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Monthly Archives: January 2012

Today’s Biggest Winners

No. Ticker % Change
1 GTXI 49.24
2 ONCY 29.01
3 DHT 26.44
4 PNCL 23.46
5 PBY 23.34
6 TNB 23.07
7 FFN 20.22
8 YMI 19.88
9 RENN 19.24
10 AMLN 18.95
11 NGSX 17.58
12 SVVC 17.10
13 LZEN 16.45
14 MELA 13.73
15 MCOX 13.67
16 OTIV 12.93
17 DEJ 12.86
18 INVN 12.26
19 HTCH 11.88
20 PIP 11.28
21 VHGI.PK 10.77
22 MILL 10.28
23 ARNA 10.06
24 CT 9.13
25 IFON 9.09

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> half of US banks who lend to Europe, tighten standards

WASHINGTON (AP) — A Federal Reserve survey has found that more than half of U.S. banks that lend to European banks have tightened their standards, a reflection of the persistent European debt crisis.

Of the 26 U.S. banks surveyed that make loans to European banks, five said they had tightened their standards considerably in the October-December quarter. Another 10 said that they had tightened them somewhat in the same period, according to the survey released Monday.

Many economists predict that Europe’s debt crisis will push the region into a recession this year. Many European banks are heavily exposed to government debt, making the banks more of a risk.

In the U.S., banks are seeing more small businesses apply for loans, according to the Fed’s quarterly survey of loan officers for large banks.

The percentage of banks reporting increased loan demand from companies with annual sales of less than $50 million rose to the highest level since 2005, the survey found.

That could mean more companies are confident in the economy and may be looking to hire more and expand.

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Stocks have extended their upturn

Stocks have extended their upturn in recent trade. The effort has dashed the losses of the major equity averages, putting them at fresh session highs. Between the Dow, S&P 500, and the Nasdaq Composite, the Nasdaq has done the best job of working its way higher. It actually came within close reach of the neutral line only minutes ago. Its relative strength comes with help from large-cap tech issues like Microsoft (MSFT 29.56, +0.33) and Apple (AAPL 453.03, +5.75).

Market Update

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LOL: Freddie Mac caught betting against homeowner’s refinancing

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NPR and ProPublica released an explosive report Monday that found government-owned mortgage giant Freddie Mac betting against the very homeowners it is supposed to help. According to the news article, the investment division of Freddie Mac (or as Henry calls it, Freddie’s “gambling desk”) placed billions of dollars of bets against homeowners who were trying to refinance their mortgages at lower rates.

According to NPR/ProPublica’s review of public documents, Freddie Mac invested in securities called “inverse floaters,” which receive all the interest payments from a specified mortgage-backed securities. “If lots of people ‘pre-pay’ their old loans and refinance into new, cheaper ones, then Freddie Mac starts to lose money,” ProPublica’s Jesse Eisinger and NPR’s Chris Arnold explain. “If people can’t refinance, then Freddie wins because it continues to receive that flow of older, higher interest payments.”

Although Freddie Mac’s bets are legal, they’re highly offensive. Rightly or not, many Americans blame Freddie Mac and Fannie Mae — which was not mentioned in the NPR/ProPublica report — for the housing boom and subsequent bust. Nearly all Americans would agree the company’s should not be focused on generating profits, now that they are officially wards of the state and are using taxpayer dollars to make these bets, as Aaron and Henry discuss in the accompanying video.

Freddie Mac plays a significant role in determining mortgage rates and is one of the “gatekeepers” with the power to decide whether a homeowner can refinance at a lower rate. If homeowners can reduce their mortgage payments, then Freddie Mac loses money. Hence the conflict of interest and the concern Freddie has been turning down refi requests in order to benefit its proprietary trades.

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Tech stocks a safe investment?

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The technology sector is known for two things: growth potential and risk.

Apple’s trouncing of Wall Street earnings forecasts this past week suggests growth is still abundant. Yet Big Tech is looking less risky than it has in the past.

Here are four reasons conservative investors should consider adding exposure to tech stocks.

Tech stocks have had more than a decade to work off the bloated share prices from the dot-com stock bubble of the 1990s, says Cliff Hoover, chief investment officer of Dreman Value Management in Jersey City, N.J., which manages $5 billion. Many have become a good home for safety-oriented investors, he says.

