TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
Have we really bottomed? The stubborn lack of decline in the homebuilders, coupled with the better-than-expected retail sales, the strong transports, and the conclusion of a deal like Clear Channel (NYSE: CCU) (Cramer's Take), has created an environment where you are hard-pressed, if you rely on stocks as forecasters, to ignore the possibility of a bottom.
I watch the HGX like a hawk, the homebuilding aggregation, and it simply won't come down. That's despite the awful numbers, the covenant violations (Standard Pacific (NYSE: SPF) (Cramer's Take)) the bad loans, the lack of mortgage money, the insistence of a down payment and an abysmal spring traffic season.
So, why are people buying the group that signaled the downturn? I think it comes down to price. If you force the homebuilders to sell, as Toll (NYSE: TOL) (Cramer's Take) did this quarter, taking no gains on homes, you clean up inventory. If you clean up inventory, which is what happened in western Florida, you stabilize pricing. When you stabilize pricing, you bring out buyers. It is a virtuous circle.
TheStreet.com's Jim Cramer says the value guys threw this party, so respect the hosts.
Sometimes you just feel beaten into being positive. You just say, "OK, enough, I will accept the positives as they are being put out, not as I believe they are."
That's how I felt yesterday about Freddie Mac (NYSE: FRE) (Cramer's Take). The company put out financials yesterday that looked better than expected, and for once I didn't question whether they were.
I didn't because the earnings from so many of the feckless players -- the Fannies (NYSE: FNM) (Cramer's Take), the Washington Mutuals (NYSE: WM) (Cramer's Take) the MBIAs (NYSE: MBI) (Cramer's Take) and the Ambacs (NYSE: ABK) (Cramer's Take) -- are all being greeted with a bizarre positive response, so bizarre that I bought into the "better than expected" rhetoric because I don't want to fight the value guys who are in control right now.
Elsewhere on the site, Doug Kass has been putting up some very strong arguments that numbers from the likes of Freddie are less than meets the eye.
Fannie Mae (NYSE: FNM) announced disappointing earnings. But the stock went up. Is that a signal investors think the worst is over, that the future looks brighter for financial stocks? Maybe.
While Fannie Mae is only one company, it's the biggest in the mortgage business. That means everyone is watching what it's doing and how it's faring. As Fannie Mae goes, so goes the mortgage market. As of the latest earnings release, things aren't going too well. Earnings per share showed a loss of $2.57, much worse than the 81 cents analysts predicted. Management cut the quarterly dividend to 25 cents a share starting in the third quarter to save money. To bolster its capital, Fannie will raise $6 billion, most likely in preferred stock since there's a strong market for income shares.
TheStreet.com's Jim Cramer says the guys at the top don't know what they're doing, and it shows.
AIG's (NYSE: AIG) (Cramer's Take) making everyone's life difficult today. That's in part because AIG had been the biggest proponent of "super senior," meaning they repeatedly said that their collateralized debt obligation (CDO) exposure was of the kind that was intelligent, measured and thoughtful. They talked endlessly about how their due diligence made the difference and that unlike all of the other buyers, they kicked the tires three times and never bought the plain ol' CDOs. Then they brought in professors from Wharton to be sure that even if all heck broke loose and they were being too aggressive, they would be hedged.
They also were the first to give you the percentages of how much could go bad and that even in the worst-case scenario, they were overcapitalized. And, most important, they were insurers, no need to mark to market, they can play it all out.
Plus, they touted their own struggles. They made the point that because of the turmoil at the top, they hadn't bought any bad stuff and stopped buying residential real estate products after 2005. What they did buy -- they assured us in that big teach-in dog-and-pony show in December -- was the extra-special nature of their particular buys and that, unlike everyone else, risk officers scrutinized every single piece of paper that went into their super senior insurance, meaning only the top-top part of a CDO-squared, the part where everything had to default ahead of it; they made a point of how impossible that would be.
