Lol
Countrywide Loses $1.2B, Sees Turnaround
Friday October 26, 1:18 pm ET
By Alex Veiga, AP Business Writer <TABLE height=4 cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD height=4></TD></TR></TBODY></TABLE>Countrywide Financial Reports 3Q Loss of $1.2B on Mortgage Woes, Expects Profits in 4Q, 2008
LOS ANGELES (AP) -- Countrywide Financial Corp. lost $1.2 billion in the third quarter, but its shares soared Friday after the nation's largest mortgage lender said it expects to be profitable this quarter and next year.
It was Countrywide's first quarterly loss in 25 years.
But the Calabasas, Calif.-based company said it will be profitable in the fourth quarter and in 2008, as it restructures its business to take advantage of the current market.
"We continue to be bullish about the longterm prospects of both Countrywide and our industry." Chairman and Chief Executive Angelo Mozilo said during a conference call with Wall Street analysts.
Shares jumped $2.41, or 18.4 percent, to $15.48 in afternoon trading after initially rising as high as $16.30. The stock has ranged $12.07 and $45.26 the past 52 weeks.
The loss for the third-quarter came as mortgage market woes forced Countrywide to set aside millions in loan-loss provisions and writedowns, and the lender originated fewer loans.
Countrywide's loss amounted to $2.85 per share for the July-September period compared with a profit of $647.6 million, or $1.03 per share, a year ago.
Analysts polled by Thomson Financial, on average, forecast a loss of $1.28 per share for the quarter.
Countrywide reported a revenue figure of negative $50 million in the third quarter because of the impact of impairments and charges, versus $2.82 billion during the same period a year ago.
Mozilo attributed the quarterly loss on "unprecedented disruptions" in the mortgage market and the ongoing national housing slump.
The executive sought to reassure investors, however, noting steps the company has taken to secure financing, tighten underwriting standards and shift its mortgage lending business into its banking subsidiary, Countrywide Bank.
Chris Brendler, an analyst with Stifel Nicolaus & Co. Inc., said he is not convinced the company will turn a profit next quarter.
"They seem to have taken some big write-downs, taken a lot pain this quarter, the pain going forward should be smaller," Brendler said. "I still remain concerned about the potential for another credit write-down and just how profitable this business will be, even after they get past the credit headaches in the near term."
Mozilo also said he was cooperating with informal inquiry by the Securities and Exchange Commission into his sales of his Countrywide stock.
"At no time did i make any trading decisions based on any material non-public information, and I fully complied with all company policies," Mozilo said during the call. "I am confident that this will demonstrate that I've complied with all protocols."
In its earnings report, the company said origination volume fell to $96 billion, from $118 billion as Countrywide shifted its product mix to more traditional loans.
Countrywide ramped up its loan-loss reserves to fight rising delinquencies and defaults, especially among subprime mortgages given to customers with poor credit history. Countrywide reserved $934 million for bad loans in the third quarter, up from $38 million held during the same quarter last year.
The lender moved about $12 billion in nonconforming loans to its held-for-investment portfolio after having to take a write-down on them.
Some 4.41 percent of Countrywide's conventional first mortgage loans were delinquent as of Sept. 30, up from 2.57 percent in the year-ago quarter. For prime home-equity loans, delinquencies inched up to 13.5 percent compared to 13.4 percent.
The number of subprime loans that were behind in payments soared to 29.08 percent, compared to 18.32 percent in the year-ago period.
In the subprime loan category, 12.63 percent of the loans were behind in payments by 90 days or more, more than twice the year-ago rate.
The company noted the market for new loans, particularly loans that lenders can't sell to government-backed mortgage companies, declined substantially during the quarter as underwriting standards began to tighten industrywide following the subprime mortgage meltdown.
Earnings from the company's loan production unit also suffered because gain-on-sale margins the company had expected to rake in did not materialize.
Countrywide's loan servicing arm posted a pre-tax loss of $27 million compared to earnings of $123 million in the year-ago quarter, as the company took a $690 million impairment charge for home-equity and subprime loan residuals in anticipation of future credit losses.
Earnings in Countrywide's mortgage banking operations posted a pre-tax loss of $389 million, compared to pre-tax income of $378 million in the year-ago quarter as the company boosted its loan-loss reserves to compensate for future charge-offs.
