Investing Express

Hilton head homes for sale

2008-12-04T13:42:00.000-08:00

After some years of working just to reach the top of the corporate ladder, you certainly deserve a break. It's time you indulge yourself.

Why not go for the ultimate vacation getaway? Invigorate yourself with the peaceful sound of the sea, the sweet and gentle touch of the ocean breeze, the sight of dazzling blue waters as well as rich flora and fauna. If you have been longing to experience these priceless natural treasures, then Hilton Head Island is the right place for you.

Hilton head homes for sale is one of the best vacation destinations in the world. This second largest barrier island along the eastern coast of the United States spans 55.5 square miles. It takes pride in its breathtaking 12-mile beachfront that overlooks the Atlantic Ocean. Hilton Head homes welcomes about 2.5 million tourists every year, making it one of the leading tourist spots in South Carolina and in the U.S.

This beautiful island in Beaufort County has nearly 40,000 inhabitants, according to the 2000 population report. Most of those who have settled down here are Hispanics and wealthy migrants from northern states. What made these people decide to make hilton head real estate is evident: the pristine beauty of the place.

Staying in Hilton Head Island is not a problem. There are many houses, villas, apartments and condominium units for rent. You can find most of them in Sea Pines, Forest Beach, Palmetto Dunes and Shipyard plantations.

Stocks Surge on Geithner Pick

2008-11-23T14:13:00.000-08:00

U.S. stocks surged Friday after word leaked that President-Elect Barack Obama plans to nominate New York Federal Reserve President Timothy J. Geithner as his nominee for U.S. Treasury Secretary.

There were other news items affecting the market Friday, including more fretting about the fates of Citigroup (C) and the U.S. auto industry. But major market indexes remained flat until reports of the Geithner pick arrived, sparking a rebound from Thursday's plunge to an 11-year low.

On Friday, the Dow Jones industrial average jumped 494.13 points, or 6.54%, to 8,046.42. The broad S&P 500 index gained 47.59 points, or 6.32%, to 800.03. And, the tech-heavy Nasdaq composite rose 68.23 points, or 5.18%, at 1,384.35.

On Thursday, by contrast, the Dow had plunged 444.99 points, and the S&P 500 closed at 752.44 -- its lowest level since April 1997. Friday's rally brings the S&P 500 back above its October 2002 lows.

Several market observers said Friday's reaction to the Geithner pick demonstrates a thirst for stronger leadership from Washington.

"There is a void of market confidence," says Bill Larkin, fixed income portfolio manager at Cabot Money Management.

In recent days, as stocks tumbled to levels not seen since the 1990s, many market commentators partly blamed confusing signals coming from Washington. Congress spent the week arguing but failing to agree on a bailout plan for General Motors (GM), Ford (F) and Chrysler. And, current Treasury Secretary Henry Paulson was criticized for shifts in the financial bailout plan.

Stocks rallied on the Geithner pick because "he's the right man at the right time," says Peter Cardillo, chief market economist at Avalon Partners. As president of the New York Fed, Geithner was involved in Paulson's efforts to prop up the financial system, but there's hope he can also improve on the current administration's efforts. Geithner also served as a Treasury undersecretary during the Clinton administration and helped respond to the Asian economic crisis in 1997.

"He has a lot of experience and certainly he knows the canyons of the financial markets," Cardillo says.

"I expect [Geithner] will treat the current situation with the urgency that it deserves," says Ward McCarthy, principal at Stone & McCarthy Research Associates. "I also expect him to be far more creative than Treasury Secretary Paulson."

Financial markets may be reassured Obama didn't choose a fresh newcomer who wouldn't understand the players in the crisis and couldn't hit the ground running, Larkin says. The pick "had to be someone who is currently in the system."

It's expected that Obama will name several key members of his economic team next week. Reports Friday said New Mexico Gov. Bill Richardson is Obama’s pick for commerce secretary.
Trading in stocks was active Friday, a day that November stock options expired. Bonds prices and the dollar index fell Friday, while gold and crude oil futures moved higher.

Also in the headlines, Congress headed home for Thanksgiving, leaving U.S. automakers still struggling for California loans to keep going. General Motors (GM) Friday extended its holiday shutdown and said it would make more production cuts.

Shares of Citigroup (C) fell almost 20% Friday, following Thursday's drop of 26%, its worst one-day percentage decline ever. Initially Citi stock was buoyed Friday by a Wall Street Journal report that Citi was weighing the possibility of auctioning off pieces of the financial giant or even selling the company outright. But chief executive Vikrum Pandit said on Friday he does not want to sell Citi's Smith Barney brokerage unit or break up the troubled bank, based on several news organizations' accounts of a Friday morning conference call with Pandit's staff.

Though the Geithner pick lifted the market's mood, investors have been continually reminded of the weak state of the economy both in the U.S. and globally.

On Friday, European stock markets fell, with major indexes in London, Frankfurt and Paris down 2% or more. Asian markets finished mixed, with Tokyo stocks rising 2.70% and Hong Kong gaining 2.93%, but Shanghai falling 0.72%.

In a speech Friday, a Fed official warned the U.S. economy could stay weak for quite a while. "We likely are in for a protracted period of poor economic performance," Charles Evans, president of the Federal Reserve Bank of Chicago, said.

On Friday, President Bush signed into law an extension of jobless benefits. Earlier in the year, Bush expressed doubts about further benefit extensions, but he came to support the legislation as new figures showed new claims for jobless aid had reached a 16-year high. In what could be its last vote of the year, the Senate approved a measure Thursday that would provide up to three months of extra benefits for those whose unemployment benefits have run out or are about to expire. The House passed the bill in October.

There were no significant economic reports released Friday.

In other U.S. markets Friday, the 10-year Treasury note slipped 1-20/32 to 104-22/32 for a yield of 3.2%, while the 30-year Treasury bond dropped 4-06/32 to 114-12/32 for a yield of 3.69%.

December West Texas Intermediate crude oil futures hovered around the $50-per-barrel mark on Friday, ending up 96 cents at $50.38 per barrel.

December gold futures rose almost 7% to 800.50 per ounce.

What Five Key Stock Market Signals Are Telling Us Now

2008-11-23T14:10:00.000-08:00

As U.S. stocks hit new 11-year lows on Nov. 20, many investors say they just don't know what's ahead.

There's a general lack of clarity on a wide range of issues—the state of the U.S. and global economies, problems in the credit markets, the plans of the federal government, and the fate of hedge funds that are being forced to sell off assets. Unfortunately, much of the fog of the financial crisis will not be cleared up anytime soon.

However, there are several key signals that traders, strategists, and fund managers typically watch closely in times of uncertainty. Given the unprecedented environment, it's not clear if any will be a reliable guide this time, but these signals do give investors something to monitor for clues to the road ahead.

Here's a review of five of those signals and what they're saying now:
1. Technical Signals

Technical strategists analyze and predict market activity based on previous market moves. This week, the stock market failed a key test: The broad Standard & Poor's 500-stock index not only fell below its October 2008 lows, but the big-cap benchmark also blasted below its lows during the nasty bear market of 2002.

On the morning of Nov. 20, the S&P 500 briefly tested these 2002 lows in the morning but then rebounded. But late in the day, stocks sank and the S&P 500 closed at 752.44. That's below the index's October 2002 low of 768.63 and the lowest level for the index since April 1997.

The 2002 lows are "a major support level," says Dave Rovelli, equity trader at Canaccord Adams.

Richard Sparks of Schaeffer's Investment Research says "you could see a cascade of selling" if stocks stay way below those prior lows. Before stocks fell to this level, people could "feel comfortable that that is a basement that the market might not go below."
2. Reports from Washington

Michael Yoshikami of YCMNET Advisors criticizes "a general lack of clarity from the Administration [and] federal agencies on what's happening and what the path out is."

On Nov. 20, Democratic congressional leaders said they would delay a vote on a bill to help the U.S. auto industry—efforts some Republicans have opposed—until December. U.S. Treasury Secretary Henry Paulson has raised eyebrows by changing the focus of the financial package a few times. Bush Administration officials are on their way out of office, but President-elect Barack Obama hasn't yet chosen his economic team, whose members would have no real power until Jan. 20 even if they were in place.

This flow of news from Washington is rattling investors, many market watchers say. "No one really has a good idea what the plan really is," says Bruce Bittles, chief investment strategist at R.W. Baird.

Chad Deakins, portfolio manager at RidgeWorth International Equity Fund (SCIIX), says he doesn't expect any clear signals from Washington until Obama takes office. "Until the new Administration comes to the White House and sets a tone and direction, it's hard to see strong upside in the equity markets," Deakins says.

Car Loan in Florida

Credit Markets: Finding the Weakest Links

2008-10-23T07:46:00.000-07:00

Jacinto Torres, an associate director of S&P Rating Services, contributed to this report.

Who are the "weakest links" in the global debt market? At Standard & Poor's Ratings Services, we use the term to describe those companies, governments, or other debt-issuing entities rated B- or lower, with either a negative outlook from S&P or with ratings on CreditWatch with negative implications, and therefore most vulnerable to default. S&P updates this list monthly.

Negative outlooks and CreditWatch listings serve as good leading indicators of actual downgrades. The proportion of defaulters from the portfolios of the weakest links in the U.S. going back to 1999 in any one- or three-year period is higher than the proportion of defaulters from the entire pool of speculative-grade (issues rated below BBB-). The one-year default rate for weakest links, on average, was 6.6 times higher than for all issuers with speculative-grade ratings since 1999, and was 11 times higher at the end of 2007, when the U.S. speculative-grade default rate was at a 25-year low.

Global weakest links continue to increase sharply, as eroding credit quality leads to lower ratings and more entities with negative outlook or CreditWatch. As of Oct. 15 global weakest links increased for the eighth consecutive month, to 181 (see the full list), with combined rated debt worth over $388 billion.
Recession Is to Blame

The continued increase in weakest links is not surprising given the volatility in the credit markets and the unfolding recessionary conditions in the U.S. In the 2001 recession the sharp rise in defaults accompanied the rise in weakest links. In 2008, 54 of the 61 publicly rated companies that have defaulted through Oct. 15 were weakest links.

Since our September 2008 report, nine entities were removed from the list and 28 were added, for a net addition of 19 issuers. The final issuer added to the list was Uno Restaurant Holdings, which was upgraded to CCC from D following its decision to pay its Aug. 15 interest payment before the 30-day cure period expired.

Of the 28 additions to this month's list, 17 were from the U.S., seven from emerging markets, three from Europe, and one from Canada. The media and entertainment sector had the biggest increase in weakest links, with seven entities, followed by forest products and building materials with three.

The sector breakout of weakest links has consistently identified the media and entertainment, consumer products, forest products and building materials, and retail/restaurants sectors as most vulnerable to default. The media and entertainment sector showed the highest vulnerability to default, with 40 weakest links, constituting 22% of the total number of weakest links. This is followed by consumer products with 19 weakest links, and forest products and building materials and retail and restaurants sectors with 18 weakest links each. Entities in these sectors are particularly vulnerable to cyclical trends in the macroeconomic environment. Moreover, increased domestic and global competition has pressured these companies to adopt more aggressive financial policies, leading to some of the highest volumes of leveraged activity in the past several years.

Geographically, U.S.-based issuers (including those in tax havens such as Bermuda and the Cayman Islands) are featured disproportionately on the weakest links list, accounting for 77.3%. This preponderance is partially attributed to the higher ratings penetration in the U.S. marketplace (see table 5). By volume, the 140 U.S.-based weakest links account for $346.30 billion of debt, or almost 90% of the total $388.52 billion of debt issued by all weakest links. Much of the dollar amount of the U.S. portion of the debt is attributable to giant automakers Ford Motor (F) and General Motors (GM), both of which are rated B-, with ratings on CreditWatch with negative implications.

How Obama Is Spending $150 Million

2008-10-23T07:44:00.000-07:00

When college football fans watch the big Penn State vs. Ohio State game on Saturday, Oct. 25, there will be more going on than smash-mouth football. There will be smash-mouth politics, at least during the advertising breaks. It's the best chance before the Nov. 4 election for Presidential candidates John McCain and Barack Obama to reach male voters, especially white male voters in two of the remaining swing states, Pennsylvania and Ohio.

Senator Obama (D-Ill.), who raised $150 million in the month of September and may do nearly as well in October, will dominate the game's broadcast in Pennsylvania, according to Paul Roda, national sales manager of Harrisburg (Pa.) ABC affiliate WHTM. "There will be a lot of Obama, and more politics than any other single category, I believe," says Roda. It's the same story for the ABC affiliates in Cleveland and Columbus, Ohio, where the two candidates are battling for every vote.

Obama has a huge financial and tactical advantage in the final two weeks of the campaign. Senator McCain (R-Ariz.), who is participating in the public financing system for Presidential elections, has been limited to spending a total of $84 million in the two months before the vote. But Obama bypassed the public financing program and has continued to raise private donations.

The huge Obama cash kitty will give his campaign more maneuvering room in the complex dance that determines who can buy TV ads, when, and where.
"Fire Hose" of Funds

Not only can Obama afford to fund a more sweeping ground operation in key states such as Ohio, Pennsylvania, North Carolina, Indiana, and Florida, but he can well afford to pay the premiums that TV stations are charging as politicians compete against retailers, car dealers, and wireless phone companies that traditionally load up their ad buys in the last week of the month to bolster their end-of-the-month sales results.

Additionally, Obama can afford to buy both national and local ad slots, whereas McCain and the Republican National Committee have dropped national broadcast and cable buys to focus their more limited resources on targeted local buys in key swing states and congressional districts. An Obama campaign adviser, who asked not to be named, said: "It feels like we have a fire hose and they have a garden hose."

On Monday, McCain campaign manager Rick Davis predicted that by Election Day the McCain campaign and the RNC will have spent nearly $400 million for the two-month fall campaign, according to the Associated Press. He downplayed the impact of money on the advantage Obama currently enjoys in polls: "The lack of money in Wall Street has had more to do with the outcome of this last month politically than the money in Barack Obama's bank account."
Competing for Ad Slots

The World Series, whose first game was on Wednesday night, is tailor-made for the two campaigns. And the Fox affiliates in both the Tampa Bay area and Philadelphia, nestled in two of the last true battleground states, hope the Series between the Tampa Bay Devil Rays and Philadelphia Phillies goes to seven games. A Fox official would only say that the network and local affiliates were in heavy discussions with both campaigns about ad time. Ad availability for the first two games in St. Petersburg is sold out, with both campaigns having made significant buys.

Stations like Harrisburg's WHTM and Tampa's WTVT charge a 25% to 50% premium for an ad that cannot be preempted by another advertiser paying more for the time. Obama's campaign has stocked up on such buys during the next two weeks. Most of McCain's buys are for a tier below that, which means campaign officials get notified if another advertiser is trying to buy the same time slot, and can spend more to hold the spot.

"Obama has such a huge cash advantage that he is forcing McCain to either buy the top-priced ad inventory that locks in the buy, or pay up because Obama's campaign can challenge every ad buy McCain makes in swing states.… Either way it means McCain can afford fewer ads even if they can get the slots," says Felix Dumbarton, an independent media consultant.
Two-Front Ad War

Both campaigns make their ad buys week by week. That's because they couldn't know back in August which states would be the most hotly contested. Of course, campaign officials assumed Ohio and Pennsylvania would be key states. But the same wasn't true of states such as Florida, which has only become competitive for Obama in the last few weeks. That has allowed the Democratic nominee to pull ad spending his campaign had earmarked for Michigan, Wisconsin, and Colorado, and push it into Florida, Virginia, Indiana, and Missouri. In a recent report covering the week of Sept. 28 to Oct. 4 by the Wisconsin Advertising Project at the University of Wisconsin-Madison, which monitors political ad spending and content, Obama outspent McCain and the RNC by more than 3 to 1 in Florida, and 8 to 1 in North Carolina.

Obama's financial advantage is making it difficult for McCain's campaign even to find ad inventory in premium programming slots in key media markets like Tampa and Jacksonville in Florida, Cleveland and Columbus in Ohio, and Harrisburg and Pittsburgh in Pennsylvania. "So they have to resort in many cases to advertising in programs with lower rating points, and that means you reach fewer people," says Dumbarton.

Obama also has been able to play a two-front media war against McCain, running both positive ads and attack ads. McCain has often chosen his battles week by week. For instance, in the week that preceded the last Presidential debate, 100% of McCain's ads were negative, according to the Wisconsin Advertising Project. Since then, after seeing a dip in the polling, McCain's campaign launched new positive ad messages, but attack ads still represent a majority of the ads running. During the same period, one-third of Obama's ads were negative.

Making it even tougher on McCain and the RNC is that Obama has been able to spend millions on relatively cheap Internet advertising, and even a small amount on video games, to reach the younger voters who are the heart of his base. McCain's biggest group, on the other hand, are seniors, and it costs much more to reach them in more traditional TV buys such as news, game shows, and soap operas.
Down-Ticket Races

Obama's fundraising advantage has also been a boon to the Democratic National Committee, which hasn't had to buttress Obama's ad buys with its own money the way the Republican National Committee has had to with the McCain campaign. That has allowed the DNC to better coordinate with the Democrats' House and Senate election committees and send its money into markets where there are hotly contested House and Senate races, and to help make the difference in races that have drawn closer. That's true in the Fourth District of Connecticut, where Republican Representative Christopher Shays suddenly looks vulnerable to challenger Jim Himes, and in Minnesota's Sixth District, where Republican Representative Michele Bachmann is dropping in the polls and opponent Elwyn Tinklenberg has received more than $1 million in new donations and an infusion of cash from the Democratic Congressional Campaign Committee.

According to ad monitoring firm TNS/CMAG, McCain spent $9.4 million on ads in key battleground states the week of Oct. 12, and is spending more than that this week. McCain has moved his buys into the expensive media market of Washington, D.C., where he can reach suburbs in Northern Virginia as he tries to make up some ground in an attempt to keep Virginia a red state. The RNC is spending about $1 million a day between now and Nov. 4 on pro-Republican/anti-Democrat ads that help McCain in his key areas.

Meantime, Obama has budgeted at least $30 million in TV ads in contested states in the final two weeks. That is, in part, a function of there not being much ad time left to buy during worthwhile programming in those areas. That still leaves tens of millions of dollars available for Obama to spend on get-out-the-vote efforts in the states he needs, as well as closing the gap in states where McCain is ahead but vulnerable, such as West Virginia and Nevada.

Investing: The Pros' Crisis PlaybookInvesting: The Pros' Crisis Playbook

2008-10-23T07:42:00.000-07:00

Talk to investment strategists about where to place equity bets over the next six to 12 months and they turn squeamish. Most admit they can't tell how long or deep the recession will be, or how risk-averse investors will continue to be after the heavy blows they've absorbed in the stock market downturn.

Some will tell you there are few compelling buying opportunities in the near term, while others, rather than admit to pessimism, doubt, or the failure of diversified asset allocation, emphasize moves for patient investors. Patience, in this case, is for those who can afford to not see a positive return on their investment any time soon.

Since the investing world has been turned upside down in the crisis—with volatile market swings a near-daily occurrence, including a 514-point drop in the Dow Jones industrial average on Oct. 22—BusinessWeek decided to check back with financial pros we have spoken with in the past to get their take on the current situation. Deciding which investment gurus to tap for this story wasn't simple, given how overly optimistic market pros' predictions were for 2008, even among those forecasters who have proved the most reliable in the past.
Another Leg Down?

Rob Arnott, chairman of Newport Beach (Calif.)-based Research Affiliates, an investment management firm that licenses ideas to companies like Pimco, says he wouldn't be surprised if there's another leg down in this bear market. The stocks that have held up best through the turmoil and carnage—growth-oriented names in the technology, telecommunications, and health-care industries—likely have yet to fully reflect the risks that lie ahead, he thinks.

"If we're in the early stages of a recession, then presumably we're in the late stages of a bear market," he says. "Within the next six to 12 months, we will see outright capitulation in the growth sectors. That will set the stage for a bull market." He doubts the housing market will hit a bottom until 2010, by which time the economy will already be on the road to recovery.

The heavy selling that's been seen in recent weeks typically drives the faint-hearted out of the market, leaving only those committed to gains over the long term, says Bruce McCain, chief investment strategist at Key Private Bank (KEY) in Cleveland. But as was the case in the early 1930s, the challenges facing the financial system could end up being fairly benign or could turn out to be very serious. That will depend on whether the government policy response can avoid some of the mistakes made nearly 80 years ago. In the near term, McCain predicts stocks will try to rally before re-testing the lows from early October.
Some Expecting Yearend Rally

For signs of recovery, he says he would want to see selling volume drying up on any retest of the previous lows. If the market doesn't break to new lows, he says he would expect investor sentiment to improve and enable the market to begin an uptrend, but he thinks any progress in stock values will be rather slow and steady. "As long as we see that evolving and as long as the system doesn't start to fall apart more seriously at the economic level, we can define what the next year should look like," he says.

Some market strategists are predicting a yearend rally that could start as soon as early November, based on how oversold equities have gotten, but they don't expect any uptrend to be sustained beyond yearend with a longer and deeper-than-usual recession expected.

Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics , describes the current stock market as a "plasma market," a reference to the abnormal state of matter once it's been superheated and the usual rules of physics give way to the rules of quantum mechanics. In the midst of a global credit freeze, all of the usual rules about market fundamentals, technical trading patterns, and what works when the markets are in defensive mode have ceased to hold true, according to Ritholtz. "It's a very different environment, so we're being cautious," he says. "The easy way to do that is to buy indexes, not individual names. That's the opposite of our usual approach. We're usually stock pickers."
Market Could Revisit Lows

Arnott at Research Affiliates says he's not ready to turn bullish on stocks yet but believes there will eventually be good opportunities in value sectors that have been bludgeoned, such as financial services. "We don't know which ones will be next on the chopping block, but we can say with confidence that with each failure, the competitive landscape improves," he says.

Regardless of what the government's quarterly economic growth reports say, Ritholtz believes the U.S. has been in a fairly mild recession for a year, one that is already priced into stocks. "What we don't know is whether a worse recession is priced into stocks," he says. The market could revisit the lows from early October and possibly break through them, but he's betting on a broad-based rally that could take the S&P 500 index up 10% to 15% with very little stimulation.

William Nobrega, managing partner of the Conrad Group, an investment advisory firm in Miami, believes that heavy equipment makers such as Caterpillar (CAT) and Deere (DE) will do well, due to strong foreign sales and impending infrastructure investments in the U.S. that could total as much as $150 billion in 2009 alone. Renewable energy outfits like Johnson Controls (JCI) and environmental-services companies like Waste Management (WMI) are also good bets, he says.
Lack of Visibility

Manny Govil, a fund manager at San Francisco-based RS Investments who manages the $700 million RS Large-Cap Alpha Fund (called the RS Core Equity Fund until Oct. 15) is one of the few who see lots of potential in equities specifically because of the lack of visibility about the direction of the economy and the strength of the financial system. But he's focusing on individual names rather than broad sectors. The main reason he's steering clear of traditionally defensive sectors such as consumer staples: The valuations aren't low enough to suggest sufficient expansion once the economy begins to recover. He's looking for companies that are as likely to hold up well during an economic downturn as perform well once a recovery begins.

His favorite pick right now is McDonald's (MCD), whose 2008 earnings are expected to grow between 15% and 20% from last year and between 5% and 10% in 2009, while profitability for most companies is declining. He sees the fast-food giant benefiting from a drop in commodity prices, solid same-store sales growth, and an increase in franchisee-owned stores. "Outside the U.S., they've been selling company-owned stores to local entrepreneurs, who can generally market things better because they're better tied into the local markets," he says. And the profit margins on franchise stores, which give a percentage of earnings to the company, tend to be higher than for company-owned stores, he adds.

He also likes Republic Services (RSG), the third-largest trash hauling company in the U.S., but in his view the best managed among the big three. Trash collectors are more resilient than normal cyclical companies and don't rely on a robust economy, and have some pricing power due to the consolidation that's taken place in the past 20 years. Republic will also benefit from lower fuel prices and may garner cost savings as a result of a recent merger, according to to Govil.
"Bargains for Patient Investors"

Consumer staple stocks such as Procter & Gamble (PG) and Coca-Cola (KO) are attractive investments, not only for their fairly low valuations but their annual dividend growth, says Tom McManus, chief investment strategist at Wachovia Securities (WB) in St. Louis. Procter & Gamble, trading at nearly 13.7 times next year's earnings, is down 17% on the year and has held up compared with stocks that are down as much as 50% to 70%, he says. McManus says P&G's 6.2% dividend yield doesn't sound that impressive compared to other high-yielding stocks, but the company has boosted its annual cash payout an average of 12% over the last five years, thanks to profit growth driven by its focus on international markets. Coke is selling at 13.6 times estimated 2009 earnings and its annual dividend has grown by an average of 11.5% over the last five years.

"These are not tremendous bargains but they're bargains for patient investors who will take advantage of the fact that the broad market is down but the economy hasn't put extreme pressure on these companies," says McManus.

But those who aren't so confident about what the future holds may prefer to take a tip from Laszlo Birinyi, president of Birinyi Associates, in Westport, Conn., who says, "If you make any significant moves [within the next year], you're either guessing or hoping."

Given how quickly markets can change direction, he suggests that people be a little more aggressive in taking profits on stocks they currently own while staying in positions by buying back shares of those same stocks on dips. "You don't want to be out of the market," he says.

Economic Woes Weigh on Stocks

2008-10-23T07:34:00.000-07:00

U.S. stocks were indicated to open lower Thursday as major index futures fell in premarket trading, following a steep slide in the previous session. on Globex. A report that showed weekly initial jobless Claims rose 15,000 to 478,000 added to arguments the U.S. economy is sliding into a steep recession that is becoming global.

Former Fderal Reserve Chairman Alan Greenspan is seen calling for more financial regulation at a House hearing Thursday on housing and the financial crisis. Meanwhile, the Bush administration is considering a $40 billion program to forestall housing foreclosures, according to a press report.

The dollar index was up at a two-year high as the worsening global economic outlook is prompting investors to liquidate risky assets. Bonds were also higher. Gold futures continued their descent. Oil futures were of before Friday's OPEC meeting.

European stocks were lower Thursday. In Asia, markets suffered more selling, with Tokyo stocks falling 2.46%, Hong Kong down 3.55%, and Shanghai lower by 1.07%.

U.S. stocks fell to their lowest levels in more than five years Wednesday amid worries about a serious economic slowdown not only in the U.S. but worldwide. On Wednesday, the Dow Jones Industrial Average tumbled 514.45 points, or 5.69%, to 8,519.21. The broad S&P 500 shed 58.27 points, or 6.1%, to 896.78. The tech-heavy Nasdaq composite fell 80.93 points, or 4.77%, to end at 1,615.75.

Lawmakers have called key players from the past and present to congressional hearings in an effort to find out what caused the biggest financial crisis since the 1930s and determine how the government plans to get the nation out of the mess. Former Fed Chairman Alan Greenspan, the star witness today before the House Oversight and Government Reform Committee, faces questions about actions the government took or didn't take that might have contributed to the boom in subprime mortgages and the subsequent housing market collapse that has led to the loss of billions of dollars in investments, according to AP.

Greenspan, who was succeeded in 2006 by Ben Bernanke, was likely to find himself defending actions he took that are being blamed for contributing to the current crisis. Critics charge that he left interest rates too low in the early part of this decade, spurring an unsustainable housing boom, while also refusing to exercise the Fed's powers to impose greater regulations on the issuance of new types of mortgages, including subprime loans. It was the collapse of these mortgages and rising defaults a year ago that triggered the current crisis.

Greenspan recently described the current episode as the type of wrenching financial crisis that comes along only once in a century. He has defended the use of derivatives, so-named because their value is derived from the value of an underlying asset. He said they were useful in helping to spread risks.

Greenspan called for tighter regulation of financial companies, distancing himself from the free-market culture that he helped to create. Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony to the House Committee on Oversight and Government Reform. Bloomberg reported on his testimony. Other rules should address fraud and settlement of trades, he said. Greenspan's office released the text ahead of the hearing scheduled for 10 a.m. EDT in Washington.

Paul Volcker, Greenspan's predecessor, said at a New York conference Wednesday that "We are really going to have to rebuild this system from the ground up." Volcker said the creation of complex financial products "instead of spreading the risk and creating transparency" wound up concentrating risk and "opaqueness." Volcker, 81, said the current crisis is more complex than any other in U.S. history.

House Financial Services Committee Chairman Barney Frank called this week for a freeze on executive bonuses and other stronger regulation of Wall Street, following passage of a $700 billion rescue plan for financial institutions. Frank said in a hearing in February that Greenspan "erred" in "his view that regulation was almost never required." Greenspan "often told us" that there were two options: "I can either deflate the entire economy or I can let the problems continue," Frank said. SEC Chairman Christopher Cox and former Treasury Secretary John Snow are also scheduled to appear at the House committee hearing today.

Meanwhile, Neel Kashkari, the interim head of the government's $700 billion rescue effort, and other government officials are scheduled to testify before the Senate Banking Committee about their plans for implementing the massive program. Lawmakers in particular want government officials to explain why the emphasis in the rescue package has switched from a program that initially was aimed at buying billions of dollars of troubled mortgage-related assets from banks as a way to spur them to resume more normal lending. A week ago, Treasury Secretary Henry Paulson announced that the program now would have as a major component the purchase by the government of $250 billion in stock in hundreds of U.S. banks, including $125 billion that would go to nine of the largest institutions.

Paulson has said that the fast-moving nature of the crisis convinced him that money needed to get out more quickly as a way to encourage banks to start lending again. But questions have been raised about whether the huge infusion of government money will actually spur more lending, especially after several banks have said they planned to employ the new capital to help finance purchases of weaker rivals.

The Bush administration is weighing a roughly $40 billion proposal to help forestall housing foreclosures, one of a series of ideas under consideration to address the root causes of the financial crisis according to a Wall Street Journal report. FDIC Chairman Sheila Bair is expected to suggest at a Senate Banking Committee hearing today the government give banks a financial incentive to turn troubled loans into more-affordable mortgages, the paper said citing a person familiar with her testimony.

In economic news Thursday, U.S. initial jobless claims jumped 15,000 to 478,000 in the week ended Oct. 18, from a revised 463,000 the week before (461,000 previously). The four-week moving average slipped to 480,250 versus 484,750.

U.S. foreclosure activity in September rose 21% from a year earlier but fell by double-digits from the prior month as some state laws slowed the foreclosure process, according to a monthly report by research firm RealtyTrac.

Goldman Sachs (GS) plans to cut about 3,260 jobs, a source familiar with the matter said. That represents about 10% of the total staff of the New York-based bank, the source said. Reuters said the bank has so far suffered the least damage in its peer group in the global financial crisis and it remains the leading adviser to mergers and initial public offerings worldwide. But its transition from an investment bank to a traditional bank holding company means the Federal Reserve will use its new regulatory authority to limit the bank's risk taking and encourage longer-maturity funding. Analysts expect Goldman to shrink businesses in prime brokerage and securitization.

The Swedish Central Bank -- the Riksbank -- lowered its repo rate by 50 bp to 3.75% at today's meeting, a larger cut than the 25 bp consensus forecast. The central bank said the repo rate is likely to be cut by another 50 bp over the next 6 months. The bank has cut rates by 100 bp this month after hiking 25 bp in September. The Riksbank revised down its rate path and now sees the repo rate bottoming around 3.2% by the end of 2009. The Bank revised down its GDP forecast to 1.2% and 0.1% for 2008 and 2009 respectively, from 1.4% and 0.8% in September, while CPI is now expected to average 2.1% next year, compared to a 3.2% forecast earlier.

In other U.S. markets Thursday, Treasury yields continue to roll downhill as the bounce in jobless claims will do little to cure the dark mood hanging over the equity market, says Action Economics. The 10-year yield was down 8 basis points from overnight highs and testing the 3.55% level.

The dollar index was up 0.24 to 85.68.

Energy futures, which were solidly higher overnight, turned mixed as stocks were indicated to open lower. December West Texas Intermediate crude oil futures, which hit a $68.50 high earlier, were up 19 cents to $66.94 per barrel. Volatile trading was expected as OPEC officials arrived in Vienna for Friday's special meeting. The cartel is expected to reduce production to stem a steep decline in prices the past three months, with the consensus forecast calling for a cut of 1 million barrels. But Iran is pushing for a 2 million barrel cut.

December gold futures were off $24.50 to $710.70 per ounce as the dollar index rose against sterling and the euro. Action Economics reports broad based deleveraging by Asian fund names and short term investors. The move was in line with losses in other base metals and commodities as fears over the global growth outlook continued to encourage selling pressure.

