Archive for September 20th, 2007
You can tell it is an election year when political operatives try to pander to every single group with no long-term thought process of the implications of instant gratification. Maybe that is why the United States on a personal level, has a negative savings rate. How can the government encourage people to save and be prudent when they do the complete opposite? Let us take a look at the winners with this newfound ease in lending:
Home Loans: Winner because they become cheaper
Auto Loans: Winner because payments will be lower
Credit Cards: Winner since your APR just dropped from 18 percent to 16 percent
Lenders: Winner since they are given a lifeline to do more loans
Savings Account: Losers since your interest rate is lower than inflation
Dollar: Loser as you can clearly see by the drop below the 80 support level
Pretty basic right? But if you think about the deeper ramifications of the decision it shines the light on an eerie part of our economy. The only way we can keep this game going is by making savings unattractive to the masses and encourage spending at all cost. Many investors realize the game is up and are diversifying out into foreign currencies, stock, and everything else that will benefit from a falling dollar. Many are doing short-term call options and figure they can make a profit on these pseudo bull runs. This does not help the massive majority of Americans. How is this good for our country in the long run? Today we will take a look at an absurd piece of legislation that passed the house, H.R. 1852. I will translate the key points for you into blunt language and what it means to you and our country. Take a look at this press release issued a few days ago from the House Committee on Financial Services:
· Lower Down Payments. Authorizes zero and lower down payment loans for borrowers that can afford mortgage payments, but lack the cash for a required down payment.
Translation? We are going to institutionalize subprime lending! Forget about the tried and tested 10 and 20 percent down payments of yesteryear. We are overhauling the system to remove down payments. After all, we have a hard enough time saving anything month-over-month so how can we expect people to save a few thousand dollars? So instead of requiring this archaic “saving” that is so passé, we are going to allow people, assuming they can make the monthly payment, to purchase homes even if the prices go beyond financially prudent ratios. Down payments exist for a reason. They show that a prospective buyer has the ability to tighten their belt and manage their finances for a few years to purchase a home; normally this is achieved by foregoing spending on other discretionary items. But you can have your cake and eat it too in the mortgage world! Debt is saving in this apparently brave new world.
· Housing Counseling. Authorizes more than double the current funding level for housing counseling, to help subprime homebuyers and borrowers late on mortgage loan payments.
Do we really need housing counseling? I can imagine one of these sessions:
Counselor: “Can you tell me about your current situation?”
Supbrime Borrower: “Ok. Someone from one of those now bankrupt lenders gave me this great 1.25% teaser loan and told me it wouldn’t reset for a long time. I didn’t read the note because hey, I trusted him since he was in a nicely ironed suit. When he said long time I thought he meant 10 years, not 2 years. Now my payment went from $1,250 a month to $2,200. What can I do? I barely was able to afford it even with the crazy teaser rate?”
Counselor: “Damn. Looks like you need to increase your income by adding an all America 2nd or 3rd job. Another option is to go into foreclosure since the market price on your home is now less then the mortgage balance. Oh hold on a second…I’m getting a fax from our blessed government. [pause to get fax] Hey! Good news. We can refinance you into another loan with another teaser rate since the government is now subsidizing these loans.”
Subprime: “Great! Because I was looking at this other home that I would like to flip…”
The folks that need “counseling” are the lenders and the policy makers for thinking this is a good long-term strategy.
· Subprime borrowers. Directs FHA to provide mortgage loans to higher risk (but qualified) borrowers, without authorizing unnecessary fee hikes on such borrowers.
Reverse Mortgages. Enhances the FHA reverse mortgage loan program to help seniors pay for health and other expenses, by removing the loan cap to avoid program shutdowns, raising loan limits, and by reducing the maximum fee lenders can charge for these loans.
