Filed under: Citigroup Inc. (C), Merrill Lynch (MER)

This week, state investigators from Massachusetts and New York revealed more pieces of the scam that was the $330 billion ARS market. Up until this week, it had been known that UBS AG (NYSE: UBS) had told its brokers to dump this toxic waste on its so-called private clients — individual investors — to keep UBS from needing to write it off from its own books.

But this week we learned that banks had been colluding for as long as two years to prop up the weekly auctions that were supposed to set the rates on these securities. It looked like there was good evidence that the banks were committing securities fraud when they sold ARS on the premise that they were cash-like and offered slightly higher yields than money market funds. Why the fraud? Because, their internal e-mails and behavior revealed that they were desperate to get rid of the toxic waste.

Moreover, those e-mails show that the banks’ claim that the auctions suddenly failed in February 2008 is another fraud. As I posted, Merrill Lynch & Co. (NYSE: MER) e-mails reveal that the auctions started failing in January 2006. And it was public knowledge, according to Financial Week, that ARS auctions were failing last September — 60 such auctions failed to the tune of $6 billion.

Continue reading Did banks collude to freeze the auction rate securities (ARS) market?

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Filed under: Earnings reports, Forecasts, Industry, Newspapers

The one last hope failing newspapers could hold onto is that the online versions of their products would grow enough to offset falling print profits. The most recent earnings from the largest chains have raised the question of whether that is possible. Results from The Washington Post Company (NYSE: WPO) have diminished the dream even further.

The numbers for the company’s flagship paper, The Washington Post, were remarkably poor. According to The Wall Street Journal (subscription required), “Print ad revenue at the paper declined 22% to $99.8 million in the quarter, compared with an 11% decline in the first quarter.” One of the nation’s most respected newspapers is simply falling apart.

Online growth at the Post was anemic. It increased only 4% to $29.3 million, not nearly enough to have any meaningful impact on earnings.

The question keeps coming up about what newspapers can do. The stock prices of several of the chains are down over 80% during the last year. Many of these companies have large debt loads.

The only realistic solution may be that editorial staffs will have to be cut by 50% or more. Papers may decide to put out 8 to 16 page news summaries each day in the place of their current products. These smaller papers would point users to their internet sites to get full stories and complete coverage. It would save substantial money on paper and distribution, and it just might force large numbers of readers to web editions. At least that would give the companies a chance, something they do not have now.

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

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Filed under: Before the bell, Earnings reports, Deals, Google (GOOG), Microsoft (MSFT), Yahoo! (YHOO), Apple Inc (AAPL), Time Warner (TWX), Market matters, American Express (AXP), Bank of America (BAC), Merck and Co (MRK), Genentech Inc (DNA), Hasbro Inc (HAS)

Stock futures were higher this morning after Bank of America joined recent financials and topped Wall Street estimates. Also pushing futures higher is a deal in the pharma sector with Roche bidding nearly $44 billion for the rest of Genentech. However, both Merck and Schering-Plough said they’ll postpone reporting their financial results after the close; Apple will also be reporting results then. Finally, oil prices came off a six-week low and are trading back above $130 a barrel due to escalating Middle East tensions. Higher oil prices could dampen the mood on the Street.

Bank of America Corp. (NYSE: BAC), the biggest U.S. consumer bank and home lender, said profit fell 41% to $3.41 billion, or 72 cents a share, much better than analysts estimates of 21 cents according to Bloomberg. The bank curtailed loan losses, adding $2.2 billion to loan loss reserves. The bank has completed the purchase of Countrywide Financial Corp. on July 1. With these results, BAC joins other big banks that have recently reported better-than-expected results. BAC shares are up 8.6% in premarket trading.

Roche Holding on Monday said it was offering $43.7 billion to take over the remaining 44.1% shares of Genentech Inc. (NYSE: DNA) for $89 per share, 8.8% above DNA’s closing price Friday. DNA shares are up nearly 18% in premarket trading to $96.50.

Yahoo! Inc. (NASDAQ: YHOO) said Monday morning it settled its fight for control of the board with billionaire investor Carl Icahn. The board will expand to 11 members to include Icahn and the remaining two seats will be filled by the board upon the recommendation of its nominating and governance committee. In addition, Icahn, who owns about 5% on Yahoo common shares, agreed to withdraw his nominees for consideration at the annual meeting and to support the board’s nominees. YHOO shares are declining 2% in premarket trading.

