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Crazy For Junk – US-FOREX.US

Forex-Publisher — Fri, 14 Aug 2009 23:50:27 +0000

Here’s more evidence of risk-taking’s rebirth: Sales of the riskiest, speculative debt has already surpassed last year’s total. Corporations have sold 88 billion in junk bonds worldwide, up from 49.5 billion in 2008, according to data provider Dealogic. The 4.2 billion bond sale by Canadian miner Teck Resources Limited
in May is the year’s largest.Telecommunication companies have benefited the most, accounting for nearly 20% of the junk bonds sold. Italian mobile-phone company Wind Telecomunicazioni SpA’s 3.8 billion issue in July is the largest from the sector thus far. More hit the market in the past week. Wireless communication company NII Holdings
is currently marketing 500 million in notes; satellite television provider Dish Network
sold 1 billion in notes on Thursday; and Sirius XM Radio
announced an offering of 250 million in notes to repay debts owed to Liberty Media Corp.
How to explain the rush of new bond sales? Some credit goes to retail investors piling their savings into fixed-income mutual funds. Bond managers say the easiest and cheapest way to use that cash is by buying newly issued bonds from underwriting banks. The alternative can be costly. Putting a large amount of money to work in the secondary market by bidding on already trading notes could allow other bond traders to gouge the buyer. Bond funds received 11.5 billion in the seven days to August 5, according to the most recent figures from the Investment Company Institute. That’s up from 8.6 billion in the previous week. Of the 11.5 billion, 9.3 billion went to taxable funds, which hold corporate and Treasury bonds. Jeff Tjornehoj, research manager at mutual fund tracker Lipper, believes the popularity of fixed-income funds reflects a change in retail investors’ thinking. After getting burned on their stock holdings last year, people have come to see bonds as less volatile and stomach churning than stocks. The change in sentiment creates an opportunity for mutual funds to start new funds. Vanguard, for instance, unveiled seven bond index funds this week .
Low rates for Treasurys have helped, too, by making higher-paying corporate bonds more attractive. But yields on longer-dated government bonds are creeping higher as the Treasury continues to sell bonds to finance spending and the Federal Reserve empties out the 300 billion purse it used to purchase Treasurys. On Wednesday, a 23 billion auction of benchmark 10-year notes sold at a 3.7% yield. That’s much higher than the 2% reached in March but, apart from the 3.66% average rate in 2008, is still well below the annual average over the last 46 years, according to Federal Reserve data.
The 10-year note rose on Thursday to yield 3.59% after a record 15 billion auction of 30-year Treasury bonds turned out better than expected.

Consumers Trade Down – US-FOREX.US

Forex-Publisher — Thu, 13 Aug 2009 20:46:05 +0000

Cash-strapped consumers are looking to get the most bang for their buck, forcing retailers to adapt to new spending habits, says Claire Gruppo, co-founder and managing director of investment bank and M&A firm Gruppo, Levey.”People aren’t comfortable paying for brands or an experience if they don’t feel it’s worth it,” Gruppo said, “and the trend we’re seeing across most brands is consumers seem to be trading down for ticket prices.” Americans have become more careful with their money, but the key to their behavior isn’t price, but value. For example, instead of buying a 20 t-shirt at Ann Taylor
, consumers will purchase it for 5 at Wal-Mart
or Kohl’s
. They’re still buying a t-shirt, but not at 20.The environment is very difficult. Instead of rising 0.7% as expected, on Thursday, the U.S. Commerce Department reported retail sales fell by 0.1% in July, and would have dropped by 0.6% if it were not the government’s “clash for clunker” program. Department store stales sunk 1.6%, while broader general merchandise stores, which includes mega-retailers like Target
, saw sales decrease 0.8%. The data reinforces the thesis held by many on Wall Street that business, rather than consumers, will lead the economic recovery.To navigate this trend, some retailers have become more careful in managing their inventory, by reducing product lines and offering fewer items within a line. The strategy is simple: offer the consumers what they’ll actually purchase. This way businesses are better able to streamline inventory and not tie upa lot of capital in items that aren’t going to move. The trick is to reduce inventories without shoppers thinking that they have fewer choices.”Good retailers are thinking not so much about discounting as much as adding items of lines of merchandise at different price points that they’re not going to have to sell at 50% off retail,” Gruppo said. “They’re starting different offerings at lower price points.”Gruppo highlighted Macy’s
recent performance as an example of this approach. “They beat expectations and raised their forecast for the year,” Gruppo said. “The brand has always been known for good value at department stores, and it’s the first piece of good news from something other than a big-box discounter.”
Gruppo expects retailers to operate in this fashion until consumer spending begins to turn around. “Until unemployment and lack of credit ease more than what we’ve seen this will be what the retail landscape will look like,” Gruppo said. The businesses that will have an edge through the end of the year will be the ones that offer lower prices but with strong value, Gruppo added.

