Filed under: Deals, Electronic Arts (ERTS), Activision Inc (ATVI)

Can you believe the drama going on between Electronic Arts (NASDAQ: ERTS) and Take-Two Interactive (NASDAQ: TTWO) has dragged on for this long? I can’t. According to this article, EA has let its current bid expire and intends on checking out additional stats behind the company in an effort to think more about what Take-Two has to offer and what its true value might be. The company behind the Grand Theft Auto series of mature-rated games is offering to give EA a presentation that includes non-public data.

EA really wants this deal. So does Take-Two. EA believes that it needs a super-franchise that goes beyond its sports dominance, and it feels that Grand Theft Auto would be one heck of an asset to own. It’s true. EA would probably benefit from the title, and it might get the company’s stock out of its current doldrums. And in a world where Activision Blizzard (NASDAQ: ATVI) is benefiting greatly from an acquisition and a merger — Guitar Hero and Vivendi Games, respectively — one cannot blame EA, I suppose, for keeping the dream alive.

EA is in something of a bad spot because, at this point, it probably will have to raise the bid on Take-Two. I think the market will ultimately be disappointed if EA doesn’t get Grand Theft Auto (and BioShock, for that matter). It will be perceived as a failure on management’s part, and shareholders will wonder where the growth will be coming from, and what catalysts can be counted on to drive the stock price higher in this tough economic environment.

Continue reading Will Electronic Arts ever take Take-Two?

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Note: I’m very excited to introduce a series of guest articles by Anthony M. Freed.  This is his first.  Anthony is an analyst, researcher and freelance writer, and can be reached at anthonymfreed@gmail.com.  Please welcome him - I’m excited to get his take on the market from the analyst perspective.

So once again wild swings in the markets have unleashed the bullish cries of “Bottom!” by the guestimating industry cheerleaders like Jim Cramer, the NAR, and similarly minded government ilk who believe we can all collectively wish our way out of this mess. But the proverbial writing has long been on the wall, and we have yet to measure the depth of the losses.

What are the monsters that are lurking in the nearby shadows? Well I am not going to tell you anything you have not already figured out if you have been following news posts and blogs about the mortgage industry with even a passing interest. It’s that illegitimate offspring of Sub prime and Prime called ALT A that is taking over the national spotlight. Now everyone in charge can throw up their hands in surprise that the golden child of the short lived post-sub prime era was a bad idea too. This from Housingwire.com’s Paul Jackson on Fannie’ mounting ALT A problems:

“…any changes purchase/underwriting criteria still clearly came far too late to prevent GSE (Fannie) from taking a direct credit hit, now that the Alt-A mortgage class is the latest area of mortgages to go through a meltdown, and many borrowers are defaulting at a seemingly parabolic rate each month and each quarter.”

This should not be news to anyone, especially those who should be in the know. As late as the spring of 2007, major national lenders were still aggressively marketing ALT A products with with ridiculously vacuous underwriting criteria: A borrower could secure a no income/no asset documentation cash-out refinance loan, with a simultaneous second mortgage up to 95% CLTV, on a non-owner occupied investment property, with only a 620 FICO, two months PITI reserves and a debt to income ratio up to 60%. Whah?

So even as executives were in the midst of struggling to explain how they were blindsided by the rapid demise of their sub prime divisions, they were also racing to expand ALT A criteria to cover all but those borrowers with the very worst credit ratings. And they did not stop there, they pressed on with the development of other exotics like Near Prime and Expanded Approval. And it was all done to maintain market share and the record origination levels they had grown addicted to. But who will they blame in the media for their greed driven and fiscally irresponsible business practices? Why, all the lying cheating borrowers who did this to them, of course! Also from Jackson’s article:

“The strategy isn’t all that surprising, as nearly anyone in the mortgage business these days is looking for a reason to push the bad loans — and the losses associated with them — off of their books, and onto someone else’s. And in the case of Alt-A, there’s likely to be more than a just a fair amount of income misrepresentation, among other sorts of fraud.”