Among Thursday's stocks in the news, Amazon.com (AMZN) reported third-quarter EPS of 27 cents, vs. 19 cents one year earlier, on a 31% sales rise. The company sees fourth-quarter operating income between $145-$305 million (-46% to +13% year-over-year) on sales of $6-$7 billion (+6% to +23%). Amazon now expects 2008 operating income of $716-$876 million on sales of $18.46-$19.46 billion.

Amgen (AMGN) reported third-quarter adjusted EPS of $1.23, vs. $1.08 one year earlier, on a 7% total revenue rise. GAAP EPS was $1.09; reflecting write-offs of $590 million of acquired in-process R&D. Amgen raised its 2008 revenue guidance to $14.9-$15.2 billion from $14.6-$14.9 billion, and adjusted EPS to $4.45-$4.55 from $4.25-$4.45.

Potash Corp. (POT) reported third-quarter EPS of $3.93 vs. 75 cents one year earlier, on sharply higher sales. Using a locked in C$/US$ exchange rate of $1.10, Potash expects 2008 EPS to be at the low end of the company's previously provided guidance range, with possible variance of 2% in either direction.

Allstate Corp. (ALL) reported a third-quarter operating loss of 35 cents per share, vs. $1.54 operating EPS one year earlier, on a 19% revenue decline and $1.8 billion in catastrophe losses. Wall Street was looking for 72 cents EPS. The company suspended its $2 billion stock buyback plan.

United Parcel Service (UPS) posted third-quarter EPS of 96 cents, vs. $1.05 one year earlier, as higher operating expenses offset a 7.4% revenue rise. Wall Street was looking for 89 cents EPS in the third quarter. UPS said it anticipates a challenging environment for a number of quarters going forward, and believes the U.S. consumer will be very conservative with spending this year. UPS still expects 2008 EPS will be toward the lower end of the $3.50-$3.70 range provided mid-year.

Altria Group (MO) posted third-quarter adjusted EPS from operations of 46 cents, vs. 40 cents one year earlier, on a 5% revenue rise. The company reaffirmed its 2008 adjusted EPS from continuing operations guidance of $1.63-$1.67.

Dow Chemical (DOW) posted third-quarter EPS of 46 cents, vs. 42 cents one year earlier, on a 13% sales rise. The company posted 60 cents third quarter EPS excluding certain items. Wall Street was looking for 57 cents. Dow says it's well positioned to weather this increasingly difficult economic downturn, as it has a strong balance sheet, and is accelerating its focus on what it can control, namely costs and capital, asset restructuring, and other interventions.

Starwood Hotels & Resorts (HOT) posted third-quarter EPS before special items of 71 cents, vs. 68 cents one year earlier, on flat revenues. The company notes margins at Starwood branded same-store owned hotels worldwide and in North America decreased 208 and 151 basis points, respectively, vs. the year-earlier quarter. The company sees EPS before special items of 36-42 cents for the fourth quarter and $2.07-$2.13 for 2008. It said that given significant uncertainty in the global economy, it is very difficult to provide any definitive guidance looking out four quarters, but Starwood did forecast $1.55 2009 EPS.

Xerox Corp. (XRX) posted third-quarter EPS of 29 cents, vs. 27 cents one year earlier, on a 2% revenue rise. The company said it will take a pre-tax restructuring charge of approximately $400 million, or 31 cents a share, in the fourth quarter to accelerate its cost-reduction activities on a global basis. Excluding the charge, Xerox sees fourth-quarter non-GAAP EPS of 34-36 cents. The company believes operational efficiencies it will gain from restructuring actions in the fourth quarter will position it to deliver double-digit EPS growth in 2009.

Eli Lilly (LLY) posted third-quarter pro forma non-GAAP EPS of $1.04, vs. 91 cents one year earlier, on a 14% sales rise. Lilly posted a 43-cent third-quarter loss per share when including $1.477 billion in charges related to pending Zyprexa investigations. Excluding significant items, the company raised its its 2008 pro forma non-GAAP EPS guidance to $3.97-$4.02 from $3.85-$4.00.

Get Your Automobile Financed With Personal Auto Loan

2008-10-21T12:46:00.000-07:00

Today owning a vehicle is not just a status symbol, but it has also emerged as a necessity for an individual. Truck, lorry or any other automobile are some example of the product of automobile industry. Just a thought of buying own vehicle creates excitement in the mind of an individual. But, he must make sure that his excitement doesn't let him to take decision in hurry. Generally, there are number of ways to finance a vehicle. And one of the best and easy modes of financing is personal auto loan.

Generally, the tendency which the market follows is that the person with less than perfect credit score is not able to avail best loan deal. The reason is that the lender finds the loan deal with such people riskier. And in return, such people are offered high rate of interest.

Shopping around in the market is a way to get the best personal auto loan deal. It is recommended that the person should not accept the first offer in hurry. Rather, he must search and compare various personal auto loan deal offers. Make sure, the lender to which you are dealing is authorised and reputable.

In order to make the task of comparing easier, the person is required to ask the lender for free quotes. He must apply to multiple lenders for determining how competitive the rate of interest is. Commonly, it is seen that the person forgets to ask for quotes. But loan quotes provides an idea of cost involved in the loan. It contains information regarding the interest rate, monthly installment, repayment period etc.

After receiving the loan quotes, the next step is to study them thoroughly in order to understand its cost and choose the deal with lowest annual percentage rate.

The person has also option to finance his vehicle through a broker. But, these brokers are not loan providers; rather they act as mediators between the lending source and the borrower. Financing through broker is good option as they have sufficient database regarding various lending institutions. So, they can provide a help in finding the lender and providing the person with best personal auto loan deal.

Personal auto loan are also available through online method. Through online method, the person is only required to fill an application form on the internet, and if the lender finds an application suitable for the loan, he gets back to the borrower within 24 hours. Online application is processed faster as compared to processing time taken in the physical market.

Getting the best personal auto loan deal totally depends on the person's choice of lender. So, there is a need of evaluating each lender on the grounds of his needs and requirements.

Focus Stock: General Mills, a Top Pick for Tough Times

2008-10-21T12:44:00.000-07:00

In a difficult economic environment, we expect General Mills (GIS; recent price, $65)—the name behind well-known brands like Cheerios, Betty Crocker, and Green Giant—to benefit from a shift toward cost-conscious consumers eating more at home. This should particularly help the packaged food giant's product categories such as cereal and soup, which offer relatively inexpensive per-serving costs to consumers. We expect that the company's marketing support of its diversified portfolio of brands will help General Mills to withstand competition from lower-priced private-label competitors.

Given concerns about economic weakness ahead, we expect this stock to benefit from investors seeking defensive or lower-risk shares. Also, we look for the company's important U.S. retail segment to benefit from consumers eating more at home. We believe the company has opportunities to bolster longer-term profit margins through a focus on such areas as manufacturing and spending efficiency, global sourcing, and sales mix. We look for the company to generate future free cash flow, with at least a portion being used for dividends and stock repurchases. Also, we see as positive the company's S&P Quality Ranking of A-, which reflects a solid record of historical stability and/or growth of earnings and dividends.

Based on our 12-month target price of $78, General Mills shares have prospective upside of about 20% from recent levels. Factoring in the stock's recent indicated dividend yield of about 2.7%, we have a 5 STARS (strong buy) recommendation on the shares.
COMPANY PROFILE

General Mills is the second-largest U.S. producer of ready-to-eat breakfast cereals, and a leading producer of other well-known packaged consumer foods. The U.S. Retail segment, which accounted for 66% of net sales in fiscal 2008 (May), consists of cereals, meals, refrigerated and frozen dough products, baking products, snacks, yogurt, and organic foods. The bakeries and food service segment (15%) consists of products marketed to retail and wholesale bakeries and offered to commercial and noncommercial food service sectors throughout the U.S. and Canada, such as restaurants and businesses and school cafeterias. The international segment (19%) includes retail business and U.S. and food service business outside of the U.S. and Canada.

Major cereal brands include Cheerios, Wheaties, Lucky Charms, Total, and Chex cereals. Other consumer packaged food products include baking mixes (e.g., Betty Crocker, Bisquick); dry dinners; Progresso soups, Green Giant canned and frozen vegetables; snacks; Pillsbury refrigerated and frozen dough products, frozen pizza; Yoplait and Colombo yogurt; Haagen-Dazs ice cream; and Cascadian Farm and Muir Glen organic products. Some products may be marketed under licensing arrangements with other parties. General Mills also has a grain merchandising operation that holds inventories carried at fair market value, and uses derivatives to hedge its net inventory position and minimize its market exposures.

During fiscal 2008, Wal-Mart Stores (WMT) (or affiliates) accounted for 19% of General Mills' consolidated net sales.

General Mills' joint ventures include a 50% equity interest in Cereal Partners Worldwide (CPW), a joint venture with Nestlé that manufactures and markets cereal products outside the U.S. and Canada; and 50% equity interests in some Asian-related joint ventures for the manufacture, distribution, and marketing of Haagen-Dazs frozen ice cream products and novelties.

Unconsolidated joint ventures, which are reflected in General Mills' financial statements on an equity accounting basis, contributed an aggregate of after-tax income of $111 million in fiscal 2008, up from $73 million in after-tax income in fiscal 2007. This includes a net benefit of $8.2 million from restructuring, impairment, and other exit-related items in fiscal 2008, vs. a negative impact of $8.2 million in fiscal 2007. In July 2006, the company's CPW joint venture acquired the Uncle Tobys cereal business in Australia for about $385 million. General Mills funded 50% of the purchase price.
CORPORATE STRATEGY

We see longer-term growth opportunities, including new products and international expansion. We expect efforts will be made to expand gross margins in the U.S. retail business, including opportunities for increasing the mix of higher-margin products, trade spending efficiency, discontinuing less attractive products, investment in technology, and global sourcing. In the international business, we expect General Mills to seek profit improvement in emerging markets and a leveraging of its infrastructure.

In September 2008, General Mills sold its Pop Secret microwave popcorn business to Diamond Foods, (DMND) for a price that was expected to be $190 million, subject to adjustment. General Mills said that it expected to receive pretax cash proceeds, net of transaction-related costs, of about $160 million. Also, General Mills said that it expected to have a pretax gain of about $130 million on the sale in the fiscal 2009 second quarter.

Also during the first quarter of fiscal 2009, General Mills acquired Humm Foods, the maker of Larabar fruit and nut energy bars. In the transaction, General Mills issued 0.9 million shares of common stock, valued at $55 million.
FINANCIAL TRENDS

In the first quarter of fiscal 2009, General Mills repurchased 8.2 million shares of common stock for an aggregate purchase price of $519.2 million. In all of fiscal 2008, General Mills repurchased about 23.6 million shares of its common stock for $1.368 billion.

In fiscal 2008, General Mills had costs related to restructuring, impairment and other exit costs totaling $21 million (pretax), and another $18 million of associated costs. In fiscal 2007, the company had $39 million of restructuring, impairment, and other exit costs. Also, in recent years, there have also been other restructuring expenses related to a joint venture in Britain.

In fiscal 2008, General Mills reported earnings per s hare of $3.71, which included a $0.10 a share net benefit related to mark-to-market valuation of certain commodity positions, and a $0.09 per share benefit from reduction of a tax reserve. If these two items are excluded, fiscal 2008 EPS totaled $3.52. Also, fiscal 2008's second quarter included an asset sale gain of about $0.02 a share.
FINANCIAL OUTLOOK

In fiscal 2009, we look for net sales to advance about 11% from the $13.7 billion reported for fiscal 2008, with higher pricing, and bolstered by investments in consumer marketing and product innovation. We also expect sales to receive a boost from a 53rd week in the fiscal year.

We expect margin pressure from ingredient costs, but we think operating margins will receive support from a combination of productivity gains and higher prices.

Also, we think General Mills could benefit, over time, from declines in commodity costs. However, because the company does a significant amount of commodity cost hedging, we do not expect General Mills' manufacturing margins to fully benefit from declines in agricultural commodity prices that have occurred over the past several months.

Excluding some special items, such as impact from mark-to-market valuations related to commodity positions, and an expected gain from the sale of General Mills' Pop Secret microwave popcorn business, we look for fiscal 2009 EPS of $3.90, up from $3.52 for fiscal 2008. In fiscal 2009's first quarter, General Mills had a negative impact of $0.17 a share from mark-to-market valuation of certain commodity positions.

Included in our EPS estimate for fiscal 2009 are expenses related to restructuring, impairment, and other exit costs. In fiscal 2010, we estimate EPS of $4.20.
VALUATION

Our 12-month target price of $78 reflects about an 11% premium over the price-earnings ratio we project, on average, for other food stocks. We believe this valuation is merited by the stock's defensive appeal in a relatively weak economic environment, the company's impressive group of brands, its growth prospects, and its ability to generate cash.

General Mills shares recently had an indicated dividend yield of 2.7%. The quarterly dividend has been raised twice in 2008.
CORPORATE GOVERNANCE

Overall, we have a favorable view of the company's corporate governance practices.

The chief executive officer and chairman positions at General Mills are both held by Kendall Powell, who joined the company in 1979. We would prefer to see the chairman and CEO positions separated, and held by two different people, but we do not anticipate the current management structure being a major problem.

We like that stockholders elect all directors annually. Also, the board has adopted criteria for independence based on those established by the New York Stock Exchange, and all board committees are composed entirely of independent, non-employee directors.
INVESTMENT RISKS

Risks to our recommendation and target price include competitive pressures, disappointing consumer acceptance of new products, higher-than-expected commodity cost inflation, and an inability to achieve sales and earnings growth forecasts.

Also, a strengthening U.S. dollar could have a negative impact on the foreign currency translation of General Mills' foreign sales and profits.

Arbeter: The Key Ingredient for a Stock Rally

2008-10-21T12:43:00.000-07:00

We continue to see mounting technical evidence that a major market low is near as there was more unprecedented readings from a sentiment and market internal basis last week. However, the most important piece of the market forecasting puzzle is still lacking, and that is major price gains on strong volume on a more consistent basis. Clearly, there is tremendous fear about stocks, credit markets, and the economy, and there is also strong evidence that things are washed out from an internal viewpoint, but we still need to see institutions stepping up to the plate and swinging.

From a sentiment standpoint, we believe we need to see extreme levels of fear considering the horrendous news flow, and that is just what we have been witnessing. The weekly readings from Investor’s Intelligence were pretty staggering: only 22.4% bulls and a whopping 52.9% bears. This is the lowest percentage of bulls since late 1988, and one of the lowest readings in the history of the data, which goes all the way back to the late 1960’s. It is also the highest percentage of bearish sentiment since December 1994, just before the market took off. The difference between bulls and bears is a staggering 30.5 percentage points favoring the bears, the most one-sided that newsletter writers have been since December 1988, which was also not a bad time to be putting funds back into stocks. Bulls divided by bears has fallen to 42%, also the lowest and most bearish since late 1988.

We can slice and dice the data all we want, but the clear conclusion is that newsletter writers are extremely bearish, and many times, that has been a good, but early sign, that stocks may be near the bottom.

Taking a look at other sentiment polls shows similar levels of fear and anxiety. The Consensus poll measures the attitudes and positions of an extensive mix of both brokerage house analysts and independent advisory services (they have several hundred contributors). The data covers a broad spectrum of approaches to the market, including fundamental, technical and cyclical. Just a week ago, bullish sentiment on the Consensus poll fell to 21%, matching the level last seen in May 2002. The American Association of Individual Investor’s poll showed only 31.5% bulls and a whopping 60.8% bears. This was the greatest percentage of bears since October 1990, right near the bottom of that bear market.

In our view, the lack of upside follow through on a price basis is keeping many sentiment indicators at extreme pessimistic levels. We need sentiment to begin improve, but many times this does not occur until we start seeing some strong price gains in the market. It’s like a big circle, but once it happens, the upside reversal can be quite powerful, because everyone is caught on the wrong side of fence.

One way to forecast whether fear is peaking is to look at chart formations and near-term price action of the volatility indexes. First, slopes of the indexes (VIX, VXO, VXN, and QQV) got very steep going into the bear market low on October 10. Many times, after an index or stock has been in a powerful uptrend, the last rally can be described as asymptotic. Stock prices were going straight down, forcing option premiums through the roof, and sending volatility indexes to the moon. To illustrate, the 10-day price rate-of-change (ROC) on the VIX (ending 10/10) was 101%, the highest since September 2001, and was the second highest in the history of the data. Whether prices are moving up or down, this kind of slope is simply unsustainable.

Secondly, the volatility indexes have become extremely overbought on both a daily and weekly basis. This does not automatically mean that these indexes have to start pulling back immediately, but it does suggest that we have seen a peak in momentum, and that a top may not be far behind (and a market bottom is near). Third, there have been some days recently where the indexes have closed well off their highs, tracing out candlestick formations known as an inverted hammer. These patterns have long upper shadows, and after a big move to the upside, suggest that the trend is faltering. The VXO has traced out an island reversal, gapping higher on October 10, and then closing below the gap. This is also a potential sign of a top. In our view, it would be very bullish for stocks if the volatility indexes started to correct, and would be a sign that fear is finally starting to dissipate.

From an internal standpoint, things are just plain ugly. The percentage of NYSE stocks hitting new 52-week lows soared to 88% on October 10, an all-time high. The same reading on the Nasdaq rose to 49% last Friday, and incredibly, wiped out levels seen during the great technology bear market in 2001 and 2002. The NYSE down volume/up volume ratio hit 44:1 on October 15, one of the worst readings in the last forty years. Stocks have been thrown out with indiscriminate selling, and while this is somewhat rare, we think it creates opportunities as there appears to be a real disconnect between stock prices and their fundamentals.

Oil remains in a major decline but has dropped to an area of long-term support. There is a layer of chart support between $55 and $77. In addition, a long-term trendline sits in the low $70's. This trendline has supported the market since 2001, so it is of major importance. Prices are extremely oversold, with prices 27% below the 65-week exponential average, the greatest since early 2002. The next support from a Fibonacci standpoint is a 61.6% retracement that targets the mid $60's. If the mid-60's level is taken out, we would seriously question whether crude oil is still in a secular bull market.

Shorter term, we think there is the potential for a positive momentum divergence on the daily chart, many times seen near market lows. Steepness of decline recently suggests panic selling. Sentiment has fallen to an extreme bearish level not seen since 2003. Overall, we think a bottom is near but that it could take many months of basing before things can reverse to the upside.

Stocks Trade Lower

2008-10-21T12:41:00.000-07:00

U.S. stocks were lower in slow trading Tuesday afternoon amid some profit taking after There was some volatility tied to a mixed bag of earnings reports, including some disappointing tech-sector results. Investor Kirk Kerkorian also liquidated the bulk of his Ford Motor Co. (F) holdings. Energy stocks were lower as oil futures skidded on economic slowdown worries and an expected increase in U.S. petroleum inventories.

Traders were also keeping an eye on credit default swap (CDS) settlements for Lehman Brothers' and WaMu.

S&P MarketScope notes that many advisers say equity prices are unusually attractive and many hedge funds, believing the market is at a bottom, are becoming fully invested in stocks. But other observers remain bearish.

Many market players say the market has discounted a recession, notes S&P MarketScope. But some economists say this recession will be steeper and longer than many anticipated, as the U.S. financial crisis -- and economic slowdown -- have become global.

Bond prices were sharply higher amid the weakness in equities. The U.S. dollar index was surging. Gold futures were lower, while oil futures fell.

At around 3:10 p.m. ET Tuesday, the Dow Jones industrial average was lower by 38.23 points at 9,227.20. The S&P 500 index fell 6.84 points to 978.56. The tech-heavy Nasdaq composite index shed 32.11 points to 1,737.92.

On the New York Stock Exchange, 18 stocks fell in price for every 13 that gained. The ratio on the Nasdaq was 17-10 negative.

Lehman Brothers' credit default swaps worth hundreds of billions of dollars came due Tuesday. According to the Depository Trust & Clearing Corporation, the liquidation process for forward open commitments involving Lehman's CDS settlements has been completed. The FICC announced that "no loss allocations will be imposed on MBSD member firms as a result of the liquidations of these forward trades."

"So it looks as though there was no major fallout from the settlement to member firms," wrote Action Economics analysts in a website posting Tuesday. "We'll have to wait to see if there was a broader market impact, however."

The New York Times reported Monday that New York State and federal prosecutors are investigating trading in credit-default swaps, the insurance like securities that have come under close scrutiny for their role in the financial crisis.

Kirk Kerkorian's Tracinda Corp on Monday sold 7.3 million Ford shares at an average $2.43 price, and intends to further reduce its remaining 135.5 million shares (6.09% of the total outstanding).

Fedspeak is due from Minneapolis Fed President Gary Stern on "Policy and the Economy in the Wake of the Shock" but the dinner speech will be well after the market close and won't be a factor this session, says Action Economics.

Treasury Secretary Henry Paulson will discuss "China and the Global Economy" before a U.S.-China Annual Gala in New York City Tuesday evening.

On Tuesday, the Fed announced the creation of the Money Market Investor Funding Facility (MMIFF), which will support a private-sector initiative designed to provide liquidity to U.S. money market investors. Under the MMIFF, the New York Fed will provide senior secured funding to a series of special purpose vehicles to facilitate an industry-supported private-sector initiative to finance the purchase of eligible assets from eligible investors. Eligible assets will include U.S. dollar-denominated certificates of deposit and commercial paper issued by highly rated financial institutions and having remaining maturities of 90 days or less. Eligible investors will include U.S. money market mutual funds and over time may include other U.S. money market investors.

The Fed said "short-term debt markets have been under considerable strain in recent weeks as money market mutual funds and other investors have had difficulty selling assets to satisfy redemption requests and meet portfolio rebalancing needs. By facilitating the sales of money market instruments in the secondary market, the MMIFF should improve the liquidity position of money market investors, thus increasing their ability to meet any further redemption requests and their willingness to invest in money market instruments. Improved money market conditions will enhance the ability of banks and other financial intermediaries to accommodate the credit needs of businesses and households."

Reuters reports the interbank cost of borrowing dollars, euros and sterling fell across all maturites on Tuesday, the British Bankers' Association's daily fixing showed. Dollar overnight rates were fixed below the Federal Reserve's 1.5% target for its federal funds rate, and overnight euros were fixed further below the European Central Bank's 3.75% target. The spread of three-month London interbank offered rates over OIS rates for all three currencies narrowed.

U.S. ICSC-UBS chain store sales index fell 1.6% in the week ended October 18, after a 0.7% increase the week before. On a weekly, year-over-year basis, sales slowed to a 0.9% rate versus 1.0% previously. The month-to-date, year-over-year pace was steady at 0.6%. The ongoing turmoil in the financial markets and the jagged moves in stocks has tempered consumption, even as gas prices have fallen sharply, notes Action Economics.

There are no other significant economic reports scheduled for release Tuesday.

In markets outside the U.S. Tuesday, London stocks fell 1.24%, Frankfurt stocks fell 1.05%, but Paris stocks rose 0.78%. Tokyo stocks rose 3.34%, Hong Kong stocks fell 1.84%, and Shanghai stocks fell 0.78%.

Treasuries were higher after a subdued, fairly normal overnight trade. The 10-year note was higher in price at 102-15/32 for a yield of 3.705%, while the 30-year bond was higher at 105-07/32 for a yield of 4.195%.

The U.S. dollar index was up 1.19 to 84.16 amid reports global banks are picking up the U.S. currency for their funding needs. Reuters says Bernanke's conditional endorsement of a second U.S. economic stimulus plan boosted the buck even though the concept would require the Washington issuing more debt.

After dipping to lows of $69.77 earlier in the session, November West Texas Intermediate crude oil futures traded at $70.68 Tuesday afternoon, down $3.57 per barrel on the day.

Among Tuesday's stocks in the news, Texas Instruments (TXN) reported third-quarter earnings per share (EPS) of 43 cents, vs. 54 cents one year earlier, on a 7.4% revenue decline. The company said revenue was weak because consumers and corporations reduced their spending. TI expects fourth quarter revenue to decline substantially based on weak order trends. The company will reduce annual expenses by more than $200 million in its Wireless business, especially in its cellular baseband operation, and is pursuing the sale of the merchant portion of this operation. Deutsche Bank reportedly downgraded the shares to hold from buy.

American Express (AXP) posted better-than-expected third-quarter EPS from continuing operations of 74 cents, vs. 94 cents one year earlier, as slowing growth in Cardmember spending, moderating lending volumes, and significant additions to loan loss reserves offset a 3% revenue rise. Wall Street was looking for EPS of 59 cents. AmEx said it will reduce operating costs and staffing levels, and will record a related charge in the fourth quarter.

DuPont (DD) posted third-quarter EPS of 56 cents, vs. 59 cents (excluding items) one year earlier, as higher costs and expenses offset a 9.3% sales rise. DuPont sees fourth-quarter EPS of 20-25 cents, which reflects continuing hurricane-related business interruption impacts of about 10 cents and expected weakening demand in North American and Western European markets. The company cut its $3.45-$3.55 2008 EPS guidance to $3.25-$3.30.

3M Co. (MMM) posted third-quarter EPS of $1.42, vs. $1.29 one year earlier (both excluding special items), on a 6.2% revenue rise. The company sees $5.40-$5.48 2008 EPS (excluding special items).

Caterpillar (CAT) reported third-quarter EPS of $1.39, vs. $1.40 one year earlier, as slightly higher operating expenses offset a 13% revenue rise. The company continues to expect 2008 sales and revenue to be more than $50 billion and EPS of about $6.00. It expects 2009 sales and revenue to be flat with 2008. Overall, Caterpillar says it expects world economic growth will slow from 3.8% in 2007 to 2.8% in 2008.

Pfizer (PFE) reported third-quarter adjusted EPS of 62 cents, vs. 58 cents one year earlier, on a 2% rise in adjusted revenues. Based on year-to-date performance, and the outlook for the remainder of 2008, Pfizer raised the lower end of its 2008 revenue guidance range to $48 billion-$49 billion from $47 billion-$49 billion.

Freeport-McMoRan Copper & Gold (FCX) reported third-quarter EPS of $1.31, vs. $1.87 one year earlier, on an 8.9% revenue decline amid lower copper prices. The company said it is revising its operating plans to target reductions in costs, defer or eliminate capital projects, defer exploration expenditures and potentially curtail production at high-cost operations given weaken industry and economic conditions.

Fifth Third Bancorp (FITB) post ed a third-quarter loss per share of 14 cents, vs. 61 cents EPS one year earlier, as higher credit costs and market valuation adjustments offset a 41% rise in net interest income.

Stocks: The Lost Earnings Season

2008-10-21T12:40:00.000-07:00

For stock investors, this earnings season is turning into the lost quarter.

This month, companies began unveiling their results from the 2008 third quarter, which included July, August, and September. And the next couple of weeks will be especially busy, with 136 members of the large-cap Standard & Poor's 500-stock index reporting earnings during the week of Oct. 20, and another 114 firms the following week.

Investors are watching earnings results closely, desperate for some insight into an economy at a crucial tipping point. "We're really trying to get a handle on to what degree the economy is beginning to falter," says Robert Bacarella, portfolio manager at Monetta Mutual Funds.
Outlook is Hazy

But the problem, many professional investors say, is that the earnings outlook is just too hazy to provide much useful information this quarter. At the very moment when investors are desperate for certainty, companies' financial results from July and August—before the worst of the credit crunch hit—seem irrelevant.

Instead, many investors are listening to executives give their quarterly updates on future business conditions. However, many company management teams seem as confused as investors. Their statements are vague, and they don't sound confident in past predictions.

Credit problems and financial turmoil have been on investors' minds for more than a year, but credit shocks started hitting the economy in full force in the second half of September. Those troubles, which started with the failures of Lehman Brothers (LEH) and the bailout of insurer American International Group (AIG), have certainly shown up in early third quarter results.
Merrill Results Disappointing

According to Thomson Reuters, third quarter earnings for the S&P 500 are expected to fall 9.1% from a year ago. That includes both actual results from the 82 companies that have reported, and analyst estimates for the remaining companies.

Three weeks ago, on Oct. 1, analysts were predicting S&P 500 earnings would fall only 4.8% from a year ago. Financial firms are partly to blame for the falling estimates. For example, Merrill Lynch (MER) on Oct. 16 reported a loss of $5.56 per share, while analysts were expecting a $5.22-per-share loss.

The stock market usually looks ahead, trying to predict future earnings. So firms' profits or losses from the summer— before the financial crisis heated up—will generally be ignored.
Conference Calls Give Clues

However, says David Chalupnik, head of equities at U.S. Bancorp Asset Management (USB), financial earnings are an exception. He's watching bank earnings very closely to make sure, when it comes to credit losses, "they don't blow up." So far, they haven't. "Expectations are very low," Chalupnik says.

More financial earnings arrive soon from financial outfits National City (NCC) and Fifth Third Bancorp (FITB), both on Oct. 21.

For most other sectors, the focus is not on quarterly financial results, but on what executives say in conference calls after the numbers are released. Chief executives and chief financial officers are being quizzed on what they expect for the fourth quarter and especially from 2009. "People are really mostly focused on next year," says John Thornton, portfolio manager at the Stephens Small Cap growth and Mid Cap Growth Funds.
Credit Crunch Sinking In

However, so far execs aren't giving investors what they want. "They're vague," Bacarella says. They're saying, "'It's very hard for us to forecast,'" he adds. "They themselves are not sure."

Companies are only beginning to feel the impact of the credit crunch and a slowing U.S. and global economy. "Management teams are going to be pretty cautious and pretty hazy," Thornton says.

According to Thomson Reuters, industry analysts currently expect 2009 earnings for the S&P 500 to rise almost 20% from 2008 levels. For Chalupnik, this is "wildly optimistic." He expects earnings to fall next year as the U.S. slips into recession. Many other investors seem to agree: The S&P 500 is down more than 20% in the past month.
Energy Outfits Feeling the Pain

Financial firms aren't the only area of concern for equity investors. Earnings at energy and material firms are expected to suffer from the fall in commodity prices. "People are very nervous about energy fundamentals," Thornton says. On the other hand, a firm like DuPont (DD), due to report earnings on Oct. 21, could benefit from lower oil prices because its costs for raw materials will fall but could suffer from a U.S. recession.

Tech firm executives should be worried that a U.S. recession slows spending on technology by corporations. Apple (APPL) is due to report earnings on Oct. 21, while Microsoft (MSFT) reports on Oct. 23.

Expectations for consumer firms "have dropped off a cliff," Chalupnik says. September U.S. retail sales fell 1.2%, twice the decline economists were expecting. Earnings are due from Coach (COH) on Oct. 21, from Amazon.com (AMZN) on Oct. 22, and from RadioShack Corporation (RSH) on Oct. 23.
Eyeing Export Sales

It's not just the U.S. economy and American consumers that are raising concerns. Investors are scrutinizing earnings releases for clues as to the direction of the world economy.

For years, industrial firms like Caterpillar (CAT), which reports Oct. 21, and Ingersoll Rand (IR), due Oct. 24, have profited from brisk product sales abroad. "People are going to be looking for signs of how much international is really slowing," Thornton says.

Everywhere investors turn, they seem to find big uncertainties. "It's going to be rough for the next two quarters," says Peter Cardillo, chief market economist at Avalon Partners. "The economy is under pressure."

How are profits being affected by the credit crunch, falling commodity prices, weak business and consumer spending, and a slowing world economy? Third-quarter results may only provide the faintest of clues. But those clues will still be seized upon by investors desperate for answers.

Short-Sellers: Unfairly Targeted in the Market Crisis?

2008-10-13T14:16:00.000-07:00

As the panicked selling in equities markets around the world has accelerated over the past two weeks, there have been several attempts to slow the process, including the temporary suspension of trading on stock exchanges from Moscow to Milan. In the U.S., the Securities & Exchange Commission banned short-selling—bets that shares of certain companies would fall—on a list of more than 800 financial stocks whose balance sheets have exposure to risky mortgage-backed securities and other distressed products.

When the ban, which lasted 13 trading days, was lifted on Oct. 9, it signaled a return to business as usual for the financial sector. Shares of Morgan Stanley (MS), one of the last-standing investment banks, which recently became a bank holding company subject to tighter government regulation, sold off with a vengeance, finishing almost 26% lower on Oct. 9 and dropping an additional 24% on Oct. 10. Insurance stocks such as Prudential Financial (PRU) and Hartford Financial Services Group (HIG) were also among the biggest losers on Oct. 9.

