Filed under: International markets, Newsletters, Schlumberger Limited (SLB), Commodities, Oil, Stocks to Buy

“When it comes to oil services, the world’s most dominant company by far is Schlumberger (NYSE: SLB),” says Stephen Leeb, editor of The Complete Investor. Here, he looks at this “extraordinary” company.

“The question isn’t whether inflation will worsen-it’s how to protect yourself. Major and obvious lifelines we’ve stressed include precious metal and commodity companies, especially ones able to boost production.

“For additional inflation insurance, look to what Warren Buffett likes to call ‘great companies.’ These have two crucial characteristics that allow them to take inflation in stride.

“First, a great company is so dominant in its market that it can pass rising costs along to its customers. And second, it’s in a market growing faster than the world’s economy.

Continue reading Schlumberger (SLB): An ‘extraordinary’ company

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Making predictions is a tricky business. Just ask any political pundit or economist how easy it is to forecast the future. Yet we have enough current data from multiple sources to give us a solid idea that foreclosures, the ultimate finality to housing distress will continue to be a problem for the upcoming […]
Related Posts:
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■Real Homes of Genius: Today We Salute you Artesia. 626 Square Feet of Barbie Love for $360,000.
■Captain Credit Crunch: Homes Sales, GSE Love, and Neverland.
■The Abyss is Deep: The Housing Abyss is Deep: 4 Major Reasons Why Housing in Southern California is Nowhere Near a Bottom.
■Blame it on the Ritz: Market Psychology. Blame the Downturn on Homebuilders and Banks.

Making predictions is a tricky business. Just ask any political pundit or economist how easy it is to forecast the future. Yet we have enough current data from multiple sources to give us a solid idea that foreclosures, the ultimate finality to housing distress will continue to be a problem for the upcoming years. California is not immune to this and in fact, will have a much larger problem because of the magnitude of price increases over the past decade.There are multiple factors that will continue to put pressure on the California housing market:

1. Continued job losses from heavy reliance on the real estate industry.

2. Size of California loans much larger than national average.

3. Income growth is stagnant; in fact with more job losses this will put strains on the public.

4. Horrible state budget. This still is something not being dealt with adequately.

5. Perception. Psychology does have an impact but a much smaller one than the above key points.

With that said, let us try to forecast how many foreclosures we’ll have in California by the end of 2008. First, let us take a look at the current notice of defaults:

As you can see from the chart above, the increase in lenders sending notices to homeowners has drastically increased over the last few quarters. We are up 143.1% since the first-quarter of 2007. The significance of notice of defaults is that they are a preliminary indicator of how many more foreclosures we will be seeing in the upcoming months. The trend for actual foreclosures is also startling. Take a look at the chart below:

I started keeping track of trustee sales in q2 of 2006. But as you can see, the issue that we are now confronting is that even though NODs were relatively stable for 2006, trustee sales slowly started to increase during this time. Why is that? For one, a property that was having problems in 2006 was still able to back out by selling into a market that was still going strong in California. This was an exit strategy. Now that the price correction is accelerating this option is no longer on the table and that is why we are seeing both NODs and foreclosures simply growing at a large rate. What is more disturbing, is how many of these NODs are now going into foreclosure:

“Of the homeowners in default, an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing, which makes ‘work-outs’ difficult.”

What this means of course is that 68 percent will not emerge from this process and will lose their home in foreclosure. Since we know notice of defaults are a good indicator of the future trend with foreclosures, let us apply this number to the current NODs:

(110,392 individual homes with NODs for Q1 of 2008) x 68% will not go current = 75,066

With this said, in the first quarter of 2008 we had 46,760 homes go into foreclosure. Given that many of these NODs are on the verge of foreclosing, we can estimate that the numbers are going to increase substantially in the second quarter of 2008:

“On primary mortgages, California homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,474 on a median $346,750 mortgage.”

