Gov’t Announces Plan to Stem Foreclosures

Posted by Patrick O'Connor on 11/11/08 1:45 pm

In what’s being hailed as a step in the right direction, but not a panacea, the FHA announced that Fannie Mae and Freddie Mac will speed up anti-foreclosure efforts to keep potentially hundreds of thousands of people from abandoning their mortgages.

“This is a step in the right direction but falls short of what is needed to achieve widescale modifications of distressed mortgages,’’ said FDIC Chairman Sheila Bair.

Bloomberg article
Yahoo Finance article
MarketWatch article
WSJ article

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G20 Washington Summit Will Not Test President-elect Obama

Posted by Louis Navellier on 11/11/08 10:32 am

The summit of G20 leaders in Washington this Friday and Saturday will be crucial to helping restore confidence and will likely result in new international capital rules for banks and other financial institutions, possibly including hedge funds, which are responsible for triggering much of the recent panic selling in stocks.

President-elect Barack Obama was expected to attend the conference and meet some concerned allies, but his spokesman Robert Gibbs said Obama will stay away in protocol.

During Obama’s presidential campaign, he said that China’s huge trade surplus with the U.S. was due to “manipulation of its currency.” On Thursday, China’s foreign ministry spokesman Qin Gang responded by saying, “We hope that the policy of free trade will continue… We must prevent trade protectionism, which is no good for either side.” Over the weekend, China also said that it plans to spend four trillion yuan ($586 billion) by 2010 for stimulus measures, to combat slowing domestic and trade growth, and lower consumer spending.

On the foreign affairs front, China is not the only nation eager to test President-elect Obama.  Afghanistan, Israel and Russia also want to “test” the new President-elect.  In the case of Afghanistan, recent civilian casualties are prompting President Karzai to publicly ask Mr. Obama to change U.S. military tactics next year.  Israel made it crystal clear that Obama should not open direct talks with Iran, since it would be a sign of weakness.  Russia is piling on the young President-elect, asking him to reconsider the U.S. strategic missile shield in Poland. Otherwise, Russia said it would move to station new missiles near Poland’s border, in response.

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Bloomberg News Suing Federal Reserve

Posted by Patrick O'Connor on 11/10/08 1:59 pm

This is a good one.  The Federal Reserve is refusing to disclose not only which companies will receive almost $2 trillion in emergency aid from U.S. taxpayers, but also the types of collateral it will accept on behalf of taxpayers. That’s right.  Taxpayers have to pay-up, but they don’t get any transparency.

Bloomberg News is suing the Fed to release the information under the Freedom of Information Act.  Read More.

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Are Stocks Cheap?

Posted by Peter Knapp on 11/3/08 7:15 am

It is axiomatic that stocks are not cheap if the markets are set to fall another 10 or 30 percent. They will then be a lot cheaper of course.  We are not writing here to predict the market’s movement.  But an historical look at P/E ratios provides evidence that Warren Buffet is correct:  Stocks are cheap today. 

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Hartford Announces Shocking Results

Posted by Patrick O'Connor on 10/30/08 10:30 am

Hartford Financial unleashed a $2.6 billion third-quarter loss, its worst result in nearly 200 years of business.  Moreover, the company said it couldn’t accurately estimate the amount of extra capital it has because of market volatility.  As a result, Hartford’s five-year credit default swaps jumped 42 basis points today to about 508 basis points, according to Markit Intraday, and its stock price collapsed more than 50%.

Not surprisingly, other big U.S. life insurers are realigning their investment portfolios.

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Treasury, FDIC Consider $500B Mortgage Guarantee

Posted by Patrick O'Connor on 10/30/08 10:12 am

The U.S. Treasury and FDIC are discussing a $500 billion mortgage guarantee plan to stem the flood of foreclosures in the housing market.

FDIC Chairman Sheila Bair is largely responsible for the creation of the plan.  She is one of a handful of people in Washington who has been concentrating on the heart of the problem--subprime mortgages.

If you can’t stop the bleeding in the housing market, why use taxpayer money to invest in banks?  Kudos to Ms. Bair for focusing on the root of the problem.  Foreclosure prevention is a critical element for mending the credit crisis.  If the government allocates $500 billion toward the foreclosure mess, its decision to recapitalize banks would make a lot more sense.

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Third-Quarter GDP Declines 0.3%

Posted by Patrick O'Connor on 10/30/08 9:41 am

U.S. Gross Domestic Product (GDP) fell 0.3% in the third quarter.  The result was slightly better than the -0.5% consensus, but the decline confirmed a recession is at hand, according to several economists.

“This is the first of a run of negative GDP numbers; the economy is in recession.  We tentatively expect GDP of -1% in Q4 and Q1 09,” said Chief U.S. Economist Ian Shepherdson at High Frequency Economics.

Consumer spending, which accounts for approximately 70% of U.S. economic growth, declined by a whopping 3.1%, the most since the second quarter in 1980. Business capital spending tanked 5.5% and housing investment cratered 19.1%.

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Investors Need More Than a Rate Cut From the Fed

Posted by Louis Navellier on 10/28/08 9:12 am

Last Friday, Britain announced that it slipped into a recession in the third quarter.  And on Thursday this week, the U.S. will likely announce that it is headed for recession, too, when the government releases its preliminary estimate for third-quarter GDP.  Economists are predicting that the U.S. economy contracted by 0.5% in Q3.  However, before the GDP report gets released, the Federal Open Market Committee will most likely cut interest rates on Wednesday.  The futures market is predicting a 100% chance the Fed will cut the federal funds rate by 0.5% to 1%, primarily because Fed Chairman Ben Bernanke has signaled there will be an additional rate cut.  Furthermore, market rates, based on the 3-month Treasury bill, remain below 1% and the Fed rarely fights market rates.

As a result, the GDP report might not have much effect on the market since a -0.5% reading is likely already priced in.  But if the reading is worse than expected, we could see more weakness in stocks.  That’s why we need some encouraging words from the Fed to go with a rate cut on Wednesday.

The Fed’s statement will be thoroughly scrutinized and it will help set the tone for the stock market in the days ahead.  If the Fed shows fear, the stock market will likely give back much of today’s gains, especially if the GDP report is worse than expected.  If the Fed gives us a silver lining, the stock market will likely extend today’s rally. 

Investors need a spark that will release the trillions of dollars sitting in cash on the sidelines and stop the massive erosion in stock prices.  Hopefully the Fed will step up to the plate tomorrow and cut interest rates by at least 0.50% and say something that gives investors hope.

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Consumer Confidence Hits New Low

Posted by Patrick O'Connor on 10/28/08 8:05 am

The Conference Board’s Consumer Confidence Index plummeted to 38.0 in October from 61.4 in September.  The reading was the lowest since the data series began in 1967, and it is consistent with consumer spending falling at a 3.5% annualized rate.  However, some economists believe the confidence reading overshot on the downside and that it will rebound somewhat after consumers benefit from the huge drop in gasoline prices.

No matter how you slice it, though, consumer spending will be negative for the foreseeable future.  That will guarantee negative GDP for several months, if not quarters.  The first estimate of GDP for the third quarter gets released on Thursday.  Economists believe it will be down 0.50%, according to Economy.com.

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Fed sets Deadline for CDS Clearinghouse Framework

Posted by Patrick O'Connor on 10/28/08 7:24 am

Better late than never…the Fed set an October 31 deadline for exchanges to craft guidelines for making the $55tn credit default swaps (CDS) market safer.  The previously unregulated CDS market is largely responsible for the credit crisis.  Read More.

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