One thing is clear. The media is no longer shy about exposing the housing boondoggle. We can easily fall into the category of looking at all the macro information and forget about one simple fact regarding the housing market, the house itself! There is talk about the subprime debacle, credit crunch, mortgage fraud, foreclosures, and banana republic financing. Like all bubbles, at a certain point prices become so disconnected from the underlying asset that it becomes a speculative shark feeding frenzy. There is a surreal feel to what is currently going on in the current market. We have Countrywide employees (at least they claim to be) posting on multiple housing bubble blogs, we have an infamous 25 year old flipper back blogging and gearing up to appear on Dr. Phil, and we have insiders dumping stocks like you wouldn’t believe. Ironically, here is the Dr. Phil episode information, Sick and Tired of Spouse Chasing Million Dollar Idea. Even last night, I was scanning the tube and I fell upon a show regarding a middle aged couple facing divorce. The couple meets with an accountant to go over their financial situation. “So how much do you have?” the accountant asked the couple. “We have about $500 in an IRA we haven’t contributed to in 10 years and $48,000 in credit card debt.” The accountant taken aback asked how many credit cards they had. “33 credit cards” was the response with no sense of shame and a blasé attitude that is rather common in our hyper-spending era. I thought the accountant’s eyes were about to bulge out when they were fighting over the equity in their home. Note to self, since one of the primary reasons for divorce is financial and some of these people have no equity, will this increase or decrease the divorce rate? Even during the Great Depression, certain couples stuck it out simply because there were no other options and they were forced to make due with what they had, including putting up with a partner they weren’t happy with. This housing market will have societal and economic implications. With that said, let us take a look at our 43^rd Real Home of Genius. Today we salute you Hawthorne with our Real Home of Genius Award.

Today’s specimen is a 1,254 architectural masterpiece with 3 bedrooms 2 baths that was built in 1923. When we talk about the Great Depression, we are talking from experience here. This place is a REO, meaning the bank is now a “motivated seller.” And get this, the seller is actually willing to pay 3 percent toward closing costs! Talk about a different world. Last year, you were lucky if you got a free orange plastic cup for closing on a home. Again we are seeing a fascinating display in yellow, green, and dirt landscaping here. Why not Photoshop the grass green? A cheap intro marketing class or photography course at your local community college should be a prerequisite for future agents. I know you are itching for the price and have your phone on speed dial to schedule an appointment. This place is all your’s for the rock bottom price of $520,000. This is an absolute steal when we look at the sales data:

Sales History

01/30/2006: $625,000

08/31/2005: $565,000

I thought homes in Los Angeles County only went up? Someone made out like a bandit in 2005. But then again, they probably used this phantom equity to purchase another inflated hyper priced LA home with a stuntman mortgage. You may be wondering, “what the hell is a stuntman mortgage doc?” Stuntmen are hired for doing daring things that most actors wouldn’t dream of doing. Hence the name of people taking on exotic financing as “stuntmen” since they are jumping into something that even housing insiders aren’t willing to do. Just look at Mozilo’s inside trading action. Since he isn’t doing his own stunts, I wonder who is? Someone in 2005 sold this home at an inflated price but then comes a flipper, who makes $60,000 in 5 months! At that rate, you are making 6 figures by flipping homes like Angus McDonalds burgers and probably with less effort. The last person came to the party too late. Now the bank owns this place and guess what? No one is coming to the party since the credit Kool-Aid bowl is now empty. Take a look at the pricing action on this place:

Price Reduced:

10/03/07 — $546,000 to $520,000

They waited for the housing summer Easter bunny and it didn’t appear. We are seeing this over and over with inexperienced investors. I talked about the seasonal nature of housing in a previous article. Fall and winter are the absolute worst times to sell a home. And guess what? We are in the early stages of fall. So this home is now off by a whopping $105,000 from its peak price in 2006. Again looking at these peak prices for reference is like asking Barry Bonds if steroid use is acceptable in the MLB. What do you think the response will be? That is why we are seeing housing pundits in an absolute denial stage because they are using yesteryear bubble prices as their current reference price points. For nearly a decade, hardly any sales pitch for housing included income in local areas. Now we are seeing the government imposing these rules and companies suddenly policing their policies. Ass-backwards as this may be, this is the current trajectory of our current housing policy and recipe for pulling the market out of the dumps. Sorry folks, the only way this is going to improve is by a steep drop and we are already seeing this. This steep drop isn’t a wishful thinking analysis (unlike housing pundits who use Saint Joseph to hope for price jumps, which in my view is the wrong thing to be praying for if you are praying) this is based on inventory, income, and credit market analysis. You know, the things that make the world of economics function. So what is the average income for a family in this area?

Average/Household: $49,247

Let us assume this hypothetical family is to purchase this home at the current price. What does their budget look like?

PITI: $3,827 (assuming a $26,000 down payment)

Net Monthly Take Home Pay: $3,340 (filing as a married couple with 2 exemptions)

So this family is running a monthly household budget deficit of $487! Which brings us back to the previous couple that was facing divorce with the 33 credit cards. Is it any wonder that they only had $500 in their IRA and the main economical contention of their divorce is the equity in their home? Again, the assumption from these people is wrong since they are using yesteryear prices in today’s housing market. We also find the willingness of people to go into stuntman mortgages simply because there is this primordial need to be a homeowner. The housing industry has done a fantastic job of blasting into our heads that you are less than if you do not own a home. Since I own multiple homes does that make me multiple times better than someone that only has a deed to one place or rents? Of course not. But seeing mainstream shows such as Dr. Phil and the unbelievable lack of financial sense from many people, is it any wonder we are in the housing and credit mess we are in? Is their a patron saint of financial responsibility?

Today we Salute you Hawthorne with our Real Homes of Genius Award.

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Filed under: Major movement, Analyst reports, Forecasts, Internet, Blogs, Google (GOOG), Microsoft (MSFT), Cisco Systems (CSCO), Stocks to Buy, Technology

Today marks the first time that Google (NASDAQ: GOOG) has touched upon the magical market capitalization figure of $200 billion. This is the company that will be the centerpiece of every MBA class 20 years from now, if not sooner. We have never seen anything like this before in the annals of the American stock market, nor anywhere else in the world. The stunning achievements of this 9-year-old company pale in comparison to where it is going to be in 3 years, 5 years and 10 years. Yes, the stock is still a buy — actually a strong buy.

Traditional analysts and investors have attempted to put traditional barriers on Google when analyzing it. Can’t do that, not going to work. Why? Because the world in which Google competes and dominates is so evergreen, that trying to put traditional growth numbers to the industry is nearly impossible. Google doesn’t sell a physical hard product that requires delivery, set-up and training (although a Google phone is on the horizon). It operates in a virtual world — and that’s why many analysts and investors have tried to “temper” expectations. Temper is a fancy word for they haven’t understood the story, have missed the story, and this is why it could become the first trillion dollar market-cap company.

Google does not need “feet on the street” to sell its advertising/marketing/search engine optimization products. Google is easy for customers to understand and implement. Even the great successes of Cisco Systems (NASDAQ: CSCO) and Microsoft (NASDAQ: MSFT) have and had their limitations. Even during the absolute go-go years of the 1990s, Cisco and Microsoft still needed to manufacture, assemble, deliver and set-up its products. The end customer required training and constant updating. Also, their “suite” of products required a capital spending decision usually reserved for the CFO level of most organizations. Google is different.

Customers can crawl with Google before they walk, then walk before they run. The capital spending decision can be incremental in scope and the results are usually noticed by the customer almost immediately. The traffic/ad model is also very quick to adapt to changes in a customer’s marketing plan. Still, no bricks and mortars, just a click away.

