Not seeing it

Was early into this rally and out much too early.

But I still can't quite see it, myself. From my mate Gary Balter at Credit Suisse:

Supplier/Competitor Datapoints Lack the "Less Bad" Tone of the Market
Last night and this morning we received several datapoints on the home
improvement market with earnings reports from Tractor Supply (TSCO),
Black & Decker (BDK) and Danaher (DHR) and March existing home sales
data. The datapoints lacked the “less bad” tone that we’ve seen throughout
the rest of the market and other segments of retail. Sales trends and
management commentary suggests end market demand remained weak
throughout 1Q09 which we view as an incremental negative for HD and
LOW and should temper some of the enthusiasm for 1Q09 earnings to be
reported in late May.

And when I saw the management of Neptune Orient Lines (NOL) the message was quite unreservedly bleak - not just for the container shipping space (where supply side dynamics are, if anything, worse than the almost nonexistent demand picture, and where any stability in rates is from temporarily reduced capacity, just literally bobbing up and down out there.) Yes there's been some restocking, but to very low levels from the almost complete suspension of international trade from November to February.

So I am not a buyer and remain small short (though slightly tempted to reverse that if a firm base is formed here or lower) with a wider short if Beta adjusted. I still don't think that we will breach previous lows, but up here it's looking quite risky.




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Year of the Ox, 2009... Is an Ox Year the same as a Bull Year??

In case anybody is wondering, the first day of the next Chinese New Year falls on January 26th 2009. The character (牛) for the ox is, unsurprisingly, the same as that for a bull.


The record for the Dow Industrials during the last century is not all that inspiring, with 5 winning years vs 4 losers, at an average gain for the year of a bit over 5%, but with a mile wide std dev of 21%, so expect something between -15% and +25%??! The next layer of astrology (elements) points to a slightly better outcome - the last Earth Ox (1949) saw a return of 12.8%. (Not statistically significant, methinks?!)

For the HSI, I only have 3 past Ox years to look at, for some reason... 1974: -64%, 1986: +21%, 1997(!): -17%

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Bailseverimulus

I don't get it about the auto bailout, particularly the panic in all the Asian markets on Friday at the announcement of its failure to pass in the Senate. Am I missing something? (No, it wouldn't be the first time, I know.)

Yes, they are iconic global symbols of US manufacturing prowess (alongside other such 21st Century global powerhouses such as, er, Boeing and um, Caterpillar, and, er...) and huge employers both themselves and in ancilliary businesses etc (huge-ness of payrolls kind of being one of their problems.)

But they make essentially the wrong products for the market, and do so inefficiently - exacerbated by legacy pension etc issues and rampant, thinly disguised '70s style "Winter of Discontent" unionism so until pretty much all that changes, the problems simply won't go away.

With or without bankruptcy protection, with or without a bailout, the "Big Three" have to cut staff massively, change management (and groupthink) almost totally and renegotiate legacy pension and related liabilities.

Would a bailout rather than Chapter 11 actually change anything? Would a $14bn (or $35bn) bailout encourage creditors (suppliers, banks etc) to continue to lend to the automakers, or would they pull in their horns and limit credit risk? And would it get people who are even reluctant to buy a Toyota or Hyundai or F1-less Honda to fork out a piece of their uncertain finances to pick up any of their crappy cars?

I take the point that another massive blow to the economy at this point would be negative - but not selling cars IS already a huge blow to the economy. Generous severance to employees (and perhaps assuming a chunk of the legacy pension liabilities etc) would be far better use of bailout money and a direct fiscal stimulus, besides easing the way to a restructured and healthier US auto industry.

Either way, the failed bailout in the currently proposed format is no reason for a market pukefest, especially when you KNOW that something along those lines (but tweaked) will get passed somehow sooner rather than later.

I see what happened in Asia on Friday as 1.) simple profit taking after a sharp and generally unexpected run, and 2.) reading too much of the US-centric (and increasingly tabloid-style) financial press.

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Is Mr ZIRP coming to the US?!

So 3 month Treasury yields fell through the floor - one indicator of low risk appetite... with equity markets shooting up... Riiiight...



