Exactly twelve months after its first close below 10,000 in almost four years, changed days indeed for the Dow. Amid seventieth birthday celebrations for The Wizard of Oz equities were all emerald cities and yellow brick roads yesterday, trading screens flashing green again as gold got to a new nominal high. The DJIA ended up over 130 points after an unexpected interest rate increase Down Under. See also Aussie Rate Hike Triggers Dollar Earthquake. Precious metal bullishness has bullion bugs scanning sea beds even as they enjoy the view atop a (non-inflation adjusted) summit.
Tiffany (TIF) jumped 4.62% after upbeat analyst comments while an eight time recipient of its wedding rings was in our hearts. In a week which has seen Bruce Willis move markets, Monsanto (MON) just made Hugh Grant less happy after reporting an 8.4% yearly revenue drop, and Alcoa’s (AA) results after the close unofficially opens earnings season. For an earnings preview, see Why Earnings Look Opaque Beyond Third Quarter.
Initiations
Research In Motion (RIMM): The tech company is begun with a Buy at both Jesup & Lamont (which sees continued market share gains) and MKM Partners ($87 target on a strong product pipeline).
Miscellaneous: Wells Fargo starts coverage of several stocks, including Group 1 Automotive (GPI) (Outperform due to potential earnings upside), PetSmart (PETM) (also Outperform, on gross margin upside), Bed Bath & Beyond (BBBY) and Williams-Sonoma (WSM) (both Market Performs).
Upgrades
Media & Entertainment: Bank of America/Merrill Lynch upgrades Disney (DIS) (Neutral from Underperform; target price up $8 to $30), Viacom (VIA) (Neutral from Underperform, though the target is taken to $31 from $33) and News Corp (NWS) (Buy from Neutral).
Coca-Cola (KO): Dow component Coca-Cola gets an extra shot of caffeine with a Buy-from-Hold boost at Deutsche Bank, better bottler relations and favorable FX among factors cited.
Time Warner Cable (TWC): The cable provider gets upgraded to Outperform from Market Perform at Wells Fargo.
Cisco Systems (CSCO): William Blair raises its rating on Cisco Systems to Outperform from Market Perform on impressive recent channel checks.
Bank of America (BAC): The financial company is increased to Outperform from Market Perform at Wells Fargo.
Downgrades
St. Jude Medical (STJ): The company is cut at Canaccord Adams (Hold from Buy), among others, after yesterday’s decline of over 12%.
Cephalon (CEPH): Robert Baird downgrades Cephalon (Neutral from Outperform, price objective now to $59 from $74) as the Nuvigil launch hasn’t been as helpful as hoped.
Aeropostale (ARO): The retailer gets lowered to Underweight from Neutral at Piper Jaffray, with an objective of $43. See also Which Retailers Are Poised to Beat.
Nothing contained in this article is intended as a solicitation for business of any kind or for investment in the firm.
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Verisk Analylitics (VRSK) Goes Public Today…1 of The Largest IPO’s
NEW YORK (MarketWatch) — Verisk Analytics Inc. on Wednesday said it priced 85.25 million shares at $22 a share for proceeds of $1.9 billion in the richest U.S.-based initial public offering so far in 2009. The Jersey City, N.J. provider of actuarial data to the insurance industry priced above its $19-$21 estimated price range in a sign of strong interest from Wall Street. BofA Merrill Lynch and Morgan Stanley acted as joint book-running managers for the offering
JERSEY CITY, N.J., Oct. 7, 2009 (GLOBE NEWSWIRE) — Verisk Analytics, Inc. (Nasdaq:VRSK – News), a leading source of information about risk, announced today the pricing of its initial public offering of 85,250,000 shares of the Company’s Class A common stock at a price of $22.00 per share. Total proceeds from the offering are approximately $1.9 billion.
The shares of Verisk Analytics are expected to begin trading today on the NASDAQ Global Select Market under the ticker symbol “VRSK.” Verisk will not receive any proceeds from the sale of shares in the offering.
