Foreclosure fallout: House goes for $1

One dollar can get you a large soda at McDonald's, a used VHS movie at 7-Eleven or a house in Detroit.

The fact that a home on the city's east side was listed for $1 recently shows how depressed the real estate market has become in one of America's poorest big cities.

And it still took 19 days to find a buyer.

The home, at 8111 Traverse Street, a few blocks from Detroit City Airport, was the nicest house on the block when it sold for $65,000 in November 2006, said neighbor Carl Upshaw. But the home was foreclosed last summer, and it wasn't long until "the vultures closed in," Upshaw said. "The siding was the first to go. Then they took the fence. Then they broke in and took everything else."

Put on the market in January for $1,100, the house had no lookers other than the squatters who sometimes stayed there at night. Facing $4,000 in back taxes and a large unpaid water bill, the bank that owned the property lowered the price to $1.

$1 sale to cost bank $10,000

While it's not unusual for $1 to be exchanged when property is transferred for legal reasons, listing a home in the Multiple Listing Service for $1 was surprising and unsettling to Kent Colpaert, the listing real estate agent for the property.

"I've never seen a home listed for $1," Colpaert said.

"But it's been hit hard: It's just a shell."

On Tuesday, Realtor.com listed one other single-family home, one duplex and one empty lot at $1 in Detroit.

(Source-Detroit news)

Gustav now a Category 4 hurricance

HAVANA -- Gustav swelled into a fearsome Category 4 hurricane with winds of 145 mph on Saturday as Cuba raced to evacuate more than 240,000 people and Americans to the north clogged highways fleeing New Orleans.

It could become a Category 5 storm over the Gulf of Mexico by Sunday, with winds of 160 mph according to the U.S. National Hurricane Center in Miami. Gustav already has killed 81 people in the Caribbean and it was on a course for the Katrina-battered U.S. coast.
(Source WSJ)


Oil traders around the world are closely tracking the strength and the direction of Gustav. This could mean a breakout or breakdown in Oil.

ABK Impressive one day gainer

I played intraday this amazing one day runner in ABK. ABK jumped up following MBI news that came in AH yesterday.

MBI which has lost its triple-A ratings, will reinsure $184 billion of municipal bonds issued by Financial Guaranty Insurance Co., netting about $741 million in the deal.

During the credit storm, MBIA and other bond insurers have been hit by their exposure to collateralized debt obligations linked to mortgages that have plunged in value. The companies provide insurance against bond defaults, and MBIA and other financial guarantors have been squeezed by higher claims from CDOs and other debt instruments. (Source marketwatch)

I picked up ABK for two reasons- low priced stock and Stochastics was about to turn.
Another main reason was the 6.0 resistance line. I picked the first lot below 6 after market opened at 5.87. Second lot on breakout at 6.03, third lot at 6.16 and fourth lot at 6.23.
Then just let it sail all the way. Sold before market close.
This stock will attempt but right now it is too overbought and is bounc to pullback a bit.

Airline Stocks and Oil Stocks- negative correlation

Oil at resistance









Airline at support

Hurricane Gustav

Oil markets will be fully focussed on Hurricane Gustav. Whether it will Category-3 or Category-4.
Likewise, check airline stocks and oil stocks as counter plays in each direction.

AP News:

Oil prices rose to above $117 a barrel Wednesday on concerns that Tropical Storm Gustav may disrupt operations in the Gulf of Mexico, home to a quarter of U.S. crude production.

By midday in Europe, light, sweet crude for October delivery was up $1.40 at $117.67 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.16 overnight to settle at $116.27 a barrel.

In London, October Brent crude rose $1.15 to $115.78 a barrel on the ICE Futures exchange.

"It's obviously been a factor playing on the minds of oil markets at the moment," said David Moore, commodity strategist at Commonwealth Bank of Australia in Sydney. "There's a potential impact on production in the Gulf of Mexico area."

Gustav roared ashore on Haiti Tuesday near the city of Jacmel as a hurricane with top sustained winds near 90 mph (145 kph). The National Hurricane Center said the storm's winds dropped from hurricane-strength to 60 mph (95 kph) Wednesday. The storm was centered about 80 miles (125 kilometers) west of Port-au-Prince. But the storm's expected to get stronger later this week and continue moving toward the west-northwest.