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Filed under: Bad news, Consumer experience, AMR Corp (AMR), Delta Air Lines (DAL)

These are tough economic times for the nation, most would agree, and one hard-hit sector has been the airline sector, specifically the major carriers.

Surging fuel costs, the increased precautions and reviews required for the post-September 11 era, and intensifying competition for international routes has led to large losses among many major carriers - - a condition that has forced them to raise fares and implement other cost-cutting changes.

Most have also instituted a baggage fee for a passenger’s second bag, with some carriers charging for all bags. Still, for the most part travelers have taken the baggage fees in stride. Although viewed as a nuisance by many travelers, the reality is a second bag, in particular, is optional weight that increases flying costs per mile. And with aviation fuel zooming past latte-price levels, that’s no significant expense.

Still, US Airways Inc. may have gone one too far with the fee system. Effective today, US Airways will start charging for water on flights by coach passengers, The Wall Street Journal reported Friday (subscription required). Bottled water will be $2. Passengers flying first class are exempt from the extra fee.

Continue reading US Airways to start charging for water on flights, effective today

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Did you hear that? Probably not because that was the sound of Treasury Secretary Hank Paulson’s bazooka shooting out a dud. The market on Monday simply reaffirmed what we all know at our core; housing is still a long way from any bottom and even though the Senate signed off on the housing […]
Related Posts:
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■Real Homes of Genius: Today we Salute you Stanton.
■Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!
■Real Homes of Genius: Today we Salute you Pacoima. Zillow says $457,000 but Listed at $225,000?
■Real Homes of Genius: Today we Salute you Buena Park. $511,000 for 864 Square Feet. Even Knott’s Berry Farm is Cheaper!

Did you hear that? Probably not because that was the sound of Treasury Secretary Hank Paulson’s bazooka shooting out a dud. The market on Monday simply reaffirmed what we all know at our core; housing is still a long way from any bottom and even though the Senate signed off on the housing bailout bill, not much is going to change except putting the American taxpayer on a bigger hook.  The market hit a bottom on July 15 of 10,962 and rallied to a high of 11,632 on July 23 for a gain of 670 points.  Yet in another 5 days the market gave back 501 points to stand at 11,131 on July 28.  The market today just had another rally based on “better than expected” drivel even though nationwide housing prices drop for a 22nd month in a row putting prices down by 15.8% nationwide according to the Case-Shiller Index.  This means more write-downs in the future but the market is trying to act like we are at a bottom.

Merrill Lynch on Monday after hours announced more write-downs to the tune of $5.7 billion and stated that it will seek to raise capital. Capital which only a short time ago it stated was not necessary. This is what CEO John Thain had to say in April of this year:

“(Fortune) Despite this quarter’s loss, Merrill Lynch’s underlying businesses produced solid results in a difficult market environment,” said Thain. “The firm’s $82 billion excess liquidity pool has increased from year-end levels, and we remain well-capitalized. In addition, our global franchise is positioned strongly for the future, and we continue to invest in key growth areas and regions.”

Apparently the global franchise means getting cash infusions from worldwide players.

When Hank Paulson made the bazooka comment, I suddenly had visions of Paulson holding a t-shirt gun, loading it up with cheap shirts, and blasting it all over the American public. The shirt reads, “I bailed out Wall Street and all I got was this crappy mortgage.”

It is easy really, to forget the actual reason we got into this mess. The pervasive psychology that home prices only went up. This was true until it wasn’t of course. Yet any person with common sense and a basic understanding of economics knew that we were living in a bubble. There was no regulation and enforcement of any kind. It was as if mom and dad had left two teenage boys for the weekend in a house full of liquor and the urge to party expecting to come back to a clean home.

The Miami Herald (hat tip J) has a great series on mortgage fraud. In what seems like a bad episode of Cops, these were the folks responsible for finding and helping borrowers fund their homes:

“When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking.

Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot.

Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room.

They asked for a copy of the court file but never demanded the police report, which shows that he had been caught with a small arsenal of assault rifles and ammunition, in addition to the cocaine.

Their background investigation complete, regulators circled ”approved” at the bottom of the screening checklist, collected a $215 license fee and looked the other way.”