BofA Merrill Lynch and Morgan Stanley are acting as joint book-running managers for the offering. J.P. Morgan and Wells Fargo Securities are acting as senior co-managers. William Blair & Company, Fox-Pitt Kelton Cochran Caronia Waller, and Keefe, Bruyette & Woods are acting as co-managers. Certain of the selling stockholders have granted the underwriters a 30-day option to purchase an additional 12,745,750 shares to cover over-allotments, if any.
The shares of Class A common stock are being offered only by means of a prospectus. A registration statement relating to these securities has been declared effective by the Securities and Exchange Commission. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. Copies of the final prospectus relating to the offering may be obtained for free by visiting the U.S. Securities and Exchange Commission website at http://www.sec.gov. Alternatively, a copy of the prospectus related to this offering may be obtained from BofA Merrill Lynch, Attention: Prospectus Department, 4 World Financial Center, New York, NY 10080, telephone: 1-212-449-1000, or from Morgan Stanley & Co. Incorporated, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014, telephone: 1-866-718-1649, or by sending email to [email protected].
About Verisk Analytics
Verisk Analytics (Nasdaq:VRSK – News) is a leading provider of risk assessment solutions to professionals in insurance, healthcare, mortgage lending, government, risk management, and human resources.
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Spain’s Santander (BSBR)To Go Public Raising $8bln
SAO PAULO (AP) — Spain’s Banco Santander has raised 14.1 billion reals ($8.1 billion) by selling new shares to expand Brazilian operations. It’s the world’s biggest initial public offering this year, and Brazil’s biggest ever.
Santander’s Brazilian unit says in a filing to Brazilian securities regulators that 600 million shares were sold for 23.50 reals ($13.43) each.
The bank will use the money to grow in Latin America’s largest nation. Brazilians are seeking loans in droves — buying cars and homes and funding business expansions as the economy charges forward after being hit lightly by the global meltdown.
The announcement was made Tuesday night. The offering eclipsed Brazil’s largest IPO last year — when VisaNet raised $4.3 billion.
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An Inventory Glut Looms Over Glass Makers
By YUN-HEE KIM
HONG KONG — The rush by Asian liquid-crystal-display makers to ramp up production at home and invest in new plants threatens to curb the nascent recovery in the flat-panel market.
LCD makers in Asia just started to see their earnings recover in the second quarter after prices began to rise thanks to production cuts made last year, component shortages and strong demand from China. But another supply glut could be looming as soon as the current quarter as companies such as Sharp Corp., Samsung Electronics Co., LG Display Co. and AU Optronics Corp. ramp up production from new lines.
“With the glass shortage diminishing in Taiwan, and [eighth-generation plants] ramping up in Korea, supply is growing faster than demand,” said Paul Semenza, senior vice president at U.S. market-research firm DisplaySearch.
For consumers looking to replace their bulky cathode ray tube-based television sets or upgrade their flat-screen TVs, more efficient plants will translate into lower panel prices and more bargains on store shelves next year. LCD screens are also used in everything from mobile phones to computers. But for LCD makers, lower panel prices will likely put pressure on profits starting in early 2010.
Mr. Semenza said the LCD industry moved into oversupply during September when both TV- and monitor-panel prices began to fall. “We expect prices to fall throughout the fourth quarter and the first quarter of 2010,” he said.
According to Taiwan-based WitsView Technology Corp., a 32-inch LCD TV panel fetched $208 each early October, down from $210 in late September. A 32-inch LCD TV set, meanwhile, averaged $656 late September, down 5% from late August.
“The third quarter will likely be the cyclical peak for the LCD industry,” said Peter Yu, an analyst at BNP Paribas in Seoul. “The industry is moving into a slow season and Sharp’s new plant [near Osaka, Japan] coming online doesn’t help.”
