Third Bear Fund Has Problems

From the WSJ:Bear Stearns Cos., already forced to shut two hedge funds that bet heavily on the risky subprime-mortgage market, is now facing big losses in a third fund that has roughly $900 million in mortgage investments, according to people familiar with the matter.The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment, according to these people. One of these people said the redemption requests were postponed in hopes that the fund's assets would rebound...

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Market Takes Another Dive

The reason?American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure.Investment banks cut off credit lines, leaving American Home without money yesterday for $300 million of mortgages it had already...

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Construction Spending Decreaces .3%

From the Census BureauIn billions, total construction spending dropped .3%, from a seasonally adjusted annual rate of $1,178,436 to $1,175,425. Nonresidential spending increase .1% while residential spending dropped .7%. On the nonresidential side, the biggest drop occurred in communication construction, which dropped 2.2%. Power construction dropped 1.3% and highway/street construction dropped 1.1%.It's important to recognize that nonresidential spending has increased from 46% of total construction spending a year ago to 53% last month. This...

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Consumer Spending Slowing, Core Inflation Tame

From Bloomberg:Consumer spending in the U.S. increased in June at the slowest pace in nine months as near- record gasoline prices and falling home values forced Americans to cut back.The 0.1 percent rise in spending followed a 0.6 percent increase in May, the Commerce Department said today in Washington. The increase matched the median forecast of...

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A Summary Of Yesterday's Subprime Action

From the LA Times:• Mortgage insurers MGIC Investment Corp. and Radian Group Inc. said they might write off their combined $1.03-billion stake in a venture that invests in sub-prime mortgages on which payments were past due.• American Home Mortgage Investment Corp., which lends to people close to the sub-prime category, postponed payment of its dividend, took "major" write-downs and said its lenders were demanding that it put up more cash. Its stock plunged 39%.• Insurer CNA Financial Corp. wrote down $20 million in sub-prime-backed securities.•...

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Foreclosures Increasing At High Rates

From the AP:In all, 573,397 properties across the nation reported some sort of foreclosure activity in the first half of this year, including receiving notices of default, auction sale notices or being repossessed by lenders, Irvine-based RealtyTrac Inc. said.That was 58 percent higher than the 363,672 properties in the first six months of 2006 and 32 percent higher than the 433,504 in the last six months of 2006."We could easily surpass 2 million foreclosure filings by the end of the year, which would represent a year-over-year increase of over...

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We've Still Got Problems

From the WSJ:Sowood Capital Management told its investors that the hedge-fund firm suffered dramatic losses of more than 50% this month and that it will wind down its two funds -- becoming the most high-profile player to be cut down by the troubles roiling many parts of the bond market.The losses dropped the Boston hedge-fund firm's assets to about $1.5 billion from what had been $3 billion, the firm told investors in a letter. Sowood, which was started by Jeffrey Larson, who helped pick investments for Harvard Management Co. before launching his...

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The Housing Crisis

Those of you who believe Gordon Brown's promise that he will help improve the housing crisis in Britain, may care to to refer to Andrew Gilligan's report on Channel 4's Dispatches last night.In it he revealed a sorry tale of corruption, lies and underhand dealings between local councils and property developers.There is absolutely no chance in hell that the property crisis will be alleviated, as long as these practices are allowed to continue.See The FT for some backgrou...

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Today's Market Action

OK -- We had a nice rebound in the market today. Here's a 5-minute chart of today's action. The market started rallying about 11 AM. It sold-off a bit at the end, but that's to be expected after a strong rally like today's.But let's not get ahead of ourselves. Here's a 7-day 10-minute chart. It shows that today's action was a nice upswing, but...

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GDP Report Leads To Questions About Future Growth

On Friday, the BEA reported that second quarter GDP came in at 3.4%. Now it appears the debate is if this pace is sustainable.There are a few points to make regarding this debate.1.) Probably the best way to look at the second quarter GDP report is to combine it with the first quarter number and average the results. This would give us growth of about 2%, which seems the most likely real underlying rate of growth. 2.) Second quarter growth got a big boost from government spending increases, which accounted for .82 of the 3.4% growth. In addition,...