Higher risk but qualified borrowers? Bwahaha! You couldn’t write more Orwellian language. Could it be that they are high risk because maybe they can’t afford the home? This is like saying that a person is perfectly suitable for working at the drug enforcement agency so long as his cocaine and heroine addiction doesn’t rear its ugly head while raiding a drug house. As we are seeing, it is unethical to give someone that doesn’t have their financial house in a row $100s of thousands of dollars in the form of a mortgage only to have them lose their house later on. That is why we have [had] lending standards. When lenders had to hold the notes they actually vetted the loans with higher scrutiny because a foreclosure would hurt their books. Now we have this moral hazard where we are encouraging irresponsible lending. This doesn’t help the homeowner. This is horrible classical conditioning on a mass scale. What we are telling people is credit doesn’t matter, saving is irrelevant, and bad financial moves will have a bailout from the government. Does this make sense?
Then the reverse mortgage portion is just classic. You can see the light bulb over these congressmen go off. “Next year is so important. Older voters are an important constituency group.” Since Social Security is peanuts and the cost of living adjustments are based on ministry of truth data, they only see marginal increases. The majority don’t have adequate savings but what do they have? Over inflated home equity! How about we slap on another virtual ATM and drain all their savings so instead of the equity going on to their children or grandchildren, it will go to the good old government. Amazing planning here. Let us keep reading.
· Multifamily Loans. Raises FHA multifamily loan limits, so these loans can fully fund construction costs in high cost areas, and enhances sale of foreclosed FHA rental housing loans to localities, so that affordable housing can be maintained in local communities.
You really need to put on your doublespeak reading glasses for this one. So they want to raise FHA multifamily loan limits to encourage affordable housing? They are basically forcing prices to go up. If the market played itself out, construction companies that are able to acquire cheaper resources and labor would be forced to pass on the savings to consumers via more affordable housing. But this legislation assumes that current housing bubble prices are justified and are trying to institutionalize them under the guise of good public policy. What we need is less legislation and more open market competition. Think about it. If you have two companies and materials are being driven down because of competition and efficiencies, then the company that can provide lower priced goods to the market will win. That means lower priced homes and more sales. Did you notice how Hovnanian had no problem attracting buyers when it slashed prices by $100,000? But here, we have this big government mentality and you’ve seen the ridiculous budgets where toilets cost $2,000 and pens go for $30 each. Do you really think these companies compete when they know they have a locked in price? Why do you think communism failed so miserably? And the language is scary. What do they mean “fully fund construction costs” in bubble areas? They call them more expensive areas instead of overpriced bubble metro areas fueled by rancid loans but I think the PR folks removed that language. This is a blank check. Make sure you contact your representatives in both houses and contact the White House to veto this. Maybe Bush will dust off the pen and use it for once.
· Affordable Housing Fund. Authorizes up to $300 million a year from the bill’s excess profits for affordable housing, instead of returning such funds to the General Treasury.
You don’t need the affordable housing fund if you relax zoning rules, stop bailing out lenders, and make these folks accountable for their actions. They are trying to seal high prices into the system as a paradigm shift. These folks want you to believe that higher prices are just a thing of the modern day as opposed to being fueled by exotic funky lending and mass greed.
· Higher Loan Limits. Adopts the Frank/Miller/Cardoza amendment that would raise FHA single family loan limits, which now bar loans above 95% of the median home price in each local area and shut FHA out of higher cost home markets. The amendment raises the FHA loan limit in each area to the lower of (a) 125% of the local area median home price or (b) 175% of the national GSE conforming loan limit. The amendment also also retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”retains the bill’s provision for a nationwide FHA loan floor of 65% of the GSE conforming loan limit, and gives HUD authority to raise these loan limit amounts by up to $100,000 “if market conditions warrant.”
This is the one that is getting everyone worked up. How is raising loan caps going to help the family on main street USA by pushing limits over $500,000? I thought the median price was somewhere around $225,000 for most Americans? Oh! I forgot. Lenders make their most profits from overpriced bubble metro areas therefore we should ask our brothers and sisters in Wyoming, Montana, Arkansas, and every other non-bubble state to contribute to their mass greed. Make no mistake. This bill is 95 percent for the housing industry. It will not help you or your family if you are facing foreclosure. They will use the 1 or 2 examples to get media heart bleeding and lenders going into crying moments (did you see that Youtube video of the guy pleading for Brittany?); it’ll be something to that effect but everything is garbled up in this translation. Pandering at its finest. How is someone in a high priced area with a $400,000 or $500,000 mortgage with a family income of $50,000 going to get help if the main problem is a pricing and income issues? Unless they want to give everyone a 50 percent mandatory raise, I’m not sure how this helps anyone except lenders on the large part by washing their hands clean ala Pontius Pilate of unethical and corrupt mortgage products?
