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

Comments by Microsoft (NASDAQ: MSFT) CEO Steve Ballmer may leave raider Carl Icahn in a difficult position. Ballmer says his company will not bid for Yahoo! (NASDAQ: YHOO) Ballmer made his comments overnight from Israel.

According to Reuters, Ballmer said “Yet, we are trying to have discussions about deals with Yahoo that might create value but not a whole acquisition of the company,” he said without elaborating further.

It is generally understood that Icahn and his fellow investors do not think they get much benefit from their move to control Yahoo! if they do not get Microsoft to come back to the bargaining table with a $33 bid. A link-up with Microsoft or Google (NASDAQ: GOOG) in the search business may save Yahoo! some money, but not enough to keep its share price high. Before the Microsoft bid, Yahoo! traded at $19. $27.48.

The news from Microsoft points out the risk of being a raider. Icahn put money into Motorola (NYSE:MOT) thinking the company would spin-off its handset unit. Sales at that business are so bad that selling it has become almost impossible.

Icahn wins his share, but Yahoo! may not get onto that list.

Douglas A. McIntyre is an editor at 247wallst.com and author of Ten Stocks Under $10.

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Filed under: Launches, Consumer experience, Google (GOOG)

When Google (NASDAQ: GOOG) bought RSS company Feedburner, experts seemed to think it made a good match with the search companies big blog business, Blogger. Most people who keep blogs use RSS as a way to get their content out. Google could offer a platform for blogging with Blogger, selling ads with AdSense, and distributing content with FeedBurner.

The system has one flaw. Google did not set up a system for selling ads in Feedburner so that consumers looking at a site’s RSS feed would also see targeted ads next to the headlines. It was a break in the system which made it incomplete in terms of helping blogs drive profits.

Google has fixed that. According to Alley Insider, “for content publishers who have long feared RSS as a monetization-killer, AdSense for feeds somewhat levels the playing field.” The trouble with running blogs or other small websites is the lack of ways to bring in revenue. Google is offering a partial solution to that.

Of course, since Google keeps a large portion of the AdSense for Feedburner revenue, the huge tech company is looking after its own interests.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 Newsletter.

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Filed under: Management, Rants and raves, Scandals, JPMorgan Chase (JPM), Bear Stearns Cos (BSC)

It took about ten minutes in a special meeting of the shareholders to approve the sale, acquisition or bail-out of Bear Stearns (NYSE: BSC) to JPMorgan Chase (NYSE: JPM). You can call it what you will, but the illustrious company is coming to a dismal end.

There was not much to say at Thursdays short meeting, but in brief remarks to attendees, James Cayne, who was Bear’s chief executive when its problems took hold last summer, said “I have no anger, only regret,” The New York Times reported. “14,000 families were affected. I personally apologize. I feel an enormous amount of pain and management feels an enormous amount of pain.”

Pain and billions of dollars, to say the least. When the Federal Reserve, led by Ben Bernanke, arranged this shot-gun wedding, JPM was offering $2 per share for BSC and then upped the price to $10, prompting me to write JPMorgan’s $10 offer for Bear still too cheap!. In any event that was the price and that’s where it stands. Ten bucks for a company that was trading at $150 in the not too distant past. The last sixty bucks evaporated in one week!

It did not have to be this way, but alas — bad management, greed and too much negativity on Wall Street made it unsustainable when sustainability is the word of the day. I have been doing a series of stories on Warren Buffett’s ideas on investment and this one comes to mind: Serious Money: The page on Buffett Part V: Company Management.

So BSC will be no more and JPM will continue to prosper having far better management. Perhaps BSC should post signs to that effect in its offices, just like an unsuccessful business might after a change: UNDER NEW MANAGEMENT!

Sheldon Liber is the CEO of a small private investment company and the design and research principal for an architecture and planning firm. He writes Chasing Value and Serious Money columns. Disclosure: I am a shareholder in BSC.

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Countrywide shareholders are sure to approve the Bank of America takeover at a special meeting on June 25th.  The real question is whether Bank of America’s due diligence and Countrywide’s deteriorating loan portfoliio will be enough to scare away the would-be suitor.