Or, as my new BFF David Rosenberg of Merrill puts it:

Take my money, please
The US Treasury's most recent four-week bill auction resulted in a yield of 0.0%
as risk aversion continues to dominate the markets. This result follows on the
heels of three auctions yielding 10bp or less. The bid-to-cover was the highest in
more than a year and a half. Demand came from clients rather than the dealer
community, as can be seen in the reported participation, where indirect bidders
accounts for 47% of the auction versus a norm of 30%. Likewise, the hit ratio, or
amount of award to bid for dealers was just 17.4%. This is 10pp lower than
normal. This result, more than any other single data point, highlights the
unsustainability of the equity market rally of recent days, in our view. How can
you expect an economic or earnings recovery if investors would sooner bury the
cash -- or place it with the Treasury at 0.0% -- than "risk" it.

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::

Okay, I'm back. And what a month "off" it's been... During this time, the market rallied hard, sold off even harder and then rallied again - if only last night. All in all, a pretty hairy period, I'd say.



Oh, and we got a new US president-elect, Hillary got powerful again, the TARP morphed again, credit spreads narrowed, lending rates stayed high, everybody became a bank, China slowed right down and pretended to stimulate the whole planet, depression/recession became a dinner party topic, house prices crashed even faster, earnings fell apart (but beat expectations?!), consumers stopped consuming, Europe fell into recession, Circuit City filed, Asian de-coupling died, deleveraging became a real word, people gave a sh1t about auto makers again, strong & safe "rescue" banks found that they too had to raise fresh private or bailout capital and Citi traded at $3.05 (52-week high: $35.)



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It's Friday, all markets are DOGS and simply goin'...

DOWN...
...........DOWN...
.......................DOWN...



... by Tom Waits, from "Swordfishtrombones" - as not sung by Scarlett Johanssen.

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Steeper and Narrower

The Man, Julian Robertson (on CNBC w Erin) has been playing the steeper yield curve trade (see y'day), and meanwhile, the TED spread (see right) is narrowing just a leetle bit.




Fresh shorts which held off yesterday seem to be dribbling their way back in today after the inevitable opening surges... and quite a lot of retail investors across the region seem to be saying "phew!thankyouverymuch" and chucking out some very painful names this morning.

And that makes me feel a leetle bit more bullish about this bear rally, too, on top of the thank-goodness-we're-looking-at-a-nasty-recession-not-a-Depression view gaining currency out there.

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Don't Panic! Don't Panic! Don't Panic!

Well... maybe just a little bit.

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How big is TOO BIG (to fail)?

"Too big to Fail"

"Too big to Fail"

"Too big to Fail"

We've been hearing a lot about this bank being too big to fail, or that bank (or GSE or commercial bank or investment bank or insurance company or hedge fund or money market fund or... central bank or... deposit insurance corporation or...) but what does that mean?  Yes yes yes, systemic risk etc, but Nemo over at newly-discovered (to me) self evident has done a bit (a lot) of work to find out at least what scale of bigness we're dealing with these days.  Read the posts here: Part 1, Part 2 & Part 3 but for example, here's what he (/she?) writes about Merrill, AIG and LTCM:

Merrill Lynch has $966 billion in assets and $931 billion in liabilities.  They are counterparty to $4.2 trillion in derivatives trades.   They get brownie points for including HTML anchors in their 10-Q.  (Do we still use the phrase “brownie points” after Katrina?)

AIG (10-Q) has $1.0 trillion in assets (10-Q page 1) and $972 billion in liabilities (page 2). They are counterparty to at least $447 billion in credit default swaps (page 87).  But that does not include the old-fashioned insurance operations, and who knows what else because I am tired of slogging through this stuff.  Executive summary: What would happen if an insurer with $1 trillion in assets were to fail?  I have no idea; and neither, I suspect, does anyone else.

In 1998, Long-Term Capital Management nearly collapsed.  They had $129 billion in assets and $124 billion in liabilities.  But the real problem was that they were counterparty to $1.25 trillion in derivatives trades.  Because their collapse might have created a chain-reaction throughout the financial system, then-President of the NY Fed William McDonough called together the heads of the major commercial banks and investment banks and politely asked them to cooperate.  The banks bailed out LTCM without any government backstop.  (Bear Stearns declined to participate in the bail-out, a fact never forgotten by its peers.)

Great stuff.  Scary reading.