The center says the storm could become a Category 2 hurricane Thursday, with winds of 96 mph or higher, on its expected path between Cuba and Jamaica.

Rupee hits 17 month low against dollar

MUMBAI: The rupee fell to its lowest in 17 months on Monday, hit by a weak stock market and some lumpy orders in a holiday-thinned market that was also factoring in some recent dollar strength.

The partially convertible rupee ended at 43.59/60 per dollar, recovering slightly from a intraday low of 43.70, its lowest level since March 29, 2007.

The rupee fell 1.33 percent from Thursday's close of 43.01/02, its biggest percentage fall in a year. It has fallen by 3.5 percent in the last five sessions and is down 9.6 percent in 2008. It rose more than 12 percent in 2007.
(Source-Economic times)


The rupee fell by the most in a week as refiners including Indian Oil Corp., the country's biggest, took advantage of a two-day rally to buy dollars at a cheaper rate. Demand for the U.S. currency typically increases at the end of every month when import payments are due. Capital inflows slowed as global funds sold local stocks, further weakening the currency.
(Source-Bloomberg)

Dollar keeps advancing as global economy gets slower

The dollar rose to a six-month high against the euro on evidence the greenback will be the main beneficiary from a global economic slowdown as German business confidence dropped in August more than forecast.

The U.S. currency increased to the highest level versus the Australian dollar in almost a year and gained versus the New Zealand dollar.

Sterling declined to the weakest level versus the dollar in two years as an industry report showed mortgage levles held last month near a decade low.
(Source Bloomberg)

TA Chart of United States Oil Fund- USO

Last week, Oil broke through the down trendline that was in place for a month and then started building a small uptrend. This was decisively broken on Friday morning following the Lehman news and Dollar rally.
Now it again looks very weak and prone to further damage. Picture would change if it moves back into the small uptrend channel.

Elliott Wave chart of S&P 500

Are we heading to 1330s ?

Warren Buffett on US economy, Fannie Freddie, Oil

Warren Buffett appeared on CNBC Friday morning and spoke on various topics covering US economy, Fannie/Freddie, Housing, Financial companies, Inflation, Oil etc.

Excerpts below:

* Fannie Mae and Freddie Mac-Buffett says due to implicit government backing, the two GSEs could borrow without the usual checks and balances. Then needed to keep earnings growing to keep stock market happy and turned to accounting to do it. Agrees they are "too big to fail." Buffett says they would have been gone a long time ago if the government hadn't been behind them. He thinks Freddie and Fannie will survive but shareholders could "lose a lot of money."

*Buffett says that while Fannie and Freddie have looked for cash from the private sector, it won't be enough to save them. Government will have to step in.

*Oil Sands-Asked if he's interested in investing in oil sands, he said no, but that the information he learned about the industry has been filed away and could become useful at some point in the future.

*Economy -he repeats his view that the negative ripples will continue to spread for awhile. He sees no "early end" to the problems although they will end eventually.

*Oil-Asked about the oil market, Buffett says demand and supply for crude has changed significantly in the past five years. He thinks Boone Picken's energy plan is "on the right track" and warns that the world can not keep increasing its demand for oil.

* Dollar-Buffett says he has no bets against the U.S. dollar right now and no direct currency plays. he also notes that stocks are generally more attractive now than they were a year ago.

*Inflation-The Fed "has real problems on inflation." Some Berkshire businesses are being squeezed on prices. For example, carpet manufacturing involves a lot of oil. The price of making carpets keeps going up, but it's hard to pass those costs on to consumers due to weak spending. Wholesale prices will "have to" show up in consumer prices. Once inflation is "ignited" it gets difficult to bring it under control.

*Would Buffett buy additional shares in the financials he already owns like American Express and Wells Fargo if prices come down? Is he buying shares now? Buffett replies that he has indeed been buying shares in one of those two names lately, but won't say which one. He points out that both companies were both started by the same people.

*Buffett repeats his belief that a windfall profits tax on oil doesn't make any sense, despite the fact that his favored candidate, Barack Obama, has expressed support for such a tax. He notes that no one is calling for a tax on other commodities that have gone up in price like soybeans. The oil companies are an easy target.