Whether the ban had the intended effect remains open to debate, given the 21.5% drop in the Standard & Poor's 500-stock index from the market close on Sept. 19, before the ban took effect, through its last day, Oct. 8. And the nearly 33% plunge during the same period in the KBW Bank Index (BKX), which has a much closer correlation with the 800 names traders were prohibited from shorting, is enough to make one think regulators were trying to pin blame for the extended sell-off in financial stocks on the wrong people.
Cover for the SEC?

Some market strategists think the ban was nothing but political cover for the SEC to show it was paying attention. In reality, the regulator has been behind the curve in reining in dubious financial reporting practices by the major financial institutions, which helped create the current crisis. By preventing short-selling for two and a half weeks, the SEC disrupted "a legitimate way for investors to convey information to the market" about the pricing of stocks, says Gerald Buetow, managing director of Portfolio Management Consultants, the investment arm of Envestnet . If anything, the ban on selling short seems to have exacerbated market volatility by depressing trades in the options market and forcing investors who couldn't hedge their long stock positions to take offsetting options to sell their stocks.

The market-makers who provide much of the liquidity in the options market curtailed their selling of options on financial stocks during the ban because they couldn't cover themselves by selling short, says Peter Bottini, executive vice-president for trading at optionsXpress (OXPS) in Chicago. He thought they would jump right back in after the ban ended, but that hasn't occurred. That's probably because the key liquidity providers tend to be the options desks at the larger banks, whose shortage of cash isn't allowing them to play that role right now. That's one driver, he believes, of the unprecedented volatility in the equities market at the end of this week. The Chicago Board Options Exchange Volatility Index (VIX) soared 20%, to a record-high 76.94 on Oct. 10 before sliding back to close just under 70.

For those who are determined to drive down the price of a stock, there are far more effective and less costly ways to do so than by selling short, says Buetow at Portfolio Management Consultants.

"If you're a big player, you'd go into the derivatives market because you can do it with far more anonymity," as well as by being able to use more credit than cash to put on a much larger number of positions, he says.
Averting Government Regulation

Perhaps most toxic among those derivatives are credit default swaps, the contracts that investors buy as insurance against a bank or other financial institution defaulting on the debt the investor has bought. What's quickly become apparent with the cascade of corporate bailouts and bankruptcy filings over the past month is that none of the financial firms selling credit default swaps has adequate capital reserves to cover these insurance policies if the companies whose debt they guaranteed fail. By calling them swaps instead of insurance, the investment banks that created them were able to avert government regulation.

The widening of bid-ask spreads on credit default swaps shows that the market is pricing in a bigger chance of companies' defaulting on their debt, and that's prompting portfolio managers to dump those stocks. "That's what drove the sell-off, not short-sales," says Buetow. "Those spreads [on the CDSs] in hindsight are turning out to be pretty accurate. For the financial institutions, spreads widened as much as they did because people started understanding how weak their balance sheets were and saw a bigger chance of default."

George Feiger, chairman of Contango Capital Advisors, a subsidiary of Zions Bancorp (ZION) in San Francisco, describes the relentless selling over the past two weeks as a spiral of doom, where each effort to get cash forces down asset prices, triggers margin calls for other players, and precipitates further selling. "If this spiral of doom wasn't happening, you wouldn't make any money being a short-seller," says Feiger. Those who blame the short-sellers for the sell-off are "mistaking the symptom for the disease."
OTC Derivatives on the Way Out

To ensure this doesn't recur in the future, more transparency needs to be introduced to credit default swaps and other over-the-counter derivatives products that have been free to operate without regulatory oversight, market strategists say. The Federal Reserve is working with CME Group (CME), the owner of the Chicago Mercantile Exchange, and others to create an electronic trading platform for credit default swaps, which would provide pricing information and eliminate counterparty risk by taking on that role. "Over-the-counter derivatives markets are essentially finished," says Feiger. "Who can trust anybody else?...Exchange-traded derivatives have the exchange as the counterparty, and the exchange has every incentive to mark to market immediately and to collect margin [collateral] immediately."

The real lesson of the financial crisis is that there has never been an effective mechanism for settling derivatives trades in bulk, he adds.

He believes the Federal Reserve and its partners will be able to get exchange-traded credit default swaps up and running within the next few weeks, since the International Swaps & Derivatives Association (ISDA) standardized CDS contracts last year. The creation of an exchange won't make the unwinding of all the existing swaps contracts any less painful, however, he adds.

The auction on Oct. 10 of more than $400 billion worth of Lehman Brothers' credit default swaps has revealed a little of how the market will value these products. The Lehman swaps ended up being pricing at 8.625 cents on the dollar, below the initial estimate of 9.75 cents on the dollar earlier that morning and well below the 12 to 13 cents originally expected. "Conversely, payout of the insurance on those contracts will be 91.375% by AIG, JPMorgan (JPM), Goldman Sachs (GS), Wachovia (WB), and RBS (RBS), among others," Action Economics said. If some of those institutions aren't able to come up with the cash required to settle those contracts this weekend, it could trigger a fresh wave of liquidation sales, much like Lehman's bankruptcy did.

Michael Wallace, global market strategist at Action Economics, sees the auction as the ultimate mark-to-market mechanism, revealing what buyers are truly willing to pay for these products. "It's discomfiting to see what these assets are returning, but the silver lining is we're seeing what these assets are returning," he says. "It's part of the cleanup, the transparency, you need to start to establish some normalcy again."

Jim Dunigan, chief investment officer at PNC Wealth Management (PNC) in Philadelphia, says he's not sure greater transparency around the pricing of derivatives contracts will reduce short-selling, but it would bring some structure and boundaries to the derivatives market.

Dow Jumps 938 Points after Historic Weekend

2008-10-13T14:14:00.000-07:00

U.S. stocks, hammered recently in one of the worst sell-offs ever, were soaring Monday afternoon as global central banks and governments moved over the weekend to shape a rescue plan for troubled banks and economies.

Treasury futures were skidding, indicating bond yields were rising in reaction to the central bank movements that appear to have relieved panic that prevailed last week. The bond market, U.S. banks and government offices were closed Monday for the Columbus Day holiday.

The dollar index was lower as the euro and pound sterling rallied on central banks' moves to inject huge amounts of cash into their banking systems. Gold futures were plunging on hedge fund selling. Oil futures were higher on hopes banking efforts will revive global economies and boost demand.

At the close (as of 4:10 p.m. ET) Monday, the Dow Jones industrial average soared 938.89 points, or 11.11%, to 9,390.08 -- the biggest point gain ever and finally ending an eight-day losing streak. The S&P 500 index climbed 104.06 points, or 11.57%, to 1,003.28. The Nasdaq composite index rose 194.74 points, or 11.81%, to 1,844.25.

European indexes also rose sharply ater the Asian market surged overnight.

Governments across the world launched multi-billion dollar bailouts to shore up global banks. Britain called for a new Bretton Woods agreement to reshape the world financial system, according to Reuters. The slew of bank bailouts worth hundreds of billions of dollars were designed to stave off the world's worst financial crisis in nearly 80 years, accompanied by declining global economic growth and the threat of widespread recession.

"Only by global action can we fully restore the confidence that is needed and build the international financial order," said British Prime Minister Gordon Brown. He called on world leaders to create a new "financial architecture" to reflect the global reach of economics and banking, in much the same way that the current international economic system was set up at a conference in Bretton Woods, New Hampshire, in 1944.

After meetings of the G-7 and International Monetary Fund in Washington this past weekend, Western financial leaders sought to assure panicky bankers and money managers in no uncertain terms that all of the measures needed to halt a worldwide meltdown are in motion.

While short on the details many market analysts had hoped for, the broad brushstrokes of forceful, coordinated action by Western governments were unveiled: No more Lehman Brothers-like failures of major financial institutions will be allowed. All bank deposits will be guaranteed. The banking systems of the G-7 nations will be flooded with almost unlimited liquidity. And if all that fails, any other tool—regardless of how economically unorthodox—will be used if needed.

Also, five central banks -- including the U.S. Federal Reserve and the European Central Bank -- unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.

According to a Wall Street Journal report, the Fed will begin providing unlimited dollar funding under its swap facilities with three major European central banks to ease strains in the financial markets. The European Central Bank, the Bank of England and the Swiss National Bank said in a joint statement that the terms of their respective currency swap arrangements with the Fed have been altered "to accommodate whatever quantity of U.S. dollar funding is demanded."

Treasury Secretary Henry Paulson has called the top U.S. banking heads to a meeting today in Washington, people familiar with the matter said. The 3 p.m. meeting is being called while most of the banking chiefs are in Washington for meetings of the World Bank and the International Monetary Fund.

Invited to attend were banking executives including Ken Lewis, CEO of Bank of America (BAC), Jamie Dimon, CEO of J.P. Morgan Chase (WMI), Lloyd Blankfein, CEO of Goldman Sachs Group (GS); John Mack, CEO of Morgan Stanley (MS); and Vikram Pandit, CEO of Citigroup (C). While details of the meeting are unclear, one person familiar with the matter said Paulson is expected to discuss details of his new plan to take equity stakes in financial firms, among other points.

Neel Kashkari, the U.S. Treasury official overseeing the $700 billion rescue of the financial system, said government equity injections will be aimed at "healthy" firms, according to Bloomberg. "We are designing a standardized program to purchase equity in a broad array of financial institutions," Kashkari, who heads the department's Troubled Asset Relief Program, said in a speech in Washington. "The equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions." The Treasury will "attack" bad debt clogging financial markets from "multiple directions," Kashkari said.

Three firms are finalists to be the Treasury's "master custodian," to be announced within 24 hours to serve as the program's prime contractor, Kashkari said. The Treasury has tapped law firm Simpson Thacher & Bartlett LLP and investment consultants Chicago-based Ennis Knupp & Associates for roles in the program. More selections are expected in coming days, he said. Kashkari said Fed Chairman Bernanke will lead TARP's oversight board.

In Paris, European leaders agreed to a unified plan that would inject billions of euros into their banks and guarantee bank debt for periods up to five years. President Nicolas Sarkozy of France, who led the talks, said governments would announce concrete rescue plans tailored to their national circumstances today simultaneously, the New York Times reported. Leaders of the 15 countries that use the euro did not put a price tag on any of their promises -- contrary to Britain, where last week Prime Minister Gordon Brown announced $255 billion in government funds and other measures to stabilize its banks, or the United States, where a $700 billion bailout plan will now be used partly to infuse banks with fresh capital.

The rescue measures in Europe echo those announced last week by the British government, which confirmed Monday that it is injecting a total of 37 billion pounds (US$63 billion) into three leading banks -- Royal Bank of Scotland PLC (RBS), Lloyds TSB PLC (LYG) and HBOS PLC -- in return for equity stakes. Taxpayers will own about 60% of RBS and 40 percent of the merged Lloyds TSB and HBOS. The merger has been renegotiated Monday too, so the amount of Lloyds TSB shares that HBOS shareholders will receive is lower.

Mitsubishi UFJ Financial Group (MTU) closed a $9 billion investment in Morgan Stanley (MS) that gives the Japanese company a 21% interest. Under revised terms, Mitsubishi UFJ has acquired $7.8 billion of convertible preferred stock with a 10% dividend and a conversion price of $25.25 a share, and $1.2 billion of non-convertible preferred stock with a 10% dividend. Previously, Mitsubishi UFJ was getting a mix of preferred and common shares.

Morgan and Mitsubishi UFJ had worked Sunday to finish the pact, as both sides pushed to keep the general terms of the deal intact and the U.S. government signaled it was prepared to protect the Japanese investment, people familiar with the matter said. The U.S. government was involved with the talks but isn't contemplating a direct investment alongside Mitsubishi UFJ, one person familiar with the talks said.

Among other stocks in the news Monday, Waste Management (WMI) sees third quarter EPS of 62 cents on revenue of $3.53 billion. Adjusting for certain items, it sees EPS of 62-63 cents, noting the low end of the range, 62 cents, exceeds the Wall Street consensus estimate of 60 cents. Additionally, Waste Management said it is withdrawing its proposal to acquire all of the outstanding shares of Republic Services (RSG) for $37 per share, due to the current state of the financial markets.

Tesoro (TSO) said it expects third quarter EPS of $1.70-$1.90, which includes an approximately 29 cents after-tax last-in-first-out (LIFO) benefit. Tesoro also said Bruce Smith, its chairman, president and CEO, will file a Form 4 with the SEC reporting that Goldman Sachs (GS) sold 251,100 Tesoro shares owned by him. Tesoro notes the shares were sold in accordance with an existing margin agreement to meet a margin call. Depending on the direction of Tesoro's common stock price, further sales may be required.

Marshal & Illsley (MI) agreed to acquire a majority equity interest in Taplin, Canida & Habacht, a institutional fixed income money manger with $7.5 billion of assets under management as of Sept. 30, 2008.

Vishay Intertechnology (VSH) terminates its offer to acquire all of the outstanding shares of International Rectifier (IRF) for $23.00 per share in cash and will be returning tendered shares to their holders.

Abbott Laboratories (ABT) set up to a $5 billion share buyback. Separately, it announced that data from 30 patients in its ABSORB clinical trial demonstrated that ABT's bioabsorbable drug eluting stent successfully treated coronary artery disease and was absorbed into the walls of treated arteries within two years, leaving behind blood vessels that appeared to move and function similar to unstented arteries.

The board of General Motors (GM) board gave a cool reception to the idea of acquiring Chrysler LLC after GM's top management discussed the matter at a meeting last week, people familiar with the matter said, according to the Wall Street Journal.

Banco Santander (STD) issued a statement confirming it is in talks to acquire Sovereign Bancorp (SOV), but noted it is not currently possible to know whether such conversations will lead to an agreement or not.

Bernstein upgraded Apple Inc. (AAPL) to outperform from market perform.

Lear Corp. (LEA) lowered its 2008 sales outlook from $15 billion to about $14 billion, and now sees income before interest, other expense, income taxes, restructuring costs and other special items down about 20% from previous guidance of $500-$600 million. The company cited volatile industry and general economic conditions.

Limited Brands (LTD) set a $250 million stock buyback.

Stocks: What to Watch for in the Recession

2008-10-13T14:12:00.000-07:00

Eventually, the crisis will end. That has investors contemplating what a post-crisis stock market might look like.

Predictions of a serious economic downturn are everywhere, and not just for the U.S. but for the entire globe. If the credit crunch lasts long enough, it could be the first truly deep economic pullback in a generation or longer.

Asked about the future, many professional investors and fund managers say they're far too preoccupied with the current crisis to make any long-term bets. That's why they many refuse to buy stocks—the unprecedented global credit crunch has made solid predictions all but impossible.

"I'm going to wait until the dust settles," says William Rutherford, president of Rutherford Investment Management.
Glimpsing the Future

Still, investors will eventually have to picture what the new economic order will look like.

Arguably, a credit crunch or recession makes all of us losers. But even in a severe recession, some businesses survive and prosper—even if only on a relative basis, and even if they take years to muddle through.

"There's always going to be a winner out there," says Ryan Crane, chief investment officer at Stephens Investment Management Group.

Here are five trends that may emerge whenever the crisis finally ends:

1. The strong eat the weak.

In the financial sector, failing banks and brokerage houses have already been gobbled up by safer (if not exactly strong) rivals. Bank of America (BAC) bought up mortgage giant Countrywide Financial and Merrill Lynch (MER). JPMorgan Chase (JPM) absorbed Bear Stearns and Washington Mutual. Citigroup (C) and Wells Fargo (WFC) battled over buying Wachovia (WB).

If the economic downturn is bad enough, expect the same trend to hit other industries, as strong players either buy or take market share from companies in financial trouble.

2. Fast-growing companies might not get the funding they need.

The credit crunch is cutting off the financing that helps businesses grow and create new jobs, says Michele Gambera, chief economist at Ibbotson Associates, a unit of Morningstar (MORN). Companies can't float issues on the stock market or sell bonds—investors won't buy them. And they can't borrow from banks, which are too panicked to lend.

If those conditions persist, it means trouble for new growth companies. "Who is going to make the next Google (GOOG) if there is no money to borrow to build the next Google campus?" Gambera asks.

3. Cash is king.

In a credit-starved economy, the advantage goes to companies with strong cash flow. Gambera cites cigarette maker Altria Group (MO) as a company famous for its strong cash generation.

A healthy balance sheet—without much debt—will also be crucial. "Given the fact that credit markets have totally deteriorated, it's a question of survival," says Gary Wolfer, chief economist at Univest Wealth Management (UVSP).

He believes survivors could include consumer staples and health-care companies that sell products their customers need and that generate lots of cash in the process. He cites Procter & Gamble (PG) and Johnson & Johnson (JNJ).

4. Don't bet on the U.S. consumer.

Wolfer predicts "an awful Christmas" for retailers. But for consumer-oriented companies, the problems aren't just short term.

For a generation, the U.S. has created a "quadruple deficit," Gambera says: a government deficit and a trade deficit, along with heavy borrowing by the financial sector and, finally, by U.S. households. Few expect Americans' reliance on credit cards and cheap home mortgages to continue.

In fact, many commentators see a fundamental shift in the U.S. economy, away from a reliance on both debt and the overstretched American consumer. "The era of the consumer-based U.S. economy is coming to an end," Wolfer says. "Our whole economy is going to be much more export-driven."

5. Don't bet on the global infrastructure boom, either.

Wolfer and others may be pinning their long-term hopes for the U.S. on exports. But there are lots of worries about one force driving global demand for U.S. goods: the building boom in many emerging economies around the world.

In a global slowdown, many are betting that demand for capital equipment, commodities, and energy are going to fall off.

Emerging economies, such as China and India, may not slip into recession, but their rapid growth will probably slow, says Chad Deakins, portfolio manager of the RidgeWorth International Equity Fund. "There are going to be different problems each country is going to have to address, [problems that will] distract them from plans to build infrastructure," he says.

Five years from now, however, Deakins expect emerging countries to start building again. "There are a lot of people in the world who want a higher standard of living and are willing to work for it," he says. "That's capitalism."

Can Buffett Rescue the Market?

2008-10-02T08:17:00.000-07:00

Warren Buffett warned several years ago about a financial crisis like the one currently engulfing Wall Street. But now that it's here, the investing wizard has decided he might as well profit from it.

The legendary investor's Berkshire Hathaway (BRKA) is making a $3 billion investment in General Electric (GE). The deal was announced Oct. 1, one week after Buffett bet $5 billion on investment bank Goldman Sachs (GS).

For a U.S. stock market that has lost more than a fifth of its value this year, the deals represent a rare vote of confidence. Buffett warned of the dangers of complex financial products and too much debt—two of the main causes for the market frenzy. But despite those long-standing misgivings, Buffett is now confident enough to invest in two companies near the eye of the financial storm. "When you have the world's most successful investor stepping up and taking meaningful positions [in companies like GE and Goldman Sachs], it signals confidence not only in those companies, but the system itself," says Matt Kaufler, portfolio manager of the Touchstone Value Opportunities Fund.

Buffett's role in the crisis is similar to the roles that wealthy bankers and industrialists have played in previous crises, says Robert Bruner, the dean of the University of Virginia Darden Graduate School of Business Administration and the co-author of a book on the Panic of 1907. In that crisis, financier J.P. Morgan, with help from other bankers and investors like John D. Rockefeller, put up money to bail out banks and ease the economic panic. In a time of crisis, key figures can help "create a tipping point in favor of recovery," Bruner says.
Buffett's No Morgan

Yet no one thinks Buffett can stem the crisis the same way Morgan did 100 years ago.

In fact, in the short term, Buffett's Goldman and GE deals might merely emphasize the current difficulties. Who could have predicted just a year ago that Goldman Sachs or General Electric, two premier U.S. enterprises, would need Buffett's cash on such a large scale?

Along with Buffett's $3 billion investment in preferred shares, GE will offer common shares publicly to raise $12 billion. That cash is needed to prop up GE's financial units. Buffett's shares will get an attractive dividend of 10%. Buffett will also get warrants to buy another $3 billion of common stock at $22.25 per share; a year ago, GE's stock was trading above $42. (More on the GE deal here.)
Not Charitable Investments

Buffett's Goldman Sachs investment offered him similarly attractive terms. Buffett told CNBC on Oct. 1: "These markets are offering us opportunities which weren't available six months or a year ago. So we're putting money to work."

These are "iconic American companies," says Richard Sylla, of New York University's Stern School of Business. "[Buffett is] getting a chance to buy them cheap."

Buffett is able to exploit the current environment in ways most investors simply can't. "He's not making these investments out of charity," Bruner says.
Rich With Cash

While others are overwhelmed by large losses or stuck with high levels of debt, Buffett has billions of dollars in cash to deploy. "When crises like this happen, it's he who has the cash who can take advantage of it," says Robert Miles, a Buffett expert and author of the book The Warren Buffett CEO. Miles says historically Buffett has done his best when the broader market has done its worst.

This is not the first market meltdown that Buffett has successfully foreseen. Buffett was skeptical of Internet and other technology stocks in the late 1990s and early 2000s. Berkshire Hathaway shares suffered during the tech boom as a result, but Buffett was proven right when the tech bubble burst from 2000 to 2002.

In recent weeks, as the federal government has proposed a $700 billion bailout plan, analysts have frequently quoted Buffett's warning in 2002 that highly complex financial products like derivatives are "financial weapons of mass destruction."
Creating a "Halo Effect"

Buffett's record is what gives him such credibility at a time when nearly all other major financial players have stumbled. "His gravitas carries a halo effect" for the companies he invests in, Bruner says. "It's a vote of confidence" in General Electric and Goldman Sachs.

Standard & Poor's Rating Services on Oct. 1 said the Berkshire Hathaway investment was a "positive development" for the ratings on General Electric's debt.

Buffett's reputation—and the fact that he has billions to invest at a time—are exactly why he's able to get such attractive terms for his investments, analysts say.
Not Available to the Average Investor

Yet it's hard to predict how much Buffett's buying spree might prop up investor confidence in the broader market, and whether, like Morgan's dealmaking a century ago, it can help ease the current financial crisis.

After all, the bargains available to Buffett aren't necessarily available to the average investor, who can't get a 10% dividend on their GE shares. Also, analysts say, few other investors have so much cash to invest. "For some people, I think it's reassuring to see him allocating capital," Kaufler says. But, "some are so shell-shocked by the last 30 days, they're going to stay in their bunker."

Who knows? Buffett may have a few more surprising —and highly profitable —moves in mind as the financial crisis drags on.

The Consumer and the Stock Market Storm

2008-10-01T13:42:00.000-07:00

Only two months ago, the idea of crude oil falling below $100 a barrel and sharp drop in agricultural commodity prices would have seemed like a godsend to cash-strapped consumers. Gasoline and food prices have been slow to adjust to falling commodity prices, but that's probably not what is uppermost in consumers' minds right now. They may be more worried about their access to credit—and the health of the bank they stash their savings in—as the U.S. financial crisis has escalated in recent weeks.

With the defeat of the $700 billion financial rescue plan in the House of Representatives on Sept. 29, the fear now is that the longer the credit markets are forced to fester without a solution, the longer and deeper the economic recession the U.S. is likely soon to face. Congress is working on a revised version of the rescue bill, which is expected to pass within a week. But in a market environment where legendary institutions like Lehman Brothers disappear overnight, any financial-system rescue plan risks the patient expiring while waiting to be admitted to the emergency room.

Given the chill that has coursed through the credit system , with banks denying requests for mortgage, home improvement, small business, and car loans left and right, it's not inconceivable that credit cards could be next. That would leave consumers with no source of cash except for their weekly paychecks, which in many cases are already pre-spent. Still unknown is to what extent the stability of credit cards may be affected by a handful of big commercial banks going under, but certainly banks are becoming less willing to let consumers run up bigger balances on their cards, says David Lockwood, consumer insights director at London-based Mintel International Groupin Chicago.
High and Dry

"That could be the next little thing that impacts individual consumers," says Lockwood. "I don't have a sense of how quickly that could happen. It seems it could happen fairly soon." That, plus the more remote possibility of payroll checks stopping if companies that rely on short-term credit from banks to meet payroll requirements start getting turned down, would leave consumers high and dry.

Lockwood doesn't believe most consumers are even aware of the broader implications of the credit freeze or the reasons behind the legislative battle over a rescue plan, however. "They'll respond [to the failure of the rescue bill] like they do to all major financial and policy initiatives, which is with long glazed stares," he says. Consumers have no connection to what's going on except for how it might affect the security of their bank accounts, he adds.

That's not what Richard Curtin, director of Consumer Confidence Surveys at the University of Michigan's Survey Research Center, is seeing in recent respondent data, which interviewers collect throughout the month. According to Curtin, 150, or 10%, of the survey's 1,500 respondents over the past three months, have reported having trouble getting a loan.
Slump in Confidence

"In the last week, we found confidence in the economy and how [consumers] expected the economy to behave have declined significantly," he says. "There's some evidence consumers have paid attention to this and are concerned about this." Just how worried consumers are will be reflected in the October numbers that the University of Michigan releases next week.

T.J. Marta, economic and fixed income strategist for RBC Capital Markets (RY) in New York, worries that a negative feedback loop might be forming, where short-term funding problems at Wall Street firms start to spread to companies and municipalities, prompting them to cut their workforce, which would then compound the pressure on consumers whose stores of personal wealth and access to credit have already eroded. "Consumers begin to retrench. That feeds back into corporations investing less and even cutting back on employees, and then you've got yourself in the loop," he says. "It's like a forest fire, It has to burn itself out. It's very hard to short-circuit these things. My fear with this bailout is it could psychologically unhinge the credit markets that are already very fragile."

While some sentiment indicators show signs of consumer confidence bottoming, that doesn't necessarily promise a rebound to healthy levels anytime soon, says Marta. "We could stay at the bottom for quite a while depending on what goes on with the financial situation," he says.

Unlike the Michigan survey, the RBC Consumer Attitudes and Spending by Household (CASH) Index is based on surveys done over a three-day period once a month. The latest surveys were conducted during the weekend the Treasury stepped in to nationalize mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE), before Lehman Brothers filed for bankruptcy and American International Group (AIG) was saved by an $85 billion federal bailout — the events that triggered new alarms in the financial crisis. That suggests the October confidence reading could revert back to the all-time low hit in July or even worse.
Dropping the Shopping

Battered confidence may already be evident in one of the more important consumer-facing sectors: retailing. This year's back-to-school season was especially weak, with August sales at stores open at least one year up 1.7% from last year but unchanged from a year ago when Wal-Mart Stores' (WMT) strong results were excluded, the International Council of Shopping Centers said in a Sept. 4 release. The National Retail Federation reported a 1.1% increase in August sales but a 0.4% decline when including non-general merchandise categories such as autos, gas stations, and restaurants.

Sales have fallen off sharply over the past couple of weeks, as consumers have had to grapple with a torrent of financial developments, says Lizabeth Dunn, a retail analyst at Thomas Weisel Partners (TWPG) in New York. "They figured out their money market funds aren't as safe as they thought, and now they have to be worry about which banks they have their money in," she says. "It's very unsettling." Continuing evaporation of home equity and further weakening on the jobs front are also causing turmoil for the average household, she adds.

The latest pullback in spending is "squarely tied to what's going on in the financial market," she says. Still, she doesn't think the recent drop-off in spending will turn into a new trend. Men's and children's segments have held up better than the women's segment, which has been harder hit because women's purchases tend to be more discretionary, while buying for kids and men is based more on necessity, she says. "You're seeing people on a broad scale delaying purchases. You delay home improvements and car purchases," she says. "If your normal replenishment cycle is every year, now maybe its every two years."
Stressed-Out Consumers

While Lockwood at Mintel doubts that consumer purchasing habits have changed with the escalation of events in the financial arena, he does believe that consumers are already as stressed as they can be. Still, the focus for most people is changes in prices and what happens in the financial markets "has no meaning for people until it gets down to the wallet level, and that's not likely to happen anytime soon," he says.

Even where people may still be shopping, they are falling increasingly behind in paying their bills. High-end department store chain Nordstrom's (JWN) latest data on its securitized credit-card receivables for August showed total delinquencies climbed 0.71% from a year ago, to 2.83% of total receivables, and were up 0.28% from July, according to a Sept. 15 research note by Credit Suisse (CS). Those were the largest upticks, on both a monthly and year-on-year basis since the data became publicly available in May 2007. Nordstrom is one of the few retailers that still owns the receivables of its credit-card business, which contributed 2% to the company's total earnings before taxes last year, analyst Michael Exstein said in the note.

Retailers' earnings in August implied a decline in the two-year trend for comparable sales, says Dunn at Thomas Weisel, who also says she's hearing that business has worsened in the last two weeks. So far, only one of the companies she covers — Cache (CACH)— has actually cut its profit outlook, but she cautions that not much should be read into that since Cache is a relatively small company.

Smaller retailers, such as Lululemon Athletica (LULU) and Urban Outfitters (URBN) continue to attract new customers and perform well. But as for bigger, more established retail names, "there aren't really any I see that are bucking the trend," she says.

You can bet that if consumers lose sleep in the next few weeks amid new developments in the bailout drama and financial crisis, the outfits that depend on their business will not be getting much rest either.

Stocks Turn Mixed

2008-09-23T13:06:00.000-07:00

Earlier gains faded as the government's $700 billion financial rescue package ran into resistance in Congress

Major U.S. stock indexes revered earlier gains to trade mixed Tuesday afternoon, one day after a broad sell-off. The market's focus on Tuesday: The Senate Banking Committee's hearing on the Bush administration's $700 billion financial rescue plan, featuring testimony from Treasury Secretary Henry Paulson, Federal Reserve Chairman Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox.

On Tuesday around 3:05 p.m. ET, the blue-chip Dow Jones industrial average declined 10.99 points, or 0.1%, to 11,004.70, weighed down by a drop in General Electric (GE). The broader S&P 500 index edged lower by 0.38 points, or 0.03%, to 1,206.71. The tech-heavy Nasdaq composite index added 7.37 points, or 0.34%, to 2,186.53 as Google (GOOG) and other tech stocks eked out gains.

On the New York Stock Exchange, 20 stocks were lower in price for every 11 that posted gains, The ratio on the Nasdaq was 16-11 negative. GOOG and other tech stocks eked out gains while a drop in GE hurt the DJIA.

Bonds were mixed. The dollar index edged higher. Gold and oil futures closed lower.

Initial stock-market gains gave way to nervousness Tuesday after Paulson's plan ran into much second-guessing from lawmakers.

Chairman Bernanke made a strong emotional case for addressing the financial sector problems, reports Action Economics. He painted a bleak picture for the U.S. economy if the Treasury's plan is not effected quickly. The markets are not serving the necessary functions of the economy, he noted, and if liquidity isn't restored, more jobs will be lost, the unemployment rate will rise, the housing market will see more foreclosures, and GDP will contract.

Bernanke also explained that the $700 billion price tag for the rescue plan is not an expenditure of that size, but a purchase of assets, and he believes most, if not all the value could be recovered, and taxpayers will get 'good value" for the money spent.

"This was the most forceful we've seen the Fed chief in Congressional testimony," wrote Action Economics analysts in a website posting Tuesday.

Treasury Secretary Paulson also made a strong case for the TARP plan, repots Action Economics. noting that until the housing sector stabilizes, there is no way for the financial system to recover. He expressed anger and shock about the situation, but the main problem when he took over was the flawed regulatory system which was structured for another era. Paulson noted that thousands of banking institutions may participate in the bailout, including foreign banks. He is arguing for flexibility in the Treasury's approach to these reverse auctions, though Congress is balking at just that sort of 'blank check."

Paulson also did not favor a plan to enact the $700 billion financial system rescue in phases proposed by Sen. Charles Schumer (D-N.Y.), saying a return of confidence was needed in the financial sector.

Paulson said he did not know if U.S. credit rating would be hurt by the measure. He also said the rescue plan will not put the taxpayer on the hook because "they're already on the hook."

In his prepared remarks, Bernanke said that financial markets are under severe stress and urged immediate action to buy up hundreds of billions of dollars worth of tainted mortgage assets. "Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said in prepared remarks.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said. "In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions. More generally, removing these assets from institutions' balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth.

Amid rising concerns that the plan givesgovernment a blank check, Democrats want an oversight board that would include the chairmen of the Fed, FDIC, and SEC to limit the Treasury's powers.

Both Barrack Obama and John McCain say more oversight of the Treasury is needed. Reports some Republicans oppose the plan Treasury Secretary Paulson laid out. President Bush will discuss the financial crisis at a UN General Assembly meeting in New York today.

Financial stocks remained in the spotlight Tuesday. The Wall Street Journal reported that Toronto-Dominion Bank (TD) is is among the companies now weighing a bid for Seattle thrift Washington Mutual (WM), according to people familiar with the situation. In addition to Toronto-Dominion, potential suitors include Citigroup (C), JPMorgan Chase (JPM), Wells Fargo (WFC), and Banco Santander (STD), according to people familiar with the situation.