(Just updated my blogrollthing at left)

=========

"You've Got The Fed" (from Versus Plus)

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A(Drexel) I(Burnham) G(Lambert)

Investment bank Drexel Burnham Lambert lives on (in a very Drexel Burnham Lambert sort of way, actually,) in AIG's increasingly famous AIG Financial Products unit...

Michael ("Not Lewis") Lewitt, started his Op-Ed column in the NYTimes on Monday by recalling that day in February 1990 when Drexel, his shop at the time, folded.

"At the time, Drexel had $3.5 billion in assets and was the biggest underwriter of junk bonds..."

That was, of course, the last major investment bank to truly fold and file for bankruptcy protection (rather than get merged, rescued, bought out etc) prior to Lehman Bros.  He then pointed out, for colour, that at the time that Lehman folded, 

"Lehman owned more than $600 billion in assets. Financial institutions around the world have already reported more than half a trillion dollars of mortgage-related losses and that figure will most likely double or triple before the crisis exhausts itself."

Then on to the (still confusing) wonder that is AIG:

"But there is a bigger potential failure lurking: the American International Group, the insurance giant. It poses a much larger threat to the financial system than Lehman Brothers ever did because it plays an integral role in several key markets: credit derivatives, mortgages, corporate loans and hedge funds... There is (a) substantial possibility that A.I.G. will be unable to meet its obligations and be forced into liquidation. A side effect: Its collapse would be as close to an extinction-level event as the financial markets have seen since the Great Depression... A.I.G. does business with virtually every financial institution in the world. Most important, it is a central player in the unregulated, Brobdingnagian credit default swap market that is reported to be at least $60 trillion in size."

And so on to the FT this morning... 

"As American International Group fights for survival, the question on everyone’s lips is how could what was once the world’s biggest insurer get itself into such a mess? The answer has its roots in a decision in the late 1980s to hire a group of derivatives specialists from Drexel Burnham Lambert.  These formed the basis of AIG Financial Products, which wrote billions of dollars of derivatives, which are now at the heart of AIG’s woes and are a long way from the mainstream insurance business that continues to lie at AIG’s core."

(See article from 1990 here.)

Where will the ex-Drexel team go next, I wonder?  

Actually, they are now virtually employed by the Federal Reserve, aren't they...??!!!

=============

Maybe more circularity some time in the (not-too?) distant future??

• AIG (founded in Shanghai in 1919 by an American) - market cap, based on after-market trading price: USD700m
  
• China Life (HQ in Beijing) - market cap based on yesterday's ADR close: USD84,700m
  

Well, you never know what the Fed may eventually want to do with its stake...!

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Stumble It!
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AIG post-cuts... still Investment Grade... for now...

NEW YORK, Sept. 15 /PRNewswire/ -- Standard & Poor's Ratings Services said today that it lowered its long-term counterparty rating on American International Group Inc. (NYSE: AIG) to 'A-' from 'AA-' and its short-term counterparty credit rating on AIG to 'A-2' from 'A-1+'...

New York, September 15, 2008 -- Moody's Investors Service has downgraded the senior unsecured debt rating of American International Group, Inc. (NYSE: AIG) to A2 from Aa3 in light of the continuing deterioration in the US housing market and the consequent impact on the group's liquidity and capital position due to its related investment and derivative exposures. The company's long-term and Prime-1 short-term ratings were placed on review for possible further downgrade...

CHICAGO--(BUSINESS WIRE)--September 15, 2008

Fitch Ratings has downgraded the Issuer Default Rating (IDR) and outstanding debt ratings of American International Group, Inc. (AIG) as follows:

   --Long-term IDR to 'A' from 'AA-';

   --Senior unsecured debt to 'A' from 'AA-'.

   --Short-term IDR to 'F1' from 'F1+';

   --Commercial paper program to 'F1' from 'F1+'.

   Fitch has also downgraded AIG's holding company and subsidiary debt and insurer financial strength (IFS) ratings. A full list of rating actions is detailed below. The ratings also remain on Rating Watch Negative by Fitch.

