Filed under: Wal-Mart (WMT), Gap Inc (GPS)

Wal-Mart (NYSE:WMT) is scheduled to report Q1 on May 13. WMT June option implied volatility of 23 is below its 26-week average of 26 according to Track Data, suggesting decreasing price risk.

Gap (NYSE:GPS) is scheduled to report Q1 EPS on May 22. Buckingham Research says “We continue to rate the shares of GPS as Neutral due to valuation and lack of progress on a turnaround.” GPS June option implied volatility of 41 is near its 26-week average, suggesting non-directional price risk.

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

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Filed under: Google (GOOG), Apple Inc (AAPL), Berkshire Hathaway (BRK.A), Bargain stocks, Stocks to Sell, Garmin Ltd (GRMN)

While researching GPS maker Garmin Ltd (NASDAQ: GRMN) — whose stock has lost two-thirds of its value in the last six months — I can’t help but pity those long-term shareholders who reject trend following and technical analysis in favor of investing for the long term. To them, it seemed like only yesterday that GPS was one of the hottest technologies around and this industry leader could do no wrong.

Well, that’s usually the time to sell, just as I posted on Apple Inc (NASDAQ: AAPL) in January this year and on Google Inc (NASDAQ: GOOG) in November last year, both before they each dropped 40% in just a few months. Because the truth is these popular technology stocks are all expectations. We’re not talking Berkshire Hathaway (NYSE: BRK.A)-type value investing here.

Sure, GPS is still hot, somewhat, but due to intense competition, margins have been evaporating, forcing analysts to lower their earnings estimates. In their latest quarter, Garmin further strengthened the bear case with spiking inventories and accounts receivable. None of that looks to change anytime soon, and even though it’s got a P/E of 10, book value is all the way down near $11 per share!

I couldn’t help but wonder where I’d seen this 2-year chart pattern before and then it hit me. Garmin’s downfall is eerily exact-not just similar-to the Nasdaq’s 2-year chart of 1999-2001, before it tanked another 50%. Obviously, that’s comparing apples and oranges, but with so many stocks out there, why would you ever put yourself into one with such a reliably bearish pattern?

Basically this stock has nothing going for it. I hate buying into margin-battling companies with tons of bitter shareholders who are willing to sell into any bounce. I hate gradual downtrenders-for buying at least-and I hate people asking me what to do when they are down so much already. Not because I’m mean, but because as I stress on my blog every day-and what’s helped me earn 47% over the past 6 months-is that investors need to cut their losses quickly.

Sure this stock could always come back-miracles have been known to happen–but given all these nasty variables, the odds of a big rebound anytime soon aren’t there.

Timothy Sykes writes the blog timothysykes.com, is a former hedge fund manager, star of the TV show Wall Street Warriors and author of the book, An American Hedge Fund: How I Made $2 Million as a Stock Operator & Created a Hedge Fund

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Filed under: China, Newsletters, Mutual funds, Stocks to Buy

“A new era could be dawning in Taiwan,” says Asia region expert Keith Fitz-Gerald. Here, the editor of The New China Trader looks at an ETF and a mutual fund favorite to benefit from this forecast.

“While there were many reasons we recommended investing in Taiwan, perhaps the single most important was the potential for Taiwan to assume its role as ‘China’s real beneficiary.’

“We have been reasoning that President-elect Ma Ying-jeou would be far more interested in working with China than antagonizing it, as his predecessor did. We have also suggested that he would ‘get on it’ sooner rather than later by making relations with China a top priority.

“Indeed, Vice President-elect, Vincent Siew has already ‘unofficially’ met with Chinese President Hu Jintao on the sidelines at the Boao Forum for Asia. While it’s too early to pass judgment, it could set the stage for a new era based on the friendly nature of the meeting according to observers.

“It could also set the stage for a longer-term pan-Asian economic boom. That would be great for the region but especially China and Taiwan, which have had bone-chillingly cold relations for years.

“For China, a fresh start is important because it would allow Beijing to demonstrate peaceful intentions at a time when Tibet and the Summer Olympics have become a lightning rod for all things Chinese.

“For Taiwan, a thawing would lead to new economic development and, we think, previously unheard of levels of business interaction. It would also potentially carry huge trade volumes and stability into the surrounding countries.

“And that’s why we reiterate that you buy iShares MSCI Taiwan ETF (ASE: EWT) as well as U.S. Investors China Regional Opportunity Fund (USCOX).”

Each day, Steven Halpern’s TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation’s leading financial newsletter advisors.

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Filed under: Boeing Co (BA), Politics

Today’s Washington Post reports on the latest successful purchase of John McCain’s services — yielding a sweet real estate deal for an Arizona developer in the wake of his $100,000 campaign contribution. But that railer against the role of money in politics appears to have been bought many times before — and American workers and taxpayers have paid the price.