Apartment REITS To Buy And Avoid – US-FOREX.US

Forex-Publisher — Wed, 29 Jul 2009 22:46:05 +0000

As real estate companies deluge investors with earnings reports this week and next, RBC analyst Mike Salinsky says a few property owners that specialize in apartment buildings present good opportunities. But investors need to watch out for dividend cuts and stock sales as firms try to raise cash in the recession.While other property companies, especially in the office and retail sector, are seeing rents fall steeply, apartment owners are likely to report that rents are stabilizing, Salinksy wrote in a report earlier this week. One reason is that fewer people were buying homes this year and have chosen to continue renting. Also benefiting apartment companies is cheap financing, including from government-sponsored entities like Fannie Mae
.One area that presents opportunities for real estate investment trusts, or REITs, is to make acquisitions at depressed prices. So far there’s been little action, notes Salinsky, as banks and other would-be sellers stay out of the market in hopes of getting better prices down the line. If and when it comes, the buying spree will happen in the next two years.That’s not a reason to jump in with both feet, though. Salinksy warns that there are likely to be few surprises, pleasant or unpleasant, from the sector, so investors can assume prior forecasts are built into stock prices. There’s also the problem of dividend cuts and stocks sales. As credit markets have rebounded, REITs no longer find themselves faced with cash crises. But many still would like to reduce debt and build up a reserve with which to make purchases. “We recommend investors remain defensive,” says SalinksyWho might slash dividends to shareholders? Salinksy names BRE Properties
, Equity Residential
and Home Properties
. Another way to raise cash is to sell stock, something other types of REITs have been falling over each other to do this year. Apartment firms, however, haven’t yet taken advantage but may this quarter. Home Properties and UDR
are the most likely.
Salinsky recommends shares of Camden Property Trust
. Camden’s dividend is safe and its balance sheet solid enough to take advantage of buying opportunities. The firm reports after trading Thursday. Home Properties is another buy with buildings concentrated in regions facing lower unemployment. A dividend cut or stock sale could boost investor confidence in the company. Salinksy’s other recommendation is Mid-America Apartment Communities
, although the current price means investor shouldn’t risk too much on this stock. Home Properties and Mid-America announce results August 6.Investors might want to sell BRE Properties and Apartment Investment & Management Company
, notes Salinksy. BRE owns buildings in areas of high unemployment and could fall short of earnings expectations when it reports August 4. Aimco, which reports earnings on Friday, needs to sell buildings to pay its debts but may not have been able to unload them at attractive prices. Investors would do better elsewhere, says Salinksy.

Stocks Finish Week With Strong Gains – US-FOREX.US

Forex-Publisher — Fri, 24 Jul 2009 21:46:09 +0000

Stocks took another breather on Friday, pausing amid a broad rally that has seen the major indexes gain 11% in the last two weeks. Many U.S. companies have posted better-than-expected second-quarter earnings reports so far. The week’s final session saw drug and energy stocks rise, countered by disappointing results from tech giants like Microsoft and Amazon.com.The Dow Jones industrial average gained 24 points, or 0.3%, to close at 9,093. The S&P 500 was up three points, or 0.3%, to end at 979; and the Nasdaq lost eight points, or 0.4%, to finish at 1,966. That left all three averages with strong gains for the week: The Dow rose 4%, the S&P 500 was up 4.1% and the Nasdaq posted a gain of 4.2%.Solar power company SunPower
beat analysts’ estimates and boosted its year-end forecast, sending shares up 29% on Friday. Shares of cellphone company Sprint
fell 3% after the firm’s chief said it was too soon to tell if the new Pre phone from Palm would be a hit for the third-largest carrier in the U.S. The new Pre phone is Palm’s attempt to reclaim the smart-phone market from BlackBerry maker Reasearch In Motion and Apple’s popular iPhone. Sprint also announced it would sell a phone based on Google’s Android operating system by the end of the year. Palm shares gained 2.2% on Friday.Troubled lender CIT Group
was again in the news as it tried to convince its creditors to accept 83 cents on the dollar for their bonds to help keep the firm, which lends to millions of small businesses, out of bankruptcy. Shares gained a penny, or 1.4%, to 75 cents. Commodity markets were quiet Friday, taking their cues from stocks, after joining equities in a solid rally over the past two weeks. Gold fell slightly to around 953 an ounce while copper was flat for the day. In the past two weeks, copper was up 14%, aluminum gained 14.8% and gold jumped 4.4%.
Crude oil gained modestly to close just over 68 a barrel after a strong week backed by corporate earnings and refinery outages. The U.S. Oil Fund
, an ETF that tracks oil pries, was up 43 cents, or 1.2%, to 36.22.Thomson Reuters and the Associated Press contributed to this report.

