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

The United States is an enormous, diverse nation, and there’s perhaps no better evidence of that than the U.S.’s current economic cycle.

The finances of many states have deteriorated to such a degree that they appear to be in recession, even though the nation as a whole may not be, a survey of 50 state fiscal directors concluded.

The states: budget deficits abound

The National Conference of State Legislatures’ survey says that “arguing whether the national economy is in recession is almost beside the point” because the fiscal condition of some states has declined so much that they appear to be in a recession.

In all, 23 states, including hard-hit housing slump states Florida, California, and Nevada, expect to report budget deficits in the next fiscal year, fiscal 2009, with the aggregate revenue shortfall reaching $26 billion. Further, more than two-thirds of the states said they are concerned or pessimistic regarding their F2009 revenue outlook.

Historically, most states experience a decline in revenue as the U.S. economy contracts, as the economic slowdown results in lower retail sales, which lowers sales tax revenue — a major source of revenue for many states. Job layoffs also decrease state income tax revenue. Further, state social service costs typically increase, as unemployment claims increase and applications for income/food/energy assistance rise.

Florida, California hard hit

Economist Peter Dawson told BloggingStocks Friday the NCSL data is in-line with the profile of this cycle’s economic slowdown. “From the research we can see that the states under most stress are those that rank very high regarding mortgage default and housing foreclosure lists, with Florida and California being the most obvious examples,” Dawson said. “These states are going to be under fiscal stress for a considerable period of time due to the size of their housing correction.”

Moreover, Dawson said because of California’s and Florida’s size, “it will be very hard for the nation to grow at capacity until these states have started to grow.” Hence, a return to robust economic conditions nationally, “could be a year to 18 months off, assuming growth resumes nationally by late 2008,” he said.

Continue reading Many states appear to be in recession, fiscal survey shows

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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: Earnings reports, Options

Suncor (NYSE: SU), Canadian oil sand operations, reported that first quarter net income rose 23% on higher oil prices.

CIBC World says: “The ramp up of coker expansion later this year should be a significant positive catalyst.”

WTI Crude oil is recently up 0.42% to $116.55 according to Bloomberg.

SU May option implied volatility of 40 is near its 26-week average of 39 according to Track Data, suggesting non-directional price risks.

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

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Filed under: Deals, Marketing and advertising, Private equity, New York Times’A’ (NYT), News Corp’B’ (NWS)

Fortune and BusinessWeek are piling on the story of Harbinger Capital Partners, a $19 billion hedge fund, seeking to take over the New York Times (NYSE: NYT). Harbinger now owns 19% of its Class A shares. Of course, Harbinger is not the only threat to management of the Times — News Corp.’s (NYSE: NWS) Rupert Murdoch is doing his part as well. Will Steve Rattner, a long-time friend of Times publisher Arthur Sulzberger and Managing Principal of Quadrangle Group, come to the rescue and take the Times private?

In play here are Phillip Falcone, a Harbinger partner who made $1.7 billion last year, and the quaint idea of protecting a media company’s founding family by maintaining two classes of stock: Class A for the public to make insiders liquid and Class B for the insiders. Murdoch and Sulzberger enjoy protection for their family dynasties thanks to that two-tiered structure.

Falcone thinks that the Times is leaving huge amounts of money on the table by not “monetizing” all the comments on its stories. What sparked this idea was a January opinion piece by Caroline Kennedy comparing Barack Obama with her father, President John F. Kennedy. There were only a few comments about the article on the newspaper’s Web site, nytimes.com, but there were hundreds on Huffington Post and Digg.com. BusinessWeek quotes Scott Galloway, founder of hedge fund Firebrand Partners and Falcone friend who said: “We came to the collective conclusion that there was so much upside in terms of billions of pages the paper wasn’t monetizing. He [Falcone] never looked back.”

Continue reading Will Steve Rattner save The New York Times?

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When Californians say housing prices are insane and belong in a mental asylum wrapped up in a straight jacket, they usually are correct. Even as housing prices swiftly correct we are so conditioned to living with a bunch of crazies that many are actually starting to think current prices make some sense. This […]
Related Posts:
■Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear Market Rallies.
■The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion in Subprime California Loans Resetting in 1 Year.
■New Century files for Chapter 11.
■Real Homes of Genius: Today we Salute you Covina. Banks Learn a Lesson in Mark to Reality and the $300 Billion FHA Bailout.
■Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates.