*Financial Firms-Buffett says it's possible there could be another financial firm implosion along the lines of Bear Stearns, but it would be "inappropriate" to comment on any specific companies right now because it could undermine confidence. He notes that while it is hard to find the sources, rumor-mongers should be punished.

*Housing-Buffett predicts housing market recovery will take some time, probably years. "A lot of blame to go around." The market won't really come back until you get to a normal inventory of unsold homes. No interest right now in buying any homebuilder stocks. They still have plenty of problems.

Lehman acquisition by Korean Development bank

SEOUL (Reuters) - State-run Korea Development Bank said on Friday Lehman Brothers was one of its options for acquisitions, reviving expectations that the U.S. investment bank might still bring in a large investor.

"We are studying a number of options and are open to all possibilities, which could include (buying) Lehman," a KDB spokesman said.

KDB said it was open to mergers or acquisitions of both domestic and foreign companies to beef up its weak areas as the government was aiming to privatize it by 2012.

-----------------

Comment: Chances of this acquisition going through is very high.
I am long Lehman as of this morning. Planning to sell the stock near 17s.
This is the required stimulus to push the market above 1300.

Ambac shares jump as S&P removes it from negative credit watch

Here is the news article:

NEW YORK (AP) -- Shares of Ambac Financial Group Inc. rose sharply Friday morning after ratings agency Standard & Poor's took the bond insurer off a negative credit watch. Ambac's critical financial strength rating was cut earlier this year by S&P to "AA" from "AAA," the highest rating available. Maintaining strong financial strength ratings is important for bonds insurers ability to generate new business.

Ambac Financial Group Inc (ABK) chart

I have tried to explain the ABK TA chart action in simple layman terms. Please click on chart for sharper image. ABK, MBI and PMI are all getting positive action. I am owning this stock as of yesterday and added more today. I would like to see ABK close above $6. That would be a very positive step and would indicate new buyer interest.

I love Subprime

Oil chart and future price direction

(Click on chart for sharper image.)
The chart shows the 60-min view of oil (USO used as proxy).
It has been in a constant decline since the last peak.
The Trend lines nicely capture the price action of Oil. Unless Oil breaks above this trend line; future action would be always downwards. Till then, you can either play bounces between the two trend lines.

On a longer term- Daily chart; USO is very close to the 200 day EMA which should act as a long-term support.
I would really like Oil to hold the 200 EMA and then break out of this trend line to consider it worthwhile.

US bank writedowns since 2007

US Bank writedowns since 2007 on Financial Times.
Citibank leads the way with $54.6 billion in writedowns.
Merrill Lynch at $51.8 billion.
Morgan Stanley at $14.4 billion
JP Morgan at $12.8 billion
Goldman Sachs at $ 3.8 billion
Poor Bear Stearns at $3.2 Billion
As the liquidity squeeze continues and house prices fall, more witedowns will be on the way...

It is impossible yet to know the full damage from the credit crisis. Bank writedowns are estimated at $476bn by the International Institute of Finance. This is still less than the $600bn of US bank failures in the savings and loans crisis of the early 1990s but $1,600bn has been cut from the global market capitalisation of banks.

Many bankers think the eventual bill will top the S&L crisis, although it may cause less financial harm than the Scandinavian and Japanese banking crises of the 1990s. But, whatever the ultimate bill, the impact on investment banking and financial regulation will be profound. “This has been a very deep and unusual crisis that involves the unwinding of a decade of excess.

Euro biggest drop in 8 years- Dollar benefits

Euro had the biggest fall in 8 years. This was after ECB President Jean-Claude Trichet said economic growth will be ``particularly weak'' through the third quarter. People don't like surprises and it was was reflected in the reaction to the news. The Euro/FXE broke the 200 EMA. And the Dollar broke above the 200 EMA. This was more pronounced in the prices of Oil which has been only going down. The Dollar also broke through a downtrend line that was in place.

The Dollar is also benefiting from a lot of heavy inflows. The easy trade of 2008 of being Long-Euro and Short-Dollar is unwinding furiously.
In recent past, we have seen many top investors like Marc Faber, Dennis Gartner shying away from commodities. Overall this will all help the US Stock market.