Some Countrywide Bank customers rushed to withdraw funds from the bank during the quarter on fears their deposits might be in danger if the company went bankrupt. But the company said a surge in deposits in September helped offset those withdrawals and the bank's consumer accounts grew by a net of 9 percent by quarter's end.
Countrywide's investment services arm posted a pretax loss of $344 million, compared to income of $141 million in the year-ago quarter. Its insurance business generated pretax earnings of $150 million, up from $91 million in the third quarter last year.
Looking ahead, management said it expects the company's loan origination volume will be lower through the start of next year, unless the housing slump improves or interest rates fall further.
The company expects its earnings per share in the fourth quarter to range between 25 cents and 75 cents. It also anticipates its return on equity for 2008 to range between 10 percent and 15 percent.
The lender has struggled this year as mortgage defaults and foreclosures have spiked, particularly among subprime loans to borrowers with poor credit.
To turn things around in recent weeks, Countrywide announced thousands of layoffs and borrowed billions of dollars, including $2 billion by selling a stake in the company to Bank of America Corp.
The company booked a charge of $57 million related to its plan to cut as many as 12,000 jobs. Countrywide estimated it will have to take between $70 million to $90 million in additional charges, with the bulk of the charges expected to be booked in the fourth quarter. For the first nine months of the year, the company posted a loss of $281.6 million versus a profit of $2.05 billion a year earlier. Revenue fell 43 percent to $4.9 billion from $8.6 billion in the year-ago period.
Countrywide Loses $1.2B, Sees Turnaround
Friday October 26, 1:18 pm ET
By Alex Veiga, AP Business Writer <TABLE height=4 cellSpacing=0 cellPadding=0 border=0><TBODY><TR><TD height=4></TD></TR></TBODY></TABLE>Countrywide Financial Reports 3Q Loss of $1.2B on Mortgage Woes, Expects Profits in 4Q, 2008
LOS ANGELES (AP) -- Countrywide Financial Corp. lost $1.2 billion in the third quarter, but its shares soared Friday after the nation's largest mortgage lender said it expects to be profitable this quarter and next year.
It was Countrywide's first quarterly loss in 25 years.
But the Calabasas, Calif.-based company said it will be profitable in the fourth quarter and in 2008, as it restructures its business to take advantage of the current market.
"We continue to be bullish about the longterm prospects of both Countrywide and our industry." Chairman and Chief Executive Angelo Mozilo said during a conference call with Wall Street analysts.
Shares jumped $2.41, or 18.4 percent, to $15.48 in afternoon trading after initially rising as high as $16.30. The stock has ranged $12.07 and $45.26 the past 52 weeks.
The loss for the third-quarter came as mortgage market woes forced Countrywide to set aside millions in loan-loss provisions and writedowns, and the lender originated fewer loans.
Countrywide's loss amounted to $2.85 per share for the July-September period compared with a profit of $647.6 million, or $1.03 per share, a year ago.
Analysts polled by Thomson Financial, on average, forecast a loss of $1.28 per share for the quarter.
Countrywide reported a revenue figure of negative $50 million in the third quarter because of the impact of impairments and charges, versus $2.82 billion during the same period a year ago.
Mozilo attributed the quarterly loss on "unprecedented disruptions" in the mortgage market and the ongoing national housing slump.
The executive sought to reassure investors, however, noting steps the company has taken to secure financing, tighten underwriting standards and shift its mortgage lending business into its banking subsidiary, Countrywide Bank.
Chris Brendler, an analyst with Stifel Nicolaus & Co. Inc., said he is not convinced the company will turn a profit next quarter.
"They seem to have taken some big write-downs, taken a lot pain this quarter, the pain going forward should be smaller," Brendler said. "I still remain concerned about the potential for another credit write-down and just how profitable this business will be, even after they get past the credit headaches in the near term."
Mozilo also said he was cooperating with informal inquiry by the Securities and Exchange Commission into his sales of his Countrywide stock.
"At no time did i make any trading decisions based on any material non-public information, and I fully complied with all company policies," Mozilo said during the call. "I am confident that this will demonstrate that I've complied with all protocols."
In its earnings report, the company said origination volume fell to $96 billion, from $118 billion as Countrywide shifted its product mix to more traditional loans.
