Filed under: Products and services, General Motors (GM), Mattel, Inc (MAT)

When my wife and I were in Europe a few years ago, we saw the “Smart Cars,” vehicles so small that they look like they could have come off an assembly line at a toy plant. The reason we were told that they were so popular in Europe was that gas was expensive and people there did not need to drive huge distances over crowded highways. Well, I thought these sort of vehicles would never sell in the U.S. where we like our cars as wide and free as freeway at the crack of dawn.

Thanks to $4 gas, my theory has been proven wrong.

General Motors Co. (NYSE: GM) may start producing the Chevrolet Beat in the U.S., a vehicle which according to Bloomberg News is more than a foot shorter than any other vehicle and whose 40-mile-per-hour fuel efficiency is only topped by hybrids. The new service points out that the the automaker has little choice because its current market value is SMALLER than Matchbox car maker Mattel Inc. (NYSE: MAT) and a 10th of what it was in 2000. It only took GM billions of dollars in losses but hey better late than never, right?

Don’t get be wrong. I have nothing against the Chevrolet Beat. Judging from the pictures I have seen online. it looks okay, not my cup of tea, but then again that’s why we have chocolate and vanilla. Thanks to Al Gore, I understand about global warming and feel guilty that I own the small SUV that I drive. Nonetheless, the Chevrolet Beat and other cars like it scare me.

Continue reading Will Americans have to slim down to fit into their cars?

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“One should always play fairly when one has the winning cards.” -Oscar Wilde Take a deep breath. The first half of the year has officially come to an end. Talk about a brutal time for the markets. The housing market is still in a deep slump and oil jumped from $99.62 a […]
Related Posts:
■Putting Home Sellers on the Couch: The Psychology of why Sellers Refuse to Lower Prices.
■The Short Sale Report: Volume 2 – Record 10,000+ Short Sales in Southern California.
■Cultural Spending Neurosis: How a Nation Went From Prudence to Financial Decadence.
■Ode to the Housing Market: Learning to Love the Housing Bubble.
■People Still Asking for Nothing Down Loans: This Free Bus is Coming to a Stop.

“One should always play fairly when one has the winning cards.” -Oscar Wilde

Take a deep breath. The first half of the year has officially come to an end. Talk about a brutal time for the markets. The housing market is still in a deep slump and oil jumped from $99.62 a barrel in January to the current $140 price tag. A stunning 40% jump in crude in 6 months. At this rate, we’ll be nearing $200 come New Year’s Eve. With this high price tag, U.S. automakers have been struggling to keep their fuel inefficient cars on the road and airlines struggle to remain viable. On top of that, the American consumer is facing evaporating equity, higher food costs, a worsening housing market, and a massively declining dollar. But there is some good news. CEOs that engineered a large part of the credit garbage and mortgages that went along with it are making out just fine!

Americans are reeling from the Great American Garbage Mortgage Experiment (GAG-ME), the one that included loans where you had the ability to pick your own payment and some that allowed you to cash out every year as if your house was an ATM. The engineers of these products are doing just fine while some of their companies are quickly going into penny stock territory quickly following many that signed onto these loans.

As people become more desperate, you are starting to see some of the weirdest parts of human nature emerge. Money problems have a way of doing this to folks. That is why one of the stories we’ll highlight today is simply stunning. A realtor in Florida is trying to sell her home and trying to get married, all in one shot. This isn’t the way your mom and pop met, you can rest assured.

We are also going to discuss Wachovia’s press release in which they are waiving the pre-payment fee associated with their Pick-A-Payment loan and also their discontinuation of pay option products including negative amortization loans. You mean those where the family is ecstatic on TV since they get the option of picking their payment as if they were ordering off the McDonald’s dollar menu? One of the many reasons why the $500 billion Pay Option ARM disaster is going to be one of the major stories of the second half.

Someone is Still Making Money and it Ain’t You!

