While the administration decides if they should send you your $800 rebate in a paper or plastic envelope, world markets took incredibly large hits today. Hong Kong’s Hang Seng index plunged 5.5%, its biggest drop since 9/11. Take a look at the worldwide market snapshot:

Now what do you think the world is saying about this so called stimulus package announced last week? I think many are starting to realize that all the jawboning going around is simply that, a lot of air with no substance. They sense that below it all, something deeper is happening. Take a look at the S&P chart:

We have broken major support levels so you can expect two things. Either the market rallies back up or it drops even further until it finds a bottom. Now with further banks and lenders getting ready to announce at the end of the month, I would expect even further declines across markets. Over in the United Kingdom the battered mortgage lender Northern Rock skyrocketed 46 percent on speculation that it may be nationalized. Although this is good news for the lender the FTSE-100 fell 5.5% as well. I guess all this talk about bailing out companies and printing free money are not having the impact they once had. After all, giving more credit to companies that exploited credit and created this bubble is a primary reason why we are entering into this slump. The markets are realizing that much of this is a sham and even though politicians keep talking about the economy they still fail to address what got us here.

If anything, many are still in denial and still want to help the perpetrators with bailouts instead of getting the Justice Department ready for subpoenas and indictments. I call this what it is, a major white collar crime on the markets of the global economy. If you are to rob a bank, the most you will get away with is potentially $50,000. You will get caught and face multiple years in prison. However, you can fabricate a few loans in a couple of months, put people into financial danger foregoing all fiduciary responsibility and not only get away with $50,000, you’d also be free to do it again over and over. This is not free market capitalism but criminal activity. Until politicians can admit this openly expect more band aids while the market trends lower and lower. Why is it in the hands of politicians? We are now moving toward fiscal stimulus which of course the administration will never admit is needed since they believe the dogma that tax cuts for the uber rich are the mantle to all financial security. Good luck getting them to admit any wrong doing ever.

Real Home of Genius Pasadena Style

A million dollars used to be a lot of money. Now it is enough for a few Whoppers at Burger King and a side order of fries. The dollar has taken major hits over the decade. Even in light of Southern California prices going down, as we examined the double-digit declines of each County in SoCal, there are still folks thinking that they can sell starter homes at peak bubble prices. If anyone has any doubt that California prices were buoyed up by jumbo-banana-republic-stuntman-NINJA-alchemy mortgages, take a look at this chart put out by the OFHEO only a few days ago:

Are you thinking what I’m thinking? That’s great because I’ve always wondered how they got so many nice colors into this pretty looking chart. Oh, and take a look at the insane amount of jumbo loans in California! 49.1 percent of the entire market in the first half of 2007. What this means is that any talk of raising caps is basically a one way meal ticket for California. But you say, all these loans are safe products so we have nothing to worry about. Let us take a look at the toxic sludge here:

Basically when folks go into jumbo territory they are going into wonderland mortgage product territory. And these are the one’s purchased by enterprises so you can imagine how the secondary market looks with who knows what in the portfolio of many lenders and banks. I think you get the idea. Raising caps is not going to do anything except set the ground for another bubble but to be honest, folks are maxed out and credit is tight so unless you can get a traditional 30 year jumbo, you can kiss Pay Option ARMS and Interest Only loans good bye.

It always helps to see the bubble unfold with Real Homes of Genius. Today’s example highlights so many things that went wrong with the bubble. Mortgage equity withdrawals, flippers, and absurd prices. Today’s home takes us to the beautiful city of Pasadena:

This nice 3 bedroom home sits on 1,500+ square feet. It was built in the 1950s and has a lot of curb appeal. For those of you not in the area, Pasadena is a very nice Los Angeles County city. This city is so nice, that this home is still selling at $1 million even in today’s cracking housing market. Let us first take a look at the sales history:

Sale History

06/11/2007: $1,100,000

06/08/2007: $110,000

08/02/2006: $870,000

09/24/2003: $595,000

12/15/1999: $317,500

Can you tell where the bubble started? Hint it starts with a 19 and ends with a 99. You may notice the 2007 $110,000 but that is simply a second mortgage equity withdrawal for who in the world knows. We can safely assume that this money was spent elsewhere fueling the US consumer economy. No rising prices equals no mortgage equity withdrawals. The person that bought in 2006 made out nicely at the peak. They first bought it for $870,000 and took out $110,000 in equity pushing their balance up to $980,000. Suck out $100k and put it on the market and bam, sell it for $1.1 million. See how easy it is to become ultra rich in real estate? All those Flip this House and Property Ladder shows were right. Fast forward only a year and seven months and where are we at? We are looking at a potential short sale for $1,000,000. This home is selling for $645/per square foot. Simply by looking at the history you can see how many times this bubble was milked for. First we have a sale in 2003 netting over $278,000. Next we have a sale in 2006 netting $275,000. Next we have the sale in 2007 bringing in $120,000. This was money used to remodel, take trips, buy cars, spend on consumer goods, and fuel the consumer economy of the US. This went on for a decade. Now we are reaching the stark realization that this will not go on forever. This home is the perfect example of how dependent our economy was on real estate. Each sale fed a real estate agent, mortgage broker, bank, title company and potentially construction workers for any remodels. All this ends with the credit bubble bursting.

Welcome to 2008. We are entering a new era. Our $14 billion dollar short fall in California must be faced head on but we have much more deeper problems in the state. When the Governator talks about releasing 50,000 inmates to solve the fiscal problems of the state you know this party is over and the criminals are now running the place.

Today we salute you Pasadena with our Real Home of Genius Award.

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■Real Homes of Genius: Today we Salute you Pasadena. $87,000 off in 2 Months for 937 Square Feet.
■Screw This Housing Market! Black & Decker Sucked into the Housing Abyss.
■Real Homes of Genius: Today We Salute El Monte. 624 Square Feet for $440,000.
■Real Homes of Genius: Today we Salute you Paramount. 768 Square Feet for $324,900. Buy, Withdraw, Sell, Foreclose. The Cycle of Life.
■Real Homes of Genius: Today we Salute you Downey. $100,000 off in 3 Months.

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Filed under: Rumors, Google (GOOG), Next big thing, Smartphones, Technology

In what could be a spot-on analysis of Google (NASDAQ: GOOG)’s real intention with the upcoming FCC radio auctions, Jeff Lindsay with Sanford Bernstein says Google isn’t in the auction to win anything. In general, you bid to either win what you’re bidding on or you’re hedging your bets as you shill bid in an attempt to pump the bid price for the competition. With that said, what could Google be up to if it’s ready to bid on the FCC’s wireless airwaves, but has no intention on really using any radio spectrum in the future?

Lindsay indicates that Google’s recent moves in the wireless industry have already made the market realize open policies for customers and devices are the wave of the wireless future. In effect, its goal is already achieved to a point where it really does not need its own radio spectrum to directly compete as a wireless service provider.

Would Google really get knee-deep in an area that’s outside of its core business, and end up letting that become a distraction? Google CEO Eric Schmidt has repeatedly said that the mobile frontier harbors much more promise than even the PC web browser frontier it currently helps dominate. Was Google’s real intention with applying to bid for the FCC auctions coming up shortly just a scare tactic to cement its open handset alliance position? Possibly — but now it’s playing in a new sandbox with established bullies. The auctions should be very interesting.

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Filed under: Internet, Google (GOOG), Marketing and advertising, Israel

Though we still don’t know exactly what happened, IncrediMail (NASDAQ: MAIL) announced today that it has been re-instated by Google (NASDAQ: GOOG) as an AdSense Online customer. As a reminder, about two weeks ago, in a shocking announcement, IncrediMail was let go by Google as an AdSense customer. In response, IncrediMail stock has gotten crushed. Though Q1 ‘08 is sure to be bad, as AdSense is a major revenue driver for the Israeli company, I would expect them to get back on track moving forward.

“We are pleased to be able to resolve this setback so quickly and in such a positive way,” said Yaron Adler, IncrediMail’s CEO. “Google’s co-operation in re-instating our account, together with the feedback we’ve received from other search engine companies, makes us more optimistic than ever regarding the potential of the search business to drive our results, validating our long-term growth strategies.”

