Filed under: Newsletters, Wells Fargo (WFC), Stocks to Buy

“The financial sector got a boost after our Wells Fargo (NYSE: WFC), a buy recommendation in our model income portfolio, reported better-than-expected earnings,” notes Jack Adamo.

The editor of Insiders Plus, explains, ” While Wells, like virtually every other bank, is dragging its heels a bit on recognizing losses on bad mortgages, there were elements of the report that were unquestionably great.

“In its latest quarterly report, Wells Fargo reported:

o. Revenues were up 16% year-over-year.
o. Average loans were up 18% year-over-year.
o. Net interest margin was 4.92%, up 23 basis points from Q1
o. Net interest income increased 21% year-over-year.

“The fact that Wells is one of the few banks that is still well-capitalized enough to write loans was a large contributor to its increase in revenues.

Continue reading ‘Insider’ expert sticks with Wells Fargo (WFC)

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Dick Syron, Freddie Mac chairman and CEO took home nearly $20 million last year and can take home another $20 million this year reports the Associated Press.  This for the man that has guided Freddie Mac’s stock to it’s lowest point since 1991 and presided over a $3 billion net loss for the company in 2007.

This is obscene.  How do these people who are supposed to be leaders get rewarded for driving these companies straight in to conservatorship? If the government does take over Fannie and Freddie it must come with pay controls for executives of these companies.  The American taxpayer doesn’t deserve to pick up the tab of the mortgage mess, but if they are forced to they certainly shouldn’t pick up ridiculous salaries of non-performing executives.

From CNN:

Freddie Mac Chairman and Chief Executive Richard Syron pocketed nearly $19.8 million in compensation last year, according to a Securities and Exchange Commission filing Friday, even though the mortgage company’s stock lost half its value in 2007.

If Syron stays at the helm of Freddie Mac (FRE, Fortune 500) through the end of next year, he will receive nearly $20 million in stock awards if the board says he has met certain goals. This year, he is guaranteed to get $8.8 million in stock grants regardless of performance.

For 2007, Syron received a $1.2 million salary, a $3.45 million bonus, including $1.25 million to remain at the company, and $771,585 in other compensation. He also received stock and options valued by the company at $14.3 million at the time they were awarded.

The company last year picked up the tab for Syron’s financial planning expenses, car and driver for commuting, home security system, business-related dining and travel costs for his wife and $100,000 in legal fees from negotiating his employment contract.

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I’m going to tell you something that you probably already know. Americans are horrible savers. In fact, this trait has provided the perfect breeding ground for credit products that provide the illusion of real wealth. I’ve been hammering away in article after article going after the big players on Wall Street and also going after unscrupulous lenders that have been the pushers of the credit products for this past decade that have led us to this current economic cliff. Yet there is sufficient blame to go around and one is the psychology of the American consumer.

As of 2008, the average household debt is $117,951 and this includes credit cards, installment loans, home equity loans, and mortgages. The New York Times has an excellent series regarding the “Debt Trap” and below is a graph that I will be talking about in great detail. If you are interested, click on the image to go to the New York Times interactive chart:

All in all Americans have over $2.5 trillion in consumer debt. This number is staggering. That is why during the first signs of any economic problems the first thing that came to mind to our financial politician wizards was an economic stimulus package. Of course the majority didn’t ask where the money came from but you can now thank higher consumer inflation for the byproduct of this action.

Yet this mentality is still guiding much of our economic and political policies. People have become addicted to credit as if it were some form of drug. Recently, many lenders especially those with high concentration loan portfolios in California have started closing off many consumers’ home equity line of credits. The reaction is very telling since it gives us an insight into how people view credit.

Many believe that this home equity line was similar to you having access to your regular savings account. That is, whenever you needed the money it would be there for you. This was one of the inventions that started in the 1990s and has exploded recently. As you can see in the interactive chart above, home equity loans really had no place in the market prior to the 1990s. The concept was that the equity was your ultimate safety net, not some modified credit card that would put your biggest asset at risk. Recently with the run-up in the housing bubble, American consumers with their lack of savings decided to tap into this resource to continue spending. So when many people realized that their home equity lines have been shut down, they felt as if they had their savings stripped away. This idea that access to debt is equivalent to access to wealth demonstrates the profound lack of financial knowledge from many in our country.