Frankly the above is rather shocking because of the size of the mortgages and how far behind people are getting. If a borrower is having a hard time making a $2,000 payment do you think they are going to be able to get $11,474 out of thin air given the lack of savings many Americans have? I wouldn’t be surprised to see that 68% jump to a much higher number in the second quarter.

Without a doubt, California is going to have record foreclosures by the end of 2008 just given the state of the economy and how over leveraged the state is. Not a pretty forecast.

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Related Posts:
■Don’t Catch a Falling Guillotine: Housing Free Falling in Southern California. A Deep Look at the Numbers.
■Real Homes of Genius: Today We Salute you Artesia. 626 Square Feet of Barbie Love for $360,000.
■Captain Credit Crunch: Homes Sales, GSE Love, and Neverland.
■The Abyss is Deep: The Housing Abyss is Deep: 4 Major Reasons Why Housing in Southern California is Nowhere Near a Bottom.
■Blame it on the Ritz: Market Psychology. Blame the Downturn on Homebuilders and Banks.

Via [DrHousingBubble]

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In a tense shareholder meeting that opened with the call for his ouster, Wachovia CEO Ken Thompson stated the obvious that Golden West Financial Corp (parent to World Savings) was a “poorly-timed” acquisition. I’m giving Ken Thompson a belated “Captain Obvious” award for that admission.

I remember saying that when Wachovia acquired World it was disastrous timing. It’s like coming in to a car dealership and buying the shiny new car that’s about to explode the next time it’s turned on. I don’t care what anyone says about the strict value guidelines used by World and their mitigating affects for recouping value from defaults, etc. The World appraisals were not so tight to support a home decline of 20% plus across California. They were not so tight to support that loss and allow for their most-aggressive 125% maximum negative amortization cap. (Most option ARMs recast at 110% of the loan balance - World’s don’t reset until 125%).

These two equity sucks (depreciation and excessive negative amortization) leave Wachovia out in the cold on a ton of loans that are just going to go further south over the next 2 to 5 years.

Unfortunately for the shareholders of Wachovia the admission comes juuuust a bit too late to save them from a dividend cut an the dilution of their holdings due to the additional capital raised by the bank.

But at least they’ll feel better after venting:

For roughly an hour, Thompson faced a parade of upset shareholders who questioned him on topics that included the Golden West acquisition, his compensation and how the company will extricate itself from its current difficulties. Shareholders in the audience often applauded comments critical of Thompson or the board.

“I have no confidence in you whatsoever,” one shareholder told Thompson.

“Thank you very much,” the CEO responded wryly.

My advice to Mr. Thompson would be to watch your mouth for fear of one of your shareholders throwing a sucker punch as a last resort to get the message across. (I hold no shares in Wachovia.)

Source [blownmortgage]

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Filed under: International markets, Forecasts, Federal Reserve, Recession

Is the U.S. Federal Reserve about ready to pause its monetary-easing course, after next week’s widely-expected 25-basis-point cut?

The emerging consensus appears to be that the Fed will, both to allow the world’s most powerful central bank to assess the impact of its string of rate cuts over the past year and to save some ‘interest rate ammunition,’ should the U.S.’s anemic economy not show signs of a recovery in H2 2008.

If the Fed cuts key, short-term interest rates next Wednesday, it will be the Fed’s seventh cut in eight months. Reductions to-date have pared a whopping 300 basis points from the Fed Funds rate to 2.25% from 5.25% in September 2007.

Help from Europe?

Given that the slowdown has been U.S.-centric, and caused in large part by the end of the U.S.’s housing boom, economist David H. Wang initially thought the Fed would be left to its own devices to jump-start demand. However, in light of recent data indicating that both German and French business confidence had dropped in March 2008, Reuters reported Thursday, Wang is now inclined to think that the European Central Bank will not stand-pat on interest rates much longer. “We’re beginning to see the signs of a slowdown in Europe,” Wang said. “I think another month or so of poor data and the ECB will be compelled to cut, despite some inflation pressure.”