Most Americans are feeling the bitter sting of this economic prosperity. I call this prosperity because we can’t officially call it a recession. Yeah, home prices are down 15% on a national level and in California, the median price is now down 35% but all is well. In fact, those stimulus checks boosted spending a bit! Yet this is tantamount to giving a heroine addict a “little taste for old time sake” before hitting rehab. And by the way that “stimulus” was pulled out of thin air since we are running bigger deficits so it wasn’t like we went to WaMu and withdrew some money. Speaking of WaMu, some people are getting big pay for those Pay Option ARMs:

According to the AFL-CIO

Chairman and CEO, Kerry Killinger

Salary: $1,000,000

Vested Stock Awards: $669,104*

Vested Option Awards: $3,183,914*

All Others: $397,752

SEC Total: $5,250,770

There is another calculation from the AFL-CIO’s own estimates:

*Grant Date Fair Value of Stock and Option Awards: $12,967,131

AFL-CIO Total: $14,364,883

Not bad for running a company that has nearly half of their loans in option-adjustable mortgages with the bulk being in imploding California!

“(wiki-invest) In early 2006, the Home Loans Group was strategically focused on building its non-traditional mortgage origination and investment; in particular, the Home Loans portfolio consisted of 46% option-adjustable rate mortgages (option-ARMs) and 11% subprime mortgages.”

But this post has come to an end:

“(ABC news June 19, 2008) Mounting losses caused the thrift this year to slash its dividend and raise $7 billion of capital that diluted existing shareholders. The thrift this month stripped Chief Executive Kerry Killinger of his role as chairman, after a majority of shareholders voted to name an independent director as chairman.

Washington Mutual has said it may still need to charge off $12 billion to $19 billion of its $187 billion one-family residential home loan portfolio within four years.”

The current market cap of WaMu is $5.21 billion and they have a $187 billion home loan portfolio? Talk about maximum leverage! Those loss estimates are extremely optimistic given the banana republic nature of California and that fact that we probably won’t see a state budget until August or September.

Who else is making tons of money while you aren’t? That loveable Angelo Mozilo from Countrywide is racking in the dough. Now there is nothing wrong with making money but making money from toxic destructive products that have put our nation’s financial security at risk is. Have these products really improved the lives of Americans or added value to the health of our economy? Let us look at the compensation here:

Chairmen and CEO Countrywide (2006 Compensation), AFL-CIO

Salary: $2,866,667

Vested Stock Awards: $1,103,745

Vested Option Awards: $23,047,104

Non-equity Incentive Plan Compensation: $20,461,473

Changes in Pension Value and Non-Qualified Deferred Compensation Earnings: $10,961

All Others: $286,257

SEC Total: $48,133,155

Good job Bank of America is helping out this poor company. I mean how did people ever live without interest only, pay option arm, 2/28, 3/27, and other exotic mortgages? Whenever you feel bad about the economy which was caused by this hyper easy credit and housing speculation, you can look at these compensation packages and you’ll certainly feel better. But if you are having problems selling your home may I suggest holy matrimony?

I Do…After you Sign That Mortgage Contract.

In one of the more interesting cases of deal making, a divorced realtor in Florida is offering her home for sale…she’s included:

*Click to watch video and new definition of “housewife”

I love how the media is playing this up as “woman selling home, hand in marriage on EBay” as if this was a case of finding “true” love. Now I don’t want to be the anti-Romeo here but give me a freaking break! Next we are going to see ads like:

“Great deal on slightly used Hummer. Free massage and gas card with purchase.”

Bwahahaha! This is as much about finding love as the Moulin Rouge is about visiting a confessional. I have an uneasy feeling with this one. I’ve gotten a few e-mails from readers showing me some “realtors” on Myspace with provocative photos. Now let us not kid ourselves and pretend that sex does not sell. Sex does sell. My issue with this story is the romanticism the media is trying to spin on this. Do you folks really believe this is a love story or a desperate ploy to avoid financial ruin? Also, has marriage become so baseless that all it takes is an eBay ad to commit to someone? In addition, I’m sure most of you are financially savvy and realize that the number one reason for divorce is financial issues. Now using your logic, why would you get involved with a realtor that is now in a major negative equity position? Look at her reasoning:

“(team sugar) I figured, let’s combine the ad because I’m looking for love and I’m looking to sell the house,” said Trabosh.