Google will earn at least $20 per share for 2008 and analysts will begin to publish 2009 early expectations. Google could earn $30 per share for 2009 as both the market expands and its share of that market increases. Google can command and deserves at least a 30 price/earnings multiple–at least. At a 30 P/E of early 2009 $30 per share earnings, the shares could easily go to $900. With an expanded multiple of 40 times 2009, the stock would be valued at $1200. Yet there will be many who have completely missed and misunderstood this story that will try and find the slightest pimple in the story to attempt to talk it down. That happened with Cisco and Microsoft a lot in the 1990s, as these pundits missed a 20-30 bagger in both names.

Google will always be controversial because of the aforementioned reasons, but do not be fooled, this stock is going higher because it deserves to be higher. The key takeaway is it’s the market share leader, over 50% IN A GROWING MARKET.

Can Google hit $500 billion in market cap? Absolutely, and it will within the next 3-4 years. Traditional analytical work doesn’t work with this company. Like I said, the field is evergreen and virtually limitless…

Georges Yared is the CIO of Yared Investment Research and the author of “Baby Boomer Investing…Where do we go from here?”

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Filed under: Before the bell, Analyst reports, Analyst upgrades and downgrades, Forecasts, Good news, Google (GOOG), Apple Inc (AAPL), Wal-Mart (WMT), Coca-Cola (KO), Johnson and Johnson (JNJ), Abbott Laboratories (ABT)

Wal-Mart Stores Inc. (NYSE: WMT) shares are up over 3.5% in premartket trading after the world’s largest retailer reported a 1.4% rise in September sales at U.S. stores open at least a year, toward the low end of its forecast. Analysts were expecting a 1.9% rise according to Reuters. Wal-Mart, however, raised its third-quarter earnings estimate to 66 cents to 69 cents per share, up from a previous forecast of 62 cents to 65 cents.

Apple Inc. (NASDAQ: AAPL) is up nearly 1.4% in premarket trading. Apple 2.0 reports on a Bernstein analyst note that claims Apple has 29% market share of the top priced notebooks. He points out to a few strengths — like the growth it has achieved in PCs — and vulnerabilities — like having a dominant market share in some areas without much room for growth.

Google Inc. (NASDAQ: GOOG) shares continue to set daily records. After finishing the day up 1.66% yesterday to $625.39, shares are trading up another 1% in premarket action. Google has surpassed Wal-Mart’s market cap!

Johnson & Johnson (NYSE: JNJ) J&J’s McNeil-PPC unit voluntarily recalled certain infant cough and cold products, citing “rare” instances of misuse leading to overdoses “particularly in infants under two years of age.”

Wachovia Capital Markets downgraded its rating on Abbott Laboratories Inc (NYSE: ABT) to Market Perform from Outperform, citing a large number of challenges facing the company’s key franchises, like possible delay of Abbott’s drug-eluting stent, Xience.

From the tlyonthewall.com: Citigroup reiterated its Buy rating on Coca-Cola (NYSE: KO) and raised its target price to $67 from $60. Citigroup expects above consensus earnings results in Q3 and beyond due to the turnaround in KO’s Japanese business.

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Filed under: Forecasts, Economic data, Housing, Federal Reserve

Economists and CEOs have vastly different views on the economy.

A Wall Street Journal (registration required) poll of economists surveyed between Oct. 5 and Oct. 9 showed that on average they put the chance of a recession at 34%, down from 37% in September.

Is it a big deal that economists are 3% more optimistic than they used to be? Well, that depends. Though the dismal scientists expect the federal funds rate to be reduced one more time this year by one-quarter percentage point, they are pretty downbeat on the housing market.

Many, though, apparently see the glass as half full.

“Some of the uncertainties have faded, partly due to the fact that the Fed moved more aggressively,” Lou Crandall, chief economist at Wrightson ICAP, told the Journal. “The Fed’s willingness to pull out all the stops played a role in bolstering the economy.”

In fact, 44.3% of the 61 top CEOs expect economic conditions in their industries to get worse, up from 24.4% in February. Almost 60% of those surveyed expect the U.S. economy to get worse, up from 24.4% a year earlier.