The ECB has kept its key, short-term rate, the refinance rate, at 4% throughout the Fed’s easing cycle. A start of an ECB easing, Wang said, will both stimulate demand from Europe and give the Fed a window to “take a breather” and assess the impact of both monetary and fiscal policy stimulus in the U.S.

Further, the downside from the ECB maintaining a hawkish stance amid a Fed pause is very large for Europe, Wang argued. If the ECB does nothing and Europe’s economy slows to a crawl, it will have missed valuable time to stimulate needed demand. Conversely, if the ECB cuts rates and later finds that growth remained adequate, it could always re-raise rates, “to keep the inflation genie back in the bottle,” he said.

Continue reading Is the Fed’s new monetary policy stance, ‘one and done’?

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Filed under: Analyst reports, Analyst upgrades and downgrades, Google (GOOG), Novartis AG ADS (NVS)

MOST NOTEWORTHY: Google, Ross Stores and Novartis were today’s noteworthy upgrades:

• Jefferies upgraded Google (NASDAQ: GOOG) to Buy from Hold to reflect the company’s “impressive” improvements in monetization in Q1, no signs of weakness from the economic downturn and upside potential from display, video and mobile.
• Lehman upgraded Ross Stores (NASDAQ: ROST) to Overweight from Equal Weight and believes the company’s 2008 guidance of 8-9% sales growth and up to 20% bps in margin expansion will prove conservative.
• Morgan Stanley upped Novartis (NYSE: NVS) to Overweight from Underweight on valuation and expectations for positive news flow from the company’s vaccine division.

OTHER UPGRADES:

• JP Morgan upgraded Bladex to Neutral from Underweight.
• William Blair raised Watsco (NYSE: WSO) to Outperform from Market Perform.
• SunTrust (NYSE: STI) was upgraded at Baird to Neutral from Underperform.

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Talk about scary. We all knew that LowerMyBills.com and LendingTree.com provided for a ‘less-than-ideal’ customer experience as consumers got battered by hundreds of calls from rabid mortgage folks; but this announcement is just plain scary. Employees caught stealing data including consumer social security numbers at Lending Tree.

The advent of ‘lead stealing’ from inside employees has to be more common than this - the economics dictate it. An IT person, a fired employee with access to an account can download all the leads and resell them - obstensibly for mortgage purposes (to brokers/agents outside of the 4 banks promised) but perhaps for much more devious purposes. Opening up credit under false pretenses?

This deserves more attention. The Lead Critic is all over it. Here is the announcement from LendingTree - this should lead to a massive inquiry about the lead generating community in general. And talk about powerless - LendingTree recommends getting a free credit report to check for fraud. What a strong recommendation. I’ve never heard a better way of saying “there’s nothing we can do about it.”

An unqualified disaster if you ask me.

From LendingTree:

Dear LendingTree Customer:

We want you to know that some loan request forms our customers sent to LendingTree may have been seen by lenders without our consent. These lenders then used the forms to market their own mortgage loans to our customers. While we don’t believe that the forms were used for any other purpose, we want you to know what happened and what we did to correct this situation, as well as what you can do to monitor your credit records.

What Happened and What We Did

Recently, LendingTree learned that several former employees may have helped a handful of mortgage lenders gain access to LendingTree’s customer information by sharing confidential passwords with the lenders. When we learned of this situation, we quickly contacted the authorities, and LendingTree is helping with their investigation. We promptly made several system security changes. We also brought lawsuits against those involved.

Based on our investigation, we understand that these mortgage lenders used the passwords to access LendingTree’s customer loan request forms, normally available only to LendingTree-approved lenders, to market loans to those customers. The loan request forms contained data such as name, address, email address, telephone number, Social Security number, income and employment information. We believe these lenders accessed LendingTree’s loan request forms between October 2006 and early 2008.

What You Can Do

Again, we don’t believe any identity theft or fraudulent financial activity resulted from this situation. However, we suggest you get a free credit report. Look for any accounts you didn’t open and/or inquiries from creditors that you didn’t initiate. If you see anything you don’t understand, contact the credit bureau. If you see anything suspicious, you may want to file a fraud alert with the bureaus. For more information on how to do this, please refer to LendingTree’s Guide to Protecting Your Credit and Identity.