Oil/USO is a little bit away from the 200 EMA. You should expect a bounce from this moving average. At that time, we will be again seeing the Long-Euro/Short Dollar trade playing out.

Marc Faber goes Long on Dollar

Investor Marc Faber, publisher of the Gloom, Boom & Doom Report gives Bloomberg interview. He has been bearish on the US dollar for a long time and this is a dramatic shift from his earlier stance. Interesting interview.

Highlights:
---------------

* Believes Global economy is in a recession

*Long the Dollar. Selling the Euro. Tightening of global liquidity relatively speaking.

* Weak demand in US leads to lower imports, higher oil prices tightens global liquidity and hence strengthens the dollar.

* Prefers US stocks.

* Dollar rally can continue for the next 3-6 months i.e. second half of 2008.

* Europeans have to cut because economy is more weaker than perceived and they will have to cut. US economy better in relative terms.

* Seven year commodity run going on.

* Commodities will continue going down in second-half of 2008.

* Avoiding commodities, steels etc. That was favorite trade of last 2 years and should be avioded.


Watch video

S&P 500 updated technical chart

Here is the updated chart. We are back at the lower trendline after breaking out yesterday. Proves this market is very good at having wild swings and why many are having a tough time judging this market. The important point to note here is that the FED day lows are still intact. Also, the bottom TL has provided support for the past two times. Will it break on the third try? Well, it is anyone's guess. Till then, I will be watching this chart closely for next actions.

S&P 500 -broke resistance

The second option that I laid out yesterday played out very well. That is down or flat in the open and then a big rally. I think we are headed to 1320-1340 range till this rally is over. That will be close to about 600-700 points on Dow. Enjoy the rally and don't short at this time. I am fully loaded on the long side. Check RIMM, AAPL, WMT, SHLD. Also, there is too much of negativity around commodities. Expect commodities to help this rally. So, all the Agris, Coals, Steels and maybe oil will help the rally. Note Oil doesn't have to continually fall. It can be either flat or slightly up to help the markets.
Attached is S&P 500 chart -note we moved above the dotted downtrend line. You should turn into a bear only if and only if yesterday's low is taken out.

Dennis Gartman expects below $80 oil

Dennis Gartman publisher of the famous 'Gartman Letter 'was on CNBC this morning. He is one of the best traders on commodities.

Highlights of interview:

* Completely out of oil. Doesn't even trade oil.

* "The volatility has been up $3, down $3, taking all the professionals that you know out. Whether you were bullish, whether you were bearish, you were getting stomped on both sides," he said. "I don't think we're going to see the end of this volatility for quite some time but I think we've seen the end of the bull market."

* "I don't think you're going to see crude oil go back above $145 again for quite some period of time," he said. "I think you go a lot lower."

* Asked if the price could fall below $80, Gartman said, "Oh yeah, sure."

* "I am so frightened of what's going on, I'm still staying away," Gartman said. "There are other places to go trade, other things that I'm doing. I'll leave people who are either far wiser or far dumber than I" to trade oil.

CNBC Video here

Earnings estimates

Business Week has a good interface to track earnings estimates. Move your cursor over a specific estimate and it will show you the current estimate (high, low, consensus) and the actual earnings. They also list the reaction to the earnings. A link to save:

S&P 500 slightly above resistance- After Fed minutes

The FED held rates steady at 2%. They had one dissent and it is always Fisher.
Nice action into the close. We have slightly sliced thru the resistance line. We have got very overbought at this time. So, we can either get a gap-up in the morning that will get faded during the day. OR we will open flat or down and get back in the triangle and test for a few days before eventually breaking out. The second scenario is very bullish.

S&P 500 near resistance- Before Fed minutes

As we head closer to the FED meeting, this is how the S&P looks on the shorter term basis. We have 30 minutes to go and we will be touching the 1280 zone once the minutes are released. Once we touch the resistance are we going to head to the lower ascending trendline. That will be a massive move downwards if it happens. It will be one interesting afternoon.

Housing Collapse? Not According to the Data

The authors Charles W. Calomiris, Stanley D. Longhofer and William Miles argue that housing fears have been over exaggerated. They also think that devastating losses by financial institutions have been overblown.
Excerpt:
We conclude that declines in house prices are highly likely to remain small. Our analysis reveals, unsurprisingly, that foreclosures and home prices have negative effects on each other over time, but this does not imply a vicious cycle of collapsing prices. Our models predict that as foreclosures continue to climb in many states, house prices will remain flat or decline in those states -- but will not collapse.

