 2.80 (3.50) points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the consumer the economy would have contracted 6.84% rather than 6.40%.

Within consumer spending, spending on goods added 1.60 (1.79) points after subtracting 0.71 points in the 2Q and adding 0.56 points in the 1Q. Spending on durables was the main driver, adding 1.34 (1.47) points after subtracting 0.41 points in the 2Q and adding 0.28 in the 1Q. Non durable goods added 0.26 (0.31) points after subtracting 0.29 in the 2Q and adding 0.29 in the 1Q.

While spending on services is much more stable than spending on goods, it is also a much larger portion of the consumer wallet. Service spending added 0.47 (0.57) points to the overall GDP growth in the 2Q, up from adding 0.09 points in the 2Q and subtracting 0.13 in the 1Q. It is the volatility that gives durable goods there importance to the economy not the overall size. In the third quarter total spending on durable goods was at a $1.055 Trillion annual rate, just 15.4% of the $6.852 Trillion spent on services, but durables goods had an impact on economic growth that was 158% bigger.

Investment spending was a big swing factor in the 3Q. It added 0.91 (1.22) points to overall growth. That is a HUGE improvement over the 3.10 point subtraction in the 2Q and the 8.98 point implosion in the 1Q. Unfortunately. 0.87 (0.94) points of that contribution came from inventories. Inventory investment is the “worst" type of GDP growth since large increases in one quarter are usually reversed in the next quarter, or in this case, large declines being reversed upwards.

In the 2Q inventory investment subtracted 1.42 points from overall growth and in the 1Q they subtracted 2.36 points. Even in the 4Q they subtracted 0.64 points from growth. Three straight quarters of sharply lower inventories is highly unusual and we were due for a bounce. Perhaps we have one more quarter of a solid contribution from inventory investment, but I would not expect it to last much beyond that.

Overall fixed investment added just 0.04 (0.28) points to growth, but that sure was a nice improvement over the 1.68 point subtraction and the 6.62 point disaster that was the 1Q.

However, it was not coming from the business side. Business investment subtracted 0.40 (0.24) growth points in the 3Q, so it is still very soft, but at least it is not imploding like it was earlier in the year. In the 2Q it subtracted 1.01 points and in the 1Q it took away 5.29 growth points. Within business investment it was spending on structures that caused the problem with a deduction of 0.55 (0.32) growth points while spending on E&S offset 0.15 (0.08) points of that. In the 2Q both sides of business investment were drags on the economy with investment in Commercial real estate subtracting 0.69 growth points and spending on equipment deducting 0.32 points. The 2Q was in turn a major improvement over the 1Q disaster where spending on structures subtracted 2.28 growth points and equipment spending subtracted 3.01 points.

Housing finally helped the economy in the 3Q, adding 0.45 (0.53) points to growth, after a string of 15 straight quarters where it was a drag on the economy. In the 2Q it was a 0.67 point drag and in the 1Q it was a 1.33 point drag. The long decline has, however, made housing a much smaller share of the overall economy. In the 3Q residential investment totaled only $360.9 billion, or 2.52% of the overall economy. At the peak of the housing bubble it represented 6.34% of the overall economy. Thus the 19.5 (23.3%) increase in residential investment had far less of an overall impact than it did in the past.

While residential investment is still near a record low share of the overall economy, I have serious questions about the sustainability of the increase. The extension and expansion of the tax credit as is now moving through the Congress might keep things going for the next few quarters, but after that things are likely to fall apart again. Most of the tax credit is going to those who buy existing homes, rather than new homes, and thus it is a very inefficient way of increasing residential investment. It is however, an open question if we really want to be directing resources into housing given the glut of housing units in the country. Just like we saw with the Cash for Clunkers program, it is probably just encouraging those folks who might have bought later to buy now. Cash for clunkers was a much smaller program, totaling only $3.0 billion, yet is had a huge impact on the economy, most of the improvement in consumer durable goods came from autos.

The tax credit is also tricking people into thinking that the house is more affordable that it really is, just the way that teaser rate ARM’s did, and we saw just how well that worked out. The FHA is handing out mortgages with only 3.5% down and people can use the tax credit for that ridiculously small down payment. This has future disaster of biblical proportions written all over it. The next bailouts will not be of the banks like Bank of America (BAC) and Citigroup (C) but of the FDIC and the FHA.

Direct government spending had a small but positive impact on overall growth in the 3Q, adding 0.63 (0.48) points a fairly significant slowdown from the 1.33 contribution in the 2Q, but better than the 0.52 point drag in the 1Q. All the help came from Washington , not city hall or the statehouse.

The Federal government added 0.65 (0.62) growth points, down from 0.85 points in the 2Q but up from a 0.33 point drag in the 1Q. The Pentagon was the main factor in all three quarters, with defense spending adding 0.48 (0.45) points in the 3Q following a 0.70 addition in the 2Q and a 0.27 point drag in the 1Q. Non-defense spending was sort of a non issue, adding just 0.17 (0.17) points in the 3Q, not much difference from the 0.15 point contribution in the 2Q, and up a little bit from the slight 0.06 point drag in the 1Q.

State and Local governments are not allowed to run operating deficits, and so when faced with declining tax revenues they have to cut back, unless Uncle Sam helps them out. Well Washington is helping, but its not enough and S&L spending was a 0.02 (0.14) point drag in the 3Q. The Federal help was enough in the 2Q and so the contribution to growth in the 2Q was a positive 0.48 points. In the 1Q, before the stimulus package could get much traction S&L spending was a 0.19 point drag.

Net exports had been just about the only bright spot in the first half of the year, even though it came the wrong way, from both imports and exports plunging, only with imports falling more than exports did. That reversed in the 3Q as both showed a nice expansion, but our appetite for foreign goods outstripping the desire for U.S. goods and services abroad. The increase in exports added 1.71 (1.49) points to growth, but the increase in imports was a 2.53 (2.01) point drag, for a net negative contribution from net exports of 0.82 (0.52) points. In the 2Q falling exports subtracted 0.45 points but plunging imports added 2.09 points, for a net imports net help to the economy of 1.64 points.

In the first quarter, as world trade came to a near standstill, net exports were just about the only positive you could find for the economy. Yes, plunging exports subtracted an awful 3.95 points of growth, but the fact that we were buying practically nothing from overseas added 6.58 growth points for a net aid to the economy of 2.85 points. In other words, if the U.S. were a closed economy in the first quarter, growth would have fallen not at a 6.4% rate, but at a 9.25% rate.

Overall

Relative to the first cut at the data, the downward revisions were broad based, with smaller contributions from all major areas of the economy, with the exception of the government. Of particular concern is that fixed investments contribution to growth virtually disappeared.

Investment’s share of GDP is near all time low’s and that is not a good thing for the future of the country. Inventory investment really does not count in this regard. The trade deficit (net exports) continues to be a major problem. While consumption spending growth was revised lower, it still grew faster than overall GDP, indicating that it continues to grow as a share of the economy.

This country needs to move its economy towards one that is focused on investment and exports, not one dominated by consumption, and consumption of imported goods in particular. Still, even though it was not as good a report as the original, it sure is an improvement over the second quarter, and especially over the fourth quarter.

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market-beating Zacks Strategic Investor service.

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Prieur’s readings (November 24, 2009)

Prieur du Plessis — Tue, 24 Nov 2009 10:02:04 +0000

This post provides links to a number of interesting articles I have read over the past few days that you may also enjoy. Please also add the links to any other worthwhile articles you would like to share to the comments section.

Duke Realty Renews Credit Facility – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 20:37:53 +0000

Duke Realty Corporation (DRE), a real estate investment trust (REIT) engaged in owning, managing and developing industrial, health care and office properties across the U.S, has recently renewed its unsecured revolving credit facility to enhance its operating flexibility in the current credit-constrained market.

The credit facility, which was originally scheduled to mature in Jan 2010, has been currently extended to Feb 2013. Under the terms of the renewal, the credit facility would offer a borrowing capacity of $850 million at an interest rate of 275 basis points over the applicable LIBOR rate. In addition, Duke Realty also has an option to increase the credit facility to $1.05 billion.

Duke Realty maintains a balanced and flexible capital structure and has increased its liquidity by diligently managing overhead expenses and reducing dividend payments. With the renewal of the credit facility, the company has further strengthened its balance sheet that provides an operating flexibility to protect and enhance market positions and emerge stronger once the real estate markets fully recover.

Duke Realty is one of the largest commercial real estate companies in the U.S. For over 35 years, the company has leveraged its local presence and its integrated platform to drive returns, establishing itself as a premier publicly traded real estate developer in the country.
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U.S. Bank Failures Hit 124 – Analyst Blog

Zacks Market Commentaries — Mon, 23 Nov 2009 14:00:00 +0000

U.S. regulators on Friday closed down Commerce Bank of Southwest Florida. Though there are some early signs of economic recovery, bank failures go on growing with rising loan defaults. This takes the total number of bank failures to 124, compared to 25 in 2008 and 3 in 2007. The weak economy continues to weigh heavily on banks with a stream of loan defaults.

As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow seizing could be a strategy as it is hard to get buyers for so many failed banks.

Commerce Bank had total assets of $79.7 million and total deposits of about $76.7 million. The failure of Commerce Bank represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for the bank. The latest failure is expected to cost the FDIC's insurance fund about $23.6 million.

Bank failures have cost the federal deposit insurance fund more than $28 billion so far this year. The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund.

The fund corpus now stands below $10 billion, down from $45 billion a year ago. Central Bank of Stillwater, Minnesota, will assume all of Commerce Bank’s deposits. The acquirer also entered into a loss-share agreement with the FDIC on $61 million of Commerce Bank's $79.7 million in assets. 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 since the savings and loan crisis in 1994.

Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years. In order to replenish the declining fund, the FDIC board recently mandated the U.S. banks to pay fees for three years in advance.

Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%. The FDIC also has access to the Treasury Department credit line of up to $500 billion.

The failure of Washington Mutual last year was the largest in U.S. banking history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp, Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF). The failed banks are victims of recession and rising loan losses.

As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.

According to the FDIC, the bank failures have cost the federal deposit insurance fund more than $28 billion so far this year. Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
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Commercial real estate: How deep is the rabbit-hole?

Prieur du Plessis — Mon, 23 Nov 2009 08:36:51 +0000

Referring to the malaise of commercial real estate, Michael Stevens, senior vice president for regulatory policy at the Conference of State Bank Supervisors, said: "It's not the next big thing. It is the big thing. We're dealing with it right now. We wouldn't be at 120 bank failures if we weren't seeing it now." Click through for a video clip discussing the dire situation of CRE.

Factors in local house price declines

James Hamilton — Sun, 22 Nov 2009 14:46:32 +0000

UCSD Ph.D. candidate Sam Dastrup has completed a very interesting study with his advisor Professor Richard Carson of what accounts for differences across U.S. communities in the magnitude of the decline in real estate prices that we've seen over the last several years.

Although many commentators write as if there were a national housing market, there have been huge differences in the experience across communities. Dastrup and Carson examine the OFHEO matched-sale data for house prices as calculated separately for 358 U.S. standard metropolitan statistical areas. As seen in the map below, the magnitude of the price decline has differed greatly across U.S. communities, with the biggest drops in the southwest, Florida, and Michigan.

Magnitude of house price declines for 358 SMSAs. Source: Carson and Dastrup (2009).

Dastrup and Carson look at how the magnitudes of the price declines correlate with a number of other community characteristics such as overbuilding (as measured by growth in building permits relative to the local labor force), extent of subprime lending, owner-occupied units, and fundamentals such as median income. Dastrup and Carson find that all of these measures were statistically significantly related to the magnitude of the housing price decline. But by far the most important variable was the magnitude of the previous price run-up, which all by itself can account for more than half of the observed variance in the size of the price decline across different communities.

Magnitude of house price increase prior to peak (horizontal axis) versus magnitude of house price decline (vertical axis). Source: Carson and Dastrup (2009).

I see this as consistent with earlier research by Marco Del Negro and Christopher Otrok which documented a common national factor driving much of the U.S. housing price boom, which in the Del Negro-Ostrok specification was allowed to affect different communities with different coefficients. My understanding of what happened is that low interest rates and in particular a deterioration of underwriting standards fueled an increase in housing demand everywhere in the earlier part of this decade. The magnitude of the price increase that this produced differed across communities as a function of local conditions. When these aggregate factors reversed, so did the prices.

The more prices were artificially bid up, the more spectacularly they declined.

Postscript to potential employers: Sam's a great teacher, and looking for a job.

Prieur’s readings (November 21, 2009)

Prieur du Plessis — Sat, 21 Nov 2009 08:24:30 +0000

Top European Equity Funds – Mutual Fund Commentary

Zacks Market Commentaries — Fri, 20 Nov 2009 06:10:59 +0000

Today we are featuring top-performing "European" equity mutual funds, which primarily invest in equity securities of companies based in Europe.

Investors can find such funds by checking out the entire list of Zacks #1 Rank European Equity Funds.

3 Solid Samples

ING European Real Estate Fund A (IAERX) seeks to provide investors with high total return, consisting of capital appreciation and current income. It was incepted in November 2007.

The fund normally invests at least 80% of net assets in a portfolio of equity securities of real estate companies located in Europe. The fund may invest in convertible securities, initial public offering and depositary receipts.

The fund has an expense ratio of 1.75%. As of July 2009, it has a portfolio turnover of 166%.

Steven D. Burton has been lead manager of the fund since November 2007. Burton is a managing director at ING and has 24 years investment experience.

T. Rowe Price European Stock (PRESX) seeks long-term growth of capital through investments primarily in the common stocks of companies in the emerging market countries of Europe and the Mediterranean region. It was incepted in August 2000.

The fund invests in stocks of companies in emerging European and Mediterranean economies, including Eastern Europe, the Middle East, North Africa and the former Soviet Union. It may purchase the stocks of companies of any size, but focuses primarily on large and medium-sized companies in these regions.

The fund has an expense ratio of 1.94%. As of April 2009, it has a portfolio turnover of 51.8%.

S. Leigh Robertson has been lead manager of the fund since September 2007. Robertson is a vice president of T. Rowe Price Group and has been with the firm since 2002.

DFA Continental Small Company (DFCSX) seeks long-term capital appreciation. It was incepted in April 1988.

The fund pursues its objective by investing in a broad range of readily marketable stocks of small companies that are traded principally in the securities markets of certain European countries. As a non-fundamental policy the fund invests most of its net assets in securities companies located in continental Europe

Shareholders have to make a minimum initial investment of $100,000 to enter this Zacks #1 Rank ("Strong Buy") fund. It has an expense ratio of 0.15%.

Karen E. Umland has been Lead Manager of the fund since 31-Dec-98. Umland has been with Dimensional since 1993 and is a vice president with the firm.

Discover Many More Funds

Learn more about the new Zacks Mutual Fund Rank and discover some of the best market-beating mutual funds by browsing our mutual funds section. This part of Zacks.com offers a variety of tools, including mutual fund research, a new mutual fund screener, helpful answers to frequently asked questions and quick access to prospectuses and other information.

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

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Doug Casey on real estate

Prieur du Plessis — Thu, 19 Nov 2009 08:18:07 +0000

In this post, Doug Casey is interviewd on global real estate markets, making for an interesting read.

JLL is P&G’s Supplier of the Year – Analyst Blog

Zacks Market Commentaries — Wed, 18 Nov 2009 19:43:26 +0000

Jones Lang LaSalle Incorporated (JLL), a leading full-service real estate firm that provides corporate, financial and investment management services, has been recently selected as the "Supplier of the Year" by Procter & Gamble Co. (PG) for the second consecutive year. The award is recognition of Procter & Gamble’s suppliers and external business partners and is based on broad-based quantitative and qualitative evaluations of its employees.

Jones Lang was selected as the facility manager of Procter & Gamble in 2003. The mutually beneficial relationship has expanded over time, and Jones Lang currently provides integrated facility management, project management, transaction management and energy and sustainable services to Procter & Gamble.

Jones Lang has a broad range of real estate product and services, and an extensive knowledge of domestic and international real estate markets enabling it to operate as a single-source provider of real estate solutions. With a worldwide portfolio of approximately 1.4 billion square feet, Jones Lang is an industry leader in property and corporate facility management services, while its investment management business is one of the largest and most diverse in the real estate sector with over $37 billion of assets under management.
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Overvalued Stocks: Don’t Touch These Bloated Investments With a 10-Foot Pole

Investment U — Wed, 18 Nov 2009 15:09:16 +0000

Overvalued Stocks: Don’t Touch These Bloated Investments With a 10-Foot Pole by Marc Lichtenfeld, Healthcare Expert Wednesday, November 18, 2009: Issue #1140 To celebrate my parents’ anniversary, I took the family to see Grease last weekend. As musical theater buffs, I figured that they’d love the seeing the show, especially with my kids who had [...]