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The Metronet Debacle

It would appear that following on from the Metronet debacle, it is a case of once bitten twice shy.That at least is the view of Terry Morgan, chief executive of the company responsible for maintaining and upgrading the Jubilee, Piccadilly and Northern lines, said he would not put Tube Lines at risk by simply taking on Metronet work."I think there's a number of things to happen yet," Mr Morgan said, referring to Metronet's decision to call in administrator Ernst & Young."First, someone has got to make certain it can't happen again. Tim O'Toole...

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Earnings Growth Is Good

From Bloomberg:Earnings among the 313 members of the S&P 500 that reported second-quarter results rose 9.7 percent, twice the average of analysts' estimates on July 13. One hundred one members are scheduled to report results this we...

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Let's See Where Support For the SPYs Is

Just as a point of reference, I use the SPYs as a proxy for the market. The Dow is simply too narrow. In a universe of over 10,000 stocks, 30 just isn't large enough. The S&P 500 is, well, 500 stocks and is a much better proxy for the market overall.Here's the chart we're working with. It's a 6 month SPY chart.Considering last week's sell-off,...

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What Kirk Said

From the Kirk Report:However, it frankly could have been far worse. We could have received evidence that most companies were not hitting their earnings estimates, that the economy was slowing down quickly, inflation was out of control, and/or some unknown event had increased the risk in the risk/reward equation, but that was not the case this week. Sure, there is legitimate fear that the problems over subprime, housing, and the M&A boom will turn to a bust and the market may be sending signals that these problems are ahead. But when I take...

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A More Optimistic View Of the Credit Markets

Let's start with what is happening right now: ``It's a story of heightened risk aversion,'' said Sue Trinh, a strategist at RBC Capital Markets in Sydney. ``The market is jittery that it's not contained to the U.S.''Investors, whose confidence has been sapped by losses from subprime mortgages, are balking at absorbing more risky debt. More than 40...

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Liars, Scammers and Bullies

'Britain's banks and building societies have lied to and threatened customers who complain about overdraft charges, the Government's financial regulator said. The Financial Services Authority (FSA) has rebuked current account providers for making "false or misleading statements" to customers. The City watchdog said that some institutions had lied to account holders to deter them from reclaiming unauthorised overdraft charges.'Source The TimesSays it all doesn't it?The financial services industry in Britain truly has a most appalling reputation,...

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Weekly Market Summary

Considering the action in the markets this week, it seems appropriate to take a look back at the week to see what happened.Here's a 5 minute chart that goes back 5 days. Notice the action for the whole week was down.Here's a 2 day chart. Notice the end of the day sell-off on Friday (today). This shouldn't be surprising. Considering this week's...

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Second Quarter GDP Up 3.4%

From the BEA:Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.4 percent in the second quarter of 2007, according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.6 percent. The Bureau emphasized that the second-quarter "advance" estimates are based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3). The second-quarter...

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What the Hell Happened Today?

Wow -- the trading day is over and it was very bad for the SPYs. Let's take a look at the charts to ses what happened.Here's a chart of the SPY in 5 minute increments going back 7 days. Notice the market tried to make new highs several times and couldn't cross the thresh hold. Also note the SPYs went through the previous support level and went down...

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Markets Having a Terrible, Horrible, No Good, Very Bad Day

As of this writing, the SPYs are down 2.36% and the IWNs are down 3.14%. By my rough calculation we're down about 4% for the week. I'll have a market wrap after the clo...

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New Home Sales Drop 6.6%

Here's a link to the Census report.From Bloomberg:Purchases of new homes in the U.S. dropped more than forecast in June, signaling no end to the real- estate slump that's weakened the economy.Sales fell 6.6 percent, the most since January, to an annual pace of 834,000 last month from a revised 893,000 rate the prior month that was less than previously estimated, the Commerce Department said today in Washington.Builders may have to cut prices even more and sweeten incentives to turn sales around and trim bloated inventories. Rising mortgage rates...