Doublespeak: Helping Minorities Pad our Bottom-line
Someone once told me that getting married is easy, staying married is the hard part. During a presentation, one of the nation’s mortgage lending leader reiterated their goal of helping minorities to own homes. The government always throws this PC statement out. The last few years these lenders have done the most damage to minorities. Guess who are the folks who are losing their homes because of subprime lending in the largest numbers? These greedy lenders didn’t care about folks’ long-term well being, they only cared about putting people into homes and getting their nice commission cuts. So what if 1, 2, or 3 years down the road the family drowns in their own debt service? Setting people up for failure is not the American way.
The fact that many are subprime meant they couldn’t afford homes to begin with. Simple way to avoid this mess from the start. If people want to buy homes why is it so bad to ask that they save a minimal down payment? You know why? Because this slows the real estate complex down. During this time people aren’t buying, selling, refinancing, busting out home equity lines of credit and all things where the housing Ponzi Scheme gets their money from. To use this “we are helping minorities” line is arrogant and absurd. Why don’t they address the real reason that of massive inequities in pay for minority groups? Oh! We can’t talk about income because that is taboo. Yet they are okay with putting people into ticking time bombs. A good senator and representative, for example, in voting for a war should always ask themselves if they would send their own child to a conflict. In the case of lending, a good lender should be required to ask, “would I loan this person money if it came out of my own bank account?” Guess what your answer would be?
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Filed under: Law, Google (GOOG), eBay (EBAY)
 In what I see increasing as a practice, music artist Prince has started a catfight with Google, Inc.’s (NASDAQ: GOOG) YouTube service and eBay, Inc. (NASDAQ: EBAY) over copyright violations dealing with unauthorized video content on YouTube and Prince-labeled clothing and shoes on eBay.
The constant battle copyright holders continue to have with the opening of content and commerce on the global web won’t be over soon — far from it. In fact, the web can be both the biggest threat and the most lucrative distribution tool for music and video artists. Defining the line between those, however, is so blurry no corrective lenses will ever be able to see it clearly.
Prince’s issue here is the constant re-posting of his videos and other content on YouTube, even after his internet policing specialist successfully worked with YouTube officials taking down content that infringed on his copyright. In true YouTube fashion, more content is immediately uploaded and the circle starts all over again.
Then come the mousepads and shoes showing up on eBay with Prince’s likeness. Same deal as with YouTube — he just wants those items to be taken down for good. In an age where users are the ones responsible for uploading and listing infringing material — not the hosting companies like eBay and YouTube — how far does the responsibility go for both companies? That question still has no answer, and the web will continue upending the entertainment industry little by little.
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Filed under: Internet, Google (GOOG), Next big thing, Small business
 Web watcher comScore Inc. has reported that last month, the new site GodTube.com saw traffic climb 973% — growth unprecedented in the web’s history. GodTube welcomed 1.7 million unique visitors between its official August 8 launch and month’s end, debuting in comScore’s list of top 1,000 internet properties.
Owned and operated by Big Jump Media, Inc., GodTube is exactly what you might guess — a Christian alternative to Google (NASDAQ: GOOG)’s YouTube. Similar to its secular counterpart, GodTube visitors can upload, view and comment on sermons, music videos and performances, testimonials, skits and sketches, rants, raves and what have you. In six weeks, it has accumulated more than 20,000 user-submitted clips and streamed more than 800,000 hours of video.
