Filed under: Federal Natl Mtge (FNM), Housing, Recession

I’ve lived through the internet bubble (and have some scars) and tried to avoid the real estate bubble (it wasn’t easy). But, bubbles have a way of being painful and longlasting.

So, no doubt, the real estate bubble has been painful (may be the worst market for at least the past 50 years). But, could this be a short-run thing?

Perhaps so. In fact, this is the view from the front-cover piece in this week’s Barron’s [a paid publication]. Actually, there may be the begin of a real estate recovery by the end of this year.

This is certainly a controversial stand. Keep in mind that inventory levels are stubbornly high (helped by foreclosures) and housing prices seem to fall further and further. What’s more, the credit crunch is still here and there are serious problems with major real estate operators, such as with the implosion of IndyMac Bancorp (NYSE: IMB), as well as the deterioration of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

OK, so why the optimism? Well, if you peel back some of the current housing data, it appears that things are stabilizing in terms of home sales and inventories. Basically, market forces are making the necessary adjustments.

Something else: the federal government might take some action. For example, Congress is pushing a bill to deal with $300 billion in subprime mortgages (of course, financial institutions have already taken major steps to write down subprime mortgages).

Ironically enough, a government takeover of Fannie and Freddie is likely to be a good thing. Basically, there should be a boost in the availability of credit.

Oh, and there are also strong demographic trends in the U.S., in terms of population growth and employment.

Finally, the real estate bust has made housing much more affordable (if you consider per capita income).

True, Barron’s scenario may be off base. Then again, it’s always good to take the other side of the argument — which most of the media hasn’t so far.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar On the web Guide to Decoding Financial Statements. He also operates MergerBook.com.

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iminplaya sends in the good news that reports of the death of the Ulysses mission are premature. (We’ve discussed the impending shutdown of the 17-year-old mission a couple of times this year.) Ulysses is a joint NASA / ESA mission to study the sun from an orbit inclined almost 90 degrees from the ecliptic. From the Planetary Society blog post: “Ulysses isn’t dead yet. ESA issued a statement in February saying that, as Ulysses’ radioisotope thermoelectric generators were running out of power, the spacecraft would likely die some time this year. The actual death blow to the spacecraft was apt to be the freezing of hydrazine fuel in a cold spot in a fuel line. Mission controllers found creative ways to prevent the freezing, but the solution wasn’t a long-term one, and ESA had a ceremonial send-off and wrap-up of the mission in mid-June, announcing that the spacecraft would be shut down on July 1. However, it now appears that announcement was premature. ESA issued a statement on July 3 titled ‘Ulysses hanging on valiantly.’ And on Wednesday, the [Ulysses mission operations manager indicated] that Ulysses’ voyage could actually continue for some time.”

Read more of this story at Slashdot.

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Astronomers using NASA’s Spitzer Space Telescope have found a galaxy producing an average of up to 4,000 stars per year. They contrast this with the Milky Way, which only produces an average of 10 each year. Nicknamed “Baby Boom,” it is a young starburst galaxy, and its stellar birth rate conflicts with a commonly accepted model for the growth of a galaxy. Quoting: “‘The question now is whether the majority of the very most big galaxies form very early in the universe like the Baby Boom galaxy, or whether this is an exceptional case. Answering this question will help us determine to what degree the Hierarchical Model of galaxy formation still holds true,’ [said Peter Capak of NASA’s Spitzer Science Center] ‘The astonishing star-formation activity we’ve observed advocates that we might be witnessing, for the first time, the formation of one of the most huge elliptical galaxies in the universe,’ stated co-author Nick Scoville of Caltech, the principal investigator of the Cosmic Evolution Survey,

Read more of this story at Slashdot.

