/* Style Definitions */ table.MsoNormalTable {mso-style-name:”Table Normal”; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-parent:”"; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-para-margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:”Times New Roman”; mso-ansi-language:#0400; mso-fareast-language:#0400; mso-bidi-language:#0400;} You really have to tip your hat to our politicians.  The House approved the biggest bailout in the history of this country although they are trying […]
Related Posts:
■Housing Bloggers Unite: The Housing Blogger Network (HBN) has Started.
■Ode to the Housing Market: Learning to Love the Housing Bubble.
■Real Homes of Genius: Half-Off Sale in Lynwood California and the Distance Theory of Investing.
■Stage Two of the Mortgage Collapse: $500 Billion in Pay Option ARMs Meet the Piper in 2008 with 60 Percent Being in California.
■Foreclosed: Predicting Foreclosures in California. How Many Homes will Be Foreclosed in 2008?

You really have to tip your hat to our politicians.  The House approved the biggest bailout in the history of this country although they are trying to highlight the Congressional Budget Office report that the total price tag will cost approximately $25 billion.  Yeah right.  Yet what seems to be more astonishing is the vast majority of Americans seem oblivious to the entire bill.  It looks like it will have Senate approval and will be signed into law by the President soon.  Only a few of those in Washington sounded any sort of alarm regarding this.  The greatest financial robbery in American history and few seemed to pay any attention.

Today is the first time in a week that people are coming back into reality.  Sales of existing homes declined to a 10-year low and Ford posted their largest quarterly loss ever.  Ford is now being forced to double their hybrid production and move away from their reliance on trucks like the F-150.  So much for a second half recovery.  Washington Mutual isn’t getting the benefit of the doubt like so many other companies that were getting a free pass these last few days.  They are now quickly heading back to a 52 week low on their stock price.  As people dig into the legislation it is apparent only a handful of institutions stand to benefit.

I’m not sure if any of you listen to the KNX Business hour here in Southern California but for the last few days, they’ve had a couple of bank Presidents, some who are on infamous lists, stating that all is okay and they are well capitalized.  One of the representatives was saying, “we did not do subprime loans so we are okay.”  Yet they fail to mention their extensive portfolio of Pay Option ARM loans and Alt-A products that will prove to be just as destructive.

For those of you still interested in following the $15 billion budget short-fall here in California, we are now getting fascinating ideas on how to solve the state’s problem.  Keep in mind that the budget is now overdue by three weeks and both sides are digging in.  It doesn’t help when the California unemployment rate has now skyrocketed to 6.9%.  Just look at how quickly the curve is turning upward:

This budget fiasco has brought out some of the most interesting solutions:

-          Let inmates out early to save some money (fun for the whole family).

-          Balance the budget via future lottery revenues (Big Spin baby!).

-          Close public parks (who needs these?).

-          Shut off healthcare to those who can’t pay for it (why not!).

-          Raise taxes.

The list does go on.  Well yesterday the L.A. Times got their hands on a proposed plan by the Governator on forcing some action by the state politicians to get a budget enacted as soon as possible.  So what are some of the new solutions?  Here is a brief recap:

-          Cut 200,000 state workers pay to the federal minimum wage of $6.55 an hour until a budget is signed.

-          Immediately lay off 21,855 part-time workers and stop overtime payments for almost all employees.

-          Cease all hiring.

Now look again at the unemployment rate.  What do you think laying off people will do to that rate?  Also, let us say that 200,000 employees have to deal with lower pay checks until a budget is signed.  So many people are living paycheck to paycheck that it will undoubtedly set many people behind on their housing payments.  Politics aside, in the short run this will increase the unemployment rate and also create further stress in the housing market.  This is checkmate folks.  This is not a sign that things are turning around.

We need only look at the stress in the California housing market which had 120,000+ notice of defaults filed in the second quarter:

It really takes no rocket scientist to figure out that the budget fiasco and further job cuts are going to hurt the prospects of any housing rebound.  WaMu is looking at major job cuts.  Wachovia is looking at cutting 10,000 jobs, many that will be here in California.  Just wait until Bank of America carves into Countrywide Financial.  There will be nothing left except a carcass.  Yet bear market rallies have a way of sucking people back in.  Listening to folks during this one week bad news orgy was amazing.  It was as if earnings didn’t matter anymore.  These earnings reports are horrific.  Here are some companies that have announced not so hot earnings:

-          Washington Mutual

-          Wachovia

-          American Express

-          Google

-          Apple

-          Texas Instruments

-          Ford

We can list more but this 600+ point rally (which just got a reality check) was completely removed from the reality on the ground.  This budget stall is only going to further add fuel to the flame that we are currently facing.  Why is this such a big deal?  Because $300 billion of those $500 billion toxic Pay Option ARMs set to recast are here in California:

What sectors are booming?  The government is basically saying that they are not going to be hiring anytime soon and they are the largest employer.  Housing and finance related jobs are being slashed (i.e., WaMu, Wachoiva, and Countrywide) and many regional banks are only months away from having the FDIC knocking at their door.  The few fields that do have some hiring are in healthcare, engineering, and accounting.  Yet those fields require hard skills that take at a minimum, a few years of college training.  What are all those involved in the real estate, finance, and insurance sectors going to do now that they have a skill set that isn’t in high demand?  Those jobs are being filled by currently trained workers.  They can head back to school but that will take a few years.  And with the cost of education going up and credit being tighter, the price of a college degree isn’t so cheap anymore.  Consumption will fall even lower.  You can spend (money you don’t have) on consumption items or go back to school.