“Marry a Princess Lost in America,” Trabosh wrote in the ads posted on eBay and Craigslist last week. She describes a life of romance and travel and a home with vaulted ceilings, upgraded tile and a soaking tub in a gated community with a pool and tennis courts.

Trabosh, a licensed real estate agent who hasn’t practiced in years, knew she would struggle to sell the home in the troubled real estate market, but insists her fairy-tale ad isn’t just a sales gimmick.

“I’m struggling … I don’t want to lose my house, and I want to find somebody,” Trabosh said. “So I came up with this dream plan because I’ve always dreamt about being a fairy-tale princess.”

And Santa Clause is going to give all of us gold bricks because we’ve been good boys and girls. Seriously folks, what are your thoughts with this?

Pick a Nose Loans Just Got Tastier

The most toxic loans as I have referenced many times on this site, are the Pay Option ARM mortgages. These are the most toxic since they give people the ability to pay from a menu of options. You can pay the fully 30-year fixed amount, an interest only amount, or the ever popular negative amortization amount. By the way, many reports estimate that 80 percent of people elected to pay the absolute minimum.

Most people by now should know that these loans should be avoided at all costs. So Wachovia announcing that they are eliminating their Pick-A-Payment loans is as shocking as someone telling us water is wet:

“(Yahoo!) Effectively immediately, Wachovia is waiving all prepayment fees associated with its Pick-A-Pay mortgage to allow customers complete flexibility in their home financing decisions. This includes all Pick-A-Pay mortgages on 1-4 unit residences.

Additionally, for all new loan originations, Wachovia is discontinuing offering products that include payment options resulting in negative amortization.

Wachovia continues to be actively engaged in assisting customers through a number of programs to provide mortgage relief to help them avoid foreclosure. Over the past 12 months, Wachovia has worked with approximately 18,000 homeowners to help them stay in their homes and make payments that are more manageable under their current circumstances.”

Too bad a large amount of these loans are in California. Who in their freaking right mind would refinance a home that is underwater in this state?  The only one nutty enough to do such a thing is the government and that is why they are trying to pass that absurd bailout plan. After all, the median price is now down 35% and shows no signs of letting up! I’ve already talked about how $1 trillion in write-downs are estimated to come down the pipe-line and we’ve only seen $391 billion so far.

Needless to say, another mortgage lender suspected of easy lending, IndyMac is now riding in the penny stock range hitting an all time low of .62 cents. Sure is a far cry from that $48 a few years ago:

Be safe with your money and stay away from the charlatans and credit addicts that are trying to suck in those who responsibly stayed out of this smoke and mirrors bubble. You thought the first half way insane? Just wait until the next few months with the upcoming election, acceleration in foreclosures, state craptastic budgets, and further write-downs.  And some still believe there will be a second half recovery.  Now that is the true fairy-tale.

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Related Posts:
■Putting Home Sellers on the Couch: The Psychology of why Sellers Refuse to Lower Prices.
■The Short Sale Report: Volume 2 – Record 10,000+ Short Sales in Southern California.
■Cultural Spending Neurosis: How a Nation Went From Prudence to Financial Decadence.
■Ode to the Housing Market: Learning to Love the Housing Bubble.
■People Still Asking for Nothing Down Loans: This Free Bus is Coming to a Stop.

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Small banks may be exposed to nearly $300 billion in bad construction loans granted to local builders and developers according to a new report by the Wall Street Journal.  The report estimates that more than 150 local banks could fail under the weight of the defaults.

Construction loans are dicey propositions in the crashing housing market as builders who bet on repaying loans with sold properties may be unable to repay the debt obligations on the existing projects.  Some projects are probably already abandoned and others will sell for pennies on the dollar leaving developers insolvent.

Further, because banks often allow developers to hold off on interest payments during construction the true ability of the developer to repay is often not known until it is too late.