Americans Say No To New Loans – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 22:46:25 +0000

A survey of credit unions found Americans are turning down credit,opting instead to hold on to their cash and pay down existing loans. Since the leaner months of 2008 and early 2009, though credit has become more available, there’s less demand for it. Some of the bigger banks have cut credit lines, but credit unions are still lending-when they can find willing customers.The Credit Union National Association reported the rate of savings among clients of 450 credit unions grew by 7.3% in the first five months of the year, while loan growth reached only 0.5%. The savings increase is among the strongest since 1992, when the country had just gone through a similar financial shock. Still, loan growth is slower now then it was even during the Savings and Loan recession.The data suggest that consumers are cutting back on spending in order to save, as well as reduce their debt. Bill Hampel, chief economist of CUNA, credited excessive debt, diminished wealth and job insecurity as the primary drivers behind the development. “Interest rates are low right now, and if someone is cutting back on spending and has extra cash at the end of the month, they’re probably going to pay down their debt,” said Hampel.The survey also adds an extra dimension to the thesis that consumer spending-and by extension the economic recovery-is stifled by diminished credit lines from banks and credit card companies like JPMorgan Chase
, Citigroup
and American Express
. The big lenders have been cutting unused lines, supporting the lack of demand hypothesis. Credit unions managed to get through the financial crisis quite well. Having operated in a relatively conservative fashion, credit unions have not had to cut back on their supply of credit, yet still have experienced weak demand for loans.The survey comes at a time when Americans have been increasingly unable, or unwilling, to pay their debts. Last week the American Bankers Association found credit card and home equity loan delinquencies reached new heights in the first quarter.
Hampel expects consumers-who account for about two-thirds of the economy-to behave in this way for the foreseeable future. “Our outlook is the recovery will be tepid by historical standards once it begins, even being so weak that Americans won’t even notice the difference,” he said. If that is the case, the recovery’s slow pace will be reinforced by consumers forced to sit on their wallets while they wait for their debt to shrink, the financial and housing markets to replenish their personal wealth, and for the labor market to turn around.

No Recovery Without Retail – US-FOREX.US

Forex-Publisher — Tue, 14 Jul 2009 19:46:05 +0000

When will people go shopping again? The answer could be more important to the American economy than low interest rates and auto company bailouts. “This engine of growth has played a critical role in nearly every economic recovery in the post-WWII era,” writes Joseph LaVorgna, economist at Deutsche Bank
. By that measure, investors had every reason to worry going into Tuesday. Consumer sentiment has recently wobbled along with the stock market, retail sales in May barely grew without higher gas prices and businesses have been struggling to work through inventories.Figures released by the Commerce Department Tuesday present a mixed picture. Retail sales in June increased 0.6%, more than the 0.4% most economists had predicted. But a lot of that was because of higher fuel prices and car sales, which rebounded 2.3% from historic lows. Excluding those gains, retail sales actually fell, by 0.2%, the fourth monthly decline in a row.Those figures should worry stock market investors because the government has been pumping money into the economy at an unprecedented rate, hoping to restart the spending and investing cycle, evidently to little effect. “Despite massive government supports to income, signs from consumers suggest a key component of economic recovery is not prepared to carry its weight,” wrote Citigroup
analyst Robert DiClemente last week, before the numbers came out. “Consumers have displayed unusual restraint.”High unemployment, home foreclosures and other “negative wealth effects” are keeping Americans from spending freely. Last year, a huge drop in gasoline prices should have boosted spending earlier in 2009, but it had little effect. That’s a sign that Americans are pessimistic about their future incomes and saving whatever windfalls they come across.Another factor holding back consumer spending is that Americans hold far more debt than in past recessions, says LaVorgna, leaving little chance they’ll borrow money to buy items out of their price range and spend the nation’s way out of recession.
One encouraging sign, notes DiClemente, is that new unemployment claims dropped earlier this month and could fall sharply in the weeks ahead as auto manufacturer layoffs slow down. Summer is traditionally when new jobless claims rise, so a stable or falling figure could be promising.Also on Tuesday, producer prices rose more than experts predicted and business inventories declined faster. With few analysts predicting short-term inflation, reflected by higher prices, and many expecting the fast inventory declines to reverse soon, both numbers could indicate the pain of the financial crisis is finally working its way through the economy, which has to happen before a recovery.Thomson Reuters contributed to this report.

