Signs of stagflation are abounding in our economy, as many predicted would be the likely outcome tied to the Fed’s frantic attempt to save the financial markets by slashing interest rates.  With a continually weakening economy and inflation taking hold in commodities across the board it looks like our friend stagflation is here for the time being.

From Bloomberg on the phenomenon:

Builders broke ground on 975,000 homes at an annual pace in May, the least in 17 years, and construction permits fell, the Commerce Department reported in Washington. Meanwhile, the Labor Department said producer prices jumped 1.4 percent, more than economists forecast. A further report from the Federal Reserve showed industrial production unexpectedly dropped 0.2 percent.

“The latest round of commodity-price pressure is adding to both inflation and weak growth,” said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. “It’s a pretty negative cocktail for the economy and financial markets.”

“Industrial production is down, that’s the stag part, and prices are up, that’s the inflation part,” said Neal Soss, chief economist at Credit Suisse Holdings Inc. in New York. Compared with the 1970s, though, “it’s not likely that inflation will get as out of control when wages do not respond.”

The producer-price index jump exceeded the 1 percent forecast among economists surveyed by Bloomberg News. It was the biggest increase since November. The Labor Department’s figures also showed that prices rose 0.2 percent excluding food and energy, a measure that matched economists’ predictions. Production was expected to increase 0.1 percent.

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Source [blownmortgage]

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Filed under: Wal-Mart (WMT), Columns

Welcome to the 65th installment of The Wal-Mart Weekly, a column dedicated to bringing you insight, wit, facts, results, opinions, and just a bit of everything else when it comes to a very hot topic these days: Wal-Mart.

This week, I’ll be taking a look at product quality in relation to Wal-Mart Stores Inc. (NYSE: WMT. As you may have read by now, Adidas AG, the second-largest maker of sporting goods globally, has said that a house brand of shoes sold at Wal-Mart may injure those that wear them. Now that’s quite a statement about product quality, yes?

Adidas specifically said that Wal-Mart’s Athletic Works shoes should not be worn or used by runners, as they may cause injury. I’ve never heard of a shoe or sporting goods manufacturer state that a particular type of show would injure a runner, but there you have it. These Athletic Works shows are “not suitable to run in,” according to Adidas. How was this claim determined — and what about other Wal-Mart products that may have inferior quality? Read on.

Continue reading The Wal-Mart Weekly: Those shoes aren’t fit to run in

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Via [bloggingstocks]

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It’s official, after announcing that AIG chief Martin Sullivan would tender his resignation over the weekend, the company has a new CEO who is ready to excise the demons of the subprime mortgage mess.  AIG has taken billions in write downs relating to bad mortgage bets over the past several quarters.

From Bloomberg:

Robert Willumstad, American International Group Inc.’s new chief executive officer, said “there will be no sacred cows” in his companywide review of the world’s biggest insurer.

Willumstad, who said he was encouraged after speaking with Sullivan’s predecessor Maurice “Hank” Greenberg yesterday, will need to assure regulators, investors and AIG’s 116,000 employees that he has a firm grip on the New York-based company. Sullivan, 53, was ousted after AIG lost 41 percent of market value this year following $13 billion of losses over two quarters.

Willumstad promised to have a turnaround plan in place by September and said that recruiting a chief financial officer was a priority after CFO Steven Bensinger was named vice chairman in May. The company’s performance has been “unacceptable,” said Willumstad, who joined the insurer’s board in 2006 after serving as an executive at Citigroup Inc. and was named AIG’s chairman later that year.

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Source [blownmortgage]

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Filed under: Before the bell, Earnings reports, Analyst reports, Analyst upgrades and downgrades, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Hewlett-Packard (HPQ), General Motors (GM), Aetna Inc (AET), Carnival Corp (CCL), CIGNA Corp (CI), Circuit City Stores (CC), Coventry Health Care (CVH)

Before the bell: Futures mixed after selloff

Coventry Health (NYSE: CVH) shares were down nearly 17% in after-hours trading Wednesday after the managed-care provider lowered estimates for second-quarter and full-year earnings due to disappointing April and May results. Wachovia downgraded CVH to Market Perform from Outperform. Other healthcare stocks felt the pressure and were down in after-hours or premarket trading: UnitedHealth (NYSE: UNH) -7%, Aetna (NYSE: AET) -9.9%, WellPoint (NYSE: WLP) -6%, Humana (NYSE: HUM) -5% and Cigna (NYSE: CI) -5%.

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Filed under: Earnings reports, General Electric (GE), Ford Motor (F), Archer-Daniels-Midland (ADM), Circuit City Stores (CC), Merrill Lynch (MER), FedEx Corp (FDX), Morgan Stanley (MS), Deere and Co (DE), Lehman Br Holdings (LEH)