Countrywide ramped up its loan-loss reserves to fight rising delinquencies and defaults, especially among subprime mortgages given to customers with poor credit history. Countrywide reserved $934 million for bad loans in the third quarter, up from $38 million held during the same quarter last year.
The lender moved about $12 billion in nonconforming loans to its held-for-investment portfolio after having to take a write-down on them.
Some 4.41 percent of Countrywide's conventional first mortgage loans were delinquent as of Sept. 30, up from 2.57 percent in the year-ago quarter. For prime home-equity loans, delinquencies inched up to 13.5 percent compared to 13.4 percent.
The number of subprime loans that were behind in payments soared to 29.08 percent, compared to 18.32 percent in the year-ago period.
In the subprime loan category, 12.63 percent of the loans were behind in payments by 90 days or more, more than twice the year-ago rate.
The company noted the market for new loans, particularly loans that lenders can't sell to government-backed mortgage companies, declined substantially during the quarter as underwriting standards began to tighten industrywide following the subprime mortgage meltdown.
Earnings from the company's loan production unit also suffered because gain-on-sale margins the company had expected to rake in did not materialize.
Countrywide's loan servicing arm posted a pre-tax loss of $27 million compared to earnings of $123 million in the year-ago quarter, as the company took a $690 million impairment charge for home-equity and subprime loan residuals in anticipation of future credit losses.
Earnings in Countrywide's mortgage banking operations posted a pre-tax loss of $389 million, compared to pre-tax income of $378 million in the year-ago quarter as the company boosted its loan-loss reserves to compensate for future charge-offs.
Some Countrywide Bank customers rushed to withdraw funds from the bank during the quarter on fears their deposits might be in danger if the company went bankrupt. But the company said a surge in deposits in September helped offset those withdrawals and the bank's consumer accounts grew by a net of 9 percent by quarter's end.
Countrywide's investment services arm posted a pretax loss of $344 million, compared to income of $141 million in the year-ago quarter. Its insurance business generated pretax earnings of $150 million, up from $91 million in the third quarter last year.
Looking ahead, management said it expects the company's loan origination volume will be lower through the start of next year, unless the housing slump improves or interest rates fall further.
The company expects its earnings per share in the fourth quarter to range between 25 cents and 75 cents. It also anticipates its return on equity for 2008 to range between 10 percent and 15 percent.
The lender has struggled this year as mortgage defaults and foreclosures have spiked, particularly among subprime loans to borrowers with poor credit.
To turn things around in recent weeks, Countrywide announced thousands of layoffs and borrowed billions of dollars, including $2 billion by selling a stake in the company to Bank of America Corp.
The company booked a charge of $57 million related to its plan to cut as many as 12,000 jobs. Countrywide estimated it will have to take between $70 million to $90 million in additional charges, with the bulk of the charges expected to be booked in the fourth quarter. For the first nine months of the year, the company posted a loss of $281.6 million versus a profit of $2.05 billion a year earlier. Revenue fell 43 percent to $4.9 billion from $8.6 billion in the year-ago period.
arty::fatboy:
Joe I currently own no physical. I had to buy a ton of shit for my place this year and I have been out of the market since May when I finally capitulated on my puts for this market...I will bide my time for a bit. Save some paper and gear up for another shot on the downside higher than around here.
Why would you Joe?
I have 80% of my portfolio in US indicies and they IMO soundly diversified.The 20% of what I have remaining for investment purposes is strictly gold coins.
Its clear there a many sectors that are going to make it thru the continuing credit 'crisis' unscathed.To not be in the markets that are going to carry the rest thru is like giving away free money.
I worry about emerging markets and have very little left in them.Most of the foreign based stocks I have are traded here.Chinas economy while a beast is still also highly worrisome to me.
I think true resistance doesnt begin until 14600.Plenty of support and sentiment continues to rise positively as these financials begin to suck it up and reap what theyve sewn.There will be a slow down in the economy,its been on going now for a while,but a true recession (neg GDP) is out of the question.
When you see these earnings report dribbling out,they still are representing profit for the most part-but being compared to the highs of a year ago or more for the spin factor,things seem worse than they really are.
I see nothing here that cannot be overcome over time.I mean if countrywide is seeing $$$ in q4 ,things must be working thru.
USD strength has never been an indicator of the health of the US economy.