The Washington Post reports that McCain pushed legislation that let an Arizona rancher trade remote grassland and ponderosa pine forest there for acres of valuable federally owned property that is ready for development, a land swap that now stands to directly benefit one of his top presidential campaign fundraisers. Specifically, Steven A. Betts, who raised $100,000 for McCain, got the job of developing rancher Fred Ruskin’s land after McCain’s legislation helped Ruskin pick it up at below market rates.

But this is at least the fifth transaction where a campaign contributor has benefited from McCain’s power. Here are five others:

Continue reading How to buy John McCain

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UBS posted a $11 billion first quarter loss after taking a whopping $19 billion in mortgage-related losses. The company will cut 5,500 jobs in a restructuring effort to save the banking giant. Ironically, UBS was praised as being conservative as the credit crunch got underway with it’s first $3 billion write down at the end of last year. Now the bank stands as the poster-child for mortgage-related beatings with write downs totaling $37 billion, and is downsizing and pulling out of several higher-risk banking enterprises in an attempt to save itself as a going concern.

From Market Watch on the UBS mortgage losses:

the Swiss investment-banking giant, swung to a first-quarter net loss of 11.54 billion Swiss francs ($11 billion) after posting some $19 billion of losses tied to U.S. mortgages and related securities as well as other structured products.

On the 5,500 job cuts at UBS by 2009:

UBS said Tuesday it plans to cut 5,500 jobs by the middle of next year, an effort meant to restructure the Swiss giant’s troubled investment bank. The Zurich-based bank will axe the jobs after massive write-downs on dud mortgage securities, totaling over $37 billion thus far.

It’s no wonder the bank is under investigation for improperly valuing its assets. $3 billion was touted as a purging of the system when UBS first came forward. Now with losses at 10x it looks more like fraud.

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Source [blownmortgage]

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There seems to be a false sense of security that somehow, the credit (debt) crisis is now slowly floating away into space. The market rally is indicative of this false sense of security. All bad news is ignored while slim glimmers of good news are enough to spark a rally. We are […]
Related Posts:
■The Housing Wave of the Future: Two Main Mortgage Tsunamis.
■Did you Feel That? Housing Just Hit the Third Rail.
■What really goes on with Black-matter SIVs. A Micro-case study. My Experience with Prosper and how it is Similar to the Current Mortgage Debacle.
■The Rent vs. Buying Dilemma: Mortgages the Southern California Way. 3 Factors to look at: Increase Rental Prices, Housing Price Declines, and Tighter Credit Markets.
■Second Quarter Housing All-Stars Recap: Subprime closes shop, Prime Loans Gone Wild, and the Future of Housing.

There seems to be a false sense of security that somehow, the credit (debt) crisis is now slowly floating away into space. The market rally is indicative of this false sense of security. All bad news is ignored while slim glimmers of good news are enough to spark a rally. We are starting to look like the first quarter of 2007 when the idea that sub-prime was going to be contained in a tightly sealed silo and the market rallied all the way through August, only to be slashed to its current level. I’m not sure what data the bulls are looking at but it really doesn’t point to a recovery for sometime. In fact, many states are now revising their budgets for the fiscal year and things are a lot worse than they once appeared. California is now looking at a $20 billion budget deficit revised from the earlier $14.5 billion deficit only a few months ago.
These are things that I hope most of you are already aware of. Yet the focus has been taken away from the actual data in these toxic mortgages. Have things reached their apex of crap? Unfortunately they have not and let us go through a few reasons for this.

First, we’ll be looking at a sampling of 1% of first lien mortgages from the Fed that was put out in March of 2008:

The first thing I want to draw your attention to is the mean of these loans in various mortgage products. Overall, what we are seeing is distress on loan balances that seem below the median price of a home in the United States. The balances are not that high but remember that these are only for first lien mortgages and as we all know, many took out second mortgages and piggy-backed on these so they could go with little or no money down. It looks like the average size of a sub-prime loan ranges from $140,000 to $200,000. Out of the 1% sampling, we can get a quick glimpse and see that the bulk of these mortgages are ARMs; in this sample group over 70% of the sub-prime mortgage balance is in ARMs. So how are these mortgages performing?

