Filed under: Major movement, Forecasts, Bad news, Rants and raves, Google (GOOG)

In the past two years I have written many posts about how I thought Google Inc. (NASDAQ: GOOG) was overvalued. A lot of analysts’ predictions over this time would make quite a piece of fiction, and I have taken a lot of flack from the Google dreamers for saying so.

Today, however, I think the investing masses have it all wrong. Not that I think Google will see another meteoric rise any time soon, but as usual the pendulum can swing wildly and today that may be the case. It seems that a little bad news is causing a mighty stir.

UBS cut its price target on Google Inc. after U.S. paid-search data for January showed Google’s sponsored clicks, the basis for its advertising revenue, fell 7 percent sequentially. Google’s January sponsored clicks were flat on a year-over-year basis, according to comScore. “While Google’s search volumes were decent (up 39 percent year-on-year), actual paid clicks were flat…continuing a decidedly negative trend,” analyst Benjamin Schachter said in a note. The analyst cut his price target on the stock to $590 from $650, while continuing to rate it ‘buy.’

So UBS analyst Schachter cuts his price target. But he still rates the stock a buy — so why is everyone running for the exits? The stock is down about 7% so far today from yesterday’s close of $486.44, to about $458 and wavering. That after losing $21 yesterday.

Google still has healthy profit margins and no debt. I will be watching its return on equity and return on invested capital going forward because many of the other metrics are still too high or hard to interpret. The downside momentum will probably not stop until some major Wall Street players make a play for this stock.

It will not be the retail investors who step in front of this beast. For those who want to own this stock, the old dollar cost averaging method might be the only way right now. If you believe any of the earnings projections going forward, Google’s P/E is only 22 — cheap, I would say.

UPDATE: GOOG closed at $464.19 down $22.25 for the day.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of GOOG.

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Filed under: Google (GOOG), Options

Google (NASDAQ: GOOG) is recently down $14.54 to $471.80 in pre-open trading.

Smith Barney says: “Weak January Click Data from comScore.” BMO Capital Markets says: “US Search Data Points Curb Enthusiasm.”

GOOG March option implied volatility of 39 is above its 26-week average of 34 according to Track Data, suggesting larger price movement.

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

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Filed under: Forecasts, Industry, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

The numbers are pretty impressive. In 2007, internet advertising grew 25% to $21 billion. But Microsoft (NASDAQ: MSFT) may want to have another look at what it is offering for Yahoo! (NASDAQ:YHOO).

According to The Wall Street Journal (subscription required), internet ad revenue grew 35% in 2006. Between a possible recession and the natural slowing of increases as the dollar base gets larger, overall dollars in this market may only grow 15% in 2008, especially if the recession is deep. That would devalue almost every media company that gets its revenue from internet ads.

Companies such as Google (NASDAQ: GOOG) have driven their stock prices by being able to deliver targeted ads, which are an efficient way to reach clients. Much of the buyout activity for ad-serving firms is to extend the scope of this business.

But, just as the M&A work is done, internet advertising may be hitting an awful headwind.

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

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Hat tip to good friend of Blown Mortgage, Chris, for sending this along:

US Bank is eliminating its 100% financing product on the wholesale channel as of tomorrow.

No word on whether this is a regional or nation-wide change nor if it’s been eliminated from the retail channel.

Countrywide out of Option ARMs, 100% disappearing. We’re definitely in another tightening cycle.

If you have any additional information send it along!

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Countrywide appears to be eliminating the Option ARM, at least from the wholesale channel.  Another sign of the tightening taking place at the beleaguered lender in an attempt to finalize the Bank of America purchase earlier this year.  How do I know they are eliminating the Option ARM (known commonly as the neg am or pick-a-pay loan)?  I got this note from a processor on a file:

This file has been denied with countrywide because they are ending the option arms – did you want me to sub this to world – or did you want to do a 5y i/o?

It wouldn’t surprise me if they are eliminating the option ARM from wholesale.  With Bank of America estimating that $739 billion in mortgages could be in danger over the next 5 years (many of them surely option ARMs) the bank understandably is being quick to eliminate any additional exposure to the exploding loan.

The King is Dead

Countrywide was the king of Option ARMs (particularly the low and no doc liar loans) with nearly 35% of their originations over the last 5 years comprised of the loan that lets homeowners “pick their payment” by offering 4 payment options, including one that accrues interest on top of their loan balance to make monthly payments deceivingly affordable.

Many borrowers took the low payment and ran, betting on rising home prices to bail them out of the negative amortization run up in their loan balance.  Loan officers were more than happy to write them.  Little documentation and huge fees made it an easy and very attractive loan to write.  California option arm loans netted commissions in yield spread premiums in the tens-of-thousands of dollars.  30-60k in commission wasn’t unheard of on these loans.

Now many “good credit” borrowers are upside down in their homes with little chance of making the fully amortized payment that results when the loan balance hits 115% of the original balance (of 5 years passes, which ever comes first).  This is part of the Option ARM shockwave that will hit when these negative amortization loans start to recast.

I’ll let you know when we get an official announcement and any updates about the wholesale vs. retail channel offering.