SINA Beats Forecast – Analyst Blog

Zacks Market Commentaries — Tue, 17 Nov 2009 15:00:25 +0000

After market closed, SINA Corp. (SINA) reported revenues of $96.4 million in the third quarter of 2009. Revenues was down 8.6% year over year but was up 6.8% sequentially. Revenues exceeded the company's guidance of $91.0 – $94.0 million and easily beat the Zacks Consensus estimate of $94.0 million.

This reflects strong execution of the company’s online advertising business in China , which grew double-digits sequentially. We expect a huge improvement in SINA’s advertising business, as advertising spending recovers.

SINA expects to benefit from government stimulus packages. Moreover, management is witnessing signs of a strong recovery in the advertising market in China in the second half of this year, which is reflected in the company’s higher-than-expected guidance.

Advertising revenues decreased 16.3% year over year but was up 10% quarter over quarter, exceeding the company’s guidance of $60.0 – $62.0 million. Non-advertising revenues increased 11.6% year over year and was marginally up from last quarter. This was better than management’s guidance of $31.0 – $32.0 million.

Gross margin was 59% in the quarter, up from 57% last year and 56% in the preceding quarter. This was due to increasing advertising revenues outpacing the growing cost of advertising revenues, primarily bandwidth-related. This raised advertising gross margin, which in turn, raised overall margins.

Operating margin came in at 22.5% as operating expenses decreased 3% year over year but increased 6% sequentially, mainly due to higher marketing costs.

Net income on a non-GAAP basis was $20.1 million, down 15.4% from last year, but up 17% quarter over quarter. Earnings per share (EPS) of 34 cents beat the Zacks Consensus Estimate of 30 cents, but were down from 39 cents reported in the year-ago period.

Under the $100 million share repurchase program, SINA repurchased approximately 2.5 million shares for $50 million at an average price of $20.37. The company expects to continue repurchasing the remaining $50 million in future quarters, which will add to shareholders wealth.

During the quarter, the company generated $29.1 million of cash from operations, compared to $18.8 million last quarter. The company ended the quarter with cash and equivalents of $599.7 million, an increase of $17.7 million from the previous quarter. As of September 30, 2009, convertible debt remained at $99 million.

In October, SINA completed the merger of its online real estate advertising business with E-House ( China ) Holdings Ltd., subsidiary of China Real Estate Information Corporation (CRIC). SINA has 39% equity interest in CRIC. This merger will help SINA form the largest online and offline real estate information and consulting platform in China .

SINA also entered into a private equity placement of its ordinary shares with New Wave Investment Holding Company Limited, a British Virgin Islands company established and controlled by Charles Chao, SINA's Chief Executive Officer and other members of the management. SINA will receive gross proceeds of $180 million in exchange for approximately 5.6 million shares. The issuance of shares to New Wave will have a dilutive effect on the company's outstanding shares in the fourth quarter of 2009.

Guidance
The company will account for its interest in CRIC from Oct 1, 2009 and expects to recognize a material gain from the closing of the merger transaction with CRIC.

Going forward, management expects revenues of between $93 million and $96 million, excluding advertising revenue from real estate business due to its merger with CRIC. Including the advertising revenue from real estate business, total revenue will range between $106 million and $109 million.

Advertising revenue is expected to be $61 – $63 million and non-advertising revenue to be $32 – $33 million in the fourth quarter. Including the carve out of the real estate business, the forecasted advertising revenues would have been between $74 million and $76 million.

SINA is a leading provider of online media and value-added information services in China . SINA’s online advertising business has continued to do well and has built a competitive edge based on its popularity in China . The company expects strong growth in advertising revenue in 2010 due to resurgence in margins.

We maintain our Neutral rating on the stock.
Read the full analyst report on "SINA"
Zacks Investment Research

Zacks Analyst Blog Highlights: JPMorgan Chase, Fifth Third Bancorp, Zions Bancorp, SunTrust Banks and PNC Financial – Press Releases

Zacks Market Commentaries — Tue, 17 Nov 2009 11:45:23 +0000

For Immediate Release

Chicago, IL – November 17, 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: JPMorgan Chase (JPM), Fifth Third Bancorp (FITB), Zions Bancorp (ZION), SunTrust Banks (STI) and PNC Financial (PNC).

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

Here are highlights from Monday’s Analyst Blog:

Bank Failures Rise to 123

The failed banks were -- Century Bank, FSB of Sarasota, Florida with $728 million in assets and $631 million in deposits, Orion Bank of Naples, Florida with about $2.7 billion in assets and $2.1 billion in deposits and Pacific Coast National Bank of San Clemente, California with $134.4 million in assets and $130.9 million in deposits.

These bank failures represent another sizable impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of Century Bank is expected to cost the deposit insurance fund about $344 million, Orion Bank’s failure will cost about $615 million and the failure of Pacific Coast National Bank is expected to cost about $27.4 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund. At Jun 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

IberiaBank, based in Lafayette, Louisiana will assume both Florida-based banks' $2.731 billion in deposits. Iberiabank also entered into a loss-share agreement with the FDIC on $656 million of Century Bank's assets and on $1.9 billion of Orion Bank's assets.

Tustin, California-based Sunwest Bank will assume all of Pacific Coast National Bank's deposits and essentially all of its assets.

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 since the savings and loan crisis in 1994.   Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.

In order to replenish the declining fund, the FDIC board recently mandated the U.S. banks to pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%. The FDIC also has access to the Treasury Department credit line of up to $500 billion.

The failure of Washington Mutual last year was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), Zions Bancorp (ZION), SunTrust Banks (STI) and PNC Financial (PNC).

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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.

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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Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leonard Zacks. As a PhD in mathematics Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.

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Zacks Investment Research

Prieur’s readings (November 17, 2009)

Prieur du Plessis — Tue, 17 Nov 2009 08:50:30 +0000

Can precious metals keep on flying?

Contrarian Profits — Mon, 16 Nov 2009 14:33:51 +0000

pAre you sold on gold? The precious metal outperformed every major equity index in the world in 2008. The question is, can gold—and other precious metals—keep on flying? Or would buying today be buying high and selling low?/p pPrecious metals have always been intriguing to investors because they tend to hold their value. In times of geopolitical crisis or currency devaluation, for example, the value of paper money might fluctuate, but a hard asset will always be worth something. As a result, historically, precious metals have been considered a “safe haven” in times of economic and financial instability./p pThat brings us to why gold is on a tear today. It declined in 2008 and early 2009 as panicked investors rushed into cash#8230;/p

Bank Failures Rise to 123 – Analyst Blog

Zacks Market Commentaries — Mon, 16 Nov 2009 14:01:28 +0000

Regulators shut down 2 banks in Florida and 1 in California; U.S. bank failures reach 123 this year.

U.S. regulators on Friday shuttered two more banks in Florida and one in California. Though there are some early signs of economic recovery, bank failures continue unabated. This takes the total number of bank failures to 123, compared to 25 in 2008 and 3 in 2007.

The weak economy continues to weigh heavily on banks with a stream of loan defaults. As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow seizing could be a strategy as it is hard to get buyers for so many failed banks.

The failed banks were -- Century Bank, FSB of Sarasota, Florida with $728 million in assets and $631 million in deposits, Orion Bank of Naples, Florida with about $2.7 billion in assets and $2.1 billion in deposits and Pacific Coast National Bank of San Clemente, California with $134.4 million in assets and $130.9 million in deposits.

These bank failures represent another sizable impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of Century Bank is expected to cost the deposit insurance fund about $344 million, Orion Bank’s failure will cost about $615 million and the failure of Pacific Coast National Bank is expected to cost about $27.4 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund. At Jun 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

IberiaBank, based in Lafayette, Louisiana will assume both Florida-based banks' $2.731 billion in deposits. Iberiabank also entered into a loss-share agreement with the FDIC on $656 million of Century Bank's assets and on $1.9 billion of Orion Bank's assets.

Tustin, California-based Sunwest Bank will assume all of Pacific Coast National Bank's deposits and essentially all of its assets.

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 since the savings and loan crisis in 1994.   Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.

In order to replenish the declining fund, the FDIC board recently mandated the U.S. banks to pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%. The FDIC also has access to the Treasury Department credit line of up to $500 billion.

The failure of Washington Mutual last year was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp, Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).

The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.  

According to the FDIC, the bank failures have cost the federal deposit insurance fund more than $28 billion so far this year. Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
Read the full analyst report on "JPM"
Read the full analyst report on "FITB"
Read the full analyst report on "ZION"
Read the full analyst report on "STI"
Read the full analyst report on "PNC"
Read the full analyst report on "BBT"
Read the full analyst report on ""
Zacks Investment Research

LEAP Options

Ahmad Hassam — Mon, 16 Nov 2009 11:20:10 +0000

British Pound is known to be a stable currency. Great Britain is a strong economy. But, Great Britain was finding it difficult to stay within the tight exchange rate band set by the European Monetary Union (EMU) in the early'90s. One person who made history with options was George Soros who is famously known as the man who broke the Bank of England.

What could be worse than a housing bust?

Contrarian Profits — Fri, 13 Nov 2009 13:18:09 +0000

pIf You Thought the Housing Meltdown Was Bad…br / Doug Hornig, Senior Editor, (a href="http://www.caseyresearch.com/crpmkt/crpSolo.php?id=168#038;ppref=CTP168ED1109A"Casey Research/a):/p p…wait until you see what’s in the cards for commercial real estate./p pThat’s right, the next train wreck will be in commercial real estate. Couldn’t be worse than last year’s residential market crash? That remains to be seen. But it’s coming soon, probably as early as the second quarter of next year, and there’s nothing that can prevent it. The government will intervene, trying desperately to delay the day of reckoning, and may even succeed. For a while. But make no mistake about it, that train is going off the tracks no matter what./p pEvery part of the sector – from multifamily apartment buildings to retail shopping centers, suburban office#8230;/p

Debt dynamics will hold back economy

Prieur du Plessis — Fri, 13 Nov 2009 07:29:37 +0000

This post is a guest contribution by Comstock Partners, the highly regarded investment manager run by Charles Minter, arguing that government debt could double while private debt could be cut in half.

Roubini’s RGE: Global monetary policy outlook

Prieur du Plessis — Thu, 12 Nov 2009 07:41:35 +0000

This posts takes a look at some recent monetary policy trends in advanced economies, as seen by the team of analysts at Roubini Global Economics (RGE).

Trading With Point And Figure Charts (Part I)

Ahmad Hassam — Wed, 11 Nov 2009 12:12:26 +0000

Do you know how to read Point and figure charts? Point and figure trading in many ways is similar to the support and resistance breakout trading on bar or candlestick charts. The main difference is the look and functionality of the price charts themselves!

Is Your Real Estate Agent Knowledgeable?

Merrill Nolan — Wed, 11 Nov 2009 12:08:11 +0000

Having a good real estate agent can make sure that you are getting the most out of your real estate experience. Unfortunately, not all real estate agents out there have the qualifications that you may need or could be looking for. to find the best and right real estate agent which will suit your needs in the property market, you need to take a few factors into consideration before you choose a property that would represent you.

DDR to Raise Capital through TALF – Analyst Blog

Zacks Market Commentaries — Tue, 10 Nov 2009 19:52:07 +0000

Developers Diversified Realty Corporation (DDR), a leading real estate investment trust (REIT), is planning to raise $400 million through Term Asset-backed Securities Loan Facility (TALF program). The TALF was created by the Fed to support the issuance of asset-backed securities (ABS) collateralized by student loans, auto loans, credit card loans and loans guaranteed by the Small Business Administration.

The deal is being eagerly anticipated by the $700 billion market for commercial mortgage backed securities (CMBS), which took a severe beating in 2008 from the economic downturn. With the deal, Developers Diversified would be able to raise significant capital to increase its liquidity. By the end of the third quarter of 2009, the company had over $5 billion of consolidated debt.

Developers Diversified specializes in the acquisition, ownership, development, redevelopment, leasing and management of shopping centers and business centers. The company owns and manages 670 retail operating (including joint ventures) and development properties spanning approximately 148 million square feet of real estate in 44 states in the US, and Puerto Rico, Brazil, Russia and Canada.
Read the full analyst report on "DDR"
Zacks Investment Research

Zacks Analyst Blog Highlights: JP Morgan Chase, U.S. Bancorp, Zions Bancorp, SunTrust Banks and PNC Financial – Press Releases

Zacks Market Commentaries — Tue, 10 Nov 2009 11:45:35 +0000

For Immediate Release

Chicago, IL – November 10, 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: JP Morgan Chase (JPM), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI) and PNC Financial (PNC).

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

Here are highlights from Monday’s Analyst Blog:

Bank Failure Tally Reaches 120

The FDIC entered into a purchase and assumption agreement with Ameris Bank, Moultrie, Georgia, to assume all of the deposits of United Security Bank; Liberty Bank and Trust Company, New Orleans, Louisiana, to assume all of the deposits of Home Federal Savings Bank; Alerus Financial, National Association, Grand Forks, North Dakota, to assume all of the deposits of Prosperan Bank; Central Bank of Kansas City to assume all of the deposits of Gateway Bank of St. Louis; and East West Bank, Pasadena, California, to assume all of the deposits of United Commercial Bank.

In order to replenish the declining fund, the FDIC board recently proposed that approximately 8,100 insured U.S. banks and savings institutions should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.  

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 since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.  

The failure of Washington Mutual last year was the largest in U.S. history. It was acquired by JP Morgan Chase (JPM). Other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), to name a few.

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About Zacks Equity Research

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

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

About Zacks

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

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Zacks Investment Research

Morgan Seeks Divestiture in China – Analyst Blog

Zacks Market Commentaries — Mon, 09 Nov 2009 22:57:16 +0000

Morgan Stanley (MS) is pursuing a buyer to sell its 34% stake that it holds in investment bank China International Capital Corporation (CICC).

Morgan Stanley’s role in CICC has been reduced to that of a passive investor, prompting the case for disinvestment. Morgan Stanley received approval from Chinese regulators early last year to sell its stake in CICC. However, it then did not opt for the disinvestment as the bids were very low at that time. As the markets have now bounced back, the company now wants to revisit the deal.

Potential suitors for the divestiture in China's largest investment bank could be private equity firms, namely Bain Capital and General Atlantic. The first rounds for the bids are expected on Tuesday. The divestiture is expected to realize over $1.2 billion for Morgan Stanley.

On Oct. 21, Morgan Stanley reported third-quarter 2009 income of $498 million or 38 cents per share, compared with a loss of $159 million or $1.37 per share in the prior quarter and an income of $7.7 billion, or $7.38 per share a year ago. The results were much ahead of the Zacks Consensus Estimate of 30 cents per share.

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.
Read the full analyst report on "MS"
Zacks Investment Research

Bank Failure Tally Reaches 120 – Analyst Blog

Zacks Market Commentaries — Mon, 09 Nov 2009 14:00:26 +0000

Regulators shut down 5 more banks in Georgia, Michigan, Minnesota, Missouri and California; tally hits 120 so far this year

U.S. regulators on Friday shuttered five more institutions in Georgia, Michigan, Minnesota, Missouri and California , as the recession continues to take its toll on banks. This takes the total number to 120, compared to 25 in 2008 and 3 in 2007.

As the industry has to tolerate bad loans that were made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more failures. However, the regulators are trying to avoid panic by seizing banks slowly. Also, the slow pace of seizing could be a strategy as it is hard to get buyers for so many failed banks.

The failed banks were -- Georgia-based United Security Bank of Sparta with total assets of $157 million and total deposits of approximately $150 million, Michigan-based Home Federal Savings Bank of Detroit with total assets of $14.9 million and total deposits of approximately $12.8 million, Minnesota-based Prosperan Bank of Oakdale with total assets of $199.5 million and total deposits of approximately $175.6 million, Missouri-based Gateway Bank of St. Louis with total assets of $27.7 million and total deposits of approximately $27.9 million and California-based United Commercial Bank of San Francisco with total assets of $11.2 billion and total deposits of approximately $7.5 billion.

Failure of these institutions represents another sizable impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of United Commercial Bank alone is expected to cost the federal deposit insurance fund approximately $1.4 billion. The other failures are expected to cost the deposit insurance fund a combined $132.7 million.  

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institutions failing has significantly stretched the regulator’s deposit insurance fund.

At Jun 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter. However, the FDIC has billions of loss reserves apart from the insurance fund and it can access a Treasury credit line of up to $500 billion.

