Archive for July 25th, 2008
sciencehabit writes “For anyone who still believes that boys are better at math than girls, a massive new study published today in Science shows there’s no difference. ‘Among students with the highest test scores, the team did find that white boys outnumbered white girls by about two to one. Among Asians, however, that result was almost reversed. Hyde states that suggests that cultural and social factors, not gender alone, influence how well students perform on tests.’ But the researchers do note a disturbing trend towards omitting harder kinds of math questions from standardized tests.”
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Many readers are sending in word that Randy Pausch has died at 47. The charismatic young college professor celebrated life despite a death sentence from pancreatic cancer in a remarkable speech widely known as the “Last Lecture.” The video went viral and has been downloaded by over 10 million people.
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Posted by: in Housing
Filed under: Forecasts, Politics, Housing, Recession
 Continued declines in U.S. home prices will force financial firms to write down $1 trillion from their balance sheets, Pacific Investment Management Co.’s Bill Gross stated in commentary published Thursday.
Further, Gross, who manages the world’s largest bond fund, stated the write-downs will constrict bank lending and require asset sales, and that either of which will affect economic growth.
Also, Gross called federal housing assistance legislation currently up for debate in the U.S. Senate following U.S. House approval Wednesday “the best way to start the long journey back to normalcy,” in the housing sector.
The legislation includes provisions that grant the U.S. Treasury the authority - - for 18 months - - to extend an unlimited line of credit and/or to buy shares in - - Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), marketwatch.com reported Thursday. Fannie and Freddie own or guarantee about one-half of the $12 trillion U.S. mortgage market.
Further, Gross added that the federal housing legislation will be effective only if it simultaneously lowers the cost of mortgage credit. Lower mortgage rates will speed the recovery in home prices, Gross added - - a critical factor in the sector’s recovery.
Economic / Housing Sector Analysis: One argues with PIMCO’s Gross about bonds and interest rates only at one’s peril, so no comments will be forwarded in that direction. Further, given Gross’s conclusion that both liquidity for Fannie and Freddie and lower mortgage rates are needed to start the housing sector’s long, slow recovery, it’s hard to evaluate the housing assistance legislation until we know its content. But clearly the provision allowing distressed homeowners to refinance into more-affordable, fixed-rate loans backed by the Federal Housing Administration to stem both the rise in foreclosures and the decline in home prices, is essential. Here’s hoping the U.S. Senate does not delete the provision. Stay tuned.
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Posted by: in Housing
Filed under: Economic data, Housing, Federal Reserve, Recession
 The Associated Press reports that mortgage rates are back up to where they were in August 2007. How can that be? After all, since then, the Fed has cut its Fed Funds rate from 5.25% to 2%. I guess Federal Reserve Chairman, Ben Bernanke’s effort to forestall another Great Depression by flooding the zone with more debt has fallen victim to the law of unintended consequences.
While his efforts haven’t loosened the credit crunch, they have succeeded in boosting inflation to levels not seen in decades. And isn’t that exactly the thing that the Fed is supposed to prevent? I was stunned to see that, as AP reported, the rate on 30-year mortgages hit 6.63% this week — up significantly from last week’s 6.26%. It hasn’t been that high since August 1, 2007 — when it hit 6.68% — before the Fed started slicing rates.
This makes me wonder whether the Fed would have been superior off leaving rates at 5.25% last fall. If so, it is likely that inflation would have remained lower instead of spiraling out of control and driving gasoline prices over $4 a gallon, tripling food prices and putting those who are paying now to heat their homes this winter into sticker shock. Simply put, the Fed rate cuts haven’t uncrunched credit but they have boosted inflation.
The reason mortgage rates are so high is that lenders perceive a much higher risk than before of not getting paid back. Moreover, the market for mortgage backed securities has dried up, which means that there’s far less capital available to finance mortgages. The credit crunch is happening not because the Fed Funds rate is too high, but because banks don’t have enough capital to make more loans.
And here’s the kicker. Since banks are running out of ways to raise external capital, it is beginning to look like they may have to rely on their own ingenuity to profit in new ways. One thing that might help is stronger economic growth. But that won’t happen as long as consumers’ incomes are flat and their costs are rising. The Fed could help out consumers by raising interest rates, since those higher rates would reverse the rising costs.
How so? Many commodities, such as oil, are traded in dollars. The 72% drop in the dollar since January 2001 has contributed to the rise in oil prices. If the markets perceive that the Fed is willing to fight inflation, the dollar would strengthen. This would help reverse price increases and make the limited dollars coming into consumers’ bank accounts more valuable.
Despite its rate cuts, credit is still crunched, but raising rates would strengthen the dollar — and that would boost the 70% of GDP growth that flows from consumer spending.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.