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Filed under: Bad news, Economic data, Housing, Recession

Home prices in the United States fell 8.9% in 2007, the biggest decline in more than 20 years, the Standard & Poor’s Case-Shiller Index announced Tuesday.

Further, prices fell an alarming 5.4% in Q4 2007, the survey indicated. Prices fell in 2007 in 17 of 20 cities surveyed, officials said.

Meanwhile, the 20-city index plunged 9.1% for 2007, and the 10-city index plummeted 9.8% for the year.

Somber data

Robert J. Shiller, Professor at Yale University and study co-author said:

We reached a somber year-end for the housing market in 2007. Home prices across the nation and in most metro areas are significantly lower than where they were a year ago. Wherever you look things look bleak, with 17 of the 20 metro areas reporting annual declines and the remaining three reporting flat or moderate growth rates. Looking closely at these negative returns, you will see that 14 of the metro areas are also reporting record lows and eight are in double digit decline. The monthly data paint a similar picture, with all metro areas now reporting at least four consecutive negative monthly returns.

Continue reading U.S. 2007 home prices experience the largest decline in more than 20 years

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Filed under: Analyst upgrades and downgrades, MasterCard Inc’A’ (MA), Options

MasterCard (NYSE: MA) closed at $198.45.

MA has a market cap of $26 billion with long term debt of $150 million. MA had 2007 total annual revenues of $4 billion.

Credit Suisse raised its rating on MA to Neutral from Underperform.

Visa, an electronic-payment processor is scheduled to be priced the week of March 17 and begin trading on March 20.

MA March option implied volatility of 44 is near its 26-week average of 44 according to Track Data, indicating non-directional price fluctuations.

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

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Filed under: Industry, Consumer experience, Competitive strategy, Comcast Cl’A’ (CMCSA)

The FCC says that cable company Comcast (NASDAQ:CMCSA) is slowing service to some of its customers, especially those who use a great deal of bandwidth on video downloads and peer-to-peer software applications. Comcast says it is simply managing its network so that it does not get overloaded and hurt service to all customers.

The debate came to a head yesterday. According to The Wall Street Journal (subscription required), “Federal Communications Commission Chairman Kevin Martin warned cable giant Comcast that the government is `ready, willing and able’ to stop companies from improperly hobbling Internet traffic.”

The FCC position is a little out of touch with reality. Telecom companies and cable firms do not have an unlimited amount of bandwidth to offer each and every home. At some point, the pipes do become overloaded. The cynical view is that these large companies want to charge heavy users more money for taking up more bandwidth. What is probably more accurate is that, unless there is some governor of internet use, the system will slow for everyone.

A cup can only hold so much water.

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

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Filed under: Bad news, Money and Finance Today, Personal finance

FDIC Chairman Sheila Bair has been sounding alarms bells for more than a year about the hazards for banks as foreclosures increase. Now, her worst dreams may soon be reality. Later today the FDIC will release its numbers of “problem” institutions - banks near failure. At the end of the third quarter that number was 65, which is higher than the 45 banks in trouble a year earlier. But, given that the FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships, as the Wall Street Journal reports this morning, I suspect we’re going to see a spike in the number of “problem” institutions.

At the height of the savings and loans crisis in 1993, there were 572 “problem” institutions. Back then the FDIC had more than three times the number of employees it has today. So the FDIC needs to hire some new folks who can quickly get up to speed in the process of dealing with bank failures. More than 90 duty locations are listed for R&R [Resolutions and Receiverships] Specialists, but the announcement specifically indicates that the FDIC plans to rehire 25 retirees. If you’ve got the experience the pay is great $67,836 to $180,770.

Employees hired according to the job listing will “engage primarily in resolution and receivership activities of financial institutions. They will be responsible for gathering, compiling, researching and manipulating financial data to prepare a variety of financial documents, management reports and presentations.” They must be able to “analyze financial statements, operating and project reports, cost data, managerial practices, capital and reserves, credit condition, loan file documentation, cash flows and other elements to determine the soundness of the assets held by an insured institution and determine the risks and value of the assets and liabilities.” FDIC obviously wants to hire quickly. The job listing opened on 2/20/2008 and closes on 2/28/2008.

Continue reading FDIC gears up for bank failures

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Filed under: Federal Reserve, Recession

The Associated Press reports that wholesale inflation rose 1% in January, its fastest rate in 16 years. This is another piece of evidence that the Fed’s rapid interest rate cuts are having their expected effect — reinforcing inflation. And as more economists forecast a recession this year, the looming specter of stagflation approaches ever more closely.

This means that the market will fall this morning, right? Actually, it looks like despite the good news about bond insurers maintaining their AAA ratings, the market has reversed its early upward direction and turned south because the inflation news was worse than expected. This change in the market makes sense to me.

As I pointed out in my stagflation post, these short-term fluctuations are not meaningful for long-term investors. What may be of interest is that during the 1970s — a period of low economic growth and high inflation — the market was essentially flat for a decade. It took a 19% Fed Funds rate from then Chairman Paul Volcker to break the back of inflationary expectations and get us on a path of growth.

Continue reading Will the market fall on skyrocketing stagflation?

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