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Ryland Homes, DR Horton and Pulte Post Big Losses

From the Street.comPulte reported a second-quarter loss of $507.5 million, or $2.01 a share, compared with profit of $243 million, or 94 cents a share, a year earlier. The loss was in line with the company's projection last week of $2 to $2.10 per share....Elsewhere, Ryland posted a loss of $52.4 million, or $1.25 a share, compared with profit of $94.8 million, or $2.03 a share, a year earlier.From CNBCD.R. Horton Inc. said Wednesday it posted a deep loss in the fiscal third quarter as the homebuilder recorded one of the largest charges to date...

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Fed Releases Beige Book

Here's a link to the whole reportFrom the WSJ:The overall economy continued to expand at a moderate pace in the past six weeks, say reports compiled by the 12 regional Fed banks. The Fed typically releases the anecdotal reports, known as its "beige book," two weeks before its policy makers meet to consider interest rates.In an apparent reaction to the housing slump and rising energy prices, consumer spending rose at only a moderate pace in June and July. Many regions indicated retail sales were below expectations. Five of the 12 said sales of housing-related...

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The Metronet Debacle

Workers from Metronet facing redundancies, following its demise last week, are urging the prime minister to bring its contracts back into the public sector. When Gordon Brown was Chancellor he bulldozed the Public Private Partnership (PPP) initiative through, despite fierce opposition, this was the scheme under which Metronet bid for its contracts. RMT general secretary Bob Crow has asked for infrastructure work to be the control of London Underground. In a letter to Brown, Crow said: "The collapse of Metronet means there has to be a fundamental...

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Back Up And Running

Hey all --I had a technical meltdown with Google. They have these things called robots that search the web looking for Spam web sites. They thought I was one, but I guess I'm not.So, I'm back. Sorry for being awa...

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Friends Financial

UK life insurance companies Friends Provident PLC and Resolution PLC are to merge. The companies' boards have agreed to an all-share combination creating Friends Financial Group PLC, the United Kingdom's fourth-largest insurer with an approximate value of £8.6BN.The deal is contingent on shareholder and regulatory approval, and is expected to be finalised in the fourth quarter of 2007. The firms say they expect cost savings of at least £100M, by the end of 2010. Doubtless the market will be alive with gossip as to other possible merge...

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Debt Market Update

From Bloomberg:The Wall Street money-machine known as collateralized debt obligations is grinding to a halt, imperiling $8.6 billion in annual underwriting fees and reducing credit for everyone from buyout king Henry Kravis to homeowners.Sales of the securities -- used to pool bonds, loans and their derivatives into new debt -- dwindled to $3.7 billion in the U.S. this month from $42 billion in June, analysts at New York-based JPMorgan Chase & Co. said yesterday. The market is ``virtually shut,'' the bank said in a July 13 report.Investors...

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Bricks and Mortar

The increasing reliance of the British economy on the housing market was revealed yesterday, when the government released figures that show that a staggering 60% of the UK's £6.5 trillion wealth is now tied up in property.The Office for National Statistics (ONS) said that the value of Britain, if it were up for sale, has risen by over 5% (an increase of £326BN in 2005).The increase was more than accounted for by the rise in the market value of Britain's housing stock.The ONS figures show that the wealth of the UK is now highly sensitive to movements...

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When Will the Dollar's Decline Stop?

From the Financial Times:How long before the dollar hits $1.40 to the euro? That is the question many analysts are asking after a week when the US currency struck a new low of $1.3843 to the euro and fresh multiyear lows against a range of currencies, including sterling.The US currency has fallen 4.5 per cent against the euro this year and 4 per cent...

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Earnings Growth Pretty Good

From Bloomberg:More than one-quarter of S&P 500 companies have posted second-quarter results. Their average profit growth was 8.1 percent. Analysts estimate index members will post average quarterly profit growth of 5.8 percent, up from a 4.8 percent estimate a week ago, according to data compiled by Bloomberg News.It's not double-digit growth, but 8.1% isn't b...

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Metals Still A Buy?

From CBS MarketWatch:"The long-term story for the base metals remains the same: Demand for metals continues to increase steadily," said Lawrence Roulston, editor of Resources Opportunities. Meanwhile, "production growth is constrained by the long lead times to develop new production and by the shortage of high-quality development projects.""All metals...