Citigroup named Mike Corbat as CEO of its Global Wealth Management unit (GWM) and Edward Kelly as Head of Global Banking for the Institutional Clients Group (ICG). The company also confirmed that Sallie Krawcheck has decided to leave the firm to pursue other opportunities and will remain as Chairman of GWM through the end of the year.

Oppenheimer analyst Meredith Whitney cut her earnings estimates on Wachovia Corp. (WB), Citigroup, Bank of America (BAC), and Wells Fargo.

November West Texas Intermediate crude oil futures were off $2.32 to $107.05 per barrel Tuesday afternoon on profit taking from Monday's short squeeze that drove the expiring October contract $25 higher. The Commodities Futures Trading Commission is investigating Monday's trading. Tuesday's selling is blamed by some as fear the global economy will fall into a recession for several reasons, including the U.S. financial crisis that is spreading. Some speculators bought yesterday on the argument the Bush administration's $700 billion rescue plan would bolster the U.S. economy and increase demand for commodities. Some believe a slowdown could drive commodities higher on safe haven buying.

December gold futures fell Tuesday on profit taking from Monday's flight to safety surge. But the yellow metal could see more buying due to the uncertainties surrounding the U.S. government's bailout plans and the impact on the real economy, which are weighing on the equity markets, notes S&P MarketScope.

Among Tuesday's stocks in the news, Bristol-Myers Squibb (BMY) increased its offer to buy ImClone Systems (IMCL) to $62 a share from its initial offer of $60 a share. Bristol-Myers intends to commence a tender offer, valued at about $4.7 billion, for all outstanding ImCLone shares it does not already own.

Merrill Lynch reportedly downgraded shares of General Electric Co. (GE) to neutral from buy.

Circuit City Stores (CC) expects to deliver second quarter results that are slightly better than the previously provided range of a loss from continuing operations before income taxes of $170-$185 million, before any unusual/non-cash charges. The company also said Philip J. Schoonover, chairman, president and CEO, has agreed to step down from those positions, effective immediately. Schoonover has also resigned as a director.

3Com Corp. (COMS) posted first-quarter non-GAAP earnings per share of 11 cents, vs. 3 cents one year earlier, on a 7% revenue rise.

Union Pacific (UNP) raised its $1.10-$1.20 third quarter EPS view to $1.28-$1.33. The company said lower diesel fuel costs and strong operating efficiency will more than offset the impact of recent hurricanes and lower shipment volumes. The company noted that widespread commercial power outages associated with Hurricane Ike have impacted its operations and limited the ability of its customers to resume production. Union Pacific's new EPS view includes a reduction of about 10 cents as a result of the hurricanes, primarily Ike.

Dollar Thrifty Automotive Group (DTG) announced that results in the third quarter continue to be affected by challenges in the areas of revenue per day and vehicle depreciation costs. The company said results are also expected to be affected by the bankruptcy of one of its tour operators. In light of performance to date, Dollar Thrifty said it's seeking an amendment to its senior secured credit facility.

DuPont (DD) named Ellen J. Kullman president and a director of the company effective Oct. 1 and CEO effective Jan. 1, 2009. DuPont says Charles O. Holliday, Jr., chairman & CEO, will serve as chairman of the company and as a member of the board until Kullman's expected succession as chairman.

European stock indexes finished solidly lower Tuesday. In London, the FTSE 100 index fell 1.91% to 5,136.12. In Paris, the CAC 40 index dropped 1.98% to 4,139.82. Germany's DAX index shed 0.64% to 6,068.53.

Japanese markets were closed for a holiday Tuesday. In Honmg Kong, the Hang Seng index plunged 3.87% to 18,872.85.

Treasury market

On Tuesday, the 10-year note was higher at 101-15/32 for a yield of 3.824%, while the 30-year bond rose to 101-13/32 for a yield of 4.418% amid worries the Treasury's financial system rescue plan will be delayed by congressional wrangling over details.

How Will Banks Fare in the Bailout?

2008-09-23T13:03:00.000-07:00

The details still have to be worked out for the $700 billion fund the U.S. government will create to take distressed mortgage-related assets off banks' hands in hopes of thawing the country's frozen credit system. The most obvious beneficiaries of the plan will be members of the "shadow banking system," including such surviving investment banks as Merrill Lynch (MER)— which has agreed to be acquired by Bank of America (BAC)— and Morgan Stanley (MS), but even more conservative commercial banks that don't have much to purge from their balance sheets are expected to gain as the effects of the program spread through the economy.

A major question that will determine how helpful the bailout is: the price the government is willing to pay, which could turn out to be as low the 22 cents on the dollar that Merrill Lynch got for $30 billion in assets it sold to private equity firm Lone Star in July.

The financial companies that are holding distressed assets don't even necessarily have to sell them to the U.S. Treasury in order to benefit from what many are calling the "mother of all bailouts." A financial company might decide not to sell its distressed assets in the belief that there's more value in holding onto them until the market recovers somewhat and prices for the assets increase, predicts Gerard Cassidy, senior equity analyst at RBC Capital Markets (RY) in Portland, Me.

The Buyer of Last Resort

As Merrill Lynch's transaction with Lone Star showed, the discount on these assets has two components: credit risk, which is based on the likelihood of defaults on the underlying mortgages, and lack of liquidity discount, which stems from a dearth of potential buyers, says Cassidy.

By stepping in as the buyer of last resort, the U.S. government will be pumping liquidity into the banking system, which is expected to boost the value of these securities, he says. As a result, the liquidity discount in the price of the assets should narrow substantially as market participants recognize there's a big buyer providing liquidity, which could help attract more buyers, Cassidy adds.

One group that isn't likely to get any relief from the bailout are hedge funds that hold a large quantity of the distressed debt products, says Jack Ablin, chief investment officer at Harris Private Bank (BMO) in Chicago. "Here's a case where hedge funds, as unregulated entities, have no recourse at the table," unlike the banking lobby and mutual-fund industry group Investment Company Institute, both of which will likely have some influence over the legislation that ultimately materializes, he says. He also believes the hedge funds were directly targeted by the Securities & Exchange Commission's ban on shorting more than 800 financial stocks, which took effect on Sept. 22 and is due to last through Oct. 2.

GM May Be a Loser

Other losers may include companies such as General Motors (GM), whose affiliated financing arm GMAC likely has exposure to toxic securities but may not qualify for the government bailout because it's not strictly a financial firm, says Ablin. "You certainly get into odd territory with GMAC," he says. "It's almost entirely owned by a private equity fund [Cerberus Capital Management]. So do you want to bail out [Cerberus chairman] John Snow?"

Commercial banks, most of which have kept their balance sheets free of toxic assets, will probably benefit indirectly as the increase in market liquidity will help push their borrowing costs lower, says John Jay, senior analyst at the Aite Group, an independent financial services research firm in Boston. "If [its funding costs] go low enough, their senior managers will start to look for businesses to lend money to." In the end, their profit margins are expected to grow as the differential between their borrowing costs and lending rates widens.

The shares of some financial players have had a strong run in spite of the market's attempts to paint them with the same brush as the rest of the industry, says Jocelyn Drake, an equity analyst at Schaeffer's Investment Research in Cleveland. PNC Financial Services (PNC), Wells Fargo (WFC), and Hudson City Bancorp (HCBK) all steered clear of toxic assets and their shares hit one-year highs last week before Treasury Secretary Henry Paulson announced the plan on Sept. 18. The shares posted further gains after the announcement.

Skeletons in the Closet

Schaeffer's tends to base its stock picks on technical performance and the degree of pessimism directed at them. Market pessimism —which is reflected in analysts' ratings, the level of short interest and the ratio of options betting on lower prices for certain stocks vs. bets on higher prices—can give you a sense of how much investing money is sitting on the sidelines waiting for the right signals to come into the market. "There are still some skeletons that could come out of the closet [for the financial industry] and hinder the group," says Drake. But she's betting that as certain stocks continue to buck the trend and outperform their peers, sidelined investors will cave in and start to buy these stocks so as not to miss the boat.

There are also a couple of homebuilder stocks that Drake expects to benefit as liquidity returns to the housing market and inventory begins to move.

She likes Meritage Homes (MTH) and Toll Brothers (TOL), both of which have been in an uptrend since the beginning of this year. She takes the drop in mortgage rates after the government bailout of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) was announced two weeks ago as a positive sign, which she believes will help stoke demand for houses.

A Contrarian View

She recommends that investors hedge such bets that go contrary to market sentiment by buying shares of index exchange-traded funds that short the corresponding sectors. For financials, she uses Financial Select Sector SPDR (XLF and UltraShort Financials ProShares (SKF) to hedge her bank picks and SPDR S&P Homebuilders (XHB) to protect against the downside in homebuilders.

Wall Street's Perfect Storm

2008-09-15T14:00:00.000-07:00

Mondays better not get any more manic than this.

Wall Street expected to spend today trying to contain the damage from a bankruptcy filing by Lehman Brothers (LEH) after the fourth-largest investment bank failed to find a buyer for its broken balance sheet over the weekend.

And that's not all. There's the distressed sale of Merrill Lynch (MER) to Bank of America (BAC) for approximately $50 billion, and a radical restructuring plan for American International Group (AIG), the insurance giant which became a major player in mortgage-related securities and derivatives.

Many bond market traders never even got a weekend. An emergency, extra-hours trading session was held on Sunday afternoon for credit default swaps, a kind of derivative. The session was held "to reduce risk associated with a Lehman…bankruptcy," according to a notice posted by the International Swaps & Derivatives Assn. Trades were contingent on Lehman filing for bankruptcy by midnight. Firms also called in employees to review their trading positions with Lehman.

Test of Paulson Policy

The day will face the fallout from the decision by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke to let Lehman fail instead of having it taken over by another bank in a deal backed by the government. Paulson and Bernanke made it clear this summer that they had reluctantly arranged the March acquisition of failing Bear Stearns by JPMorgan Chase (JPM). They feared permitting Bear Stearns' bankruptcy would throw Wall Street into chaos because Bear had untold credit derivatives contracts in place with countless other banks and hedge funds. Now the regulators have apparently decided that Wall Street has had time to control its risks with Lehman. The New York firm's creditworthiness has been subject to question since early this year and has been in serious doubt for weeks. The warnings on Lehman and the six months since Bear was gently put down gave Wall Street time to conduct a drill for the bankruptcy by a major investment bank.

Regulators would like to believe Wall Street has had enough time for a drill. Bailouts, while saving financial institutions and easing short-term danger, are widely seen as encouraging managers and investors to take bigger and bigger risks out of confidence that their losses will be covered.

Regulators may have also felt other forces pushing them away from saving Lehman. Building in the wings have been threats of big trouble at other major institutions. Shares of Merrill and AIG tumbled last week, along with Lehman's stock, following the government's takeover of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE). Shares of savings bank Washington Mutual (WM) also fell sharply. In other words, things could get plenty costly for the government even though it's not subsidizing a Lehman buyer.

Preferred Stock Trashed

The plunging prices of Merrill and AIG raised the possibility that the market had figured out that the two are harboring big new losses from mortgage-linked securities. Worse, if Merrill and AIG lost a lot of capital, Wall Street sees fewer ways to replace that capital since the Fannie and Freddie deals. Terms of the government's takeovers of Fannie and Freddie trashed the value of their preferred stock.

Until now, preferred stock has been a prime tool for daring investors to inject new capital into a company needing rehabilitation. The Fannie and Freddie deals indicated that preferred investors could lose big, along with common stock investors, in distressed takeovers. Both Merrill and AIG raised new capital early this year by issuing securities similar to preferred. Lehman also raised money from preferred investors, who are now likely to be wiped out in a bankruptcy. So now big issues of preferred securities may not be available to fill holes in balance sheets from new losses.

After a bad week, a working weekend, and a manic Monday, Wall Street can only hope the credit storm is at its worst.

Make Money Investment Ideas - How to Make Money

2008-09-14T09:28:00.001-07:00

Investment is the most talked subject. We all want to invest and make money. There are many investment options. As I said earlier investment option mainly depends on the character of the person investing. You have two ways of making money. There are investments that require considerable risk taking ability. There are safe investments. Dynamic characters would love to take risk and make more profit.

To be among successful business man you have to invest in options that are close to your hearts. There are many options available like real estates and stocks. Here again the investment is again divided on the basis of liquidity. You decide on the option based on the liquidity factor. There are more methods of making money like commodity trading, forex trading and mutual funds.

Forex trading is one option that requires you to be on your toes all the time. You have to take spot decisions and you have to take such decisions based on the knowledge you accumulated over years. It is one option that gives great returns on your investment. Stock market is yet another risky investment but, you take decisions based on the knowledge accumulated. It is one business we cannot predict. Stock market allows you to invest long term and make money with safety. Short term or day trading is full risk.

You can make good income by investing in mutual funds. This is one investment option that allows you to take rest. decisions here are taken by professionals. You can be sure that your investment is in safe hands.

There are many investment methods and you can choose your investment based on your priorities.

Doubling Stocks and Marl the Stock Trading Robot

2008-09-14T09:27:00.000-07:00

Anyone who has done research on penny stocks in the last year has definitely heard of Michael Cohen and his company named DoublingStocks. His name and company is synonymous with promoting penny stock companies. He even has his own stock picking robot named Marl. In fact, a lot of the penny stocks he promotes makes gains of over 100% in a day or less. The reason for this is the sheer number of followers he has.

For those of you who do not know what a promoted stock is, allow me to explain. Companies that trade on the smaller boards, such as the pink sheets or the OTC, are usually small companies that fit the following profile. They may have only a few employees, limited capital, and their stock prices are usually .01 to $2.00 per share. In other words, they are classified as penny stocks. They generally do not get the media exposure a larger company, such as Microsoft, Dell or General Electric, would receive on a daily basis. Therefore, when they have a major breakthrough in their particular type of business, they have to get the word out to the public.

Let's say that ABCD company just found a cure for baldness. If ABCD companys' stock prices were trading at .25 per share, it is easy to see how their price per share would double or triple in just a few days. But it's not likely that any of the major news channels would cover ABCD company, therefore they would have a potential gold mine and no one would know about it. That's where a penny stock promotion company, such as DoublingStocks, comes to their rescue. The promotion company would alert the news media, as well as sending out ten of thousands of emails alerting potential stock buyers of the latest breaking news. The price of the stock could skyrocket within a few days. Now, you can see how important the job of a penny stock promoter can be.

Some people would view this as a pump and dump scheme, and that is why so many traditional traders say that DoublingStocks is a scam. But, if you are capable of buying and selling at the correct entry points, you can make a ton of money buying these promoted penny stocks. The secret is to refrain from getting greedy. You should set a goal for the percentage of your investment you are willing to lose and stick to it. At the same time, you should set your profit goals and decide ahead of time exactly when you are going to sell your stock. Keep in mind, when a stock price shoots straight up, it will fall down twice as fast. Trading the pennies is not a place to second guess yourself and you should not let emotions get in the way. If you follow these simple guidelines, you should be very safe in the treacherous waters of the penny stock market.

Trading Stock - Plan to Be Successful From the Start

2008-09-14T09:25:00.000-07:00

There may be a lot more to trading stock profitably than one might think. Without the proper training and guidance it is the most difficult thing in the world to do. I'm just saying that there are certain things that must be done by anyone looking to trade stocks profitably.

The very first thing you must do when planning on trading stock profitably is to decide that you're going to take it seriously. I completely understand why some might think this sounds like blanket, generic advice, but your attitude towards any endeavor can often times determine how well you will do in that endeavor. This is also not to say that you should not have fun when learning stock trading, but also realize that this is not a game, but a tremendous opportunity to not only profit, but to accumulate wealth as well.

Have a plan. There, I said it, have a plan. I don't think that anyone without a plan actually ever truly feels that they will be successful in their venture. Often times it is because plans in the past have failed or that attempts they have made have failed. Truthfully, those past attempts don't have to have anything to do with future attempts. So what are we really saying here? What I'm saying is that if you don't have a plan and you don't plan to have a plan then you should not count on stock trading for generating income or wealth. Take your time and give a lot of thought when creating a trading plan.

Everything runs on fuel of some sort. We as human beings run on food, liquids, and air. It doesn't really matter how big we are or how strong we are if we don't have enough of any of these things we will not survive. Successful stock trading or trading of any type for that matter runs on fuel as well. That fuel I speak of, is capital. Capital is the lifeblood of any business. It does not matter how many of the other necessary factors of the business are in place if capital is insufficient. This is why it is so very, very important to adequately capitalize your stock trading account in order to be successful.

These are but a few of the necessary factors in trading stock successfully.

Data: Inflation Cools; Retail Sales Slip

2008-09-13T13:55:00.001-07:00

A batch of U.S. economic reports released on Sept. 12 carried some mixed messages for the U.S. economy: Measures of wholesale inflation dipped in August, and a closely followed reading of consumer sentiment surged in September. But another report painted a different picture of the consumer: Retail sales dropped by a worse-than-expected amount in August. A separate release showed a surge in business inventories in July.

The U.S. producer price index (PPI) fell 0.9% in August, lower than the 0.4% decline the markets expected, while the core rate edged up 0.2%, which was in line with Wall Street estimates. This comes after gains of 1.2% and 0.7%, respectively, in July. Year-over-year, overall PPI decelerated to 9.6%, from 9.8% in July. Core prices, excluding food and energy, accelerated to 3.6% over last year from 3.5% previously.

Energy plunged 4.6%, to explain the weakness in the headline index. Gasoline prices dropped 3.5%, while food prices were up 0.3%. Light truck prices dropped 1.9%, while computers fell 1.2%.

Lehman Brothers (LEH) economist Michelle Meyer said in a Sept. 12 note that while the year-over-year core rate came in at a "still elevated" 3.6%, "we remain comfortable with our view that inflation is likely to trend lower as commodity prices continue to cool and slack develops in the economy."
Mixed Components

U.S. retail sales fell 0.3% in August; excluding autos, sales were down 0.7%. Markets expected a 0.3% increase for the overall index and a flat reading for the ex-autos index. Sales are down 0.4% over last year (decelerating from +4.5% previously), with ex-autos sales up 4.2%, below the +7.9% rate previously. Moreover, July's headline 0.1% dip was revised lower to -0.5%. July ex-autos was revised to 0.3% from +0.4% before. June data were also revised down.

The components of the report were mixed. Excluding autos, gas, and building materials, sales fell 0.2%. Gas station sales fell 2.5%, nonstore retailers were down 2.3%, while building materials fell 2.2%. Vehicle sales were up 1.9%; food sales rose 0.7%.

"Retail sales through August were much weaker than we expected, though it was difficult to gauge the likely timing of the rebate boost to spending and the ensuing unwind," wrote Action Economics analysts in a Sept. 12 Web site posting.
Inventories Up

U.S. business inventories rose 1.1% in July, while sales rose 0.5%. The June inventories figure was revised higher, to 0.8%, from 0.7% before. The 1.7% June surge in sales was not revised. The inventory-sale ratio edged up to 1.24, from 1.23 in June.

The University of Michigan's U.S. consumer sentiment preliminary reading surged to 73.1 in September from 63.0 in August. The improvement is much better than the 64.0 expected, and stems largely from the drop in energy prices. The economic outlook index jumped to 70.9, from 57.9 in August, while current conditions rose to 76.5, from 71.0.

The one-year-ahead inflation measure fell sharply to 3.6%, from 4.8% in August and an all-time high of 5.2% as recently as May. "This drop brings this measure now well below the prior long-held 4.8% record-high from October 1990, as the 'panic up-trend' in price that consumers perceived through the first half of the year is now unwinding," wrote Action Economics analysts.

"The reversal in inflation expectations will provide a sense of relief to the Federal Reserve," wrote Meyer of Lehman Brothers.

Stocks End Mixed amid Financial-Sector Tumult

2008-09-13T13:53:00.000-07:00

Major U.S. stock indexes finished mostly higher on Friday, even as Wall Street quaked with fear at the possibility of further meltdowns within the financial industry. The talk that Lehman Brothers Holdings (LEH) was desperately shopping itself to prospective buyers set the tone for the gloom, but jitters about additional losses at American International Group (AIG) and the prospects for Washington Mutual (WM) finding a buyer also kept stocks under pressure during a volatile trading session.

Market rumors of a joint bid for Lehman involving Bank of America (BAC) and other parties were circulating, notes S&P MarketScope.

Other financial stocks were in the hot seat Friday. Shares of AIG plunged nearly 31% after Standard & Poor's Ratings Service put the insurance giant's credit ratings on negative watch. The market is worried AIG may have trouble rolling over $40 billion in debt and won't be able to raise additional capital in the current credit environment. Merrill Lynch (MER) and Washington Mutual (WM) ended down, though off their earlier lows.

Bonds were lower after reports Friday showed that producer prices, excluding food and energy, were up 0.2% in August, while the overall index fell 0.9%. Headline August retail sales fell 0.3%, and were down 0.9% excluding autos. July business inventories rose 1.1%, while the University of Michigan consumer sentiment index surged to to 73.1 from 63.0 in August.

The dollar index traded lower. Gold futures were higher. Crude oil and gasoline futures climbed as Hurricane Ike approached the Texas coast.

On Friday, the Dow Jones industrial average rebounded from a 150-point drop to close 11.72 points, or 0.10%, lower at 11,421.99. The broader S&P 500 index gained 2.65 points, or 0.21%, to finish at 1,251.70. And the tech-heavy Nasdaq composite index ended 3.05 points, or 0.14%, higher at 2,261.27. By the end of the week, the S&P had recouped 27 of the 43 points it lost on Sept. 9, while the Nasdaq had bounced 51 points after a 60-point drop on Sept. 9.

On the New York Stock Exchange, 18 stocks advanced in price for every 14 that declined. The ratio on the Nasdaq was 15-14 negative.

Shares of Lehman Brothers were in focus Friday as investors waited for news on the firm's fate. S&P says it would be in favor of a possible Bank of America (BAC)/Lehman combo, only with government backing. Ladenburg Thalmann believes that BofA will be a winning bidder for Lehman, adding that there is a "natural fit" between the two companies.

Some analysts are saying that Lehman Brothers isn't under as much pressure as Bear Stearns was six months ago to secure a deal because it still has access to the Fed's discount window if it needs capital. But Christopher Whalen, managing director at Institutional Risk Analytics, a Torrance, Calif.-based firm that builds customized risk management tools, thinks Lehman is headed for bankruptcy if it doesn't find a buyer very soon.

The problem is that nobody can buy it without having to write down a big chunk of its assets right away because of the debt-laden real estate business, Whalen says.

"The only possible savior is a foreign buyer. I can’t see Bank of America [buying] this because the board would sack Ken Lewis," he says. "Don't forget Countrywide," which didn't show up on BofA's books in the second quarter because the acquisition closed at the start of July.

When it shows up in BofA's third-quarter results, the bank will start to look "fairly gritty", he says.

Even a foreign buyer would understand that "the best way to buy Lehman is on the other wide of a bankruptcy because then it will be clean," says Whalen.

Beleaguered bank Washington Mutual was also in the spotlight Friday. WaMu expects its capital ratios at the end of the third quarter to remain significantly above the levels for well-capitalized institutions and it continues to be confident that it has sufficient liquidity and capital to support operations while it returns to profitability. According to a Wall Street Journal report, WaMu said late Thursday that it had about $50 billion in liquidity from "reliable funding sources" and reported that retail deposit balances at the end of August "were essentially unchanged" from the end of 2007.

WaMu shares spiked Friday afternoon on reports from American Banker and Reuters that the Seattle-based bank was in "advanced" talks with JPMorgan Chase & Co. about a possible deal, only to slide back after CNBC Business News reported there was no such deal.

According to a New York Times report, investors fear that American International Group will face billions in additional losses due to its ties to home loans whose values have plummeted. Meanwhile, Reuters reports that credit protection costs for financial firms rose in early trading on Friday, led by AIG, Lehman, and JPMorgan Chase (JPM), as investors awaited news on the fate of Lehman.

In economic news Friday, the U.S. producer price index fell 0.9% in August, lower than the 0.4% decline the market expected, while the core rate edged up 0.2%, which was in line with expectations. This comes after gains of 1.2% and 0.7%, respectively, in July. Headline prices decelerated to a 9.6% rise over last year from 9.8% previously. Core prices accelerated to 3.6% over last year from 3.5% previously. Energy plunged 4.6%, to explain the weakness in the headline index. Gasoline prices dropped 3.5%, while food prices were up 0.3%. Light truck prices dropped 1.9%, while computers fell 1.2%.

U.S. retail sales fell 0.3% in August; excluding autos, sales were down 0.7%. Those figures are weaker than the market had expected. On a year-over-year basis, sales were down 0.4% (vs. 4.5% previously), and ex-autos sales were running at a 4.2% clip (vs. 7.9% previously). July's headline 0.1% dip was revised lower to -0.5%. The 0.4% increase in July ex-autos was revised to 0.3%. June data were also revised down. Excluding autos, gas, and building materials, sale fell 0.2%.

The components of the report were mixed. Weakness was evident in gas stations (-2.5%), nonstore retailers (-2.3%), building materials (-2.2%), and electronics (-1.3%). Motor vehicle sales were up 1.9%; food sales rose 0.7%, and sporting goods were up 0.5%.

U.S. business inventories rose 1.1% in July, while sales rose 0.5%. June's 0.7% rise in inventories was revised higher to 0.8%. The 1.7% June surge in sales was not revised. The inventory-sale ratio edged up to 1.24, from 1.23 in June.

The University of Michigan's U.S. consumer sentiment index preliminary reading surged to 73.1 in September from 63.0 in August. The improvement is much better than the 64.0 expected, and largely from the drop in energy prices. The economic outlook index jumped to 70.9 from 57.9 in August, while current conditions rose to 76.5 from 71.0.

Next week, all eyes will be on the Federal Reserve, whose policy committee meets to decide whether to change its 2% interest rate on Sept. 16. "The Fed remains trapped between the problems in the financial markets, a weak economy, and inflation fears," an S&P research note said. "With core inflation accelerating and above target, it is hard to see them loosening, especially while gross domestic product (GDP) growth remains positive. On the other hand, the continuing weakness in the labor market and the turmoil in the mortgage and related financial markets make any tightening difficult.

Lower oil prices could provide some cover to loosen in coming months if the economy deteriorates." S&P said it expect the Fed to keep the funds rate at 2% until mid-2009, with the next move a hike.

In energy markets Friday morning, October reformulated gasoline futures were up 5.68 cents to 280.56 cents as Hurricane Ike moved closer to the Texas coast and the Houston area, home to 26 refineries that account for one-fourth of U.S. refining capacity. Hundreds of thousands of people fled coastal areas in the path of the as the storm gathered strength. Ike was a Category 2 storm with 105 mph (165 kph) winds and likely will come ashore late on Friday or early on Saturday. Refineries are built to withstand high winds, but flooding can disrupt operations and -- as happened in Louisiana after Hurricane Gustav -- power outages can shut down equipment for days or weeks. An extended shutdown could lead to higher gasoline prices.

October West Texas Intermediate crude oil futures settled up 24 cents at $101.18 per barrel on Friday.

Among other stocks in the news Friday, Chipotle Mexican Grill (CMG) said that based on third-quarter results to date, the impact of the weakened economy has been greater than anticipated, resulting in further sales deceleration leading to comparable-restaurant sales in the low-single digits for the quarter. The company says the combination of a weak economy as well as food costs rising faster than expected during the quarter will result in its EPS for the period being slightly below thos of a year ago.

Deutsche Bank AG (DB) reportedly agreed to buy nearly 30% of Postbank for $3.9 billion.

Potrash Corp. (POT) announced that its Board of Directors has approved, subject to regulatory approval, an increase to the share repurchase program authorized in January, 2008, raising the ceiling to approximately 10% of the public float or 31.5 million of the company's issued and outstanding common shares.

LDK Solar (LDK) says it has signed an 11-year processing service agreement to process upgraded metallurgical grade (UMG) solar-grade silicon provided by Germany-based Q-Cells AG into wafers. LDK will process a minimum of 20,000 metric tons of UMG solar-grade silicon in the years 2008-2018, with an option to process an additional 21,000 metric tons during the same period.

Cemex (CX) expects third-quarter EBITDA to be about $1.25 billion, a decrease of about 3% on a like-to-like basis for ongoing operations vs. the year-earlier quarter, while operating income is expected to be close to $800 million. The company sees third-quarter sales of about $5.9 billion, flat with a year ago. It also sees 2008 EBITDA of $4.6-$4.7 billion. About half of the drop in its EBITDA guidance is the result of the lower expected performance from U.S. operations. Cemex also expects lower EBITDA contributions from Spanish and UK operations.

European indexes were higher Friday. In London, the FTSE 100 index added 0.84% to 5,363.30. In Paris, the CAC 40 index rose 0.87% to 4,286.19. Germany's DAX index gained 0.25% to 6,194.42.

Major Asian indexes finished mixed Friday. Japan's Nikkei 225 index rose 0.93% to 12,214.76. In Hong Kong, the Hang Seng index fell 0.18% to 19,352.90.

Treasury market

Treasury prices ended lower after Friday's round of economic data. The 10-year note was down 20/32 at 102-09/32 for a yield of 3.72%, and the 30-year bond fell 1-19/32 to 103-02/32 for a yield of 4.31.

Lehman Endgame Looks Ugly

2008-09-13T13:48:00.000-07:00

It’s looking like Lehman Brothers may not be able to count on the federal government for any help in its hour of need and that has all of Wall Street shaking. Shares of Lehman sunk deeper into penny stock territory on Friday, as the beleaguered firm races to find another bank to buy it in a bid to stave-off an imminent collapse of the historic 158-year-old firm.

In early Friday trading, Lehman’s stock fell 10% to $3.80, continuing a downward death spiral that began Sept. 8. Now that Wall Street has concluded Lehman CEO Dick Fuld won’t be able to pull-off his previously announced plan for shoring-up the investment firm’s balance sheet, it’s pretty much become a race against time for Fuld to find a buyer—at any price—for the firm. The speculation on Wall Street is that Bank of America, Barclays and consortium of private equity firms are the most interested suitors.

But it’s not clear if any of those potential buyers will want to do a deal with Fuld, as long as the acquirer must also take on some $30 billion in rotting commercial real estate assets that Fuld was planning to unload. Treasury Secretary Hank Paulson, according to wire service reports, say the federal government is unwilling provide any additional help to Lehman beyond allowing it continue borrowing short-term money from the Federal Reserve—-something the firm has been able to do since the spring.

When JPMorganChase agreed in March to a shot-gun marriage with Bear Stearns, to similarly save that investment firm from collapse, the Fed guaranteed up to $29 billion of Bear’s bad mortgage-related assets. The Fed backstop gave JPMorgan CEO Jamie Dimon enough security to take on the risk of rescuing Bear from a certain bankruptcy filing. This time, however, it doesn’t appear that either the Fed or Treasury is willing to provide a similar guarantee to Lehman’s would be savior.

And without that kind of government-backed guarantee it’s by no means certain any bank will be willing to take on the risk of adding Lehman’s questionable commercial real estate assets to its balance sheet. “There’s very little chance anyone will do a deal for Lehman without the government stepping in,’’ says Janet Tavakoli, a derivatives and structured finance consultant in Chicago.

That’s why some of Lehman’s trading partners are beginning to demand cash settlement for trades, meaning trades must be completed within a day instead of the typical three-day period, sources say. Hedge funds and other banks are still trading with Lehman. They are worried if Lehman will be around to make good on those transactions.

The apparent reluctance of either Treasury or the Fed to go the distance and insure that a deal gets done is why some on Wall Street are beginning to whisper the unthinkable: a Lehman bankruptcy filing at some point in time. A bankruptcy filing, of course, could be a real mess for Wall Street given all the tens of billions in short-term loans other banks have extended to Lehman, which are backed by collateral. And of course there are numerous other trades and transactions Lehman has done with hedge funds and other trading partners that also are backed by collateral—-in some cases potentially backed by pieces of the same assets.

Andrew Rahl, a bankruptcy lawyer with Reed Smith, says a Lehman bankruptcy filing would be an unprecedented event, given that some of Lehman’s division, such as it brokerage arm, are regulated entities. “Clearly this would be a filing without any real precedent. There could be unintended consequences; there could even be some favorable consequences.’’ One favorable outcome might be the freezing of some of Lehman’s ailing commercial real estate assets by the bankruptcy court—meaning those assets wouldn’t find their way into the market anytime soon.