Moody's S & P Investment Grade Ratings Aaa Aa A Baa AAA AA A BBB Below Investment Grade ("Junk Bond") Ba B Caa Ca C BB B CCC CC C In Default   D

http://www.moneychimp.com/glossary/investment_grade.htm

Long-Term Credit Ratings

Fitch's long-term credit ratings are set up along a scale from 'AAA' to 'D', first introduced in 1924 and later adopted and licensed by S&P. Moody's also uses a similar scale, but names the categories differently. Like S&P, Fitch also uses intermediate modifiers for each category between AA and CCC (i.e., AA+, AA, AA-, A+, A, A-, BBB+, BBB, BBB- etc.).

Investment Grade

• AAA  : the best quality companies, reliable and stable
• AA  : quality companies, a bit higher risk than AAA
• A  : economic situation can affect finance
• BBB  : medium class companies, which are satisfactory at the moment

Non-Investment Grade (also known as junk bonds)

• BB  : more prone to changes in the economy
• B  : financial situation varies noticeably
• CCC  : currently vulnerable and dependent on favorable economic conditions to meet its commitments
• CC  : highly vulnerable, very speculative bonds
• C  : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations
• D  : has defaulted on obligations and Fitch believes that it will generally default on most or all obligations
• NR  : not publicly rated

[edit]Short-Term Credit Ratings

Fitch's short-term ratings indicate the potential level of default within a 12-month period.

• F1+  : best quality grade, indicating exceptionally strong capacity of obligor to meet its financial commitment
• F1  : best quality grade, indicating strong capacity of obligor to meet its financial commitment
• F2  : good quality grade with satisfactory capacity of obligor to meet its financial commitment
• F3  : fair quality grade with adequate capacity of obligor to meet its financial commitment but near term adverse conditions could impact the obligor's commitments
• B  : of speculative nature and obligor has minimal capacity to meet its commitment and vulnerability to short term adverse changes in financial and economic conditions
• C  : possibility of default is high and the financial commitment of the obligor are dependent upon sustained, favourable business and economic conditions
• D  : the obligor is in default as it has failed on its financial commitments.

http://en.wikipedia.org/wiki/Fitch_Ratings

==============

And the amazing thing is this: We still live (and die) by what the rating agencies say.  Unbelievable.

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"Housing: Are We Near the Bottom?" (Nope.)

The always readable & thought-provoking (and free) John Mauldin is not bullish:  "Housing: Are We Near the Bottom?"

"By now, everyone in the world is aware of how bad the subprime mortgage business was. But now it is time to get ready to hear the same tale, told again, about Alt-A mortgages. These are mortgages made to borrowers with better credit scores than subprime borrowers, but who could not or decided not to document their income. One estimate is that 70% of Alt-A borrowers may have exaggerated their incomes (Wholesale Access). More than half of those were people who exaggerated their incomes by 50% or more! (Mortgage Asset Research Institute)

"How much are we talking about? Around 3 million US borrowers have Alt-A mortgages totaling $1 trillion, compared with $855 billion of subprime loans outstanding. $400 billion of that was sold in 2006. Almost 16% of securitized Alt-A loans issued since January 2006 are at least 60 days late. Many of these loans (around $270 billion) were interest-only or with a low teaser rate, and the resets were at 3- and 5-year lengths. These are called Option ARMs. That means starting next year we are going to see a wave of mortgages resetting to new rates. And it is no modest increase. Rates can jump 4-8% or more from teaser rates. Some Option ARMs are resetting at 12.25%. That can double a payment."

So how much worse will it get, and for how much longer can we expect to experience the pain?

"Burns (of www.realestateconsulting.com) thinks that home prices will drop by 22%, 12% of which has already occurred...  He thinks it will be 2011 before housing prices begin to turn back up on a nationwide basis, with national prices continuing to fall into 2010."

So there.  (And if you can actually find a buyer, now you know what to do...)

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Stumble It!
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kuh-pich-uh-ley-shuh n?

ca·pit·u·la·tion     Audio Help   [kuh-pich-uh-ley-shuhn] Pronunciation Key - Show IPA Pronunciation

–noun

1.	the act of capitulating.

2.	the document containing the terms of a surrender.

3.	a list of the headings or main divisions of a subject; a summary or enumeration.