Out of this small pool, already 47% of the ARMs are not current! 13% are foreclosed and 8% are real estate owned. Guess where that 16% 60+ is heading? You may be running the math above and see that it only adds up to 90%. You can assume that we are looking at 90+ lates or other forms of distress for that remaining 10%. Either way, the performance here is absolutely abysmal and that 16% is likely heading to further future distress in the market. That is baked in. But the next shoe to drop is the Alt-A loans.  You know, the cream filling between an ultra-prime and sub-prime taco? Let us quickly look at that profile:

This is where things get even more disturbing. From this sample profile you’ll notice that the mean is much higher than the sub-prime pool. In fact, we have a range of $220,000 to $350,000 with the bulk of the loans being in the ARM profile and being close to $349,000. And by the way, many of these are in high priced areas like California. The first line above is observations which is the actual individual mortgages measured in this 1% sampling. Take a look at the first row and the second. Now you understand why the next shoe to drop is actually more distressing than the sub-prime profile.  In fact, the size is comparable to the sub-prime portfolio. The nearly double in size is much more suspect and now that we know that ratings of AAA aren’t worth what they try to imply, we know many of these loans are going to go into some form of distress down the line. Look at the current status:

Already 19% of this portfolio is delinquent! And assuming many of these loans are in high priced areas like California, we have only entered the first stage of the debacle. In fact, the median year over year price was still positive as late as the 4^th quarter of 2007! So you can certainly expect this number to balloon. Just take a look at the notice of default chart below:

What you’ll notice is how quickly these notice of defaults are turning into foreclosures. If this is any guide to the future, these loans are going to get hammered into the ground. And of course, California is living in another dimension assuming that we are at a bottom. Now take a look at the California “non-prime” aka banana republic mortgage profile:

Okay, so the share of loans that are non-prime and ARMs is 73.8%. 58.9% are current. 43.2% of these are resetting in the next 12 months. And things are bottoming out because?

And by the way, anyone that bought in California in the last three years is most likely already underwater so any of these additional bailouts will not help since these folks are in negative equity positions.  Severe negative equity. And you notice how the above is first liens? A high percentage have junior liens and they have no desire to let the property go since it will very likely wipe their loan out completely. That is why you are seeing such a delay in short sales getting done. The loss mitigation department with the first lien in most cases wants to work with you but the junior note holders have no rush to cancel out their debt. That is why cram downs are so important to improving the market. This way, judges can force and approve these deals without other parties delaying simply because they are delusional they’ll get some money back. They won’t. The industry is shooting itself in the foot here. Many of the bailout proposals on the table at a minimum require some equity which rules out the vast majority of California loans. And that is assuming most people are willing to stay in an asset that is depreciating with no potential of equity for a very long time.  Most are deciding to practice the new modern dance of moonwalking away from their mortgages.

I am extremely disappointed with our leadership and this isn’t just me:

“WASHINGTON DC (CNN) — A new poll suggests that President Bush is the most unpopular president in modern American history.”

A fitting way to end the final year in office.  Can’t get lower approval than that and just look at the state of our country today. Am I blaming this entire mess on one person? Of course not! The current Congress is just as bad on both sides. But when you are commander and chief (aka CEO of the U.S.) the buck stops with you. If this were a publicly traded company he’d been fired a long time ago. No one has a crystal ball but even a toddler can understand that giving people mortgages that they cannot pay is a recipe for disaster. The invention of perpetual housing appreciation was a myth.  The “ownership society” was an Orwellian ploy to screw the vast majority of Americans. When they marketed ARMs with the blessing of Greenspan it was for prudent investing and to free up additional resources. Of course the absolute inverse happened. And why not? No one bothered to enforce any of the regulations on the books. This government was preoccupied with destroying the future of our country and putting us into an incredible amount of debt. Anyone that thinks are country is in good financial shape is out of their minds and probably still thinks these mortgage products were good ideas. Thankfully, 70 percent of the country disagrees with how things are being handled at the top. When you build your entire fortune and fortress on a volcano, don’t be angry when it explodes.

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Related Posts:
■The Housing Wave of the Future: Two Main Mortgage Tsunamis.
■Did you Feel That? Housing Just Hit the Third Rail.
■What really goes on with Black-matter SIVs. A Micro-case study. My Experience with Prosper and how it is Similar to the Current Mortgage Debacle.
■The Rent vs. Buying Dilemma: Mortgages the Southern California Way. 3 Factors to look at: Increase Rental Prices, Housing Price Declines, and Tighter Credit Markets.
■Second Quarter Housing All-Stars Recap: Subprime closes shop, Prime Loans Gone Wild, and the Future of Housing.

Via [DrHousingBubble]

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

What got Microsoft Corp. (NASDAQ: MSFT) started on its Yahoo! (NASDAQ: YHOO) takeover proposal was a fairly boneheaded idea that it could turn its money-losing online advertising unit — known as the Online Services Business (OSB) which in the last nine months lost $775 million — into a profitable contender to Google Inc. (NASDAQ: GOOG).

Now that Microsoft has withdrawn its offer, it’s still stuck with OSB and it lacks a compelling strategy to make it profitable. But if Microsoft goes back and asks why it got into OSB in the first place it becomes pretty clear that this is not a good business for Microsoft to be in at all. It got into the business for the simple reason that it had Internet envy — that is, it saw other companies get all the hype and profit from online advertising and it wanted its share. While that is a common reason for companies to get into new businesses, that doesn’t make it a profitable one for shareholders.