It’s fascinating that here we are nearly two decades into the internet, and only now does a dominant faith-oriented web destination start to take shape. Sure, denominations and sects have their own predominant web resources — some even run dynamic, regularly updated web portals. But your web search for religion will mostly yield a lot of domain squatting (www.religion.com, www.god.org) and last century’s web design (www.jesuschrist.com, www.yhwh.com).
But the opportunity has surely always been there. Since the heyday of Usenet, determined faithful have been debating and witnessing, huddling together on message boards or tugging back and forth on Wikipedia entries.
Just to give you an idea of how often web-going Americans reach to religion, consider these figures from Google. Shown here are the relative volumes of searches for “God,” “Jesus,” “church” and “Britney Spears,” the latter our control for this experiment, chosen since she’s the most veteran resident of Lycos’ weekly list of 50 most searched people, places and things:
But for occasional spikes, Miss Britney typically places lower than the first three terms, giving some perspective on how in demand she really is (or isn’t). Good on GodTube’s backers — who include Norm Miller, chairman of privately-held Interstate Batteries — for answering that demand for faith with YouTube’s viral recipe.
How long can GodTube maintain this growth? That’s a question for its users. As is the case with YouTube and other startup smashes like eBay (NASDAQ: EBAY) and News Corp (NYSE: NWS)’s MySpace, GodTube is just a meeting place, tasking its unpaid community with the bother of generating content, not to mention policing its appropriateness for the site, which is likely to be an enduring issue of contention. Even before admonishing copyright infringement (of which there is plenty — in my short browse of GodTube, I found clips from CNN, the BBC, and Ellen), the site’s user agreement requires that you post nothing that “is contrary to the evangelization of Jesus Christ and His teachings, or constitutes blasphemy, or is otherwise offensive to our online Christian community.”
Not something I’d want to adjudicate — hope they stock up on Aleve.
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Filed under: Google (GOOG), China, Newsletters, Bargain stocks, Stocks to Buy
 China stock expert Jim Trippon recently issued new buy recommendation on SINA Corp. (NASDAQ: SINA), which operates four Chinese-language web portals.
In his China Stock Digest, the advisor says, “We believe that SINA has a degree of diversity, brand strength and earnings growth potential that puts it ahead of the competition.”
Trippon explains, “We believe SINA is uniquely positioned to rise in profitability with increasing web penetration in the Mainland and beyond. SINA Corporation is in the ambitious business of bringing Chinese language web access to Greater China and the rest of the world.”
SINA, he notes, operates four Chinese-language web portals, serving the PRC, Hong Kong, Taiwan, as well as Chinese-speaking people in North America. The company has more than 230 million registered users worldwide and 600 million daily page views.
According to the advisor, “The company’s portals in rich Chinese-speaking and English-speaking markets have added to SINA’s growing cash flow with new services like eChineseLearning, an online language school specializing in one-on-one, live audio and video instruction.”
Trippon observes, “Although it’s one of China’s top Internet portals, SINA lagged behind Baidu (NASDAQ: BIDU) in search traffic in early 2007. But a recently announced partnership with Google (NASDAQ: GOOG) is expected to power up ad buying at SINA, thanks to the perceived power and prestige of the Google name in China.”
He adds, “SINA boasts that it has over 42 million active users for a variety of fee-based services. SINA claims to be the most recognized Internet brand name, both in the People’s Republic of China (PRC) and among Chinese communities globally.”
Because of its high profile, penetration and prestige, notes Trippon, SINA has been called an essential buy for advertisers conducting branding campaigns in the increasingly brand-conscious Chinese consumer market.”
The company, he notes, says it expects to benefit from the 2008 Beijing Olympic Games as Olympic partners and sponsors start to place more of their budget on the Internet and its Olympic Coverage Alliance begins to pay off.
Trippon states, “We believe SINA is an aggressive player with huge market potential that extends well beyond mainland Chinese borders. SINA has a unique opportunity to become a global brand name and a must-see Web portal for the Chinese community on every continent.”
The advisor concludes, “The company is in a solid cash position with a reported debt of $100 million backed by a cash position estimated at $160 million and annual revenues exceeding $200 million. We believe that SINA has a degree of diversity, brand strength and earnings growth potential that puts it ahead of the competition.”