More on the small bank crisis from Market Watch:

Small banks have some $280 billion of outstanding construction loans and analysts have predicted that as many as 150 smaller banks could fail in coming years after betting heavily on construction loans, The Wall Street Journal reported.

The practice of allowing real estate developers to delay paying construction-loan interest has raised alarms with regulators concerned that smaller banks are masking potential problem loans, the paper said.

Increasingly popular during the building boom of the last decade, many of these loans allowed banks to calculate the interest that would be paid on the loan overall and then set aside that amount in “interest reserves,” essentially allowing the banks to pay themselves until the property becomes profitable or the loan is paid off.

The loan can then be marked as a performing loan even if the project if it is financing is failing, a practice that concerns regulators, the report said.

But the tanking housing market means many of these projects may not be built — or even financed — leaving banks, and their investors, holding the bag.

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Filed under: Google (GOOG), Time Warner (TWX)

Time Warner Inc. (NYSE: TWX) reaches an interesting milestone this morning. The terms of its paid search advertising deal with Google Inc. (NASDAQ: GOOG), give the search giant the right to require AOL to register Google’s 5% equity interest for sale in an initial public offering as of July 1, 2008.

It isn’t a forced IPO of the unit — or at least it doesn’t have to be. Time Warner has the right to purchase Google’s equity interest for cash or shares of Time Warner common stock based on the appraised fair market value of the equity interest in lieu of conducting an initial public offering.

FULL DETAILS can be seen in this filing for the terms and exceptions.

It is hard to know what Google will do, but I think Google will likely want to keep the AOL stake. If not, it is pretty hard to imagine Time Warner chief Jeff Bewkes allowing 5% of AOL to go public (in this lousy market) or be sold to someone that the company wasn’t fully on board with. It seems he’d have little choice but to buy back the equity interest.

Win or lose, after two years time’s finally up.

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Filed under: Major movement, Analyst upgrades and downgrades, Bad news, Industry, Aetna Inc (AET), Options, Technical Analysis

Aetna (NYSE: AET) shares are falling today after an analyst at Goldman Sachs downgraded the stock to “Sell” from “Neutral,” saying the company will face lower profit margins over the next few years. Other companies in the health-care industry also got downgrades today. If you think this stock won’t be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AET.

After hitting a one-year high of $60.00 in December, the stock has hit a new one-year low today. This morning, AET opened at $36.98. So far today the stock has hit a low of $36.01 and a high of $37.99. As of 11:55, AET is trading at $37.29, down 2.50 (-6.3%). The chart for AET looks bearish and steady, while S&P gives the stock a positive 4 STARS (out of 5) buy rating.

For a bearish hedged play on this stock, I would consider an August bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call 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 4.2% return in six weeks as long as AET is below $45 at August expiration. AET would have to rise by more than 20% before we would start to lose money.

Continue reading Trade idea for recent Aetna downgrade

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Filed under: Newsletters, Commodities, Oil, Stocks to Buy, Green Stocks

“Renewable fuels and clean energy, a sector beaten down hard since last fall, are now primed for a major comeback,” says Eric Roseman, editor of The Commodity Trend Alert. Here’s his ETF play on the sector.

“With every passing day the price of crude oil rises, the secular trend to alternative energy becomes even more powerful. Consumers, companies and governments are now sick and tired of soaring energy prices.

“The long-term solution is to obviously reduce our dependence on oil and increase our consumption of renewable fuels like wind, solar, and nuclear energy.

“The bull market in alternative energy began in 2005 when a host of companies in this thriving sector went public, supported by government subsidies, especially in Germany and Spain. Interestingly, Germany and Spain have just reduced solar energy subsidies this spring.

“In my view, those subsidy cuts don’t matter at this stage. When companies in the solar sector are making money, why should governments continue subsidizing them?

Continue reading Claymore/MAC Global Solar Energy: Time for a TAN

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Maybe the politicians think that with everyone getting ready for 4th or July that the news of a sleight-of-hand bailout bill won’t raise too many eyebrows.  Maybe they’re wrong (again).  With the holiday fast approaching legislators in both the House and Senate are getting ready to put through the mother of all mortgage bail out bills in an attempt to stave off the further decimation of the housing market.

