2011 August

Libya Faces The Long Road To Stability

As it increasingly looks like the Libyan leader Muammar Gaddafi is at the end of his road, the Libyan people will face a long road to stabilizing a new government to replace Gaddafi. After at least six month of struggles, the Libyan rebels finally took their fight to Tripoli over the weekend and now control 95% of the country’s capital. News reports of the capture of Muammar Gaddafi’s son and heir apparent, Saif Al-Islam Gaddafi, lit more fire under the Libyan people to take their country back. Gaddafi’s fall from power won’t mean an immediate transition to a functioning democracy. The National Transitional Council is a far from cohesive political group, but along with some direction from the U.S. and other stable democracies, there is hope once again for a stable and thriving Libya.

While the recent uprising in Libya was a popular one among its people, the decades of autocratic rule by Muammar Gaddifi created a network in country based on fear and patronage with tribes who may or may not remain loyal to Gaddafi’s regime long after its demise. Some analysts have now raised concerns over the threat of inter-tribal fighting as those who were suppressed by Gaddafi’s regime take on those tribes favored by Gaddafi.

During Gaddafi’s rule, Libya was run without traditional government institutions in place, so these would have to be established in a rapid fashion. One bright light is that the rebel factions seem to be more cohesive and the uprising has come from within the country and not from an external force.

With state building in the near future for Libya, analysts are quick to note that this situation bears no resemblance to Iraq and Afghanistan. Since this transition has been domestically led, the world can look for quick involvement by the Libyan people unlike what the world saw in Iraq and is now witnessing in Afghanistan. It is usually best when a country’s people can take care of their affairs with minimal help from other countries and their governments.

Libya has the natural resources to fix its economy and generate good will with the international community. It will take some time and won’t be a quick fix, but the long road to a free and stable Libya is now in its infancy.

Troubled Mortgages On The Rise

As the U.S. economy continues to lope along, the U.S. housing markets continues to be at almost a standstill. A recent report found the number of delinquent mortgage borrowers who have missed at least one payment rose during the three months ending on June 30. The delinquency rate grew by 0.12%. Although the increase doesn’t seem too alarming, it does reverse a steady improvement in delinquencies that has continued over the past two years.

Mortgage delinquencies are now showing some signs of worsening which comes as no surprise given the continued bleak employment picture in the U.S.economy. First time unemployment claims are up, so that is reflected in an up-tick in first time delinquencies.

The Mortgage Bankers Association breaks down delinquencies by degree of severity. This entails mortgages that range from one month past due to 60 days late to 90 days late. Loans that are in foreclosure proceedings are also included in the Mortgage Delinquency Survey by the MBA. “The good news”, according to Jay Brinkman, MBA’s Chief Economist, “is the continued decline in long-term delinquencies, those mortgages that are three payments or more past due.” These are the mortgages that are most likely to finish the foreclosure process. At the end of the foreclosure proceedings is when a bank repossess the home.

The MBA sees reason for hope in the fact that the newest mortgage loans issued after 2007 are performing much better than those issued before the recession. Mortgages originating in 2005-2007 at the height of the housing bubble represent 30% of all mortgages, but account for 65% of the mortgages defaulting through present day. According to the MBA , if our economy begins to show strength and the unemployment picture improves, then the delinquency rates on mortgages should start to recede.

Germany In The Hot Seat

Germany finds itself strapped to the “hot seat” with no wiggle room as the looming economic and money woes of the European Union grow louder and louder. Germany finds itself in the position of having to make a difficult choice between stable money or European integration.

During a meeting last week between French President Nicolas Sarkozy and German Chancellor Angela Merkel more promise of economic government failed to calm the financial markets. Chancellor Merkel is aware if Germany and other creditor countries submit to the demands that they pool government borrowing with other Euro states, then the end of Germany’s own economic dominance and well-being could loom on the horizon.

Germany is at a crossroads where it supports the European Union, but not at any price. Since the fall of the Berlin Wall, one of France’s main goals is pushing for monetary union and to supposedly weaken dominant Germany. Unwittingly former German Chancellor Helmut Kohl complied. If economic government along with common Euro bonds becomes a reality, then France’s historical goal of a weakened Germany becomes the new reality.

None of these woes should come as a surprise. There have been warnings for decades that Europe in monetary union forms a for better or worse solidarity with less competitive countries and the larger countries will always be “holding the bag” per se.

The continued flurry of activity in Europe now falls at the feet of Germany. The coming weeks or months will tell the tale. Germany is definitely at an political and economic crossroads. The whole world will be waiting with baited breath to see how the European Union shakes its woes. In this global economy, U.S. market watchers will be especially concerned as Germany takes center stage as the heart of Europe once again.