Japan-based Sharp began production this month at its most advanced LCD plant in Sakai City, Osaka Prefecture, using so-called 10th-generation technology. Plants with this technology can produce six panels in the 60-inch range per glass sheet. The Sakai City plant is targeted to eventually have a production capacity of 72,000 glass substrates per month, about 60% more than the capacity of an older eighth-generation plant.
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T To Allow Skype Over Their Networks
By AMY SCHATZ
AT&T Inc. reversed its stance on the use of Skype and other Internet-phone applications by users of Apple Inc.’s iPhone, saying it would no longer block customers from using them on its wireless network.
The change means iPhone users will soon be able to use eBay Inc.’s Skype and other services on AT&T’s high-speed 3G network, taking advantage of competitors’ efforts to offer cheaper international calls and text messaging.
AT&T previously blocked iPhone customers from using Internet-phone applications on its cellular network, citing congestion concerns. However, customers have been allowed to use the software to make calls if using a Wi-Fi Internet connection, such as at home or at a coffee shop.
Ralph de la Vega, head of AT&T’s wireless division, said the company made the change in response to customer requests……
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Asian Markets Rise on Commodities
By Shani Raja
Oct. 7 (Bloomberg) — Asian stocks rose for a second day, led by mining companies and banks, as gold prices surged to a record and brokerages upgraded companies from Sumitomo Mitsui Financial Group Inc. to Hitachi Ltd.
BHP Billiton Ltd., the world’s biggest mining company, gained 3.2 percent and gold producer Newcrest Mining Ltd. surged 6.7 percent in Sydney. The country’s benchmark index posted its biggest gain in three weeks after the central bank raised interest rates, saying the justification for low rates “has now passed.” Sumitomo Mitsui Financial jumped 7 percent in Tokyo after Nomura Holdings Inc. raised its share-price target.
“The improvement in Asian stocks can be attributed to further evidence the global economy is on the mend,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “Investors waiting for a pullback to increase equity exposure continue to be disappointed.”
The MSCI Asia Pacific Index gained 1.9 percent to 117.80 as of 7:32 p.m. in Tokyo, extending yesterday’s 1.7 percent advance. The gauge has risen 64 percent in the past seven months on signs the global economy is emerging from its worst slowdown since World War II.
Australia’s S&P/ASX 200 Index climbed 2.3 percent, its biggest gain since Sept. 16. It rose 0.4 percent yesterday after the central bank’s unexpected interest-rate increase. Crane Group Ltd., the country’s biggest distributor of plumbing supplies, gained 2.4 percent on a Credit Suisse Group AG upgrade.
U.S. Earnings
Japan’s Nikkei 225 Stock Average increased 1.1 percent as Hitachi, a nuclear reactor maker, added 7 percent after Mizuho Securities Co. raised its recommendation and Mitsui O.S.K. Lines Ltd. advanced 3.3 percent after a gauge of shipping fees increased the most since July. Hong Kong’s Hang Seng Index rose 2.1 percent, while Taiwan’s Taiex Index gained 1 percent….
Markets in Europe Take a Break & Trade Down
By Andrew Rummer
Oct. 7 (Bloomberg) — European stocks declined and U.S. index futures pared their advance. The Dow Jones Stoxx 600 Index slipped 0.2 percent to 240.7 as of 11:45 a.m. in London, erasing an earlier increase of as much as 0.4 percent. Futures on the Standard & Poor’s 500 Index added 0.2 percent after rising as much as 0.6 percent.
Oil Rises Slightly Above $71pb
By EILEEN NG
KUALA LUMPUR, Malaysia (AP) – Oil prices rose above $71 a barrel Wednesday in Asia as increased optimism about a global economic recovery boosted expectations that crude demand will grow.
Benchmark crude for November delivery was up 24 cents at $71.12 by late afternoon Kuala Lumpur time in electronic trading on the New York Mercantile Exchange. The contract rose 47 cents to settle at $70.88 Tuesday.