One way Lehman could avoid such a calamity would be to simply break itself up into many pieces and let would be acquirers buy what they like best. A bank could take on Lehman’s investment banking arm, another buyer could get its Neuberger Berman operation and vulture investor might take a flyer on Lehman’s distressed commercial real estate property.

The fear of Lehman failing is one reason shares of other financial firms with mountains of troubled-assets on their balance sheet are plunging too—most notably Merrill Lynch and American International Group. Wall Street is coming to grips with the reality that if the federal government can’t bailout all these institutions, there may be no buyers out there to save them. In the government’s bailout of Fannie Mae and Freddie Mac, it wasn’t just shareholders who got creamed—-holders of Fannie and Freddie’s higher-yielding preferred shares also took a beating. To date, most Wall Street banks have been able to raise capital by selling preferred stock to deep-pocketed sovereign wealth funds and private equity firms. But Wall Street won’t be able to do those deals if there’s uncertainty about whether those preferred shares will have any value down the road.

It’s not a pretty picture. But it’s another reason why this yearlong mortgage-inspired credit crunch is shaping up as one of the worst financial disasters in decades.

Gasoline rises on Ike, but crude dips below $100

2008-09-13T13:46:00.000-07:00

Gasoline prices jumped at the wholesale level Friday as Hurricane Ike swept through Gulf of Mexico, prompting companies along the Texas coast to shut down refining and drilling operations.

Crude oil on the futures market, however, briefly sank below the psychologically important $100-a-barrel mark for the first time since April 2—showing that investors believe a worsening global economy will continue to drive down demand for some time in the United States and elsewhere.

The fact that U.S. fuel demand is so weak right now might mean the recent surge in the wholesale price of gasoline—which rose to about $4.85 a gallon in the Gulf Coast market Friday—might not be passed along to consumers unless Ike's impact is severe and long-lasting.

"Major oil companies are sensitive to raising prices in this environment," said Ben Brockwell, director of data pricing and information services at the Oil Price Information Service.

Ike is forecast to land early Saturday as a Category 3 hurricane near Galveston, a barrier island about 50 miles southeast of Houston. The Houston region is home to about one-fifth of U.S. refining capacity, and the site of a major fuel and grain distribution channel.

Wholesale gasoline prices on the Gulf Coast moved further into uncharted territory Friday, as refineries anticipated that Ike would lead to at least a significant pause in their operations, and at worst damage to their facilities. On Thursday, the Gulf Coast wholesale price of gasoline last traded at around $4.75 a gallon, according to OPIS, up substantially from about $3.25 Wednesday and less than $3 Tuesday.

Wholesale prices were much lower in other regions such as Chicago, New York and Los Angeles, but even those areas saw prices rise.

"Hopefully it's a temporary phenomenon, but we won't know until next week," Brockwell said.

Wholesale prices are determined by major players in the supply chain including refining and trading companies, which constantly buy and sell barrels. These prices end up deciding what refineries charge distributors, before they get marked up further at the retail level for the consumer.

The average U.S. retail price for gasoline edged up less than a penny to $3.675 Friday from Thursday, according to auto club AAA, OPIS and Wright Express.

On the New York Mercantile Exchange, light, sweet crude for October delivery fell 6 cents to settle at $100.18 a barrel in afternoon trading, after briefly sinking to $99.99.

October gasoline futures climbed 0.11 cent to $2.76 a gallon on Nymex.

"All week long, it's been a gasoline story more than anything. If you just looked at the crude market independently, you wouldn't know that we had a couple of hurricanes," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, referring to Ike and last week's Gustav.

"This dichotomy could persist for a few more days next week," he said. But "once the storm factor subsides, we'll see a much higher correlation between gasoline and crude oil."

Also, the demand for crude tends to fall off when refineries shut-in, as the have done this week, because they are not taking new crude shipments.

Exxon Mobil Corp., Valero Energy Corp., ConocoPhillips and Marathon Oil Co. have begun halting operations as the Category 2 hurricane headed straight for the nation's biggest complex of refineries and petrochemical plants. U.S. wholesale gasoline prices spiked 30 percent Thursday.

As of Friday, nearly 98 percent of crude production and more than 94 percent of natural gas production in the Gulf were shuttered, according to the Department of the Interior's Minerals Management Service.

By Friday afternoon, Ike was a Category 2 storm centered about 165 miles southeast of Galveston, moving to the west-northwest at nearly 12 mph. Forecasters warned it could become a Category 3 storm with winds of at least 111 mph before the eye strikes land.

Ike is huge, taking up nearly 40 percent of the Gulf of Mexico. The National Hurricane Center said tropical storm-force winds of at least 39 mph extended across more than 510 miles.

Ike and last week's Hurricane Gustav have helped to stanch a sharp downturn in oil prices. Concerns over slowing economic growth on a global scale and a strengthening U.S. dollar have led funds to liquidate their commodities holdings, pushing crude prices down about 30 percent from their record $147.27 set on July 11.

U.S. fuel demand in June was down 5.6 percent from the same period a year ago, according to a recent report from the Energy Department, so many market watchers are expecting oil prices to resume their tumble.

"With demand being down as much as it is, the market, some argue, is a bit oversupplied," said Stephen Maloney, a senior consultant in energy risk management at Towers Perrin. "When you ask, how does Ike affect things? Its impacts are going to be in the context of lower demand for products than a year ago."

In other Nymex trading, October heating oil futures rose 1.45 cents to settle at $2.93 a gallon. Natural gas for October delivery rose 7.37 cents to settle at $7.372 per 1,000 cubic feet.

In London, October Brent crude fell 6 cents to settle at $97.58 a barrel on the ICE Futures exchange, after closing at a six-month low in the previous trading session.

The wild ride in United parent UAL's stock

2008-09-08T14:28:00.000-07:00

Shares of UAL, the parent of United Air Lines, went into a tailspin briefly this morning after the (Fort-Lauderdale) Florida Sun-Sentinel published a story this morning on its web site that UAL would be filing bankruptcy. Which UAL did.

Six years ago.

The article in question was a story that the Sun-Sentinel’s sister paper, the Chicago Tribune, published in 2002, except the date was changed to today. Interestingly, the story didn’t move the market until a staffer at Income Securities Advisor, a Miami investment advisory firm run by the much respected Richard Lehmann, mentioned it in a subscription-service that he distributes via the Bloomberg wire service.

All this created a panic in UAL’s stock around 11 a.m., with its shares plunging from roughly $12 a share to…a penny, as apparently more than one investor panicked (or a market maker refused to absorb any losses amid the uncertainty, and set the bid at a mere cent).

NASDAQ halted trading in UAL, the company issued a statement calling the bankruptcy talk “completely untrue” and lashing out at the “irresponsible posting” of an article published six years ago. The “whodunit” here is shaping up to be a real potboiler because an editor at the Sun-Sentinel was quoted afterward saying that its computer records indicated that no one had opened that story file since 2003—which raises the question of whether this was the handiwork of a hacker who cracked into the Sun-Sentinel’s computer system and reposted the story to profit from the inevitable plunge in UAL’s shares.

For now I’ll leave it to other publications to chase the Whodunit, and I’ll address the question that none of these newshounds is asking: Was a purported news story saying United was filing bankruptcy even plausible in the first place? And is United at risk of filing bankruptcy in the foreseeable future?

The answers are no and no and here’s why…

Granted, articles I have written in the past year have been critical of United's management, raising the question whether CEO Glenn Tilton was so fixated on dressing United up for a merger (which never happened, and now probably won't) that it eroded the carrier's competitive position. And the economic climate has been brutal for airlines--soaring fuel prices, a drop in demand, and that's just for starters.

But based on the carrier's current balance sheet, cash flow, and the recent dip in fuel prices, it doesn't appear United is at risk of filing bankruptcy in the immediate future. As of June 30, the carrier was sitting on $2.9 billion in near-term liquidity, and that doesn't include a deal the Chicago-based airline struck with Chase Bank (which issues its affinity credit card) and Paymentech (its credit card processor) that should enhance its liquidity by another $1.2 billion. And cash needs for 2008 are moderate: $700 million in maturing debt, $450 million in capital spending and minimal pension funding requirements (since the airline terminated virtually all of its defined-benefit plans while in bankruptcy.)

Overall, the $2.9 billion in liquidity United reported at mid-year was equivalent to 14% of its trailing 12-month revenues. According to analysts at Standard & Poor's, that's relatively less than peer airlines, but S&P analysts also note that UAL doesn't count collateral from fuel hedge counter-parties in its cash position as other airlines do. But after factoring in the proceeds from Chase and Paymentech, S&P analysts predict that United will finish out the year with more liquidity than it reported on June 30. And even if oil prices turned sharply north again, the airline still has $3 billion in aircraft and other assets that it hasn't borrowed against and could if the industry outlook became dire enough.

And the recent dip in oil prices--along with the prospect that oil could drop back into double-digit levels--should be enough to either nudge UAL back into the black, or at worst, trim back the size of its losses. Ironically, the UAL bankruptcy "story" hit just hours after Ray Neidl, a veteran airline analyst for Calyon Securities, issued a broad report predicting that the worst may be over for the industry:

"Unless oil prices go above $150/bbl or we experience a sharp recession in the coming months, we believe trends for the industry are bottoming out," Neidl wrote. "If the worst is over, at the current low stock prices even after the recent rally, we could see a strengthening of airline stock prices between now and next spring."

To be sure, not all is wine and roses at United. S&P Analysts still believe the carrier could lose more than $1 billion this year (not including non-cash charges for writing down the value of goodwill and other assets). And the airline still faces a number of unique challenges, including labor relations that are among the most poisonous in the industry. Against this backdrop, S&P analysts downgraded UAL's debt in late July from 'B' to 'B-', with a negative outlook, a development that could raise the airline's borrowing costs even higher.

I'll expand on this posting but that's my two cents for now.

Blue Chips Rally after GSE Rescue

2008-09-08T14:23:00.000-07:00

Major U.S. stock finished higher Monday in a session that featured some remarkable developments. The Dow industrials and S&P 500 index advanced strongly in reaction to the announcement Sunday of the federal government's takeover of Fannie Mae (FNM) and Freddie Mac (FRE), which own or guarantee half of the country's $12 trillion in outstanding home mortgage debt. The action removes some uncertainty about the solvency of the government-sponsored enterprises and instills some confidence in the economy.

Also on Monday, UAL Corp. (UAUA) shares fell sharply, to near 3.00 at one point in the session from their opening price of 12.17, and then recovered to finish the session down 1.38 at 10.92. The airline operator said reports that the company filed for bankruptcy are completely untrue and were caused by the irresponsible posting of a six-year-old Chicago Tribune article by the Florida Sun Sentinel newspaper website with the date changed. The story was related to United's 2002 bankruptcy filing. (United exited bankruptcy in February, 2006.) United is launching an investigation.

The Nasdaq composite index lagged the blue chips, amid declines in Google (GOOG) and Apple (AAPL).

Bonds rose in price. The dollar index climbed. Energy futures ended mixed. Gold eased.

On Monday, the Dow Jones industrial average jumped 270.56 points, or 2.41%, to finish at 11,491.52. The broader S&P 500 index climbed 23.01 points, or 1.83%, to end the session at 1,265.32. And the tech-heavy Nasdaq composite index gained 12.78 points, or 0.57%, to close at 2,268.66.

On the New York Stock Exchange, 20 shares were trading higher for every 11 that fell in price. The ratio on the Nasdaq was 17-11 positive.

Major stock indexes overseas rallied hard Monday on the GSE bailout. In London, the FTSE 100 index surged 3.81% to 5,440.20. In Paris, the CAC 40 index jumped 4.1% to 4,368.00. Germany's DAX index gained 2.66% to 6,290.35.

Asian markets rallied overnight. Japan's Nikkei 225 index climbed 3.38% to 12,624.46. In Hong Kong, the Hang Seng index shot higher by 4.32% to 20,794.27.

The U.S. financial sector was boosted by the Fannie/Freddie news, with the major U.S. financial institutions like Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C) finishing higher. Homebuilding shares also gained.

However, not all financials rallied. Fannie and Freddie shares plunged to below $1 on the news, capping a meltdown of tens of billions of dollars in market cap over the past year for the mortgage firms.

In an announcement Sunday, Treasury Secretary Henry Paulson said the firms were being placed in a government-operated conservatorship, ousting their chief executives and eliminating their dividends. The Treasury may purchase up to $200 billion of stock in the firms to keep them solvent. Under the plan, the Federal Housing Finance Authority will assume the power of the board, and the two firms' CEOs will resign after a transitional period. Common and preferred dividends paid by each company have been suspended.

In addition, S&P and Citigroup lowered their equity ratings on Fannie and Freddie to sell.

Bond-market guru Bill Gross of PIMCO expects the news to help housing and the economy, notes Action, while a leading hedge fund, Paulson & Co., is looking to buy financial stocks.

"We believe the plan is a significant positive for the housing market, the economy, and the capital markets and that its announcement may prove a key turning point in the ongoing credit crisis," wrote Lehman Brothers economist Zach Pandl in a note Monday.

The extraordinary news concerning Fannie and Freddie somewhat overshadowed developments elsewhere in the financial sector.

Washington Mutual (WM) announced that Alan H. Fishman has been appointed CEO to succeed Kerry Killinger who is leaving the company. WaMu says Fishman has also joined the company's board.

Lehman Brothers Holdings (LEH) replaced key senior management, appointing new co-heads of its Fixed Income unit and new co-chief executives of the Europe and the Middle East segments. An unconfirmed report from Reuters also says that Korean regulators are urging Korea Development Bank to take a cautious approach to dealings with Lehman, and cites Japanese sources suggesting that Nomura Holdings is considering acquiring a stake in the firm. Merrill Lynch (MER) upgraded its recommendation on Lehman to neutral from underperform, saying that it believes the environment has improved for Lehman to be able to attract the equity capital it needs at a price around the current market.

Merrill also upgraded Goldman Sachs (GS) to buy from underperform.

Friedman Billings (FBR) upgraded shares of East West Bancorp (EWBC), (UCBH) and (ZION) to outperform as it believes that the government's decision to place the GSEs into a conservatorship has positive implications for bank stocks in general, specifically those with depressed valuations driven by uncertainty surrounding capital levels relative to exposure to housing-related losses.

Bankunited Financial (BKUNA) announces that it received notification Monday that the Office of Thrift Supervision has reclassified the bank's regulatory capital status from well-capitalized to adequately capitalized although the Bank's capital ratios exceed the statutory threshold for well-capitalized institutions. As a result, Bankunited is subject to restrictions on accepting brokered deposits.

While the GSE bailout garnered the lion's share of the market's attention Monday, traders were also looking ahead to reports on the U.S. trade balance Thursday and retail sales Friday.

Energy futures turned lower despite worroies that Hurricane Ike will hit the Gulf of Mexico's oil structure. The Weather Bureau so far has not been able to pinpoint where the storm will make landfall. October WTI crude oil futures were lower at $105.37 per barrel. Meanwhile, OPEC ministers are gathering in Vienna for tomorrow's meeting. They were widely expected to leave formal targets unchanged, especially as the powerful hurricane has lifted oil prices. Also, there was speculation the ministers did not want to cut output with global economies appearing to be headed for a recession.

Gold traded on a heavier footing, with a broad dollar rally encouraging movement out of commodities and in to other assets. The improved risk profile generated by the U.S. GSE bailout weighed on gold, with some of last week's safe haven bid coming undone as equity markets moved broadly higher.

Among other stocks in the news Monday, Altria Group (MO) agreed to acquire UST Inc. (UST) in an $11.7 billion deal, which includes assumption of $1.3 billion in debt. Terms: $69.50 cash per UST share.

Gehl Co. (GEHL) agreed to be acquired by its largest shareholder, Manitou BF S.A., a manufacturer and distributor of material handling equipment headquartered in France, in a $450 million deal (aggregate enterprise value). Terms: $30 cash per Gehl share.

Hercules Offshore (HERO) reported that all of its drilling rigs, liftboats and marine vessels located in U.S. Gulf of Mexico have been accounted for, appear to have sustained no damage as a result of Hurricane Gustav. Notes, all of its contracted drilling rigs have resumed operations, except for three drilling rigs on stand-by and one drilling rig that was recently re-evacuated as Hercules Offshore takes precautions as it monitors Hurricane Ike.

Treasury market

Bond prices recovered somewhat from earlier lows. The 10-year note fell to 102-10/32 for a

yield of 3.725%, while the 30-year bond was lower at 103-06/32 for a yield of 4.312%.

Investments in Costa Rica - Not Exactly What You Think

2008-09-07T09:24:00.000-07:00

Investments in Costa Rica?... isn't that an island?...somewhere in the Caribbean?

My wife and I moved to Costa Rica six years ago from the frigid climate of Minnesota where we had owned a printing business for 15 years. For as long as we could remember we had worked 12 hour days and spent most of our time figuring out how to stay even...getting ahead wasn't even in the cards.

Then 9/11 happened. And for us it was an epiphany. Life was too short to spend the balance of our lives on a treadmill that went nowhere. We accelerated our retirement plans by almost ten years.
And over the next year we sold everything we owned and eventually found ourselves in Costa Rica (which, mind you, we had only visited once previously...and on vacation at that !).

Stupid? In retrospect, sure. To move to a foreign country where we knew no one, didn't know the language and our only exposure was the internet? Of course, it was stupid.

But...we loved it, even in spite of the fact that life here was completely different than the books portrayed or the internet showed. We rented a small home about an hour outside of San Jose in a community which was rural, coffee country and yet still large enough to have a hospital and within 45 minutes of the main airport.

And we purchased land...and we built a house. And luckily, Rhonda had the temperament to deal with the local builders, even though we didn't understand much Spanish. I still remained a type A and the manana attitude drove me crazy.

And much of the real estate and construction business was definitely not in any "how to..." book that we ever found. And we definitely made mistakes. But luckily they didn't hurt us TOO much financially. And we asked a lot of questions and we learned, little by little, how the real estate market functioned in Costa Rica.

And we decided that we wanted to let others know the things that we had to learn the hard way. We started a real estate company whose sole aim was to present properties which reflected prices that locals paid...because there is a two tier real estate market in Costa Rica...one for "gringos" and one for Ticos (locals, as Costa Ricans call themselves).

Because there are very few rules or regulations for real estate here, our "exposure" of the market didn't make us very popular with other real estate people. (remember, Costa Rica is a VERY small country...about the size of West Virginia or Houston). So our website didn't exactly endear us to local agents who were used to charging whatever prices and commissions that they thought the traffic would bear.

And slowly we began to get a reputation...admittedly, some was good, some bad...depending upon who you talked to. And we began to get publicity...unsolicited publicity from magazines like Newsweek and Investors Business Daily. And our business grew. And grew some more.

As our business grew we began to meet more people from Costa Rica...some influential, some not... some quality, some not. And we became exposed to many more types of investments that were totally foreign to us. And we learned who really "controls" the country and which people control investment capital and have the influence to make policy. To illustrate how much of our education was "coincidence" (and I personally do not believe in coincidences... I believe that they happen for a reason) our third attorney was introduced to us purely second hand at a local gathering; "coincidentally" his wife was from Minnesota...Rhonda was then invited to a weekly gathering of "gringas", all of which married Ticos 35-40 years ago and who have now ALL become very influential ; e.g., Minister of Finance; Minister of Agriculture and two other former cabinet members.

Because of our real estate organization (see it here: www.cr-home.com) we are able to see daily what people are seeking and watch the ebb and flow of interest. And not only are we able to gauge areas of interest but also types of properties or homes that are attracting the most interest...e.g., we know that beach properties or condominiums at present are receiving very little interest and the high end beach properties sales are very slow. We have our own hypotheses as to why this is occurring but we are dealing with "what is", not what we think "should be"...nor do we look for esoteric explanations to explain the status. We are big believers in the KISS philosophy..." keep it simple, stupid."

Over the past three years we have made a number of investments here...none have shown a loss and others have turned a 100% return within a 60 day period. Some have unrealized profits. We have yet to take a loss. Please understand here that we are not professional investors (if there indeed is such an animal)... we have simply taken advantage of situations that we consider to be extremely low risk. WE ARE NOT SIMPLY "HOPPING ON THE COSTA RICAN REAL ESTATE BANDWAGON"...because if we had done that, we would have already lost a significant amount of money.

Let me explain...
Our website and mission statement is all about value...and it is about education and knowing "the good, bad and ugly" BEFORE buying. Too many people get caught up in the emotion and beauty of Costa Rica and buy on impulse. And these are the people that ultimately run the risk of losing their entire investment. (con men and fraud exist everywhere but are more common here simply because of the lack of comprehensive rules and regulations concerning real estate and construction). That being said...we attract a different type of clientele...one that typically wants to ensure that he gets the most value for his or her money....and definitely not one that is an impulse buyer. We deal primarily with the "baby boomer" who is looking at Costa Rica as a retirement destination AND the buyer who wants to ensure that he or she gets the most value for their investment.
And the above paragraph illustrates the best, most concise reason why our business is almost recession proof and not affected by the "subprime crisis" and will allow us to continue to capitalize of various forms of investment in Costa Rica.

So...now that we have established our background...WHY are we recommending Costa Rica as a basis for specific types of investments?
We are not attempting to "sell" Costa Rica because we expect anyone who is examining Costa Rica as an investment to do their own due diligence. So...
- Costa Rica is home to the longest running democracy in Latin America. Its stability is unquestioned and it is allied closely with the U.S.
- Almost a third of the land mass of Costa Rica is set aside for national parks. Costa Ricans themselves are huge lovers of wildlife, flora and fauna.
- There is virtually no mineral exploration and absolutely no oil drilling in Costa Rica for environmental protection.
- The literacy rate in Costa Rica exceeds that of the States or Canada.
- Medical care is superb and available to everyone...even to those who are unable to pay.
- Costa Rica is more familiar to Americans than nearly any other foreign destination...for vacation. Nearly everyone who has visited Costa Rica wants to return and, in fact, Costa Rica has the highest return rate for vacationers of any other destination in the world.
- While Costa Rica is technically a "second world country", its infrastructure is excellent.
- Costa Rica's economy, while operating at a deficit, is in excellent shape.
- Costa Rica has no standing army, thus expends no funds on a national defense.
- Costa Rica espouses family values and many visitors liken it to the States from the 50s. The pace of living is slower and the Costa Rican people (Ticos) have different values than their counter parts in America and Canada.
- There are literally dozens of microclimates within a two hour drive from anywhere in the country. Where else can you drive for a day and see two oceans, several volcanoes, sandy beaches, mountains, waterfalls, lakes, rain forests, cloud forests, agricultural land, hot springs, wildlife preserves, and much much more...?
- Cost of living estimated at approximately 30% of equivalent lifestyle cost in the States or Canada.
- An estimated 30% of the population speaks or understand some degree of English.
This is only the abbreviated version of the positives of Costa Rica...other countries such as nearby Panama, Nicaragua and Mexico are attempting to woo the "baby boomers" but OUR belief is that the "blue chip" of Latin American investment will almost always win out. Just because land in Nicaragua or Panama maybe 20% cheaper or because the government offers one time incentives to expats....does not necessarily mean that it is worth the risk of your hard earned savings. Weigh the pros and cons. Some say that Costa Rica is overpriced...some say that its time has passed for investment...we say "take a look at the number of people that visit here...and that return...do your homework...then make your decision."

Okay, we have subjectives about Costa Rica and why people visit here and keep returning. Now we need facts.
During the first six months of 2008, more than 125,000 foreigners visited Costa Rica...and this is a 16% increase over last year. And remember, this is in a so called recession which is worldwide. Don't believe that the trend will continue?...try this: ask your friends what their impressions are of Costa Rica or what they have heard ABOUT Costa Rica. I can guarantee that the responses will be overwhelmingly positive. Subjective ? Yes, but still highly convincing and you will not get these types of responses from any other location or destination.

Numbers of weekly airline flights are climbing...ranging from American Airlines with 43, to Continental with 25, Delta with 24 down to Spirit and U.S. Airways each with 7. This does obviously not take into account visitors from other parts of the globe. Currently, the States and Canada account for over half of all visitors and tourists to Costa Rica. Europe accounts for nearly 20% and the rest of the world, the balance. This is another good rationale why our business is expanding instead of collapsing like many of the local pundits have predicted...the slowdown in the States is more than counterbalanced by Canada (which is experiencing a VERY strong economy and a very strong currency) and Europeans... who are also experiencing gains with the rise of the euro vs. the dollar and other currencies. The Costa Rican real estate market is simply not dependent upon one country or group of people to experience strong real estate interest. And please also keep in mind that Costa Rican real estate is a microcosm of Economics 101...the areas of interest for the "boomers" and second home buyers are small and it is easy to see that there are more buyers than sellers (which is really what the markets are all about... remember our KISS theory?)

We have established statistically that more and more visitors are arriving in Costa Rica. Now we need to establish a base for our investment philosophies...and it is primarily centered upon the huge number of "baby boomers" which are just beginning their retirement years. We do not need a huge elaboration as to why "boomers" are examining overseas destinations in increasing numbers...but here are a few of the major reasons:
- Cost of living...it is no surprise that costs of almost everything are climbing daily. The equivalent cost of living in Costa Rica is roughly a third as much.
- Medical care is excellent and only at a fraction of the cost.
- There is a tremendous amount of diversity here and an almost unending list of activities and sightseeing which is available daily...you will definitely never be bored!
- Stable government and environment.
- High literacy rate and people are genuinely friendly.
- Only a short plane ride from the States.
- Infrastructure is good and water is drinkable everywhere in the country.
- The banking system is excellent and safe.
- There is a huge amount of flora and fauna here which is literally unequalled anywhere in the world...and over 25% of the country's land is set aside for national parks.
- Land and construction is still extremely affordable by comparison.
- Crime is still relatively low, especially when compared to its counterparts and "competition".
Okay, now that we have established that Costa Rica is a viable, growing and stable marketplace AND that the "boomers" have the potential to have a major influence on the marketplace in Costa Rica...let's pinpoint specifics which will allow us to make significant investment gains:
Most "gringos" say that they would prefer beach living. The reality is that over 50% of all people who buy on the beach sell within five years. We have found over the past five years that most gringos prefer acreage with the following features:
- Views...either the ocean from a distance or the Central Valley
- Access to good medical and professional services
- Not "too remote"
- Good shopping and dining accessibility within a reasonable drive.
- Internet availability...good infrastructure
- More moderate temperatures
- More rural than urban but still amenities available closeby
- Within a "reasonable" drive to an international airport.
- Private, but not too private; i.e., neighbors nearby but not TOO close.
- At least half to an acre of land...river, waterfall or lake if possible.
- Fruit trees and other vegetation a major plus.

With the above in mind, Rhonda and I settled in Grecia which was approximately half an hour from the country's major airport, 45 minutes from a first class hospital (yet only 10 minutes to a municipal hospital, in Grecia). We chose to be in the mountains overlooking the town and the Central Valley. Major shopping was 45 minutes away as was "better dining" and (for me) bookstores. Notice how we fit the above "profile"? BTW, we also had a river on our property. Why do we bring this up here?...because our "property preferences" were (and are) the same as 80% of most gringos that move to Costa Rica to retire (full or part time.)

Next factor: there are very very few rules and regulations when it comes to real estate and construction in this country. There are ways to protect yourself legally but there are no sure methods of ascertaining what is a "fair and honest" price. There is no MLS system and there is not a system of comparables. For the most part, real estate is bought and sold the way it has been for decades...primarily word of mouth. This is specifically why people flock to the real estate industry...because of "net selling" or the simple fact that it is almost impossible to know what is a fair price. (net selling refers to "marking up" a property over and above what the seller wishes to "net...very commonplace here.)

Next: There are very few American style houses for sale here... and Tico houses simply are not satisfactory for 98% of "gringos" that move here (lower ceilings, smaller rooms, not enough land, no 220V power, no views, etc). This obviously brings up the logical conclusion...if there is a market, and it appears that it is highly skewed in favor of the sellers...is there an opportunity here to capitalize on that imbalance? (for those of you who are thinking ahead here...remodeling is difficult because almost all construction here is block and steel and all wiring and plumbing is encased in concrete...remodeling costs actually exceed "STARTING FROM SCRATCH".)

Because there is a two tier market here...one for locals and one for "everyone else" it is important to ensure that pricing received is comparable to others of comparison (as much as possible in a country where "comparables" are simply conversation over coffee.) A "gringo" certainly can look for his or her own property but it is almost a guarantee that prices will be at least 50% higher as locals share the common perception that "gringos" have money trees "back home" and that we will pay almost "any asking price" because we don't know the culture or the area.

And remember we know the markets...who is buying, what they are seeking and what they will pay. And then obviously the determination has to be made if it is possible to make a profit.

The last item to take into account is the simple fact of Costa Rican land itself...without the "gringo factor". Ticos (Costa Ricans) are accustomed to an inflation rate of around 12% annually and many compensate by buying additional land and simply holding hard assets. And when selling, Ticos know that if they do not get their price today...they will in six months or in a year. The trick then becomes to truly know the markets and to be able to take advantage of buyers that MUST sell and that need money.

On to "brass tacks" and specifics...
1. The void of, and lack of, American style houses in many areas is crying to be filled. The following is a quick "down and dirty" summary of approximate profits to be made from such an investment: Land cost: (one acre...view property in Grecia or environs) $50,000; American style house of 3 BR, 1500-1600 sq. meters: $75,000...misc costs including architect, utilities and landscaping: $10,000. Selling price: $190-195,000, possibly more. Estimated gross ROI (before payout to limited partner or construction supervisor)...50%.

2. Smaller developments can be even more profitable...we prefer to stick with a much smaller number of homes as it is more manageable and you fly under the municipality's radar...nothing illegal, just avoiding the possibility of locals swarming around with their hands out. Typically, we raise money in smaller increments (shares) as the amounts normally exceed $250,000.

Profit estimates here are extraordinary.
3. Oftentimes, at least bimonthly, we see a property at an extraordinary price...one that we know is substantially below market value. Sometimes these properties can be resold almost immediately...other times they involve buying a larger piece and reselling smaller units of land. A good example is a block of four quarter acre beach front parcels which are titled and located only 1 ½ hours from San Jose on the Central Pacific coast. The owner is in the States and is admittedly desperate. The units can be picked up as a whole and resold for at least a 50% profit (our opinion). They are RARE and gorgeous.

4. Recently, we were contacted by the owner of a small house in Grecia. We had previously listed it at a decent price...but no takers. It has a gorgeous view and the house needs probably $5000 worthy of work. In our opinion, the owner is now willing to sell for close to land value only. Not a huge winner, but percentage wise, probably a 50% profit is available. Estimated ROI to the investor...50%+

5. Occasionally we are shown properties which have a "glitch" in their titles...not major problems but simple filings to correct them. "informacion processoria" properties are normally those which have passed down from family member to family member over the years without doing proper registration or filings. It is a simple matter for a competent attorney to correct the oversight (and, in many cases, it was simply not done for lack of funds). These properties can oftentimes be had at substantial discounts. A good example is a property currently being offered of nearly two acres just on the outskirts of San Jose...a suburb called Aserri. The property HAD to be sold (family financial emergency)...asking price was actually less than 20% of what comparable properties were currently selling for ADJACENT to this property. Estimated "fix" time is six months...properties like this do not often surface and, most of the time they are "no brainers".

Now, we are the first to admit that 99.9% of people that read about these investments are not able to do them themselves. This is why we have typically set up "arrangements" or agreements to handle the everyday details and carry the project from start to finish. Obviously, investments such as the Aserri property, or others that are shorter term investments that can be resold quickly, do not need "special handling".

Hopefully, this investment overview has sparked your interest. We have met nearly all of our investors...some before the physical and actual investment, other afterward. We have an annual pigroast in January and typically nearly all of our investors along with friends and neighbors from Costa Rica get together for fun and an overview of each investment status. In the past it has been a huge hit...plus of course, it is a great excuse to come to Costa Rica.

Why American Savers Have Drawn the Short Straw

2008-09-07T09:21:00.000-07:00

American savers, take a bow. This is your moment of vindication. Your hour of glory. And you earned it (in a manner of speaking).

You resisted the siren call of plastic teaser APRs, dutifully living within your means to store money for a rainy day. You never took out an interest-only mortgage. Never had to pawn the copper pipes from your exurban McMansion to pay the reset on your liar loan. Your credit score would have gotten you into Harvard at age 12.

Good for you! Your reward: injurious savings yields, inflationary rot, and election-season neglect, all served up with a dollop of institutional insecurity.

Even with a current account deficit that, starved of domestic savings, requires $2 billion a day in foreign financing, economic policymakers are fixated on propping up credit and giving the participants in the housing bubble second chances. In order to do so, they are stripping the hides off of net savers.