The information-technology sector of the Standard & Poor’s 500-stock index recently traded at 13 times estimated 2011 earnings, on par with the broad index, according to S&P data. The consumer staples and utilities sectors, typically considered safe and stodgy, fetch 14 times earnings. And Wall Street expects the tech sector to increase its earnings by almost 14% in 2012, versus 8% for consumer staples and 1% for utilities.

Over the past five years, large pockets of the tech sector, including hardware makers, systems software firms and consulting shops, have been no more volatile in terms of share-price changes than the broad S&P 500 index, according to S&P data.

Financial strength
The tech sector of the S&P 500 sits on $380 billion in cash and equivalents, more than any other sector and equal to 15% of its market value, according to Howard Silverblatt, senior index analyst at S&P. That doesn’t include holdings in long-term securities. Apple holds a $67 billion portfolio that is “very liquid,” Mr. Silverblatt says.

The two largest companies in the sector, Apple and Microsoft, have forward price/earnings ratios in single digits after deducting their cash and investments from their stock-market values. Microsoft and Intel now have fatter “dividend yields,” or the percentage of share price paid out as dividends, than the 500 index average.

Mr. Hoover, who considers himself a “deep value” stock picker, likes Microsoft, Intel, Cisco Systems and Applied Materials. “They’re big free-cash-flow generators and pretty good dividend payers,” he says. Microsoft pays 2.7%, Cisco 1.2%, Intel 3.1% and Applied Materials 2.6%, versus 2% for the broad S&P 500.

Low expectations
With 37% of S&P 500 companies having announced December-quarter earnings results, 68% of the technology companies that have reported have beaten analysts’ estimates, versus 59% for the index and 40% for consumer-staples companies, according to a Friday report from Thomson Reuters. (Only three utilities have reported, with one beating estimates.)

Tech outfits are doing well in part because companies that delayed technology purchases during the 2008 financial crisis are starting to spend, says David B. Armstrong, co-founder of Monument Wealth Management in Alexandria, Va., which oversees $200 million.

“Technology has become more of a necessity, and companies can only delay investments for so long,” he says. “That helps make the sector more stable.”

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EU outlawing Keynes? And they definitely approve of the ESM…

BRUSSELS (Reuters) – European leaders struggled to reconcile austerity with growth on Monday at a summit that approved a permanent rescue fund for the euro zone and was trying to put finishing touches to a German-driven pact for stricter budget discipline.

Officially, the half-day 27-nation summit was meant to focus on ways to revive growth and create jobs at a time when governments across Europe are having to cut public spending and raise taxes to tackle mountains of debt.

But disputes over the limits of austerity, and Greece’s unfinished debt restructuring negotiations with private bondholders, hampered efforts to send a more optimistic message that Europe is getting on top of its debt crisis.

Leaders agreed that a 500-billion-euro European Stability Mechanism will enter into force in July, a year earlier than planned, to back heavily indebted states. But Europe is already under pressure from the United States, China, the International Monetary Fund and some of its own members to increase the size of the financial firewall.

The risk premium on southern European government bonds rose while the euro and stocks fell on concerns about a lack of tangible progress in the Greek debt talks and gloom about Europe’s economic outlook.

Highlighting those fears, Spain’s economy contracted in the last quarter of 2011 for the first time in two years and looks set to slip into a long recession.

France halved its 2012 growth forecast to a mere 0.5 percent in another potentially ominous sign for President Nicolas Sarkozy’s troubled bid for re-election in May. Prime Minister Francois Fillon said the cut would not entail further budget saving measures.

Conservative Spanish Prime Minister Mariano Rajoy, attending his first EU summit, said Madrid was clearly not going to meet its target of 2.3 percent growth this year. That has raised big doubts about whether it can cut its budget deficit from around 8 percent of economic output in 2011 to 4.4 percent by the end of this year as promised.

European Commission President Jose Manuel Barroso hinted Brussels may ease Spain’s near-unattainable 2012 deficit target after it updates EU growth forecasts on February 23.

Italy, rushing through sweeping economic reforms under new Prime Minister Mario Monti, was rewarded with a significant fall in its borrowing costs at an auction of 10- and 5-year bonds, despite double-notch downgrades of its credit rating by Standard & Poor’s and Fitch this month.