Oil rose in sync with global stock markets. The Dow Jones industrial average gained a second straight day, advancing 1.4 percent Tuesday, its biggest gain since Aug. 21 as investors bet corporate profits will surge as the global economy recovers. Most Asian indexes also advanced in early trading Wednesday.
The rally in stocks came after Australia raised interest rates Tuesday, signaling that policymakers see the country’s economy as strong enough to withstand higher borrowing costs. That touched off hopes other economies may also be strengthening enough to unwind stimulus measures including super low interest rates and massive government spending.
“The optimism for economic recovery is driving equities and oil markets,” said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.
A report by the American Petroleum Institute showing a surprise fall in U.S. oil inventories last week also lifted prices, he said. Crude inventories dropped 254,000 barrels while distillate fuel stocks fell 2.91 million barrels, he said according to the report late Tuesday.
The report however, contrasted with market expectations for higher inventories.
A survey by Platts, the energy information arm of McGraw-Hill Cos, said crude stock is likely to grow by nearly 2 million barrels and that supplies of gasoline and distillates used for heating oil and diesel also climbed last week.
The official weekly supply report will be released by the Energy Information Administration later Wednesday.
Shum said oil prices will rise further if crude inventories fall. Prices will fall if crude stocks rise but likely to hold above $70, backed by stronger financial markets, he added.
In other Nymex trading, heating oil gained 1.53 cents to $1.8295 a gallon. Gasoline for November delivery jumped 1.08 cents to $1.7835 a gallon. Natural gas for November delivery rose 4.5 cents to $4.925 per 1,000 cubic feet.
In London, Brent crude rose 35 cents to $68.91 on the ICE Futures exchange.
The U.S. Dollar Trades Mixed Against Other Currencies
Wednesday during early deals, the US dollar traded mixed against other majors as investors look forward to U.S. third quarter earnings, which kick off later today with aluminum giant Alcoa reporting its results for the quarter after the market closes. The dollar pared its early Asian session gains against the euro and the pound, while remained higher against the Swiss franc. Against the Japanese yen, the dollar slipped to a new multi-month low……
The dollar that rose to 1.4685 against the euro and a 5-day high of 1.5864 against the pound during today’s Asian session, weakened to 1.4738 and 1.5935 respectively. The greenback closed yesterday’s deals at 1.4723 against the European currency and 1.5923 against the pound……
As Yen Strengthens Japanese Electronic Makers Suffer
By Kevin Cho and Mariko Yasu
Oct. 7 (Bloomberg) — Sony Corp., Japan’s biggest exporter of televisions, said the yen may strengthen, threatening to push Japanese electronics makers further behind South Korean competitors such as Samsung Electronics Co.
Combined with falling television prices and a weak U.S. economy, the Tokyo-based maker of Bravia TVs has no “moment to breathe,” Sony Vice Chairman Ryoji Chubachi said in an interview yesterday. By comparison, Samsung Electronics reported operating profit more than doubled last quarter and analysts estimate the company’s net income climbed to a record.
The yen’s gain against the Korean won in the past year has given Samsung and Seoul-based LG Electronics Inc. room to slash more than $100 off a $1,000 TV without trailing Sony and Panasonic Corp. in terms of profitability. A stronger yen, which has led to higher earnings at Korean manufacturers and losses at Japanese producers, may widen the rift.
For Japanese companies, “it’s like a death warrant as things stand now and if this continues, they will have a very difficult time,” said Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which manages the equivalent of $26 billion in assets. “For Korean companies, it’s a favorable environment and the currency has been the biggest factor for their good performance.”
The dollar is at its weakest levels against the yen since February, trading at as low as 88.86 yen yesterday. The yen is the third-best performer among G-10 members in the past 12 months, according to data compiled by Bloomberg.
