If you haven’t noticed the DOW is up 4.5 percent from its correction point that was hit at 12,743 earlier in the week. You would think fantastic information is coming out but there are only two good pieces of news if you can call it that:

1. The Fed is practically elbowing us, wink wink, that a Fed rate cut is a foregone conclusion.

2. Oil Prices are trending lower.

But is this really enough good will to cause this mini rally? Are we really at a point where housing is going to correct? Clearly the government is going to try to bailout this market at any expense to tax payers. And make no doubt about it, this is corporate welfare for Wall Street. None of these plans are going to help the people facing foreclosure in any measurable way. We’ve talked about the plan of offering legislation that will support cram downs and I’ve heard rumors that this may be an avenue that is being actively pursued.  This is the only solution that will force lenders to suck on their bile that they have dished out for the large part of this decade. But let us take a look at some of the bad news this week:

1. The US Commerce department announced that the price of new homes sales dropped to $217,800, a year over year drop of 13 percent. I wish I can offer you a personal reference on how bad of a drop this is but I wasn’t even born at the time we reached such significant drops in 1970.

2. The Case-Shiller Index showed a national decline of 4.5 percent.

3. Big retailers such as Sears showed dismal earnings showing that the American consumer is running low on high octane consumerism.

4. We have foreign entities taking up large positions in our top banks. The market tried to spin this as good news but is coming to its senses and seeing this for what it is, bottom fishing.

5. Freddie Mac announced a sale of $6 billion in preferred stock. This isn’t good news. It shows the company is running on low and needs liquidity.

6. Foreclosures continue to rise. RealtyTrac announced that foreclosures in October are up nearly double from last year seeing 224,251 foreclosure filings.

7. Short Sales hit another record here in Southern California reaching 12,000+.

We can do a 12 days of Christmas list of all the negative news coming out but we’ll branch off and focus on the short sales here in Southern California. It is now the 21^st week since I started tracking short sales that the list has increased each and every week. Inventory is holding at a steady number but the percentage of short sales to overall inventory is increasing. When I started looking at the numbers in July, short sales made up roughly 3.35 percent of the entire inventory. Now, short sales are up to 7.64 percent of the entire inventory in Southern California. A doubling in only five months. Take a look at the chart below:

This week also seems to mark a somewhat psychological point in investing. The market seems to be getting immune to all the negative housing information. After all, we had literally one of the worst weeks in terms of market information for housing yet we are in a rally. The market in my opinion is in a dead cat bounce rally. How is this going to combat nearly $500 billion in toxic loan resets in 2008? Keep in mind that winter is the worst selling season and we are still in fall! Is the unusual rain today here in normally sunny Southern California telling us something?

Looking at Real Homes of Genius in the area serves more than showing absurd housing prices. What we get is the ability to peer into the massive disconnect of how flawed the housing system really is. We did have one good piece of news this week when government rate caps will stay at $417,000 for 2008. But we have systemic problems in this industry. For example, how is it possible that rating agencies are paid by the folks that get rated? There is clearly a major conflict of interest here. Also, the creation of a secondary mortgage market is a main contributor for what is going down. Wall Street has no idea what is going on in Detroit, Cleveland, Inglewood, Compton, the Inland Empire, or any other hard hit area since none of these people have been there! Think about it. These companies are using cowboy agents, renegade brokers, and bought off appraisers as their eyes and ears on the ground. Are you kidding me? Do you think they will give an accurate reflection of the price? The vast majority of these on the ground grunts were driven by one thing and that is to sell a home at any cost. Otherwise, no commission is cut. Are there good people in the industry?  Of course.  But the large number of bad apples are running the store.  Before, with a local bank or lender you would have much more scrutiny and oversight since there money was on the line plus they knew the area from first hand knowledge. At this point now that horrific mortgages are being kicked back, no one really knows who the actual owner of some of these places are. Ironically this may be the first time the bank takes a look at what they own now that REOs are increasing.

It is an Alice in Wonderland type of system. You have the frontline pushing anything and everything even if it means committing outright fraud and Wall Street turning a blind eye since profits were so good. Foreigners and investors relied on the agencies (big mistake) to monitor the creditworthiness of the loans in these obscure portfolios but how in the hell can you know the value of an asset without even looking at it? I can’t tell you how many places sold sight unseen or where sellers put “as-is” and the feeding frenzy was so high that buyers bought regardless of contingencies. It is flat out absurd. Nothing is going to stop this oncoming correction. The frustrating thing is the government is using tax payer money to essentially add fuel to this burning ship. Nothing is going to stop this train. The money is not helping people that are in desperate need for help in foreclosure but what it is doing is giving the golden parachute to those on Wall Street who already made a mint. You think these people have any idea what is going on in the inner city of America?  Do you think they know what the middle class is facing? They have no idea and I can assure they will keep it that way. Short sales are only going up and now these people will be forced to look at what they’ve purchased whether they like it or not.