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Posted by: in Housing
Filed under: Before the bell, Earnings reports, Analyst reports, Analyst upgrades and downgrades, Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Market matters, Netflix, Inc. (NFLX), Black and Decker (BDK), Merrill Lynch (MER), Clear Channel Commun (CCU), Chipotle Mexican Grill’A’ (CMG), Fortune Brands (FO), Morgan Stanley (MS), Wachovia Corp (WB), Washington Mutual (WM), Economic data, Juniper Networks (JNPR), Crocs Inc (CROX), Delta Air Lines (DAL), Lehman Br Holdings (LEH), Housing
 U.S. stock futures were lower Friday morning, a day after a selloff triggered by housing data. Today investors are bracing for more housing data at 10:00 a.m. EDT after already hearing that foreclosures soared 121% during the second quarter. Other point of interest will be durable goods data reported an hour before the opening bell. Meanwhile, oil continued the steady climb that started Thursday as the dollar weakens, trading above $126 a barrel. It’s Friday, and no many earnings reports are due.
While there aren’t many earnings reports today, there are a few including Fortune Brands (NYSE: FO), Netflix (NASDAQ: NFLX) and Black & Decker (NYSE: BDK) among others.
Crocs (NASDAQ: CROX) shares are tanking over 44% to $5 after after it cut its earnings outlook significantly on softer demand for its plastic shoes. With all those knockoffs around, is it any wonder? Robert W. Baird downgraded Crocs from Outperform to Neutral, slashing the target price from $21 to $5.
Meanwhile, Juniper Networks (NASDAQ: JNPR) surged 12% in premarket trading after the company not only beat estimates when reporting quarterly results Thursday, but also increased its sales forecast for the third-quarter much higher than analyst estimates. Friedman Billings and Citigroup both upgraded Juniper to Outperform and Buy respectively.
In deal news, Clear Channel Communications (NYSE: CCU) shareholders on Thursday approved a $17.9 billion takeover by private equity funds Thomas H. Lee Partners and Bain Capital. This ends the 20-month long effort.
Chief Executive Steve Ballmer stated Microsoft (NASDAQ: MSFT) will continue its internet push and that the company was “done” Yahoo (NASDAQ: YHOO) for now.
Meanwhile, Soleil upgraded internet search giant Google (NASDAQ: GOOG) from Hold to Buy.
Merrill Lynch also upgraded Delta Air Lines (NYSE: DAL) from Neutral to Buy and Chipotle Mexican Grill (NYSE: CMG) from Underperform to Neutral.
Financials:
Wachovia (NYSE: WB) stated late Thursday that its CFO, Thomas Wurtz, was stepping down as soon as a replacement is found. That’s after two weeks ago, the company brought in a new chief executive. For now Wall Street isn’t jumping up and down with joy as WB shares are down about 1.5% in premarket trading.
CNBC reports that “Morgan Stanley (NYSE: MS), which currently employs only 8,000 brokers, is targeting the massive Merrill Lynch (NYSE: MER) brokerage sales force in a major recruitment drive.” Both MS and MER shares are up in premarket action.
Washington Mutual (NYSE: WM) shares seem to have stabilized after declining over 13% Thursday over an analyst note claiming creditors are pulling funds from the company. The company responded, saying that “WaMu funds all of its business through its banking operations and does not rely on commercial paper.”
CNBC also reports that Lehman Brothers (NYSE: LEH) may be weighing the sale of at least part of its Neuberger Berman asset management unit.
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Posted by: in Housing
Filed under: Major movement, Bad news, Federal Natl Mtge (FNM), S and P 500, Housing
 In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade — what went wrong, and what happens next.
Fannie Mae (NYSE: FNM) hardly needs an introduction — along with her brother, Freddie Mac (NYSE: FRE), she’s been grabbing headlines all over the place lately. As government-sponsored mortgage lenders, the siblings have been at the forefront of the endlessly unraveling subprime mess during the past year. But Fannie’s problems started well before the word “subprime” entered the American lexicon.
What went wrong? At number 25 on our list of S&P 500 laggards, Fannie shed 68% from June 30, 1998 through June 30, 2008, when the stock closed at $19.51. In fact, she’s been bleeding value consistently since her December 2000 peak at $89.38. So, what happened? A New York Times article dated December 3, 2000, puts it like this: “More home buyers will be able to secure cheaper loans next year because Fannie Mae and Freddie Mac … are raising the limit on the size of home mortgages they buy from banks. Under the new limit, 150,000 more families will be eligible for the lower-cost loans in 2001.”
A year after this blurb was published, our friend Fannie announced that she had committed to buying a record $49 billion in mortgage loans — and the U.S. slipped into an economic downturn. During the next several years, regulatory outcry about the record-keeping practices at Fannie Mae and Freddie Mac overshadowed concerns that the gruesome twosome might have become dangerously oversized and precariously leveraged.