The FDIC entered into a purchase and assumption agreement with Ameris Bank, Moultrie, Georgia, to assume all of the deposits of United Security Bank; Liberty Bank and Trust Company, New Orleans, Louisiana, to assume all of the deposits of Home Federal Savings Bank; Alerus Financial, National Association, Grand Forks, North Dakota, to assume all of the deposits of Prosperan Bank; Central Bank of Kansas City to assume all of the deposits of Gateway Bank of St. Louis; and East West Bank, Pasadena, California, to assume all of the deposits of United Commercial Bank.

In order to replenish the declining fund, the FDIC board recently proposed that approximately 8,100 insured U.S. banks and savings institutions should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.  

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 since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.  

The failure of Washington Mutual last year was the largest in U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).  

The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.

According to the FDIC, the U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter. Though there are some signs of economic recovery, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
Read the full analyst report on "JPM"
Read the full analyst report on "FITB"
Read the full analyst report on "USB"
Read the full analyst report on "ZION"
Read the full analyst report on "STI"
Read the full analyst report on "PNC"
Read the full analyst report on "BBT"
Read the full analyst report on "RF"
Zacks Investment Research

Top Real Estate Equity Funds – Mutual Fund Commentary

Zacks Market Commentaries — Mon, 09 Nov 2009 06:18:36 +0000

Today we are featuring top-performing “Real Estate" equity mutual funds, which primarily invest in equity securities of real estate companies.

Investors can find such funds by checking out the entire list of the Zacks #1 Rank Real Estate Equity Funds.

3 Excellent Examples

Forward Select Income A (KIFAX) was incepted in March 2001. The investment seeks high current income and potential for modest long-term growth of capital.

The fund invests primarily in securities of companies in the real estate industry, such as real estate investment trusts, master limited partnerships and other real estate firms. The fund invests at least 80% of its net assets in income-producing securities.

Shareholders have to make a minimum initial investment of $2,000 to enter this Zacks#1 Rank (“Strong Buy") fund. It has an expense ratio of 1.77%.

Joel S. Beam has been Lead Manager of the fund since March 2001. Prior to joining Kensington, Beam was with Liquidity Financial Advisors, Inc.

MSIF Inc. Euro Real Estate A (MSUAX) seeks to provide current income and long-term capital appreciations. It was incepted in October 1997.

The fund primarily invests in equity securities of companies in the European real estate industry. It invests at least 80% of its assets in equity securities of companies in the European real estate industry. As of June 2009, its portfolio turnover was 56%.

The fund has an expense ratio of 0.90%. Shareholders have to make a minimum initial investment of $5,000,000 to enter this Zacks#1 Rank (“Strong Buy") fund.

Theodore R. Bigman has been Lead Manager of the fund since January1999. Bigman has been with Morgan Stanley since 1995, and is a managing director with the firm.

Third Avenue Real Estate Value (TAREX) long-term capital appreciation. It was incepted in September 1998.

The fund normally invests at least 80% of its assets in securities of real estate and real estate related companies, or in companies, which own significant real estate assets at the time of investment. The fund may also invest a portion of its assets in debt securities in real estate companies that have above average yield potential.

The fund’s key holdings include Henderson Land Development, Brookfield Asset Management and Wheelock & Co Ltd. It has an expense ratio of 1.20%.

Michael Winer has been Lead Manager of the fund since September 1998. Winer holds the Certified Public Accountant (CPA) designation.

Discover Many More Funds

By applying the Zacks Rank to mutual funds, investors can find funds that not only outpaced the market in the past but are also expected to outperform going forward.

Zacks Investment Research

BOK Financial Beats – Analyst Blog

Zacks Market Commentaries — Fri, 06 Nov 2009 17:15:37 +0000

BOK Financial Corporation’s (BOKF) third-quarter earnings of 75 cents per share were 7 cents ahead of the Zacks Consensus Estimate of 68 cents. The company had earned 84 cents in the year-ago period. Results reflected an increase in interest revenue and margin, though credit quality continued to deteriorate in the quarter.

Net interest revenue totaled $180.5 million, up 2.8% sequentially and 9.8% year-over-year. Net interest margin was 3.63%, up 8 basis points (bps) sequentially and 15 bps year-over-year. The increase in net interest margin over the previous quarter resulted from improved loan pricing and lower funding costs.

Outstanding loan balances were $11.6 billion at Sep 30, 2009, down $458 million since Jun 30, 2009. All major loan categories decreased during the quarter largely due to reduced customer demand, normal repayment trends and management decisions to exit certain loan types. Average deposits decreased $202 million from the prior-year quarter to $15.1 billion, due primarily to a $719 million decrease in average time deposits.

Credit metrics continued to expand negatively overall. Non-performing assets continued to increase across most sectors of the loan portfolio and geographic markets during the quarter. Non-performing assets equaled 4.19% of the loan portfolio plus other real estate owned assets, up 52 bps sequentially and 221 bps year-over-year. Net charge-offs as a percentage of average loans were 121 bps, up 8 bps sequentially and 57 bps year-over-year. Provision for loan losses increased to $55.1 million from $47.1 million in the prior quarter and $52.7 million in the year-ago quarter.

Fees and commissions revenue totaled $120.0 million, down 2.6% sequentially and 5.3% year-over-year. On a sequential basis, mortgage loan originations was down as the impact of government initiatives to lower national mortgage interest rates began to lessen. The decrease in mortgage-banking revenue was partially offset by growth in brokerage and trading revenue and deposit service charges.

Core expenses (excluding the impact of the change in the fair value of the mortgage servicing rights and the FDIC special assessment) were $175.7 million, up 2.3% sequentially and 10.7% year-over-year. Though personal expenses were up in the quarter, all other operating expenses were down due to company-wide initiatives to control operating expenses.

The increase in tangible common equity ratio was primarily due to retained earnings growth and reduced net unrealized losses on available- for- sale securities. Tangible common equity ratio and tier 1 common equity ratio increased to 7.78% and 10.45%, respectively, at Sep 30, 2009, from 7.55% and 9.77%, respectively, at Jun 30, 2009, mainly because of lower unrealized losses on securities. Tier 1 capital ratios were 10.56% at Sep 30, 2009, compared to 9.86% at Jun 30, 2009. The company chose not to participate in the Treasury's Capital Purchase Program, as its own capital levels are adequate for its operations and expansion.

Though quarterly results reflected growth in interest revenue and margin and the benefits of the cost containment measures, we note that the credit quality continued to deteriorate in the quarter with a significant increase in non-performing assets. Given the current economic environment, we do not expect any significant improvement in the asset quality in the next couple of quarters. Nevertheless, BOK Financial’s diverse revenue stream and operating platform should benefit it going forward.
Read the full analyst report on "BOKF"
Zacks Investment Research

Zacks Analyst Blog Highlights: Stanley Works, Black & Decker Corporation, Joy Global, Paccar and Illinois Tool Works – Press Releases

Zacks Market Commentaries — Wed, 04 Nov 2009 12:45:15 +0000

For Immediate Release

Chicago, IL – November 4, 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: Stanley Works (SWK), Black & Decker Corporation (BDK), Joy Global (JOYG), Paccar (PCAR) and Illinois Tool Works (ITW).

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Here are highlights from Tuesday’s AnalystBlog:

Stanley Works Acquires B&D

Stanley Works (SWK) and Black & Decker Corporation (BDK) have entered into a definitive merger agreement to create Stanley Black & Decker, an $8.4 billion global tool maker. The Board of Directors of both companies approved an all-stock transaction valued at approximately $4.5 billion.

Under the terms of the deal, Black & Decker shareholders will receive 1.275 Stanley shares for each Black & Decker share they own. The deal is expected to close in the first half of 2010. Upon the completion of the transaction, Stanley shareholders will own 50.5% of the combined company, while Black & Decker shareholders will own the remaining 49.5%.

The Shape of GDP

While Government spending is higher now as a share of total GDP than its long-term average, it is below what it averaged in the 1950’s and 1960’s, and is not way out of line. I would, however, note that the measure of government spending does not include transfer payments like Social Security, Medicare, or unemployment insurance. Those are considered part of Consumption.

On the other hand, Investment is the most volatile of the components of GDP, and even if it were to return to the previous record low of 12.77% of GDP, that would be a 15.7% increase, assuming everything else showed no growth at all. A return to the long-term average would be a 44.5% increase.

With commercial rents plunging and vacancy rates soaring, the value of commercial real estate is in free-fall. It thus seems unlikely that we will get any short-term recovery on investments in non-residential structures. Thus if we are going to get a rebound in non-residential fixed investment, it will most likely have to come from the equipment and software side. That would be a very powerful tonic for the likes of companies like Joy Global (JOYG), Paccar (PCAR) and Illinois Tool Works (ITW).

However, will companies have a reason to invest in more equipment and software if the consumers are not buying? The key to that puzzle will most likely have to reside in the net exports area. At some point, we are going to have to get back to the point where were are running trade surpluses, where we export more than we import. Investments that reduce our oil import bill would also greatly help that effort.

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Zacks Investment Research

Credit woes continue

Prieur du Plessis — Wed, 04 Nov 2009 09:43:50 +0000

Credit is still contracting as banks go through the painful process of repairing their balance sheets. Bank lending has now declined for 21 weeks in a row! Click through to the post for a few interesting graphs and comments.

Top finance blogs

Prieur du Plessis — Wed, 04 Nov 2009 09:37:29 +0000

Joshua Brown, writer of The Reformed Broker blog, has just updated his list of top finance blogs. He has also put together a very handy, and humorous, graphic of his rather unique categorization. It is a great honor for Investment Postcards to be included in the company of some industry heavy weights. Read on ...

Vornado Reports Strong Quarter – Analyst Blog

Zacks Market Commentaries — Tue, 03 Nov 2009 20:07:24 +0000

Vornado Realty Trust (VNO) reported strong third quarter 2009 results with FFO (funds from operations) of $234.2 million or $1.25 per share, compared to $159.8 million or 97 cents per share in the year-earlier quarter.

Funds 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. After adjusting items for comparability, FFO during the quarter was $1.18 per share, compared to $1.17 in the prior year quarter.

Vornado is the largest publicly traded office REIT in the New York region. The core properties of the company are still performing at a high level and it is maintaining strong occupancies in its NYC office and retail portfolios.

The company is also increasing rents in most property formats. We believe this puts the company well ahead of many competitors who have assets in less desirable markets -- still struggling with high vacancies and little pricing power.

Same-store occupancy in the company’s New York City (NYC) and Washington, DC office portfolio were 96.0% and 94.8%, respectively, during the quarter. Same-store EBITDA (GAAP basis) increased 1.5% and 10.0% during the quarter in the NYC and DC office portfolios, respectively, compared to the year-earlier quarter.

The company’s retail portfolio is also doing well; same-store occupancy was 91.6% at quarter end, while same-store EBITDA increased 2.0% vs. the year-ago quarter. In the Merchandise Mart segment, same-store occupancy was 87.1% (office) and 88.9% (showroom), while same-store EBITDA decreased 5.7% year over year.

The company is still signing leases at significantly higher rental rates than expiring leases. During the quarter, rents increased 0.9% (cash basis) and 8.3% (GAAP basis) compared to the previous rents in NYC. In Washington DC, rents increased 13.7% (cash) and 14.9% (GAAP) versus expiring rents. Retail rents increased 11.0% (cash) and 17.7% (GAAP) over in-place rents.

Vornado has a healthy balance sheet with very manageable near-term debt maturities and plenty of cash. During the quarter, the company sold a newly developed 250,000 square feet office building in DC for a net gain of $41.2 million. At quarter end, the company had $2.6 billion of cash and cash equivalents.

Vornado has the resources to capitalize on potential opportunities developing in commercial real estate. Smaller private developers and owners are running into problems refinancing loans due to problems in the credit markets; as such, it is possible that the company could take advantage of distressed selling as asset values of office and retail properties continue to drop. We expect Vornado’s favorable position in NYC to enable it to maintain rents at current levels, although occupancy could suffer in the near-term.
Read the full analyst report on "VNO"
Zacks Investment Research

The Shape of GDP – Analyst Blog

Dirk Van Dijk — Tue, 03 Nov 2009 18:43:46 +0000

While last week GDP growth came in better than expected at 3.5%, which was a very welcome development, there was very little change in the coverall shape of GDP. This is a troubling development for the long term.

GDP is the sum of spending by the Consumer, Private Investment, Government Spending and Net Exports. The Graph below shows the percentage each of them has contributed to overall GDP since 1947.

The Consumer is still by far the dominate force in the economy, and it is becoming more so. In the 3Q, PCE, meaning the consumer, rose to 70.98% of GDP, up from 70.66% in the second quarter. That is an all-time record high. At the same time, private investment was virtually unchanged near an all-time low as a share of GDP at 11.04%, up from 11.03% in the 2Q.

Government spending as a share of GDP actually declined slightly to 20.68% from 20.70%. Net Exports deteriorated to -2.71% from -2.40%.

While the Consumer has always been the biggest share of GDP, it has not always been so dominant. Back in the 1960’s it averaged only 61.83% of the economy, or more than 9 full percentage points less as a share of the economy. The other three parts of GDP were all correspondingly higher, with the biggest differences being in Investment (4.45% percentage points) and net exports (3.33 percentage points). Government’s share of the economy was just 1.37% higher than it was in the 3Q.

The decline in Investment’s share of GDP is extremely disturbing, and the drop in net exports is a little disconcerting. We have made significant progress over the last year in reducing the net export drag, and the backsliding is not welcome news. The decline in investment is even more disturbing when you consider that it was residential investment that was responsible for the slight uptick as it increased at a 23.4% annual rate (from a record low level of 2.44% to a still extremely low 2.52%). Non-Residential fixed investment dropped to 9.55% of GDP from 9.84%).

Inventory investment is also included in the Investment numbers, which is why those two add to 12.07%, not to 11.04%, as inventory investment was negative in the 3Q, just not as negative as it was in the 2Q. Thus it actually contributed to GDP growth in the quarter. But housing is not exactly something in short supply in the U.S. right now. It is not the sort of investment that creates lots of cash flows for the repayment of debt, and it does not spur innovation; it is not the sort of investment that leads to further growth.

As shown in the table below, Investment has averaged 15.53% of GDP in the post-war period. Prior to the current downturn, the lowest share of the economy it ever reached was 12.77%, in the second quarter of 1949. In fact, out of 250 quarters, only 30 have seen private investment slip below 14.0%, and six of those have been during the current downturn.

While many bemoan the debt we are leaving to our children and grandchildren, we are really shortchanging them by our lack of investment in new productive capacity. While higher consumer spending makes the economy feel better in the short term, it cannot be the basis for long-term economic health.

Our parents and grandparents deferred consuming things and put resources into the plants and equipment that made things -- and that powered future growth. Money was spent on research and development of new ideas that became new industries. We are not doing that at anywhere near the rate that we used to, or that other countries are doing today. This is a recipe for long-term economic decline.

While Government spending is higher now as a share of total GDP than its long-term average, it is below what it averaged in the 1950’s and 1960’s, and is not way out of line. I would, however, note that the measure of government spending does not include transfer payments like Social Security, Medicare, or unemployment insurance. Those are considered part of Consumption.

On the other hand, Investment is the most volatile of the components of GDP, and even if it were to return to the previous record low of 12.77% of GDP, that would be a 15.7% increase, assuming everything else showed no growth at all. A return to the long-term average would be a 44.5% increase.

With commercial rents plunging and vacancy rates soaring, the value of commercial real estate is in free-fall. It thus seems unlikely that we will get any short-term recovery on investments in non-residential structures. Thus if we are going to get a rebound in non-residential fixed investment, it will most likely have to come from the equipment and software side. That would be a very powerful tonic for the likes of companies like Joy Global (JOYG), Paccar (PCAR) and Illinois Tool Works (ITW).

However, will companies have a reason to invest in more equipment and software if the consumers are not buying? The key to that puzzle will most likely have to reside in the net exports area. At some point, we are going to have to get back to the point where were are running trade surpluses, where we export more than we import. Investments that reduce our oil import bill would also greatly help that effort.

The only way that Consumption will decline as a share of GDP is if consumers grow their spending at a slower rate than their incomes grow, or if we have a real boom in the other three areas of the economy. With fiscal deficits at record levels as a share of the economy, it is probably not wise to look to the government to pick up substantial share of the economy -- although in a deep downturn it has to fill in by default (after all the four areas have to sum to 100%).

Businesses have to think that people will buy their products for them to spend on building new factories and the equipment that goes into them, or they have to think that they can sell the goods abroad. Of course, if they can invest in things that cut costs, it is possible to have worthwhile investments even if they do not expand production, but those are probably in the minority.

While I welcome the increase in GDP from whatever source right now, the fact that we continue to set new records for Consumption as a share of GDP is not healthy. Prior to the 4th Quarter of 2001, consumption had never exceeded 70% of GDP. Since then, it has been above that level in all but five quarters.