But Portugal’s slide towards becoming the next Greece – needing a second bailout to avoid chaotic bankruptcy – gathered pace as banks raised the cost of insuring government bonds against default and insisted the money be paid up front instead of over several years.

The yield spread on 10-year Portuguese bonds over safe haven German Bunds topped 15 percentage points for the first time in the euro era. It cost a record 3.9 million euros ($5.12 million) to insure 10 million euros of Portuguese debt.


With Britain standing aloof, most of the other 26 EU leaders were set to approve a fiscal pact to write balanced budget rules into their national law, despite economists’ doubts about the wisdom of effectively outlawing deficit spending.

“To write into law a Germanic view of how one should run an economy and that essentially makes Keynesianism illegal is not something we would do,” a British official said.

European Parliament President Martin Schulz told the leaders the new fiscal treaty was unnecessary and unbalanced, because it failed to combine budget rigor with necessary investment in public works to create jobs.

The 17th summit in two years as the EU battles to resolve its sovereign debt problems was called to shift the narrative away from politically unpopular austerity and towards growth.

Negotiations between Greece and private bondholders over restructuring 200 billion euros of debt made progress over the weekend, but were not concluded before the summit.

A Greek official said Prime Minister Lucas Papademos would give the summit a brief report on the situation and meet German Chancellor Angela Merkel on the sidelines.

Until there is a deal, EU leaders cannot move forward with a second, 130-billion-euro rescue program for Athens, which they originally pledged at a summit last October.

Germany caused outrage in Greece by proposing that a European commissar take control of Greek public finances to ensure it meets fiscal targets. Greek Finance Minister Evangelos Venizelos said that to make his country choose between national dignity and financial assistance ignored the lessons of history.

The German call won cautious backing from the Dutch and Swedish prime ministers. But Merkel played down the idea of placing Greece under stewardship, saying: “We are having a debate that we shouldn’t be having. This is about how Europe can be supportive so Greece can comply, so there are targets.”

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OPEC: Iran embargo leads to higher oil

“So please don’t do it…”

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Any decision by Iran to cut oil exports to the European Union will affect the price of oil and hurt the region’s economy, OPEC Secretary General Abdalla Salem El-Badri told CNBC on Monday.

Iran’s parliament is to debate a “double-urgency bill” which would halt all oil exports to the EU in response to sanctions by the bloc, which plans to ban imports of oil from the Middle Eastern country in July.

“Iran are exporting 400-500,000 barrels a day to the EU,” El-Badri said. “Of course this quantity is going to affect the EU…you don’t want to add more problems to the EU. And for the Iranians also, to cut 400-500,000 barrels a day from their exports, it will affect their living.”

El-Bardi did not want to speculate on whether Iran will go ahead with the move to ban exports to the EU, which would disturb a five-month transitional period to allow the countries to find alternative suppliers.

“Today…the market is stable, there is no shortage of oil anywhere in the world,” he said. “However, to take out 400-500,000 barrels a day in a matter of days, this will affect the price. Of course the price will go up. I don’t know how much.”

He reiterated his statement that $100 per barrel was a sustainable price for oil for this year.

“One hundred dollars is suitable for producers and consumers,” El-Badri said. “For us, we can invest, we can have enough income for our member countries and also the consumers can survive, can have their economy flourish with $100. I think anything above $110 is a problem.”

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Market Update

The stock market slid sharply in the opening minutes of trade, but support for the S&P 500 near 1300 has helped stocks pare their losses.

Without any uplifting corporate reports and some generally underwhelming personal income and spending numbers, market participants turned to selling this morning. Their efforts came in conjunction with weakness abroad and frustration related to Greece’s ongoing struggle to strike a compromise with its creditors. Reports continue to suggest that the country may not be given additional bailout funding without proof of progress in its austerity efforts.

Early selling quickly put the stock market on pace for its poorest performance of the past month, but selling pressure began to ease once the S&P 500 found technical support near the psychologically significant 1300 line.

Although the major averages have moved up from their morning lows, losses remain sizable. Of the major sectors, only telecom is sporting a gain. The sector has worked its way up to a 0.2% gain. Tech stocks actually poked into positive territory earlier, but the sector has since struggled to sustain the move. As such, it is currently narrowly below the neutral line.

Financials continue to wrestle with concerted selling, which has left the sector 1.5% lower on the session. Diversified financial services stocks have been hit particularly hard.

Market Update

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