Turmoil in the housing market has led to fears that home prices will drop precipitously, particularly if foreclosures force large numbers of homes onto the market in the coming year. Recently, these fears have driven financial stocks down and led to the government rescue of Fannie Mae and Freddie Mac. But the projected losses have been wildly exaggerated. Most Americans have not experienced any significant decline in the value of their homes -- nor are they likely to.
Read this article over at Washington Post:

Can't believe we still have such articles coming out in 2008...

Commodities dive worst in 28 years !!

The CRB Index of 19 commodities fell 10% since June 30, the biggest monthly decline since a 10.5% drop in March 1980, when the US economy was in a recession. Natural gas plunged 32% to lead July's biggest losers. Corn dropped 20% and nickel sank 16%.

Commodities may face ``a very severe correction,'' said Dennis Gartman, an economist at the Gartman Letter in Suffolk, Virginia, who said in June that prices for gold and other commodities may fall. ``The unwillingness of the dollar to hit new lows and the idea of slower demand means it won't be surprising if these markets have further down to go.''

Higher energy costs, reduced access to credit and a continuing pullback in housing have hobbled the US economy and created ``significant downside risks to the outlook for growth,'' Federal Reserve Chairman Ben S. Bernanke said during congressional testimony on July 16 in Washington.

``Some of the momentum has come out of commodities and people seem to be rotating into stocks and financials,'' said Evan Smith, who helps manage $US1.5 billion at US Global Investors Inc. in San Antonio.

Still, investor Jim Rogers, who predicted the start of the commodity rally in 1999, said in a July 14 interview from Singapore that the bull run has a ``long way to go.'' At the time, Rogers, the chairman of Rogers Holdings, advised buying agricultural commodities.

Marc Faber, an investor who publishes the Gloom, Boom & Doom Report and forecast the so-called Black Monday stock- market crash in 1987, said industrial commodities will decline through the rest of the year.

``The world is in recession already,'' Faber said July 23 during an interview from Chicago. ``I put out a negative view for industrial commodities for the second half of 2008 and I stick to this view.''

In China, where record economic expansion spurred a rally for commodities, growth may slow to 10.1% this year and 9.45% in 2009, after the economy expanded 11.9% in 2007, according to the median of 11 estimates in a Bloomberg survey.

Chinese imports of copper and alloys plunged 19% in June from a year earlier. The metal has dropped 14% since reaching a record $US4.2605 a pound in New York on May 5 on concern consumption will fall.

Source: Bloomberg

Commodities getting hurt

Commodities were in a free fall today. They have all broken their trendlines again. Some of the stronger ones like JRCC had a multi-day close above the Down trendline. Today it closed right inside the trendline. Things are looking pretty bad in this sector.

Major contributor was Oil where the prices plunged to a three-month low Monday, briefly tumbling below $120 a barrel in another huge sell-off after Tropical Storm Edouard seemed less likely to disrupt oil and natural gas output in the Gulf of Mexico.
Crude's steep drop -- prices fell more than $5 at one point during the day -- dragged down other commodities from corn to copper and mimicked the big nosedives of the past three weeks, adding to growing beliefs that the oil bubble is running out of air.

Still, oil market traders expressed surprise that a potential hurricane in the Gulf coupled with escalating tensions with Iran didn't send prices higher -- an almost certainty just a few weeks ago.

"Any market that really doesn't respond to seemingly bullish news is often a tip off that we're going lower," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

He and other analysts have predicted that, barring any surprises, crude could tilt toward $100 a barrel by the end of the year.

"People are looking for any excuse to sell oil right now," Ritterbusch said.

Nouriel Roubini - Barron's Interview

This is a must read interview of Nouriel Roubini at Barrons.
He has posted on his website here:

* Roubini raised his expectation of losses from $1 trillion to $2 trillion.

*Expects a W recession. Recession to continue for 18 months.

* Even with rebate checks, retail sales in June were up only 0.1%. What happens next quarter when there are no rebate checks?