What a surprise.  All the rhetoric from last summer goes out the window as the market worsens and votes become more precious.  Legislators have decided to mortgage each of our futures with the tax of the ignorant and greedy.

The bill, called “the most sweeping mortgage reform since the New Deal,” has a ton of bail out provisions loaded in - giving lenders and borrowers the ability to just pass over the risk of bad mortgage debts to Fannie, Freddie and the Federal Housing Administration.  In otherwords, the taxpayers of the United States of America.

Your bail out bill grab bag includes:

• permanent conventional loan limit increases from $417,000 to $625,000
• tax credit for first time homebuyers for $8k or 10% of the home’s value (for unoccupied homes)
• $150 million in foreclosure counseling funds
• “stricter” guidelines on lender disclosure of ARM loans
• up to $900 million for the Affordable Housing Trust Fund to be financed by fees from Fannie and Freddie
• rescue refinancing which allows distressed borrowers to refinance in to a federally guaranteed 30-year fixed loan at 85% LTV from wherever they sit currently with their lender

Take a look at that last one.  Even with the requirements attached to it (lender approval, full-doc income, etc.) this is the definition of a bail out.  Wholesale debt forgiveness.  The lender has to eat the cramdown or foreclose; but the simple fact is that the government is taking all the folks who borrowed too much, bet big on real estate and racked up mortgage debt and saying “don’t worry about it, we’ve got this one.”

Thanks Uncle Sam, but put down the check and let’s divide this up like grown-ups.  I’ll pay for my mistakes - you pay for yours - and let’s call it a day.

From the New York Times:

The centerpiece of the Senate package is a rescue-refinancing plan aimed at stemming the tide of more than 8,000 new foreclosures a day that lenders are filing across the country. The plan would allow distressed borrowers and their lenders to stem losses by allowing qualified owners to refinance into more affordable, 30-year fixed-rate loans with a federal guarantee.

The legislation would also provide benefits for first-time buyers, who would receive a refundable tax credit of up to $8,000, or 10 percent of the value of a home, on purchases of unoccupied housing.

As part of a regulatory overhaul of Fannie Mae and Freddie Mac, the mortgage finance giants, the bill would permanently increase to $625,000, from $417,000, the limit on loans they can purchase from lenders in expensive housing markets, making it easier for borrowers to obtain mortgages at discounted rates. Despite a presidential veto threat, the package received overwhelming bipartisan support, clearing by 83 to 9 a crucial procedural vote in the Senate on Tuesday morning.

Final passage of the bill was snagged temporarily in the Senate Tuesday evening because of a fight over renewable energy tax credits. Still, major supporters of the bill said they hoped it would be completed before for the holiday.

“There’s a great desire to act,” said Representative Barney Frank, Democrat of Massachusetts, the bill’s main author in the House. “We’re just not there yet.”

The bill would provide $150 million to expand counseling for borrowers to prevent foreclosure and would establish stricter disclosure rules to require lenders to make plain the maximum monthly payment for a borrower with an adjustable rate loan.

The bill also establishes an Affordable Housing Trust Fund, to be financed by $500 million to $900 million in fees from Fannie Mae and Freddie Mac. The fund will cover any expenses related to the foreclosure rescue plan for three years, and will be used to create affordable rental housing.

Under the refinancing plan, only borrowers seeking to remain in their primary home would be eligible. Lenders would first have to agree to cut the principal balance of loans to roughly 85 percent of each property’s current value.

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Filed under: China, Indices, Japan, Economic data, Recession

Japan’s Nikkei Index, the weighted average of 225 stocks in major companies, fell for the 10th day. That has not happened since 1965.

According to the FT, “Rising fears about the impact of inflation on slowing economies took their toll on Japanese and other Asia-Pacific markets.” That sounds a bit like the current trouble in the US.

A number of other indicies have had sharp declines lately. The Shanghai Composite has fallen by more than half since late last year. Rising energy and food costs in China have not helped it. Neither have concerns that a recession in the West could cut demand for its exports.