When Californians say housing prices are insane and belong in a mental asylum wrapped up in a straight jacket, they usually are correct. Even as housing prices swiftly correct we are so conditioned to living with a bunch of crazies that many are actually starting to think current prices make some sense. This strikes at the relativity of how we associate things in our minds. When I arrived back in town after being in Manhattan for three weeks, I thought Los Angeles traffic was like a day at the mini golf course. Yet when I fly out to Texas and drive around the rural countryside and come back to Los Angeles, I feel as if my car is a can and I’m just one of the millions of sardines moving along the human conveyor belt otherwise known as the 405. Such is the way we view life. After seeing boxes sell for $500,000 we are ready to pounce like rabid hyenas on a home simply because it is listed for $350,000.

In this article we are going to examine multiple points regarding the state of California and point out that we still have a long way to go down. In fact, we are going to draw in new data points to further solidify the argument that buying a home in today’s market is simply the wrong economic decision. There is a long report called Locked Out discussing California housing put out by the California Budget Project that I highly recommend you read in its entirety. In this article, I’ll try to give you a brief summary of the 60 page report. First, let us examine a graph:

From 1988 to 2000, the median home price in California was relatively unchanged and a rather boring figure to examine. Now that we have the peak data point, we can start examining the entire wonderland scenario over 2 decades. For someone to purchase the median priced California home in August of 2007 at $465,000 would require an income of $113,162 while the statewide household income was $56,645; the price of buying a home with 5 percent down and a 30 year fixed mortgage was nearly twice the income that California households actually had. Looking at taxpayer records the median income for those filing jointly is $66,810 for 2006.

Even though we think Southern California housing is crazy we have nothing on Northern California:

Take a look at how many counties in Southern California are over the median price home. Also, I’d like to point out that the data in this chart is from August of 2007 which was very close to the peak of California housing prices. Here Los Angeles was over $505,000 and the current median price in Los Angeles County is now $440,000. The variance in this one state is so extreme. On one end, you have homes with a median price slightly over $200,000 and on the extreme, you have a median quickly approaching the $1 million mark. If we break down the data further, not one county in the entire state has a local median income that can support the median priced home of that county:

It is the case that in many places people are twice to even three times below the needed income to purchase a house with a modest 30 year mortgage! It is now becoming more and more apparent that all the exotic mortgage products were a way to squeeze people without adequate income into homes they simply could not afford. And we say this with actual data backing up this point because take a look at this information and you shouldn’t have any doubt why the market is now fiercely correcting. We need only look at the rise in banana republic loans during this time:

In some areas junk loans tripled from 2004 to 2006. Ironically this chart is almost a perfect inverse from the other chart showing the cost of housing in different California counties. What occurred is lower price areas had the highest level of fraud and flat out market corruption going on. In these areas craptastic loans were pushed on to folks that were already financially stretched too thin and had a very small cushion to fall back on. That is why we are seeing alarming foreclosures in the Inland Empire and also the Central Valley of California. Of course even so-called prime areas are now taking it on the chin but some areas are seeing foreclosures rates that have never been recorded at such a large magnitude. We relied on housing for jobs and also the health of the California economy to a large degree:

How coincidental that after the market started to decline and building started to slow we almost had a perfect decline in housing related jobs. Just take a look at the chart above. Housing related jobs will continue to decline this year. Keep in mind these were high paying jobs, which meant high consuming folks, which means good tax revenues. Now that these jobs are gone we lose the consumption and the tax base. This next chart is rather incredible:

We went from 2,920 foreclosures statewide in 2005 to a whopping 84,326 in 2007! From nearly non-existent to a very big problem. Also, you simply need to take a look at the notice of defaults to give you an idea of how things are going to play out in 2008. There is no way we are near a bottom. Yet California is still one of the states with the highest amount of renters:

This shouldn’t come as a surprise given the absurd cost of housing in the state. The stunning statistic is that the state’s median priced home nearly tripled from 1989 and 2006 going up by an amazing 193.4 percent while the state’s median hourly wage increased by 60.3 percent and the state’s median household income went up by 67.6 percent. Let us not even get into the hammering of the U.S. Dollar. The reason you feel poorer is because you are. The cost of living has gone up while income gains have simply not kept up not even by any standard of comparison. How many times did housing outpace income?

Sorry Greenspan, I’d give you five bucks but my home equity line was just closed. Maybe you can kick me down with some of the profits from your new book; you know the one in which you talk about all the wonderful policies that you didn’t do? Now you tell folks to diversify into foreign currencies and how weak the dollar is. You came close and if you had it your way, we be at a zero percent interest rate policy and a home in California would cost $1 million and people would need to bring a wheelbarrow to their local bank if they ever needed cash. Of course Greenspan isn’t the main reason for this bubble but he was like the main conductor of an orchestra leading the American people in Credit Delusion in C minor. Fascinating opera that starts out slow and melodic, builds in the middle to a furious mix of sounds and insanity, and ends with a massive explosion. It’ll be playing for a few more years.