While I think that there are still problems at the internet firm, after what it did to get shut down in the first place, at current levels the stock actually looks attractive.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no positions in any stock mentioned as of 1/21/08

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Filed under: Deals, Industry, Google (GOOG), Microsoft (MSFT), Cisco Systems (CSCO), Dell (DELL)

Most investors do not think of tech companies as being debt-laden. Many became pubic by raising cash in IPOs over the last decade. Any debt they had was paid off with capital raised. The rest stayed on the balance sheet.

A study by Paul Kedrosky written up in Barron’s paints a very different picture for some companies. Several large corporations, including Dell (NASDAQ: DELL), Take-Two Interactive (NASDAQ: TTWO), and Wipro (NYSE: WIT), have long-term debt-to-equity ratios of over 2x. For some big tech names, the figure is over 6x.

(Unfortunately, Barron’s had to pull its piece because Paul’s data appears to have been inaccurate.)

Under normal circumstances, this kind of data would be benign. But with the credit markets in crisis, refinancing debt on terms more favorable than firms have currently may be very difficult. Or, if the bond market gets very right, a company like Ingram Micro (NYSE: IM) could get in a real pinch.

There is another side to this. Cash-rich companies like Microsoft (NYSE: MSFT), Google (NASDAQ: GOOG), and Cisco Systems (NASDAQ: CSCO) may be able to shop for bargains. For them to pick up a company and pay its debt down may not be a significant problem.

More tech M&A this year? Almost certainly.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Bad news, Economic data

Perhaps no nation expends more effort toward measuring its economy than the United States.

GDP, consumer prices, industrial production, housing starts, corporate earnings, retail sales, job creation…the financial world receives a continuing stream of information that helps Wall Street set the price for various asset classes, the chief among these being stocks and bonds.

Moreover, most of the key statistics are widely-known, long-standing indicators of economic activity. Others, however, are lesser-known — but often equally telling — barometers of the nation’s health. One of those involves unemployed workers.

The 13% threshold

The U.S. Labor Department announced that in December 2007, 7.66 million adults were unemployed, a 13.2% increase from December 2006, when 6.70 million adults were out of work.

The significance? In nine previous economic cycles since 1950 with a 13% rise, the annual rise in unemployed adults has signaled a recession every time, The New York Times reported.

Continue reading With jobless increase, economists hope correlation is not causation

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Filed under: General Motors (GM), Employees

If employees of General Motors (NYSE: GM) are sitting back waiting for buyout packages to arrive in the mail, they better keep that champagne on ice. UAW officials warned last week that there won’t be a quick announcement on employee buyout packages or early retirement offers coming any time soon.

UAW Vice President Carl Rapson said, “We’ve not come to any kind of agreement, and it sure as heck isn’t going to happen in a week.” This was in response to GM’s Troy Clarke saying that information on a round of employee buyouts would be happening “within a week.” Yes, when GM and the UAW get together to mince words, a turbo-powered margarita blender couldn’t produce better fodder than these two organizations.

When and if new GM employee buyout offers come, they will cover employees in the assembly, powertrain and engineering facilities where GM has UAW-covered workers. Rapson did indicate that “meaningful discussions” are continuing between the automaker and the union, but it’s “just not accurate” to believe an agreement will be reached so soon. As of this morning, there is no agreement in place. GM workers waiting on a nice, fat check: you’ll have to wait a little longer.

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Filed under: International markets, Other issues, Commodities, Agriculture

Sometimes you need to look outside the box in constructing a portfolio, and sometimes you have to look at the box. That box may play an important role in the diversification of your portfolio.

The New York Times has an article today about the prevalence of timber threat in the U.S. The article quotes, “The total value of the American log-export market has more than doubled since 2000, industry experts said, and it continues to grow.”

This growth, in turn, is encouraging a new breed of tree hugger — thieves who chop down timber illegally. It’s not as severe as tree cribbing in countries like Indonesia and Brazil facing huge deforestation.

Historically, large investment funds like the Harvard Endowment have made large investments into timber (legally). In 2004, Harvard purchased a 468,000-acre New Zealand forest — then estimated to be worth $540 million.

Continue reading Cut your volatility with timber