By TIM PARADIS, AP Business Writer
Wed Feb 28, 2:33 PM ET
NEW YORK - If location is the golden rule of real estate, then many who invest in real estate mutual funds might at times feel as if they've stumbled upon a great deal in the fanciest building in town.
A big acquisition in the commercial real estate market has led some observers to speculate that demand will continue for companies that invest in real estate.
Known as real-estate investment trusts, or REITs, these companies have shown at times returns greater than 25 percent per year in recent years. REITs, which frequently invest in commercial real estate or larger residential projects such as apartment buildings, have dodged the financial wrecking ball that has left cracks in some parts of the housing market.
In early February, the Blackstone Group, a power hitter in the private equity world, acquired Equity Office Properties in a $23 billion buyout. The bidding war that erupted over the company, whose properties included choice commercial skyscrapers, spurred talk that other REITs might be snapped up by private equity companies looking for places to spend their vast sums of cash.
"More investors seem to find value every quarter and I would say it's probably too early to announce a top to the real estate market," said Jeff Tjornehoj, an analyst at Lipper Inc., which rates mutual funds.
"You're going to have some investors out there who believe the EOP buyout is not the last and they're probably willing to stretch their necks out a bit in the current environment because it seems so wide open for M&A activity," he said, in Wall Street parlance for merger and acquisition deals.
And even if the gains shown by REITs and the funds that invest in them cool in the coming years, as many analysts expect, the foundation could be adequate to support solid, though perhaps slower, growth.
"I think people are concerned that real estate has done so well that it's comparable to the tech bubble of the late '90s. I think this is a completely different animal," Tjornehoj said. "They make money," he said, offering up one contrast with many failed dot-coms. "They have a real residual value."
REITs are unique in that they skirt most income taxes by paying out nearly all of their income to shareholders through dividends.
This has often made REITs, which began to draw widespread attention in the 1990s, desirable for investors seeking income. But now investors appear to be clamoring as much for the real estate.
"At this point people are investing for appreciation, not income," Tjornehoj said.
Dionisio Meneses Jr., managing director at Charles Schwab, contends investors can benefit from those REITs that remain public and shouldn't simply look to the sector based on a notion that more real estate companies will be taken private.
While many REITs focus on commercial properties, some stick to shopping malls, for example, or apartment complexes, so it's important for investors to understand the types of REITs a fund might invest in.
"Certainly, the apartment REITs did very well last year and I think there is some concern that perhaps this side of the market is a bit overheated," Tjornehoj said.
"On the other hand, you have regional malls which have done very well and there aren't any new regional malls coming out this year so the opportunities seem to be there."
Differences in where the REITs put their money matter greatly. REITs that invest in manufactured homes appreciated 1.3 percent in January, while regional mall REITs surged 13 percent.
"There is the risk that they're going to be disappointed if they have invested in a narrowly focused REIT fund and didn't get the diversified portfolio that they probably should be after," Tjornehoj said.
Meneses predicts demand for REITs, which can allow smaller investors to have stakes in properties that would otherwise be too expensive, will continue to grow. The demand should help the funds that invest in them as well, he added.
"You need to have realistic expectations when you take into consideration what asset type you're talking about. The returns we've seen in the past won't be sustainable."
Tjornehoj likes the CGM Realty Fund for showing consistency amid changing conditions in the real estate market. It has shown five-year annualized return of 32.1 percent.
In general, investors should look at a fund's overall diversification, Tjornehoj said. He is impressed by ProFunds' Real Estate UltraSector ProFund. It has shown a five-year annualized return of 26.1 percent.
"They're pretty diversified as far as office properties go," he said, noting the fund had about a 3 percent stake in Equity Office Properties, which likely led to a tidy return following the buyout.
Whether the buyouts will continue is unknown, though some investors will likely be happy with returns from REITs in their portfolio, even if those returns are less than in recent years.
Wednesday, February 28, 2007
Tuesday, February 27, 2007
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Tuesday, February 27, 2007, at 6:00 p.m. EST.
Worries over China and future U.S. growth pushed stock prices sharply lower today. At the close, the Dow plunged 416 points, closing at 12,216, while the Nasdaq dropped almost 97 points, closing at 2,407. Oil closed up $0.07 at $61.46 per barrel, and gold closed down $2.60 at $687.20 an ounce.
China's Shanghai Index fell almost 9 percent yesterday and triggered a worldwide sell-off today. Our only direct exposure to China is the Claymore Bank of NY BRIC ETF, which should be sold tomorrow. BRIC stands for investments in Brazil, Russia, India and China.
Traders also worried about the subprime mortgage market, which at the moment, is less of a problem than a possible meltdown in China. The down volume today was a rare 10-to-1 event.
Today's big sell-off may have created a vacuum for buyers tomorrow. However, the absence of a clear bounce-back in the final hour of trading probably means another day or two of selling. On October 19, 1987, the Dow fell 508 points, or 22 percent. Today, the Dow fell 418 points, or 3.3 percent. Tomorrow's market action will give a better perspective of the future.