*Source: State Farm Insurance

By the way, our two largest public university systems just hiked fees this year:

“(LA Times)  University students will pay 10% more in fees at Cal State campuses in the fall and at least 7% more in the UC system to make up for what officials say are shortfalls in state funding.

The raises were approved Wednesday over the protests of students, who complained that charges have nearly doubled in a decade without regard to the escalating costs of textbooks and housing.”

I think the Governator is trying to force the hand of those in Sacramento.  There is a lot at stake here with this budget.  We aren’t talking about a $2 billion state budget.  For California the Governor is proposing a $141 billion state budget.  I know every year we get the same dog and pony show about the budget.  The talk is always the same, “this is the worst budget ever!” or “I’ve never seen things this bad!” but sadly, this year those words are factually true.  There will be some absolute difficult choices to be made.  From the looks of it we can expect a combination of cuts and tax hikes.  Even the Governor’s current move should it go through will add to the problems in the short run.

Let us say the budget doesn’t get enacted until late August and add in a few additional weeks to let the proposals filter through.  Now we are talking September.  That can mean two paychecks being slashed from over 200,000 people and 21,000+ job cuts.  We already know how understated the unemployment data is gathered by the government.  So those part-time workers are currently considered part of the employment force and now with this move, we’ll immediately add an additional 21,000 people onto the 6.9% unemployment rate.

This action practically guarantees a tight fiscal year.  Now who in the world is going to be buying these homes?  Maybe we do need some more subprime lenders to qualify people on minimum wages for these homes.

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California Solution for Budget Crisis: Minimum Wage and Laying off People. But Who Will Buy the $500,000 Foreclosures?

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Related Posts:
■Housing Bloggers Unite: The Housing Blogger Network (HBN) has Started.
■Ode to the Housing Market: Learning to Love the Housing Bubble.
■Real Homes of Genius: Half-Off Sale in Lynwood California and the Distance Theory of Investing.
■Stage Two of the Mortgage Collapse: $500 Billion in Pay Option ARMs Meet the Piper in 2008 with 60 Percent Being in California.
■Foreclosed: Predicting Foreclosures in California. How Many Homes will Be Foreclosed in 2008?

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Filed under: Microsoft (MSFT), Yahoo! (YHOO), Starbucks (SBUX), Motorola (MOT), Walt Disney (DIS), International Business Machines (IBM), Johnson and Johnson (JNJ), Money and Finance Today, Boeing Co (BA), Bristol-Myers Squibb (BMY), ImClone Systems (IMCL), Delta Air Lines (DAL)

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4 Companies With Strong Cash Flow
These four are in a good position to withstand the slowing economy. They include Boeing, IBM, Johnson & Johnson and VF Corp.
Four Companies With Strong Cash Flow - SmartMoney.com

Securing Your Dream Retirement
Planning for retirement takes as much time as planning a vacation. Plan the ultimate vacation. The key is making the right choices. Here is your guide to put you on the right path.
Control your destiny - Bankrate.com

Airlines Sell Frequent-Flier Miles for Fast Cash, Travelers Be Wary
Airlines searching for extra cash to survive their deepening financial crisis are finding out just how valuable their frequent-flier programs really are. Travelers, however, could see the value of their frequent-flier miles eroded by such deals, especially since all those extra miles will be hitting the market as airlines begin shrinking capacity dramatically.
Airlines sell frequent-flier miles for fast cash - USATODAY.com
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Continue reading 4 companies with strong cash flow, securing a dream retirement & airlines sell frequent flier miles - Today in Money 7/31

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My posting last week was relatively light due to a hectic business travel schedule Monday-Wednesday and then the Inman Real Estate Connect Conference in San Francisco.  It was great to be participating in the conference, but the big highlight for me was meeting CR of Calculated Risk and Merlin Mann both in person.  Connect had a great setup with an opportunity called “Meet the Leaders” where you could come up and talk to the keynote panelists.  I wasn’t missing out on meeting either of those two gentlemen and I’m glad I did.

If you haven’t you should check out Calculated Risk (it’s a must read for the mortgage/economy) and Merlin Mann (his site is a must read for productivity).

In addition to those two folks I met a ton of real estate bloggers (too many to name here) but it was great to meet all those folks and talk instead of blog and comment at each other!

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Source [blownmortgage]

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If this graph (from the Big Picture) doesn’t say it all keep reading…

The home prices tracked by the S&P Case-Shiller index continue to drop with all 20 cities tracked in the study posting losses for May (the most recent month tracked).