4.	Often, capitulations. a treaty or agreement by which subjects of one country residing or traveling in another are extended extraterritorial rights or special privileges, esp. such a treaty between a European country and the former Ottoman rulers of Turkey.

capitulation. Dictionary.com. Dictionary.com Unabridged (v 1.1). Random House, Inc.http://dictionary.reference.com/browse/capitulation (accessed: September 11, 2008).

=================

Or, in the words of my  Morgan Stanley broker: "PUKEFEST."

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Morgan and Morgan - sounding bullish (CSFB more mixed)

This morning we have Ken Landon of JP Morgan (or JP Landon as he'll rename it soon enough) out with a bullish call on the US economy and equities based on the direction of gold and the USD.

"In my opinion, the 6% decline in the dollar price of gold since Friday is an important signal of investors confidence in the monetary system of the United States despite the heavily bearish news of the past few days. This is a radical shift from the environment either of early this year or in May-June when renewed concerns about the financial system drove investors into commodities as hedges against inflation... 

USD - The DXY dollar index hit the highest level since early-September 2007 (i.e., before the Fed's rate-cutting cycle) and EUR/USD briefly fell below 1.40.... Back in Sept/Oct 2007, equities were generally rallying while the USD was selling off.  The dollar gave the correct signal because it anticipated the downturn in the economy and the rise in inflation. A year later in 2008, the situation is reversed. Equities are falling while the dollar is rallying. In my opinion, which I have expressed ad nauseum, the dollar is giving the correct signal once again."

(Note that he never uses "IMHO" when profferring his opinion.)

Your faithful Excel-meister here has, therefore, produced this 20 year monthly year-on-year chart, to illustrate his point:

I take his point, but I don't see it on the chart.

Meanwhile, the Asia strategist over at Morgan Stanley, Mal Wood, in a pretty good note today asks "How Close to a Trough?"  (Then he answers himself - pretty dahn close, mate.)

Conclusions: When compared to prior market cycles, Asia-Pac ex-Japan equities appear to be very close to a trough. Valuation is just 5% above average prior trough levels. Monetary policy is supportive. US home price declines appear to be slowing. Sentiment in Asia is depressed. The global leading indicators are around prior trough levels.

• Valuation 5% Above Trough Levels: The forward PE is 5% above the average trough level. The trailing PE is already there. A 2ppt moderation in headline inflation should lift valuation by 13%. Current PBV assumes a 21% decline in earnings, a slightly worse outcome than our bear case.
• Ultra-Easy Monetary Policy: The US Fed has been ultra-easy since April 2008. Real rates in core Asia are at 14-year lows.
  
• The US Home Price Declines Appear to Be Slowing: US homebuilding stocks are back to November 2007 levels. Home price declines appear to be moderating, although inventories remain elevated.
  
• Sentiment Is Depressed: Our Asia capitulation index is at low levels, while foreign investors have sold 56% of the funds they put into Asia Emerging Markets in the 2003-07 bull market.
  
• Economic Lead Indicators Are Around Trough Levels: Our G6 and OECD lead indicators are at levels consistent with prior cycle troughs. The US market usually troughs one month after the lead indicator troughs, and Asia follows suit.
• But, of Course, Risks Remain: US equity valuations remain well above trough levels, and credit spreads have yet to peak, reflective of the ongoing credit squeeze. An ongoing sharp US dollar rally could also prove disruptive to Asia.

IMHO, I think it's too early to call a medium term trough in Asian markets, though if you're looking more than 6-9 months out, current markets may provide OK entry levels.

============

Much more interesting over at Credit Suisse, where there's some hot two-on-one action going on with Asia-Pac/GEM strategist Sakthi Siva and Asian quant boffin Sophie Biro stepping into the eight-sided cage in a double team against CS's dapper global equity strategist Andrew Garthwaite.

Sakthi went to a buy in Asia in a note last Friday (Monday must've felt good!) when her Asian Six Factor Model hit the buy signal, with a backtested (since 1992) 100% 6-12 month success rate.  (It was 26% overvakued in October last year, and is now 25% undervalued.)  Meanwhile, Sophie has her quanty tactical indicators for September flashing BUY (after flashing a SELL in August) on falling volatility, oversold price technicals, yield ratios, her proprietary NJA 3-factor model and positive seasonality.