Where to Get More Information

We regret any inconvenience and apologize for any unwanted mortgage calls you may have received. For more information about this situation, and for more information on what you can do, please refer to the attached Questions & Answers .

Sincerely,

R.L. Harris

Note - if you were looking for another reason not to apply for a mortgage online I’m hoping you’ve found it.

Source [blownmortgage]

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Filed under: Yum Brands (YUM), Options

YUM! Brands (NYSE: YUM) is recently up $1.88 to $40.37.

YUM reported Q1 revenues of $2.41 billion verses consensus estimates of $2.35 billion.

Stifel Nicolaus says: “China continues to prove it’s the crown jewel in the YUM business portfolio.”

YUM call option volume of 1,924 contracts compares to put volume of 4,242 contracts. YUM May option implied volatility of 27 is below its 26-week average of 33 according to Track Data, suggesting decreasing movement.

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

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

Bloomberg News reports that Microsoft Corp. (NASDAQ: MSFT) CEO Steve Ballmer said he did not think it made sense for it to buy Google Inc. (NASDAQ: GOOG). Ballmer cited the high price as well as regulatory and antitrust concerns. Meanwhile, Ballmer said he had no plans to raise his $31 a share cash and stock bid for Yahoo (NASDAQ: YHOO).

But if Ballmer is really interested in advertising, he would get a much more powerful player in Google. After all, Yahoo, which has four more days to consider Microsoft’s offer, saw its sales climb a modest 14% last quarter, while Google sales spiked 46%. And the stock market gave Yahoo a Bronx cheer — slicing 2% off its value this morning on yesterday’s earnings announcement — compared to a 20% surge in Google’s market capitalization on its announcement.

Could Microsoft afford to buy Google? Yes. Google’s current market capitalization of $174 billion is $111 billion less than Microsoft’s $285 billion. If Microsoft offered to swap stock with Google at a 20% premium — a $209 billion deal — Microsoft would end up paying 73% of its shares to own Google. And in so doing, it would create a company with $68 billion in revenues and $18.2 billion in profit.

Sure, there would be all sorts of regulatory challenges getting the deal done. And it’s hard to imagine that the two companies’ cultures would mesh that well. Nevertheless, it would eliminate what for Microsoft is the most vexing of competitors.

And it would be welcomed by fee-starved investment banks as well.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter . He has no financial interest in the securities mentioned.

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Filed under: Industry, Progressive Corp,Ohio (PGR)

AP reports that Liberty Mutual, the nation’s largest provider of workers’ compensation insurance and its sixth largest property-casualty insurer, is buying Safeco (NYSE: SAF) for $6.1 billion, a 51% premium over Tuesday’s close.

Having spent years working for Liberty Mutual in the 1990s — part of it for Gary Gregg, who heads the Agency Markets unit that will manage Safeco — I know that this deal may well be the largest in its history. Safeco sells $5.9 billion in insurance policies a year, while Liberty booked annual premiums of $20.2 billion. Safeco has posted poor earnings and its stock has tumbled recently. Bloomberg News reports that Safeco’s auto unit posted a loss at the end of 2007 because of rising medical claims and repair costs, leading to a 33% decline in fourth-quarter profit and a 19% decline in its stock in 2008 before this morning’s announcement.

It looks like there will be more consolidation in the personal lines property casualty industry. Seventy one percent of analysts tracking insurers of homes, cars and businesses expect a “significant increase” in mergers in 2008, according to an Accenture (NYSE: ACN) report based on 108 stock analysts in December and January. Candidates for acquisition could include Progressive Corp. (NYSE: PGR), Mercury General (NYSE: MCY), The Hanover Insurance Group (NYSE: THG), and The Commerce Group (NYSE: CGI).

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter . He has no financial interest in the securities mentioned.

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