I have 80% of my portfolio in US indicies and they IMO soundly diversified.The 20% of what I have remaining for investment purposes is strictly gold coins.
Its clear there a many sectors that are going to make it thru the continuing credit 'crisis' unscathed.To not be in the markets that are going to carry the rest thru is like giving away free money.
I worry about emerging markets and have very little left in them.Most of the foreign based stocks I have are traded here.Chinas economy while a beast is still also highly worrisome to me.
I think true resistance doesnt begin until 14600.Plenty of support and sentiment continues to rise positively as these financials begin to suck it up and reap what theyve sewn.There will be a slow down in the economy,its been on going now for a while,but a true recession (neg GDP) is out of the question.
When you see these earnings report dribbling out,they still are representing profit for the most part-but being compared to the highs of a year ago or more for the spin factor,things seem worse than they really are.
I see nothing here that cannot be overcome over time.I mean if countrywide is seeing $$$ in q4 ,things must be working thru.
USD strength has never been an indicator of the health of the US economy.
AMERICA IS STRONG :lolBIG:
For sale: 2 million empty homes
Number of vacant homes on the market nationwide equivalent to all homes in Detroit; another sign of weak housing market.
By Chris Isidore, CNNMoney.com senior writer
October 26 2007: 12:13 PM EDT
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market.
The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
The number is down 5 percent from the record high reading reached in the first quarter, though.
For purposes of comparison for the current situation, imagine the Detroit metropolitan area, which the Census Bureau estimated had 2.08 million households in its 2000 Census. Now picture virtually every house or condo empty, with a for sale sign in the front yard of every home, from inner-city Detroit to its suburbs, all the way to nearby cities such as Flint and Ann Arbor.
There are always some homes vacant and for sale, even in a booming real estate market.
But the combination of overbuilding by home builders in the middle of the decade and problems in mortgage markets this year that made it more difficult for buyers to get the financing they needed to buy a home has swelled the inventory of vacant homes on the market.
Because the mortgage market meltdown has thinned the ranks of potential home buyers some home owners have been forced to move out of homes before they can find a buyer. And those who bought homes or condos as investments during the real estate and building booms of a couple of years ago have found an exceptionally weak market for their property. That in turn has lifted the number of vacant homes for sale by 57 percent in just the last three years. And some see the situation only getting worse.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
Baker said that the owners trying to sell the vacant homes are going to be very motivated sellers, since it's difficult to carry the cost of a home that isn't having any use. That will drive down home prices and values for all homeowners. And he said that the problem is likely to get far worse as the problems in the mortgage markets could cause problems if foreclosures increase as expected.
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
Friday's report is just the latest in a series of readings showing weakness in the nation's real estate market.
Wednesday the National Association of Realtors reported that the pace of sales of existing single family homes fell to the lowest level since 1998 in September. Its reading for the sales rate for all existing homes, including condos and other multi-family units, was the lowest since it started tracking those sales in 1999.
Thursday a separate Census Bureau report showed the pace of new home sales fell to an 11-year low in August, as it revised lower its earlier estimate for sales that month and for July. The September sales pace of new homes was a touch higher than August, but some experts questioned that estimate given the report of a jump in sales in the West.
The rising delinquency and default rates that caused a meltdown in the mortgage market led Countrywide Financial (Charts, Fortune 500), the nation's leading mortgage lender, to report a $1.2 billion net loss Friday that was far larger than forecasts. And the glut of new homes available for sale has hammered the results of the nation's leading builders.
On Wednesday, Pulte Homes (Charts, Fortune 500) reported a much bigger than expected loss in the most recent quarter. Ryland Homes (Charts, Fortune 500) also reported a loss, while rival Centex disclosed that it had cut prices on some homes by 15 to 20 percent in order to try to maintain sales, as well as cutting staff by more than 40 percent. The day before Centex (Charts, Fortune 500) had reported a large second quarter loss.
In addition, leading home builder D.R. Horton (Charts, Fortune 500) reported last week that its fiscal fourth-quarter orders fell 39 percent, while the value of those orders plunged 48 percent. Credit rating agency Moody's downgraded the debt of Pulte, Centex and Lennar (Charts, Fortune 500), the nation's No. 1 builder in terms of revenue, into junk bond status earlier this month. Top of page
Existing home sales: Historic weakness
Home builders: Worst is yet to come
New home sales: Bad, and worse than they seem
http://money.cnn.com/2007/10/26/news...ion=2007102612
For sale: 2 million empty homes
Number of vacant homes on the market nationwide equivalent to all homes in Detroit; another sign of weak housing market.