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Can you put a price on life? - Times-Journal
Just think for a minute. It’s not that tough. Think of seeing your tiny one taking that first lap across the pool at swimming lessons. How about that first hit in T-ball or that first soccer goal? Keep on thinking. Picture that beach vacation

Gun and knife crime conference held - Ananova
Gun and knife crime are being discussed at a conference involving church activists and young people. The Bite the Bullet conference will seek to help young people resist the lure of “glamorous crime” and assist church leaders in developing

Shape of the bottle can tell of wine’s origins - Detroit News
Q . Why is the bottom of a wine bottle indented? How else is the shape significant to the bottle’s contents? A .Wine buffs call this indentation the punt, a term left over from the days when bottles were blown by hand. The process involved a long

Equitable Life backs call for damages - Daily Telegraph
Equitable Life is to call on the Government to pay damages as quickly as possible to policyholders who lost out following the near collapse of the UK’s oldest mutual insurer. Vanni Treves, non-executive chairman of Equitable Life, expects the

FBI: Agents foil bank robbery, rescue hostage - Chicago Tribune
CHICAGO - FBI agents state a suburban Chicago bank employee just might have saved her fiance’s life after he was abducted, bound, shot in the leg and hit in the feet with a wrench by ransom-seeking kidnappers. Following the signal of an electronic

FBI Frees Hostage and Arrests Kidnappers - Tothecenter.com
FBI agents who followed a tracking device in a bag of money posted for hostage exchanged, freed a shot and tortured hostage, and arrested his supposed kidnappers in Chicago, reported the Associated Press. The hostage’s fiancée received a call from

No money in pumping gas - The Chronicle Herald
Marlene Gibson sits in front of her family’s convenience store in Newport Station, Hants County, on Friday after the gas pumps were removed earlier in the day. (Ted Pritchard / Staff) EARL HINES is 89 years old — and he has never pumped his own

What’s a life worth these days, anyway? - Allentown Morning Call
It’s not just the American dollar that’s losing value. A government bureau has decided that an American life isn’t worth what it used to be. The ”value of a statistical life” is $6.9 million in today’s dollars, the Environmental Protection Agency

We may be in for more frequent severe weather - Detroit News
Bad storms are coming. If you put on a new roof or make other major upgrades, you should keep in mind that over a period of time our climate will be changing. More high winds, heavy rains and flash floods may be coming our way. I know that bad storms

AEGON Finalizes Acquisition of Turkish Life Insurance and Pension - MSN MoneyCentral
Transaction is Part of Broader Strategy to Build Scale in Emerging Markets THE HAGUE, The Netherlands, July 10 /PRNewswire-FirstCall/ — AEGON has finalized the acquisition of the Turkish life insurance and pension provider Ankara Emeklilik. The

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Filed under: Forecasts, Bad news, Housing, Federal Reserve, Recession

The dollar was on-pace to record another weekly decline Friday - - undoing the gains against the euro and pound earlier this summer- - as traders and analysts debated the likely next step for the U.S. Congress and/or the U.S. Federal Reserve on the heels of possible additional big, mortgage-asset-related write-downs by Fannie Mae and Freddie Mac.

The dollar traded at about $1.5888 to the euro Friday at mid-day, down about 1 cent, and also within about 1 cent of an all-time low versus the euro. The dollar also traded at $1.9878 to the British pound, also down about 1 cent, and off about 1 yen to 106.09 versus Japan’s yen.

Currency trader Andrew Resnick stated that given the dollar’s decade-long slide versus the world’s other major currencies, it’s difficult to fathom further dollar declines, but that’s what the economic fundamentals advocate.

“From one perspective, you’ve to ask, at what point do central bankers say the dollar’s slide poses serious risks of commodity prices rises and inflation, with negative consequences for global growth?” Resnick. “On the scale of competing demands, you can make a strong argument that the dollar can not be permitted to slide much further.”

However, Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), which face additional losses, Bloomberg News reported Friday, could come under full control, also called conservatorship, of government regulators, or receive bridge loans from the U.S. Congress or the Fed, Resnick stated, absent a private equity investment. In any event, if Fannie’s and Freddie’s additional losses hit key levels, “we’re looking at another enormous government obligation, and that’s not good news for the dollar,” Resnick stated. “It means more dollars in circulation, which combined with the weak U.S. economy, will drive the dollar lower.”

Resnick added that he presently is short with the dollar in the euro / dollar, British pound / dollar, and yen / dollar currency pairings.
Fed: caught between a rock and a hard place

Further, given that a weaker dollar would increase inflation pressures, a typical response by the Fed would then be to increase interest rates, which would both support the dollar and help to check inflation, Resnick stated. “But the Fed’s hands are somewhat tied in this regard because of the condition of the U.S. economy [which is growing slowly or already is in a recession]. If the Fed hikes rates it risks choking off what little traction the economy might have at present.”