Yen ‘Too Strong’
Sony rose 2.9 percent to close at 2,505 yen in Tokyo trading today, extending its gain this year to 30 percent. Samsung, which has gained 60 percent so far this year, fell 3.1 percent on the Korea Exchange.
“The dollar probably won’t stay below 90 yen,” said Katsumasa Shinozuka, chairman of Oki Electric Industry Co. “The yen at 90 is still too strong.”
Sony, which exports electronics ranging from DVD players to Cyber-shot cameras, loses about 1 billion yen ($11.2 million) of annual operating profit for every 1 yen decline in the value of the dollar, according to the company. The yen will average 93 against the dollar from July to March 2010, it said July 30.
Faster-than-expected declines in TV prices and increased competition have been “more difficult to deal with” than the currency after Sony improved its hedging practices, Chubachi said. Sony has increased the portion of components, such as liquid-crystal displays, it buys in U.S. dollars to reduce foreign-exchange-related risks, he said.
Tumbling Earnings……
By Glenys Sim
Oct. 7 (Bloomberg) — Investors should hold onto long positions in gold as bullion has “significant upside potential” to reach as high as $1,500 an ounce, Barclays Capital said, citing trading patterns.
“Having rallied ‘off the charts’, we are left to resort to projections and extrapolated trendlines to forecast where the move might stop,” Jordan Kotick, global head of technical analysis at Barclays Capital, wrote in a note e-mailed today.
So-called trendlines are used to determine momentum and are found by connecting an asset’s high prices and low prices over a given period to form a channel.
“Channel resistance currently is at $1,370; history suggests a run at $1,500,” Kotick wrote. “Taking it a step at a time, in the coming weeks, we view consolidation above $1,020 as extremely positive, targeting $1,050 initially, and $1,120,” he added.
Gold for immediate delivery gained as much as 2.6 percent to a record $1,043.78 an ounce yesterday, and traded at $1,038.46 at 10:35 a.m. in Singapore.
“We suspect the rally is wave 3 of 5, indicating an eventual push toward the $1,120 area and potentially beyond into year end,” wrote Kotick, referring to the Elliott Wave theory, which holds that market swings follow a predictable five-stage pattern of three steps forward, two steps back.
“Initial resistance is found in the $1,050 area but that is way too conservative given the springboard that a wide 18- month range provides,” he added.
Not Unstoppable….
Europe’s Economy Shrunk More Than Expected
By Simone Meier
Oct. 7 (Bloomberg) — Europe’s economy contracted more than estimated in the second quarter as consumer spending, investment and exports were weaker than earlier reported.
Gross domestic product in the 16-nation euro region fell 0.2 percent from the first quarter, when it dropped 2.5 percent, the European Union’s statistics office in Luxembourg said today in publishing final figures on second-quarter GDP. The decline was sharper than the 0.1 percent decrease estimated on Sept. 2.
While the euro-area economy is gathering strength after governments injected billions of euros through tax cuts and spending incentives to fight the worst recession since World War II, the International Monetary Fund projected last week that Europe’s recovery will be “slow and fragile.” Confidence in the economic outlook rose to a one-year high in September and investors also grew more optimistic.
“This report is slightly negative but adds nothing to the big picture,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam. “The economy very likely returned to growth in the third quarter and a rather moderate recovery is likely to follow in the coming quarters.”
From a year earlier, GDP decreased 4.8 percent in the second quarter, also sharper than the 4.7 percent drop estimated earlier. The economy may expand 0.2 percent in the third quarter and 0.1 percent in the three months through December, the European Commission forecast on Sept. 14.
Government Bonds
European government bonds rose and the euro declined against the dollar after the GDP report. The euro was at $1.4715 at 11:50 a.m. in London, having reached $1.4737 earlier. The yield on the 10-year bund slipped 1 basis point to 3.15 percent.