By Chris Isidore, CNNMoney.com senior writer
October 26 2007: 12:13 PM EDT
NEW YORK (CNNMoney.com) -- The number of vacant homes for sale rose in the third quarter, according to the latest government reading that casts new harsh light on the weakness of the housing market.
The Census Bureau report puts the number of vacant homes for sale at 2.07 million in the period, up about 2 percent from the second quarter, and 7 percent above year ago levels.
The number is down 5 percent from the record high reading reached in the first quarter, though.
For purposes of comparison for the current situation, imagine the Detroit metropolitan area, which the Census Bureau estimated had 2.08 million households in its 2000 Census. Now picture virtually every house or condo empty, with a for sale sign in the front yard of every home, from inner-city Detroit to its suburbs, all the way to nearby cities such as Flint and Ann Arbor.
There are always some homes vacant and for sale, even in a booming real estate market.
But the combination of overbuilding by home builders in the middle of the decade and problems in mortgage markets this year that made it more difficult for buyers to get the financing they needed to buy a home has swelled the inventory of vacant homes on the market.
Because the mortgage market meltdown has thinned the ranks of potential home buyers some home owners have been forced to move out of homes before they can find a buyer. And those who bought homes or condos as investments during the real estate and building booms of a couple of years ago have found an exceptionally weak market for their property. That in turn has lifted the number of vacant homes for sale by 57 percent in just the last three years. And some see the situation only getting worse.
"It's really striking how high that is compared to historic levels," said Dean Baker, co-founder of the Center for Economic and Policy Research. "It's a lot of homes sitting there vacant. It's very hard to see how we're near a bottom, when you have that much excess supply."
Baker said that the owners trying to sell the vacant homes are going to be very motivated sellers, since it's difficult to carry the cost of a home that isn't having any use. That will drive down home prices and values for all homeowners. And he said that the problem is likely to get far worse as the problems in the mortgage markets could cause problems if foreclosures increase as expected.
There are estimates that about 2.8 million homeowners could see the payments on their subprime mortgages reset higher in the next two years. If they can't afford the new payments or be able to refinance due to the significantly tighter mortgage market, that could cause an additional flood of empty homes onto the market.
"It's very hard to see how this doesn't get worse," Baker said. "It's certainly possible we could see 3 million, maybe 4 million (vacant homes on the market.)"
Friday's report is just the latest in a series of readings showing weakness in the nation's real estate market.
Wednesday the National Association of Realtors reported that the pace of sales of existing single family homes fell to the lowest level since 1998 in September. Its reading for the sales rate for all existing homes, including condos and other multi-family units, was the lowest since it started tracking those sales in 1999.
Thursday a separate Census Bureau report showed the pace of new home sales fell to an 11-year low in August, as it revised lower its earlier estimate for sales that month and for July. The September sales pace of new homes was a touch higher than August, but some experts questioned that estimate given the report of a jump in sales in the West.
The rising delinquency and default rates that caused a meltdown in the mortgage market led Countrywide Financial (Charts, Fortune 500), the nation's leading mortgage lender, to report a $1.2 billion net loss Friday that was far larger than forecasts. And the glut of new homes available for sale has hammered the results of the nation's leading builders.
On Wednesday, Pulte Homes (Charts, Fortune 500) reported a much bigger than expected loss in the most recent quarter. Ryland Homes (Charts, Fortune 500) also reported a loss, while rival Centex disclosed that it had cut prices on some homes by 15 to 20 percent in order to try to maintain sales, as well as cutting staff by more than 40 percent. The day before Centex (Charts, Fortune 500) had reported a large second quarter loss.
In addition, leading home builder D.R. Horton (Charts, Fortune 500) reported last week that its fiscal fourth-quarter orders fell 39 percent, while the value of those orders plunged 48 percent. Credit rating agency Moody's downgraded the debt of Pulte, Centex and Lennar (Charts, Fortune 500), the nation's No. 1 builder in terms of revenue, into junk bond status earlier this month. Top of page
Existing home sales: Historic weakness
Home builders: Worst is yet to come
New home sales: Bad, and worse than they seem
http://money.cnn.com/2007/10/26/news...ion=2007102612
SOHU :aktion033, WDC, MOS
CFC off to an early 20% bump up. Must be lotsa buyers this morning? How much did you buy Woof?