Why would people be so willing to spend money that they don’t have? This is where the discussion veers off from economics and begins to look at consumer behavior and psychology. People want to be loved and accepted. Just watch MTV or VH-1 for a few hours and you’ll see this for yourself through their advertising. What you’ll see are ads about looking a certain way or buying a certain fragrance and with this simple act, you will be loved or accepted (normally by a very attractive member of the opposite sex). Of course you’ll have to spend money on a certain product which is probably over priced.

You also see this in many of the local clubs and night spots here in Southern California. Pick anytime, if you go out on a single night, you’ll typically see a guy trying to impress his friends with a round of the most expensive spirits not because of the taste, but because of the price of the drink. The group like a Pavlovian experiment responds as, “wow, you are the [best, greatest, coolest, hottest, funniest] person alive!” So the condition is imprinted on the mind. That is, if you spend on an expensive item you will get recognition from the group. The fact that many of these clubs accept credit cards is a perfect place to watch this social experiment unfold. Watch how many people use cash.

Now carry this psychology over to home purchases and automobile purchases which are the two largest consumer debt items around. Buying that home was about being secure and having a place for your family. After all, who doesn’t want this? It’s not like someone is going to respond, “no, I actually don’t want my family to be secure and rather live under the San Gabriel River.” So many either feel the pressure directly from family and friends or indirectly from media campaigns and those in the industry. The idea of owning a home is deeply imbedded in the American psyche. It is a cultural archetype that even as a kid, many start drawing a home with a picket white fence and a dog as a reference to what home is.

Those in advertising produced excellent (meaning they got people to do a desired action) marketing campaigns that exploited this insecurity which many carry deeply. Some of you may have seen this Century 21 ad where a couple is debating over real estate:

*Click to watch full ad on YouTube (warning, you may become financially ill)

Think about what this ad is telling us. What does your gut tell you when you watch this? Try finding an ad that has a more financially prudent debate where the couple is sitting down with their accountant and going over the ratios on a conventional 30 year fixed mortgage. We didn’t see any of this because the entire industry would have halted! Hello! $397 average savings per year and people were going zero down on $500,000 starter homes? No wonder why our economy has placed a multi-year debt albatross that is slowly drowning us.

Amazingly, six in 10 Americans oppose Wall Street Bailouts but the majority do support the government keeping people in their homes:

*Source: Gallup

So why did the Bear Stearns bailout go through so quickly without going to the public? The answer is, many people simply do not care enough to cause an uproar about what occurred. They rather focus on saving 10 cents a gallon on oil while their mortgage payment just went up $500, $1,000, or even $2,000. The talking heads told us that if Bear Stearns wasn’t bailed out, the dark clouds of financial ruin would sweep over the nation and cover us in fire and brimstone. Guess what? We still ended up flying into a bear market and people are still losing their homes. We are getting this same rhetoric with Fannie Mae and Freddie Mac. A quick solution is nationalize the entities, split them up, and let the shareholders eat their risk. Enough with this implicit guarantee when we all know the taxpayer is on the hook.

The problem with Wall Street and bailing certain institutions out and this uttering of a second stimulus from politicians is they still believe that we are living in a world where people are willing to sacrifice their lives to go deeper into debt. They miscalculated on how people view housing. When the archetype dream of a picket white fence home came with a $4,000 a month mortgage payment, the sudden reality hit and many realized that the dream wasn’t worth the actual price tag. That is why the zero down craze was so utterly incompetent. Buyers had no skin in the game.