Here’s how badly Microsoft has done in online advertising. According to PC World, in November 2005 Microsoft ramped up its plan to provide Web-based services through the Windows Live and Office Live brands with the intent of bolstering its online ad revenue. Between August 2005 and December 2006 its share declined from 11% to 8%. By February 2008, its share had fallen even further to 5% of the online advertising market.

It would obviously be great for Microsoft if someone was willing to buy OSB but I don’t know why anyone would want to own its negative cash flows. So that would leave Microsoft with the option of closing down OSB — or at least those parts of it that are losing money.

At this point, the only thing that keeps Microsoft “investing” in OSB is pure ego. It can’t stand the idea that another company — Google — has come along and created a new business that leaves Microsoft out of the limelight. But Microsoft has yet to prove that it can create a process that outperforms Google at giving advertisers better returns on their online advertising investment. So Microsoft has been steadily losing share.

Why it thought a combination with Yahoo would help is hard for me to grasp. If I owned Microsoft shares, I’d feel that there was no way that I would ever get a return on OSB and therefore it’s time to close it.

What do you think?

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: Major movement, Earnings reports, Analyst upgrades and downgrades, Good news, Options, Technical Analysis

NVIDIA (NASDAQ: NVDA) shares are trading higher today after the company reported a first-quarter profit of $176.8 million, or 30 cents per share. Although the adjusted profit of 36 cents per share missed analyst estimates of 38 cents per share, a few analysts upgraded NVDA saying margin growth and new products should improve NVDA’s prospects through the year. If you think that the stock won’t fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on NVDA.

After hitting a one-year high of $39.67 in October, the stock hit a one-year low of $17.31 in March. NVDA opened this morning at $22.01. So far today the stock has hit a low of $21.97 and a high of $23.39. As of 12:00, NVDA is trading at $23.38, up 1.43 (6.5%). The chart for NVDA looks bullish but deteriorating slightly, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bullish hedged play on this stock, I would consider a September bull-put credit spread below the $17.50 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn’t do what you think but still leverage nice returns. For this particular trade, we will make a 9.9% return in just five and a half months as long as NVDA is above $17.50 at September expiration. NVIDIA would have to fall by more than 25% before we would start to lose money. Learn more about this type of trade here.

NVDA hasn’t been below $17.50 by more than a few cents at all in the past year and has shown support around $22 recently. This trade could be risky if the company’s next earnings (due out in mid-August) disappoint, but even if that happens, this position could be protected by the support the stock might find from its 50-day moving average, which is currently around $20.

Brent Archer is an options analyst and writer at Investors Observer.

DISCLOSURE: Mr. Archer owns and/or controls diversified portfolios of long and short stock and option positions that may include holdings in companies he writes about. At publication time, Brent neither owns nor controls positions in NVDA.

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For the eternal optimists your boy David Lereah, your ace-in-the-hole, your go-to expert who predicted a “soft-landing” and wrote the book “Why the Real Estate Boom Will Not Bust” is saying that we’re in for a lot worse. So stop looking for a bottom. It must be tough when your hero, your clutch hitter finally gives up the fight. Who do you turn to? Lawrence Yun? He doesn’t have the panache, the swagger, the publishing credits!

Quick, somebody, find me someone with a pulse who thinks we’re in better shape now than we were 3, 6, 9 months ago. Please. The pumpers are defecting like crazy. David freaking Lereah is seeing the light?!?!

David Lereah for President. A man that can flip-flop this effectively deserves a sacred seat in Washington.

Pardon my rather churlish response to his whole mea culpa. I just find it rather fascinating. Any way. Dr. Housing Bubble did a great write-up on this very phenomenon. So here is a taste and be sure to check out the rest of his commentary.

“We’re not at the bottom,” he says. “[People] want it to be near the bottom, but we’re not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low … There’s still supply out there in abundance … This thing is going to get worse before it gets better.”

That’s quite a turnabout from the view he articulated in his book, first published in 2005. There he argued that the solid economy, strong demographics (including immigration and aging boomers), and a lean supply of homes should lead prices to continue rising for years to come. “Today’s real estate market is the result of rational decision making based on supply and demand conditions,” he wrote. “With today’s economy, home owners are in no danger of experiencing a widespread fallout of home prices.”

“[I] just didn’t realize the scope, the extent, the magnitude of the loose underwriting-not looking at incomes and wages, just providing so many mortgage loans based on [expected] future price appreciation rather than the creditworthiness of the borrower,” Lereah says. “That got so out of hand, and none of us realized the magnitude of it until it was too late.”

We’re taking nominees for the new poster boy. Feel free to suggest your write-ins in the comments.

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Source [blownmortgage]

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