Prior to the 2Q of 1990, Consumption had only exceeded 2/3 of the economy in just 3 quarters, out of 174 (1.7%). Since then, it has been above that level in 70 out of 78 quarters, or 89.7% of the time.

Conversely, during the earlier period, private Investment had exceeded 15% of GDP in 141 quarters, or 81.0% of the time, but in the later period it has only been above 54 out of 74 quarters, or 69.2% of the time, and has been below that level for 8 straight quarters. This does not bode well for future long-term growth, just as a company that has capital spending that consistently falls short of depreciation is not going to be a great long-term growth story.

Of course, shrinking Consumption’s share of the economy is going to be very painful for the huge numbers of companies that depend on that 70%+ part of the U.S. economy. That would include almost all retailers, and vast parts of the service economy, as well as the makers of big-ticket discretionary items.

Read the full analyst report on "JOYG"
Read the full analyst report on "PCAR"
Read the full analyst report on "ITW"
Zacks Investment Research

Keep Those Belts Tightened: The Job Market isn’t Getting Better

Dee Power — Tue, 03 Nov 2009 15:05:52 +0000

While there have been some signs of recovery in real estate and the stock market it seems that the job market is still declining. Online advertised vacancies declined by 83,200 to 3,280,000 in October, ...

Zacks Analyst Blog Highlights: U.S. Bancorp, JP Morgan Chase, Fifth Third Bancorp, Zions Bancorp and SunTrust Banks – Press Releases

Zacks Market Commentaries — Tue, 03 Nov 2009 11:30:33 +0000

For Immediate Release

Chicago, IL – November 3, 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: U.S. Bancorp (USB), JP Morgan Chase (JPM), Fifth Third Bancorp (FITB), Zions Bancorp (ZION) and SunTrust Banks (STI).

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Here are highlights from Monday’s AnalystBlog:

Bank Failures Zoom to 115

The nine banks had 153 offices, out of which California National Bank had 68 branches. California National Bank was the biggest of FBOP's banks, the nation's 101st largest with assets of $7.1 billion.

Failure of these institutions represents another impact on the Federal Deposit Insurance Corporation's (FDIC) fund for protecting customer accounts, as it has been appointed receiver for these banks. The failure of 115 banks has cost the federal deposit insurance fund more than $25 billion so far this year. The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets.

When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institutions failing has significantly stretched the regulator's deposit insurance fund. As on June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Minneapolis-based U.S. Bank, a division of U.S. Bancorp (USB), has agreed to assume the deposits and most of the assets of these nine banks. The FDIC and U.S. Bank agreed to share losses on about $14.4 billion of the combined purchased assets.

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 since the savings and loan crisis in 1994.

Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $100 billion over the next four years.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

The failure of Washington Mutual last year was the largest in U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp, Zions Bancorp (ZION), SunTrust Banks (STI), among others.

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PVTB, PWRM, DrStockPick.com Watch List! for Tuesday November 3, 2009, Privatebancorp Inc. and Power 3 Medical Products Inc, PWRM.OB

Dr. Stock Pick — Tue, 03 Nov 2009 03:12:42 +0000

Dr Stock Pick HOT News & Alerts! _________________________________________ FREE Daily Stock Alerts From DrStockPick.com _________________________________________ DrStockPick.com Watch List! My Picks for Tuesday November 3, 2009, are: ************************************************************** PVTB, Privatebancorp Inc. PVTB is a growing diversified financial services company with 34 offices in 10 states and approximately $12.1 billion in assets as of September 30, 2009. Through its subsidiaries, PVTB delivers customized business and personal [...]

Weyerhaeuser Hit by U.S. Housing – Analyst Blog

Zacks Market Commentaries — Mon, 02 Nov 2009 20:17:09 +0000

On Friday, before market opened, Weyerhaeuser Company (WY) reported discouraging results for the third quarter 2009.

The company reported net sales of $1,407 million compared to $2,107 million in the year ago quarter. Excluding one time items, Weyerhaeuser reported a net loss of $56 million, or 26 cents per share versus a net loss of $3 million, or 1 cent per share, in the third quarter of 2008.

Weyerhaeuser operates through four business segment such as Timberlands, wood products, cellulose fibers and real estate. Excluding a pre-tax gain of $163 million from the sale of 140,000 acres of non-strategic timberlands in northwestern Oregon, the segment’s quarterly results decreased $10 million.

Excluding the pre-tax items, the wood product segment’s loss in the reported quarter decreased $55 million. During the quarter, cellulose fibers segment included a pre-tax gain of $122 million related to alternative fuel mixture credits, compared to $107 million in the second quarter. Excluding the credit, the segment’s earnings improved $51 million. Excluding the pre-tax items, the real estate segment’s quarterly loss decreased $5 million.

With three of company’s four business segments linked closely to U.S. housing starts, the recession continued to affect the financial performance.

On the same day, Weyerhaeuser also announced its intension to build a new cellulose fibers processing plant in Gdansk, Poland. The company won a competitive tender process to purchase 100,000 square meters of land for this project. The land sale agreement is expected to be completed by 2009 and the company plans to break ground for the 17,000-square-meter facility in 2010.

The facility will process cellulose fibers for use in hygiene products. It will employ at least 45 people upon its expected completion in 2012. The facility will be Weyerhaeuser’s first cellulose fibers manufacturing plant outside of North America.

There was improvement across the board, but the bottom line is that earnings remain depressed and it will take a housing recovery to bring them back to the level they were at a few years ago. Thus, Weyerhaeuser forecasts weaker results in the fourth quarter from its timberlands and wood products segments, a seasonal uptick in its real estate business and comparable results from its pulp business.
Read the full analyst report on "WY"
Zacks Investment Research

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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Viper Networks (VPER) Announces 49% LOI for Saudi Arabian Construction Company

Stuart T. Smith — Thu, 29 Oct 2009 22:02:57 +0000

TROY, MI — (Marketwire) — 10/29/09 — Viper Networks, Inc. (PINKSHEETS: VPER), a global telecommunication network operations and technical management company, announced today that it has signed a Letter of Intent to acquire a 49% interest of a privately held, profitable construction company based in Saudi Arabia, for a combination of cash and stock. Farid Shouekani, [...]

Contributions to GDP Growth – Analyst Blog

Dirk Van Dijk — Thu, 29 Oct 2009 18:02:59 +0000

Not all components of GDP are created equal. Some are very big, and others relatively small. Some tend to be very stable over time, and some tend to swing violently from quarter to quarter. The bigger and more volatile they are, the more they will impact the overall growth rate of GDP.

Thus looking at just the percentage changes in the components does not tell the full story. Of the 3.5% total growth, how many points were added or subtracted by each part of the economy?

The biggest part of the economy is the Consumer, or PCE -- overall it contributed 2.36 of the 3.50 points of total growth. In the second quarter it caused 0.62 of the 0.70 total decline in the 2Q. In the first quarter it actually offset 0.44 points of the 6.40 total decline. In other words, excluding the Consumer the economy would have contracted 6.84% rather than 6.40%.

Within Consumer spending, spending on Goods added 1.79 points after subtracting 0.71 points in the 2Q and adding 0.56 points in the 1Q. Spending on Durables was the main driver, adding 1.47 points after subtracting 0.41 points in the 2Q and adding 0.28 in the 1Q. Non-Durable goods added 0.31 points after subtracting 0.29 in the 2Q and adding 0.29 in the 1Q.

While spending on Services is much more stable than spending on Goods, it is also a much larger portion of the Consumer wallet. Service spending added 0.57 points to the overall GDP growth in the 2Q -- up from adding 0.09 points in the 2Q and subtracting 0.13 in the 1Q.

It is the volatility that gives Durable goods their importance to the economy, not the overall size. In the third quarter, total spending on Durable goods was at a $1.055 Trillion annual rate, just 15.4% of the $6.852 Trillion spent on Services, but Durable goods had an impact on economic growth that was 158% bigger.

Investment spending was a big swing factor in the 3Q. It added 1.22 points to overall growth. That is a HUGE improvement over the 3.10 point subtraction in the 2Q and the 8.98 point implosion in the 1Q. Unfortunately, 0.94 points of that contribution came from Inventories.

Inventory investment is the "worst" type of GDP growth, since large increases in one quarter are usually reversed in the next quarter -- or in this case, large declines being reversed upwards. In the 2Q, Inventory investment subtracted 1.42 points from overall growth and in the 1Q it subtracted 2.36 points. Even in the 4Q, it subtracted 0.64 points from growth. Three straight quarters of sharply lower inventories is highly unusual, and we were due for a bounce. Perhaps we have one more quarter of a solid contribution from Inventory investment, but I would not expect it to last much beyond that.

Overall Fixed investment added just 0.28 points to growth, but that sure was a nice improvement over the 1.68 point subtraction and the 6.62 point disaster that was the 1Q. However, it was not coming from the business side. Business investment subtracted 0.24 growth points in the 3Q, so it is still very soft, but at least it is not imploding like it was earlier in the year. In the 2Q it subtracted 1.01 points and in the 1Q it took away 5.29 growth points.

Within business investment it was spending on structures that caused the problem, with a deduction of 0.32 growth points while spending on E&S offset 0.08 points of that. In the 2Q, both sides of business investment were drags on the economy with investment in Commercial real estate subtracting 0.69 growth points, and spending on equipment deducting 0.32 points. The 2Q was in turn a major improvement over the 1Q disaster, where spending on structures subtracted 2.28 growth points and equipment spending subtracted 3.01 points.

Housing finally helped the economy in the 3Q, adding 0.53 points to growth -- after a string of 15 straight quarters where it was a drag on the economy. In the 2Q it was a 0.67-point drag and in the 1Q it was a 1.33-point drag.

The long decline has, however, made housing a much smaller share of the overall economy. In the 3Q, residential investment totaled only $360.9 billion, or 2.52% of the overall economy. At the peak of the housing bubble, it represented 6.34% of the overall economy. Thus the 23.4% increase in residential investment had far less of an overall impact than it did in the past.

While residential investment is still near a record low share of the overall economy, I have serious questions about the sustainability of the increase. The extension and expansion of the the tax credit by Congress might keep things going for the next few quarters, but after that things are likely to fall apart again. Just like we saw with the "Cash for Clunkers" (C4C) program, it is probably just encouraging those folks who might have bought later to buy now.

It is also tricking people into thinking that a house is more affordable that it really is -- just the way that teaser-rate ARM’s did, and we saw just how well that worked out. The FHA is handing out mortgages with only 3.5% down, and people can use the tax credit for that ridiculously small down payment. This has future disaster of biblical proportions written all over it. The next bailouts will not be of the banks like Bank of America (BAC) and Citigroup (C) but of the FDIC and the FHA.

Direct Government spending had a small but positive impact on overall growth in the 3Q, adding 0.48 points -- a fairly significant slowdown from the 1.33 contribution in the 2Q, but better than the 0.52 point drag in the 1Q. All the help came from Washington, not City Hall or the Statehouse.

The Federal government added 0.62 growth points, down from 0.85 points in the 2Q but up from a 0.33 point drag in the 1Q. The Pentagon was the main factor in all three quarters, with Defense spending adding 0.45 points in the 3Q following a 0.70 addition in the 2Q and a 0.27 point drag in the 1Q. Non-Defense spending was sort of a non-issue, adding just 0.17 points in the 3Q, not much difference from the 0.15-point contribution in the 2Q, and up a little bit from the slight 0.06 point drag in the 1Q.

State and Local governments are not allowed to run operating deficits, and so when faced with declining tax revenues they have to cut back, unless Uncle Sam helps them out. Well, Washington is helping, but it's not enough, and S&L spending was a 0.14 point drag in the 3Q. The Federal help was enough in the 2Q and so the contribution to growth in the 2Q was a positive 0.48 points. In the 1Q, before the stimulus package could get much traction, S&L spending was a 0.19 point drag.

Net exports had been just about the only bright spot in the first half of the year -- even though it came the wrong way, from both imports and exports plunging, only with imports falling more than exports did. That reversed in the 3Q, as both showed a nice expansion, but our appetite for foreign goods is outstripping the desire for U.S. goods and services abroad.

The increase in exports added 1.49 points to growth, but the increase in imports was a 2.01 point drag, for a net negative contribution from net exports of 0.52 points. In the 2Q, falling exports subtracted 0.45 points, but plunging imports added 2.09 points, for a net imports net help to the economy of 1.64 points.

In the first quarter, as world trade came to a near-standstill, net exports were just about the only positive you could find for the economy. Yes, plunging exports subtracted an awful 3.95 points of growth, but the fact that we were buying practically nothing from overseas added 6.58 growth points, for a net aid to the economy of 2.85 points. In other words, if the U.S. were a closed economy in the first quarter, growth would have fallen not at a 6.4% rate, but at a 9.25% rate.

Overall

Overall this is a very welcome report. It confirms that the recession is over and that we are on the right track. However, I am not thrilled about the overall composition of the growth. Over time we need to see the consumer become a much smaller part of the overall economy, and real business investment become a much bigger share.

Unfortunately, we seem to be headed in the wrong direction, with the growth in consumer spending nearly keeping up with the overall growth of the economy. This is especially true if you consider Residential Investment as primarily part of Consumption. We need net exports to play a bigger and more positive role in the economy, and ideally have that happen through exports growing faster than imports, not from a plunge in imports like we saw in the first half of the year.

Seeing net exports turn into a drag again is disappointing. A big part of that, however, is due to oil imports, and the increase in the price of oil. That is a long-term structural problem that needs to be addressed. Fortunately, the opening-up of the shale gas plays gives us a chance to finally do something about it, but I’m not sure how fast that will occur. That, along with more efficiency and alternative energy sources, can make a dent over time, but not overnight.

But it is a fertile place to see an increase in Investment spending, so it could have a double-barreled effect -- on both the investment line and on the net exports line. The contribution from inventories is not sustainable long-term, but given how much they fell prior to this rebound, we might see a bit more of it in the 4Q, though not much beyond that.

The increase in Consumption spending was largely due to the C4C program, which is now over, so don’t look for a big contribution from Durable goods spending in the fourth quarter.

All in all, a better-than-expected report, but don’t be deluded into thinking that we are out of the woods and the coast is clear. We still face major challenges, and getting complacent here would be a big mistake.
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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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Asia-Pacific Boosts Jones Lang – Analyst Blog

Zacks Market Commentaries — Wed, 28 Oct 2009 15:20:02 +0000

Jones Lang LaSalle Inc. (JLL) reported third quarter earnings of 61 cents per share, which were above the Zacks Consensus Estimate by a penny. The company earned 66 cents per share in the year-ago quarter.

Revenues for the quarter came in at $595.3 million compared to $677.08 million recorded in the year-ago quarter. Jones Lang divides its business into two primary segments: Investor and Occupier Services (IOS) and Investment Management (IM). The IOS segment is sub-divided into three geographic regions – the Americas, EMEA (Europe, Middle East, Africa) and Asia Pacific.

Revenues from the EMEA segment declined 26% to $154 million, while in the Americas region revenues came in at $239 million thus reflecting a decline of 6%. However, in the Asia-Pacific region revenues increased 2.9% to $136 million. The IOS division contributed approximately 89% of total revenue in the quarter.

Total operating expenses for the quarter came in at $550.67 million as against $643.60 million in the year-ago period. Operating income increased 33.3 % to $44.62 million in the quarter.

We note that the board of directors of Jones Lang has declared a semi-annual dividend of 10 cents per share of its common stock payable on Dec. 15, 2009, to holders of record at business close on Nov. 13, 2009.

Chicago-based Jones Lang LaSalle is a leading full-service real estate firm that provides corporate, financial, and investment management services. The company caters to corporations and other real estate owners, users, and investors worldwide.

The company is still the best positioned commercial real estate services company. Recent acquisitions should incrementally add to earnings and overall expenses should continue to reduce as operating synergies are realized. As such, we maintain a Neutral recommendation on the shares of Jones Lang.
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Gross: Rally in risk assets at its pinnacle

Prieur du Plessis — Wed, 28 Oct 2009 07:55:13 +0000

“The six-month rally in risk assets – while still continuously supported by Fed and Treasury policymakers – is likely at its pinnacle,” said Bill Gross in his latest newsletter. Read on for the full text.

Texas Capital Misses Estimate – Analyst Blog

Zacks Market Commentaries — Mon, 26 Oct 2009 21:20:44 +0000

Texas Capital Bancshares’ (TCBI) third quarter earnings of 15 cents per share were down from the Zacks Consensus Estimate of 22 cents. The company had earned 27 cents in the year-ago quarter.