The Nikkei news says two things. The first is that the economies in other large nations may be as troubled as that in the US. Traders often look out several quarters when they make their buying or selling decisions. But, the second, more ominous sign from the Nikkei’s decline is that it says that the smart money in Japan believes that the price of oil is not likely to fall. Japan is relies more on imports of crude that the US does.

The tough run for the Nikkei is not restricted to Japan. US and EU markets are likely to set records of their own, and not the kind that traders look forward to.

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

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Filed under: Earnings reports, Google (GOOG), Walgreen Co (WAG), Bed Bath and Beyond (BBBY), Kroger Co (KR), Darden Restaurants (DRI), Research in Motion (RIMM), General Mills (GIS), NIKE, Inc’B’ (NKE), KB HOME (KBH), Oracle Corp (ORCL), Red Hat Inc (RHT), United Parcel’B’ (UPS), Palm Inc (PALM), CKE Restaurants (CKR), Rite Aid Corp (RAD)

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

• Bed Bath & Beyond Inc. (NASDAQ: BBBY) Q1 earnings tumbled while revenues rose.
• Casella Waste Systems Inc. (NASDAQ: CWST) posted a narrower-than-expected Q4 loss.
• CKE Restaurants Inc. (NYSE: CKR) Q1 earnings increased but its revenue slipped.
• Darden Restaurants Inc. (NYSE: DRI) swung to a Q4 profit on strong sales at Olive Garden.
• Ericsson (NASDAQ: ERIC) said it might not see Q2 profit growth on lower demand and shipping delays.
• General Mills Inc. (NYSE: GIS) Q4 earnings declined but were in line with expectations.
• Gerber Scientific Inc. (NYSE: GRB) reported solid Q4 and full-year results that pleased investors.
• IHS Inc. (NYSE: IHS) beat Q2 expectations and posted record quarterly cash flow from operations.
• Jabil Circuit Inc. (NYSE: JBL) stronger-than-expected Q3 results led to an analyst’s upgrade.
• KB Home (NYSE: KBH) widened its Q2 loss due to weak sales and falling prices.
• Kroger Co. (NYSE: KR) beat Q1 expectations as consumers sought discounts on food and gas.
• Monsanto Co. (NYSE: MON) beat Q3 earnings estimates but fell short of revenue estimates.
• Nike Inc. (NYSE: NKE) posted better-than-expected Q4 results boosted by international strength.
• Oracle Corp. (NASDAQ: ORCL) posted strong Q4 results that topped analysts’ expectations (see transcript).

• Palm Inc. (NASDAQ: PALM) posted dismal results as revenue fell despite higher sales volume.
• Red Hat Inc. (NYSE: RHT) Q1 revenues soared as results beat Wall Street expectations.
• Research in Motion Ltd. (NASDAQ: RIMM) posted disappointing results and lackluster guidance (transcript).
• Rite-Aid Corp. (NYSE: RAD) swung ot a larger-than-expected Q1 loss on integration difficulties.
• Sonic Corp. (NASDAQ: SONC) earnings warning took shares to a new 52-week low.
• Symmetry Medical Inc. (NYSE: SMA) beat Q1 estimates on increased demand and acquisitions.
• United Parcel Serivce (NYSE: UPS) cut its earnings forecast due to rising fuel prices and less demand.
• Walgreen Co. (NYSE: WAG) posted sluggish Q3 results despite cost-cutting measures.

Also, do the results from Oracle, Research in Motion, and Red Hat point to a bottom for tech stocks? Will Google’s (NASDAQ: GOOG) new CFO be more likely to provide the guidance that analysts crave?

Upcoming results to watch for include H&R Block (NYSE: HRB), Constellation Brands (NYSE: STZ), Apollo Group (NASDAQ: APOL), Family Dollar (NYSE: FDO), WD-40 (NASDAQ: WDFC), and Berkshire Hathaway (NYSE: BRK.A).

Visit AOL Money & Finance for more earnings coverage.

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