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Filed under: Earnings reports, Analyst upgrades and downgrades, Ford Motor (F), Technical Analysis, Stocks to Buy

Cognex Corporation (NASDAQ: CGNX) provides machine vision computer systems that automate a range of manufacturing processes. Essentially, the systems link to video cameras and serve as eyes where human vision is insufficient. The firm’s Modular Vision Systems automate the manufacture of discrete items (e.g: semiconductor chips) by locating, identifying, inspecting and measuring them during the manufacturing process. Its Surface Inspection Systems monitor the surfaces of materials processed in a continuous fashion (e.g: paper, metal, plastic) for imperfections. Cognex has offices throughout North America, Japan, Europe, Asia and Latin America. Ford Motor (NYSE: F) is a major customer.

The company pleased investors earlier in the month, when it reported Q3 EPS of 17 cents and revenues of $54.8 million. Analysts had been expecting 10 cents and $54.6 million. Management also guided Q4 EPS to 17-23 cents (18 cent consensus) and Q4 revenues to $56-$62 million ($59.89 million consensus). Bear Stearns and Barrington Research subsequently upgraded the shares to “outperform”.

Continue reading Cognex Corporation (CGNX) shares defining a bullish ‘pennant’

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Filed under: Good news, Citigroup Inc. (C), Washington Mutual (WM), Wells Fargo (WFC), Housing, Federal Reserve

U.S. Treasury Secretary Henry Paulson is negotiating an agreement with banks and other lenders to limit the surge in foreclosures by fixing interest rates on loans to subprime borrowers, people familiar with the Thursday meeting said, Bloomberg News reported.

“We’ve all agreed that there should be some sort of standardized approach to reaching more homeowners faster,” U.S. Treasury Department spokeswoman Jennifer Zuccarelli told The Associated Press.

Subprime mortgages worth about $362 billion are expected to reset to higher interest rates in 2008, according to BusinessWeek magazine.

Market chatter Friday speculated on the plan’s form, with no consensus readily emerging so far. Some Wall Street analysts expect Paulson’s plan to focus on middle-income loans, excluding higher-income borrowers on the belief that they will able to obtain better terms themselves, and excluding lower-income borrowers who would not be able to afford their mortgage, even after a refinancing. Other analysts suggested that the plan may be more encompassing — “capping” or limiting interest resets to predetermined rates.

Continue reading Early holiday present: Subprime package seen likely

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Filed under: China, Private equity, Commodities, Oil, Headline news, Blackstone Group L.P (BX), Housing, Federal Reserve

This post is part of AOL Money & Finance’s Best & Worst of 2007. Be sure to cast your vote for the money story of the year.

As we approach the end of 2007, we now have a really tough question to answer. What is the Money Story of 2007? What are the candidates?

The Boom and Bust in Private Equity Buyouts

As we entered 2007, no one could imagine the activity with private equity firms around the world. Private equity firms were supposed to be the new Masters of the Universe, ushering in a new Gilded Age not seen since 1920s. We saw this with the initial public offering of the Blackstone Group, the premiere private equity group. This was followed by a series of public and semi-public offerings by other organizations, such as Apollo Group.

However, the new Roaring ’20s was relatively short-lived with the credit crunch. This caused most merger activity, including corporate buyouts, to come to grinding halt. Blackstone Group (NYSE: BX) now trades substantially below its high price. Who could guess that private equity would experience a boom and bust all in the same year? However, before you dismiss private equity as an element of the past, remember that most of these firms still have substantial cash available ready to invest when conditions are ripe.

Continue reading Best & Worst of 2007: The money story of the year

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Filed under: Wal-Mart (WMT), Citigroup Inc. (C), JPMorgan Chase (JPM), Sears Holdings (SHLD), Family Dollar Stores (FDO), Activision Inc (ATVI), Nordstrom, Inc (JWN), Stocks to Buy, Stocks to Sell, Videos

Looking for stocks to stick under the family Miracle Tree? In this edition of StockWatch: Between the Bells, Amey Stone, business author and editor of BloggingStocks, shares a few stock plays for the holiday season.

Won’t your little rocker be stoked if you take a stake in Activision (NASDAQ: ATVI)? The long-time video game maker has had monster success with its Guitar Hero franchise and should enjoy heavy Christmas sales of the latest volume, Guitar Hero III. For the fashionable in your family, Amey suggests Deckers Outdoors (NASDAQ: DECK), makers of the popular Ugg boot. Deckers’ shares slipped a little at mid-month but are recently back on the rise.