Results reflected the elevated provisioning levels for loan losses due to the challenging economic conditions. However, the company posted meaningful growth in loan and deposits.

Credit metrics continued to expand negatively overall. Non-performing assets equaled 2.77% of the loan portfolio plus other real estate owned assets, up 86 basis points (bps) sequentially and 141 bps year-over-year. Net charge-offs as a percentage of average loans on a 12-month trailing basis were 41 bps, flat sequentially but up 13 bps year-over-year. Provision for loan losses increased to $13.5 million from $11.0 million in the prior quarter and $4.0 million in the year-ago quarter.

Nevertheless, net interest margin was 4.06%, up 18 bps sequentially and 59 bps year-over-year, driven by low funding costs and improved yields on earning assets. The company has posted a 2% sequential and 16% year-over-year growth in loans while deposits were up 7% sequentially and 16% from the prior-year period. As a result, Texas Capital’s net interest income was $51.6 million, up from $48.8 million in the prior quarter and $38.3 million in the year-ago period.

Non-interest income increased to $7.1 million from $4.9 million reported in the prior-year period, primarily driven by increase in brokered loan fees and service charge income, partially offset by a decrease in trust fee income.

Non-interest expense increased to $37.1 million from $27.7 million reported in the previous year quarter. Results reflect an increase in salaries and employee benefits expenses primarily due to business expansion.

Texas Capital’s Tier 1 capital ratio was 11.2% (up 70 bps year-over-year) and total leverage ratio was 10.8%, up 30 basis points from the year-ago quarter.

Though credit metrics remain stretched in the quarter, Texas Capital’s strong loan and deposit growth and continued expansion in net interest margin is impressive.
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StanCorp Financial a Penny Ahead – Analyst Blog

Zacks Market Commentaries — Mon, 26 Oct 2009 19:21:02 +0000

StanCorp Financial Group Inc.’s (SFG) third quarter earnings of $1.21 per share were just a penny ahead of the Zacks Consensus Estimate of $1.20 per share. The company had earned $1.46 per share in the year-ago quarter. High unemployment rate and rising joblessness continue to impact the company’s earnings.

Quarterly results reflect higher-than-expected claims activity and reduced premiums in the group insurance business. However, the company benefited from the expense reduction initiatives.

Insurance Services segment reported income before income taxes of $84.3 million compared to $103.4 million in the year-ago quarter. The decrease was driven by unfavorable claims experience and a drop in premiums in the group insurance business, partially offset by comparatively favorable claims experience in the individual disability insurance business. Results for this segment were also hurt by a 50 basis point reduction in the discount rate to 4.75% for the newly established disability claim reserves.

Premiums were down 3.9% year-over-year to $501.9 million. Group insurance premiums were down 4.7% year-over-year due to challenged labor market conditions.

The benefit ratio for group insurance products for the quarter was 76.3%, compared to 71.1% for the third quarter of 2008. The benefit ratio for individual disability insurance was 58.3% for the reported quarter, compared to 78.1% for the third quarter of 2008.

Asset Management’s income before taxes was $11.0 million, compared to $10.8 million in the prior year period. Results reflected the benefits from the cost reduction initiatives, which were partially offset by lower administrative fees.

Assets under administration increased 7.3% sequentially to $21.94 billion at Sep 30, 2009, primarily reflecting higher equity values in retirement plan assets under administration.

However, the origination of commercial mortgage loans by StanCorp Mortgage Investors was significantly impacted by the current credit environment and lower purchase and sale activity in the commercial real estate market. StanCorp Mortgage Investors originated $98.7 million of commercial mortgage loans compared to $346.7 million in the year-ago period.

At Sept. 30, 2009, Stancorp’s investment portfolio consisted of 57.8% fixed maturity securities, 41.3% commercial mortgage loans and 0.9% real estate. The overall rating of the fixed maturity securities portfolio was A (Standard & Poor’s) at Sept. 30, 2009.

StanCorp Financial’s available capital increased $90 million from the prior quarter to approximately $290 million at Sept. 30, 2009. The company had approximately 0.9 million shares remaining under its repurchase program at Sept. 30, 2009, which expires on Dec. 31, 2009. StanCorp intends to resume its share repurchases on an opportunistic basis during the fourth quarter of 2009.

StanCorp Financial is one of the largest providers of employee benefits products and services in the U.S., operating across the country, with a dominant position in the western part of the U.S. However, we think that given the stressed economic environment and the current labor market challenges, significant growth in premiums will be restricted in the coming quarters. We have a Neutral recommendation on the shares of StanCorp Financial.
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Zacks Investment Research

Today in Russian Business – Oct 26, 2009

Robert Amsterdam — Mon, 26 Oct 2009 09:22:26 +0000

The ever-positive Vladimir Putin is forecasting 8% inflation for the coming year, which would be a 'post-Soviet low'. The government will sell tons of its gold stockpile this year to cover its budget deficit and help it fund other supporting...

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

Fifth Third’s Loss Increases – Analyst Blog

Zacks Market Commentaries — Thu, 22 Oct 2009 20:34:17 +0000

Fifth Third Bancorp (FITB) has reported a third quarter loss of 20 cents per share. Results are worse than the Zacks Consensus Estimate of a loss of 18 cents. The company incurred a loss of 14 cents a year earlier.

Results reflected higher credit costs driven by the continued stress in the commercial, commercial real estate, residential real estate and consumer loan portfolios.

Quarterly results included a pre-tax net benefit of $288 million from the sale of its Visa Inc. (V) Class B common shares and the release of additional Visa litigation reserves due to Visa's supplemental funding of its litigation escrow account. This reduced non-interest expense by $29 million. Earnings were benefited by $317 million or 26 cents by these items.

Credit metrics continued to deteriorate in the quarter. Net charge-offs were 375 basis points (bps) of average loans outstanding, up 67 bps sequentially and 158 bps year-over-year. Loss experience overall continues to be driven by commercial and residential real estate loans in Michigan and Florida.

Non-performing assets as a percentage of related assets were 4.09%, up 61 bps sequentially and 123 bps year-over-year. Provisions for loan losses were $952 million, compared to $1.0 billion in the prior quarter and $941 million in the year-ago period.

Capital ratios also benefited from the Visa stake sale. Fifth Third Bancorp’s Tier 1 capital ratio was 13.23% compared to 12.90% in the prior quarter and 8.57% in the year-ago period. The Tier 1 common equity ratio was 7.03% at Sept. 30, 2009, compared with 6.94% at June 30, 2009, and 5.18% at Sept. 30, 2008.

Net interest margin improved by 17 basis points from the prior quarter to 3.43%, driven by improved liability pricing and wider loan spreads, which drove a 5% sequential increase in net interest income to $874 million. Net interest income was, however, down 18% year-over-year from $1.1 billion.

Average portfolio loan and lease balances decreased 2% sequentially and declined 5% from the third quarter of 2008. The decline was due to lower demand for consumer and commercial loans and leases as well as higher net charge-offs. However, average core deposits increased 2% sequentially and 11% year-over-year.

Non-interest expense decreased 14% sequentially and 9% year-over-year. Results reflected the benefits of cost curtailment initiatives.

Competitive market conditions, continuing deterioration in credit quality and collateral values within the company’s geographical footprint and management’s decision to increase the loan and lease loss provisions will pull down results for several quarters to come, in our view. However, the cost containment measures will provide some relief.
Read the full analyst report on "FITB"
Read the full analyst report on "V"
Zacks Investment Research

Huntington Continues Loss Trends – Analyst Blog

Zacks Market Commentaries — Thu, 22 Oct 2009 19:27:46 +0000

Huntington Bancshares Incorporated (HBAN) reported third quarter 2009 net loss applicable to common shareholders of $166.2 million or 33 cents per share, compared to a net loss of $125.1 million or 40 cents per share in the prior quarter and a net income of $75.1 million or 17 cents per share in the prior-year quarter. Results were short of the Zacks Consensus Estimated loss of 28 cents.

Higher losses were attributable to $475.1 million in provisions for credit loss expense and higher share count in the quarter. Both credit and profitability metrics continued to deteriorate whereas non-interest expense increased significantly.

Fully taxable equivalent net interest income increased 3.7% sequentially but decreased 6.6% year-over-year to $362.8 million. The year-over-year decrease resulted primarily from a decline in the net interest margin (NIM) to 3.20% from 3.29% a year ago as well as a decline in average earnings assets.

Non-interest income decreased 3.7% sequentially but increased 52.5% year-over-year to $256.1 million in the reported quarter. The year-over-year increase in non-interest income was primarily the result of reduced securities losses and growth in mortgage banking, electronic banking and other income.

Non-interest expenses for the quarter increased 18.0% sequentially and 18.3% year-over-year to $401.1 million. The increase in non-interest expenses resulted primarily from a $19.8 million increase in FDIC insurance expenses, as the prior period’s assessment expense was offset by an assessment credit that has since been fully utilized, $29.9 million increase in OREO (other real estate owned) and foreclosure expense, $5.9 million increase in professional services and a $5.6 million increase in outside data processing and other services.

Return on average shareholders equity from continuing operations for the quarter came in at negative 12.5% compared to negative 10.2% in the prior quarter and positive 4.7% in the prior-year quarter. Return on average shareholders assets also deteriorated to a negative 1.28%, compared to negative 0.97% in the prior quarter and positive 0.55% in the prior-year quarter.

Credit metrics also deteriorated significantly during the quarter. Non-performing assets (NPAs) increased 108 bps sequentially and 462 bps year-over-year to 6.26% of total loans and foreclosed property. Net charge-offs increased 33 bps sequentially and 294 bps year-over-year to an annualized 3.76% of average total loans and leases. The allowance for loan losses increased 39 bps sequentially and 102 bps year-over-year to 2.77% of total loans.

The bank continued to incur huge losses in commercial real estate, and we expect the credit challenges to persist in the foreseeable future.
Read the full analyst report on "HBAN"
Zacks Investment Research

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

Zacks Analyst Blog Highlights: Morgan Stanley, Goldman Sachs, St. Jude Medical, Inc., Medtronic Inc. and Boston Scientific Corporation – Press Releases

Zacks Market Commentaries — Thu, 22 Oct 2009 12:35:51 +0000

For Immediate Release

Chicago, IL – October 22, 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: Morgan Stanley (MS), Goldman Sachs (GS), St. Jude Medical, Inc. (STJ), Medtronic Inc. (MDT) and Boston Scientific Corporation (BSX).

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 Wednesday’s AnalystBlog:

Morgan Stanley Finally Profits

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.

Unlike the preceding qaurters, the results were in line with strong results from competitors like Goldman Sachs (GS), which has been grabbing market share after the financial crisis.

St. Jude Beats Zacks Estimate

St. Jude Medical, Inc. (STJ) today reported financial results for the third quarter of 2009 before the market opened. Earnings per share came in at 59 cents, compared to the Zacks Consensus Estimate of 58 cents and the year-ago earnings of 54 cents.

Net sales in the reported quarter increased 7% year over year to approximately $1.2 billion. Excluding an unfavorable foreign exchange translation (FX), net sales increased 10% year over year. Growth was witnessed across all the business segments. However, the company’s domestic revenues were below expectation primarily due to lack of purchase of cardiac rhythm management (CRM) devices by roughly 50 hospitals in the U.S.

St. Jude’s cash and cash equivalents stood at approximately $798.3 million at the end of the reported quarter. The company ended the quarter with an outstanding debt of roughly $2.0 billion.

St. Jude has provided earnings per share guidance for the fourth quarter and full fiscal 2009. For the fourth quarter, earnings per share are expected between 61 and 63 cents. For full fiscal 2009, earnings per share are expected between $2.41 and $2.43.

St. Jude is a leading medical devices manufacturer that designs, manufactures and distributes medical devices to treat cardiovascular and neurological conditions.

Presently, St. Jude Medical holds the #2 market position for ICDs and pacemakers behind Medtronic Inc. (MDT) but ahead of Boston Scientific Corporation (BSX). This segment is the company’s largest in terms of revenues. St. Jude also holds the #2 market position behind Medtronic in neuromodulation.

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Zacks Investment Research

Zacks Analyst Blog Highlights: US Bancorp, Visa Inc., Genzyme Corp, Shire plc and Protalix BioTherapeutics Inc. – Press Releases

Zacks Market Commentaries — Thu, 22 Oct 2009 12:15:14 +0000

For Immediate Release

Chicago, IL – October 22, 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: US Bancorp (USB), Visa Inc. (V), Genzyme Corp (GENZ), Shire plc (SHPGY) and Protalix BioTherapeutics Inc. (PLX).

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Here are highlights from Wednesday’s AnalystBlog:

US Bancorp Exceeds Estimates

US Bancorp (USB) has reported third quarter earnings of $603 million or 30 cents per share. Results were ahead of the Zacks Consensus Estimate of 26 cents, and reflected higher revenue and an increase in fee income.

However, credit losses and nonperforming assets continued to trend higher in the quarter, reflecting continued stress in the commercial, commercial real estate, residential real estate and consumer loan portfolios. We note that the rate of deterioration has somewhat moderated in the quarter.

Quarterly results were, however, impacted by a $415 million of provision for credit losses in excess of net charge-offs, net securities losses of $76 million and a gain of $39 million associated with the company’s investment in Visa Inc. (V). These items reduced earnings by 19 cents per share.

Results for the quarter were driven by record total net revenue of $4.3 billion, representing an increase of 2.2% sequentially and 25.8% year-over-year. Results reflected a growth in interest income and fee income.

Credit metrics continued to deteriorate in the quarter, though the rate of deterioration has moderated. Net charge-offs were 227 basis points (bps) of average loans outstanding, up 24 bps sequentially and 108 bps year-over-year.

Non-performing assets as a percentage of related assets were 2.39%, up 19 bps sequentially and 151 bps year-over-year. As a result, provisions for credit losses increased to $1.5 billion from $1.4 billion reported in the prior quarter and $748 million in the year-ago period.

Genzyme Misses & Slashes

This morning, Genzyme Corp (GENZ) reported third quarter earnings of 19 cents per share, which was well below the Zacks Consensus Estimate of 31 cents and the year ago earnings of 93 cents. Moreover, revenues declined 9% to $1.06 billion.

As expected, the temporary shutdown of the company’s Allston manufacturing facility earlier this year impacted overall financial results. Although the company has resumed production at this facility, the temporary shutdown led to a disruption in the supply of key products Cerezyme and Fabrazyme.

Cerezyme’s performance was highly affected with sales dropping 69.7% to $93.6 million in the reported quarter. Fabrazyme sales came in at $115.2 million, down 8% from the prior-year quarter. Genzyme expects to resume supply of new lots of Cerezyme and Fabrazyme from late November and late December, respectively. The company believes it will be in a position to meet anticipated demand for both products in the first quarter of 2010.

However, we believe Cerezyme, which is approved for the treatment of Gaucher disease, could lose some share to Shire plc’s (SHPGY) velaglucerase alfa and Protalix BioTherapeutics Inc.’s (PLX) Uplyso, both of which are currently available under the US Food and Drug Administration’s (FDA) expanded access program.

We believe the availability of these two products, which have yet to receive FDA approval, could eat into a part of Cerezyme’s patient base. Once launched, both products will compete directly with Cerezyme. Although Genzyme holds a leading position in the treatment of Gaucher disease, the patient population for the disease is not large. As such, the entry of additional players in the market could restrict its growth opportunities in the future.

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Zacks Investment Research

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Raymond Teo — Thu, 22 Oct 2009 00:39:05 +0000

A Auction is the best way for buyers to know they are purchasing a property for its true market value. However, the auction process itself can be a little intimidating for some buyers, so it’s advised to go into the auction with a firm idea of what you are willing to pay for the property [...]

Beige Book Improves Again – Analyst Blog

Zacks Market Commentaries — Wed, 21 Oct 2009 20:06:43 +0000

The Fed released its Beige Book today, which is a collection of mostly anecdotal information from across the country. Presented below are key sections of the report along with my reactions to them.

"Reports from the 12 Federal Reserve Districts indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels. Leading the more positive sector reports among Districts were residential real estate and manufacturing, both of which continued a pattern of improvement that emerged over the summer.

"Reports on consumer spending and nonfinancial services were mixed. Commercial real estate was reported to be one of the weakest sectors, although reports of weakness or moderate decline were frequently noted in other sectors."

This sounds better than the last Beige Book, which in turn was more optimistic than the one before it. What seems clear to me is that the economy is getting better, but it is starting from a pretty awful place.

Historically, commercial real estate (CRE) has lagged the overall economy, so it is not a huge surprise that is is not doing too well right now. It will pose a very serious problem for lots of banks, particularly the small-to-medium sized regional banks that are very heavilly exposed to it. In many areas, the value of CRE is off more than 40% from the peak.