The View From Main Street – US-FOREX.US

Forex-Publisher — Thu, 09 Jul 2009 22:46:21 +0000

After reaching the edge of the abyss six months ago, Wall Street has been slowly recovering, thanks in large part to massive help from the federal government. But Main Street continues to face serious challenges, says the Center for American Progress. That bodes badly for the consumers who will ultimately drive corporate earnings.Family wealth in the United States dropped by 16 billion by the end of March of 2009, from its peak in June 2007, marking the fastest rate of decline in any 21-month period since the Federal Reserve began tracking that data in 1952. All the while the housing market still hasn’t managed to recover, mortgage troubles increase, and Americans are finding it more difficult to pay their loans. A major driver behind the heightened credit problems among Americans is the troubled labor market, and the recession has been even more difficult for minorities. Though the unemployment rate nationally reached 9.5% in June, the jobless rate among Caucasian-Americans was only 8.7%, though it rose to 14.7% among African-Americans, and 12.2% among Hispanics.Education levels also accounted for a significant discrepancy, as the unemployment rate of those with a college degree was only 4.7%, while it was more than double that for those with a high school degree, and remained at a high of 15.5% for those who haven’t finished high school.Meanwhile, Americans have been stuck on the unemployment rolls for the most amount of time since the government began tracking this data in 1948. The average length of unemployment in June was 24.5 weeks, while 29% of the unemployed were out of a job for 27 weeks or more.Meredith Whitney of the Meredith Whitney Advisory Group has been warning that, “Consumers continue to face challenges in the form of reduced liquidity, higher unemployment and lower home prices as shown in June data.”
Whitney warned that reduced credit lines, which have been depleting at an accelerating pace, make it increasingly difficult for Americans to get back on track. The pernicious unemployment described by CAP and the likelihood of a jobless recovery has businesses reap the rewards of increased productivity from the workers still on their payrolls will only make things worse over the next year or two.With the consumer sidelined, says CAP, the government will have to cocnentrate on longer term investment strategies designed to create new industries.Public investments in “energy independence”, which presumably refers to greater use of alternative and renewable sources, has been a factor in investment decision-making for some time, though to mixed results. Investors have seen huge swings in solar firms like First Solar
and SunPower
, as well as wind energy shops like Siemens
. Mixed signals from Washington have kept the much of the renewable industry overseas, where countries such as Spain, Italy and Germany provide a more stable business environment for renewables. The push for public health care has also given Wall Street a fright, keeping investors up at night sweating over how to navigate President Obama’s health care policy. Since the beginning of the year, Humana
has dropped 16.3%, while UnitedHealth Group
has slid 6.2%, meanwhile the S&P 500 index has fallen 2.3%.