Since August of last year, the Federal Reserve has slashed interest rates from 5.25% to 2.00%—wielding a blunt instrument that was swung enough to bend the yield curve in favor of suffering banks. You know, the institutions that screwed up but were too big and important to be deprived of an inalienable right to cheap deposits that they can loan out at several points higher.

Indeed, a year ago, a six-month certificate of deposit earned, on average, 3.53%, according to Bankrate.com (RATE). Today, that's down to 2.03%. A one-year CD that earned 3.75% at this point in 2007 was offered for as little as 1.92% in April, before inching up to its present 2.38%. It's hardly a secret that banks are only able to pay out such pittances thanks to depositors' knee-jerk desire for security: "Hey, I might be earning crumbs on my cash, but at least I'm not losing money."

Sure you are. Wholesale inflation has soared 9.8% in the past 12 months, the highest clip since 1981. The more widely cited consumer price index jumped to 5.6%. In other words, while your saved buck was adding 2 cents or so on one end (and even less after taxes), three times as much was getting singed off the other end of that dollar bill. "Inflation is just deadly to savings," says David Gitlitz, chief economist at TrendMacrolytics, an investment adviser. Gitlitz observes that, taking into account the hit from inflation, rates haven't been this negative since the dreary 1970s. (That, in turn, gave way to an early '80s that saw the worst inflation in U.S. history since the Civil War.) "It steals your purchasing power and sets less and less of an incentive to keep money in the bank."

You're telling me. My trusty Manhattan pizza guy recently hiked the cost of a slice for the second time in the past year, from $2 to $2.50 to $3. "Why you mad?" he blurted, pounding a ball of dough. "Prices are nuts; you can't even buy a glass of milk no more." ("We're paying 128% more for a bag of flour," added his grandson-apprentice, with startling accuracy.) Even my barber justified taking up the cost of a standard trim and buzz by 20%. "Fuel surcharge," he deadpanned in his Uzbeki accent. (As it turns out, he rides the subway.)

In a perfect world, the Fed's rate-cutting campaign would have shored up real estate and the stock market. Instead, investors have been running for inflationary cover in hard assets like crude oil, gold, and even fertilizer. Oil, we all know, went from $70 to more than $140 in one year flat, sending gasoline and utility costs soaring and counteracting the lift from monetary and fiscal stimulus. Still comforted by that 2% savings yield? (Your mattress and piggy bank are in stitches.)

Commodity inflation has also been exacerbated by concurrent weakness in the dollar, which is stuck between a Europe that is loath to cut interest rates and a Washington that is too scared to hike them. Even with its recent rally, the greenback is only worth two-thirds of a euro. You practically have to wheelbarrow dollars to places like Madrid and Berlin.

All of which might be tolerable to the lonely and beleaguered saver if he weren't taunted daily by lopsidedly pro-spending, pro-creditor news stories. Forget about moral hazard. Forget about rewarding profligacy. Washington is hell bent on putting a floor beneath the housing market. And subtlety got vetoed out of the process. Consider some recent news reports:

"President Bush Signs $300 Billion Housing Rescue Bill" (AP)—increasing to $625,500 from $417,000 the size of home loans in high-cost areas that Fannie Mae (FNM) and Freddie Mac (FRE) are allowed to buy.

The number of Chapter 7 filings—designed to give individual debtors a "fresh start" by discharging many of their debts—recently rose by 36%.

"The FDIC may lower mortgage rates for delinquent IndyMac borrowers after suspending foreclosures..." (Bloomberg).

Maybe savers' ultimate vindication will arrive when and if every asset is so deflated, credit is so choked off, and misery is so prevalent that only those with cold hard cash can lob in lowball offers for homes, cars, and everything else. Assuming, of course, they didn't stash all their money in one of the many banks that is about to go under; the feds are closely watching 117 of them—and counting. The phone lines have never been so jammed with nervous clients.

Oh, the joys of saving.

The Labor Market's Cruel Summer

2008-09-07T09:17:00.000-07:00

Financial markets were expecting the U.S. economy to shed jobs in the August employment report, released Sept. 5, but a big jump in the U.S. unemployment rate took Wall Street by surprise. The weaker-than-expected data for August suggest the U.S. economy is headed for recession and puts pressure on the Federal Reserve to lower rates rather than raise them, as the Fed has indicated it wants to do.

The unemployment rate jumped 0.4 percentage points to 6.1% in August, as nonfarm payrolls fell another 84,000, compared with an upwardly revised decline of 60,000 in July. Even worse for the labor market, June's 51,000 decline was revised to –100,000, for a net –58,000 revision over the prior two months. The drop in payrolls wasn't too far off economists' consensus estimate of 71,000, but the spike in the unemployment rate was another matter: The consensus estimate had called for it to remain at 5.7% (it was at 5.0% in April).

Manufacturing lost 61,000 jobs in August (44,700 in transportation equipment). Construction fell 8,000. Services employment fell 27,000, with a 61,600 drop in administrative and support services. The government added only 17,000. Household employment declined 342,000, while the civilian labor force rose 250,000.

Pressure for a Rate Cut
"The data are worse than expected across nearly every category and will likely add to the angst in stocks, weaken the dollar, but should give further support to Treasuries," wrote Action Economics analysts in a Sept. 5 Web site posting.

"The data are more confirmation that this is a recession," wrote S&P Economics in a Sept. 5 note.

The rise in the unemployment rate was entirely in adults, as the teenage rate dropped sharply as teens returned to school. Average hourly earnings rose 7¢ (0.4%), a slight acceleration from the recent 0.3% trend, and are up 3.6% from a year earlier, compared with 3.4% in July.

"The wage acceleration, although slight, could also cause some nervousness at the Fed," says S&P Economics.

Financial markets showed a relatively sharp response to the payrolls dive and jobless jump on Sept. 5. Treasury prices headed higher, with bond yields already at five-month lows following the rout in stocks this week. Stock index futures, meanwhile, headed lower. The dollar initially slid lower vs. other major currencies.

What does the market see ahead on the Fed policy front? Fed funds futures, a vehicle for market pros to make bets on future loan interest rate moves, extended their gains after the worse-than-expected employment report, and are now tilted toward another potential rate cut later in the year. "That's a far cry from the 75 [basis points] in tightening that had been suggested two months ago," notes Action Economics. At this point, it's unlikely the Fed will cut rates again, as policymakers have made it quite clear that they don't plan to take the funds rate below the current 2%.

App Stores: Microsoft, Google Follow Apple

2008-09-05T10:39:00.000-07:00

When Apple (AAPL) opened its iTunes App Store in July, the idea of a mass-market Web site that sells downloadable games, tools, and other applications for cell phones was a rarity. Handset owners could buy apps from their carriers or the occasional niche site. But these days, the app store concept is becoming commonplace. The question is, does the world need a warren of wireless app stores?

In the coming six months, at least four would-be rivals of Apple will probably open their own online bazaars where developers of all stripes will sell downloadable software applications to make cell phones more fun and useful. Google (GOOG) has already announced its plans, while Microsoft (MSFT), Symbian, and T-Mobile USA are in the likely-to camp.

The appeal of an app store is undeniable. Since the App Store debut, users of Apple's iPhone and iPod Touch have downloaded more than 60 million applications, sampling the more than 3,000 games, calendars, and fitness applications on offer for as much as $10 a pop, though some are available at no charge. Sales averaged $1 million a day in the first month.

Microsoft's Skymarket Is Coming
Microsoft and other owners of competing operating systems want to ensure Apple's popularity doesn't take a toll on their own market share. "People are chasing the iPhone," says Van Baker, an analyst at consultancy Gartner (IT). Microsoft's plans to launch a store were laid bare by job descriptions posted Sept. 2 on job board computerjobs.com. The mobile applications marketplace, to be called Skymarket, may launch in tandem with the next version of Microsoft's cell-phone software, Windows Mobile 7, expected in 2009.

While he wouldn't confirm or deny plans for Skymarket, Scott Rockfeld, group product manager for Microsoft's mobile communications business, says the company ultimately wants to provide a resource, akin to CBS's (CBS) CNET, which includes reviews and customer feedback on products. "They are the trusted adviser to their community," Rockfeld says, though he declines to comment on plans to sell applications other than to say, "We are always innovating on Windows Mobile." The job postings have since been removed. Currently, Microsoft operates Windows Mobile App Catalog and Total Access, which aggregate applications and direct users to third-party sites to make purchases.

On Aug. 28, Google said it will open Android Marketplace, which will offer third-party applications for mobile phones running on a new operating system, called Android, built by a Google-led industry group. Done right, the new stores could create competition for Apple, Baker says. "They could significantly impact the iPhone," Baker says. "If you have an equivalent of iTunes App Store available on multiple handsets, consumers will have more choice. And competition tends to spread the market."

"Wild West Days"
Apple's interest in applications stems from more than just the 30% cut of every sale. The software is also a complement to sales of more expensive, higher-margin hardware. J. Gold Associates analyst Jack Gold figures that the App Store has helped Apple sell 10% to 15% more iPhone 3Gs than the company would have sold otherwise.

Existing retailers such as Handango could suffer as well. Anticipating additional competition, the company is already revamping its site.

Due to be launched later this year, the new storefront tracks users' recent searches and purchases and recommends additional software from its portfolio of some 200,000 applications. Handango CEO Bill Stone says the new stores will expand the larger market. "With the market growing so fast, there's plenty of room to operate," he says. Additional stores "can crack the code on awareness."

Still, aping the iTunes App Store won't be easy. "It's all Wild West days compared to the iTunes store," says Richard Doherty, director with consultancy Envisioneering Group. Each new market entrant faces its own, unique challenges in rolling out a store. And there's danger that some of the new stores won't live up to expectations. "There's almost as much downside to this if it's done poorly as an upside," Doherty says.

Google's Open-Door Policy
Take Microsoft, whose Windows Mobile software resides on millions of smartphones. Older Windows Mobile phones may not be upgradable to Windows Mobile 7 and may not be able to take advantage of the new Skymarket store. Other devices may not contain enough built-in memory for their users to download multiple applications.

Google's Android Marketplace faces a different set of challenges. Google will let developers post applications to the store in a matter of minutes, without going through an approval process. "A model like [Google's] really allows people to experiment," says Android developer Jeffrey Sharkey.

But that will make it hard to vet bad, glitchy, or inappropriate applications. To weed out bad apples, the Marketplace "features a feedback and rating system similar to YouTube," according to the official Android developer blog. But users could still unwittingly download software containing viruses or malicious code damaging a phone, or simply buggy applications. Apple takes weeks to vet applications posted to its store, and rejects many.

Programmers Hedging Their Bets
How soon the Android Marketplace will support paid applications is unclear as well. When the first Android phone come out this fall, "at a minimum you can expect support for free (unpaid) applications," according to the official blog. "Soon after launch an update will be provided that supports download of paid content and more features."

T-Mobile USA, owned by Deutsche Telekom (DT), appears to be feverishly revving up its own marketplaces, according to people close to T-Mobile. The carrier's new site for third-party developers states that "in the coming weeks, T-Mobile will be offering new ways to go to market." Unlike Apple, which sells applications for a single brand of handsets. T-Mobile faces the daunting task of offering applications that work with many different handsets, says Moe Tanabian, senior principal at IBB Consulting. T-Mobile declined to comment.

Unsure about how the stores will work, and which of these efforts take off and when, many programmers are hedging their bets, working on apps for a variety of operating systems. Microsoft's Professional Developers Conference, scheduled for October, has been the fastest-selling developer conference in history, according to Rockfeld. Interest in Android is surging. One blog for Android developers, AndroidGuys.com, has seen its traffic rise fivefold, to 10,000 visits a day, from June to August. "Proliferation of these stores can be a benefit for the developers," says Dan Gilmartin, vice-president of marketing at uLocate, which is working on applications for most of these efforts. "We are seeing growth in demand for applications across the board."

Stock Screen: Buy 'Em Like Buffett

2008-09-05T10:35:00.000-07:00

Warren Buffett has earned a reputation as one of the preeminent value investors of all time. His Berkshire Hathaway (BRKA) holding company has stakes in insurance, publishing, retailing, and manufacturing, among other businesses, and more than $28 billion of cash on hand, in addition to $102 billion of securities.

But like others in the financial services industry, Berkshire Hathaway has fallen on troubled times. Its second-quarter earnings report, posted in mid-August, showed a 7.5% decrease in earnings from the year-earlier period, mostly the result of a 43% drop in underwriting profits and a mere 2.6% rise in investment income. In that report, Buffett disclosed he had purchased, for Berkshire's investment portfolio, a new stake in NRG (NRG), and added to already existing stakes in Sanofi-Aventis (SNY) and Ingersoll-Rand (IR).

But how does Buffett make his picks? What exactly is "Warren's Way?" In his rare public remarks and widely followed annual letters to Berkshire shareholders, Buffett makes it sound very simple: He says he buys stocks that are "available at a sensible price."

In fact, Buffett uses sophisticated screens to determine which companies belong in his portfolio. Specifically, he uses these five investment criteria:

•Free cash flow net income after taxes, plus depreciation and amortization, less capital expenditures) of at least $250 million.

•Net profit margin of 15% or more.

•Return on equity > of at least 15% for each of the past three years and the most recent quarter.

•A dollar's worth of retained earnings creating at least a dollar's worth of shareholder value over the past five years.

•Ample liquidity. Only stocks with a market capitalization of at least $500 million are included.

In the Standard & Poor's "Warren Buffett" screen, we've added one more criterion to eliminate overvalued stocks. Overpriced stocks are identified by comparing our five-year discounted cash flow (DCF) estimate with the current price.

Forty-nine names emerged when the screen was completed.

It is important to note that these are not stocks that Buffett has purchased or announced plans to purchase. They are simply stocks that meet the criteria that Buffett has emphasized in the past. It is relevant to note that many of the huge (billions of dollars) charges taken by financial institutions over the last three quarters have had a minimal impact on their cash flow, since they represented a paper writedown to portfolios compared with the actual sale (such as Merrill Lynch (MER) announced). In adding the S&P DCF requirement, several financial issues dropped out, which appears to fit well with Buffett's current stance on the approach.

Oil at $80 a Barrel?

2008-09-04T13:52:00.001-07:00

In recent years, energy traders plus an active hurricane season have usually meant one thing for oil: higher prices. Yet with the departure of Hurricane Gustav, a rally for the embattled greenback is overshadowing new storm systems churning away in the Atlantic and showing how the prospect of a choppy U.S. economy is scaring traders far more these days than turbulent weather.

The price of a barrel of the benchmark West Texas Intermediate crude for October delivery dropped nearly $6 on Sept. 2, to settle at $109.71 on the New York Mercantile Exchange (CME). That's the lowest level since early April, and a slide of $37.56 since the record of $147.27 on July 11.

While Gustav appears to have delivered only a glancing blow to oil and gas assets in the Gulf of Mexico, the influence of Mother Nature has waned among traders and investors. The souring U.S. and global economies, alongside a strengthening dollar, are weighing heavily on oil prices, analysts say. In fact, the oil "demand destruction" implied by weak U.S. economic growth currently dwarfs both weather and geopolitical worries in determining oil's price. "If you can't rally with a hurricane up your nose—and 2 million barrels of refining capacity and 96% of your offshore supply under threat—it's hard to see what will cause a rally," says Peter Beutel, a veteran analyst with the energy risk management firm Cameron Hanover.

Back to Reality
Oil prices have slid so far and so fast that the retreat has led analysts to predict further puncturing of what they call a speculative bubble. Many analysts don't see a floor at $100, but rather at levels as low as $70 or $80. "This is start of a fall to $80 crude by the end of the year, maybe as early as September," says Joel Fingerman, principal of FundamentalAnalytics.com, a Chicago-based energy consulting firm.

"Oil prices are dropping because they are inflated," says Fadel Gheit, senior energy analyst for Oppenheimer (OPY). "You cannot sustain an artificial price forever. At the end of the day supply-demand fundamentals will take over."

Oil traders and some analysts have been blaming high oil prices on rising demand from developing economies, but now troubles in the U.S. economy are spreading across the globe. "A few months ago it was all about Chinese demand," says Stephen Schork, an energy consultant in Villanova, Pa., and editor of The Schork Report, a daily energy newsletter. "But a lot of the strength [in oil's price] was hype and hot air."

In addition to a gloomy economic environment and lower demand, a strengthening dollar is also behind oil's recent drop. Since July 15, the dollar has gained 8.5% against the euro. "The rise in the dollar is the best explanation of oil's drop," says Beutel.

Airline Stocks Ascend
While energy companies' stock prices fell on Sept. 2, airline stocks jumped at the prospect of cheaper fuel. Northwest Airlines (NWA) gained 13%, to $11.07. UAL (UAUA), the parent of United Airlines, was up 9.5%, to $12.16, and AMR (AMR), American Airlines' parent, jumped 8.7%, to $11.23. In 2008, airline shares have traded inversely to crude.

Despite the drop in crude prices, the market remains volatile. That's why some analysts say the market could again cede ground on supply and demand, resuming a trek upward. Earlier this year, several investment banks made headlines with reports forecasting a "super-spike" for crude, based on producers' inability to keep pace with soaring demand from China and the Middle East. Goldman Sachs (GS) energy strategist Arjun Murti was among those in that camp; he predicted $200 per barrel in coming months.

Indeed, crude prices could recover if the dollar weakens again or if oil-producing countries trim their output to keep prices high, as some analysts have speculated. OPEC is scheduled to meet on Sept. 9 in Vienna and has indicated it may defend a price of $100 per barrel.

Hanna on the Way
There is also ample meteorological uncertainty. On Tuesday, Tropical Storm Hanna was predicted to come ashore in Georgia and South Carolina late in the week and could regain hurricane strength later in the day. Tropical Storm Ike formed late Monday in the Atlantic Ocean and may become a hurricane in the next day or two as it approaches the Bahamas. Meanwhile, Tropical Storm Josephine formed in the eastern Atlantic, and the National Hurricane Center said it could near hurricane force as it moves west.

The verdict? The only certainty in the oil market remains volatility. "I have no idea where oil prices are going from here," says Gheit. "Go ask Goldman Sachs."

Stocks Plunge as Economic Fears Worsen

2008-09-04T13:48:00.000-07:00

Wall Street's mood darkened considerably Thursday as market jitters about prolonged economic pain deepened on weaker labor-market data, generally negative retail sales reports for August, and a stark warning on sinking asset values from bond-market guru Bill Gross. Major equity indexes were each lower by more than 2% in afternoon trading.

Oil prices gave up early gains to trade slightly lower as the dollar gained upward traction.

On Thursday afternoon, the Dow Jones industrial average was trading 250.12 points, or 2.17%, lower at 11,282.76. The broader S&P 500 index was down 27.42 points, or 2.15%, at 1,247.27. And the tech-heavy Nasdaq composite index fell 51.09 points, or 2.19%, to 2282.03.

The selloff in stocks accelerated after the S&P 500 broke below the 1262 level on mounting worries that more hedge funds might be in trouble and growing uncertainty about the economic outlook with a changing of the guard in Washington, S&P MarketScope said. On the New York Stock Exchange, 24 stocks were trading lower for every four that were showing gains, while on the Nasdaq the ratio was 20-5 negative amid slow trading. Boeing Co. (BA) shares were down on a strike threat, with financial stocks also falling.

There are fresh signs that financial firms won't find it so easy to replenish the capital on their balance sheets. Merrill Lynch & Co. (MER) has hit a snag in its talks to sell a significant portion of its bad loans to Korea Asset Management Corp. due to disagreement over price, the Korean firm's CEO told Bloomberg News. Failure to reach a deal may suggest that Merrill, the third-largest U.S. securities firm, and Lehman Brothers Holdings (LEH) might have to cut prices for the assets they're trying to sell in order to raise capital as mortgage-related losses widen.

That and related remarks by PIMCO bond fund manager Bill Gross in his September Investment Outlook, were also likely helping to deepen investor pessimism toward the markets. Gross said in his monthly letter on the PIMCO website that with liquidity drying up and private investors getting more wary of risking their own capital, substantial new sources of buying are needed in order to prevent much more destructive asset deflation. He called for policies that would lead to the U.S. Treasury funding not only the mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) but also "Mom and Pop on Main Street U.S.A., via subsidized home loans issued by the [Federal Housing Authority] and other government institutions."

Among the retailers to release disappointing sales figures, Target (TGT) reported a 2.1% drop in sales in stores open at least one year for August and a 3.1% increase in total sales. The company said same-store sales performance in August was in line with its planned range.

Abercrombie & Fitch (ANF) posted 11% lower same-store sales for August and a 5% decline in total sales. The TJX Companies Inc. (TJX) reported no change in same-store sales from July, but said they were slightly below plan, driven by the unanticipated negative impact of foreign exchange rates. TJX posted a 4% gain in total sales for August.

Leading the day's new economic data, nonfarm private employment fell 33,000 from July to August on a seasonally adjusted basis, according to the ADP National Employment Report. The estimated change in employment from June to July was revised down from a gain of 9,000 to a gain of 1,000 jobs.

Initial jobless claims for the week ending Aug. 30 climbed 15,000 to an annualized rate of 444,000, much higher than the median forecast of 425,000. Initial jobless claims averaged 439,000 in August, well above prior averages of 406,000 in July, 388,000 in June, and 369,000 in May.

The trend in initial and continuing claims so far this year implies a much softer labor market than last year, though distortions in July and August have made it difficult to get a good read on underlying trends, said Action Economics, which still expects a 70,000 decline in payrolls and a steady unemployment rate of 5.7% for the August employment report that comes out Friday.

The Institute for Supply Management's non-manufacturing index increased to 50.6 in August, slightly higher than expected, from 49.5 in July.

Second-quarter nonfarm productivity was revised sharply higher to 4.3%, more than expected, from the initial 2.2%, while unit labor costs fell 0.5%. The hours-worked series was revised down to a decline of 0.8% from a 0.5% decline in the advanced report, marking the fourth straight quarterly decline.

Oil prices, which initially were rising as Hurricane Ike gathered strength in the Atlantic, came back down as the dollar index resumed its move upward, apparently shrugging off more bullish supply data from the Energy Information Administration. The EIA report showed a 1.9 million barrel drop in crude inventories, a 1.0 million barrel decline in gasoline supplies and a 400,000 barrel fall in distillate stockpiles.

Refining margins have improved with 96% of oil production and 92% of natural gas production in the Gulf of Mexico remaining shut down in the aftermath of Hurricane Gustav, according to CNBC Business News.

Crude oil for October delivery was trading $1.48 lower at $107.87 a barrel.

Among other stocks in the news on Thursday, Guess Inc. (GES) posted second-quarter earnings of 57 cents a share, vs. 40 cents a year ago, on a 8.1% rise in same-store sales and 33% higher total sales. The retailer sees fiscal 2009 earnings of $2.47 to $2.53 a share on revenue of $2.06 billion to $2.11 billion. S&P reiterates its buy rating.

Ciena Corp. (CIEN) shares were down after the supplier of communications networking equipment posted 37 cents a share in non-GAAP earnings for the third quarter, vs. 41 cents a share a year ago as higher operating expenses offset a 24% rise in revenue. The results were in line with analysts' forecasts. The company sees revenue of $190 million to $210 million in the fourth quarter. S&P cut its earnings estimate and target price but maintained its hold rating.

Hibbett Sports Inc. (HIBB) announced that effective immediately, the company and Nissan Joseph, its president and chief operating officer, have agreed to part ways due to philosophical differences. Hibbett will begin a search for his replacement. Raymond James downgraded the stock to market perform from outperform.

Major European indexes were trading lower Thursday. In London, the FTSE 100 index fell 2.50% to 5,362.10. In Paris, the CAC 40 plunged 3.22% to 4,304.01, while Germany's DAX index sank 2.91% to 6,279.57.

In Asia, Japan's Nikkei 225 lost 1.04% to end at 12,557.66, while Hong Kong's Hang Seng index shed 0.95% to close at 20,389.48.

Treasury market

Treasury bonds were trading higher as a safe haven bet by nervous investors watching equity losses. The 10-year note moved up to 102-30/32 for a yield of 3.64% and the 30-year bond climbed 25/32 to 103-25/32 for a yield of 4.27%.

Is It Time to Sell Your Foreign Stocks?

2008-09-03T08:45:00.000-07:00

The stock prices of mortgage giants Fannie Mae (FNM) and Freddie Mac (FRE) have cratered. The bottom of the worst housing slump since the Great Depression hasn't been reached. Fears of inflation are mounting.

Yet the dollar is rallying against foreign currencies. Despite recent gyrations, the U.S. Dollar Index, a futures contract reflecting the dollar's value against six major currencies, is up 9% since reaching a recent low on July 15. The turnaround is a major factor behind the stock market's 4% gain over the same period, along with the decline in oil prices.

What does the possibility of a stable-to-stronger dollar mean for the international stocks in your portfolio? Is it time to bail? A lot is at stake: Since 2003, some $490 billion in net new cash poured into international stock funds, vs. a net $208 billion for domestic stock funds, according to the Washington (D.C.)-based Investment Company Institute. And how about foreign bonds? Thanks to the weak dollar, U.S. investors in foreign bonds have enjoyed a currency-translation boost to their yields in recent years.

Thinking through the impact of the dollar's moves used to be simpler. The old maxim was that when the dollar was strong you should flee international securities, and when it was weak you should send money overseas. But hewing to simplistic truisms is hazardous in today's quicksilver global capital markets. Profiting from any turn in the dollar's fortunes requires a more nuanced strategy now—and patience.

First of all, market veterans call for a reality check on this rally. Few expect the dollar to retrace years of losses anytime soon, and a 9% gain is tiny compared with the greenback's 50% slide against the euro and 30% tumble against the British pound over the past six years. Still, the global economic cycle may favor America's currency. While the U.S. slid into a downturn or even a recession about a year ago, only recently has growth faltered among other major industrial nations, especially in Europe. "We are picking up and they are slowing," says James W. Paulsen, chief investment strategist of Wells Capital Management (WFC).

The global business cycle should affect the gap between interest rates set by the world's central banks. There is a growing expectation that the difference in yields will narrow, especially between the U.S. and Europe. The Federal Reserve Board's benchmark rate is 2% while that of the European Central Bank (ECB) is 4.25%, and Europe could become a less attractive parking place for yield-hungry investors as the ECB combats economic weakness. "The dollar rally we have seen has been especially against the euro," says Bob Doll, vice-chairman and global chief investment officer of equities at investment management firm BlackRock (BLK). "The ECB's next move will be to lower rates, and I'm talking in months rather than years."

Yet even as the outlook for the dollar improves compared with the euro and currencies of other major developed nations, it could continue to depreciate against currencies of major emerging markets. That's an idea investors seem to be testing. The CurrencyShares Euro Trust (FXE) is down 5.7% over the past three months, for example, while the WisdomTree Dreyfus Brazilian Real (BFZ) is up 4% and the CurrencyShares Mexican Peso Trust (FXM) gained 4.1%. "Even if the decline against the euro is over, there may well be other non-European currencies that will appreciate against the dollar," says Burton G. Malkiel, an economics professor at Princeton University and author of the investing classic, A Random Walk Down Wall Street.

Why? Emerging-market growth rates dwarf those of the developed world. Their interest rates are higher, too. Over time a number of the countries will rely less on exports and more on consumers for growth. Take China: A mere 40% of its economy is driven by consumers, vs. 70% in the U.S. The move from an export-led economy to a consumer-driven one will encourage developing nations to lessen control over currency fluctuations and haltingly embrace floating exchange rates, which will allow their currencies to appreciate against the dollar.
PORTFOLIO TWEAKING

By this calculus, investors should comb through their developed world and emerging market securities and treat them differently, at least when it comes to the expected impact of currency on asset values. Long-term investors with fortitude should maintain exposure to fast-growing "frontier market" economies. But when it comes to Europe and Japan, portfolio tweaking could pay off.

Dollar strength would favor the U.S. stock market over foreign bourses. Multinationals, however, might find it tougher to outperform their smaller, more U.S.-focused brethren. The profits of U.S.-based global giants are by definition more exposed to foreign revenues. "The tailwind is morphing into a headwind," says Alec Young, international equity strategist at Standard & Poor's (MHP). But big-cap exposure to overseas economies varies greatly. Tech companies in the S&P 500-stock index get about 55% of revenues from abroad. It's 32% for large-cap financials. Even less exposed: railroads, retail food chains, and utilities.

A stronger dollar would have a bigger effect on foreign bonds. Simply put, dollar gains cut the value of interest and principal payments of foreign bonds when converted into dollars. That prospect spurred Ross Levin, head of Accredited Investors in Edina, Minn., to shift client money early this year from an unhedged foreign bond portfolio into a Pimco (PFVIX) dollar-hedged mutual fund. "We wanted to stay in foreign bonds, but take out currency risk," he says. A beefier greenback also adds to the pressure on commodity prices, which are being hurt by slowing global growth. But, cautions Peng Chen, president of Ibbotson Associates, "long-term, the fundamentals of strong demand are still there, especially given demand from emerging countries."

Stocks Up Slightly On Stronger Factory Orders

2008-09-03T08:42:00.000-07:00

U.S. equities recouped early losses and were trading higher on Wednesday, likely buoyed by a better than expected factory orders report for July, which showed the manufacturing sector is holding up surprisingly well in spite signs of economic slowing in other parts of the U.S. economy. Oil prices continued to slip on strengthening in the U.S. dollar.

On Wednesday, the Dow Jones industrial average was trading 14.74 points, or 0.17%, higher at 11,537.52. The broader S&P 500 index inched up 1.20 points, or 0.13%, to 1,278.77. And the tech-heavy Nasdaq composite index gained 3.03 points, or 0.13%, to trade at 2,352.27.

On the New York Stock Exchange, 15 stocks were in the red for every nine that were rising, while the ratio on the Nasdaq was 12-8 negative amid active trading, S&P MarketScope said. Bond prices were climbing slightly, while a stronger dollar index continued to put pressure on commodity prices.

The closing of hedge fund manager Ospraie Management's flagship fund, which plummeted 27% in August on losses in energy, mining and natural resources stock holdings, is another blow to the commodities markets, as it's the one of the biggest closures ever of a commodities-focused hedge fund. The fund, which had an estimated $2.8 billion invested as of early August, had lost 38.59% of its value year-to-date as of Sept. 2.

The fund closing, announced by the firm's founder Dwight Anderson in a letter to investors on Tuesday, could spell more bad news for Lehman Brothers Holdings (LEH) , which has owned a 20% stake in the hedge fund manager since 2005.

Among stocks moving Wednesday, the Coca-Cola Co. (KO) said it has offered to buy China Huiyuan Juice Group Ltd., a Hong Kong listed company that owns the Huiyuan juice business throughout China, for $2.4 billion. The purchase, which is subject to preconditions relating to Chinese regulatory approvals, is expected to reduce Coca-Cola's earnings by three to four cents a share in the first full year after completion of the deal, and would boost profitability in the third year after completion. Standard & Poor's maintained its strong buy rating on the stock.

On the economic data front, July factory orders unexpectedly rose 1.3%, above the median estimate of a 0.4% gain and after an upward-revised 2.1% increase in June. Excluding transportation, factory orders were up 1.0% in July.

The U.S. factory data continue to defy recession fears, as the support from the booming commodity-sensitive and aerospace industries is offsetting weakness in other sectors, such as autos, Action Economics said.

The Federal Reserve's Beige Book, to be released Wednesday afternoon, could provide anecdotal evidence of economic slowing as well as indications of easing price pressures, ahead of the Sept. 16 Fed's policy committee meeting, S&P MarketScope said.

The Mortgage Bankers Association released its weekly mortgage applications survey for the week ending Aug. 29, showing a 7.5% increase in the Market Composite Index, a measure of mortgage loan application volume, on a seasonally adjusted basis. On an unadjusted basis, the Index rose 5.8% from the prior week and was down 27%. from a year ago. The Refinance Index increased 2.1% percent and the seasonally adjusted Purchase Index increased 10.5% from one week earlier.

Eric Rosengren, president of the Boston Fed, is scheduled to speak about the economy at a gathering in New Hampshire Wednesday afternoon.

Oil prices were trading lower, extending Tuesday's losses as the dollar continued to gain strength, and due to estimates of minimal hurricane destruction to energy installations in the Gulf of Mexico and signs of ongoing demand destruction from a slowing global economy. There's also an element of technical chart weakness dogging oil prices after the breech of the 200-day moving average on Tuesday for the first time since May, 2007.

Crude oil for October delivery was trading $1.67 lower at $108.04 a barrel.

Among other stocks in the news on Wednesday, First Horizon National Corp. (FHN) said it expects that as a result of persisting market weakness and ongoing efforts to aggressively address problem loans, 2008 net charge-offs are likely to exceed the previously expected range of $385 million to $485 million by about $100 million.