CRE mortgages are generally structured for only five years and come with big balloon payments. Banks are not going to want to roll over a mortgage when it is for far more than the value of the building. This is going to cause lots of CRE owners to default.

Put it this way: the banks are not going to be hurting for office space, as they are going to own a ton of it as the owners turn over the keys. This is going to be an ugly situation for the REITs like Simon Property Group (SPG) and Vornado (VNO).

"The weakest sector was commercial real estate, with conditions described as either weak or deteriorating across all Districts. Banking also faltered in several Districts, with Kansas City and San Francisco noting continued erosion in credit quality (often with more expected in the future).

"One bright spot in the banking sector was lending to new homebuyers, in response to the first-time homebuyer tax credit. Finally, labor markets were typically characterized as weak or mixed, but with occasional pockets of improvement."

Those toxic assets have not gone away, even if the banks are allowed to hide them on their balance sheets. The tax credit is pretty expensive and not all that well targeted. "Cash for Castles," as I like to call it.

Unlike "Cash for Clunkers," it does nothing to reduce the outstanding supply of housing units. It just shifts people from being renters to being owners, resulting in more vacant apartments and more pressure on rents, which pulls the price-to-rent ratio back out of whack (one of the key signals that we were in a housing bubble is when it soared), and will just result in more trouble in the apartment sector of CRE. Still, the Realtors have a very powerful lobby, so this turkey of a program will probably be extended (if not expanded).

"Districts generally reported little or no increase to either price or wage pressures, but references to downward pressures were occasionally noted."

Inflation is not a problem, as was amply demonstrated by the recent CPI and PPI reports. A still very tentative recovery, extremely high levels of unemployment and very low levels of capacity utilization are the big problems. The Fed needs to stay easy for awhile to come now.

The report is more evidence that we are on the right track, but still moving slowly on it -- and have a very long journey to get back to where we need to be.
Read the full analyst report on "SPG"
Read the full analyst report on "VNO"
Zacks Investment Research

Morgan Stanley Finally Profits – Analyst Blog

Zacks Market Commentaries — Wed, 21 Oct 2009 19:02:30 +0000

Morgan Stanley (MS) reported third-quarter 2009 income of $498 million this morning or 38 cents per share, compared with a loss of $159 million or $1.37 per share in the prior quarter and an income of $7.7 billion, or $7.38 per share a year ago. The results were much ahead of the Zacks Consensus Estimate of 30 cents per share.

The results marked the first quarter of income in a year’s time. Results were aided by robust underwriting revenues in the investment banking operation resulting from higher levels of market activity, strong growth in fixed income sales and trading, commodities, prime brokerage and wealth management business, which offset losses in commercial real estate.

Unlike the preceding qaurters, the results were in line with strong results from competitors like Goldman Sachs (GS) and JPMorgan Chase & Co. (JPM), which has been grabbing market share after the financial crisis.

Net revenues for the quarter were $ 8.7 billion, up 60% sequentially but down 52% year-over-year compared with $18.0 billion in the third-quarter 2008. Global wealth management delivered strong results with underwriting revenues up 91% year-over-year to $3.0 billion. There were strong gains in both equity and debt underwriting, which more than balanced out $400 million in real estate losses.

However, the company’s exposure to the Commercial Real Sector, which is deteriorating continuously, will remain a cause for concern in the coming quarters.

The results were positively affected by the expansion of its retail brokerage business. The bank acquired a majority stake in Smith Barney from Citigroup Inc. (C) in May, and merged the operations with its own wealth management division. We believe Morgan Stanley will eventually buy out the remaining 49% stake from Citigroup soon enough.

The company recorded $900 million in charges related to the repurchase of its outstanding debt, which is worth more now because of the bank's improving financial condition.

In connection to the restructuring of its investment management division, Morgan Stanley announced the sale of its retail asset management business, including Van Kampen Investments. The divestment will allow Morgan Stanley to sharpen its focus on its institutional client base in asset management.
Read the full analyst report on "MS"
Read the full analyst report on "GS"
Read the full analyst report on "JPM"
Read the full analyst report on "C"
Zacks Investment Research

DrStockPick.com Stock Report! 10/20/09, CSRH, ORA, AWRE, GAMR, AEMD, ESCC

Dr. Stock Pick — Tue, 20 Oct 2009 15:52:10 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Tuesday October 20, 2009 DrStockPick.com Stock Report! ************************************************************** Consorteum Holdings, Inc. (OTCBB: CSRH) has launched its mobile check cashing program. The introduction of this service will offer those that are currently using check cashing facilities a much more convenient way to cash their payroll [...]

Zacks Analyst Blog Highlights: CVB Financial, JP Morgan Chase, Fifth Third Bancorp, U.S. Bancorp and Zions Bancorp – Press Releases

Zacks Market Commentaries — Tue, 20 Oct 2009 12:00:38 +0000

For Immediate Release

Chicago, IL – October 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: CVB Financial (CVBF), JP Morgan Chase (JPM), Fifth Third Bancorp (FITB), U.S. Bancorp (USB) and Zions Bancorp (ZION).

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

Here are highlights from Monday’s AnalystBlog:

U.S. Bank Failures Reach 99 in ‘09

The failure of San Joaquin Bank represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts as it has been appointed receiver for the bank. The bank failure is expected to cost the deposit insurance fund an estimated $103 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institution failures has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Ontario, California-based Citizens Business Bank, a subsidiary of CVB Financial (CVBF), will assume all of the deposits of San Joaquin Bank. So there will be no losses to any depositor.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

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 since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.

The failure of Washington Mutual last year was the largest in the U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION) and several others.

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Zacks Investment Research

U.S. Bank Failures Reach 99 in ‘09 – Analyst Blog

Zacks Market Commentaries — Mon, 19 Oct 2009 14:01:27 +0000

U.S. bank failures continue unabated as U.S. regulators on Friday closed down San Joaquin Bank of Bakersfield, CA. This takes the total number of failed federally insured banks to 99 in 2009, compared to 25 in 2008 and 3 in 2007.

As of September 29, San Joaquin Bank, a subsidiary of San Joaquin Bancorp, had about $775 million in assets, $631 million in deposits and 5 branches. The bank had not been included in a previous list of 89 institutions that were undercapitalized as of March 31. But its first quarter amended filing showed that there were additional loan charge-offs and a higher net loss.

As of June 30, San Joaquin Bank’s Tier 1 leverage ratio was 4.12% and the total risk-based capital ratio was 6.70%. Though the Tier 1 leverage ratio was above the minimum level of 4% considered adequately capitalized, its total risk-based capital ratio was well below the minimum level of 8%.

The failure of San Joaquin Bank represents another impact on the Federal Deposit Insurance Corporation’s (FDIC) fund for protecting customer accounts as it has been appointed receiver for the bank. The bank failure is expected to cost the deposit insurance fund an estimated $103 million.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of financial institution failures has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

Ontario, California-based Citizens Business Bank, a subsidiary of CVB Financial (CVBF), will assume all of the deposits of San Joaquin Bank. So there will be no losses to any depositor.

In order to replenish the declining fund, the FDIC board recently proposed that the U.S. banks should pay fees for three years in advance. Also, the regulators are considering requesting the healthy banks to bail out the government as soon as it is necessary to replenish the deposit insurance fund, which has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

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 since the savings and loan crisis in 1994. Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates the bank failures to cost about $70 billion over the next five years.

The failure of Washington Mutual last year was the largest in the U.S. history. It was acquired by JP Morgan Chase (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp (USB), Zions Bancorp (ZION), SunTrust Banks (STI), PNC Financial (PNC), BB&T Corporation (BBT) and Regions Financial (RF).

The failed banks are victims of recession and rising loan losses. As a result of the ongoing market turmoil, these institutions experienced massive capital erosion stemming from losses due to a significant exposure to collateralized mortgage obligations, commercial real estate loans and other commercial and industrial loans. All these factors were responsible for a drag on profitability and write-downs.

According to the FDIC, the U.S. banks overall lost $3.7 billion in the second quarter of 2009, compared to a profit of $7.6 billion in the prior quarter.  Though current signals indicate that the economy may stabilize, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans.
Read the full analyst report on "CVBF"
Read the full analyst report on "JPM"
Read the full analyst report on "FITB"
Read the full analyst report on "USB"
Read the full analyst report on "ZION"
Read the full analyst report on "STI"
Read the full analyst report on "PNC"
Read the full analyst report on "BBT"
Read the full analyst report on "RF"
Zacks Investment Research

LMT, PWRM, NOC, CSRH, IBM, CVAT, CME, AQNM, DrStockPick.com Stock Report!

Dr. Stock Pick — Fri, 16 Oct 2009 18:25:55 +0000

Dr Stock Pick HOT News & Alerts! _________________________________________ FREE Daily Stock Alerts From DrStockPick.com _________________________________________ Friday October 16, 2009 DrStockPick.com Stock Report! LMT, PWRM, NOC, CSRH, IBM, CVAT, CME, AQNM ************************************************************** LMT, Lockheed Martin Corporation LMT is a world leader in systems integration and the development of air and missile defense systems and technologies, including the first operational hit-to-kill missile. It also [...]

HSC, ACAS, GOVX, DrStockPick.com Watch List! for Friday October 16, 2009, Harsco Corp., American Capital, Ltd. and Geovax Labs Inc., GOVX.OB

Dr. Stock Pick — Thu, 15 Oct 2009 23:42:40 +0000

Dr Stock Pick HOT News & Alerts! _________________________________________ FREE Daily Stock Alerts From DrStockPick.com _________________________________________ DrStockPick.com Watch List! My Picks for Friday October 16, 2009, are: ************************************************************** HSC, Harsco Corp. HSC is a diversified industrial services company serving global industries that are fundamental to worldwide economic growth, including infrastructure, metals, railways and energy. HSC is recognized as one of the Fortune 1000 leading companies [...]

RAS Expands Advisory Services – Analyst Blog

Zacks Market Commentaries — Thu, 15 Oct 2009 20:18:31 +0000

RAIT Financial Trust (RAS), a real estate investment trust (REIT), has recently expanded the operations of RAIT Securities LLC that offers commercial real estate advisory services to a host of clients.

The range of services currently offered by RAIT Securities include strategic advisory services to financial institutions and other investors, asset valuation, acquisition and disposal of assets, asset restructuring and repositioning, asset management, property management and loan servicing. Furthermore, in order to streamline the operations, the company has hired skilled management professionals.

RAIT Financial Trust is primarily engaged in the lending and investment aspects of the real estate business. The company primarily invests in the following asset classes: 1) commercial mortgages and mezzanine loans; 2) trust preferred securities; 3) residential mortgage loans; 4) mortgage-backed securities; 5) real estate investments; and 6) preferred equity in entities that own real estate.

RAIT Financial Trust generates revenues from the interest and dividend income from its investment portfolio, origination fees, and asset management fees. The company’s net investment income is the difference between interest income on the investment portfolio and the cost of financing the portfolio. Most of the company’s portfolio is financed by borrowings and securitizations. The company uses warehouse agreements, CDOs, and lines of credit to finance the majority of its investments.
Read the full analyst report on "RAS"
Zacks Investment Research

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

Regions Faces Class Action – Analyst Blog

Zacks Market Commentaries — Tue, 13 Oct 2009 18:18:24 +0000

Investors have filed a class action lawsuit against Regions Financial Corporation (RF) on charges that the bank had obtained shareholders’ approval for the 2006 acquisition of AmSouth Bancorp by misleading investors about its own financial condition.

In November 2006, when the bank announced to purchase AmSouth Bancorp for $10 billion, it allegedly made false representations about the benefits of combining the two banks into a single operation. AmSouth Bancorp has a significant presence in residential loans in Florida market, which suffered losses when the housing bubble burst. Thus, the investors had been unaware that the purchase would expose the company to potential losses.

In January 2009, Regions announced a $6 billion write-down of goodwill stemming from the AmSouth acquisition. AmSouth was supposed to bring about $6 billion in goodwill to Regions, besides the prospects of doubling its operations in Florida's real estate market. Regions had overstated the goodwill from AmSouth and window-dressed the balance sheets for the combined entity.

The suit was filed through the law firm of Whatley, Drake & Kallas LLC (WDK). Merrill Lynch & Co., Regions' adviser in the transaction, and Ernst & Young LLP, the auditor to both banks, were also named defendants in the suit.

Earlier, during April, a shareholder class action law suit was filed against Regions Financial Corporation by the law firm of Barroway Topaz Kessler Meltzer & Check LLP. The complaint was charged by purchasers of the 8.875% Trust Preferred Securities of Regions Financing Trust III, alleging that the registration statement for the securities was false and gave misleading details.

During the second quarter, the company reported a loss of 28 cents per share. Regions has been badly hit by the subprime mortgage crisis as its loan portfolio is largely composed of real estate including home equity and is largely concentrated in Florida, one of the worst affected areas. Prior to the release of third quarter results, we maintain a Neutral recommendation on the shares.
Read the full analyst report on "RF"
Read the full analyst report on "WDK"
Zacks Investment Research

Price Probability Ranges for Key Asset Categories

Richard Shaw — Tue, 13 Oct 2009 13:22:51 +0000

Last week we published a visual view of price range probability cones for several securities (SPY, FXI, TLT and UUP). This article builds on the concepts in that article and provides a tabular view of the same kind of data for twenty-seven asset categories. The two tables below show the maximum and minimum price change that [...]

JLL to Manage SunTrust Facilities – Analyst Blog

Zacks Market Commentaries — Mon, 12 Oct 2009 19:48:59 +0000

Jones Lang LaSalle Inc. (JLL), a leading real estate investment trust (REIT), has been selected by SunTrust Banks Inc. (STI), a premier banking organization in the U.S., to provide integrated facility management services across its entire portfolio spanning 16 million square feet.

With the deal, Jones Lang would be entrusted to effectively manage the day-to-day tasks related to the operations across SunTrust’s facilities. SunTrust operates an extensive branch and ATM network throughout Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee, Virginia and Washington, DC. Jones Lang’s leading position in property and corporate facility management services would enable it to improve the operational efficiency of SunTrust.

On the other hand, the deal strengthens Jones Lang’s position in the market and offers it an expanded role in the operations of one of the largest banking organizations of the country. Jones Lang is a leading full-service real estate firm that provides corporate, financial, and investment management services. The company caters to corporations and other real estate owners, users, and investors worldwide.

Currently, Jones Lang provides property and corporate management services across a worldwide portfolio of 1.4 billion square feet. Its investment management division, LaSalle Investment Management is one of the largest and most diverse companies in the real estate market and has over $46 billion of assets under management.

Read the full analyst report on "JLL"
Read the full analyst report on "STI"
Zacks Investment Research

Prieur’s readings (October 11, 2009)

Prieur du Plessis — Sun, 11 Oct 2009 09:39:27 +0000

JLL Reasserts Alliance with Cisco – Analyst Blog

Zacks Market Commentaries — Fri, 09 Oct 2009 18:45:58 +0000

Jones Lang LaSalle Inc. (JLL), a leading real estate investment trust (REIT), recently reasserted its strategic alliance with Cisco Systems, Inc. (CSCO), a premier global Internet networking services company, and further extended it for five years. The mutually beneficial partnership encompasses transaction management, lease administration, and surplus property management services of the 24 million square feet global portfolio of Cisco.

The deal strengthens Jones Lang’s position in the market and offers it an expanded role in the operations of Cisco. Jones Lang had been delivering real estate services to Cisco since 2001. The company offered an established global platform, resources, and expertise that enabled Cisco’s Workplace Resources Group to attain operational excellence. The Real Estate and Workplace Resources Group of Cisco is responsible for construction and development worldwide as well as facility and security operations.

Jones Lang is a leading full-service real estate firm that provides corporate, financial, and investment management services. The company caters to corporations and other real estate owners, users, and investors worldwide. A broad real estate product and service range, and extensive knowledge of domestic and international real estate markets enable it to operate as a single-source provider of real estate solutions.
Read the full analyst report on "JLL"
Read the full analyst report on "CSCO"
Zacks Investment Research

Mack-Cali Signs New Lease – Analyst Blog

Zacks Market Commentaries — Fri, 09 Oct 2009 17:44:19 +0000

Mack-Cali Realty Corp. (CLI), a fully integrated real estate investment trust (REIT), has recently signed a new long-term lease for its 100,000 square feet Class A JV office property at 1 Jefferson Road in Parsippany, New Jersey. The lessee was Day Pitney LLP, a full-service law firm with approximately 375 attorneys and offices in New York, New Jersey, Connecticut, Massachusetts, and Washington DC.