Looks like I missed a volatile day Friday. Looks like the bad cfc earnings were priced into the stock when it dove to 12 thursday.
Fed has tipped its hand again and its up and away for anything and everything except the us peso.
Buy gold, oil, canadian $, technology stocks, industrials, everything is going higher as long as helicopter ben is in the cockpit.
Its a game of musical chairs watching everything going higher and Im not going to fight a fed bent on inflating everything with the exception being the us peso.
Gold already up over $5 during early monday asian trading.
If market looks like another up day tomorrow, I may have to jump on the sohu bandwagon with basehead and the bulls.
:aktion033
Reckon the real question is how this market will anticipate an almost assured rate drop by the FED this week (wed). I expect a profit-taking bloodbath to resume shortly thereafter.
I'm banking on Basey's optimism and Ben's care packages, but preparing for the stark reality---some serious bust is ahead on the horizon. Inflation is fixin to kick into hyper- overdrive I'd suspect.
I'm banking on Basey's optimism and Ben's care packages, but preparing for the stark reality---some serious bust is ahead on the horizon. Inflation is fixin to kick into hyper- overdrive I'd suspect.
What do you guys think of Mr. Ben stein assement
As I write this, the markets are in turmoil. Stocks have fallen considerably since their recent highs. There's growing gloom on Wall Street, and the newspapers are filled with scare stories.
The upshot: Now is the time to buy. Not for tomorrow, not for next month, maybe not for next year. But for the long term, it's absolutely time to buy.
Beware of Doom and Gloom
Here are a few reasons why I think the sky isn't falling:
1. The Fed isn't going to allow the big-money-center banks to fail.
There's such a thing as "too big to fail." If the really big banks in New York start to look genuinely shaky (a farfetched possibility in and of itself), the Federal Reserve has all kinds of tricks up its sleeve.
The Fed can buy assets -- even junky assets -- and replace them with good, solid cash dollars. (Well, pretty good cash dollars.) The Fed's done this before, and can and will do it again. The Fed can also push large banks toward merger, with explicit and implicit promises that it won't let the merged entity fail.
No, the Fed isn't about to allow a rash of big-money-center bank failures -- and in a way, that's a shame. It probably means the fools who run those banks into the ground won't suffer one iota, and they'll get to hold onto their mega-paychecks. But the cost of the failure of these big banks to the nation and to the world would be prohibitive, so they won't be allowed to fail. That, by itself, removes a large element of terror.
2. The merger-and-acquisition business is reviving.
Several very large private equity and public mergers and acquisitions are getting financing, among them First Data and Allison Transmissions. This is requiring higher interest rates than were originally forecast, but they're still getting done when some pundits predicted that the whole M & A flow would dwindle to a trickle.
M & A is a significant prop under Wall Street -- not the biggest prop, but a prop. If it stays even fairly strong, that's a support of the market and a benefit to investors.
More than that, if the spread between low-rated debt used in mergers and acquisitions and risk-free Treasuries remains as low as it is (far below recent highs), it's a sign that the credit markets are nowhere near "frozen," as some papers and commentators would have us believe. If the channels of credit are open -- even if they're not as open as they were a few months ago -- it's a good sign for commerce.
3. The housing sector is being partially offset by a surge in exports.
The housing sector, down drastically from where it was a year and a half ago, is correcting dramatically in part by a surge in exports.
This correction still has miles to go, and exports aren't a big enough portion of the economy to completely offset the losses in housing. But they are an offset, and in a section of the country -- the upper Midwest -- that's really been suffering.
4. Federal and state spending remain extremely strong.
This is an "automatic stabilizer" that keeps a huge segment of the workforce employed and buying products and services. The defense sector is especially strong, alas, and will continue to be very strong for some time to come (maybe for all time to come).
5. There's still a severe labor shortage in almost every area of the nation.
White-collar jobs and sales jobs are going begging in the Southwest, Northwest, Southeast, and Mid-Atlantic states. Only in the upper Midwest is unemployment a real problem.
As a general rule, recessions don't occur in periods of acute labor shortage. Indeed, one indicator of a recession would normally be serious unemployment.