In places like California, buyers were effectively given a put option. The mortgage itself is non-recourse, meaning if there is a foreclosure the home goes back to the lender or bank and the buyer walks away with a foreclosure on their record. Many are electing to go down this route. Some by choice and many because they cannot afford the recasting payment or have seen a decrease in their income. Amazingly, the person that rents with a zero net worth now has a stronger financial position than the person that bought at peak levels and actually has a negative net worth of $100,000 or even $200,000.

The obsession with credit and the ultimate sign of debt the McMansion is now crumbling on its weak edifice. Our economy has been so dependent on debt and real estate for the past decade that we have fallen behind in many crucial areas like biotechnology and engineering because much of our capital and resources were diverted to non-productive sectors like building bigger and bigger homes accompanied by cars that are bigger and less fuel efficient. Slowly this is changing at least with the auto industry.

Many rational Americans looked around their neighborhood and saw what was a once in a lifetime spending binge. A boat, Hummer, and McMansion for all. The only problem is, it was on a temporary lease. The problem with this is that 70 percent of Americans were living like the top 1%:

*Source: Wikipedia

Many had to deal with cognitive dissonance of knowing incomes didn’t justify the spending they were seeing in the real world. The majority however decided to capitulate and get into unbelievable amounts of debt. It was a façade. The government is simply feeding into this cultural delusion that all the consumption items of debt reflected the actual income of our country but it did not as you can clearly see. No politician has the courage to say what needs to be said, “my fellow Americans, we have spent way beyond our means and need to change the way we live our lives.” Not during an election year. They will keep feeding into this myth that you can save nothing and sacrifice little and enjoy everything today even if you don’t actually have the savings to pay for it. Until we see some CEOs doing the perp walk instead of going to them for advice on saving the housing market (much of the problems created by them), then we will know that times are changing at the top. People need to demand this from their government or at the minimum, not buy into this financial myth.

We have $500 billion in Pay Option ARMs that are set to recast in the next few months. These are the absolute most toxic mortgages out there. I would put them on the same level as subprime loans and we are going to quickly realize that they too will be defaulting in high rates. Banks and lenders are artificially counting that these loans will still remain current once they do recast. If you look at their bottom line, they are actually counting much of the deferred interest as income. Many are current but not for long. They are betting that owners will exercise their put option but many will simply allow it to expire worthless.

I notice that parts of our cultural consumer psychology are changing. There was one commercial this weekend on a show that was targeted to the teen crowd that had a girl fixing up her dorm room. The room looked trendy and had all the knacks that someone could possibly need for college. She looks at the camera and tells us, “I got this all for a discount. After all, I am a math major.” It will now be cool to save if not for any other reason then there is no other option. There was also a segment on a show poking fun at those who waited in lines for the new iPhone. One of the actors was showing a new feature of, “using the phone to navigate for places for cheaper rent since I can’t afford my current place with this phone.” Time for the wake up call folks. Things are not going back to how they were.

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American Savings: Americans Save an Average of $392 Per Year. Total Consumer Debt is over $2.5 Trillion. The Dark Knight of Debt.

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Related Posts:
■Are you a Debt Slave?
■Cultural Spending Neurosis: How a Nation Went From Prudence to Financial Decadence.
■Stop Saving Now and Spend Those Rebates! The Home Refinancing Well Has Run Dry.
■You Can Kiss $2.84 Trillion in Housing Equity Goodbye: The Continued Decline in Real Estate.
■The Plague of Housing: Why we Will Feel and Be Poorer Because of the Housing Bust.

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Filed under: Google (GOOG), Microsoft (MSFT), Citigroup Inc. (C), Advanced Micro Dev (AMD), Merrill Lynch (MER)

Merrill Lynch (NASDAQ:MER) is down over 5% on poor earnings.

Google (NASDAQ:GOOG) is down 8% on disappointing earnings.

AMD (NYSE:AMD) is down 7% on poor earnings.

UAL (NASDAQ:UAUA) is up over 8% on an anlyst upgrade.

Micrososft (NASDAQ:MSFT) is down over 5% on poor earnings.

Stocks may trade differently in the pre-market than they do the regular session.