Loan Losses Mount – US-FOREX.US

Forex-Publisher — Tue, 07 Jul 2009 19:46:05 +0000

Rising unemployment, a shrinking economy and falling home prices have left U.S. consumers increasingly unable or unwilling to pay credit card bills and home equity lines of credit. Though the headline numbers don’t look so bad, the details suggest that financial companies face more and growing credit losses through the second half of the year.On Tuesday the American Bankers Association, the nation’s largest banking trade group, reported home equity loan delinquencies reached new heights in the first quarter, as did credit card debt delinquencies. A delinquency is a late payment that is 30 days or more overdue.The ABA said the rate of consumer loan payments at least 30 days late rose to 3.23%, in the first quarter, slightly ahead of the 3.22% in the fourth quarter of 2008.The rate of bank card delinquencies rose to 4.75%, from 4.52% in the fourth quarter of 2008, near the 4.81% record set in 2005. However, balances on those delinquent accounts jumped to a record 6.6% in the first quarter, from 5.52% in the fourth quarter of 2008. Bank cards represent credit cards provided by a bank like the Chase Freedom Mastercard, issued by JPMorgan Chase
. These delinquency statistics don’t include cards issued by credit companies like American Express
or Capital One Financial
. Those companies tend to have lower over-all deliquency rates though the recession is affecting cards across the board.David Wyss, chief economist at Standard & Poor’s, says that credit card delinquencies have a historical correlation with unemployment rates. Unemployment is currently at the levels it reached during the severe recession years of the early 1980s but delinquencies have spiked because credit cards are now used for a greater pecentage of consumer spending.Also troubling are the rising delinquency rates for home equity loans, which also reached record levels, rising to 3.52%, from 3.03%, on loans, and 1.89%, from 1.46%, on lines of credit.Home equity loans have been performing worse than expected, and a greater point of concern than credit card delinquencies, which have moved in a predictable manner. “Home equity loans is worse than our models would indicate,” Wyss said.
The problem is the underlying properties are underwater. Home prices have fallen 32.6% from their peak in 2006, according to the Standard & Poor’s/Case-Shiller Home Price index of 20 large metropolitan areas. “There’s no incentive to pay-off the second mortgage because there’s nothing the lender can do, and the creditor can’t afford to foreclose because the first lien holder gets all the money,” Wyss said.Wyss said that even consumers who held good credit scores aren’t paying their home equity loans, at least in part because it makes financial sense for them not to. “Our basic bottom line is home prices have to stabilize,” Wyss said.Tuesday’s data is disconcerting for financial firms, which are facing numerous challenges. Though the capital markets have experienced some improvement, higher credit losses will hurt lenders like Bank of America
and Citigroup
.

Is The Bond Market Too Optimistic – US-FOREX.US

Forex-Publisher — Fri, 26 Jun 2009 19:46:08 +0000

At the end of last year, the corporate bond market looked boarded up. Some fretted that the lack of access to credit would crush many large corporations. Since March, however, when financial fears hit a peak, the cost of bond market borrowing has dropped and even companies that were struggling with interest payments have been able to pile on more debt. The sale of 38 billion in high-yielding junk bonds in the last three months was the highest amount since the second quarter of 2007, when corporations sold 52 billion, according to data from Dealogic. Now the worry is that the bond market looks a little too optimistic. Junk bonds have soared 28% this year and new issuance has already surpassed last year’s tally: 48 billion sold in six months compared with 38 billion in all of 2008. Including higher-quality investment grade debt, U.S. corporate bond sales totaled 505 billion in the first half of the year, up 17% from the 430 billion sold in the same period last year. “It has been pretty phenomenal,” said Michael Diffley, a manager of high-yield bonds at American Century Investments. Part of the explanation is technical, he said. Once investors found some confidence in the spring, money pored into bond funds, and bond managers have to put the money to work. The easiest place to put it is in newly issued bonds Bond Sales Flourish”). Another factor is the shifting landscape. Bank lending and sales of syndicated loans have dropped with the disappearance of structured finance buyers, and bond investors have stepped into the gap. Debt-heavy companies have taken to paying off bank lines by raising cash through bond sales, easing their refinancing worries. Take Sirius XM Radio
, which issued 526 million in notes with an 11.25% coupon on Thursday. The satellite radio company, which appeared near bankruptcy in February, will use the cash to pay off a credit facility Sirius Dogged By Debts”).
Other companies that sold bonds in the past week include Smithfield Foods
and Spanish-language broadcaster Univision Communications.
“The high-yield market has welcomed a number of deals recently from highly leveraged issuers, motivated to increase financial flexibility while they can, especially since volatile credit markets could close again before operating results recover from the economic downturn,” wrote Kim Noland, a credit analyst at research firm GimmeCredit, in a recent report. Casino operators Harrah’s and MGM along with bed maker Sealy have also recently replaced bank debt with longer-dated bonds, she noted. The new securities generally loosen financial restrictions and buy companies time for economic conditions to improve. The yield on a junk bond is still high: 13.6%, 11 percentage points more than Treasury notes, according to data from Bank of America’s Merrill Lynch Indices. An investment-grade bond yields 6%, a spread of 3.3 percentage points over government bonds.