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Inflation Figures Fudged

Mervyn King, the Governor of the Bank of England, has finally has admitted (albeit in a coded manner) that the inflation figures on which UK economic policy is based are fudged.King stated that he was "surprised" that rising house prices are not included in the official inflation figures.Given that the house price figures are included in the Retail Price Index (RPI) but that Gordon Brown, during his heady days as Chancellor, changed the official inflation index on which policy is based to the Consumer Price Index (CPI) which excludes house price...

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Health Care Jobs

This chart is from Business Week. The author argues:Basically, the non-health job market is in free-fall. I suspect that when the BLS issues the next round of revisions to the job numbers, the picture will look even wor...

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The S&P 500 Going Into Next Week

First, here is a chart of the S&P 500Here are some notes from my trading journal. They are in no order of importance.-- The trend started in late June is still intact.-- Daily MACD = +-- Daily CMF = +-- Daily OBV = Neutral-- NYAD and NASDAQ AD = Bearish-- NY and NASDAD NHNL = Fair-- Subprime is still a problem.-- Energy is good-- Industrials...

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Financials Are Still Under Pressure

Remember that financial stocks are the largest percentage sector in the S&P 500, coming in at a little over 20%. Last week there was a ton of bad news in the sector.Bear's two funds are worthless.S&P downgraded over 400 bonds.Several financial institutions increased their loan loss reserves.As a result, investors are nervous about what will...

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Weekend Weimar

The markets are closed.Get off your computer. See you tomorr...

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Great Paper on the Housing Market's Problems

Mike Larson -- who writes on the blog Interest Rate Roundup -- has written a paper titled How Federal Regulators, Lenders, and Wall Street Created America’s Housing Crisis Nine Proposals for a Long-Term Recovery. While the title is less than exciting (when will economists learn to get great titles to their papers?), the paper is very good and I highly recommend ...

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So Far, Earnings Look Good

From Zack'sThrough the close of Tuesday, Jul 17, a total of 55, or 11.0% of the S&P 500 firms have reported their second-quarter results. So far the results look very encouraging with positive surprises outpacing disappointments by a ratio of nearly 4:1. The median year-over-year growth rate is a very healthy 11.7% and the median surprise is 3.7%. Seven sectors have had at least one firm report, and of those, five are seeing double-digit median growth rates. There are only three sectors which have yet to have any firms report.While it's too...

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Borrowers Are Sweetening Deals

From the WSJ:Banks raising nearly $40 billion in buyout-related debt for Chrysler Group and the United Kingdom's Alliance Boots PLC are being forced to sweeten terms for investors and face delays in their sales, in another sign of turbulence in global debt markets.Chrysler is being taken over by Cerberus Capital Management, a New York hedge fund, and...

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The Metronet Debacle

Yesterday I asked, in a somewhat ironic tone, how is it that Metronet managed to get itself into such difficulties.The answer lies in it's "jobs for the boys" approach to its contracting. More formally known as "tied supply chain", this ensured that Metronet's five shareholders (WS Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy and Thames Water) were guaranteed most of its work maintaining and upgrading the Underground.A nice little earner for those with their fists in the honey pot. However, rather a poor arrangement for the tax...

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Fed Still Focused on Inflation

From the Federal ReserveAt its May meeting, the Federal Open Market Committee (FOMC) maintained its target for the federal funds rate at 5-1/4 percent. The Committee’s accompanying statement noted that economic growth slowed in the first part of the year and that the adjustment in the housing sector was ongoing. Nevertheless, the economy seemed likely to expand at a moderate pace over coming quarters. Core inflation remained somewhat elevated. Although inflation pressures seemed likely to moderate over time, the high level of resource utilization...

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Subprime Problems Not Over

From Bloomberg:Subprime mortgage defaults will increase this year and holders of securities linked to those home loans may experiences losses well into 2008, JPMorgan Chase & Co. analysts said.``The worst is not over in the subprime mortgage market,'' analysts led by Chris Flanagan, the head of structured finance strategy, said in a report today....

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Financials Still Hurting S&P

Remember that financials are the largest sector of the S&P 500, comprising about 20% of the average. Yesterday the sector dropped because of issues in the subprime market:Bear Stearns fell 0.4% after reports that investors in two of the investment bank's hedge funds that made big bets on subprime mortgages have been practically wiped out, in more...