The deal is reportedly the largest of its kind in the Northern New Jersey region in 2009 and provides an opportunity to Day Pitney to design and construct new space in the building to meet its additional space requirements. Furthermore, the long-term leasing agreement especially during the period of economic uncertainty is testament to the location advantage and the credibility of the asset’s ownership.

The leased property is a joint venture partnership among institutional investors advised by J. P. Morgan Asset Management, The Hampshire Generation Fund LLC, and Mack-Cali. J. P. Morgan Asset Management is a leading global asset management company with approximately $1.1 trillion assets under management. The Hampshire Generation Fund LLC is a real estate investment fund manager, catering to high net worth individual investors investing in real estate.

Mack-Cali is responsible for the leasing and management services of the building. The company owns, leases, manages, and develops Class A office and industrial/flex properties, primarily in suburban markets in the northeastern U.S. Mack-Cali’s portfolio includes 288 properties, totaling over 33.1 million square feet with over 2,100 tenants.

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

St. Joe Sells Perico Asset – Analyst Blog

Zacks Market Commentaries — Thu, 08 Oct 2009 17:00:25 +0000

The St. Joe Company (JOE), a publicly held operationally diverse real estate company, has recently sold its property in Perico Island, Florida for about $8 million to Minto Communities LLC, the U.S. subsidiary of the Canadian real estate company Minto Group Inc.

St. Joe had earlier halted work on the 684-unit residential condo project on the island as substantial units were not sold to warrant construction. Furthermore, St. Joe had also completed a corporate reorganization and exited the home building business during the third quarter of 2006. Consequently, the company decided to get rid of its Perico Island property.

Initial infrastructure of the project has already been put in place, including a 32-acre man-made lake. The Minto Group plans to continue the development work on the island in 2010. Minto Communities had built approximately 19,000 homes across Southeast Florida and the recent acquisition is the largest of its kind in the West Coast region.

Based in Jacksonville, St. Joe is one of Florida’s largest real estate developers and owns approximately 49,000 acres of land that allow for the development of 46,500 residential units and over 14 million square feet of commercial uses. In addition, the company is also engaged in timber operations on vast tracts of rural land.
Read the full analyst report on "JOE"
Zacks Investment Research

DrStockPick.com Stock Report! 10/08/09, GTY, CI, LNC, CWLZ, STI, TXI

Dr. Stock Pick — Thu, 08 Oct 2009 16:12:48 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Thursday October 8, 2009 DrStockPick.com Stock Report! ************************************************************** Please be advised that Getty Realty Corp. (NYSE: GTY) will release its financial results for the quarter ended September 30, 2009, after the market closes on Tuesday, November 3, 2009. CIGNA (NYSE:CI) and ProHealth Physicians, Inc., [...]

Fed to Be On Hold a Long Time – Analyst Blog

Dirk Van Dijk — Wed, 07 Oct 2009 14:12:21 +0000

The table below from the Federal Reserve of Atlanta is interesting. It looks at all the recessions since 1970, and how long it took for unemployment to peak after the recession technically ended, and how much longer after that that the Fed actually started to tighten up. The short 1980 recession, which was really the first part of a double-dip recession, is excluded.

Note that unemployment always peaks after the recession is over. However, in earlier recessions the time lag between the end of the recession and the peak of unemployment was brief. This sort of holds for the 1970 recession as well, since there was a double peak in unemployment (6.1%) in both December of 1970 and in August of 1971. If the first peak were used, the time from the end of the recession to the unemployment peak would have been just one month, and to the start of the tightening by the Fed would have been 15 months.

The last two recessions were very different, with unemployment continuing to rise for more than a year after the end of the recession. Both were very mild recessions.

In all cases, the Fed waited a significant time (a minimum of six months) after the recession was over before they took their foot off the accelerator.

If we assume that the recession technically ended in July, something that would be indicated by the rise in Industrial Production and Capacity Utilization that started then, and we followed the same path as the 1991 recession, then we would not see unemployment peak until October 2010 -- and not until February 2011 if we were to follow the path of the 2001 recession.

If anything, the dynamics of this downturn are going to argue for an even much slower recovery this time around than we had in the last two recessions. For starters, the amount of wealth that has been destroyed in this downturn dwarfs that of the previous two. The consumer was much more deeply in debt, and the decline in the value of his assets have left him even more leveraged today than he was before the recession started.

Also, the savings rates going into the previous recessions were much higher. While the banking system was wounded in the 1991 recession (S&L crisis), it was but a mere scratch when compared to the crisis of a year ago.

Given the historical precedents, if we followed the path of the 1991 downturn, the Fed Funds rate would not rise until June of 2012, and if we followed the 2001 precedent, the Fed Funds rate would not rise until May of 2012. Even if we were to follow the earlier precedents, it would be February of 2010 (1982), September of 2010 (1974-75), or October of 2010. Well, we are more than a month passed July, and we know that we have not hit the unemployment peak yet, so I think it is safe to throw that one out.

The problem with the Fed leaving interest rates too low for too long is it tends to help create bubbles. An overly easy monetary policy also can let inflation get out of hand. The ultra-low interest rates in the early part of this decade played a key role in allowing the housing bubble to form.

I really don’t see much evidence of any current bubbles. Yes, the stock market does seem to be pricing in a much stronger recovery than I foresee, but it is not really at a bubble stage. Oil and other commodity prices are well off their lows of last winter, but also well below the highs seen in the summer of 2008. Real estate is clearly not in a bubble anymore.

One could make a case for bonds being in a bubble -- certainly prices are high and yields are very low by historical standards. However, over the past year, the CPI is actually negative, and hence real rates are higher than nominal rates. At the headline level that will not last, the decline in oil prices is going to anniversary, so year-over-year headline inflation will head up.

However, excluding food and energy, prices are likely to stay very well contained. The most important component of the CPI, especially core CPI, is housing prices. No, not the price of your house, but what the government figures you are paying yourself for the privilege of sleeping in your own bed, otherwise known as Owners Equivalent Rent. Together with the regular rent that renters pay their landlords, that makes up about 30% of the overall CPI and about 40% of core CPI. Vacancy rates are rising and rents across the country are under pressure. This means that overall inflation, particularly core inflation, will stay low.

There is a chance, however, that this policy could start to develop a bubble in stocks. There is a lot of money that has been pushed into the system. There is not that much demand by corporations -- especially the solvent ones that the banks would like to lend to -- to borrow lots of money to build new plants, or even take on more inventory. That money will try to find a home, and if it can't find it in the real economy, it will gravitate to the financial economy.

Thus, while keeping rates low does pose a risk, that risk looks mostly theoretical at this point. The very low Fed Funds rate means that there will also be a very steep yield curve.

This is good news for the banks, since their core economic function is to borrow short term -- for example by taking in checking deposits -- and to lend long term, for example making commercial and industrial loans. This will help big banks like J.P. Morgan (JPM) and Citigroup (C) earn enough from their current loans to help offset the massive losses they have hidden on other books of previous loans that have gone bad.

Historical lag between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle

Read the full analyst report on "JPM"
Read the full analyst report on "C"
Zacks Investment Research

Marc Faber on the economy and financial markets

Prieur du Plessis — Wed, 07 Oct 2009 09:56:21 +0000

This post features a wide-ranging interview with Marc Faber on four videos on CNBC TV18 in India in which he explains his views on inflation, currencies, commodities, stocks and more.

Prieur’s readings (October 2, 2009)

Prieur du Plessis — Sat, 03 Oct 2009 06:00:37 +0000

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find interesting. Please also add the links to any other worthwhile articles you would like to share to the comments section.

“FUMBLE-ITIS”: US economy analogous to relay race

Prieur du Plessis — Fri, 02 Oct 2009 05:40:05 +0000

The post below is a guest contribution by Comstock Partners, the highly regarded investment manager run by Charles Minter, looking at the dilemma of the US economy as a relay race where the baton has to be passed on to the anchor team member who is very fast but has a problem receiving the baton ...

Are the Bears Turning Bullish?

Chris Mayer — Wed, 30 Sep 2009 21:12:22 +0000

pSome of Wall Street’s most prominent bears are turning bullish right now. But that doesn’t mean that your small-cap portfolio is safe. Here’s why these brilliant minds think that we’re back on the path to recovery — and why they’re wrong./p pI was in Manhattan last week attending Grant’s Fall Investment Conference. The U.N. General Assembly is meeting there, and the streets were blocked off in places. The NYPD was out in full force. I heard one passerby complain about the inconvenience of it all to one police officer. He responded, “Don’t blame the NYPD, blame the General Assembly.”/p pWith the General Assembly in Manhattan and the G-20 in Pittsburgh, government has taken over the headlines this week. It seems half the#8230;/p

First Time Home Buyers: Is Time Running Out?

Dee Power — Wed, 30 Sep 2009 16:30:51 +0000

The stimulus tax credit of $8,000 for first time home buyers expires on November 30, 2009. That means your new house has to be signed, sealed, and delivered by the last day ...

Understanding Sector Investing

QualityStocks — Tue, 29 Sep 2009 15:18:30 +0000

QualityStocks follows many distinct market segments. Biotech to mining, the QualityStocks team works to address investment opportunity in its many forms. In this regard, the team understands diversification and that individual needs should be addressed by registered investment advisors. The question begins with need and the certain understanding that diversification is paramount. There are distinct [...]

Axial Vector Energy Corp. (AXVC.PK) Management Advisory Team

QualityStocks — Tue, 29 Sep 2009 15:11:08 +0000

Axial Vector Energy Corp., a leader in energy conversion efficiency, is fortunate in that it is run by one of the most seasoned international management and advisory teams, with over a century of combined experience. This is critical in starting and growing a company, obtaining the required capital, locking in the rights to key products [...]

Bonds equities: Expect a major shift

Prieur du Plessis — Sat, 26 Sep 2009 08:51:43 +0000

This post is a guest contribution by Dian Chu, asking the very topical question of which rally will end first - equities or bonds.

Doug Casey on gold

Prieur du Plessis — Fri, 25 Sep 2009 08:41:13 +0000

Although Doug Casey is also somewhat of a perma gold bull, he nevertheless argues his case convincingly, as gleaned from the Q&A in this post.

Jones Lang: CRE Boom Next Decade – Analyst Blog

Zacks Market Commentaries — Thu, 24 Sep 2009 21:47:44 +0000

According to a report published by Jones Lang LaSalle Incorporated (JLL), a leading real estate investment trust (REIT), the U.S. commercial real estate (CRE) market boom is likely to occur early in the next decade at the earliest.

During the second quarter of 2009, CRE sales were $5.2 billion compared to $30.7 billion in the year-earlier quarter and drastically down from $114.7 billion in the second quarter of 2007. In the first half of 2009, CRE sales were $16 billion -- down 80% year over year, and down 93% compared to the first half of 2007. The decline is primarily due to the credit-constrained market, which has virtually shut down avenues like mortgage lending and other loans essential for real estate sales and refinancing.

The credit crunch has widened the bid-ask spread between buyers and sellers of CRE, which has further caused deal volumes to fall dramatically in the past couple of years. Although lending has started to trickle down, it is mostly concentrated to large capitalized players who have better access to the capital markets. Furthermore, continued job losses have plagued the industry as a whole.

In addition, consumer spending continues to drop across the country due to a global economic meltdown. Under such circumstances, Jones Lang predicts that market recovery is likely to occur by mid-2010, although the boom will take a much longer time, almost a decade. Jones Lang is a leading full-service real estate firm that provides corporate, financial, and investment management services.

The company caters to corporations and other real estate owners, users, and investors worldwide. A broad real estate product and service range, and extensive knowledge of domestic and international real estate markets enable it to operate as a single-source provider of real estate solutions.
Read the full analyst report on "JLL"
Zacks Investment Research

CSRH, CME, PWRM, GRMN, CVAT, HERO, CVX , DrStockPick.com Stock Report!

Dr. Stock Pick — Thu, 24 Sep 2009 19:05:53 +0000

Dr Stock Pick HOT News & Alerts! _________________________________________ FREE Daily Stock Alerts From DrStockPick.com _________________________________________ Thursday September 24, 2009 DrStockPick.com Stock Report! CSRH, CME, PWRM, GRMN, CVAT, HERO, CVX ************************************************************** CSRH, Consorteum Holdings Inc, CSRH.OB CSRH is a company in the financial services, payment and transaction processing industries. CSRH provides electronic transaction processing and management services to financial institutions, healthcare, government, public and private [...]

GDP’s Debt to Credit

Contrarian Profits — Wed, 23 Sep 2009 22:12:34 +0000

pThe FDIC is considering tapping its emergency line of credit with the Treasury. FDIC Chair Sheila Bair recently hinted after a speech at Georgetown University that all options are on the table when it comes time to replenish the dwindling Deposit Insurance Fund. We’ll find out more in the next few weeks after the FDIC board of directors meets./p pStock market bulls aren’t concerned about the inevitable acceleration in bank failures — at least for now. Even though deposits will be insured against loss, the loss of local banks will still have a depressing effect on hundreds of small communities. These communities are going to lose their only access to business credit when their local zombie banks — loaded with toxic#8230;/p

General Environmental Management Inc. (GEVI.OB) Offers a Variety of EnviroConstruction Services

QualityStocks — Wed, 23 Sep 2009 18:04:10 +0000

General Environmental Management Inc. is an integrated environmental services company which offers clients a variety of environmental and waste-related services. Among the services offered by the company are enviroconstruction and brownfield reclamation services. The company has had great success in “recycling” brownfield sites and turning them back into useful real estate. General Environmental’s expertise is [...]

Banks to Bailout FDIC? – Analyst Blog

Zacks Market Commentaries — Wed, 23 Sep 2009 14:22:33 +0000

About a year ago, during the height of the crisis, the government started bailing out the banks to help revive deteriorating credit and lending markets, but the situation is going to be reversed as the regulators are considering asking healthy banks to bail out the government soon, in order to replenish the declining fund of the Federal Deposit Insurance Corporation (FDIC) that insures regular deposit accounts when banks fail.

The tally of failed federally insured banks has reached 94 so far this year, causing a rapid decline in the FDIC’s deposit insurance fund as it has been appointed receiver for these banks. Despite imposing a special assessment charge on banks a few months ago, the FDIC’s cash balance now stands at a third of its size at the start of the year. As a result, the current move would be a great relief for the FDIC.

The bailout is necessary to replenish the deposit insurance fund, as it has slipped to 0.22% of insured deposits, below the mandated minimum of 1.15%.

The FDIC insures deposits at 8,195 institutions with roughly $13.5 trillion in assets. When a bank fails, it reimburses customers for deposits of up to $250,000 per account. The outbreak of failing financial institutions has significantly stretched the regulator’s deposit insurance fund. At June 30, 2009, the fund corpus fell to $10.4 billion, the lowest since 1993, from $13.0 billion in the prior quarter.

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 since the savings and loan crisis in 1994. 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.

Though in May 2009 Congress more than tripled the amount the FDIC could borrow from the Treasury if needed to restore the insurance fund -- to $100 billion from $30 billion -- the FDIC is unwilling to use its authority to borrow from the Treasury. Any new borrowing from the Treasury would be considered a loan from the taxpayer that could push the industry to a political reaction, resulting in a wave of restrictions.

The FDIC Chairman last week said that the FDIC board would meet at the end of the month to consider options including taking Treasury funds, assessing fees on banks in advance and again increasing the fees they must pay.

As part of its $700 billion bailout program, the government provided capital to institutions in exchange for preferred stock and warrants to purchase common shares. 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 Corporation (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.

The recent plan looks like a reverse bailout. Banks and their lobbyists have strongly supported the plan as instead of paying higher fees to support the FDIC, the banks would now lend money to FDIC which might be accretive to their earnings.
Read the full analyst report on "JPM"
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Read the full analyst report on "COF"
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Read the full analyst report on "BAC"
Read the full analyst report on "WFC"
Read the full analyst report on "C"
Zacks Investment Research

How’s “Cash for Castles” Doing? – Analyst Blog

Dirk Van Dijk — Tue, 22 Sep 2009 21:02:49 +0000

The $8,000 tax credit for first-time home buyers is going to expire on November 30th. People have to close by that date, which means they really have to agree to buy within the next few weeks.

The housing market has begun to rebound a bit, and the tax credit has been part of it. So should Congress extend, or even -- as some are advocating -- expand the program? My answer would be no, certainly no to expansion.

Conceptually, the tax credit is similar in many ways to the "Cash for Clunkers" program, but it is much more expensive, and far less targeted. "Cash for Castles" applies to any house, either new or used, while "Cash for Clunkers" only applied to new cars.

Increasing sales of used houses only indirectly stimulates the economy. The same is true for used car sales. With sales of used homes, very few jobs are created, other than for used-home salespeople (a.k.a. realtors). True, there is some indirect stimulus, as people are prone to buy new furniture and paint when they move into a new (for them) house. Still, the benefits to the economy are small compared to new home sales.