Mortgage Rates In U.S. Lowest In 50 Years

Freddie Mac is reporting that mortgage rates in the U.S. fell to their lowest in more then 50 years. The stumbling global economy and uncertainty here at home in the U.S. markets has sharply decreased demand for bonds that guide home loans.

The average rate for a 30 year fixed loan dropped to an unheard of 4.15%this past week. The average 15 year fixed rate dropped to 3.36%.

The decline follows a slide in yields for U.S. Treasury notes. This is the benchmark for gauging consumer debt. The yield on U.S. Treasury notes dropped to 1.9735%. Concern over the deepening crisis in Europe has caused concern and lower forecasts for global economic growth.
With the wild swings in the U.S. financial markets, and the continuing growl of the economy, these low rates have done very little to boost demand in our housing market. The U.S. housing market continues to stagnate as recession fears loom on the horizon.

Low interest rates can be very helpful for the U.S. consumer, but the terrible unemployment picture coupled with stagnated salaries have many consumers opting to not take chances at this time. Housing demand continues to be depressed with not a lot of hope for the near-term future.

The low rates are doing absolutely nothing to stimulate the housing industry leaving many analysts to wonder exactly when will a turn around emerge. Current homeowners seem to be the only ones taking advantage of the low rates by refinancing existing mortgages. Refinancing has climbed through the roof over the past year. This still does nothing to help the ailing housing market.

Federal Reserve Chairman Bernanke Scheduled For Conference

Attention will be focused this week on the upcoming speech on Friday in Jackson Hole, WY by Federal Reserve Chairman Ben Bernanke. The annual conference will be hosted by the Kansas City Fed.

This week will be filled with wild guesses about what the Chairman will have to say about the direction of the U.S. economy. On August 9, 2011, the Fed said it plans to keep interest rates at extraordinarily low levels at least until mid 2013. At this point, it is unclear what other options the Fed has at its disposal. Given the current political climate and the uneasiness of the financial markets, one would need a crystal ball to know what Friday’s speech will have to offer.

This week will have some interesting data reported before the speech. On Tuesday, new home sales data will be due out. The numbers are expected to be weak, as the housing market continues to be on life support after the real estate bubble burst of 2008. A report on durable goods will be due out on Wednesday. Analysts are hoping for some improvement over the terrible June numbers. Durable goods data is often viewed as a way to gauge investment by businesses both large and small. Durable goods or a hard good is one that isn’t completely consumed in one use. This data is very important to gauge the manufacturing base etc. in the U.S. economy.

Scheduled for release on Friday is a second reading on second quarter GDP. Analysts believe this reading will point to the strong belief that the U.S. economy is slowing even further. Economists are lining up this week to issue reports cutting growth expectations for the rest of the year.

Needless to say, this week should see a flurry of activity in the financial markets globally. Let’s hope we see a ray of hope in some of these reports and that Fed Chairman Bernanke’s speech can reassure the American people that our economy will recover and is on the right track.

Three More U.S. Banks Close

On Friday, U.S. regulators closed Lydian Private Bank based in Palm Beach, Florida. The closure of this bank is the fifth largest bank failure this year based on assets. Miami based Sabadell will purchase the assets of Lydian.

In Georgia, First Southern National Bank located in Statesboro pushes the number of bank failures in Georgia to 17. Heritage Bank of the South based in Albany, GA will take over the assets.

Illinois rounds at the failure list with First Choice Bank of Geneva. Inland Bank & Trust of Oakbrook, IL agreed to take it over.

Georgia leads the pack with 17 bank failures this year followed by Florida with 10, and Illinois with 7.

The total number of bank failures in the U.S. this year is 68. This is a much slower pace than the reported 110 bank failures this same time last year. The FDIC is estimating the latest three failures will cost the FDIC fund approximately $363.8 million. The FDIC’s deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S Treasury securities.

Deposit customers of these failed banks will automatically become customers of the new banks. The FDIC will continue to insure deposit accounts up to $250,000.

A bank fails when it is no longer able to meet its obligations to its depositors, creditors etc.
The FDIC then assumes the job of selling and or collecting the assets of the failed bank and then settling its debts, including claims for deposit in excess of the insured limit ($250,000). Notification to customers of a failed bank is mailed immediately upon bank closure by FDIC.