From Market Watch on Countrywide’s special meeting:

Countrywide Financial said late Wednesday that it will hold a special meeting on June 25 for shareholders to vote on the planned acquisition of the mortgage lender by Bank of America . Stockholders at the close of business on April 28 are allowed to vote. For the deal to proceed, investors with a majority of Countrywide shares have to vote for it, the company added.

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Filed under: Consumer experience, Money and Finance Today, Economic data, Personal finance, Recession

Reuters reports that consumer confidence has hit a 28-year low. That should not come as a surprise. After all, between 2000 and 2007 the median income has dropped from $61,000 to $60,500. But prices have skyrocketed. And with growth slowing — the prospect of layoffs looms large while consumers expect prices to keep rising.

There is something called the Federal Reserve. And it’s supposed to keep those inflationary expectations under control by raising interest rates to strengthen the currency and keep credit use from going haywire. But the Fed got confused. It thought that by cutting rates from 5.25% to 2%, it could revive a frozen credit market without boosting inflation. Whoops! Now the credit markets remain frozen but actual inflation and expectations for future inflation are both skyrocketing.

Continue reading Consumers sulk as inflation devours their stagnant income

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Bloomberg reports that consumer confidence is sinking with home values, reaching lows not seen since 1992.  From the article on the lack of consumer confidence:

Confidence among American consumers fell in May to the lowest level since 1992 as the two-year housing slump showed no sign of bottoming.

The Conference Board’s confidence index declined more than forecast to 57.2, the New York-based research group said today. The S&P/Case-Shiller home-price index dropped 14.4 percent in March from a year earlier, the most since the figures were first published in 2001. Separate figures from the Commerce Department showed sales of new homes were the second-lowest since 1991 in April.

The slide in home values, along with gasoline near $4 a gallon and rising unemployment, threatens to hobble the consumer spending that accounts for more than two-thirds of the economy.

“When confidence is as bad as it is on the consumer side, it’s hard to believe we’re going to be buying a lot of homes in the near term,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis, Minnesota. “The drag from home-price declines, the credit crunch and oil prices will probably be more severe than some had forecast earlier in the year.”

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Source [blownmortgage]

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Filed under: Marketing and advertising

A piece in the USA Today reports that top retail chains have improved their supply chain management to get the hot new fashions in stores more quickly before.

Sounds great, right? Maybe not. According to the article. “With the tighter economy squeezing retailers industrywide, several companies have hit on a successful formula for propping up earnings: They’re speeding up the time it takes to get the latest fashions into their stores.”

Obviously increased efficiency is great and there’s nothing not to like about improved ordering, fewer markdowns, etc. But it could be creating a false sense of optimism if it’s allowing for the frontloading of sales. $30 million in sales in the first quarter and then $10 million in the second is the same as $20 million in each quarter: but if you don’t know about the differences in inventory situations, you could have a false sense of optimism at the end of the first quarter.

Time will tell whether better supply chain management is messing with the distribution of sales throughout the year.

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Filed under: Analyst reports, Industry, Google (GOOG), News Corp’B’ (NWS)

For some time there has been an uneasy feeling that Web 2.0 companies were having trouble making money. A number of the companies are private and not much is said about how their financials work. Digg.com does not issue quarterly statements.

But some of the new age companies like MySpace, which was bought by News Corp (NYSE: NWS) and YouTube, which was bought by Google (NASDAQ: GOOG), have enough of their financials available for Wall Street to get an idea of what is going on.

Based on comments from Google and News Corp, their huge Web 2.0 sites are not big money-makers. MySpace does well under $1 billion in annual revenue. Its smaller rival, Facebook, was recently valued at $15 billion. That number now looks very high.

According to the FT, “The shortage of revenue among social networks, blogs and other “social media” sites that put user-generated content and communications at their core has persisted despite more than four years of experimentation aimed at turning such sites into money-makers.”

Facebook, YouTube and MySpace may draw tens of millions of visitors each month, but they can’t make a dime. Marketers are not interested in amateur video and postings from people who spend 20 hours a day on PCs and are afraid to leave their homes.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 newsletter.

