Press Esc to close

Welcome to Money Morning - Only the News You Can Profit From.

Close

Wednesday's "Earnings Beat" Makes This The Perfect "Bad-Market" Tech Stock

In last week’s Private Briefing report Our Experts Show You the Stocks to Pick in a ‘Stock-Picker’s Market’,” Money Map Press Chief Investment Strategist Keith Fitz-Gerald identified SanDisk Corp.(NasdaqGS: SNDK) as one of three stocks to buy in the face of the stock market sell-off.

And now we see why…

  • Featured Story

    Hedge Fund Sues Government Over Seizing Fannie Mae, Freddie Mac Profits

    Treasury Dept Q

    A hedge fund hoping to capitalize on the comeback of Fannie Mae and Freddie Mac claims in a lawsuit the government illegally seized the profits of the two mortgage finance giants.

    The suit, filed Sunday by Perry Capital LLC, says the government violated a 2008 law that put Fannie and Freddie into conservatorship, through an amendment changing the terms of the government's bailout.

    Under original terms, Fannie and Freddie paid fixed quarterly dividends equal to 10% of the government's stake.

    But in 2012, the U.S. Treasury Department amended the terms of the bailout and began taking all Fannie and Freddie's quarterly profits.

    Theodore Olson, an attorney representing Perry Capital, said in a news release the 2008 law "established very specific rules about the government's limits and obligations under conservatorship. Investors had every right to expect these rules to be followed.

    "If the government wanted to assume the powers of receivership, it could have chosen that course," Olson said. "Instead, it chose conservatorship, and with the [amendment] it overreached, exceeding the legal boundaries of the statute and failing to meet obligations of conservatorship mandated by Congress" under the 2008 law.

    To continue reading, please click here...

    Read More...
  • Freddie Mac

  • A Helpless Housing Market Keeps Fannie and Freddie in Limbo Mortgage-industry industry leaders will attend a summit with government officials today (Tuesday) to discuss how to reform Fannie Mae (NYSE: FNMA) and Freddie Mac (OTC: FMCC), the two mortgage giants that so far have devoured close to $150 billion in taxpayer bailout funds.

    However, that meeting is likely to be derailed by a far greater problem: After making modest progress, the housing market again appears on the verge of collapse.

    "There's been a feeling in government, which seems to be more pervasive than it was six months ago, that says, 'We've solved this housing problem; let's move on to Fannie and Freddie,'" Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York told The Wall Street Journal. "But you haven't solved this housing problem. We have another round of home prices going down a little more."

    Read More...
  • With Mid-Term Elections Looming, Will Democrats Fire Back with a Second Stimulus Data last week showed a job market that's careening down a steep street with no breaks. Yet investors were able to shrug off employment concerns, as the stock market actually ended the week up 1.5% due to that rockin' Monday on the first day of the month.

    That's because there is growing speculation that the Democrats are plotting a surprise stimulus in the run up to November's mid-term elections.

    Let me explain...

    Click here to read on...

    Read More...
  • $13 Trillion in Obligations Show Shadow Banks Still Threat to Financial System A report issued by the Federal Reserve Bank of New York shows that so-called "shadow banks" still hold more obligations than regular banks, representing a continuing threat to the financial system.

    Three years after the beginning of the financial crisis, the shadow banking system had about $16 trillion of obligations in the first quarter, compared with $13 trillion for banks, the report said. The gap has narrowed from 2008, when obligations were $20 trillion and $11 trillion, respectively.

    Throughout the early part of the decade, shadow banks grew in importance as they acted as intermediaries between investors and borrowers. Familiar examples of shadow institutions include Bear Stearns and Lehman Brothers, which were swallowed by the financial crisis, as well as Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).

    While this system became a huge and vital source of money to fuel the housing market and the rest of the U.S. economy, the subprime mortgage crisis and ensuing credit crunch exposed a major flaw.

    Read More...
  • Cost to Fix Fannie Mae and Freddie Mac May Reach $1 Trillion The cost to fix Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government-backed mortgage companies that bought or guaranteed three-quarters of all U.S. home loans last year, could run as high as $1 trillion, according to a report by Bloomberg News released yesterday (Tuesday).

    The minimum amount required to keep them afloat will be $160 billion, or $15 billion more than they have already drawn from an unlimited line of government credit granted to keep the home mortgage market functioning. That exceeds the amount already spent on bailouts for American International Group Inc. (NYSE: AIG), General Motors Co. or Citigroup Inc. (NYSE: C).

    "It is the mother of all bailouts," Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry told Bloomberg.

    Fannie and Freddie own or guarantee 53% of the nation's $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Their books are loaded with millions of bad loans, and delinquencies are on the rise.