Can you believe oil put in another monster day with oil up $1.91 at $121.88 today. This morning started out looking just like March with financials way down, and commodities up. That abated toward the end of the day. An analyst prediction of $150 to $200 oil helped propel oil today. Below are today's unofficial closing prices:
The Blackstone Group L.P. (NYSE: BX) announced today $1.3 billion has been raised to invest in high quality loan assets by closing three CLOs. Blackstone pointed out that the CLOs are not an attempt to remove risky assets off balance sheets. The newly acquired GSO Capital Partners now manages 26 CLOs for a total of $14 billion. Shares actually fell 0.75% by the end of the day to $19.57.
Fannie Mae (NYSE: FNM) is recently trading at $25.80 in pre-open trading, below its close of $28.29.
FNM reported Q1 EPS ($2.57) versus consensus estimates of (81c). FNM announced plans to raise $6 billion through common and preferred offerings. OFHEO will reduce FNM's capital requirement to 15% from 20%. FNM will reduce its 3Q dividend to 25c.
FNM May option implied volatility of 92 is above its 26-week average of 67 according to Track Data, suggesting larger price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
Financial Stocks to Love The subprime mortgage meltdown and resulting credit crisis have slammed financial stocks recently. But there are still some diamonds in the rough. They include Berkshire Hathaway, RBS, AFLAC, Raymond James and BOK. Financial stocks we love - CNNMoney.com
Big Mac's Local Flavor Once vilified for pushing America on the world, McDonald's lets countries invent their own buns, bags, and business practices. Now some ideas are making their way back home. Big Mac's local flavor - FORTUNE
The New York Times reports that Federal National Mortgage (NYSE: FNM) and Federal Home Loan Mortgage (NYSE: FRE) have a tiny sliver of capital to support a mountain of mortgages. To put it in perspective, their level of borrowing is almost twice that of the enormously over-leveraged investment banking and hedge fund industries. With the collapse of the housing market, Freddie and Fannie are in trouble. And when you get to the scale of these two, so is America.
As I posted last month, it could cost $1 trillion to bail out Fannie and Freddie. These hybrid organizations are a key cog in the mortgage industrial complex (MIC) that has gotten the world into its current capital crisis. Fannie and Freddie buy "conforming" mortgages from their originators and then package and sell the mortgages as securities. But these two have a mere $83 billion in capital to support $5 trillion worth of debt and other commitments.
This 60-to-1 ratio is almost twice the 32-to-1 ratio of the highly leverage investment banks and hedge funds. And like any company with hard-to-value assets, Fannie and Freddie have unrealized losses. In their case, those total $20 billion -- they've already taken $9 billion worth so far this year. By 2007 they had guaranteed or invested in $717 billion of subprime and Alt-A loans, up from almost none in 2000. And many of those are not worth that much.
D. R. Horton (NYSE: DHI) shares are down over 6% in premarket trading after the homebuilder has swung to a loss for its fiscal second quarter of $1.31 billion, or $4.14 per share. With the continued housing slump, the company took hefty charges to write down the value of its inventory. Revenue plunged to $1.62 billion from $2.62 billion a year ago.
Fannie Mae (NYSE: FNM) shares are slumping over 9% this morning after the mortgage lender said it lost $2.2 billion or $2.57 a share in the first quarter due to mounting home-loan delinquencies as the housing slump continued. The results were below, far below that of estimates.
Vodafone Group (NYSE: VOD) said Tuesday that it's signed an agreement with Apple Inc. (NASDAQ: AAPL) to sell the iPhone in ten of its markets including Australia, the Czech Republic, Italy and India.
Stock futures were lower early Tuesday morning as oil prices remained high offsetting any recent optimism about the economy in light of Monday's surprise expansion in the service sector. Several companies are also reporting earnings today and will be in focus.
U.S. stocks dropped on Monday after Microsoft withdrew its takeover bid for Yahoo and as commodity prices once again spiked. The Dow industrials lost 88 points, or 0.68%, the Nasdaq Composite fell 12 points, or 0.52%, and the S&P 500 lost 6 points, or 0.45%.