FDIC regulators have taken harsh criticism for going easy on banks before the financial crisis hit in 2008. Now, community bankers are accusing regulators of using a heavy hand at a time when the banking industry is struggling to recover. More than 380 banks have failed in the U.S. since early 2008 with 326 of them being small community banks according to the FDIC.

Market Down Following Unemployment News

Unemployment rates continue to rattle the market for the second month in a row. Along with the worries about a stable European economy, the flat job growth in the U.S. has market watchers losing confidence.

Today the U. S. Labor Department reports that unemployment continues to rise in at least 28 states. The jobs picture is flat in 14 states and there has been a slight increase in employment in 8 states. Overall for the year across the United States, there has been a significant slow down in jobs creation this year. In the states where there has been an increase in employment, it has mostly come from a combination of jobs created in the government sector with some jobs creation in the private sector.

Texas leads the nation in overall jobs creation since the recession reportedly ended two years ago. Most jobs in Texas have been created in the health, education, retail, transportation, and tourist industries.

Nevada continues to lead the nation with the highest unemployment rate of 12.9% with California reporting an unemployment rate of 12%. The lowest unemployment rate in the nation belongs to North Dakota at 3.3%.

The United States economy has slowed significantly this year to a rate of .08%. This is the slowest since the official end to the recession.

The Dow Jones Industrials is showing an increasingly uneasy feeling towards the strength in the U. S. economy. With little or no direction from our President and Congress, there is little doubt that we are headed for a volatile third quarter stock season. It’s going to take some cool heads to prevail in such an uncertain atmosphere where the U. S. economy hangs in the balance and can teeter in either direction depending on the report of the day.

Gold Prices Sets New Record

Investors looking for a safe haven in the somewhat shaky and uncertain global economy are looking to Gold as their safety net.

Gold for December delivery advanced $30.20 to $1,852.20 an ounce on the Comex division of the New York Mercantile Exchange. Listening to traders of Gold Futures, one can assume that $2,000.00 an ounce is an almost foregone conclusion coming within the next few weeks. It boggles the mind when thinking of the rise in precious metal prices.

Investors worldwide have been flocking to gold as the continued reports of the U. S. economy sliding back into recession gets louder as the stock bells ring day after day. Also, the health of the European banks and the debt crisis in the Euro Zone give way to investors looking to find a safe haven.

Some analysts believe the rush to Gold could have a bubble effect also. Gold’s fast rise has been of some concern and could possibly end with a sell-off several hundred dollars off the current prices. To date, the underlying fundamentals for Gold are favorable thanks to the chaos elsewhere.

It has been reported that Venezuela plans to nationalize its gold industry due to the country running desperately low on dollars suggesting that the repatriation of the country’s gold reserves could be a precursor to their sale. However, there would probably be investors elsewhere looking for that opportunity as a safe haven.

Whatever your reasons for investing are, one should step back, take a deep breath and research the best investment for their situation. At this moment in time, Gold Futures seem to have earned the title of “safe haven” among worldwide investors large and small.

HP Down Big After Stating It Wants Out of PCs

Hewlett-Packard is getting pummeled today, down 20% after announcing it was spinning off its PC business. Shares of HP are at their lowest level in six years following this news. CEO Leo Apotheker believes that the PC business, which is now a low-margin business, is a burden on the company and wants to strengthen its position in more lucrative segments of the corporate market.

What’s interesting about this move is that nearly 10 years ago ,Walter Hewlett, former HP director, fought to stop the company his father founded from buying Compaq Computer. That merger led to HP becoming a tech hardware juggernaut and eventually the biggest PC vendor in the world.

HP also made the decision to shut down its webOS hardware operations, a stunning decision that also kills its brand new TouchPad tablet.

Some analysts believe that while this is a good move for HP, they could have presented it a little better. As it stands their plan is filled with uncertainty.

Dell, one of HP’s competitors, shares were up over 4% at one point today after analysts upgraded Dell to a buy rating. Dell’s PC business should benefit from HP’s upheaval. Corporations looking to buy bulk PCs will now look at Dell and other PC businesses instead of HP because of HP’s uncertainty right now.

Analysts believe that the best option for HP’s PC business would be some kind of spin-off that retains the current team under Todd Bradley. Bradley is often praised for turning the company’s PC business around, although he is reportedly unhappy that he was passed over when the HP board chose a new CEO last year.

Markets Endure A Shaky Day With The Dow Up And Nasdaq Down

The markets have been on a roller-coaster ride as of late with some big ups and downs, todays market was a microcosm of that recent trend. After being up nearly 130 points the Dow sank, falling 200 points before it rebounded to post a modest 4 point gain. The Nasdaq was on a similar ride but could recover all the way and finished down almost 12 points. The S&P 500 rounds out the big three with a 1 point gain at the end of the session. While there was some unsettling moments for investor in the markets overall performance several individual stocks did extremely well today.