I am in love with this line of reasoning: The average American homebuyer- be they plumber or grocery clerk or postal worker – collectively conspired by the millions to defraud the financial industry out of 3 trillion dollars in about a five year period. And now, they are cleverly concealing their new found fortunes by going through the motions of being foreclosed upon and thrown out on the street just to cover their tracks. Truthfully, how much can you be lying about if you only need to get yourself to a 60% DTI?

I know if they look at enough liar loans, they will find some liars. But that is missing the fundamental issue at hand here, that it was lax underwriting and low down payments initiated by the lenders, not the borrowers that are responsible for this mess.

I can remember as a little boy, asking my dad why someone would bother putting up a chain link fence that was only four feet tall. “Little fences are only for keeping good people out of trouble,” he told me. And that is exactly what the lenders did not do when they developed and marketed these and other more complicated products like Pay Option Arms, they built them without the little fences that would have kept them and us out of trouble.

Let’s pretend for a moment that borrower overstatement of income on ALT A loans really was so greatly overstated on average as to be responsible for 50% of all defaults on the books. Imagine what the effect a simple underwriting requirement like a signed T4506 – the authorization to review tax returns – could have made. They do not inherently prevent default on stated income and asset loans, but they certainly would have made borrowers who might be tempted to stretch the truth think twice about the consequences. Instead, there was a culture were no one felt they had to be really honest with anyone else. The hunters set the traps, and now they want to blame the animals for getting snared, and the media just eats it up.

So don’t be fooled by those who need you to stick your money into those raucous markets. The time will come, but it’s not here yet. And it should not be this difficult for the big brains to figure it all out. The underwriting is on the wall, the deals are closed, and the resets are coming like clockwork. Let’s all just accept that it is really no surprise to any of us.

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The amount of distressed homes for sale in Southern California is simply mind boggling. The more stunning revelation is the bulk of pay option ARM recasts don’t even begin until 2009 with a small percentage starting this quarter and a larger number in the forth quarter. Even with that said 33.79% of […]
Related Posts:
■The Short Sale Report: Volume 1 – The True Barometer of the Housing Market
■Short Sale Report Volume 4: 16,646 Short Sales in Southern California.
■Olympic Gold Medal: Greenspan Tells us Housing will Bottom in 2009. Meantime Foreclosure Filings hit Historical Record.
■Riding in the Short Bus of Housing: Southern California Short Sale Numbers. 1 in 10 Homes is a Distress Sale.
■Real Homes of Genius: Today we Salute you Compton. Once, Twice, Three times a Short Sale.

The amount of distressed homes for sale in Southern California is simply mind boggling. The more stunning revelation is the bulk of pay option ARM recasts don’t even begin until 2009 with a small percentage starting this quarter and a larger number in the forth quarter. Even with that said 33.79% of all homes for sale in the Southern California market are in some form of distress. Since distressed property sales usually result in a lower price, you can rest assured that future price measures are going to continue to trend lower.

Given that the majority of homes that are selling in California are distressed properties it goes without saying that offering aggressive discounts will result in some price movement. The vast majority of buyers in the current market with a good financial balance sheet realize that they are the one’s who set the terms regarding a deal. There is no immediacy to buy a home today for fear of prices going higher next month. They most likely will be lower. The urgency to make an offer contingency free on the one home in the neighborhood for fear of being overbid is now a long memory of manic delusions of the housing bubble.

Let us get a quick snapshot of the Southern California market:

What you’ll notice is that currently, there are over 38,000 short sales in the Southern California market. In addition, 8,500+ homes are foreclosed properties which puts the distressed inventory at over 46,500. You may be thinking that the chart shows a healthy amount of non-distress homes with an inventory of over 91,600. Yet you would be completely mistaken because even in late August of 2007, not even one year ago the total amount of short sales in Southern California was 8,640 and total market inventory was over 163,900.