From S&P:

Data through May 2008, released today by Standard & Poor’s for its S&P/Case-Shiller(1) Home Price Indices, the leading measure of U.S. home prices, show annual declines in the prices of
existing single family homes across the United States generally continued to worsen in May 2008. For the second straight month, all 20 MSAs posted annual declines, nine of which are posting record lows and 10 of which are in double-digits. Both the 10-City Composite and the 20-City Composite are reporting record low annual declines.

From MarketWatch:

Prices thus are at the same levels as they were in the summer of 2004, which means four years of appreciation have been effectively wiped out. Prices are down 18.4% from peak levels seen two years ago.

Home prices surged in 2003 through 2006, climbing by a cumulative 52%, according to Case-Shiller. Since then, however, homeowners have given up half of the gains from earlier in the decade as the housing and credit bubbles burst.

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Source [blownmortgage]

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Filed under: Earnings reports, Google (GOOG), Apple Inc (AAPL)

Apple, Inc. (NASDAQ: AAPL) reported stellar, above-expectations quarterly results yesterday after market close. One would have thought that this company, in the midst of U.S. economic uncertainty, would have reported a mediocre quarter at best, but that wasn’t the case. Apple outpaced expectations by $0.11 per share, shipped more Mac computers than during any quarter in its history, and saw a 38% revenue jump from the year-ago quarter.

As a nice reward for such a stellar quarter, the market took Apple out behind the woodshed and gave it a sound whipping. The reason? Apple’s murky guidance for the fourth quarter. This from a company that almost always shoots low with guidance only to blow the numbers away. Add that to ongoing concern over the health of CEO Steve Jobs and you have a 10% drop in AAPL shares before the market opened this morning.

Is Apple the victim of outsized expectations? You bet. Just like Google, Inc. (NASDAQ: GOOG) the other day — which also reported a fantastic quarter but saw its shares pummeled right after results were announced — Apple may be losing the ability to impress. In reality, both companies are doing excellent business in the face of gas and energy price spikes in addition to a six-month string of job losses in the U.S. Yet, the market slapped huge losses on both stocks based on what could be considered shaky speculation for future growth prospects.

On the other hand, Citigroup, Inc. (NYSE: C) saw stock gains after reporting a better-than-expected $2.5 billion dollar quarterly loss last week. Talk about twisted.

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Filed under: Industry, Law, Scandals

Imagine your broker parked your funds in an account that he said would be as safe as a money market fund but offer slightly higher yields. If you went for that line, you might now be among those who hold the $330 billion worth of Auction Rate Securities (ARS) whose weekly price-setting auctions stopped working in February. Now, Bloomberg News reports that those who are trying to get at their funds through arbitration will be lucky to receive 22 cents on the dollar.

I first began posting on the ARS market back in February. Since then 5,482 comments have appeared from people trying to unfreeze their funds from what their brokers told them were safe investments. Massachusetts and New York have sued one of the ARS hawkers — UBS AG (NYSE: UBS) — thanks to e-mails that indicated that when the ARS auctions failed, UBS decided to dump this toxic waste on individual investors rather than take the losses on its own books. New York’s attorney general found that UBS executives sold $21 million worth of their ARS holdings before launching this campaign to dump them on the public.

Many are now trying to get their money back through a process called arbitration. If your claim is above $50,000 you will face a panel of three judges, two “public” and one of whom represents the ARS industry. Bloomberg reports that the process for choosing the panelists virtually assures that consumers will be judged by a representative of the industry that defrauded them. So it’s no wonder that arbitration rulings have given investors enormous haircuts.

Continue reading Will Auction Rate Securities holders get 22 cents in arbitration?

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Filed under: Launches, Industry, Competitive strategy, Apple Inc (AAPL), Dell (DELL), Wal-Mart (WMT)

Dell (NASDAQ: DELL) may join the parade of companies that have taken a shot at taking multimedia player market share away from the Apple (NASDAQ: AAPL) iPod. The PC company may have a better chance than most.

According to The Wall Street Journal, “Launching the player — along with an online download service and related software — would be part of a strategy that Dell Chief Executive Michael Dell hopes will move the company into a broader range of consumer markets than it has served before.”

The conventional argument is that Apple has over 150 million iPods sold and that its iTunes franchise may be the largest music download service in the world. By some measures, iTunes has 70% of the online digital music market.

Dell has one significant advantage over past challengers: it is already one of the largest online consumer electronics marketers in the world due to its prowess in the PC industry. In terms of revenue, Dell is over twice Apple’s size and has an unusually strong balance sheet. It can afford to make a long-term push into digital music.

Dell will have to create its own music store, but based on the number of participants in the field, that should not be a high hurdle. Dell may also be able to use the huge online sites of some of its retail partners like Wal-Mart (NYSE: WMT) to market its new products.

Dell has long odds for picking up business from Apple, but not nearly as long as some other firms that have tried to move into the industry.

Douglas A. McIntyre is an editor at 247wallst.com.

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Filed under: Google (GOOG), Microsoft (MSFT), Time Warner (TWX), Starbucks (SBUX), International Business Machines (IBM), Citigroup Inc. (C), Advanced Micro Dev (AMD), Money and Finance Today, Merrill Lynch (MER), Mattel, Inc (MAT), Wachovia Corp (WB), Teva Pharm Indus ADR (TEVA)

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