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

• CarMax Inc. (NYSE: KMX) Q1 profits tumbled despite its aggressive expansion program.
• Chiquita Brands International Inc. (NYSE: CQB) warned it would miss earnings due to cost hikes.
• Circuit City Stores Inc. (NYSE: CC) Q1 loss widened as same-store sales dwindled.
• Commercial Metals Co. (NYSE: CMC) Q3 profits declined despite strong demand, but beat estimates.
• Coventry Healthcare Inc. (NYSE: CVH) lowered its Q2 and full-year outlooks after a disappointing April.
• FedEx Corp. (NYSE: FDX) missed estimates on higher fuel prices and offered lackluster guidance.
• Ford Motor Co. (NYSE: F) warned that 2008 full-year results would be worse than those of 2007.
• General Electric Co. (NYSE: GE) was downgraded by JP Morgan because of risk to earnings.
• J.M. Smucker Co. (NYSE: SJM) missed Q4 earnings expectations despite acquisitions-based growth.
• La-Z-Boy Inc. (NYSE: LZB) said it swung to a Q4 loss due to diminishing retail sales.
• Lehman Brothers Holdings Inc. (NYSE: LEH) CEO expressed his disappointment in the Q2 results.
• Merrill Lynch & Co. (NYSE: MER) profit warnings and write-downs hit the rumor mill.
• Morgan Stanley (NYSE: MS) beat low expectations despite a hefty decline in Q2 profits (see transcript).
• Pier 1 Imports Inc. (NYSE: PIR) narrowed its Q1 loss but still fell short of expectations.
• Winnebago Industries Inc. (NYSE: WGO) posted dismal Q3 results but still beat low expectations.

More earnings highlights from this week: Goldman Sachs, Best Buy, General Mills, Carnival and others

Continue reading Earnings highlights: Morgan Stanley, FedEx, Ford, GE, Circuit City and others

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Once again, for the umpteenth month in a row bottom fishing housing pundits were blown right out of the water. You need to realize that this is the first summer in many years that we are dealing with a very limited plate of mortgage products. Even last year before the August credit market […]
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■C.A.R. says 2007 will see a -2% Drop in California. Does This Feel like a 2% Yearly Drop?
■Riding in the Short Bus of Housing: Southern California Short Sale Numbers. 1 in 10 Homes is a Distress Sale.
■Home Sales: Worst Drop in 18 Years. Enjoy your Day!

Once again, for the umpteenth month in a row bottom fishing housing pundits were blown right out of the water. You need to realize that this is the first summer in many years that we are dealing with a very limited plate of mortgage products. Even last year before the August credit market pyrotechnic parade, many lenders were trying to squeeze in a few toxic mortgage products before the door entirely closed. This spring and upcoming summer we can already see that it is going to be brutal not only because $500 billion in option arm mortgages are set to start recasting, but the consumer is ultimately tapped out.This tapping out is coming at the behest of the great debt chokehold of this decade. Borrowing has gotten more stringent and this has put the breaks to our economy. If anything, the credit crack has been taken away from the consumer and it is now going into a full fledged withdrawal. The housing numbers for Southern California were released today and the results were once again horrific. Let us take a look:

*Source: DataQuick

Does that look like a bottom to you? Southern California now has a median home price of $370,000 which makes all that preposterous push for $729,000+ mortgages rather pointless unless you are trying to bailout Ed McMahon. Even the elite Orange County is now at $485,000. Sure is a far cry from the $642,000 median price that was reached in August of 2007. Yet this decline is already set in stone. We already know the California housing market across the board is in the dumps. But how are sales looking for the most populated county of all, Los Angeles?

Keep in mind that bounce we are seeing is your typical spring and summer bounce. You can see that each previous year during this time, sales always jump up. Yet this summer we aren’t seeing the typical pizzazz accustomed to the Southern California market. If we have a few more months like this given the onslaught of option arms facing us, this will be a round two that will be absolutely worse than what we have seen with the current round of housing distress.

You also have to remember that many of the current sales are distressed properties being sold. We have a lot of bottom chasers hopping into the market thinking this is the absolute bottom. They will quickly realize that they over paid given that housing is still heading lower. How do we know this? Let us take a brief look at the current inventory for Southern California:

Total SoCal Inventory: 143,218

Total Sales for May 2008: 16,917

Total Months of Inventory: 11.8 months
Yet this number is flat out under representing the amount of inventory out there because many REOs are not placed in the MLS. Also, many notice of defaults are still technically owned by the current owner but they have no desire to keep the mortgage current. Take a look at the current data for California:

May 2008:

NODs: 41,965

NTS: 9,728

REOs: 20,237

Total for California: 71,930

Source: RealtyTrac

What is incredible about these numbers is that inventory from the MLS is steadily decreasing yet sales haven’t jumped up that drastically (see above chart). Yet we look at NODs and REOs and they are through the roof. So we can deduce the following:

-People that don’t need to sell right now are pulling their properties off the market hoping for a brighter day thus reducing elective inventory.

-Many REOs are not making it to the MLS thus making the numbers look artificially low.

-NODs are sky rocketing and many of these are simply zombie properties waiting to become REOs.

That is where we stand. The massive price declines in Southern California are simply reflecting the reality of the situation. My feeling is the option arm debacle will impact California beyond what anyone can currently imagine. Keep in mind that 60 percent of the $500 billion time bomb is here in the state. If numbers are this bad without hitting the option arm stride, can you only imagine once that happens?

A 50 percent decline which only a few years seemed out of a tin foil hat manual is seeming more and more possible. After all, the state is down 30 percent on a year over year basis and we have yet to face the biggest mortgage risk. Why in the world would prices stabilize given the above data?  Does anyone really think this is the bottom?

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Related Posts:
■Short Sale Report Volume 4: 16,646 Short Sales in Southern California.
■San Diego Down 4.5 percent YOY - or $42,000 from Peak.
■C.A.R. says 2007 will see a -2% Drop in California. Does This Feel like a 2% Yearly Drop?
■Riding in the Short Bus of Housing: Southern California Short Sale Numbers. 1 in 10 Homes is a Distress Sale.
■Home Sales: Worst Drop in 18 Years. Enjoy your Day!

Via [DrHousingBubble]

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