Citi moves closer to nationalization
February 27, 2009 by admin
Citigroup one of the worlds largest banks now has the U.S. government as a majority owner of almost 35% of the company. The bank which grew by leaps and bounds over the past ten years is losing money at a staggering pace. The bank posted a loss in excess of 10 billion dollars for the last quarter. The bank which took out large stakes in the sub prime mortgage world with their acquisition of Ameriquest mortgage a few years ago has been stung by the sharp decline in home values and rapid rise in home foreclosures. Citigroup is alos one of the worlds largest issuers of credit cards, commercial loans and made a play in the secondary derrivative market which are all showing rapid signs of deterioration. The company is struggling to maintain confidence of both its customers as well as its investors as they are forced to further write down the value of their loan portfolios while earmarking billions of dollars for future losses. Citigroup has posted losses in excess of 25 billion dollars over the past 3 quarters and has received Tarp money in excess of 45 billion to help maintain the companies tier one capital ratios. Investors in Citigroup have seen the companies share price free fall into the $1.50 range as their is growing concern moving forward that all common shareholder value could be wiped out.
February 25, 2009
February 25, 2009 by admin
The stock market rally appears to be a one day anomily as the market is selling off sharply on Wednesday. The market went down fast following a grim report on the housing front with the existing home sales report showing a fall off of 5.3% in the month of January, pacing annual sales at under five million units. Almost fifty percent of all homes that are being purchased are considered to be distressed properties (homes in foreclosure or short sale status). Home values continue to trend lower nationally with the median home sales price coming in just over 170k.
Mortgage rates which are critical to the housing market have been flat over the past two weeks. Long term fifteen year fixed rate loans, popular options for consumer looking to refinance remain in the high four percent range. The expectation that the drop in interest rates the market experienced in mid December would spur a surge of home buying has yet to be realized. Home buyers remain very cautious, despite historically low rates. The yield on the ten year bond was at 2.86% on Wednesday, with little movement this week.
Credit card debt likely to cause lenders further financial pain
February 24, 2009 by admin
The dramatic drop in the economy has taken its toll on many institutions. Late in 2007, sub prime mortgage lenders were forced out of business as their loan portfolios lost value, in 2008 over 250 banks and mortgage lenders were forced to close as the housing market completely fell apart. The next big obstacle facing the financial industry is going to be the fallout from the credit card industry. Consumers who have lost their jobs or seen their incomes slashed due to the challenging economy will only add to the challenges facing the nations top lenders. The government has attempted to address this proactively through the TALF program announced earlier this year. Some of the largest credit card companies are looking to move more aggressive to head off the challenges of an economy spiraling downhill. American Express announced this week that they would offer an incentive of up to $300 on targeted accounts if the consumer agrees to close the account and work towards paying off their balance in full during an agreed upon time. The rate of charge offs on credit card debt will likely surge in 2009 and their is likely to be a huge spike in bankruptcy filings.
February 23, 2009
February 23, 2009 by admin
The stock market appears to be locked in on testing the sub 7,000 levels. Despite a new round of pledges to help strugling banks (Citigroup) and ease the fears of bank nationalization, there is no magic formula that will help pull the stock market out of its recent free fall. The market is now in six year low territory and there remains little evidence of a turnaround in the near future. As more companie downgrade their earning and corporations continue to eliminate jobs, the market is pricing in what could very well be an economic recession that continues to get worse before getting better.
On the housing front, last weeks reports on housing starts is a clear indication on the massive pullback that is occuring on the home building front. Fixed mortgage rates remain very attractive, the yield on the ten year bond remains well under 3 percent and has provided a nice 3 month window for consumers to refinance into lower rates as well as new home buyers to lock in near historic low rates, keeping house payments low and freeing up extra money for the economy.
February 19, 2009
February 19, 2009 by admin
Stocks continue to move lower as the sentiment amongst investors remains one of fear and concern. The stock market could dip below levels last seen in November of 2008. The market is digesting two key economic reports today, the ppi report which showed that the market saw wholesale prices increase in January for the first time in the past six months. The jobs report also painted a grim picture for the economy as jobless claims are fast approaching the five million level. Wednesday the Fed predicted that the unemployment rate is likely to top 8% in 2009.
Freddie Mac reported fixed mortgage rates remain in the low five percent level. The yield on the ten year bond rose to 2.81% and remains well below the 3% level. The spread between the ten year bond and the average rate on a thirty year fixed mortgage remains well above 2%, a signal that investors in mortgage backed loan securities are still seeking a premium on these investments.