    Read More...
  • How to Stop Greedy Banks From Killing U.S. Capitalism A white paper on bank reform delivered to Congress and regulators last week by the Association of Mortgage Investors - the powerful lobbying group that represents huge institutional investors - warns that if the securitization market isn't radically reformed "it will be difficult if not impossible for capital market investors to return to funding economic activity."

    What the report doesn't say is that banks - standing in the way of bank reform - don't want a simplified, standardized, and transparent securitization market, because that would revitalize free-market disciplines and undermine the control they exercise over the credit markets.

    Right now, the stock market is discounting news about tight credit conditions. But analysts worry about an increasing disconnect between rallying stock prices and the hoped-for rebounds in consumer-driven growth and the U.S. housing market - both of which are struggling with a lack of access to credit. This disconnect is fostering fears of a stock-market correction.

    Investors need to understand exactly what's at stake here. And they need to know how to protect themselves and - even more important - how to profit from the volatile-but-powerful capital waves that will result from this fundamental battle over our future.

    To understand the escalating risk – and strategies needed to protect the free markets – please read on... Read More...
  • New Banking Regulations … Same Old Story U.S. banks, drunk with greed, drove the nation's economy to the brink of financial Armageddon.

    To save U.S. banks from losing their license to dangle the nation's economy over a cliff, the U.S. Federal Reserve and the country's elected elite threw them a bailout party and gifted them with the accounting- world's version of "Transformers. "

    Unfortunately, new banking regulations aimed at solving these problems are little more than the same old song and dance that forced the bailout - and stuck U.S. taxpayers with a multi-trillion-dollar tab.

    To see how reformers have failed to fix the banking system, please read on...

    Read More...
  • Epitaph For the ARM: Is the Adjustable-Rate Mortgage Finally Dead? [Editor's Note: This analysis of the adjustable-rate-mortgage (ARM) market is part of a two-story package on the U.S. mortgage market. To read the package mainplay - "Mortgage Markets Show Increased Stability, But Limited Opportunity" - please click here.]

    Is it the end of the line for the adjustable-rate mortgage (ARM)?

    A close look at the interest-rate paradox involving credit cards and ARMs indicates that it may be time to start writing the epitaph for adjustable-rate home loans. Here's why.

    The U.S. Federal Reserve's benchmark Federal Funds rate is at all-time lows - with a target rate near 0.00% - but credit-card interest rates linger at record highs. The all-in rate on some credit-card transactions approaches 30%.

    Read More...
  • The Chinese Are Selling Treasuries – So What Are They Buying? In the monthly U.S. Treasury report this week, it was announced that China had sold $34.2 billion of Treasuries in December (or allowed short-term ones to run off), making Japan once again the largest holder of U.S. Treasuries.

    The battle between China and Japan for the title of largest holder of this dubious asset is not very interesting. What's more interesting is the question of where China is instead opting to invest. After all, $34.2 billion is a fair chunk of change, and China's overall reserves are growing - not shrinking - and now total $2.4 trillion.

    The People's Bank of China usually keeps its holdings a carefully guarded secret, much more so than for most central banks - our knowledge of its holdings of Treasuries comes from U.S. data, not from China. We do, however, have some evidence about the Chinese government's investment thinking, thanks to the holdings of China Investment Corp., the country's $200 billion sovereign wealth fund.

    To discover the details of China’s global investments, please read on... Read More...
  • How Banks Are "Crowding Out" the U.S. Rebound When U.S. President Barack Obama unveiled the $787 billion "stimulus" bill of extra spending and modest tax cuts last year, it became clear that the U.S. budget deficit was going to eclipse the 10% of gross domestic product (GDP) level for at least one year (and, as we now know, probably three years).

    On those grounds, I opposed the "stimulus" - a position that was a lot less popular then than it has since become. However, as I'll show you below, it now looks as if I was right - and the implications for the U.S. economy are highly worrisome.

    You see, the theory postulated by economist John Maynard Keynes holds that the extra spending stimulates additional output fails to address the question of where the money comes from.

    Government cannot create wealth - it has to borrow it. If, before the stimulus, government finances were in good shape, as was the case in China, then stimulus does indeed stimulate: The modest budget deficit that it causes is easily financed, and the extra spending creates some jobs and maybe some useful infrastructure, depending on how well targeted it is.

    In the United States, however, government finances were in a mess before the stimulus began.

    To find out how banks are blunting the recovery, read on .... Read More...
  • As Washington Turns on Wall Street, Investors Should Expect a Rough Stretch for Financial Stocks Here in the United States, investors have been startled by the realization that Washington no longer appears to be acting as a benefactor to Wall Street, the financial markets, and the economy. Ever since the collapse of Lehman Bros. Holdings Inc. (OTC: LEHMQ) back in 2008, a Faustian deal was forged between Wall Street executives and the politicos in Washington: Ideologies would be thrown by the wayside to prevent a meltdown of the American financial system and the precipitous collapse of the economy.