I want to give you a heads up that there will be some spinning going on in the next couple of months because of these nuisances. Overall inventory has decreased since last year. There is no arguing that point. Yet most of this decrease has occurred with non-distress properties being removed from the market while distressed properties are now a larger portion of the overall market inventory. More importantly, sales that are currently happening are happening in large part in the distress segment thus pushing market prices lower at least when it is reflected in monthly reports. For a quick visual, this is the breakdown of short sales in a one year time horizon:

If you need a thorough breakdown of why we are years away from a housing bottom, please read 10 reasons why we are nowhere near a bottom in California. So you can see how the data will be massaged even though the overall housing picture is deteriorating before our very eyes. Take the inventory number from August that we just brought up. According to DataQuick there were 17,755 homes sold for the month. So a quick look at inventory and sales we get:

August 2007 SoCal Inventory: 163,900

August 2007 SoCal Sales: 17,755

Total months of inventory: 9.23 months

August 2008 SoCal Inventory: 138,392

June 2008 SoCal Sales: 17,424

Total months of inventory: 7.94 months

Things are getting fantastic! Keep in mind the August sales data won’t be out until mid-September but June, July, and August sales are normally the strongest months and vary slightly. The point is that people are already using this fuzzy Sesame Street math to show that inventory is going down. This is flat out irrelevant in a market where first, we are in economic hard times and people are hunkering down but more importantly most sales are happening on the distressed margin. In fact for June 41.1% of sales for Southern California were foreclosure resales.

The problem is going to fully expose itself like a blossoming orchid when lenders suddenly send out that first recast anniversary payment only to receive a cold shoulder once day 31 arrives. The fact that California has a whopping $300 billion in pay option ARMs that will recast over the next few years is simply going to put a cap in any bottom talk for a long time. Keep in mind in the entire United States there are $653,502,658,632 in Alt-A loans out there. The vast majority of these pay option ARMs fall in this category. So California by itself has nearly half of the entire nominal amount of these toxic sludge mortgages that make subprime loans look conservative.

Let us not forget that there are still subprime loans out there. California still has over 465,000 subprime loans “active” as of June of 2008. So we are not out of the woods on that one. If the housing market correction has caused housing prices to drop by 38% in California in one year simply with the majority of the subprime problems, can you imagine when the marriage of subprime and pay option ARMs confront us at the same time later this year and throughout 2009? Take a look at this graph if you are more a visual learner:

I have a feeling that since the data for July and August is forthcoming and given the fact that lenders are holding off as much as they can on certain REOs, the overall inventory to sales number will be the recipient of major spin. You can arrive at your own conclusions. The fact that we still don’t have a budget in California and the unemployment rate is 6.9% and will go higher, who will be buying these homes? Do you realize there are homes in Detroit selling for $500 but there is a reason for the price! The economy is in shambles. People forget that we were in an incestuous business model were many jobs related to housing only had viability if prices kept going up. Well of course that is unsustainable. I remember articles talking about a median county price of $1 million for Orange County. Absurd! California became a circus sideshow and thanks to Wall Street’s appetite for toxic mortgages became the biggest casino known to humankind.

33.79% of current inventory in Southern California is distressed yet some want to call this a bottom. If you really think this is the bottom you are welcome to go out there and purchase a home with your own money.

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Post from: Dr. Housing Bubble Blog

Foreclosure and Short Sale Report: 33.79% of All Southern California Inventory for Sale is Distressed Homes.

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Related Posts:
■The Short Sale Report: Volume 1 – The True Barometer of the Housing Market
■Short Sale Report Volume 4: 16,646 Short Sales in Southern California.
■Olympic Gold Medal: Greenspan Tells us Housing will Bottom in 2009. Meantime Foreclosure Filings hit Historical Record.
■Riding in the Short Bus of Housing: Southern California Short Sale Numbers. 1 in 10 Homes is a Distress Sale.
■Real Homes of Genius: Today we Salute you Compton. Once, Twice, Three times a Short Sale.