*Source: Miami Herald

Bwahaha! A note from mom. That is simply absurd. You can see the Three Stooges running around and doing some slapstick comedy while handing out licenses like free candy. What’s next, giving a credit card to a cat? Oh yeah, that actually did happen:

“(Australia) MESSIAH Campbell was considered a good enough credit risk to be given a card with a $4200 limit - which was surprising considering he’s a cat.

His Melbourne owner Katherine Campbell wanted to test the limits of her bank’s identity screening process and applied for the Visa credit card on Messiah’s behalf.

She was amazed when it was approved.

“I just couldn’t believe it,” she said yesterday. “People need to be aware of this and banks need to have better security.”

So now we are left with a disastrous mess and the mortgage kitty litter is all over the world. If you really want to get some serious perspective, the median priced home of the biggest state in the country California is now down 37.7% on a year over year basis. In fact, let us take a look at the top 30 zip codes in Los Angeles County with the highest year over year price declines:

*Source: DataQuick

As you can see, many zip codes in Los Angeles County have already broken the 50% year over year decline barrier. One zip code in Long Beach has passed the 60% mark and we will go hunting for a home in this area to see what we can find. In all, there are 270 zip codes in Los Angeles County over 88 cities; many cities like Long Beach and Los Angeles have multiple zip codes. If you want a break down of the list, here it goes:

> 60% decline 1 zip code

> 50% decline 11 zip codes

> 40% decline 29 zip codes

> 30% decline 76 zip codes

> 20% decline 134 zip codes

> 10% decline 198 zip codes

> 0% decline 225 zip codes

Number of positive zip codes 28 zip codes

17 zip codes with no data

Let us now go house hunting in the negative 65% zip code in Long Beach! Today we salute you Long Beach with our Real Home of Genius Award.

Built During the Great Depression for this Depression

This amazing “Spanish style bungalow” sits on a whopping 792 square feet. We are told there are 2 bedrooms in this place and we are offered a great piece of perspective photography. To show you how big this place is, a car is parked right in front of almost the entire length of the home. The ad tells us this is on a “quaint” street and the price is so low that you’ll “have some money left for a hammer and some paint!” for needed work. Need we say more?

The home was built in 1929 which of course is the infamous date of the stock market crash sounding the start of the Great Depression. When we take a look at one of the rooms, it looks like we are going to need that hammer and paint:

This home is a foreclosure so what do you expect? The price tag may be right for a maverick investor. Currently it is listed at $109,900. That is right. A place in Los Angeles County that is a single family residence (yeah, technicalities) that is almost in the six-figure range. Now that is why this zip code is down by 65% in one year. Let us look at the sales history to see what shenanigans occurred:

Sale History

10/22/2004: $176,000

04/02/2004: $156,200

There was a lot of action on this place in 2004. The current reduction is 37.5% (amazing how it almost matches the state median price decline) but a far cry from the 65% drop. Given the market antics in California I wouldn’t be surprised to find a home purchased by a ferret with a $500,000 Pay Option ARM mortgage.

Current rents in this area go from $850 to $1,000. So is this a good investment? Not really even though prices are coming down and at least with this place we can run the numbers. So here we go. First, you will need to invest money in getting this place rent ready. Clearly you are going to need more than a hammer and some paint to make this place livable so that is money out of your pocket.

Let us assume you buy this as an investment. For investment properties rates are higher and normally require a minimum of 10% down. So let us use that assumption:

10% out of pocket: $10,990

Loan Amount: $98,910 (30 year fixed at 7.5%)

PITI: $805 per month

Average Household income for area: $31,053

You are barely cutting it here. Keep in mind that the California unemployment rate is 6.9% and quickly rising. Lower to middle class areas are the first to feel the pain and rents will be coming down in these areas. After all, if people aren’t working it is hard to make the rent payment and many are living paycheck to paycheck. Keep in mind you have already invested $10,990 and you can expect negative to no appreciation for the next few years.

It is apparent that there is a major housing crash in California. Those thinking that we are at a bottom need only look at the list above and this current example (or any of the other Real Homes of Genius homes) to understand that we have further to go.

Today we salute you Long Beach with our Real Home of Genius Award.

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Real Homes of Genius: Today we Salute you Long Beach with our Real Home of Genius Award. 792 Square Feet for $109,900. Built During the Great Depression and Offered at New Depression Prices.