Forest Laboratories (FRX) and Laboratorios Almirall announced results from two global Phase III studies of aclidinium bromide, a novel long-acting inhaled anticholinergic for treatment of chronic obstructive pulmonary disease. The companies say studies confirm the bronchodilatory effect of aclidinium at the dose tested, although the magnitude was lower than seen in previous studies.

Medivation Inc. (MDVN) and Pfizer (PFE) agreed to develop and commercialize Dimebon, Medivation's investigational drug for treatment of Alzheimer's disease and Huntington's disease. Medivation will receive an up-front cash payment of $225 million and is also eligible to receive payments of up to $500 million as development and regulatory milestones are reached, plus additional undisclosed commercial milestone payments.

Major European indexes were trading lower Wednesday. In London, the FTSE 100 index fell 1.62% to 5,529.70. In Paris, the CAC 40 shed 1.55% to trade at 4,468.53, while Germany's DAX index was down 0.64% at 6,477.04.

In Asia, Japan's Nikkei 225 gained 0.64% to close at 12,689.59, while Hong Kong's Hang Seng index lost 2.17% to end at 20,585.06.

Treasury market

Treasury bonds were gaining ground on trepidation in the equities market. The 10-year note moved up to 102-09/32 for a yield of 3.72% and the 30-year bond climbed 12/32 to 102-24/32 for a yield of 4.33%.

Stock Analysis - Do This Right and You Could Make a Fortune!

2008-09-02T13:50:00.001-07:00

Stock analysis, when done correctly, will change your life! It will help you to turn a small amount of personal savings into a quickly snowballing trading account. Analyzing stocks correctly has the potential to free you from work, debt and a feeling of "want" into one of the rare people who are truly independent, can live anywhere in the world they like and need only to work a few hours each week. It is for these reasons that many people seek to master the stock markets. Learning how to do stock analysis the right way is the first step on a liberating journey of self discovery and personal fulfillment.

Let me take you on a little voyage of discovery....jump into my time machine.

What is "the right way" to do stock analysis? Simple...the right way is the way which has produced the best returns over a long period of time. The feature I love most about the stock market is everything is recorded! We can literally jump back in time to great traders, high performing stocks and market conditions and learn from them. How do we do it? We look for patterns and common denominators. Once we have those, we try and incorporate them into our trading.

This is what Warren Buffet did. It's what Peter Lynch did, Jim Slater did it too, and so did Marc Faber, George Soros, Jesse Livermore, William O Neill and Nicholas Darvas. The list could go on and on.

They researched why stocks behaved the way they did, cherry picked the winners and then went out and looked for them!

Their first step, to a man, was stock analysis...more precisely, fundamental analysis. Fundamental analysis is about which type of stocks we choose. It revolved around the company that's underneath the quarterly reports. Great fundamental analysts look at factors, like earnings, profit margins, operating profits, sales growth, product pipelines, management quality, the competitive position, debt to equity ratios, and many more. These fundamental factors tell us about the company as a business.

There is another type of analysis...technical analysis. It revolves around the strength of the industry group of the stock, who is buying it right now, and how much they are buying, technical analysis of the stock chart, its performance over a period of time against its peer group and the market in general. Now, most people who rely on fundamental analysis have dirty raincoats and big overdrafts in my experience. Many people, though not all, who rely on fundamental analysis suffer from ever increasing market swings.

Most highly successful sophisticated investors look at both types of analysis...it's a kind of techno fundamental analysis. The balance in this method is heavily weighted to fundamental analysis....about 80% with technical analysis being about 20% of the weighting. It's more important to buy good companies than it is to jump on great entry points in the stock charts of poor companies.

As investors, we all want to have the "margin of safety" which Benjamin Graham talked about. Buying stocks in outstanding enterprises goes a long way to providing this so that our downside is limited.

However, on its own, this isn't enough protection. Great companies like Cisco have gone through stomach churning corrections of almost 90%. The missing part here was technical analysis...buying the best companies at exactly the right time instead of simply buying the best companies.

When you put both pieces of this stock analysis puzzle together, buying great companies and buying them at precisely the right time, your success in the stock markets is almost assured.
So when you think about investing in or trading stocks, use both technical and fundamental analysis. Keep your overdraft low and your rain coat clean by doing stock analysis the right way!

Can Women Bridge the Retirement Savings Gap?

2008-09-02T13:45:00.000-07:00

Many studies have shown that women lag behind men in saving for retirement. In a 2008 survey of more than 1,300 workers or retirees over age 25 by nonpartisan Employee Benefit Research Institute (EBRI) and Matthew Greenwald & Associates, 68% of women and 76% of men said that they "had" saved for retirement; 59% of women and 70% of men said they were currently saving; and 58% of women and 64% of men said they were contributing to a workplace retirement account. Two recent studies of participants in large-company plans show similar results. Vanguard, a mutual fund company that also manages retirement plans, reported that in 2007 the average account balance of more than three million participants in their 401(k) plans was $56,723 for women, compared with $95,447 for men. More recently, Hewitt Associates consultants surveyed nearly 2 million participants in large-company 401(k) plans the company manages and found that women had an average of $56,320 in their accounts, compared with over $100,000 for men.

The savings gap is expected to persist for the next 40 years or so, projects EBRI researcher Jack VanDerhei. Although he assumes more workers will have retirement accounts because of new rules encouraging automatic enrollment, boosting the dollar amounts of savings for both men and women, there would still be a sizable gender gap. For example, a 25-year-old woman currently in a 401(k), starting to save now, would save an estimated $255,000 in current dollars by age 65; while a man of the same age would accumulate savings of $325,000. For workers who are 55 now, the amount he projects they would accumulate in their account between now (to add to previous savings) and when they retire at 65 would be $29,452 for men and for women, about a third less, $20,506.

There are plenty of measurables, documented reasons for women's lower retirement savings. Women spend less time in the labor force, often because of care-giving demands, and/or are more likely to work part-time at some point. They earn about 80 cents on the dollar compared with men. And they're less likely to participate in some type of pension plan. The fact that, on average, women tend to live three years longer than men and live alone for more years intensifies the effects of the savings gap, making it even more crucial for them to prepare better for their golden years.
Save Early, Save Often

As far as I know, no one has come up with a fool-proof retirement savings strategy for women that's any different from the best strategies for men. Start saving as soon as you begin working, and design and follow a realistic budget that allows you to join your employer's retirement plan. Contribute as much as you can to your company plan or—if one is not available—to an IRA. And don't take money out of retirement savings to meet short-term needs. These basics apply to everyone.

Beyond the basic budgeting, advisers recommend measures such as: Use calculators such as these from the Savings Education Council to estimate both your retirement needs and income based on current savings; use Social Security calculators to estimate how much Social Security you would receive based on your own earnings or as a spouse or widow; for married women out of the workforce, start a spousal IRA. If you have a life partner, you should both follow this advice, and also do a thorough analysis of your 401(k) and other investments, at least once or twice a year, rebalancing your portfolio if it's no longer well diversified.

It's worth pointing out that the gender savings gap is not just an issue for very low-earning women. Linda E. Katz, a financial planner in Huntington, N.Y., says she sees the same problem for women in middle management. Some of them, especially those who live in high-income areas, simply don't make enough money to save much. She also says that she sees quite a few clients who allow financial demands from their children and parents to trump putting away money for their own retirement.

Executives and professional women also need to pay more attention to their future, says Margaret K. O'Meara, a financial planner in Red Bank, N.J. For the high-income women she counsels, "the biggest things are the lifestyle and longevity issues," she says. Her clients may make $250,000 or $300,000 a year and still be behind on retirement saving. One of her clients in her 40s in this income range wants to leave her high-stress job to retire or downsize to part-time work, but she doesn't want to sacrifice the family vacation home or luxuries such as expensive wines and food to save for what could be as much as 40 or 50 years in retirement. Some women also lose a chance to catch up on saving by refusing to charge their college-graduate children for rent, cable TV, or other amenities.

The gender gap in retirement savings should concern all of us. A good resource is the nonprofit Women's Institute for a Secure Retirement, which contains a wealth of basic information about the barriers and potential solutions to the special retirement savings challenges that most women will confront at some time in their lives.

Manufacturing: Where's the Slowdown?

2008-09-01T14:08:00.000-07:00

The U.S. factory sector appears to have weathered the summer months in better shape than economists had expected, based on a report on orders for durable manufactured goods for July released Aug. 27.

Orders rose 1.3% in July, matching the increase seen in June. The July jump was much better than the 0.1% increase expected by economists. Strength was widespread, with solid gains in defense, transportation equipment, primary metals, and computers and electronic products shipments.

"The gains extended a general overperformance of these measures since March despite an ongoing assumption that business investment will eventually cooperate with the recession scenario," wrote Action Economics analysts on Aug. 27.

The July rise came in spite of a 25.7% drop in defense orders (after a 1.50% June increase). Civilian aircraft orders rebounded 28.0% after dropping 21.3% in June. Aircraft orders have continued to defy fears that soaring energy prices would cap new orders and prompt sizable cancellations, which have yet to materialize.
"Stronger Than Expected"

Orders for nondefense capital goods excluding aircraft, the key indicator for capital spending, rose 2.6% after a 1.3% June increase. Durable shipments, a more stable indicator than orders, jumped 2.5% in July after a 0.9% June rise. Inventories increased 0.8%, which left the inventory-to-sales ratio at 1.54 from a revised 1.56 in June.

"The data are much stronger than expected for manufacturing, probably showing continued strong export demand," says S&P senior economist Beth Ann Bovino.

"The resilience of capital goods spending in face of tight credit conditions, a poor growth outlook, and declining business confidence continues to surprise," wrote Lehman Brothers (LEH) economist Zach Pandl in an Aug. 27 note. "In our view, relatively healthy growth abroad and the competitive value of the dollar are driving demand for U.S.-made capital goods.… If correct, the recent downturn in growth abroad and stabilization in the dollar could put pressure on capital goods spending in the months ahead."

"Manufacturing continues to do remarkably well given the weakness in the labor market and stresses in the financial system, and it likely continues to benefit from overseas growth," wrote John Ryding, an economist for RDQ Economics. "However, this does not indicate strength in the overall economy, and we do not see the Fed hiking rates in the second half of the year."

The Economy's Upside Surprise

2008-09-01T14:01:00.000-07:00

For the U.S. economy, the surprises keep coming. One day after the release of a report that showed an unexpected surge in orders for durable manufactured goods in July , another government report showed a much larger-than-expected jump in second-quarter gross domestic product. But economists aren't ready to start uncorking the champagne just yet: Another report released on Aug. 28 showed that first-time filings for unemployment insurance fell in the week ended Aug. 23—but remain at levels consistent with a weakening labor market.

U.S. real (inflation-adjusted) GDP growth was revised upward, to a 3.3% annual rate, in the second quarter, from the 1.9% preliminary figure released in July. The market had expected a revision to 2.7%. Net exports added a staggering $85.4 billion to growth in the second quarter (or 3.1%), compared with $66.8 billion (2.4%) in the first. The revision to inventories shows them subtracting $39.2 billion from GDP, vs. the $52 billion figure reported previously.

Real spending was boosted to a 1.7% clip from 1.5% previously. Gross private investment was revised to -12.0% from -14.8%.

Housing Still in the Basement
Second-quarter government spending was revised up to a solid 3.9% growth clip, vs. 3.4% previously, while equipment and software spending contracted at a 3.2% rate. There was a surprisingly robust 13.7% growth pace for nonresidential construction. Residential construction continued its downward spiral, though at a diminished rate of 15.7% following quarterly rates of decline of 20%-27% in each of the prior three quarters.

Meanwhile, the chain price index, the GDP report's inflation gauge, was revised up to a 1.2% clip, vs. 1.1% previously. Excluding food and energy prices, the index was steady at 2.1%.

"The growth data are even better than many expected and again counter beliefs the economy was in recession in the first half of the year," wrote Action Economics analysts in an Aug. 28 Web site posting. Action left its forecast for third-quarter GDP growth of 2.0% unchanged.

"[T]he momentum going into the third quarter is clearly greater and could result in a significant upward revision to 2008 real growth estimates," says Standard & Poor's senior economist Beth Ann Bovino.

Worries Linger
But some economists were less sanguine. "[W]e think it is too soon to turn optimistic as the economy faces important challenges in the months ahead. Most important, weak consumer fundamentals will likely begin to assert themselves in the second half of the year as the stimulus from the income tax rebates begins to fade," wrote Lehman Brothers (LEH) economist Zach Pandl in an Aug. 28 note.

John Ryding, an economist for RDQ Economics, wrote in an Aug. 28 note that "the income side of the economy has expanded by only 0.3% over the last year in real terms, while expenditure-based real GDP is up 2.2%. Moreover, the income estimate of GDP fell in both the fourth quarter of last year and the first quarter of this year—looking much more like a classic recession that we think began in December 2007."

The higher-than-expected GDP figure was tempered somewhat by the initial claims data. Initial claims for unemployment insurance dropped 10,000 in the week ended Aug. 23, to 425,000. The drop was in line with market expectations of 430,000, as claims were expected to decline after spiking in the wake of the extension of unemployment benefits. Still, the weekly figure has remained above 400,000, suggesting continued labor market weakness.

"It may be the still-lofty level of claims as we approach the end of August that should be of greater concern to the markets, given the risks to the economy from an elevated price level that may still be rippling through consumers' spending decisions and business fixed investment," wrote Action Economics analysts.

Students Will Help Save Apple

2008-08-31T13:33:00.000-07:00

Take a look around and it's hard not to get depressed by all the negative economic news. Home prices keep sliding. Credit is drying up. Inflation fears are on the rise. And consumer confidence is lower than it's been since the early 1990s.

You would think all of this would eat into the business at Apple (AAPL). The company's computers tend to be pricier than those from Dell (DELL) or Hewlett-Packard (HPQ), while its iPods and iPhones are the sort of discretionary purchases that consumers often cut out during an economic slowdown.

Paul Kedrosky thinks Apple is about to take a hit from the slowing economy. The Kauffman Foundation senior fellow who edits the business and economics blog Infectious Greed recently argued on Yahoo's (YHOO) Tech Ticker that since Apple's products are "aspirational," consumers can do without them and opt instead for cheaper alternatives from others, or bypass electronics purchases altogether. He's expecting Apple to miss its earnings targets for the current quarter and to lower its outlook for the quarter after that.

I think he's way off. So we've agreed to wager $50 on Apple's earnings announcement coming up in mid-October. He is betting that Apple will miss consensus estimates for the current quarter of $1.11 and say that gross margins for the next quarter will be less than 30%. I think Apple will at least meet the consensus and will keep its margin guidance higher than that. If Kedrosky is right on either metric, I'll write a $50 check to the National Resources Defense Council. If I win, he'll send $50 to the Susan G. Komen Breast Cancer Foundation.
Computer Sales Matter

Kedrosky's assumption seems reasonable until you start looking at what's really driving Apple. For all the attention the iPhone has been getting, Apple's performance in the quarter ending Sept. 30 will largely be determined by sales of its computers.

And in this back-to-school season, college kids are buying Macs in numbers never seen before. A recent survey by Student Monitor, a New Jersey outfit that tracks the buying habits of college students, found that 13% of all undergrads expect to buy a new notebook this fall. Of those, 43% say they plan to get a MacBook or MacBook Pro, nearly double those who said they expected to get a Dell notebook, and seven times as many as those who plan to buy from HP, says Eric Weil, the firm's managing partner. While students prefer Dell for desktop computers, that's small consolation: Students favor notebooks over desktops by a factor of nearly 5 to 1.

Ask among the college students you know and you'll probably find lots of new Mac-users like Joe Praetorius of Springs, Texas. The 17-year old is headed first to Houston's Media Tech Institute to study sound engineering, and then on to Boston's Berklee School of Music after that. I heard that the Mac was best for sound engineering and editing, he says. Gina Elliott, of Bronxville NY, who's headed to Georgetown University got her first Mac earlier this year after finding Windows, which she'd used for her entire computer-using life, irritating. I was really frustated with Windows. Things were difficult to find and it took a long time to figure things out. Just this week, she convinced her Mom to switch.

Back-to-school time has always been important for Apple. In 2007 the company sold nearly 2.2 million Macs in its fourth quarter ended Sept. 30, up 34% from the year-earlier period. Those computers brought in $3.1 billion during the 2007 quarter, half of all the company's revenue.

Another blowout quarter is in the offing: Analyst Gene Munster of Piper Jaffray (PJC) wrote in a research note on Aug. 25 that the latest numbers from market researcher NPD suggest Apple could sell as many as 2.9 million Macs this quarter. That would mean a surge of 34% from the same quarter a year ago. On the iPod and iPhone front, NPD data, Munster says, suggest sales in the ballpark of 11 million and 4 million units, respectively. Add it all up and you have the makings of a quarter where Apple could beat Wall Street consensus numbers by 8¢, and report earnings per share as high as $1.19. Advantage me.
Getting "Help" from Microsoft

Moreover, Apple has of late been defying trends in the computer industry. It has been winning share of the personal computer market, reaching 8.5% in the U.S. behind Dell and HP, according to the most recent Gartner (IT) report. In the second quarter, it saw its year-on-year growth rate in unit shipments hit 38%. That's three times the rate of growth at Dell, seven times faster than HP, and nine times faster than the PC industry as a whole.

And what is fueling that growth? Microsoft (MSFT) is certainly doing its part. The perception that Windows Vista is a buggy mess, fueled by Apple's "Mac vs. PC" TV ads, are causing Microsoft some damage. As The Wall Street Journal reported on Aug. 21, it's about to try to fight back with a $300 million ad campaign that will include appearances by celebrities including Jerry Seinfeld, Will Ferrell, and Chris Rock.

Students want to buy products that are cool, and the perception about Windows at the moment is anything but. The iPod tends to entice people from Windows over to the Mac, and the iPhone will only add to that trend. In 2006, Needham analyst Charles Wolf conducted a survey that demonstrated that Windows users who were also iPod owners were nearly twice as likely to consider a Mac as their next computer. This trend came to be known as the iPod Halo Effect. The Mac's ability to run Windows via Boot Camp or virtualization software such as Parallels or Fusion (VMW), he found, only increased their intent. Selling 45 million iPhones, as some analysts expect Apple will do by the end of 2009, will only compound this trend, and now that the phone is available in 44 countries, it will widen the Mac's potential international footprint.
Guarded on Guidance

Finally, I'd be remiss if I didn't address the negative guidance that Apple gave last quarter. Gross margins, Chief Financial Officer Peter Oppenheimer said in July , will be lower than before, dropping below 32%. The reason? A back-to-school promotion that takes place every year, and a mysterious "new product transition." Kedrosky expects Apple to repeat that guidance when it next reports earnings in October, but with "more gusto."

New products at Apple always drive new sales. The conventional wisdom suggests that a new line of notebooks, and maybe a new version of the iPod Nano, is on the way, perhaps as soon as the second week of September. Kedrosky thinks that's too late for the back-to-school crowd, but I disagree. While many schools will start on Sept. 2, classes at lots of state schools don't get under way until late September. I think there will be plenty of freshmen armed with financial aid and scholarship checks headed to the bookstore to order a new notebook during the final three weeks of the month.

We'll see who's right when Apple reports its quarterly and full-year earnings in October. I feel pretty confident Paul will be the one writing the check.

Has Dell's Comeback Hit a Roadblock?

2008-08-31T13:31:00.000-07:00

Dell's turnaround plan veered off course during the summer. The PC maker reported on Aug. 28 that its fiscal second-quarter profits slumped 17% on aggressive price cuts, and the company warned of up-and-down profit margins for the next several quarters. The disappointing results came during a strong earnings season for other tech firms, and investors pushed down Dell's (DELL) share price 10% in extended trading.

Chief Executive Michael Dell called the tepid earnings "self-inflicted" during a conference call with analysts and vowed to improve the situation. "Whenever you're restarting growth, it's an imprecise process," said Dell, who returned as CEO at the beginning of 2007 to try to reverse nearly two years of declining market share and slower growth. "There were certainly parts of our business where we were too aggressive."

Now investors have to wonder whether a four-month runup in the price of Dell's shares may be coming to an end. Since May 1, Dell's share price had shot up 33%. They closed on Aug. 28, before the earnings announcement, at 25.21, down 42¢, or 1.6%. That compares with a decline of 1% since May 1 for rival Hewlett-Packard's (HPQ) shares, and a 0.75% dip in Apple's (AAPL) share price. Dell's shares hit a 52-week high of 30.77 last October.
Slugging It Out

Since returning, Michael Dell has pushed for better product designs and expanded overseas operations in an attempt to win back customers for consumer notebook and desktop PCs. Nonetheless, Dell is still slugging it out with competitors on price. That's draining operating profit margins, which fell to 5.3% on an adjusted basis during the quarter that ended Aug. 1, compared with 6.1% a year ago, according to Shaw Wu, a senior analyst at American Technology Research.

"Price is really their only effective weapon," says Wu, who has a neutral rating on Dell shares. "Their products aren't that differentiated. They can paint their products in different colors or sell them in different geographies, but a lot of the other players do the same thing."

The second-quarter earnings fell short of Wall Street's expectations. Dell's net income fell to $616 million, or 31¢ per share, compared with earnings a year earlier of $746 million, or 33¢ per share. Wall Street analysts had expected Dell to earn 36¢ on revenues of $15.95 billion. Sales actually did better than expected, rising 11% to $16.4 billion, from $14.77 billion a year ago.

Margins were squeezed by promotional spending that was needed to compete for space on retail shelves. Store sales is a relatively new area for Dell, which expanded rapidly in the 1990s and earlier this decade by selling directly to businesses and customizing computers to order. But industry growth is now coming from the consumer market. Dell, which lost its position as the No. 1 PC supplier to HP, has had to adapt. Dell's consumer business grew 28% in the quarter, to $2.7 billion; consumer sales now account for 17% of its overall revenues.
The Profit Decline

Aggressive price cuts on notebook computers in Europe contributed to the decline in profits. "Conservative" IT spending by U.S. companies has now spread to Europe and parts of Asia, said Dell Chief Financial Officer Brian Gladden, who arrived in May from General Electric (GE). Investors should expect profit margins to be "nonlinear" for the next several quarters, he added.

Exacerbating the pressure on Dell, the results come amid a generally strong earnings season for computer makers. HP on Aug. 19 reported third-quarter profits that beat analysts' expectations, and issued an upbeat fourth-quarter forecast, boosting its stock. On July 22, Apple beat earnings and sales expectations, but forecast thinner profit margins for the rest of the year and into 2009.

It wasn't all bad news for Dell. The company brought operating expenses down to 12.2% of revenues during the second quarter, from 13.9% a year ago. That was part of a cost-cutting goal of eliminating $3 billion in spending each year by fiscal 2009. Dell shed 1,500 jobs during the quarter and has cut its workforce by 8,500 since the beginning of fiscal 2007.

Dell is also expanding its product line with more machines designed to serve niche market segments. "They're trying to go after finer market opportunities in hopes of wringing out more market share," says Richard Shim, a research manager at IDC. In mid-August, Dell released a lineup of new notebooks for business customers, and its CEO said a fresh batch of business desktops is on the way. In July, Dell told that the company was looking forward to a "big second half" to the year .
Fierce Competition

The company is outgrowing the overall market. Dell's worldwide PC shipments rose 21.4% during the April-through-June period, compared with 15.3% growth industrywide, according to IDC. Dell now holds a 16.4% share of the worldwide PC market, compared with 18.9% for HP.

But Wall Street is starting to wonder if market share gains are coming at the expense of profits. Its competitors' must-have products and services—Apple's Macs, iPods, and iPhones; HP's printers; and IBM's software and consulting services—make them less susceptible to the vicissitudes of retail price wars, says American Technology Research's Wu.

Multitasking Chips Point to Future Cell Phones

2008-08-31T13:29:00.000-07:00

Many venture firms shy away from investing in semiconductor startups because of the inordinately high cost and risk involved relative to other sectors, but some firms are still determinedly pursuing silicon by backing wireless chips containing radios that can work on multiple types of networks. The trend is being fueled by a robust market for wireless devices, as well as the increasing number of wireless networks available for specific purposes.

The iPhone is a good example of a wireless device that utilizes several special-purpose chips, with more than 19 in total and at least five radios, which send and receive the wireless signals that allow a phone to communicate with a variety of networks, from Wi-Fi for data to GPS for location information. Even connecting to the cellular network requires more than one radio, be it to handle older 2G networks or the latest 3G or 3.5G options. For companies designing handsets to run across several networks, the sheer number of them and their frequency bands means adding more chips can get complicated—and expensive.

So if a company can use software to combine multiple radios that talk to a variety of wireless networks on a chip, a handset maker could, in turn, put one chip in a phone and rather than have the phone optimized for certain networks, ship it anywhere in the world, optimizing simplicity and minimizing cost. After all, consumers buying wireless Internet devices (such as, say, the Kindle) aren't interested in which network it runs on, only that their device works.

That's one of the reasons BitWave Semiconductor, which received $10 million in second-round funding this month from Apex Venture Partners, TVM Capital, and ECentury Capital Partners, was so attractive. The company expects to ship a programmable multimode transceiver (which is one small part of the overall radio) this month. Another programmable multimode transceiver startup, Sirific, was purchased this spring by venture-backed Icera, which is building a software-based baseband chip for mobile devices.
Multimode Chips

Others are not building programmable chips, but are focused on multimode chips that use additional hardware to work on different networks. Wavesat, which has raised an undisclosed amount from Skypoint Capital, BDC Venture Capital, Innovatech Montreal, Monet Capital, and Sunsino Ventures Group, is making a WiMAX and Long Term Evolution (LTE) chip that could fit into a wide variety of devices. Other startups raising capital include Altair Semiconductor, which raised $18 million last December from Bessemer Venture Partners, BRM Capital, Giza Venture Capital, and Jerusalem Venture Partners for a total of $26 million. Altair offers a low-power WiMAX chip, but plans to add LTE capabilities for a dual-mode chip within the next year or two.

"I believe there's a long-term secular trend toward handsets doing more—not just calling, but music, video, and data with more and more functionality thrown on them," says Wayne Boulais, a general partner with Apex Ventures and an investor in BitWave. At the same time, these are pricey components for a handset maker to buy, so integrated radios make it cheaper. For BitWave and other firms building such multitasking chips, using a programmable approach makes the high cost of putting money in silicon slightly less risky for the investor.

"It can take a long time to create a design that works. And in an investment area where the costs are at the front end to make them, being able to design into multiple different applications mitigates the risk that the market may end up moving on you once you get the hardware out," Boulais says.
For Cheaper Phones with More Features

Major vendors are doing this as well, with Broadcom and NXP putting as many radios on a chip as possible and other vendors trying to at least create a smaller package of multiple chips. It's also one of the motivations behind the proposed joint venture between STMicroelectronics and Ericsson's mobile-platform group announced this month.

Not all multimode software radios will land in devices. Vanu, a Boston-based company, is building a software-defined radio that could reside in a base station on a cell tower, making it possible for one base station to serve several types of cellular networks. Vanu raised $32 million this week from Norwest Venture Partners, Tata Capital, and Charles River Ventures. The round follows a $9 million first round last summer.

As consumers, we may not care how many chips our cell phones pack unless we lose our ability to access the Web or GPS our location, but these trends playing out in silicon should eventually get us to cheaper phones with more features. Multitasking can be a good thing.

Investors Looking For Returns Overseas May Need to Think Again

2008-08-31T13:25:00.000-07:00

Putting some of your investments in foreign assets had been a winning move for several years. Outsized returns were seemingly easy to find among a number of emerging markets. Even older, more established markets like Japan and Europe were profit-friendly as long as they were anywhere but here. The overseas investment theme has been so consistently emphasized by many professional investors and portfolio managers that it has become a seldom-challenged strategy.

What is not evident, and often not well-defined, is the extra risk associated with foreign investing. And I am not talking about corrupt dictators. Even investing in stable, transparent markets like Europe and Japan creates extra risk - currency risk.

Understanding currency movements has not been a priority since the direction of the US dollar has been favorable for investing abroad. A decline in the value of the dollar in relation to other currencies makes foreign assets more valuable to US investors. While overseas stock markets were soaring there was an extra currency bonus to US investors from the falling dollar.

But that investment thesis may be due for a review.

It is common knowledge that stock markets here in the US have struggled with fallout from the credit crisis and weakening economy. But foreign markets have also struggled, and in many cases the declines have been worse: British stocks are down 18.4% since October 2007 highs, German 21.3%, and French 25.2%. In Asia, Japanese stocks have declined 27.5%, Hong Kong 36.2% and Singapore 30.3%. In the US, the Dow Jones Industrial Average was off 18.5%.

Those declines themselves are enough to give investors pause, but a second hit comes from a strengthening US dollar. Since recent lows the dollar is up 7.7% against the Euro and 12.2% vs. the Japanese Yen. Those nasty market declines above are quoted in local currencies. That means if you held a French market ETF (exchange traded fund) your total decline, in US dollar terms, was 31%! Or 36% in Japan!

There are considerable reasons to believe that the dollar will continue to climb. A large part of its downward trend over the past year and a half was the belief that economic weakness would remain an exclusive problem for the United States (remember when this was supposed to be only a subprime mortgage problem?). That proved to be far from the case as economic growth has slowed all over the globe. Just last week the British economy showed growth of 0.0% - an economic halt. Forecasts for European growth have been cut dramatically and, with the increasing impact of inflation, Asian governments now fear sustained weakness and worldwide recession.

How does all that impact the dollar?

It makes the US look like a relatively safe place to invest. While we still have problems, in a storm safety becomes a priority.
Central banks typically reduce interest rates in response to weakness. Since the US Federal Reserve has already decreased rates, and is sending signals that it may raise rates, lower foreign interest rates make US investments more attractive.
Many foreign markets were dependent on Wall Street cash to keep them moving higher. It is far easier to keep a market moving higher with momentum than it is to restart it once that market has dramatically reversed course. Without tons of cash coming from investment banks those overseas markets may have a tough time reproducing the returns that attracted so many investors in the first place.
Inflation is affecting foreign, and especially emerging markets, more than the US. We think inflation is high here (with gas prices through the roof) but the fact is that inflation in Asia and South America is already higher and threatens those regions disproportionately. Since inflation is hostile to investments, regions with lower, stable inflation are preferred.

Those four factors increase demand for the dollar that, in turn, increases the price of the dollar.
For investors with money in foreign investments it may make sense to rethink the exposure. Domestic, multinational companies can gain access to fast-growing overseas markets. There is still currency risk to their profits, but they have finance departments hedging those currency movements. So the ultimate question may be whether or not you would rather manage the currency risk yourself or have companies' finance departments do it.

Legality of Offshore Investments

2008-08-31T13:21:00.000-07:00

Having an offshore banking account, corporation or trust are common themes in legal thrillers, spy novels and eastern European politics. There is a reason to be concerned about the legality of such accounts, for although many people would like to include them in their estate planning, a legal misstep regarding the use of any of these asset management tools could result in thousands of dollars lost in back tax payments and legal problems with none other than the IRS in addition to the possibility of spending time in prison. With that in mind, it is not surprising that many Americans shy away from offshore banking altogether.

As any good tax attorney will be able to explain to you there is a difference between tax avoidance and tax evasion. Tax avoidance is the use of legally employable strategies to reduce the amount of tax one has to pay. Tax evasion, on the other hand, is the use of illegal means to do the same thing. So the goal of any transaction that you would like to undertake offshore is to make certain that you are a tax avoider and not a tax evader. A lawyer will never be a willing party to tax evasion, if that lawyer is behaving within the cannon of professional ethics as well as the accepted norms of safeguarding their client's best interest.

To begin with it is illegal to have a secret bank account in another country that you don't tell the IRS about. It is also illegal to move unreported cash even if it is your money. The penalty for either of these offenses makes bank robbery look like a more attractive option.

However, with our own country continuing to advance the goal of globalization, of course it is legal to invest in, and to interact with, foreign markets and there are some tremendous incentives to do so. The key to taking advantage of these opportunities is to start modestly and remember that if it sounds too good to be true then it probably is too good to be true. Secondly, it is your duty as an American citizen to report your financial activities to the IRS. So divest yourself of notions of secrecy in the absolute and think in terms of tax savings rather than not paying taxes. If someone tells you that they can help you avoid paying any tax whatsoever, they are offering to help you engage in a criminal enterprise. And if you already are a criminal of some sort then perhaps you should look into the matter, but for the vast majority of those reading this article, don't endanger a life spent being a law abiding citizen by buying into an outrageous scheme.