Investment declined 1.5 percent in the second quarter, compared with the 1.3 percent drop estimated earlier, today’s report showed. Consumer spending rose 0.1 percent, half the increase estimated last month. Exports shrank 1.5 percent in the latest quarter, a sharper drop than the 1.1 percent decline estimated last month. Imports fell 2.9 percent, compared with the 2.8 percent drop estimated earlier……
Aberdeen Expects “Wall of Cash” To Continue Rally into 2010
By Peter Woodifield
Oct. 7 (Bloomberg) — The global recovery in stock markets will stretch into 2010 as people try to make more money than they can from cash and government bonds, according to the investment chief of Scotland’s largest money manager.
“There is a wall of cash out there seeking income-earning assets,” Anne Richards, who oversees 129 billion pounds ($207 billion) at Aberdeen Asset Management Plc, said in an interview at the company’s offices in Edinburgh. “That wall of money will be supportive into next year.”
The Standard & Poor’s 500 Index in the U.S. has staged the biggest rally since the Great Depression, soaring more than 50 percent from a March low as economies around the world emerge from recession. The FTSE 100 Index in the U.K. and Germany’s DAX Index recorded similar gains, while Hong Kong’s Hang Seng Index advanced more than 80 percent.
American investors hold $3.5 trillion in cash, a higher proportion of the net assets of the companies in the S&P 500 Index than at the peak of the market in 2007, according to data compiled by the Investment Company Institute in Washington and Bloomberg as of Sept. 28.
At the same time, interest rates worldwide are at or near record lows. The U.S. Federal Reserve cut its rate in December to between zero and 0.25 percent.
The Bank of England trimmed its benchmark cost of borrowing to 0.5 percent from 5 percent between September and March. The yield on two-year U.K. government notes has held below 1 percent since Aug. 12 and is at its lowest since 1992…..
GOOG, MSFT, & PALM To Rev Up Smart Phone Race
SAN FRANCISCO (Reuters) – Google Inc, Microsoft Corp and Palm Inc stepped up efforts to bolster their smartphone line-ups, as the tech industry’s key players increasingly move to challenge Apple Inc’s popular iPhone.
In a flurry of announcements on Tuesday ahead of the holiday shopping season, the companies introduced new phones, wireless carrier partnerships and efforts to boost the availability of new applications for the phones.
The moves underscore the extent to which the smartphone market has emerged as a prime battleground encompassing a variety of technology businesses and one of the few markets experiencing rapid growth in a rough economic environment.
“Everyone wants to build up and bolster their smartphone portfolio, because that’s what drives more dollars for the carrier and that’s where the market is going,” said Avian Securities analyst Matthew Thornton.
Google, the world’s largest Internet search company, said it was teaming up with Verizon Wireless to co-develop multiple phones based on its Android operating system. They plan to bring two phones to market this year, and Verizon Wireless CEO Lowell McAdam said the partnership could result in the introduction of multiple devices per year going forward.
The partnership with Verizon Wireless, a venture of Verizon Communications Inc and Vodafone Group Plc, is a boost for Google’s efforts to gain a foothold in the smartphone market.
It caps a string of Android phone announcements, including Motorola Inc’s recent introduction of the Cliq phone and HTC’s Hero phone, slated for U.S. release next week.
Google does not charge a licensing fee for Android but hopes to benefit by serving highly targeted mobile ads to users.
Microsoft, whose software is used in the majority of the world’s PCs, unveiled on Tuesday a new version of its smartphone software, Windows Mobile 6.5, and promised more than 30 new devices with the software would be available in more than 20 countries by year’s end.
According to research firm IDC, smartphones running Microsoft software accounted for 11 percent of the worldwide market in the first half of 2009, compared to 11.7 percent share for Apple’s iPhone and 19.9 percent share for Research in Motion’s Blackberry.
Nokia’s Symbian operating system had the largest share with 46.4 percent share.
IPHONE THE ONE TO BEAT……
U.S. Banks Have Yet To Recognized Commercial Real Estate Losses
(Reuters) – A U.S. Federal Reserve report found that banks in the country are slow to take losses on their commercial real estate loans that have been hit by slumping property values and rental payments, the Wall Street Journal said.