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Related Posts:
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■Real Homes of Genius: Today we Salute you Stanton.
■Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!
■Real Homes of Genius: Today we Salute you Pacoima. Zillow says $457,000 but Listed at $225,000?
■Real Homes of Genius: Today we Salute you Buena Park. $511,000 for 864 Square Feet. Even Knott’s Berry Farm is Cheaper!

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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: Management, General Motors (GM)

In June 2000, Richard Wagoner became president and CEO of General Motors Corporation (NYSE: GM) In case you haven’t been paying attention for the last eight years, here’s an overview of what’s gone down:

• GM paid huge dividends even as its pension and health care obligations spiraled out of control leaving the company in a precarious capital position.

• When SUVs started to get hot, GM essentially bet its future on the continuation of that trend and the reasonably low gas prices that made it possible. That’s right: GM was essentially an commodities speculation hedge fund masquerading as a car company. Now Bloomberg is reporting that GM lost $2 billion on leased SUVs.

• Now that gas is at $4 per gallon and M&A activity has dried up, GM has decided that this is a good time to try to sell its Hummer brand. Does it come with Pogs, Pokemon cards, and HD DVD?

• The stock was trading in the $60 per share range when Wagoner took the helm and now it’s fallen to $11.07 and Merrill Lynch is saying that a GM bankruptcy is “not impossible.” And remember: Merrill Lynch has been overly optimistic about its own ability to survive without raising capital. So “not impossible” may very well mean “quite possible.”

Given all that, I have a serious question for General Motors’ board of directors: How can Richard Wagoner possibly still be your CEO? Hypothetically, what would he have to do to get fired? Join Al Qaeda? In 2007, Wagoner took home $14,415,914, a 41% raise over 2006.

The fact that Carl Icahn isn’t filing a 13-D and raising hell is indicative of the fact that this is one company that’s probably too late for saving.

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GMAC, the financing division of GMC, posted a $2.48 billion dollar loss for the quarter driven by losses tied to its ResCap residential mortgage group and auto lease write downs.  ResCap which has been posting massive losses since the credit crunch began, lost $1.86 billion tied to more mortgage misery. Private equity firm Cerberus Capital owns 51% of ResCap.

From Reuters:

Finance company GMAC posted a $2.48 billion second-quarter loss on Thursday, hurt by a write-down of vehicle leases and mounting losses at its mortgage lending unit.

The loss compared with a profit of $293 million a year earlier. Results included a $1.86 billion loss at Residential Capital LLC, the mortgage unit’s seventh straight quarterly loss, and a $717 million loss in its auto finance business.

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Source [blownmortgage]

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Filed under: Google (GOOG), Microsoft (MSFT), Apple Inc (AAPL), Sirius Satellite Radio (SIRI), Citigroup Inc. (C)

Today might have been one of the more boring options expiration dates. If you pretend that technology stocks weren’t a part of the market, today was rather stable considering the major bounces we have seen. Oil stayed under $129.00 per barrel, which didn’t give the bears much meat to chew on. We had essentially no government economic data today. Here are today’s unofficial closing levels:

• DJIA 11,496.24 (+49.58)
• S&P500 1260.65 (+0.33)
• NASDAQ 2282.78 (-29.52)
• 10YR T-Note 4.081% (+0.043%)
• 52-WEEK LOWS
• Top Analyst Upgrades
• Top Analyst Downgrades

Apple Inc. (NASDAQ: AAPL) is set report earnings after the close of trading. Read a FULL EARNINGS PREVIEW. Shares of Apple were down over 3% at $166.10 in today’s final minutes of trading.

Citigroup Inc. (NYSE: C) was a pleasant surprise for the markets. Imagine losing $2.5 Billion and that still being “less bad” than almost everyone was calling for. Shares were up 9% at $19.60 in today’s final minutes of trading.

Google Inc. (NASDAQ: GOOG) shares were down a tad under 10% at $480.14 after the company’s earnings report yesterday was deemed a miss and after the company warned that the current ad spending market is under pressure from macro-trends.

Microsoft Corporation (NASDAQ: MSFT) also saw its share of weakness with shares down 6.5% in the final trading minutes at $25.73 as its earnings were also deemed light. Most operations look like they are holding up but the company warned about its online business being under pressure.

Sirius Satellite Radio Inc. (NASDAQ: SIRI) saw shares up a sharp 8% to $2.27 by the final minutes today as the last FCC commissioner has reportedly outlined terms to approve the 18 month old satellite radio merger.

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