Photronics, Inc. (NASDAQ:PLAB) shares climbed 29% to $7.25 per share with an intraday high of $7.59 per share. Volume traded nearly six times normal as PLAB announced fiscal results for Q3. Third quarter revenue was $135.9 million which bested Wall Street estimates for revenue of $131.8 million. Earnings per share were 23 cents which also bested estimates of 19 cents per share by analyst. Photronics adjusted Q4 predictions to $125-130 million in revenue while analyst are expecting $130.5 million in revenue.

Eastman Kodak Company (NYSE:EK) shares rose 25% to $2.69 per share. Volume was very heavy as nearly 57 million shares exchanged hands during today’s session. Investors have been flocking to EK as news that the company has patents that could fetch upwards of $3.1 billion in a sale. With the recent purchase of Intellectual property by Google and Apple, companies are becoming more aware of the value that patents have toward the companies bottom lines. If Kodak were to sell its intellectual property potential suitors could include Microsoft Corp and Samsung Electronics company. Christopher Veronda, a Kodak spokesman, announced the company is beginning to explore options for its digital-imaging patents after the “current heightened demand” for intellectual property throughout the market.

MarketAxess Holdings, Inc (NASDAQ:MKTX) shares increased 14% to $27.45 per share with an intraday high of $30.25 per share. Volume traded much heavier than normal as a person familiar with the company confirmed MKTX is exploring a possible sale. The speculation behind a potential share of MarketAxess was the driving force behind the jump in shares price today. MarketAxess is currently valued at nearly $1 billion.

Retailers Push Stocks Up This Morning

The major indexes are seeing gains today after earnings from Target and Staples beat expectations. In early trading the Dow is up 100 points, the Nasdaq is up 16 points and the S&P is up 13 points. Most of the S&P’s gains came from energy companies after crude-oil futures rose over $2 to around $89 a barrel.

Shares of Target Corp. (NYSE:TGT) saw a jump over over 4% this morning after the company posted better than expected profits. Last year, Target began pushing a larger food offering and offered a 5% discount to customers who pay with their Target branded credit or debit card. This strategy appears to have worked with revenue increasing by nearly 4% at stores opened at least a year. This revenue increase was up from the the 2% increase in Q1. Here’s what Gregg Steinhafel, CEO of Target, had to say in a statement, “We’re very pleased with our second-quarter financial results.” He added, “We continue to focus on strong execution of our strategy, preparing Target to perform well in a variety of economic environments.”

Staples (NASDAQ:SPLS) is up around 2% after the company’s second-quarter profits rose by 36%. Staples’ income rose to $176.4 million, or 25 cents a share, in the second quarter, up from $129.8 million, or 18 cents a share, in the same period last year. A $21 million tax refund in the latest quarter helped out the company as well. If you exclude the tax refund the company earned 22 cents a share. Staples’ is forecasting a third-quarter profit of 46 to 48 cents a share.

Overall, it looks like consumers – while not confident about the economy as a whole – are spending money at retail stores. Plus back to school sales should help push profits even higher for these two companies in Q3.

Market Up Following Mixed Economic News

Stocks rose today despite a drop in consumer confidence data. The University of Michigan/Thomson Reuters index for consumer sentiment dropped to 54.9 in August, the lowest in over 30 years – feeling like the days of Jimmy Carter. Some analysts noted that this drop is mostly from the past 2 weeks when the stock market was very volatile. Right now the Dow is up 170 points, the Nasdaq is up 22 points, and the S&P is up 10 points. Judging by the past few weeks we’ll either end up 500 or down 600.

Retails sales saw an increase in July as consumers spent more on automobiles, furniture and gasoline. This helped push retail sales by the largest amount in four months. Unfortunately this bit of positive news is going to be overshadowed by the continued political turmoil gripping the United States. You only had to watch the Iowa debate last night to see that any deal thought possible with the super committee will be staunchly opposed by the tea party factions on the right.

Europe continues to be a major concern in the markets – especially with French GDP growth stalling. Businesses continue to stockpile wares ans consumers hold onto their money. France and Germany are shouldering much of the costs of rescuing Greece, Portugal and Ireland and this is starting to take its toll on them. The European Central Bank had to buy bonds from Italy and Spain to lower their borrowing costs because of fears over the stability of the banks in these countries.

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