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The Price of The Metronet Failure

Gordon Brown has not escaped quite so cleanly, as he may have hoped, from the Metronet debacle.Transport for London (TfL) has promised to stump up £750M to prevent the "meltdown" of London's primitive and shameful tube system, following on from yesterday's announcement by Metronet that they have placed themselves into administration.Alan Bloom, an insolvency expert from Ernst & Young, has promised the hapless commuters of London who endure on a daily basis the third world tube system that he had an "overriding obligation" to ensure that the...

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JP Morgan Triples Loan Loss Reserves

From Reuters:JPMorgan Chase & Co. (JPM.N: Quote, Profile, Research) said on Wednesday it tripled the amount set aside for loan losses as even borrowers with good credit defaulted on home equity loans, hurting the bank's quarterly profit......But the bank set aside $1.53 billion for loan losses, up from $493 million a year earlier. About a one-third of the increase resulted from higher loss estimates on home equity loans in which borrowers had little equity in houses with falling values.This is something to keep an eye on going forwa...

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Bernanke's Testimony

Here is the complete opening statementHere are the highlights.Despite the downshift in growth, the demand for labor has remained solid, with more than 850,000 jobs having been added to payrolls thus far in 2007 and the unemployment rate having remained at 4-1/2 percent. The combination of moderate gains in output and solid advances in employment implies that recent increases in labor productivity have been modest by the standards of the past decade. The cooling of productivity growth in recent quarters is likely the result of cyclical or other...

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Housing Starts Up 2.3%

From the CensusHousing inventory is at inter-generational highs, home builders are reporting terrible earnings and credit is tightening.This is a great time to add to invento...

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CPI Up .2%

From the BLS:The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent in June, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The June level of 208.352 (1982-84=100) was 2.7 percent higher than in June 2006.There are a couple of interesting points in this report.1.) For those of you who consume food and energy, those prices are up Y/Y on an unadjusted basis of 4.1% and 4.6%, respectively. As CBS Marketwatch noted:Energy prices fell 0.5% in June after surging the...

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Pulte Homes Reports Big Loss

From the Street.comPulte Homes (PHM - Cramer's Take - Stockpickr - Rating) projected a hefty loss for the second quarter and posted a 20% drop in orders for the period, joining other homebuilders in reporting still-dismal conditions for the housing market.The Bloomfield Hills, Mich.-based builder said Tuesday that it expects to report a second-quarter loss of $2 to $2.10 a share due to numerous charges. The company expects land impairment charges of $1.85 to $1.92 a share, as well as 10 cents a share in charges for a previously announced restructuring.Previously,...

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Metronet Goes Into Administration

Metronet, the London Underground contractor, has announced that it will go into administration after overspending by a staggering £2BN; it has asked Mayor of London (Ken Livingstone) to appoint the administrator.Alan Bloom, an insolvency specialist at Ernst & Young and the former administrator of Railtrack, is expected to be appointed to run Metronet.Metronet said that its two Public Private Partnership contracts to renovate and maintain London's tube system were unsustainable. Its Metronet BCV programme, for the Bakerloo, Central and Victoria...

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This Is Not Good

From the WSJWeeks after the meltdown of two prominent Bear Stearns Cos. hedge funds that bet heavily on the market for risky home loans, the brokerage has told the funds' investors that the portfolios' assets are almost worthless, according to people familiar with the matter.The assets in Bear's more-levered fund, the High-Grade Structured Credit Strategies Enhanced Leverage Fund, are worth virtually nothing, according to people familiar with the matter. The assets in the larger, less-levered fund are worth roughly 9% of the value since the end...

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Homebuilder Confidence Drops

From Bloomberg:Confidence among U.S. homebuilders fell this month to the lowest level in 16 years, signaling the housing market continues to tumble.The National Association of Home Builders/Wells Fargo sentiment index declined to 24 this month, the lowest since January 1991, from 28 in June, the Washington-based association said today. Readings less than 50 mean most respondents view conditions as poor.Builders are pulling back on construction of new homes as inventories remain high as sales haven't recovered. Housing probably will be a drag on...

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