    First, the Bush administration swallowed its free-market credentials to take over Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), while handing the largest banks and the Detroit automakers big piles of taxpayer cash to keep them afloat. Then, the Obama administration resisted populist pressure to punish the bankers getting rich thanks to rising financial markets while unemployment continued to climb.

    But that's changing now, and the attack dogs have been unleashed. Policy is moving from supportive (crisis management) to restrictive (crisis prevention and the scoring of political points) at a faster pace and to a much-more-severe degree than many imagined.

    It started with extra taxes on bank liabilities to fund a reserve for financial crises, then moved to include a congressional commission to review the causes of the financial crisis, and then to more onerous regulatory oversight. But now it's growing into something more. And that's one big reason stocks in general and the financial sector in particular sold off so severely.

    Read More...
  • Why You Should Mark January 13 on Your Calendar Next Wednesday, Jan. 13, won't be just another hump day. It's a key date for regulators in both the United States and Europe who are preparing to launch the largest overhaul of global financial regulation since The Great Depression.

    On that day, at least two seminal events are scheduled to take place:

    • The U.S. Congress' Financial Crisis Inquiry Commission (FCIC) - the ten-member commission appointed with goal of investigating the causes of the financial crisis - will begin its first public hearing.
    • And the European Parliament will hold a confirmation hearing for Michel Barnier - the French politician who has been appointed to oversee the regulation of the European Union's (EU) financial services sector.
    Both of these events will have significant implications on the global financial reform that is set to go into effect this year. Read More...
  • Don't Be Fooled by the Housing Market's False Bottom Existing home sales surprised the markets by rising 7.4% to an annual rate of 6.54 million units in November, the highest since February 2007, according to the National Association of Realtors (NAR). That's only 10% below the all-time peak in 2005.

    What's more is that house prices, as measured by the S&P/Case-Shiller 20-city Home Price Index, rose for the fourth consecutive month in September before stabilizing in October when prices were flat.

    The NAR is inevitably convinced that the worst is over and that housing is due for a rapid recovery, and that home prices will take out 2006's peaks some time in 2011 or 2012.

    Not so fast, guys! Read More...
  • Coming Soon: The Bill for the Massive U.S. Debt Americans could be in for a rude awakening in coming months when they discover the true scope of the massive national debt racked up by the U.S. government.

    In fact, the $1.6 trillion deficit expected for 2010, which is above 10% of gross domestic product (GDP), is only the beginning.

    Since the current economic crisis began in late 2007, the U.S. Federal Reserve has tripled the size of its balance sheet, creating enormous amounts of new money by lending to hundreds of ailing banks and buying up more than $1 trillion of questionable asset-backed securities.

    But that's only a small part of the story. Since the beginning of the crisis, the Fed has lent, spent, or guaranteed $11.6 trillion, including underwriting the entire system of mortgage finance in the United States, a system that currently shows a nearly $1 trillion loss. Read More...
  • Investment News Briefs With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world.

    Fannie, Freddie Get Blank Checks; Holiday Retail Sales Rise 3.6%; Fed to Banks: Set Up CDs with Us; Health Care Bill Likely to Resemble Senate Version; JPMorgan Sues Former Bank Exec; Oil Tops $79 for First Time in Four Weeks

    • In what's been called a "perplexing" move by one analyst, the U.S. Treasury lifted a $200 billion cap on the amount of taxpayer dollars that can be injected into ailing mortgage firms Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) , providing unlimited support to them. The Treasury put into $60 billion into Fannie and $51 billion into Freddie, and were unlikely to need more than the $200 billion cap, wrote Keefe, Bruyette & Woods Inc. analyst Bose George in a note to investors yesterday (Monday). George views the Treasury's move as a way to more aggressively prop the U.S. housing market, and said the government could step up efforts of its Home Affordable Modification Program (HAMP), a mortgage-modification program designed for homeowners who can no longer afford them. But so far, HAMP and other government props have failed to stop a continuing wave of foreclosures, as Money Morning reported last fall. Shares of the firms, both government-sponsored enterprises (GSE) skyrocketed in trading yesterday. Fannie was up 20.95% to close at $1.27, while Freddie gained 26.98% to close at $1.60.
    • Read More...
    • Investment News Briefs With our investment news briefs, Money Morning provides investors with a quick overview of the most important investing news stories from all around the world. More Insider Trading Arrests Coming; Icahn Offers CIT Bailout; Oil Pushes $80; Treasury Steps In To Support HFAs; N.Y. Times to Cut 100 Newsroom Jobs; Hasbro Shares Fall Amid Soft […] Read More...