So who are you going to believe?

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Filed under: Forecasts, Economic data, Housing, Federal Reserve

Economists and CEOs have vastly different views on the economy.

A Wall Street Journal (registration required) poll of economists surveyed between Oct. 5 and Oct. 9 showed that on average they put the chance of a recession at 34%, down from 37% in September.

Is it a big deal that economists are 3% more optimistic than they used to be? Well, that depends. Though the dismal scientists expect the federal funds rate to be reduced one more time this year by one-quarter percentage point, they are pretty downbeat on the housing market.

Many, though, apparently see the glass as half full.

“Some of the uncertainties have faded, partly due to the fact that the Fed moved more aggressively,” Lou Crandall, chief economist at Wrightson ICAP, told the Journal. “The Fed’s willingness to pull out all the stops played a role in bolstering the economy.”

In fact, 44.3% of the 61 top CEOs expect economic conditions in their industries to get worse, up from 24.4% in February. Almost 60% of those surveyed expect the U.S. economy to get worse, up from 24.4% a year earlier.

So who are you going to believe?

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Filed under: Internet, Blogs, Time Warner (TWX), Marketing and advertising, CBS Corp ‘B’ (CBS)

CBS Corp. (NYSE: CBS) has acquired the celebrity gossip site Dotspotter.com for about $10 million, according to paidContent.

The acquisition, which Sumner Redstone probably paid for out of petty cash, is surprising. First, the site is only 10 months old. Second, as paidContent’s Rafat Ali points out, there is no shortage of celebrity news sites, including Time Warner (NYSE: TWX)’s TMZ.com and Showbuzz a site that CBS launched last year that hasn’t exactly burned up the charts.

CBS already is knee-deep in the celebrity news business, producing Entertainment Tonight and The Insider, so the acquisition does make some sense. Maybe the New York-based media company hopes to capture some of the page views that are heading the way of TMZ and Perez Hilton. Dotspotter has some interesting features, including allowing people to vote on whether they like the story about LIndsay Lohan’s new boyfriend.

But for the site to be successful, it won’t have to reinvent the wheel, just make it more interesting. In today’s celebrity-saturated media environment that will be hard.

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Filed under: Internet, Blogs, Time Warner (TWX), Marketing and advertising, CBS Corp ‘B’ (CBS)

CBS Corp. (NYSE: CBS) has acquired the celebrity gossip site Dotspotter.com for about $10 million, according to paidContent.

The acquisition, which Sumner Redstone probably paid for out of petty cash, is surprising. First, the site is only 10 months old. Second, as paidContent’s Rafat Ali points out, there is no shortage of celebrity news sites, including Time Warner (NYSE: TWX)’s TMZ.com and Showbuzz a site that CBS launched last year that hasn’t exactly burned up the charts.

CBS already is knee-deep in the celebrity news business, producing Entertainment Tonight and The Insider, so the acquisition does make some sense. Maybe the New York-based media company hopes to capture some of the page views that are heading the way of TMZ and Perez Hilton. Dotspotter has some interesting features, including allowing people to vote on whether they like the story about LIndsay Lohan’s new boyfriend.

But for the site to be successful, it won’t have to reinvent the wheel, just make it more interesting. In today’s celebrity-saturated media environment that will be hard.

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Filed under: Insiders, Newspapers, Scandals, Countrywide Financial (CFC), Housing

North Carolina State Treasurer Richard Moore has asked the SEC to investigate changes that Countrywide Financial (NYSE: CFC) CEO Angelo Mozilo made to his pre-arranged stock-selling program.

According to The New York Times, Moore wrote, “As an investor and a Countrywide shareholder, I was shocked to learn that C.E.O. Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide’s fortunes were cooling off. The timing of these sales and the changes to the trading plans raise serious questions about whether this is a mere coincidence.”