Continue reading StockWatch: Between the Bells with Amey Stone

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Filed under: Market matters, Mutual funds, Money and Finance Today

Bankrate.com reports that money market funds’ exposure to subprime mortgages is creating the riskiest climate for these supposedly safe investments since the 1994 derivative crisis. Peter Crane, a money market fund expert, ranked the 1994 crisis as a 10 on a scale of one to 10, and ranks today’s situation an 8.

Since August, I’ve posted about this topic myself here, here and here. Bankrate.com has some useful tips:

• Not a bank account. Recognize that money market funds are not FDIC insured so you can lose money if they fail.
• Know what type of money market fund you have. A Treasury or government agency fund would not have any commercial paper that could be linked to Structured Investment Vehicles (SIVs), which may be backed by subprime mortgage-backed securities. But a prime, or a general purpose type fund, could have commercial paper, although not all do. Typically, the makeup of 200 such funds that can buy commercial paper, is 40% or 50% paper and the rest in repossession, Treasury, agencies, bank paper and other money market investments. These are the riskier ones.
• Read the prospectus. As I pointed out in this post, if you look at the prospectus, you can see how exposed your fund is to SIVs.

I would add an obvious point — if you have money in a fund that’s exposed to subprime mortgages, consider finding one that has no commercial paper and shift your money to that.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

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Filed under: Options

Consol Energy (NYSE: CNX) has two principle business units: Coal mining & methane gas. Energy legislation has been moving through Capitol Hill committees and is expected to be on the House Floor before year’s end. CNX overall option implied volatility of 47 is above its 26-week average of 40 according to Track Data, suggesting larger risk.

Massey Energy (NYSE: MEE), the fourth-largest coal company in the U.S. based on produced coal revenue, closed at $34.32. Bear Stearns says, “MEE signs deal with Essar of India - Reaffirm Outperform rating.” MEE overall option implied volatility of 51 is above its 26-week average of 47 according to Track Data, suggesting larger price fluctuations.

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

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Filed under: Newsletters, Canada, Bargain stocks, Commodities, Oil, Stocks to Buy

“Provident Energy Trust (NYSE: PVX) is one of the ‘best in class’ income investments within the energy sector,” says Bryan Perry in his The 25% Cash Machine.

“Provident had third-quarter results that illustrate the value of its diversified-energy portfolio, as it increased production and maintained stable distributions in the face of persistently weak natural gas prices and a rising Canadian dollar.

“Total funds flow from operations of $105 million (43 cents per unit) for the quarter underpinned stable distributions. The negative impact of weak natural gas prices and the rising Canadian dollar in the third quarter were partially offset by strong oil prices, higher production and midstream crack spreads.

“Consolidated oil and gas production in the third quarter increased by 26% over 2006 to 38,800 boe per day, which includes the results of acquisition and drilling success in Canada and acquisitions in the United States.

Continue reading Provident Energy (PVX): ‘Best in class’ income play

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Filed under: General Electric (GE), Israel

Elbit Medical Imaging(NASDAQ: EMITF) has announced an add on investment in the private company InSightec. InSightec is a true symbol of Israeli ingenuity. The company develops a product that combines MRI technology with focused ultrasound in order to treat serious diseases such as bone, liver and brain tumors, without the invasive procedures that are currently used. This is clearly a huge development for the medical field.

With this increased fundraising round Elbit Medical now holds 53% of the company. Other investors include GE Capital Equity Holdings Inc., a subsidiary of General Electric Company (NYSE: GE) and MediTech Advisors LLC. The question that has been asked for over two years now is when are they going to do an IPO. The expected valuation of an IPO would be well north of $1 billion. Elbit Medical shareholders are anxiously awaiting an IPO to help unlock value in the parent company’s stock.

In an interview to the Israeli business daily Globes, Elbit Medical Imaging president Shimon Yitzhaki, commented on the situation:

Continue reading Elbit Medical Imaging increases stake in InSightec

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Filed under: Commodities, Oil, Stocks to Buy

Despite the oil market’s recent correction / minor pullback, oil remains at an elevated price, and the outlook for the oil and oil services sector remains solid.

And one oil service company worth an evaluation is Diamond Offshore (NYSE: DO).

Diamond is a contract driller of offshore oil and gas wells, with a concentration in deepwater drilling. The company has a strong fleet of floater rigs: dayrates for these rigs will continue to increase at double-digit rates, a market condition that reflects their increased value stemming from higher energy prices, and some pricing power for DO.

Further, Diamond has an impressive geographical footprint (rigs operating in the Gulf of Mexico, North Sea, South America, Africa, Australia, and Southeast Asia) and superior client diversification (51 customers). The Reuters F2007/F2008 EPS consensus estimates for DO are $6.75/$11.89.

Continue reading Diamond Offshore has precious equipment

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