To state that Resnick doesn’t envy the Fed’s task at this juncture would be an understatement. “The economic fundamentals have deteriorated to such a degree where the Fed is left with few choices in its effort to stimulate the economy and defend the dollar,” Resnick stated, “and none of them are good.”

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Filed under: Bad news, Products and services, Market matters, Scandals, IndyMac Bancorp (IMB)

Bloomberg News reports that the Federal Deposit Insurance Corporation (FDIC) shut down IndyMac Bancorp (NYSE: IMB), a $32 billion (Q1 2008 assets) mortgage lender. Is this just the beginning of a string of such failures?

Having spent a summer 26 years ago working with the FDIC, I fear that this is the beginning of a string of such failures. What we worked on back then was a system to help the FDIC handle the assets that it acquired when it took over a failed bank. The FDIC’s role is to sell those assets and get as much money as possible as swiftly as it can so that it can pay people to whom the failed bank owes money.

Bloomberg reported that IndyMac failed due to a run by depositors who left the California mortgage lender with insufficient cash. Fortunately for depositors, customers will have access to funds this weekend via ATMs. IndyMac trails only the former Continental Illinois — which was the biggest financial institution to close — back in 1984. A great book about the failure of its business partner, Penn Square Bank, Belly Up, reveals the important role of syndication — originating a loan and then selling it to someone else — in the failure of financial institutions.

Specifically, according to the FDIC, Continental Illinois grew its business loans 180% between 1976 and 1981. It grew fast without regard to risk. And in so doing, it took a massive portion of risky oil and gas loans originated by Oklahoma-based Penn Square — that was heavily exposed to the energy sector when it imploded in 1982. Continental Illinois’s $1 billion exposure to bad Penn Square loans caused investors to lose confidence — taking Continental Illinois down with it.

But that was 24 years ago. And this day the Office of Thrift Supervision (OTS) — which should have prevented IndyMac from its reckless growth — blames New York Senator Charles Schumer for the failure. Last month Schumer highlighted IndyMac’s lax lending standards and buys of brokered deposits as the causes of its poor financial condition. According to Bloomberg, In the 11 business days after Schumer explained his concerns in a June 26 letter, depositors withdrew more than $1.3 billion. The OTS is obviously trying to shift blame from its own lax supervision onto Schumer

IndyMac fired half of its employees Monday and sold most of its retail mortgage branches to another company. Its stock has fallen from $56 on May 11, 2006 to 28 cents at today’s close.

The lesson is that in finance, rapid growth, without regard to risk, often leads to even more rapid collapse.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in IndyMac securities.

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Filed under: Products and services, Launches, Apple Inc (AAPL), AT and T (T)

After having monitored blogs and news of the iPhone 3G launch all morning and afternoon, the general feeling I get is that the launch of the iPhone 3G could be considered nothing less than a disaster. Blame Apple Inc. (NASDAQ: AAPL), blame AT&T Inc. (NYSE: T) — but if you were brave enough to “have to have” an iPhone 3G on launch day, you may have a need for a stress ball by now.

It appears that Apple’s integration with AT&T’s activation system didn’t fare so well on today. Both companies should have known, like June of last year, that it would be a super-busy day for the iPhone universe. In what seems like a commonplace event on huge product launches, activation servers crashed, software updates failed (even for the older iPhone owners who wanted to updated to the newer software) and scores of customers were left without working iPhones as the in-store activation process was absolutely fubar’ed by both companies.

For Apple to have such an awesome piece of hardware and software in the iPhone 3G, working with an aging and piecemeal telecom carrier was unfortunately a necessity. After all, Apple does not own a national wireless network with high-speed data ability. But the customer process failed miserably today — something that zealous and exuberant iPhone 3G buyers should not forget. Did you really, really need that iPhone 3G today? If your answer is yes (yeah, right), you should have expected a nightmare. For many of you, that was delivered rather nicely. Hope you kept up with your pulse, eh?

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