It sure does. In the past few weeks, I’ve raised questions about Mozilo’s stock sales. Even if there isn’t anything nefarious, the fact is that he cashed out at a much higher price than shareholders could now — $425 million in the past 3 years at an average of $36.50 — nearly double the current price. But don’t worry! Mozilo says he’s actually bullish and dumping shares to diversify/fund his retirement. Where is he planning to retire? Mars?

Only time will tell whether anything comes of Moore’s request, but Mozilo’s stock sales should give investors an idea about whether CFC is a stock they want in their portfolios.

More Countrywide Financial news

Peter Cohan: Why Countrywide (CFC) CEO Angelo Mozilo is like Enron’s Ken Lay
Zac Bissonette: Countrywide (CFC) has a new PR campaign, but what about real change?
Eric Buscemi: Countrywide (CFC) showing some class and good business sense
Peter Cohan: Is Countrywide (CFC) too big to fail?
Douglas McIntyre: Could subprime problems hurt search engines?
Peter Cohan: Is Bank of America’s (BAC) purchase of Countrywide Financial (CFC) a good bet?
Joseph Lazzaro: The (still) foggy subprime mortgage sector
Peter Cohan: What the mortgage meltdown means to you
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?

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Filed under: Insiders, Newspapers, Scandals, Countrywide Financial (CFC), Housing

North Carolina State Treasurer Richard Moore has asked the SEC to investigate changes that Countrywide Financial (NYSE: CFC) CEO Angelo Mozilo made to his pre-arranged stock-selling program.

According to The New York Times, Moore wrote, “As an investor and a Countrywide shareholder, I was shocked to learn that C.E.O. Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide’s fortunes were cooling off. The timing of these sales and the changes to the trading plans raise serious questions about whether this is a mere coincidence.”

It sure does. In the past few weeks, I’ve raised questions about Mozilo’s stock sales. Even if there isn’t anything nefarious, the fact is that he cashed out at a much higher price than shareholders could now — $425 million in the past 3 years at an average of $36.50 — nearly double the current price. But don’t worry! Mozilo says he’s actually bullish and dumping shares to diversify/fund his retirement. Where is he planning to retire? Mars?

Only time will tell whether anything comes of Moore’s request, but Mozilo’s stock sales should give investors an idea about whether CFC is a stock they want in their portfolios.

More Countrywide Financial news

Peter Cohan: Why Countrywide (CFC) CEO Angelo Mozilo is like Enron’s Ken Lay
Zac Bissonette: Countrywide (CFC) has a new PR campaign, but what about real change?
Eric Buscemi: Countrywide (CFC) showing some class and good business sense
Peter Cohan: Is Countrywide (CFC) too big to fail?
Douglas McIntyre: Could subprime problems hurt search engines?
Peter Cohan: Is Bank of America’s (BAC) purchase of Countrywide Financial (CFC) a good bet?
Joseph Lazzaro: The (still) foggy subprime mortgage sector
Peter Cohan: What the mortgage meltdown means to you
Michael Fowlkes: Countrywide Financial (CFC) adds to subprime panic
Peter Cohan: Could Countrywide Financial (CFC) be put down?

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Filed under: Market matters, Options, Commodities

Alexion Pharm (NYSE: ALXN) is a product developer of anti-inflammatory therapeutics, primarily for hematological and cardiovascular discords, autoimmune diseases and cancer. ALXN is recently up $1.35 to $73.81 on unconfirmed & renewed takeover chatter. ALXN has a market cap of $2.7 billion, with long-term debt of $176 million. ALXN had June 2007 total quarterly revenue of $9.6 million. ALXN November option implied volatility of 57 is above its 26-week average of 41 according to Track Data, suggesting larger risks.

Sterlite (NYSE: SLT), a non-ferrous metals and mining company based in India, is recently up $2.47 to $22.10. SLT call option volume of 3,868 contracts compares to put volume of 521 contracts. SLT November option implied volatility of 84 is above its six-week average of 51 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

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