Each day, Steven Halpern’s TheStockAdvisors.com features the latest stock picks and investment ideas from the nation’s leading financial newsletter advisors.
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Filed under: Middle East, Private equity
 At the Private Equity Analyst Conference in New York yesterday, the co-founder of the Carlyle Group, David Rubenstein, has continued to be oblique on the question of going public. Hey, in light of the Blackstone (NYSE: BX) debacle, I can understand why.
Well, according to the Wall Street Journal [a paid service], Carlyle is taking another approach (at least for now). That is, the firm has snagged a $1.35 billion private investment from Mubadala Development Company, which is part of Abu Dhabi. Essentially, this places a hefty $20 billion valuation on Carlyle.
It’s an important move. Carlyle wants to have a permanent source of capital, which can help with minority investment opportunities and even buying up other private equity firms.
Plus, in order to keep up the growth momentum, Carlyle needs to expand into new markets, such as the Middle East.
The investment points out something else: Abu Dhabi is quite bullish on the global financial markets. Besides its Carlyle investment, the government (which controls the United Arab Emirates) is also taking a large position in the Nasdaq as well as the London Stock Exchange.
Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements . He also operates DealProfiles.com.
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Filed under: Time Warner (TWX), Comcast Cl’A’ (CMCSA), Time Warner Cable (TWC)
It appears that Time Warner Inc. (NYSE: TWX) may actually be considering a sell-back of a small stake in Time Warner Cable (NYSE: TWC) according to an Associated Press report from last night.
This morning Reuters added some information. The board of directors of Time Warner Cable appointed a special committee to look into any proposal that Time Warner might make on its 12.43% stake. This stake was valued at roughly $2.9 billion back in 2005. If this occurs, it will be financed from the Cable company’s revolving credit facility or by accessing debt. Time Warner would apparently still hold an 84% stake in the cable operator if the filing information is accurate.
But there is another thought here. It may be a bit Panglossian, but still worth a visit. Time Warner Inc. probably has a second wave of a restructuring in the not too distant future, or so I have speculated (actually, I believe it inevitable and as logical as Ireland being green). Shares of Time Warner Cable are down to $32.79, down from $43.25. The cable company should not take on the debt. The average daily trading volume is barely 1.2 million shares (about $40 million worth of stock trading per day). Its rival Comcast Corp. (NASDAQ: CMCSA) trades close to 20 million shares per day (over $400 million worth of stock).
The company could allow these to make the necessary conversions and it could be added to the free float on the exchange. While it is dilutive to existing shareholders, it would at least get that low float higher. Its $29.6 billion in market cap is far lower if you consider the free float in the stock.
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Filed under: Management, Microsoft (MSFT), China
 Seems like Microsoft Corp. (NASDAQ: MSFT) not only has the EU as an adversary, but now the world’s largest software maker can butt heads with the National Basketball Association. The head of Microsoft’s China operations has left for a position with the NBA’s operations in that country at a time when Ole’ Softie continues to lose top talent in many key areas. Remember Google snatching away a top Microsoft China exec a few years ago?
China is a bit of a quandary for Microsoft. It’s the world’s largest country by population, and it’s considered an emerging market for PCs as the ranks of the middle class climb. Also, though, it’s home to rampant amounts of software piracy, much of which directly hits Microsoft’s already-large pocketbook. Still, Tim Chen will be leaving to head the NBA’s operations in that country, including Hong Kong and Taiwan. Microsoft needs to act quickly to appoint someone capable to sit atop China’s fast-growing economy or it could find itself in a world of hurt.
All of these defections have to leave many of us wondering: do China-based execs employed by Microsoft not see any growth or future with the software maker? It’s flattering in one way that Microsoft’s China execs are apparently sought after highly, but then again, it hurts the software maker as it constantly turns over important top leadership. It’s hard to argue that Chen didn’t see a bigger opportunity with the NBA in terms of growth, as there are reportedly 300 million basketball players in the country, with it also being the most popular youth sport. Now, that’s growth potential even the computer industry can’t touch.