HOWEVER, though still with a small overweight in Asia ex-Japan, Andrew Garthwaite is clinging to his (teddy) bear position in a smart note issued on Monday saying (with, evidently lots of people listening) SELL INTO THE FANNIE/FREDDIE RALLY!!! (I added the exclamation marks.)  Thinking is that a) US house prices need to fall more and excess housing inv will take time to absorb, b) this is the 4th extraordinary measure - previous ones rally and fizzle, c) troughs usually happen after the nationalisation of bank NPLs, and d) the main problem this summer for the markets has been the extent of the European/ Japanese slo-mo train-wreck slide into recession.  (He's also pretty bearish on banks - basically, just don't buy yet, esp in developed markets.)

My leggy markets are getting tired.  (Should've stretched more.)

(PS As ever, if you don't have access to the broker research notes linked above, just ask me and I'll try to send you a copy.)

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FNM/FRE rescue? We must be "Truly up the..."

Not by coincidence, the band SQUEEZE came to mind this morning as the equity markets went stratospheric on open, and then continued to trade higher. 

And not too surprisingly, given the truly MASSIVE short base out there, we hear that most of the active buying today is from short covering... more interestingly, long trades (whether long onlies or fast money) are pretty sparse.  So either the market is going to be unanimously right, which would be a first, or the markets actually could squeeze higher.

I don't like the fundamentals out there, as you can tell from my previous posts (eg this one, and this one), but technically we could be seeing a market with... yes... legs (though I am a lot less comfortable than I was back in July!!!)

===========

Besides the basic problem with US housing markets and climbing unemployment (don't tell me it's a backward looking indicator), you have the credit worthiness of the Treasury on the line... so even if spreads DO come down, and there miraculously IS some kind of fresh demand for housing in the foreseeable future, a weakened USD /higher Treasury yields could undo all that.  Early trading in 10Y today not too encouraging...

Medium term?  IMHO, we're "Truly up the Junction..."

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Stumble It!
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US Unemployment high and rising... not good...

US unemployment in white, S&P500 index in yellow

Until unemployment clearly peaks, it's hard to see strong, sustained equity market performance form the US... not to mention any kind of surge in housing take-up (or even decline in inventory.)

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US houses... Gotta be cheap now, right?

With US home prices down close to 20% from its peak, you'd think there'd be more buyers sucked in, wouldn't you? After all, in equity space we're looking at 20% as the marker point for a bear market, and smart long term buyers should be coming in, right?

Unfortunately, you'd be wrong, as the repercussions of the credit crisis on bank balance sheets and tolerance for risk have led, particularly since the start of this year, to a startlingly sharp increase in mortgage rates.

Hence, affordability, which as recently as a year (or less) ago, had started to look pretty decent, has gone back to pretty difficult levels... and all that in the face of job uncertainty, higher prices for staples and wealth destruction... not to mention the shutting off of the home-equity-for-groceries-SUVs-and-LCD-TVs spigot.

(And, as Floyd Norris of the NYT points out, the number of Prime foreclosures has just surpassed Subprime ones.)

NOT a good sign for US consumption, and all those in Asia counting on a rebound (i.e. everybody.)

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Stumble It!
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Earn less! Spend more!!

Once again, data coming out of the US look bleak. Admittedly, it's one month's data, but you have (nominal) July Personal Spending UP 0.2% MoM (survey +0.2%, prev month +0.6%) with Personal Income DOWN 0.7% MoM (survey -0.2%, prev month +0.1%)... and all this at a time when the PCE Deflator is crackling along at 4.5% annual pace (survey +4.5%, prev month +4.0%.)

Year on year, again in nominal terms, we have spending up 5.3% with income up 4.2%... applying the PCE Deflator to it, in real terms, Americans are STILL, even now, spending 0.8% MORE in real terms than the same period last year, while real income is DOWN 0.3%... and all this in the light of a growing number of home-owners hitting negative equity, not to mention market based wealth destruction.


(Consumer confidence, as measured by the U. of Michigan Confidence Index, also came in a bit higher than expected - corroborating evidence for the positive spending numbers.)

Seems to me that the stimulus checks and the decline from the oil price peak (about double the macro impact of the stimulus checks, by some reckoning) is buoying the US consumer... but this does not look sustainable beyond another datapoint or two, max - we're already hearing about cracks in retailspace as the stimulus checks all get spent.

And then after that... (whack!)