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Filed under: After the bell, Major movement, General Motors (GM), Market matters, Federal Natl Mtge (FNM), Lowe’s Cos (LOW), Lilly (Eli) (LLY), Oil, SanDisk Corp (SNDK)

Investors in shares of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) went wild on speculation today that the government would put new funds into the mortgage agencies and wipe out common shareholders. The market was dragged down over 200 points at some point on a ripple of concerns about the financial sector:

Dow: 11,479.88 -1.54%
NASDAQ 2,416.98 -1.45%
S&P 500: 1,278.71 -1.50%
52-Week Lows

Early in the day, the chance of a hurricane moving into the Gulf of Mexico pushed oil up and knocked equities down. Once the storm moved over Florida and away from deep-water rigs, oil went back down.

The trading was so bleak and depressing that most traders probably went home to watch the last few events of the Olympics. Those who stayed saw a few notable moves:

Continue reading Closing bell: The beatings will continue; GM, FRE, FNM, SNDK drop big

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Portfolio.com asked it’s readers to vote on the least trustworthy Wall Street CEO. The results are not surprising and macabre in their own way. As we’ve thoroughly documented here, Wall Street CEOs have had a problem with drinking their own kool aid or lying throughout the housing, credit and mortgage bust.

Below are the results with their most choice quote about the strength of their company or the impact of the mortgage mess on their business.

The higher the percentage the less trustworthy. As Barry asks at The Big Picture, where’s Tangelo? And the answer

of course is, he’s no longer a CEO.

From Portfolio.com:

The Final Tally:

Alan Schwartz, Bear Stearns : “Capital … remains strong.” 26%

Martin Sullivan, AIG: Chance of a loss? “Zero.” 22%

Ken Lewis, BofA: There’s “value in Countrywide.” 12%

Ken Thompson, Wachovia: We’re in “a great market.” 11%

Dick Fuld, Lehman Bros.: “The worst is behind us.” 8%

John Thain, Merrill Lynch: “We have tackled the problem.” 8%

Vikram Pandit, Citi: We are “well-capitalized.” 7%

Kerry Killinger, Washington Mutual: “Profitability” in 2008. 4%

John Mack, Morgan Stanley: “Comfortable” with the risks. 3%

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Filed under: Earnings reports, Forecasts, Hewlett-Packard (HPQ), Home Depot (HD), Target Corp. (TGT), Gap Inc (GPS), Lowe’s Cos (LOW)

Rival home improvement chains Home Depot Inc. (NYSE: HD) and Lowe’s Companies Inc. (NYSE: LOW) are scheduled to report quarterly results this week. Not surprisingly, given the ongoing housing slump, analysts surveyed by Thomson Financial on average expect both companies to post earnings lower than in the same period a year ago. For Home Depot, that’s 61 cents per share, down 20.8%, and for Lowe’s, 56 cents per share, down 16.4%. Meanwhile, cabinet maker American Woodmark Corp. (NASDAQ: AMWD), for whom Home Depot and Lowe’s are major distributors, is also expected to report lower earnings: 11 cents per share, down 67.6%.

The presidential campaigns have prompted much discussion of energy policy and alternative energy sources. Some solar-energy-related concerns are scheduled to report this week, and expectations seem to be high. Trina Solar Ltd. (NYSE: TSL) is expected to report 81 cents per share earnings, up 67.9%; ReneSola Ltd. (NYSE: SOL) is expected to post earnings of 32 cents per share, up 62.5%; and Suntech Power Holdings Co. (NYSE: STP) is expected to have earnings of 32 cents per share, up 21.9%. Even China Sunergy Co. Ltd. (NASDAQ: CSUN) is expected to have swung to a profit of 3 cents per share, from a per-share loss of 14 cents a year ago.

Continue reading The week in preview: Expectations for home improvement, tech, apparel

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