Where the Fun Is
Those are the reasons I don't see a recession brewing. Or, if one is brewing, it doesn't strike me as a long, strong one.
Given that, if the market is pricing stocks as if there'll be a major recession, and pricing financials as if there'll be a collapse in New York, you might do well to buy broad indexes of stocks and indexes of financials.
The road ahead will be bumpy. Fine -- "mama, that's where the fun is," as Bruce Springsteen sang long ago. But if times are better than Wall Street is betting, you may want to bet against Wall Street. They're in it for a day or an hour -- you're in it for life. And you have an immense advantage: You can take advantage of their panic.
They take plenty of advantage of you, so now it's your turn. Buy and hold.
As I write this, the markets are in turmoil. Stocks have fallen considerably since their recent highs. There's growing gloom on Wall Street, and the newspapers are filled with scare stories.
The upshot: Now is the time to buy. Not for tomorrow, not for next month, maybe not for next year. But for the long term, it's absolutely time to buy.
Beware of Doom and Gloom
Here are a few reasons why I think the sky isn't falling:
1. The Fed isn't going to allow the big-money-center banks to fail.
There's such a thing as "too big to fail." If the really big banks in New York start to look genuinely shaky (a farfetched possibility in and of itself), the Federal Reserve has all kinds of tricks up its sleeve.
The Fed can buy assets -- even junky assets -- and replace them with good, solid cash dollars. (Well, pretty good cash dollars.) The Fed's done this before, and can and will do it again. The Fed can also push large banks toward merger, with explicit and implicit promises that it won't let the merged entity fail.
No, the Fed isn't about to allow a rash of big-money-center bank failures -- and in a way, that's a shame. It probably means the fools who run those banks into the ground won't suffer one iota, and they'll get to hold onto their mega-paychecks. But the cost of the failure of these big banks to the nation and to the world would be prohibitive, so they won't be allowed to fail. That, by itself, removes a large element of terror.
2. The merger-and-acquisition business is reviving.
Several very large private equity and public mergers and acquisitions are getting financing, among them First Data and Allison Transmissions. This is requiring higher interest rates than were originally forecast, but they're still getting done when some pundits predicted that the whole M & A flow would dwindle to a trickle.
M & A is a significant prop under Wall Street -- not the biggest prop, but a prop. If it stays even fairly strong, that's a support of the market and a benefit to investors.
More than that, if the spread between low-rated debt used in mergers and acquisitions and risk-free Treasuries remains as low as it is (far below recent highs), it's a sign that the credit markets are nowhere near "frozen," as some papers and commentators would have us believe. If the channels of credit are open -- even if they're not as open as they were a few months ago -- it's a good sign for commerce.
3. The housing sector is being partially offset by a surge in exports.
The housing sector, down drastically from where it was a year and a half ago, is correcting dramatically in part by a surge in exports.
This correction still has miles to go, and exports aren't a big enough portion of the economy to completely offset the losses in housing. But they are an offset, and in a section of the country -- the upper Midwest -- that's really been suffering.
4. Federal and state spending remain extremely strong.
This is an "automatic stabilizer" that keeps a huge segment of the workforce employed and buying products and services. The defense sector is especially strong, alas, and will continue to be very strong for some time to come (maybe for all time to come).
5. There's still a severe labor shortage in almost every area of the nation.
White-collar jobs and sales jobs are going begging in the Southwest, Northwest, Southeast, and Mid-Atlantic states. Only in the upper Midwest is unemployment a real problem.
As a general rule, recessions don't occur in periods of acute labor shortage. Indeed, one indicator of a recession would normally be serious unemployment.
Where the Fun Is
Those are the reasons I don't see a recession brewing. Or, if one is brewing, it doesn't strike me as a long, strong one.
Given that, if the market is pricing stocks as if there'll be a major recession, and pricing financials as if there'll be a collapse in New York, you might do well to buy broad indexes of stocks and indexes of financials.
The road ahead will be bumpy. Fine -- "mama, that's where the fun is," as Bruce Springsteen sang long ago. But if times are better than Wall Street is betting, you may want to bet against Wall Street. They're in it for a day or an hour -- you're in it for life. And you have an immense advantage: You can take advantage of their panic.
They take plenty of advantage of you, so now it's your turn. Buy and hold.