=================

And on the US GDP front, you had the 2Q coming in at 3.3%, ahead of expectations (2.7%) and way ahead of 1Q at 1.9%. Great...

... except that pretty much the sole driver was reported to be trade... so with the USD now UP from those heady (well, for Dollar bears anyway!) days (the USD index, DXY was down 4.5% from end Dec'07 to end 2Q08 alone, but is up 8.7% from the late April lows) AND the rest of the world now grinding slower, the prospects for US growth (and personal income) are not so hot for the rest of the year, IMHO.

So for those of you hoping for a continuing upswing in US growth, my advice to you is...

Stumble It!
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Wishful thinking in US real estate

Mike Luckovitch, via NEWSWEEK

OK - a bit slow with these items off CNBC and Bloomberg the last couple of days. So a quickie:

First off - Almost One-Third of Homeowners Who Bought in the Past Five Years Underwater

• "Almost one-third of U.S. homeowners who bought in the last five years now owe more on their than their properties are worth". ie Negative equity. "For those who bought at the 2006 peak of the housing market, 45 percent are now underwater, Zillow said. Negative equity and declining prices are making it difficult for homeowners to sell property for a profit. Almost one-quarter of U.S. homes sold in the past year were for a loss"...
  

Then - More Homeowners Have Problems Paying Mortgage

• "Seventy-two percent of borrowers were making less than full interest payments, and 12.4 percent were at least 90 days delinquent." Unclear if this is just for borrowers of option adjustable-rate mortgages, but either way it's not looking good.
  

Followed by - Mortgage Applications Fall as Loan Rates Jump

• "Applications for U.S. home mortgages edged lower last week as home loan rates jumped, an industry group said on Wednesday." Well, this is off surprising firmness... which was a positive sign... or a sign that those who were applying for loans kept getting turned away? And now they're giving up as they maybe don't quite feel like buying a home now that they need to look for a job? I don't think it's simply a function of higher rates - all that does is make it more painful for existing borrowers.

... then Finally - Home Prices Start to Show Signs of a Turnaround

• "... a slew of factors suggest the worst may soon be over.Among the strongest signs that the the hard-hit sector could be recovering, home prices in many regions of the country are now falling at a slower rate"

Huh? "Signs of a turnaround"?

I borrowed to buy into a rising market way beyond what I could afford, lived off capital appreciation by borrowing even more, watched prices disappear down the toilet along with my home equity line - grocery and transport prices have shot up, and I just gotta hope I don't lose my job. I can't sell now because then I'd have nowhere to live and still owe the bank money... should have sold, should have sold... held out too long... as soon as I break even, I'm getting the ^%$# out...

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Meanwhile, Merrill Lynch strategist Rich Bernstein is saying that the credit crisis, which he has been warning the whole world about (except, evidently, for anybody in Merrill management) since at least the middle of last year, will be "broad, deep and global" - which seems to have become the broker sound-bite of the day. (Was he on CNBC or something?)

• "The problems in the Financial sector appear to us to be far from over, and we are skeptical that trying to bottom-fish will prove to be profitable. However, we continue to think that there quite a few over-looked and unexploited opportunities. Among them are companies in more-stable, cash-generating areas (Health Care, Consumer Staples) and “chicken cyclical” sectors (Telecom, Industrials, and Technology)."

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Goodbye HTC (... but not HelloMoto!)

I don't do much in the way of specific individual stock picks on this blog, but I wrote back in late June to go long HTC (2498 in Taiwan) "over the next few weeks".

"GoodbyeMoto... Hello HTC?!?!" I wrote after dissing the company here and calling a sell here earlier in very the same month.

Assuming "a few" weeks meant two, your average in price would have been NT$516, based on closings from the 26th on. As of yesterday's close, you'd be up 12.6%... compared with a Taiwan local market decline of ~0.7% on the same basis. Not too shabby. (Buying in over 3 weeks would've given an even more flattering in price, but who really does THAT in their PA!)

This week we have news from C|Net (and every broker in Taipei) of HTC's pioneering Google/Android phone set for a launch in September (just slightly earlier than expected,) with volume shipments in October. Look for positive newsflow, forecast revisions, recommendation upgrades and... opportunities to sell out... er... "over the next few weeks."



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