February 17, 2009
February 17, 2009 by admin
The stock market dropped sharply to start a shortened week on Tuesday. Investors are growing more concerned that equity investments will continue to fall as the economy further deteriorates. The largest area of concern continues to be the banking sector as the $350 billion dollar tarp program that was approved last year appears to have had no impact on restoring lending and bringing back confidence in the public sector. Many economists now believe the banking industry will require in excess of two trillion dollars in order to be fully stabalized. President Obama is expected to sign today the latest economic stimulus program in an effort to try and put a floor into the falling economy.
Mortgage rates and investors in gold are two of the areas that are benefitting from the fall out in the market. The yield on the ten year bond dropped almost twenty five basis points over the past two days, and now sits at 2.67%. Fixed rate mortgage loans on fifteen year loan terms are now in the low five percent range and lower with points.
February 11, 2009
February 11, 2009 by admin
The stock market looks to rebound following a sharp decline on Monday. The governments plan to help stabalize the banking industry was not well received and the market sold off sharply. Investors are now looking to the proposed stimulus package and new economic news to try and better understand where the market is heading. A major report on U.S. international trade showed that the gap is now at a six year low, clearly signaling a global recession.
New home owners are going to continue to sit on the sidelines until their is more clarity with the proposed tax breaks available under the governments stimulus proposals. Both versions in Congress feature a tax credit aimed at trying to help jump start home buying. Fixed mortgage rates benefitted from yesterday’s large stock sell off, but have been trending up over the last two weeks. The yield on the ten year bond dropped down to 2.8% on Tuesday, after moving above 3% last week. Fixed rate loans are in the mid five percent range on thirty year loan terms with most national mortgage lenders.
The plan without a plan, Geithner sends the market south
February 10, 2009 by admin
The government rolled out a new plan to fix the banking industry on Tuesday and the stock market responded with a dramatic sell off, a clear signal that concerns remain in fixing the struggling banking industry. The long anticipated bad bank and program to remove toxic debts from banks balance sheets appears to have a more questions than answers.
Secretary Geithner rolled out more details on his program that is planning to rely heavily on support from the private sector and hedge funds. The government appears to be taking the role of an insurance company under the new proposal. They are attempting to allow the markets to determine the end value of bank assets. Banks that choose to attempt to sell assets through the new program will be required to undergo a financial “stress test”, but this appears to be a major area of contention with investors.
The new proposal carries some key provisions to try and improve lending for commercial and personal loans. Consumers and small business will be a key focus in trying to spur spending and jump start the economy. A key measure that was mentioned at today’s news conference was a program specifically designed to help home owners and reduce home foreclosures. Details on the foreclosure relief program will be crucial in fixing the economy and slowing down the rate of home owners who have fallen behind on their home mortgages. It is believed that the government is not likely to move forward with subsidizing low mortgage rates and favors the idea of reducing the principle balance of mortgages.
February 6, 2009
February 6, 2009 by admin
It could have been worse. This is the driving theme behind todays suprising jump in the stock market. The January jobs report was released early in the morning showing non farm payroll job losses just under 600,000 last month and the new unemployment rate moving up above seven percent. These numbers continue to show a slide with the health of the U.S. economy and a deterioration in the labor sector. The numbers did not scare off investors who are once again rallying the market above the 8,000 point level. Their is a lingering optimism that the U.S. will move forward with a new economic stimulus package as early as next week and the countries new Treasury Secretary will have a new plan to help stabalize the banking industry on Monday. Financial giants such as Citigroup, JP Morgan and Bank of America are all enjoying large percentage increases to their common stock price on the pending news.
On the housing front, fixed mortgage rates continue to trend up. Freddie Mac revealed earlier in the week that long term fixed rates on thirty year mortgage loans were now in the low five percent range. The yield on the ten year bond is now closing in on 3% as the bond market is driving the expected returns up, pushing up fixed mortgage rates as a result.
February 3, 2009
February 3, 2009 by admin
The stock market received some unexpected good news today from an unusual source the U.S. housing market. The market has been dropped back into the low 8,000 point range, testing lows last seen in November of 2008. The market has been staggered by disappointing corporate earnings and weak economic news reports. The report today released from the National Association of Realtors indicated pending home sales moved up nearly six percent in the month of December. The jump in home sales has coincided with a sharp drop in mortgage rates brought on by the Feds decision to begin purchasing mortgage securities in December. This historic move immediately dropped mortgage rates to historic low levels and consumers rushed to refinance their existing homes and now it appears the move also brought new home buyers into the market. Improving the housing market will be critical to pulling the U.S. out of it’s current economic recession. This positive news will be well received from the government as well as the federal reserve.