I’ve been sent a few e-mails from readers telling me that they have had a hard time getting withdrawals from their local branches. Given the withdrawals were in the few thousand dollar range, it really makes you wonder if people are starting to horde cash? I don’t mean placing it in a safe FDIC account but folks simply stuffing the money into the mattress. This isn’t likely an easy stat to measure but it will be interesting if we hear more about this.

Clearly the $16 billion budget deficit in the state is not going to improve. In fact, recent reports of housing show the decline only getting worse and accelerating here in the state. It looks like some areas of California are going to see 40 to 50 percent drops from peak to trough. This doesn’t seem like an unlikely scenario since many areas are more than half way there already. Count the job declines, the incredible budget deficit which guarantees further job cuts, the tanking housing market and you have for a very long 2008 in the Golden State.

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Related Posts:
■Sheep Back to the Slaughter: Lessons from the Great Depression Part VIII: All the Change and Bear Market Rallies.
■The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion in Subprime California Loans Resetting in 1 Year.
■New Century files for Chapter 11.
■Real Homes of Genius: Today we Salute you Covina. Banks Learn a Lesson in Mark to Reality and the $300 Billion FHA Bailout.
■Parallel Universe: Housing Still Hurting on Main Street while Wall Street Celebrates.

Via [DrHousingBubble]

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A Blown Mortgage reader sent me a copy of a report published in 2004-2005 titled America’s Home Forecast: The Next Decade for Housing and Mortgage Finance (pdf) that portends the continued growth of the US housing market between 2004-2013 at an annualized rate of 5-6% depending on supply/demand issues. This report is a great read to remind us of all the BS that got thrown our way as we approached the crest of the bubble.

We should have known better when we take a closer look at the authors of the report:

Published by the Homeownership Alliance

Written By:
David Berson - Chief Economist, Fannie Mae
David Lereah - Chief Economist, National Association of Realtors®
Paul Merski - Chief Economist, Independent Community Bankers of America
Frank Nothaft - Chief Economist, Freddie Mac
David Seiders - Chief Economist, National Association of Home Builders

See any pumpers on that list?

Out of the 64-pages of bubblicious BS this below is my favorite segment:

No sign of a national home price bubble
There has not been a single year over the past half century in which the national average home value has declined in the U.S. (see Figure 18). This is a period that has included periods of both severe recession and high mortgage rates, or both (as occurred during 1981-1982 when the unemployment rate exceeded 10 percent and mortgage rates reached 18 percent). In fact, the last sustained drop in national average home values occurred during the Great Depression, when the unemployment rate hit 25 percent. With the national unemployment rate below 6 percent, mortgage rates low and economic growth improving, the likelihood of a decline in home prices at the national level is quite remote.

Figure 18
U.S. Home Prices Have Grown Every Year Since 1950
Annual Growth in Nominal Home Values

What do you think - how did we think that the roller-coaster would keep going up?

Source [blownmortgage]

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Filed under: Products and services, Google (GOOG), Marketing and advertising

Google, Inc. (NASDAQ: GOOG) is rolling out another serious swipe at advertising in a relatively new category: mobile phone screens. Although mobile advertising is nothing new, Google’s intense focus on this new platform for display ads is ramping up excitement in some circles. After all, there are many more cellphones with mobile web capability than there are PCs worldwide. The trick is to get consumers and businesses using the mobile web. The iPhone has helped kickstart interest in this that had been pretty much dormant before last year for a range of reasons.

Google co-founder Sergey Brin even said at Google’s recent quarterly results conference call that “The mobile ads work very well … there’s nothing to dissuade me it would be any worse than traditional desktop search.” If that holds true — and we all know how desktop search has panned out — mobile search may be a huge blockbuster.

Faster data connections are available with many wireless carriers now, smartphone shipments are increasing, and attention to the mobile web has gained a huge amount of steam due to the iPhone and its full web browsing capabilities. Once Google’s Android operating system begins shipping and the mobile web is a single button press away, Google’s next frontier to attack will be the mobile search market. And, of course, selling display ads along with all those searches.

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Filed under: International markets, Newsletters, Stocks to Buy

“While U.S. banks have struggled amid the credit and housing crises, Credicorp (NYSE: BAP) has excelled,” notes John Reese, who assesses stocks based on the strategies of various well-known and time-tested gurus.

Here, the editor of the Validea newsletter looks at the Peru-based banking firm commerical banker and explains how it “passes the test” for four leading guru strategies: Peter Lynch, Martin Zweig, the Motley Fools, and William O’Neill.

“Credicorp’s main subsidiary, Banco de Credito del Peru, actually grew its mortgage business 8.2% in the third quarter of 2007 (the most recent quarter for which data is available) as Peruvians’ purchasing power continued to increase.