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

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Filed under: Management, General Electric (GE), Scandals, Bank of America (BAC), Countrywide Financial (CFC), Contl Airlines’B’ (CAL)

Stockholders of publicly traded companies, as well as the general public, have recently become outraged with executive compensation and their hefty bonuses, especially in light of the mounting losses at some companies. It seems that no matter what happens or what they do, executives somehow always win. They win big during their employment, and sometimes even more as they retire. With all that money, you’d think that haggling over some perks in their package would be beneath them . . . but it isn’t.

The recent outrageous perk award goes to Continental Airlines (NYSE: CAL) CFO Jeffrey Misner who asked for and was granted a free lifetime parking spot at Jacksonville International Airport. As long as the 54-year-old retiree lives within 200 miles of Jacksonville Airport, and providing Continental has operations at the airport, Misner will have a free parking place. Of course, that’s just a perk that goes with a $2,997,000 retirement pay.

At the beginning of the year, many were shocked to hear that Countrywide Financial Corp. — the poster child of the subprime mortgage meltdown, which has been bought by Bank of America (NYSE: BAC) — CEO Angelo Mozilo was going to receive a $36.4 million cash severance payments, $400,000 per year for consulting services, and perks including the use of a private airplane. He walked away from most of these after a public outcry. Don’t feel bad though, he still left with at least $23.8 million.

It just doesn’t cease to amaze me how some people have the nerve to ask for certain perks in addition to their very fine salaries and severance pays. Here are some more examples:

• Hanmi Financial (NASDAQ: HAFC) President and CEO Dr. Sung Won Sohn requested and got a 2005 Mercedes Benz 430S, as well as the transfer of his membership to the Wilshire Country Club and the Jonathan Club. This was in addition to his $1,298,000 lump sum retirement pay.

Continue reading Outrageous executive severance perks - talk about chutzpah!

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“Gold is the only financial asset that isn’t someone else’s liability and it’s the only asset that’s reliably held its value over time,” notes global investor and resource expert Yiannis Mostrous.

In his Vital Resource Investor, he adds, “Indeed, gold has held its value for millenia. An ounce of gold still buys a quality men’s suit, just as it did in the days of ancient Greece.” Here, he reviews a trio of ideas, each for investors with various levels of risk tolerance.

Mostrous explains, “To date, Americans have never had to experience the society-wrenching events that have affected much of the world for centuries. But most of the globe’s population hasn’t forgotten the value of gold in times of extreme strife and social turmoil.

“And with incomes rising in many of these countries, beneficiaries have used their newfound savings to beef up their holdings. That’s a trend with serious legs, particularly as Asia continues to grow.

“Then there’s inflation, the ultimate debaser of all paper currencies. Despite surging energy and food prices, core inflation remains at elevated — but still relatively moderate — levels in most of the developed world.

“Developing world inflation, however, is a far different story. And many countries have seen sharp price acceleration across the board, including China.

Continue reading ‘Vital’ buys: A trio of gold favorites

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Filed under: Before the bell, Earnings reports, Google (GOOG), Microsoft (MSFT), eBay (EBAY), Coca-Cola (KO), International Business Machines (IBM), JPMorgan Chase (JPM), Merrill Lynch (MER), Economic data, Wells Fargo (WFC), Housing

U.S. stock futures edged higher Thursday morning, a day after market staged a big rally. Investors this morning are bracing for some housing data, but more importantly, a wave of earnings. Already better-than-expected earnings from J.P. Morgan Chase boosted stock index futures from earlier declines this morning.

On Wednesday, bulls finally came back in drove to but equity as oil price continued its decline and airlines and Wells Fargo (NYSE: WFC) reported results that Wall Street found encouraging, sending airline and financials stocks through the roof. The Dow Jones Industrial Average ended a three-day losing streak, jumping 276.74 points, or 2.5%. The S&P 500 climbed 30.45 points, or 2.5%, and the Nasdaq Composite gained 69.14 points, or 3.1%.