Citing a Sept 29 presentation made by Fed analyst K.C. Conway to banking regulators, the paper said the report’s remarks suggested that regulators were preparing for a rerun of housing-related losses that plagued many banks after the residential property bubble burst.
Conway is a senior real estate analyst at the Federal Reserve Bank of Atlanta.
The Journal said a Fed official had confirmed the authenticity of the document, but added it did not represent the central bank’s formal opinion.
Conway’s report predicted that commercial real-estate losses would reach roughly 45 percent next year, the Journal said.
According to the paper, the report said that the most “toxic” loans on bank books were interest-only loans, which get no benefit from amortization, since it requires borrowers to repay interest but no principal.
The Journal said the report also stated that banks have been slow to absorb the losses on their loans, partly due to “capital preservation” concerns.
A spokesman for the Federal Reserve did not immediately reply to a Reuters email seeking comment that was sent outside regular U.S. business hours.
(Reporting by Biswarup Gooptu in Bangalore; Editing by Kim Coghill)
U.S. Mortgage App.’s Edge To a 4 Month High
By Julie Haviv
NEW YORK (Reuters) – U.S. mortgage applications surged last week to their highest since mid-May as consumers sought to take advantage of the lowest interest rates in months, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said rates on 30-year fixed-rate mortgages, the most widely used loan, were below 5 percent for a third straight week, reaching a four-month low. Demand for home refinancing loans was the highest since mid-May.
Appetite for applications to buy a home, a tentative early indicator of sales, climbed to the highest level since early January. The trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.
The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week to October 2 increased 16.4 percent to 756.3, the highest since the week ended May 22.
“The residential housing market appears to be stabilizing due to lower mortgage rates,” said Alan Rosenbaum, president of Guardhill Financial, a New York-based mortgage banker and brokerage company.
“The affordability factor, which takes into consideration both price and mortgage rates, has been very positive of late,” he said.
Low mortgage rates, high affordability and the federal government’s $8,000 tax credit for first-time home buyers — part of the stimulus bill — have helped pave the way for stabilization.
But with the tax credit set to expire on November 30 and distressed properties making up a high proportion of sales, the recent uptick in activity may mask uncertainty about the long-term outlook.
Rising unemployment is another obstacle. The U.S. Labor Department last week said the jobless rate reached a 26-year high of 9.8 percent in September……
By JAMES R. HAGERTY
Fannie Mae and Freddie Mac are preparing to introduce a program aimed at helping independent mortgage banks acquire the short-term credit they need to make home loans, according to people familiar with the plans.
The two government-backed mortgage companies, the main providers of funding for U.S. home loans, plan to provide advance commitments to purchase home mortgages that meet certain standards. The goal is to reduce risks faced by independent mortgage banks so they can obtain short-term credit.
Spokesmen for Fannie and Freddie declined to discuss details of the plan, and the companies’ regulator, the Federal Housing Finance Agency, declined to comment.
But other people briefed on the situation said Fannie and Freddie plan to build on a previously undisclosed pilot program that Freddie has with Provident Funding Associates LP, a large national mortgage lender based in Burlingame, Calif., and with NattyMac, a so-called warehouse lender based in St. Petersburg, Fla., that provides short-term funding to mortgage companies.
Under that pilot program, these people said, Freddie makes commitments to purchase loans made by Provident Funding that are financed by NattyMac. NattyMac is responsible for ensuring that the loans meet certain quality standards set by Freddie. The commitments from Freddie reduce the risk that NattyMac or Provident will be stuck with loans that are rejected by Freddie or Fannie and can be sold to other investors only at a huge discount…..
FDIC To Sell a 40% Stake in Corus Bank
WASHINGTON (AP) – The Federal Deposit Insurance Corp. has agreed to sell a 40 percent stake in a portfolio of Corus Bank assets for $554.4 million to a private-equity consortium led by Starwood Capital Group.