“My Peter Lynch-based strategy considers Credicorp a ‘fast-grower’ because of its 42.44% growth rate (based on the average of the three-, four-, and five-year earnings per share figures).

“Lynch famously used the P/E/Growth ratio to identify growth stocks selling on the cheap. By dividing Credicorp’s 19.6 P/E ratio by that growth rate, we get a P/E/G of 0.46, which falls into my Lynch-based model’s best-case category (below 0.5).

Continue reading Creditcorp (BAP): Leading gurus bank on Peru

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Filed under: Earnings reports, Google (GOOG), eBay (EBAY), Pfizer (PFE), Coca-Cola (KO), Intel (INTC), Nokia Corp. (NOK), Advanced Micro Dev (AMD), Abbott Laboratories (ABT), Xerox Corp (XRX), Reliance Steel and Aluminum (RS), Hunt(J.B.) Transport (JBHT), Intuitive Surgical Inc (ISRG)

Here are some highlights from this past week’s earnings coverage from BloggingStocks:

• Abbott Laboratories Inc. (NYSE: ABT) first-quarter profit soared on overseas demand for Humira.
• Advanced Micro Devices Inc. (NYSE: AMD) posted a bigger-than-expected loss, its sixth straight.
• Coca-Cola Co. (NYSE: KO) posted better-than-expected first-quarter results on strength overseas.
• CSX Corp. (NYSE: CSX) first-quarter profit soared on strong demand for grain, ethanol, and coal.
• eBay Inc. (NASDAQ: EBAY) beat first-quarter expectations but the outlook was uninspiring.
• Google Inc. (NASDAQ: GOOG) first-quarter profit soared 42%, beating Wall Street estimates.
• Intel Corp. (NASDAQ: INTC) first-quarter earnings slipped but exceeded expectations.
• Intuitive Surgical Inc. (NASDAQ: ISRG) beat first-quarter estimates and offered a disappointing outlook.
• J.B. Hunt Transport Services Inc. (NASDAQ: JBHT) missed first-quarter estimates on rising fuel prices.
• Nokia Corp. (NYSE: NOK) first-quarter profit missed expectations and it warned of a coming decline.
• Pfizer Inc. (NYSE: PFE) first-quarter profits fell and missed analysts’ expectations.
• Reliance Steel & Aluminum Co. (NYSE: RS) lowered its second-quarter outlook.
• Royal Philips Electronics posted a bigger-than-expected fall in profit on weak North America TV sales.
• Wolverine World Wide Inc. (NYSE: WWW) beat earnings estimates but shareholders were not impressed.
• Xerox Corp. (NYSE: XRX) posted a first-quarter loss that matched analysts’ estimates.

Also, Jim Cramer doesn’t think General Electric (NYSE: GE) is the bellwhether some take it for. Goldman Sachs (NYSE: GS) is pessimistic about this earnings season. And here’s a look at some companies that reported this week that could bounce back after the recession, as well as earnings expectations for “barometer” companies reporting next week.

Upcoming results to watch for include Bank of America (NYSE: BAC), Halliburton (NYSE: HAL), Merck (NYSE: MRK) Texas Instruments (NYSE: TXN), AT&T (NYSE: T), DuPont (NYSE: DD), Yahoo! (NASDAQ: YHOO), Amazon.com (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Qualcomm (NASDAQ: QCOM), Boeing (NYSE: BA), UPS (NYSE: UPS), 3M (NYSE: MMM), PepsiCo (NYSE: PEP), Microsoft (NASDAQ: MSFT), Motorola (NYSE: MOT), and McDonald’s (NYSE: MCD).

Visit AOL Money & Finance for more earnings coverage.

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CNN reports that Bank of America will eliminate all but the most sound mortgage products as it attempts to complete its takeover of Countrywide. Countrywide was made famous by its option ARM and other non-traditional products which have clearly back-fired. Which begs the question - why Countrywide mortgage at all?

Bank of America announced that the main asset that they wanted from Countrywide was the midwestern retail bank operations where BofA is currently lacking (and the massive servicing customer base), so it makes sense that with their booming retail business they aren’t working hard to make sure that Countrywide’s mortgage-units have a product worth selling.

From the CNN report on Bank of America exiting the risky-mortgage biz:

Bank of America says it will alter its mortgage product menu once it completes its acquisition of mortgage lender Countrywide Financial.

Bank of America (BAC, Fortune 500) says it will offer traditional mortgages that fit government-sponsored enterprise guidelines. It will also offer interest-only fixed-rate and adjustable-rate mortgages that have long reset periods to lessen the likelihood of short-term payment spikes.

The Charlotte, N.C.-based bank will not originate subprime mortgages or loans that allow customers to make payments for less than the monthly interest due.

Source [blownmortgage]

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