Still, all this sentiment might yet evaporate, or be seriously damped after housing data is released at 8:30 a.m. EDT. Building permits and housing starts for June are due out at that time. Also, weekly jobless claims will continue to paint the picture of the goings on in the labor market. At 10:00 a.m., the Philadelphia Fed index for July will be reported.

It would be interesting to see how the data and earnings play out. Already, J.P. Morgan Chase (NYSE: JPM) reported it profit sank 53% in the second quarter to $2.00 billion, or 54 cents per share. That beat estimates of 44 cents share. JPM shares are up over 5.5% in premarket trading.

Meanwhile Coca-Cola (NYSE: KO) shares are also rising 2.2% in premarket trading despite reporting a 23% decline in second-quarter profit to $1.42 billion, or 61 cents per share. Excluding one-time items, per-share earnings were $1.01, beating estimates of 96 cents per share. Revenue rose 17%.

Still due to report today are: From financials, Merrill Lynch (NYSE: MER) is due to post earnings after the market close. Then we also have a wave of heavyweight tech companies reporting today like Google (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT) and IBM (NYSE: IBM), all reporting after the close as well.

On Wednesday, online auctioneer giant eBay (NASDAQ: EBAY) reported a 22% jump in quarterly profit, but gave a soft outlook for the current third quarter. EBAY shares are declining over 9% in premarket trading.

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Filed under: Analyst upgrades and downgrades, Forecasts, Bad news, Apple Inc (AAPL), Dell (DELL), Hewlett-Packard (HPQ), China

JP Morgan downgraded big China-based PC maker Lenovo. According to Reuters, the brokerage cut Lenovo “to neutral from overweight due to a near-term slowdown in revenue growth from weak China demand and a slower ramp-up of the U.S. consumer business.”

That is not exactly good news for U.S. PC companies Dell (NASDAQ: DELL) and Hewlett-Packard (NYSE: HPQ) that already appear to be losing market share to the Apple (NASDAQ: AAPL) Mac. China is a critical market to both companies, and any sign of further stress in the U.S. market does not leave them many regions to make up for faltering demand.

Wall Street is already concerned that a recession in the U.S. and slowing economies abroad will hammer the PC market. Like most American companies, HP and Dell thought they could always rely on the rapidly expanding markets in Asia.

It turns out that the best laid plans are not working out.

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

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Citigroup chairman Win Bishcoff said that housing prices in the US and Britain could fall for another two years before leveling off.  It sounds nice, but it’s wrong.  House prices are going to continue falling for long than two years - especially in highly-speculative areas like California, Florida and Nevada.  The reason?  Option ARM and Alt-A loan resets that start to kick-in in earnest around 2010.  See below graph.

So while various pundits and “people in the know” will continue to throw out numbers that sound far enough off to not sound foolish, they will continue to be wrong until they address the second wave of resets that must wash through the system.

From Reuters:

Citigroup chairman Win Bischoff has warned that house prices in Britain and the United States are likely to keep falling for another two years.

The chairman of one of the world’s most powerful banks told the BBC in an interview that he expects it will take two years for the markets to stabilise.

He also said he expected the credit crunch could continue through until 2009.

And the graph that makes me highly skeptical of any talk of a recovery prior to the second wave.

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Filed under: Earnings reports, McDonald’s (MCD)

Europe is not exactly a growth market for most US companies. The economy there is slowing much as it is in America. But, McDonald’s (NYSE: MCD) may be an exception. According to Bloomberg, “McDonald’s Corp., the world’s largest restaurant company, may report a second-quarter profit after European sales rose twice as fast as in the U.S.”

The news is unusually good because rising commodities prices are likely to squeeze the fast food company’s margins. The costs of bread and meat have been up sharply over the last year.

Europe seems an unlikely savior for McDonald’s numbers. It is often viewed as a region where good food and traditional cuisine are part of the culture. Who wants a hamburger from a fast food place when the local restaurant has crepe suzette?

But fast food, filled with fat and salt, is irresistible. McDonald’s has proved that in every country where it does business.

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

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