As I said before, U.S. citizens and permanent residents are required to disclose their banking accounts abroad, where they are located and what the account numbers are, on a form called a TDF 90-22.1. However, there are exceptions to having to file this report and taxpayers are confused about the definition of these exceptions as well as the meaning of key terms within the document. One excellent way to begin to understand what must be reported, and when, is to look to the Jacobs Report. The Jacobs report which can be found at RealEstatePost and it is an extensive document filled with the applicable law and IRS instructions as well as the accumulated wisdom of many web sites and foreign bank reports.

Remember, the cardinal rule when beginning your inquiry into offshore banking is to find out about these matters in detail. You need to check into things yourself and keep in mind that if a deal sounds too good to be true then it is. In addition, keep in mind the fact that you want to be a tax avoider not a tax evader. Consult your estate planner and a tax specialist because the laws in many of the nations that provide tax havens have changed somewhat since the beginning of the War with Afghanistan and Iraq, because the U.S. is looking for hidden terrorist cash reserves and that has changed the way discretion is handled in many tax haven nations that are friendly with our government.

The Economy: Housing Hope, Consumer Gloom

2008-08-30T02:47:00.000-07:00

The housing market may be loosening up a bit, but the consumer mood is the darkest it has been since the Carter Administration, according to two economic reports released May 16.

U.S. housing starts rebounded 8.2%, to a 1.032 million-unit annual pace in April, from a revised 0.954 million rate in March (from 0.947 million previously). February's 1.075 million pace was revised up to 1.107 million. The consensus forecast of economists was for a drop to 940,000. Housing starts are still down 30.6% from a year ago.

The April increase was entirely in multifamily starts (up 40.5%). Single-family starts dropped 1.7%, to 692,000. The increase was concentrated in the Midwest (up 24.4%) and the West (up 18.5%). Starts were down 12.7% in the East and up 3.6% in the South. Building permits rose 4.9%, to 978,000.

Housing Will Continue to Stunt Growth

Starts continue to do better than expected, which is good news for U.S. economic growth, notes S&P Economics. "We do not think the [housing] problem is over, however, and still expect declines through the summer," wrote S&P economist Beth Ann Bovino in a May 16 note.

John Ryding, chief U.S. economist at Bear Stearns (BSC), advised against reading too much into the rise in permits and said in an e-mail note that the decline in housing starts over the last three months shows housing will continue to be a significant drag on growth in the second quarter.

For the other April housing reports, Action Economics continues to expect declines of 0.6% for existing home sales to a 4.900 million-unit annual rate, a 1.1% drop in new home sales to a 0.520 million pace, and a 0.9% drop in construction spending.

Inflation Indexes Take Off

But any fledgling optimism regarding the housing market was tempered with a bleak preliminary reading in the Reuters/University of Michigan report on consumer sentiment for May. The headline index fell to 59.5—its weakest level since June, 1980—from 62.6 in April. The current economic conditions index fell to 71.7, from 77.0 previously. The economic outlook index fell to 51.7, from 53.3.

The inflation indexes, which measure consumers' expectations of future prices, really took off, notes Action Economics, with the one-year median inflation rate rising to 5.2%, from 4.8% in April (it was 3.4% in January). The five- to 10-year inflation index edged up to 3.3% from April's 3.2% (it was 3.0% in January).

The government's stimulus plan failed to bolster the sentiment readings, notes Action Economics, and raised the risk that "consumers will fail to spend their way out of recession."

Stocks fell in mid-morning trading May 16 after the gloomy sentiment report, while the dollar slipped slightly. Treasury yields reversed lower after traders saw the inflation component of the report.

Movers: AIG, Lehman, Healthways, LDK Solar, Noven Pharma

2008-08-30T02:45:00.000-07:00

Fitch Ratings has placed its ratings of American International Group (AIG) and its insurance and financial services subsidiaries on Rating Watch Negative. Previously, Fitch had a Negative Rating Outlook on AIG and the majority of its insurance-related subsidiaries rated by Fitch, and a Stable Rating Outlook on AIG's financial services subsidiaries, including AIG Capital Corp. (AIGCC), International Lease Finance Corp. (ILFC), and American General Finance Inc. (AGF). Also, Credit Suisse lowers third quarter estimate, cuts target, rates AIG neutral.

Lehman Brothers (LEH) shares were lower on unconfirmed reports that a top Korean regulator voiced concern about state-run Korea Development Bank (KDB) possibly purchasing an interest in a global bank. Separately, unconfirmed reports suggest that internal unrest may lead to LEH chairman, CEO Richard Fuld relinquishing executive duties this year. On Friday, LEH shares rose sharply on reports that Korean Development Bank said LEH is one of its options for an acquisition. S&P maintains hold.

Healthways (HWAY) affirms its previously issued fiscal year 2008 guidance of $1.50-$1.55 EPS on $720-$740 million revenue. It sees $0.34-$0.37 first quarter fiscal year 2009 EPS, but says while this guidance anticipates solid EPS growth year-over-year, sequential-quarter performance reflects decline in revenue due to impact of certain contract renegotiations, reduced revenues associated with winding down of a previously discussed contract terminating at end of calendar year 2008, full-quarter effect of small contract losses due to health plan consolidation. Jefferies downgrades to underperform from buy.

JPMorgan Chase & Co. (JPM) says in an 8-K filing today that it held approximately $1.2 billion par value of Fannie Mae and Freddie Mac perpetual preferred stock. JPM estimates that such preferred stocks have declined in value by approximately $600 million in the third quarter to date, based on current market values. S&P cuts 2008 EPS estimate, but keeps strong buy.

Quest Energy Partners, L.P. (QELP), Quest Resource (QRCP) and Quest Midstream Partners accept the resignation of Jerry Cash as Chairman and CEO of all three entities, effective immediately. Resignation follows discovery, in connection with an inquiry from Oklahoma Department of Securities, of questionable transfers of company funds to an entity controlled by Cash. Initial indications are that the amount in question appears to involve about $10 million.

LDK Solar (LDK) says its wafer plant reached milestone of 1.0 GW annualized capacity. It sees 2009 revenue of $2.8-$3.0 billion and wafer shipments of 1.45 GW to 1.55 GW. S&P reiterates hold.

Noven Pharmaceuticals (NOVN) says Daytrana, its transdermal patch for treatment of symptoms of Attention Deficit Hyperactivity Disorder (ADHD), and licensed globally to Shire (SHPGY), is the subject of voluntary recall of two lots of the product because the patches in these lots do not meet the product's release liner removal specification and, as a result, patients and caregivers could have difficulties removing the release liner when they peel the patch open.

says purchasers of the company have verbally informed it that they will not close deal at agreed upon $11.40/share price despite fact that GILT informed them on Aug. 5 that all conditions precedent to closing have been met. Says purchasers' new verbal proposals were rejected by GILT's board. GILT has told purchasers that they have 72 hours to complete deal; if conditions are not met, GILT shall seek all remedies at its disposal, including legal action. Separately, GILT posts $0.03, vs. $0.13, second quarter EPS on 6.7% revenue drop.

Advanced Micro Devices (AMD) announces that Broadcom (BRCM) will acquire its digital TV (DTV) business for approximately $192.8 million. "AMD is executing a strategic plan to transform the company, becoming leaner and more focused while seeking to create a business model to deliver sustainable profitability," said Dirk Meyer, President and Chief Executive Officer of AMD.

Barron's reports that People's United Financial (PBCT) dodged the credit crisis by steering clear of subprime loans and has one of the highest credit ratios around. It has $2.5 billion in cash. That cash level will fall with an acquisition, which CEO Philip Sherringham is eager to make. With a purchase, he says, "the bank's earnings could potentially double over the next two to three years." The article also said shares could increase by about 20%, as it is on the hunt to buy other banks.

Premier Exhibitions (PRXI) says Bruce Eskowitz, who served as President and CEO and as a Director, and Brian Wainger, who served as Vice President, Chief Legal Counsel and Corporate Secretary, have resigned. In addition, James Yaffe and Jonathan Miller have resigned as members of the Board of Directors. CFO Harold "Bud" Ingalls was elected to the Board of Directors. PRXI also announces that will restructure its marketing program and plans to outsource much of its marketing efforts.

Grey Wolf (GW) and Precision Drilling Trust (PDS) announce that their Board of Trustees and Board of Directors, respectively, unanimously approved a definitive merger agreement pursuant to which PDS will acquire GW. Terms: GW shareholders will receive $5.00 in cash and 0.1883 newly-issued PDS trust units for each GW common share, for aggregate consideration of $1.12 billlion in cash and 42 million units.

Wachovia reportedly downgrades the U.S. trucking sector to market weight from overweight. Also reportedly downgrades Werner Enterprises (WERN) and Knight Transportation (KNX) to market perform from outperform.

Stocks: Back to the July Lows?

2008-08-30T02:43:00.000-07:00

The muted rally off the mid-summer lows for the major indexes appears to be complete, and we think this sets the market up for a critical test of the bear market lows.

Overall, we believe the market remains skittish as a lack of conviction by institutions is keeping funds sidelined, and the only movements in stocks seem to be rotational in nature as money flows from group to group. Crude oil bounced sharply higher off some key supports, while treasury bond yields tested their recent lows.

We think the price and internal action in stocks since the July 15 bottom is not good. Overall, volume during the rally was weak, although when we moved into August, it is the lowest-volume month of the year. Advancing volume, which is a good indicator of demand for shares by institutions, was very poor during the rally and is not indicative of buying thrusts that we sometimes see off of bear market or major corrective lows.

The advance-decline line of NYSE advancing volume minus declining volume hit a recent peak on July 23, and has been drifting sideways ever since. The NYSE advance-decline line peaked on August 11 and has since turned lower, and did not confirm the price action of the S&P 500. The advance-decline line of volume on the Nasdaq has acted better than the NYSE during the rally, but in no way reached the peak seen in early June. In addition, since the end of July, we have seen four days where the market declined on an increase in volume, a clear indication that institutions are distributing stock and is possible evidence the rally is in trouble.

Another, longer-term concern for the stock market is the clear and present contraction in liquidity, both in the banking system and its effects on the economy, and in margin debt and its historic effect on stock prices. We are of the belief that monetary policy and the growth, or lack thereof the money supply, is a major contributor to the success of the economy and the stock market. If we were an economist, we would be classified as a monetarist. When money is easy, and credit is flowing, we think this can add appreciably to stock market valuations. Unfortunately, when credit is too easy and the spigots are open, this has many times led to bubbles in asset prices, as in technology stocks, real estate prices and stocks, the Japanese stock market in the late 80's, emerging markets in 2007, and the infamous tulip mania of the 1600's.

For assets, we believe as long as the money supply is growing and credit is easy, prices can go ever higher. However, when the pump is turned off, we think prices are subject to falls. The expansion of margin debt is one of the many fuels that helped the stock market rise going back to at least the 1940's (when our charts run out of data). The trend of margin debt, has many times mirrored the stock market very well, and we think margin debt is a driver of the long-term movements in equities. Therefore, we think it is a good coincident indicator for the overall U.S. market.

The monthly data shows NYSE margin debt peaking in September 2007, just prior to the market top in October. Margin debt, or investor leverage, had been rising since October/November 2002, right at the bottom of the last bear market. Prior to that, margin peaked in April, 2000, right after the Nasdaq peaked. You can never really pinpoint a peak in margin debt, however, it appears that many times, the slope of margin debt will get very steep before the ultimate peak in leverage. The slope steepened towards the end of 2006 as investors rushed into foreign stocks, and more specifically, emerging markets. The slope steepened in 1999 during the "get me in at any price" technology bubble. The slope of margin debt was also very steep in the late 1960’s as well as the early 1970’s, prior to the market peaks in 1968 and 1973.

Since the latest peak in September, 2007, NYSE margin debt has traced out a series of lower highs and lower lows, broke below its 40-week exponential average, and forced a bearish crossover of the 17-week and 43-week exponential averages. While there is no telling when the trend in liquidity will turn up, we won't have much faith or conviction in the stock market either until the trend stops going lower.

Crude oil dribbled down to support early this week and then exploded to the upside on Thursday, catching many by surprise and aiding the S&P Strategy Team's contrarian upgrade of the energy sector last week. Who says you can't catch a falling knife? While luck helps once in awhile, our call back into energy stocks was based on the huge sell off in oil stocks, and our belief that crude oil was "approaching" a bottom from a technical perspective.

The early week decline took oil prices down to two fairly important pieces of technical support, and the more supports in one area, the more likely the market is to at least bounce when it hits these levels. The 200-day exponential average is sitting right at $112, while a bullish trendline, off the lows since August, 2006, is sitting right at $111.

While we thought a bounce was possible, we did not expect to see the fireworks on Thursday, Aug. 21, with crude finishing higher by over $5 per barrel. This is only the sixth time during the almost seven year bull market for crude oil that prices rose $5 per barrel or more in a single day, and they all have come this year. The big daily spikes, so far this year, have all been near a short- to intermediate-term peak in prices.

While we thought that crude could drop all the way to the $100 to $110 range before the correction ends, and think this could still occur, it now appears to us that crude has put in an initial floor. We expect the current rally to run out of gas in the $125 zone, where minor chart resistance lies, the 65-day average sits, and a 38.2% retracement of the decline targets. We then would expect crude to trade in the $110 to $130 area for a couple months, as a base and reversal formation is traced out.

Fannie Mae and Freddie Mac: A Damage Report

2008-08-29T14:58:00.000-07:00

Talk of a government bailout of Fannie Mae (FNM) and Freddie Mac (FNM) has reached a crescendo recently, including market rumors of a surprise government recapitalization of the mortgage finance companies over the Labor Day weekend, which the Treasury Dept. has denied. In view of a potential rescue of the troubled firms , it may be time for a damage report. Here is an assessment of how much wealth holders of the agencies' stocks and debt have lost since the housing crisis began to wreak havoc on the government-sponsored enterprises—and the potential financial damage that may lie ahead for investors.

Losses for holders of the GSEs' common stock are straightforward—roughly $100 billion in market cap has vanished since the start of 2008, with Fannie and Freddie shares down about 85% over the past eight months. Losses for investors in the mortgage giants' preferred shares, which continue to pay hefty dividends, are harder to calculate. Fannie and Freddie each have multiple issues of preferred stock, which vary based on initial share price, number of shares issued, and dividend rates. For example, all of Freddie Mac's preferreds issued in 2007 were priced at $25, while those issued in prior years were priced at $50. The share counts vary, however, and the preferreds now trade at various prices.

Here too, the losses have been significant. Freddie Mac's most recent preferred shares, issued on Nov. 29, 2007, at $25, closed at $12.87 on Aug. 27, translating to a loss of $2.91 billion for those who bought them at the original price.
The Intervention Question

Ultimately, the losses to shareholders will be determined by how Treasury decides to treat the companies' equity if it intervenes to recapitalize the agencies. The market for preferreds is pricing in the risk of some form of government intervention, with some issues trading for as little as 50 cents on the dollar, compared with around 92 cents on the dollar at the end of June, says Sam Caldwell, an analyst who covers regional banks for Keefe, Bruyette & Woods (KBW).

It's mainly individual investors who have borne the brunt of the losses on the agencies' common stock, but regional banks, insurance companies, and other financial institutions have taken the hit on the devalued preferreds, and those with a substantial portion of their capital tied up in these securities can ill afford to have all their value wiped out under a government bailout. Fannie and Freddie preferreds account for at least 32% of the tangible capital held by two regional banks—Gateway Financial Holdings and Midwest Banc Holdings—and 5% or more for a slew of others, according to an Aug. 25 report by Caldwell.

While he believes large-cap banks have limited exposure to agency preferreds, Caldwell found 38 banks with aggregate exposure of $1.3 billion, and 81 other banks that said they didn't hold any preferreds.

A day of reckoning for losses on the agencies' preferreds could be Sept. 30, when firms will need to mark down the value of the assets on their balance sheets to fair market value. A few regional banks have already taken writedowns for other-than-temporary impairment on the preferreds they hold. Earlier this week, JPMorgan Chase (JPM) said the value of its preferreds has been halved to $600 million this quarter and hinted it will take a charge on those assets when it reports third-quarter earnings.

"What's good for JPMorgan should be good for the rest of the industry," says one analyst who covers regional banks and asks not to be named.
Writedowns for Many

The accounting firm KPMG has been more aggressive about directing clients to write down the value of impaired assets than some of its peers, so all financial institutions that use KMPG as their auditor would be expected to take writedowns at the end of September, says Caldwell. And certainly, if the preferreds continue to trade underwater and the government hasn't made any decision on a bailout, all firms that have invested in the agencies' preferreds would have to take a writedown by the end of this year, he adds.

At least the preferred holders are still getting the dividend they expected when they bought the shares. Earlier this month, Fannie's board slashed the quarterly dividend on its common stock to 5 cents from 35 cents a share to preserve $1.9 billion in capital through 2009. Freddie sliced its 50 cent quarterly dividend to 25 cents in late 2007.

The implications for debt issued by the two agencies are harder to figure.

The housing bill that President Bush signed into law at the end of July made explicit the federal government's guarantee of $5.2 trillion in U.S. mortgages backed by Fannie and Freddie, so that debt is presumably free of risk.

Although no one has any doubt that the debt Fannie and Freddie issue to finance their own operating costs, all of which seems to be actively traded, would be made whole, the securitized mortgages the agencies have packaged and sold to investors are a different story, says Bill Larkin, a portfolio manager for fixed income at Cabot Money Management, based in Salem, Mass.

"The fear here is that the market participants—most of the stuff was purchased by foreign central banks—will see the risk and stop purchasing it. If that happens, then [mortgage] rates would rise [substantially]," he says.
Guaranteed to Guarantee

If the government does intervene, bondholders' principal and accrued interest would be protected, but that doesn't mean they would be able to trade the debt easily, he says. Strategists agree that the Treasury wouldn't risk the sanctity of a global banking system by not guaranteeing that debt.

Fannie and Freddie need to refinance about $250 billion in debt in September, and the market will be watching to see how successful they are. Neither agency has had difficulty attracting subscribers to its monthly bond auctions, which makes Larkin think they won't have a problem rolling over the debt that matures next month.

Outside of a bailout, the agencies' subordinated debt would be at risk only if the credit ratings were downgraded to junk, which would force many financial institutions to sell their holdings at big losses, says Larkin. In an Aug. 18 story, Barrons estimated that there is a total of $19 billion of GSE subordinated debt that would be at risk under a government bailout.

The ratings on the subordinated debt are hovering just above investment grade. On Aug. 22, Moody's Investor Service (MCO) lowered its rating outlook on the agencies' AA2 subordinated debt to negative from stable but affirmed their senior debt ratings at AAA. Moody's also downgraded Fannie's and Freddie's preferred stock ratings to BAA3 from A1, Standard & Poor's Ratings Services on Aug. 26 affirmed its AAA/A-1+ rating on Freddie's senior unsecured debt with a stable outlook but lowered the subordinated debt rating to BBB+, and the preferred stock rating to BBB- from A-, also placing those ratings on CreditWatch Negative.
Reason for Hope

Michael Wallace, global market strategist at Action Economics, says some of the subordinate debt holders still have reason for hope that Fannie and Freddie can successfully recapitalize on their own. If the government intervenes, though, "it's anybody's guess what anything will be worth."

Despite the increased chatter about an impending bailout, most analysts see no pressing need for one as long as the GSEs hold ample amounts of excess capital on their balance sheets. As of last week, Fannie's excess core capital—above the amount required by regulators—was $9.4 billion and Freddie's was $2.7 billion. And with $10 billion in mortgage paydowns a month, each company would be able to free up $1 billion of core capital every quarter if they opted not to reinvest these paydowns, according to a Citigroup report published Aug. 21. A point of further irony: Despite mounting foreclosures, Fannie's and Freddie's profitability has been improving lately with margins between their assets and their borrowing costs the widest they've been in many years, Citigroup said.

Larkin says it is highly unlikely the Bush Administration will do anything to damage the private-enterprise component of the GSEs.
"Political Football"

"The last thing [they] want to do is create another giant division of the U.S. government. That's why things are quiet now. This is a political football," he says. In addition, if the government makes a move that ends up harming the agencies, the Administration wold be chastised for making home mortgages less affordable.

Wallace at Action Economics disagrees. He believes Republicans don't like the quasi-governmental structure of Fannie and Freddie, which doesn't jibe with their view of free markets, and says if the government does take them over, it could just as easily dispose of them, change their mandates, or sell off their assets.

All told, the damage to the agencies' equity and debt investors is hard to quantify, but it will certainly run in the hundreds of billions of dollars. Dan Seiver, a finance professor at San Diego State University, provides one final bit of perspective: However much stock and bond investors stand to lose in the end, it will probably be dwarfed by the total wealth that American homeowners have seen evaporate since the credit crisis started—an amount he estimates will be in the trillions.

Profits in Hedge Fund Investing

2008-08-29T14:57:00.000-07:00

Most people understand what a mutual fund is and think a hedge fund investment is the same thing. They are correct in that a hedge fund is a group of investors that pool their money, just like a mutual fund. Hedge funds, however, don't have the same type of regulation that the mutual fund has. In fact, you have to have a specific amount of wealth to invest in a hedge fund and a required amount of investment savvy. A hedge fund investment is not a public offering, but often a private limited partnership with the fund manager as the general partner.

Hedge funds do things because it is a private investment, which regular mutual funds can't do. One example is the ability to sell short. This is a risky technique especially if it's a naked short sale. The short sale is when you sell a stock in hopes of purchasing it later at a cheaper price to fill the sale.

A naked sale is one where you sell a stock you don't own. To comply with government regulations you must be able to borrow it from someone before you sell it. The reason that it's so risky is that the price could skyrocket after you sell the stock. Then you must pay huge amounts to fulfill your obligations to the buyer.

When large hedge funds use the techniques, often they drive the price down artificially in the sale of the stock and minutes later, can make a quick profit with the purchase and delivery of the cheaper stock. This is one way a hedge fund investment brings higher income than the traditional mutual fund.

The original purpose of a hedge fund was to hedge against the market's swings. The combination of different types of investments provided an equation against falling markets. The change came as hedge funds became more popular. Today, they provide not just a hedge against loss but an edge for gain.

The typical hedge fund investment contains derivatives that are high yield and debt from companies considered risks, so they have to pay more to borrow, or their loans sell at discounted rates which means the yield on the return is higher. If you use a $1,000 loan as an example, with the company loan rate at 8%, that is a decent comfortable return. Now, if that same company gets behind on the loan and the lending institution panics, they might sell it at a 50 percent reduction of the balance to the hedge fund. This in effect means that not only does the fund get 16 percent interest, but if the company actually pays the loan in full, they make a 100 percent gain on that money.

If you have plenty of money already, you may be the perfect candidate for a hedge fund investment. These types of investments are supplementary to normal investments. They attempt to defeat bear markets and bring in money while they also take advantage of the bull market and yield a higher return. There are risks in a hedge fund, ones that the average investor would never take. With the onset of a bear market, the technique of short selling is one of the best ways to hedge the bad market and take the lemon that the economy handed you and make lemonade.

Sysco (SYY) Sings a Sweet Q4 Tune

2008-08-29T14:56:00.001-07:00

On August 11, before the market open, Sysco Corp. reported Q4 earnings of $0.55 per share or $334.1 million vs. $303.4 million ($0.49 per share) a year ago, an increase of 10%. Revenue increased to $9.73 billion or 5.4% vs. $9.2 billion a year ago. Analysts expected $0.52 per share, beating estimates by $0.03 per share. Analysts also expected revenue of $9.87 billion, missing revenue forecasts. SYY spiked in the morning and maintained momentum throughout the day to close at $31.15, up $1.28 or 4.3% on 9.91 million shares traded (highest daily volume in four years).

SYY estimated that in FY 2008, they experienced a 6% inflation rate in the cost of goods sold. However, in Q4 SYY was able to increase productivity and control expenses which helped to offset higher commodity costs. Revenue growth should continue to slow down as restaurants, SYY's important end market, get a grip on higher food and energy costs. The benefit for SYY is that they do not fully rely on dining establishments and have a diverse customer base with no single customer accounting for more than 10% of sales. Weak consumer spending, inflation, particularly fuel costs, and a continued slow down in restaurant sales and the overall difficult economic environment will have an impact on SYY's operating margins going forward.

Fundamental highlights include SYY's ROI (17.4%, trailing 12-months [TTM] vs. industry avg. 14.7%), ROE (33.1%, TTM vs. industry avg. 20.9%), ROA (11.3%, TTM vs. 10.9%) and positive earnings growth (13.3%, TTM vs. industry avg. 5.5%). However, concern must be noted in SYY's gross margins (19.2%, TTM vs. industry avg. 25.6%).

There are currently 8 analysts that cover SYY, but there have not been any recent revisions. The current rating consensus is 2 "Buy", 6 "Hold", and 0 "Sell" ratings. Expect analyst recommendations to come out in the near future that may move the stock in the short-term.

In FY 2008 until March of this year, SYY has repurchased 17 million shares at a total cost of $536 million. As for insiders, in the past 12 months, there were 0 purchases and 66,872 shares sales. Institutions, in the past 12 months, have sold 20.8 million shares or a net -4.7% change in ownership. However, in the past 3 months, institutions have purchased 15.4 million shares or a net change of +3.3%.

On the day of earnings, SYY broke out of several resistance levels including the 50-day, 200-day, and previous congestion areas. SYY formed an ascending triangle since June and has broken out to the upside on massive volume. SYY may find support at the $30-$31 as it has several times this year. SYY is a possible long candidate if general market conditions improve.

Fluor (FLR) Fires Up, Doubles Net Income

2008-08-29T14:55:00.002-07:00

On Monday, August 11 after-hours, Fluor Corp. reported $209.3 million or $1.13 per share, an increase of 119%. A year earlier, FLR reported net income of $95.6 million or $0.53 per share. These results included a gain of $79 million or $0.26 per share from the sale of its joint interest in the Greater Gabbard Offshore Wind Farm. Every unit posted positive growth, while operating margins rose 6.8%. Analysts were expecting $0.82 per share, effectively beating estimates. After-hours, shares rose 6% to $81. However, on Tuesday, August 12, shares of FLR gapped up to $80.74, sold off strongly hitting a low of $67.10 before slightly recovering to close at $71.64. Shares fell $4.54 or 6%.

Operating profit doubled to $392 million, compared to $187 million in Q2 07. Revenue rose 37% to $5.77 billion up from $4.2 billion in Q2 '07, primarily in its oil and gas unit whose operating profit jumped 68%. Profit for the power unit jumped to $25 million and earnings rose 18% in the government segment.

New projects awarded increased by 10% to $6.4 billion. New awards in Q2 by unit: 47% - oil and gas, 38% - industrial, 11% - global services, 3% - power, and 1% - government. There continues to be strong global demand for FLR's oil and gas projects, mining and transportation, power generation, and alternative energy. I expect further strength in the energy sector, mainly for power generation, coal plants, oil and gas, and nuclear energy. The obvious risks for FLR include, but are not limited to, a continuous drop in oil prices, labor and credit issues, and possible project delays. The recent correction in oil prices should not deter capital investment into oil and gas projects for the long-term.

On July 3, Fitch revised their long-term issuer default rating to "A-" and giving FLR a "Positive" outlook rating from a "Stable" rating as a result of FLR's operating performance, low leverage and improving liquidity, and a growing backlog in its oil and gas unit. FLR's short-term issuer default rating is affirmed at "F2". 54% of FLR's backlog is international, with 43% coming from EAME. (Europe, Africa, Middle East), giving FLR a strong global presence.

FLR raised their full-year's earnings forecast by $.035 to $3.65 - $3.80 per share up from $3.30 - $3.45 per share. Analysts expected earnings of $3.29 per share for the year.

Currently 16 analysts publish reports on FLR. To date, nine analysts rate FLR as a "Buy", five rate as "Hold", and one rates as "Sell". There is a lot of variance between analysts, but the general consensus is "Buy/Hold" with price targets ranging from $85 to $111.

• August 8 - Morgan Joseph upgraded FLR to "Buy" from "Hold" and raised their target price to $97 from $94. The firm noted that as long as oil stays above $70, energy projects can move forward.
• August 8 - Morgan Keegan also upgraded FLR to "Buy" from "Hold" while setting their price target to $94.
• August 11 - D.A. Davidson & Co. remained "Neutral" on FLR, reducing their price target from $95 to $85.
• August 12 - Citigroup downgraded FLR to "Hold" from "Buy".
• August 12 - FBR reiterated their "Outperform" rating and raise their price target to $111 from $103.
• August 12 - Lehman raised their price target to $103 from $98 noting that FLR is the only engineering & construction company that provides enough diversity across the sector's end markets.
• August 13 - UBS maintained their "Buy" rating, but reduced their price target from $107.5 to $103.
• August 18 - Stanford Research upgraded FLR to "Hold" from "Buy".

In light of positive earnings, in the past 6 months, insiders made 0 purchases and made 49 sales totaling 198,000 shares. Consider this: Alan Boeckmann, Chairman & CEO of Flour Corp., has sold approximately 127,530 shares so far in the past 6 months. Insiders may sell for a variety of reasons, business-related or not, but sales must be taken into consideration in evaluating management.

On a technical level, the response to the positive earnings report is less than appealing. The massive intra-day sell off shows that investors could not maintain the same enthusiasm as they did after-hours the day before. This is hard to believe, but the market is always right in determining price. 14.54 million shares traded on the day after earnings, its highest daily volume since May 13. The volume pattern indicates that the stock is indeed under distribution. Having broken through the 200-day MA, I expect consolidation around the $70 - $77 range. I also expect a pullback from extremely oversold levels soon. I would also watch for a 50-day/200-day MA crossover which is bearish. FLR is in a strong downtrend and the MACD & RSI also indicate a bearish trend. I suggest no trades, long or short at this level, since the risk/reward is not favorable for either.

DoublingStocks - Is it a Scam? Read Our Detailed Reviews

2008-08-29T14:55:00.001-07:00

DoubleStocks is not an eBook, but rather a newsletter one receives roughly every week. This newsletter is backed by "Intelligent Software" called Marl.

Marl is a stock-picking robot that was designed by 2 computer geeks and apparently analyzes every stock out there, giving Carl and Michael (aka Marl's inventors) content for their "never wrong" newsletter. By using certain math formulas, proven methods and individual stock history, Marl can correctly predict the outcome of most stocks on the market.

Marl searches its online database for the best stocks to invest in, and displays the outcome on table format in the newsletter.

How Exactly does DoublingStocks work?

Not only does Marl predict which stocks to buy, but it also states the stocks entry point and target price/selling point.

Is DoublingStocks a Scam?

Note: DoublingStocks is a Legal Product.

DoublingStocks claims a 84% success rate and I confirm this to be true. But what I can also reveal to you is that many traders (probably because it is so cheap) believe this product to be a scam- These traders believe Marl to be a fake, and say you, as the subscriber, are being used to help pump the stock value of unheard companies that pay DoublingStocks to promote their stock.

If this scam is true, DoublingStocks still manages to boast a 84% success rate due to 1000's of their subscribers investing in a company overnight- therefore it is obvious that the company's stock price will rise.

So I find myself in 2 minds about this product: If you want to make cash, it will definitely work, but if you believe it to be a scam-stay away. At the end of the day, the ball is in your court... just keep it rolling.

Don't Force Trades

2008-08-29T14:39:00.000-07:00

Every trader has tried to force trades at one point or another. They make trades because they feel they need to. However forcing trades can be the fastest way to lose money in the stock market.

Anyone who has ever been involved in the stock market has had one of those I wish moments. I wish I would have bought Microsoft, I wish I would have got into stock XYZ before this big jump, we all get them.

The problem with that is it gives you a sense of missing an opportunity. This in turn makes you want to be fully invested in the market at all times so you do not miss any great opportunities. Bad idea!

You should never let something like that affect your trading. Getting into a position just to be in a position will hurt you more then it will help you. Anytime you enter a position you should have a good reason. It should give you a signal that it is going to move in your direction before you enter it.

Only getting into stocks that give you a trigger becomes even more important when the markets are hard to trade. During this time you probably do not want to be fully invested in the markets. In fact if the markets are running wild making a $400 gain one day and a $600 point drop the next you may want to sit out of the markets altogether.

If you still have the urge to be in something it is important to only take trades you feel are top of the line. Taking trades with strong fundamentals, strong technicals, and look like they are the Holy Grail. This will save you from taking a lot of losing trades when the market is trying to figure out what it wants to do.

When the market is clearly trending money you may want to be a little more aggressive but still remember to follow your rules. It is easy to get caught up in the feeding frenzy of a trending market. That can hurt you when the market turns around.