Without much economic news today, no doubt investors will have no choice but to focus on the high oil prices. After setting a record close Monday and hitting a new trading high of $120.93 a barrel Tuesday, crude retreated to $119.88, down 9 cents from Monday's close. It is interesting that just as hopes were growing the slowdown of the US economy may not be as deep and long as originally thought, crude prices surge again, concerning investors about inflation and profits once again.
TheStreet.com's Jim Cramer says there's some reason for caution, but no reason to get out of the market here.
There all right there. Don't you feel it? Hundreds of stocks at resistance. Hundreds have formed a nice base. The Transports and the Dow are moving in synch. The earnings period surprisingly great, with so many companies not stung by the raw costs. Three straight up weeks, with all the commodity stocks showing signs of rolling over; most at crucial "must hold" levels except for gold, which has already crashed, making the inflation case much dimmer in the eyes of the traders.
Yet, you simply can't read the papers. They are too awful. The cost to the consumers for everything from food to gasoline is humongous and going higher, according to all the food execs I had on last week. We are getting nowhere near a bottom in housing. The layoffs, while not significant in the Labor Report on Friday, sure seem endless. The two major presidential candidates from the Democratic side want to tax the oil companies into oblivion, the leaders of the last year. Exxon (NYSE: XOM) (Cramer's Take) blew the quarter. So did GE (NYSE: GE) (Cramer's Take).
Too far, too fast, based on those grim items.
To me, this is the first week since the Bear Stearns (NYSE: BSC) (Cramer's Take) bottom that I think seems aimless.
But perhaps there's a "split the difference" way to approach this week: options expiration.
We are investing in optimistic times. News -- good or bad -- seems to magically morph into an opportunity to move markets higher. In the past week, even more than usual, weak economic news was accompanied by commentary along the lines of, "it could have been worse," and other euphoric sentiments.
It is difficult to determine whether this is another short-covering bear market bounce or a real rally. But next week will bring us new information that will start to indicate where the answer lies. For now, investors are looking at the glass as half-full. Cash on the sidelines is moving in to equities, partly because there are very few other alternatives. Yields are low, commodities are risky and real estate is taboo.
Next week begins with the celebration of Cinco de Mayo, yet the markets were way ahead -- it has shifted into party mode on its own during the past few weeks. Here is a summary of key events to watch during the week ahead:
Monday, May 5
First off, the market gets a chance to react to news of Microsoft withdrawing its bid for Yahoo. It will be interesting to see how far Yahoo's stock price sinks as well as what all the market watchers think Yahoo (NASDAQ: YHOO) and Microsoft (NASDAQ: MSFT) will do next.
Hewitt Associates (NYSE: HEW) the HR firm that has been showing amazing strength is set to report. First Call is looking for quarterly earnings of $.38 as compared to a year ago of $.23. There may be opportunity for this firm as we go into harder economic times where companies are looking for an easy solution to labor concerns.
Also reporting is Nam Tai Electronics (NYSE: NTE). It could have a good quarter since the need for computer parts is on the rise. Intel and Apple did well to show that international demand is still hot for electronics and this is one of the parts manufacturers. Through its electronics manufacturing services operations, Nam Tai makes electronic components and sub-assemblies, including liquid crystal display (LCD) panels, LCD modules, flexible printed circuit sub-assemblies and image sensors modules and printed circuit board assembly for Bluetooth headsets. First Call estimates are for $.19 as compared to year ago of $.19 per share on $163 million of revenue.
Fannie Mae (NYSE: FNM) closed at $29.75. FNM is scheduled to report Q1 EPS on May 6. FNM May option implied volatility of 73 is above its 26-week average of 67 according to Track Data, suggesting larger price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
Ted Allrich is the founder of 
Fannie Mae
The 
We are investing in optimistic times. News -- good or bad -- seems to magically morph into an opportunity to move markets higher. In the past week, even more than usual, weak economic news was accompanied by commentary along the lines of, "it could have been worse," and other 
Comfort Zone Investing: One thriving area of real estate: Apartments
Just how high will U.S. gasoline prices rise?
Nordstrom and Kohl's post smaller-than-expected Q1 profit declines