So far, about 1.5 million people have taken advantage of the Cash for Castles program, which means that we have spent about $12 billion on it, or four times the amount spent on the Cash for Clunkers program. The Clunkers program directly resulted in companies like Ford (F), Toyota (TM) and suppliers like TRW Automotive (TRW) calling people back to work.

It also probably resulted in lower losses at GM, where we the taxpayers are big shareholders. Dollar for dollar, Cash for Clunkers was a far more successful stimulus program.

The big question is how many of those 1.5 million people would have bought a home anyway. It is almost impossible to tell, but I suspect that about 80% or 1.2 million would have. Thus on an incremental basis, the government is spending about $40,000 per extra house sold. While the same argument could be made about the Cash for Clunkers program, that program also had the very important ancillary benefit of taking old gas guzzlers off the road and modernizing the nation’s auto fleet.

Over the next three years, the Clunkers program should save the nation about 700 million gallons of gasoline. Since we import about 70% of our oil, that will put a dent into our trade deficit going forward, not to mention the lower carbon foot print. New cars are generally safer as well, so the program will probably result in lower highway fatalities, for good measure. Cash for Castles does nothing remotely as beneficial.

One also has to ask a normative question. Is it fair? Public policy is still hostile towards people who rent. You can deduct the interest on your mortgage without limit, and the more you make, the more valuable that tax deduction is.

Someone who owns a house with a mortgage interest part of $1000 and is in the 15% tax bracket gets a $150 a month housing subsidy from Uncle Sam. Someone who is making $250,000 a year and lives in a McMansion with a $3000 a month interest component to their mortgage would get a $1,050 monthly subsidy. There is no rent subsidy (unless you are very poor and are in Section 8 housing).

As a group, renters have much lower incomes than do homeowners, and also tend to have less assets. Renters subsidize the housing of homeowners. Now this program adds yet more subsidies to homeowners. If it is extended, or even worse expanded to include all homebuyers rather than “first time" buyers, it has all the earmarks of the sort of program that will never go away.

There are some benefits to homeownership to the society at large (positive externalities). Homeowners tend to take care of their properties better than renters do. There are also some negative externalities. For starters, it makes the workforce less mobile. People who have to sell a house to take a new job in a different state are far less likely to do so than people who simply have to break a one-year lease. This is particularly true since the transaction costs in buying and selling real estate are very high -- traditionally, about 6% just for realtors fees.

Even if the program were targeted at just new homes rather than used homes, it is hard to argue that there is a big housing shortage in the country. Yes, Residential Investment is a big part of (or at least used to be) overall investment in the economy. It is, however, a very low return type of investment.

Putting that money into repairing our neglected infrastructure would create far more jobs, and have a much higher long-term return on investment than simply cutting checks to people who probably would have bought houses anyway.
Read the full analyst report on "F"
Read the full analyst report on "TM"
Read the full analyst report on "TRW"
Zacks Investment Research

Broken China? Don’t Buy It

Frank Holmes — Tue, 22 Sep 2009 05:00:00 +0000

John Derrick, our director of research, put this together for last weekrsquo;s Investor Alert. After nearly doubling in the first seven months of the year, the domestic Chinese stock market fell more than 20 percent in August. China had led the world out of recession, its aggressive stimulus and other government programs helping to stabilize its domestic economy. With the August stock market drop, the conventional thinking was that the market had gotten ahead of itself and the Chinese economy was setting itself up for a significant slowdown. nbsp; Such pessimism overlooks many fundamental positives in China, particularly on the consumer sentiment side so important for sustaining a recovery. In Augustrsquo;s monthly survey by researchers at CLSA, for example, 91 percent of respondents said they believe business conditions in China will be the same or better in six monthsrsquo; time. Compare that to 42 percent of respondents in December 2008. Itrsquo;s worth pointing out that this optimistic outlook in August was seen while the stock market was falling, and to date in September, the market has bounced back 13 percent. A front-page story in Fridayrsquo;s New York Times carried the headline ldquo;Chinarsquo;s Economy Is Roaring Back.rdquo; It detailed how real estate is rebounding, factories are rehiring laid-off workers and its trade surplus with the world continues to widen. China and the emerging world in general entered this recession in arguably the best fiscal shape ever. Their ability to withstand the negative influence of this downturn shows that they learned the harsh lessons of the past 20 years, a period littered with financial and economic crises. Where others may see weakness in Chinarsquo;s future, we see a broadening global recovery and signs that the world may no longer have to lean so heavily on China for support. Itrsquo;s true that many indicators remain weak, but growth is picking up around the world. One interesting item that came out this week was a report that Japanese steel production increased 8.5 percent in August. This is significant because Japan is the worldrsquo;s second largest steel producer. Output is still down significantly from last year, but appears to be picking up steam. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The Shanghai A-Share Stock Price Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares listed on the Shanghai Stock Exchange that are restricted to local investors and qualified institutional foreign investors. The index was developed with a base value of 100 on December 19, 1990.

Broken China? Don’t Buy ItBroken China? Don’t Buy It

Frank Holmes — Tue, 22 Sep 2009 05:00:00 +0000

How Our Nation’s Future Energy Security Can Boost Your Portfolio Now

Investment U — Mon, 21 Sep 2009 19:28:01 +0000

Smart Grid Investing: How Our Nation’s Future Energy Security Can Boost Your Portfolio Now by Dave Fessler, Advisory Panelist The “Smart Grid.” You may have heard the media toss the term around recently. But ask the next 10 people you meet to tell you something… anything… about it, and I’ll wager that you’ll get deafening [...]

E*Trade (Nasdaq: ETFC): Why You Should Buy This Stock Before It’s Too Late

Louis Basenese — Fri, 18 Sep 2009 19:19:15 +0000

pAsk most investors about E*Tradestrong /strongand you’ll get a mouthful about why the company is a toxic asset to be avoided at all costs./p pI can’t say I blame them. After all, the company did make a foolish foray into the real estate lending business. And it did so at precisely the wrong time – the top of the market. In turn, like many banks, it got sacked as loan losses mounted./p pAt that point, forget a takeover. Bankruptcy appeared more imminent. And the stock quickly reflected this widely held belief, plunging by 95% from its 2007 high to trade below $1./p pUnsurprisingly, many investors sprinted away from the company. But here’s what most of them don’t understand: Beneath the muck of E*Trade’s real#8230;/p

Simon Co-Founder Dies – Analyst Blog

Zacks Market Commentaries — Fri, 18 Sep 2009 15:15:54 +0000

Simon Property Group Inc. (SPG), the largest publicly traded retail real estate company in North America, recently announced the death of its pioneer and co-founder Melvin Simon after a short illness. With his demise, the company lost an able leader who had remarkable deal-making skills that fostered strong ties with lenders as well as owners of department store chains – a critical element during recession.

Melvin Simon along with his brother started the real estate company in 1960 under the name – Melvin Simon & Associates. Later this company became Simon Property Group Inc. having embraced the real estate investment trust (REIT) structure. The company’s initial offering in 1993 was the largest for a REIT.

Besides being the founder of Simon, Melvin Simon was also involved in the sports and movie businesses. He was the co-owner of Indiana Pacers professional basketball team in the National Basketball Association (NBA), and was a producer of the hit film “Porky’s".

Melvin Simon had stepped down as the Chairman of the company two years ago and was succeeded by his son David. The Simon family is one of the major shareholders of the company, with approximately 40 million shares or about 12% of the total shares.

The company owns, manages, leases, acquires, and develops a diverse portfolio of regional malls, premium outlet centers, and community/lifestyle centers across the globe. By the end of the second quarter, the company owned or had interests in 385 properties spanning 262 million square feet of gross leaseable space in North America, Europe, and Asia. The international presence of the company gives it a more compelling long-term growth story than its domestically focused peers.
Read the full analyst report on "SPG"
Zacks Investment Research

The Coming Commercial Real Estate Crisis

Contrarian Profits — Wed, 16 Sep 2009 20:30:54 +0000

pAs usual in Washington, it’s “Do as I say, not as I do.” While Ben Bernanke is talking up the U.S. economy, Congress and the IRS are scrambling to stop another real estate collapse./p pFirst, the political left and National Association of Realtors are in the process of extending the now famous “first time homebuyer tax credit.” The initial plan, which was passed around this time last year and allows first-time homebuyers an $8,000 tax credit, is on track to cost about $15 billion — double the projected budget./p pHeh, and just like “cash for clunkers” going massively over budget must be a sign of scorching legislative success. Thus, the new plan is to extend the tax credit into the summer of#8230;/p

Wyncrest Group, Inc. an Insurance Consortium, Is Continuing Its Efforts to Enter Latin American Market

Stuart T. Smith — Wed, 16 Sep 2009 14:31:04 +0000

CHICAGO, Sept. 16 /PRNewswire/ — As was announced on July 28th, 2009, The Wyncrest Group, Inc. (Pink Sheets: WNCG) a niche insurance consortium today reaffirms that its pending acquisition of Florida Insurance Consulting Inc. is moving forward towards an agreement on the terms for the acquisition. Wyncrest has been provided with (FIC) financials and is [...]

Zacks Bull and Bear of the Day Highlights: Joy Global, Zions Bancorporation, Fannie, Freddie and J.P. Morgan – Press Releases

Zacks Market Commentaries — Wed, 16 Sep 2009 14:30:07 +0000

For Immediate Release

Chicago, IL – September 16, 2009 – Zacks Equity Research highlights Joy Global (JOYG) as the Bull of the Day and Zions Bancorporation (ZION) the Bear of the Day. In addition, Zacks Equity Research provides analysis on Fannie (FNM), Freddie (FRE) and J.P. Morgan (JPM).

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:

We are confident about the long-term fundamentals of the mining industry, which is further supported by a sustainable secular shift in commodity demand in the emerging economies. This will provide Joy Global (JOYG) substantial growth potential once the global economy emerges from the ongoing turmoil.

Joy Global aims at maximizing operating efficiency and useful life of mining equipment through value-added aftermarket services, which gives the company significant edge over its competitors. Additionally, the stable revenue stream from the high-margin aftermarket operations help Joy Global offset its cyclical original equipment business.

Of late, Joy Global management has implemented several strategies to optimize cost-structure and realign production capacity to cope with the slowing customer orders and stay competitive amid the ongoing global slowdown. The company is pushing its overall inventory and working capital efficiency. Moreover, Joy Global is looking at increasingly relocating production capacity to low-cost regions like China, Poland, and South Africa. These actions will improve operational efficiency, boost profitability and also solidify long term viability of the company.

Bear of the Day:

Given the high competitive pressures in the banking industry, we expect continuous deposit pricing pressures as well as growth in higher cost funding accounts to weigh on Zions Bancorporation's (ZION) net interest margins (NIM), creating headwinds on the revenue front.

Loan growth has remained solid, but slowing growth in core deposits could cause a negative mix shift, another setback for the NIM. Management expects deposit growth to continue to lag loan growth and that a portion of future loan growth may be funded from alternative higher cost funding sources.

The growth through acquisition model exposes the company to the risk of overpaying for targets. We are concerned about Zions commercial real estate (CRE) exposure. CRE represents over one-third of Zions overall loan portfolio. Continued weakness in the residential development and construction activity in the southwest has resulted in further deterioration of credit metrics in the past several quarters. Given the sluggish economic conditions, we expect credit to further deteriorate across the industry in the coming quarters.

Zions Bancorporation (ZION) – Bear of the Day

Zacks Market Commentaries — Wed, 16 Sep 2009 05:00:00 +0000

Zions has faced several downgrades by credit rating agencies, primarily reflecting significant net losses, continued deterioration in credit quality and material decline in its tangible common equity capital ratio.

Based on our concerns for further credit deterioration, particularly in the construction portfolio, we are maintaining our Underperform recommendation on the stock.

Zacks Investment Research

Guest Contribution: Reforming Banking by Reforming Housing

Menzie Chinn — Tue, 15 Sep 2009 05:00:21 +0000

By Simon van Norden

Today, we're fortunate to have Simon van Norden, Professor of Finance at HEC Montréal (École des Hautes Études Commerciales), continue as a guest contributor.

In my previous post, I wrote about some of the evidence linking serious banking crises to real estate market collapses. That evidence is far from iron clad; it is simply the observation that many banking crises in mature economies have their origins in a real estate boom and bust cycle. However, the idea is also intuitively appealing.

Remember that at the end of 2008, the Federal Reserve Board estimated that there was $12 Trillion of mortgage debt on residential properties in the US, with the Federal government and its agencies providing about 5% of the total, individuals 9% and the rest coming from the financial sector. The Case-Shiller composite index of housing prices has fallen 1/3 from its peak in 2006 and the latest the Mortgage Banker Association survey finds that 13.5% of residential mortgages in their survey are delinquent or in foreclosure.

Even if losses in the end are only 5% of mortgage debt, that's a $600 Billion drop in equity on private sector balance sheets. It's easy to see how losses of half a trillion dollars or more could push some banks into insolvency and many into illiquidity. That's the recipe for a banking crisis. Remember that the FDIC's Deposit Insurance Fund had reserves of just over $50 billion at the start of 2008 and of which approximately zero is left today. That's the recipe for a costly banking crisis.

Like heart disease, there may be many different significant risk factors for banking crises. However, the evidence to date suggests that real estate volatility is one of the most important, if not the most important. Reducing the risk of future crises (and their drain on the public treasury) requires that something be done to address this risk factor. As I'll discuss in a minute, there seem to be lots of ways to do this, but they boil down to some combination of (1) reducing the volatility of real estate prices, and (2) reducing banking sector exposure to real estate. But first, stop and think about the kinds of proposals that are currently under discussion. There's a long list that includes things like

The creation of a new Consumer Financial Protection Agency, a National Bank Supervisor, and an Office of National Insurance, which would join with several other agencies in a Financial Services Oversight Council.
Requiring reporting of all OTC derivative transactions, as well as clearing and transparent trading of all standardized OTC derivative products.
Expanding the mandate of the Federal Reserve to explicitly include all firms that pose systemic risks to the financial system.
Requiring registration of advisors to hedge funds and other pools of capital.
A reform of executive pay in the financial sector to reduce incentives for excessive risk-taking
The provision of explicit government insurance to mortgage derivatives
A ban on "naked" short-selling
Restricting the sale of CDSs and similar instruments to those with long position in the underlying asset.
[your favorite goes here]

Now ask yourself which of these will be effective in reducing the volatility of real estate prices? Which will effectively reduce the banking sector's exposure to that volatility? With the exception of #6 on the above list, it's not obvious that any of these proposals will do either (and #6 doesn't appear to be high on the public agenda as far as I can tell.) Understand that the word "obvious" is an important caveat; for example, it's conceivable that improving clearing of OTC derivatives might reduce the exposure of the banking sector to real estate collapses by preventing contagion within the banking sector, but it's hard to know how much this will help. The same can be said for most of the items of the list; they might help or there might be other sound reasons for those reforms, but there is little that looks like it will reliably reduce volatility in the real estate market or reduce the banking sector's exposure to those fluctuations.

What I find most surprising about the financial reform debate is that so much of it has focused on reform of regulatory agencies, banking laws and trading environments while so little attention has been paid to reform of mortgage regulations and mortgage-related securities. So to stimulate the debate on such reforms, let me suggest two kinds of measures that deserve further consideration.

1. Highly-leveraged mortgages increase the systemic risk in the financial sector and should be discouraged. This could be done in a number of ways, such as a tax on high loan-to-value mortgages, or compulsory insurance, or via regulation limiting the value of liens that can be attached to real estate, or simply by limiting mortgage-interest deductibility. Doing so should reduce the banking system's exposure to the real estate market by ensuring that borrowers have greater equity investments (or are backed by insurance.) The reduction in leverage may also reduce real estate price swings.

2. The insurance of mortgages and mortgage-related products (including credit-default swaps on mortgage derivatives) requires tighter regulation. Such insurance is a critical buffer between downturns in the real estate market and the solvency of the banking system. While some mortgage risk is diversifiable, a substantial portion is a macroeconomic risk that is not diversifiable. This is particularly true for mortgage-backed securities, which pool risks across many individual mortgages. In the event of a national downturn in housing prices, it is not obvious that private-sector insurers will have the resources to honor their policies. At a minimum, the government needs to impose capital requirements for mortgage insurance and related financial derivatives that require a level of financial reserves commensurate with the degree of macroeconomic risk in this market. Others (such as Mehrling 2009) have argued that the government should simply provide such insurance themselves.

This post written by Simon van Norden.

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Magnitude of house price declines for 358 SMSAs. Source: Carson and Dastrup (2009).

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