The investor group also includes TPG Capital, Perry Capital and WLR LeFrak. The FDIC initially will hold a 60 percent stake in the portfolio valued at $831.6 million.
The FDIC said on its Web site late Tuesday it received eight bids for a stake in the portfolio, which includes construction loans and real estate-owned assets with an unpaid principal balance of about $4.5 billion. It determined that the consortium’s bid – which values the assets at $2.72 billion or 60 cents on the dollar – would result in the greatest return for the agency.
Federal regulators in September seized Corus Bancshares Inc., a major Chicago-based lender to condominium, office and hotel projects, adding it to the long list of banks that have succumbed this year to the recession and waves of loan defaults.
The FDIC took over Corus Bank, which had $7 billion in total assets and $7 billion in deposits. Corus Bank’s closure is expected to cost the fund that insures bank deposits $1.7 billion. Chicago-based MB Financial Inc. took on Corus Bank’s deposits, re-opened its branches under the MB Financial Bank name, and agreed to buy about $3 billion of its assets.
The Starwood transaction, expected to close in mid-October, completes the sale of the majority of the remaining assets of Corus Bank.
The FDIC will provide nearly $1.39 billion worth of zero-coupon debt, matching the amount of equity in the deal. It also will provide up to $1 billion in financing over the next three to five years to fund construction of incomplete buildings, operating deficits in completed buildings and other asset-related working capital needs.
Barclays Capital advised the FDIC on the sale.
Ninety-eight banks have failed so far this year as losses have mounted on commercial real estate and other soured loans amid the most severe financial climate in decades. The FDIC said last week that the failures have cost it about $25 billion.
In September, the FDIC opened the door wider for private investors to buy failed financial institutions. The FDIC’s board voted to reduce the cash that private equity funds must maintain in banks they acquire.
Private-equity funds have been criticized as excessive risk-takers. But with fewer healthy banks willing to buy ailing institutions, the banking crisis has softened the FDIC’s resistance to private buyers.
Some always valuable thoughts here from investing legend Richard Russell:
It’s human nature to be optimistic. It’s human nature to hope. Furthermore, hope is a component of a healthy state of mind. Hope is the opposite of negativity. Negativity in life can lead to anger, disappointment and depression. After all, if the world is a negative place, what’s the point of living in it? To be negative is to be anti-life.
Ironically, it doesn’t work that way in the stock market. In the stock market hope is a hindrence, not a help. Once you take a position in a stock, you obviously want that stock to advance. But if the stock that you bought is a real value, and you bought it right — you should be content to sit with that stock in the knowledge that over time its value will out without your help, without your hoping.
So in the case of this stock, you have value on your side — and all you need is patience. In the end, your patience will pay off with a higher price for your stock. Hope shouldn’t play any part in this process. You don’t need hope, because you bought the stock when it was a great value, and you bought it at the right time.
Any time you find yourself hoping in this business, the odds are that you are on the wrong path — or that you did something stupid that should be corrected.
Unfortunately hope is a money-loser in the investment business. This is counter-intuitive but true. Hope will keep you riding a stock that is headed down. Hope will keep you from taking a small loss and instead, allowing that small loss to develop into a large loss.
In the stock market hope get in the way of reality, hope gets in the way of common sense. One of the first rules in investing is “Don’t take the big loss.” In order to do that, you’ve got to be willing to take a small loss.
If the stock market turns bearish, and you’re staying put with your whole position. and you’re HOPING that what you see is not really happening – then welcome to poverty city. In this situation, all your hoping isn’t going to save you or make you a penny. In fact, in this situation hoping is the devil that bids you to sit — while your portfolio of stocks goes down the drain.
In the investing business my suggestion is that you avoid hope. Forget the siren, hope — instead embrace cold, clear reality.
For more on the Dow Theory Letters please see here.
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