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Los Angeles County has witnessed every facet of the housing bubble. From historically lower priced areas such as Compton having homes sell at $500,000 to higher priced areas like Beverly Hills seeing homes sell in the multi-millions. We also were at the vanguard of interest only, option ARM, and other exotic mortgages […]
Related Posts:
■Living Large on $25,000 a Year in Southern California.
■Double Bubble: California Compared to the United States. Vacancy Rates up Homeownership Down.
■Southern California Housing Numbers Exposed: The Bottom Falls out of the Housing Market, Again.
■The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion in Subprime California Loans Resetting in 1 Year.
■Are you a Debt Slave?

Los Angeles County has witnessed every facet of the housing bubble. From historically lower priced areas such as Compton having homes sell at $500,000 to higher priced areas like Beverly Hills seeing homes sell in the multi-millions. We also were at the vanguard of interest only, option ARM, and other exotic mortgages that made there way into every corner of the nation that are now dragging the economy into the gutter. There are very few people that now doubt that what we had in this decade was a housing bubble.

In looking at Los Angeles County with 10,000,000 people living here, we get an excellent representation of the housing mania. We have cities such as Lynwood, Paramount, South Gate, and El Monte that witnessed astronomical price jumps while the local family income remained stagnant and didn’t come close to keeping up with housing appreciation. We also have areas such as Santa Monica, Beverly Hills, Rancho Palos Verdes, and Brentwood that also saw amazing jumps in prices and even those with higher incomes had to stretch their dollars for these homes. Every market niche went up with little discrimination to the quality of the home, local area incomes, or any practical economic fundamentals.

Now that prices are quickly correcting and are trying to find a bottom based on fundamentals, the reality is such that the market has a very long way to go before we hit a bottom. The purpose of this article is simply to arrive at an educated figure of how many Los Angeles County homeowners are now underwater with their mortgage. We know simply by the massive price decreases and the rising tide in foreclosures that many homeowners now find themselves in the precarious situation of having a larger mortgage than the market price of their home. But how many people exactly? This of course is a difficult number but we’ll try to look at multiple indicators to arrive at an educated number.

Case-Shiller Los Angeles

As we showed in a previous article highlighting the drop in Los Angeles home prices, prices in Los Angeles County have now reached levels that were seen in June of 2004. According to the Case-Shiller report which came out earlier in the week, Los Angeles now has a number of 207.11 which is nearly the price reached in June of 2004 (206.3). The base year of the index is January of 2000, which starts at 100. So even at today’s price, Los Angeles has still doubled in slightly over 8 years.

Amazingly, now that prices are quickly aligning with fundamentals even data from other sources is coinciding with the above. For example, according to DataQuick the median price of a home in Los Angeles County in April of 2008 was $435,000. If we look at the price in June of 2004, the median price of a Los Angeles County home was $414,000. So for the purpose of this article we are going to use the following data points:

June 2004 start date: Assuming data from Case-Shiller

June 2004 start date: DataQuick Los Angeles County Sales

The way we’ll construct our model will include sales from June 2004 to present. We’ll then assume the following:

2004 Sales: 50% of homes sold during this time are underwater

2005 Sales: 60% of homes sold during this time are underwater

2006 Sales: 75% of homes sold during this time are underwater

2007 Sales: 55% of homes sold during this time are underwater

2008 Sales: 25% of homes sold during this time are underwater

A couple of points regarding the assumptions above. If we look at the median price alone, we can say that all homes sold at median market value in 2005, 2006, and 2007 are underwater. What we are assuming is people with down payments that have a cushion, those that underpaid market value and have some room, and those in areas that are still holding strong. Also, we are giving a higher percentage to 2005 and 2006 simply because of the sheer amount of sales during these years. Even though Los Angeles County did not hit a median price peak until May of 2007 of $550,000, sales had already fallen drastically.

Let us now look at the data:

Total Sales Per Year:

2004: 121,695

2005: 119,050

2006: 100,206

2007: 74,772

2008: 16,145 (*data up until April of 2008)

Total Homes sold in Los Angeles County Since June of 2004: 431,868

So that gives us a raw number of sales. If we are to apply our formula from above, then we can assume the following:

Homes Underwater Purchased in:

2004: 60,847

2005: 71,430

2006: 75,154

2007: 41,124

2008: 4,036

Total homes underwater in Los Angeles County: 256,617

From this number, we’ll also have to cut it down and eliminate 20% simply because of homes being resold. That is, one household buying a home, selling it, and buying another in that same timeframe. As we are constantly told by the realtors out there, the “typical” family will only stay in their home for 7 years. So that will still give us 205,294 homes that are underwater.