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Filed under: Other issues
 The term “greenback” may be going out of style when it comes to the new $5 bill. The newest, high-tech Lincoln five-dollar bill was unveiled this morning by U.S. government officials just as the U.S. dollar hit an all-time low against the euro. How charming!
The newest $5 bill represents the latest technology in the ongoing quest to thwart global counterfeiters, as it features newer pastel colors and watermarks of the number 5 instead of a watermark like the one used on the $100 bill (featuring Benjamin Franklin’s head).
Of course, those are not the only changes. The security thread (seen when you hold a $5 bill up to a light) has been moved to a different location than in the $100 bill. The $5 bill was not actually going to be redesigned until U.S. customs officials saw that counterfeiters were bleaching existing $5 bills and printing $100 values on them due to the security thread being in the same place on both bills. Also, the border around Lincoln’s head has been removed and a series of purple stars (with small, yellow 5 numerals) will take its place. The center of the bill also features a purple color that fades into gray at the bill’s edges.
It’s interesting that the launch will not happen until next spring, to give vending machine operators time to upgrade for the new bill, among other things (heh). Until then, government officials can continue to add to the roster of 3,945 arrests related to counterfeit bill production in 2006, with an estimated loss of $62 million. That means the average loss would be about $15,716 per arrested offender. Newsflash to the government: $15,000? I’m quite sure the loss was more than that. Not a good ROI especially when you consider the costs of the newest color laser printers, eh?
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Filed under: Earnings reports, Wal-Mart (WMT), Kroger Co (KR), Safeway Inc (SWY), Technical Analysis, Stocks to Buy
 When you are shopping for food, you like to know that the store you are in has a long-standing reputation for reliability. There is a chain based in Cincinnati that has such a reputation. It has been filling grocery bags for 124 years.
Kroger (NYSE: KR) is one of the nation’s largest retail grocery chains. It operates nearly 2,500 supermarkets and multi-department stores in 31 states, under such local banners as Kroger, Ralphs, Fred Meyer, Fry’s, Dillons, QFC and City Market. The firm also operates about 780 convenience stores, 406 fine jewelry stores, 664 supermarket fuel centers and 42 food processing plants. Despite diversification moves, Kroger food stores still account for about 85% of sales. Wal-Mart (NYSE: WMT) and Safeway (NYSE: SWY) are major competitors.
The firm pleased investors earlier in the week, when it reported fiscal Q2 EPS of 38 cents and revenues of $16.14 billion. Analysts had been expecting 34 cents and $16 billion. Management also guided FY08 EPS to $1.64-1.67, versus Street consensus of $1.66.
Continue reading Kroger (KR): ‘Let’s go Krogering’
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Filed under: Law, Google (GOOG), eBay (EBAY)
In what I see increasing as a practice, music artist Prince has started a catfight with Google, Inc.’s (NASDAQ: GOOG) YouTube service and eBay, Inc. (NASDAQ: EBAY) over copyright violations dealing with unauthorized video content on YouTube and Prince-labeled clothing and shoes on eBay.
The constant battle copyright holders continue to have with the opening of content and commerce on the global web won’t be over soon — far from it. In fact, the web can be both the biggest threat and the most lucrative distribution tool for music and video artists. Defining the line between those, however, is so blurry no corrective lenses will ever be able to see it clearly.
Prince’s issue here is the constant re-posting of his videos and other content on YouTube, even after his internet policing specialist successfully worked with YouTube officials taking down content that infringed on his copyright. In true YouTube fashion, more content is immediately uploaded and the circle starts all over again.
Then come the mousepads and shoes showing up on eBay with Prince’s likeness. Same deal as with YouTube — he just wants those items to be taken down for good. In an age where users are the ones responsible for uploading and listing infringing material — not the hosting companies like eBay and YouTube — how far does the responsibility go for both companies? That question still has no answer, and the web will continue upending the entertainment industry little by little.
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