What next? Fannie Mae hasn’t abandoned her propensity for sharp sell-offs. Most recently, a Lehman Brothers analyst sent the stock reeling when he warned that a proposed change to record-keeping rules could leave Fannie and Freddie severely strapped for cash. Federal regulators — and opposing analysts — dismissed this commentary as unfounded, and some on Wall Street even cited a buying opportunity following the plunge.
In the days that have followed, rumors of Fannie’s (and Freddie’s) collapse, or impending government bailout, were floated, reported, dismissed, denied, and revived with clockwork regularity. Most recently, the Home of Representatives passed a “rescue” package that would grant the Treasury to raise its line of credit on Fannie and Freddie, and purchase equity in them as needed. For our part, we’re not yet sure whether Fannie looks inexpensive at its current levels, or just plain cheap. Even as contrarians, it seems a bit of a stretch to assume that mortgage lenders will lead the economic recovery.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer’s Investment Research. She is featured in the weekly video series Option Basics on SchaeffersResearch.com.
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Filed under: Products and services, Law, Consumer experience
T-Mobile is in legal hot water for allegedly failing to protect consumers from unwanted text messages. This is the last thing the German-owned telecom company needs.
The company, which has struggled for years to gain traction in the U.S., now must deal with a high-priced and potentially humiliating class-action lawsuit. According to CNET.com, a federal judge has refused to throw the case out, which will force T-Mobile to shell out huge bucks in a settlement.
Other telecom companies and consumer groups will watch the case closely. For one thing, text message costs are skyrocketing and show no signs of slowing. This is particularly galling since people pay for all incoming text messages.
“Since 2005, rates to send and receive text messages on all four major carrier networks have doubled from 10 cents to 20 cents per message,” Slashdot.org noted recently. ‘”If the same pricing was applied on a per-byte basis to a single MP3 song download, it would set you back almost $24,000 according to one estimate.”
T-Mobile appears particularly vulnerable to the suit since unlike other telecom companies it does not offer the ability to block all text messages though people do have access to filtering software. Consumers faced the choice of either leaving the carrier and paying a $175 termination fee or absorbing the costs, according to plaintiff’s attorneys.
“This ruling is a large win for T-Mobile customers and we’re looking forward to presenting our case to the court,” said Steve Berman, managing partner of Hagens Berman, the law firm representing plaintiffs, told RCRWireless.
No doubt the lawyers will get a nice payday as well.
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daftna writes “The New York Times (registration required) is reporting that NASA researchers ‘have identified the trigger for the colorful electrical storms in the polar regions … Scientists knew two events that occur in the tail of the magnetic field during substorms, but didn’t know which event acted as the trigger for the auroras.’”
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Posted by: admin in Today News
Housing bill not just for those on edge - Chicago Tribune
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Posted by: in Housing
Filed under: Forecasts, Bad news, Housing, Recession
 Sales of existing homes in June fell 2.6%, to a seasonally-adjusted annualized rate of 4.99 million - - the lowest level in 10 years - - the National Association of Realtors announced Thursday.
Economists surveyed by Bloomberg News had expected June existing home sales to total a 4.94 million annualized rate. The annualized rate totaled 4.99 million units in May; a year ago, in June 2007, it was 5.75 million units.
Meanwhile, the national, median, existing home price for all housing types was $215,100 in June, down 6.1% from a year ago when the median was $229,000.
Existing home sales varied by region. Sales rose 1% in West, but fell 6.6% in the Northeast, 3.4% in Midwest, and 3.1% in the South.
‘Bad time to be a home seller’
Economist Peter Dawson stated the June existing home sales statistic shows that the housing market remains a buyer’s market.
“No question, it’s a bad time to be a home seller. Existing home prices continue to slide in most markets, and there’s tiny in the data to recommend a turnaround, given the U.S. economy’s doldrums,” Dawson stated. “My advise for those who are in the market to buy and don’t have to buy a home right now - - wait it out, quarter by quarter. Prices in your market could drop considerably.”
Equally significant, inventories - - unsold homes - totaled 11.1 months at the current sales rate, up from a 10.8-month supply in May. A typical, healthy housing market has a 3-4 month supply of unsold homes on the market.
Economic Analysis: A slight rise in existing home sales earlier this spring proved to be a blip, which underscores the need to evaluate the housing market over 3,4,5 months - - not simply on one monthly data point. Further, it’s also difficult to assess the housing market solely on June, July, August data: they’re skewed higher, due to families moving when grade school kids are out of school. With the above in mind, we’ll need to wait until October before one can gauge, with confidence, the extent of the housing recession. For now, it’s clear that prices and sales are continuing to soften in most markets, with a recovery not in sight.
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