Now keep in mind that we are being conservative here. First, this model is assuming that price drops will not continue. What if the Case-Shiller Index decreases further which all signs are pointing to? What if prices go back to 2003 or 2002 levels? Even with these conservative measures, we can assume that over 200,000 current Los Angeles County homeowners that bought since June of 2004 are underwater. The next issue is that many homes in distress are now going into foreclosure. The number is startling:

Notice of Defaults for Los Angeles County:

First Quarter 2008: 20,339

First Quarter 2007: 8,843

In one year, notice of defaults have gone sky high for Los Angeles County. Yet the more disturbing trend is how many of these notice of defaults are going into foreclosure. What this tells us is being underwater is a key factor in people losing their home:

“(DataQuick April 2008) 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.”

That number is startling. What that tells us is 68 percent of these notice of defaults will become foreclosures. Just for a frame of reference, let us look at some California numbers:

California Notice of Defaults and Trustee Deeds

Q2 2006: 20,752 NODS / 1,936 Recorded Trustee Deeds = Raito of 9.3%

Q2 2007: 53,943 NODS / 17,408 Recorded Trustee Deeds = Ratio of 32.2%

Q4 2007: 81,550 NODS / 31,676 Recorded Trustee Deeds = Ratio of 38.8%

Q1 2008: 113,676 NODS / 47,171 Recorded Trustee Deeds = Ratio of 41.1%

These numbers do not bode well. In a matter of two years, we saw statewide only 9.3% of notice of defaults going into foreclosure jump up to the current rate where nearly 68% of the current notice of defaults will go into foreclosure. Interestingly enough, that 113,676 NODs being sent out is quickly approaching that 200,000 underwater estimate that we arrived at.

This is a very rough estimation of course since it is nearly impossible to get a hard number of the actual homes underwater in Los Angeles County. But given the rise in NODs and foreclosures, we have a lot more homes that will flood the market soon:

The only thing that can stop this tsunami is for the housing market to go into bubble mode again but that isn’t likely. What are your thoughts about this? How many people do you think are underwater on their mortgage?

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Related Posts:
■Living Large on $25,000 a Year in Southern California.
■Double Bubble: California Compared to the United States. Vacancy Rates up Homeownership Down.
■Southern California Housing Numbers Exposed: The Bottom Falls out of the Housing Market, Again.
■The Genesis of the Credit Bubble: Advertising, Deception, and $163 Billion in Subprime California Loans Resetting in 1 Year.
■Are you a Debt Slave?

Via [DrHousingBubble]

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Filed under: Earnings reports, Analyst reports, Deals, Industry, Consumer experience, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO)

There have been concerns that the rate at which people clicking on the text ads next to Google (NASDAQ:GOOG) search results has been falling. These concerns caused spirited debate before the company’s last earnings report and may have even pushed the firm’s stock price down. But earnings were excellent, and much of the fear went away.

Now it turns out the Google ads are doing better and better, and clicks on ads at rivals are falling. The Wall Street Journal, using comScore (NASDAQ: SCOR) data, reports that Google’s performance improved in April and “Paid clicks for Microsoft Corp (NASDAQ:MSFT) and Yahoo Inc (NASDAQ:YHOO) meanwhile declined during the month, according to the data.” The paper reports that Google’s performance in the U.S. was 20% ahead of expectations.

Good for Google, but very bad for its two chief rivals. The information indicates that even if Microsoft buys Yahoo!, the combined operation will have a much smaller market share in search than Google, and its advertising will perform worse. If Microsoft and Yahoo! stay separate, their uphill battles could face extremely long odds.

From all the data available, Google’s search technology brings back better results for consumers. Its technology for matching ads to searches also appears to work much better. The fight for the domination of this critical portion of the internet is over. The only question is whether the second and third place firms can make money long-term.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

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