The U.S. stock market is still substantially undervalued. Stay close to our telephone/e-mail/website Hotline Updates. An unusual buying opportunity will unfold at the bottom of this correction, which could be days or weeks ahead.
The next Hotline Update will be on Friday, March 2, 2007, at 6:00 p.m. EST.
Worries over China and future U.S. growth pushed stock prices sharply lower today. At the close, the Dow plunged 416 points, closing at 12,216, while the Nasdaq dropped almost 97 points, closing at 2,407. Oil closed up $0.07 at $61.46 per barrel, and gold closed down $2.60 at $687.20 an ounce.
China's Shanghai Index fell almost 9 percent yesterday and triggered a worldwide sell-off today. Our only direct exposure to China is the Claymore Bank of NY BRIC ETF, which should be sold tomorrow. BRIC stands for investments in Brazil, Russia, India and China.
Traders also worried about the subprime mortgage market, which at the moment, is less of a problem than a possible meltdown in China. The down volume today was a rare 10-to-1 event.
Today's big sell-off may have created a vacuum for buyers tomorrow. However, the absence of a clear bounce-back in the final hour of trading probably means another day or two of selling. On October 19, 1987, the Dow fell 508 points, or 22 percent. Today, the Dow fell 418 points, or 3.3 percent. Tomorrow's market action will give a better perspective of the future.
The U.S. stock market is still substantially undervalued. Stay close to our telephone/e-mail/website Hotline Updates. An unusual buying opportunity will unfold at the bottom of this correction, which could be days or weeks ahead.
The next Hotline Update will be on Friday, March 2, 2007, at 6:00 p.m. EST.
Monday, February 26, 2007
Report Finds Home Values Underperform Other Assets
By Amy Hoak
From MarketWatch
Don't count on home equity to come through with a significant portion of retirement funding, cautions a new report by Fidelity Investments.
According to the study, home values underperformed stocks and bonds over every five- and 10-year period from 1963 to 2005. Home values have been slightly above the returns on treasury bills during the same time, according to the report, "The Equity You Live In: The Home as a Retirement Savings and Income Option."
"When we started the work, the real question was: If I have home equity, how should I think about using it in retirement," said Guy L. Patton, executive director of the Fidelity Research Institute. "The conclusion: The returns on residential real estate are probably less than what most people think they are."
Over the more than 40-year period, real compound returns on stocks outpaced that of residential real estate, according to the study, with 5.95% average annual returns on stocks compared with 1.35% in realty. A dollar invested in stocks in 1963 would have compounded to $12.36 by 2006, while the same dollar would have grown to $1.79 in real estate.
Is residential real estate a profitable investment?
The median price of new homes in the United States has risen since the early 1970s, with an average annual appreciation rate of 5.9% since 1963. But there have also been sharp corrections three times during the time period. It's one thing if the homeowner is able to "ride out" the sharp downturns; it's another if they're considering the home as a potential retirement asset in the near future, the report said.
That said, for many Americans in or approaching retirement, home equity is the largest nonpension asset they can draw on for lifelong income, the report said. And there are plenty of Americans who plan to -- and perhaps need to -- tap their home equity in retirement, according to an accompanying survey of more than 1,400 retirees and preretirees.
About one in five of those between the ages of 55 and 75 have used or plan to use equity in their home to help fund retirement, according to the survey. The survey also found that two-fifths of retirees moved after they retired and 15% plan to move. Twenty-three percent of preretirees plan to move, and another 29% are unsure if they will.
Thirty-five percent of preretirees believe their reason for moving will be to access home equity, while only 10% of retirees are motivated by equity. Thirty-one percent of retirees received more than they thought they would when they sold their home and relocated, while 23% earned less than they expected.
Eight percent of retirees who leveraged their home equity used a reverse mortgage to do so, the survey found.
Email your comments to rjeditor@dowjones.com.
-- February 26, 2007
From MarketWatch
Don't count on home equity to come through with a significant portion of retirement funding, cautions a new report by Fidelity Investments.
According to the study, home values underperformed stocks and bonds over every five- and 10-year period from 1963 to 2005. Home values have been slightly above the returns on treasury bills during the same time, according to the report, "The Equity You Live In: The Home as a Retirement Savings and Income Option."
"When we started the work, the real question was: If I have home equity, how should I think about using it in retirement," said Guy L. Patton, executive director of the Fidelity Research Institute. "The conclusion: The returns on residential real estate are probably less than what most people think they are."
Over the more than 40-year period, real compound returns on stocks outpaced that of residential real estate, according to the study, with 5.95% average annual returns on stocks compared with 1.35% in realty. A dollar invested in stocks in 1963 would have compounded to $12.36 by 2006, while the same dollar would have grown to $1.79 in real estate.
Is residential real estate a profitable investment?
The median price of new homes in the United States has risen since the early 1970s, with an average annual appreciation rate of 5.9% since 1963. But there have also been sharp corrections three times during the time period. It's one thing if the homeowner is able to "ride out" the sharp downturns; it's another if they're considering the home as a potential retirement asset in the near future, the report said.
That said, for many Americans in or approaching retirement, home equity is the largest nonpension asset they can draw on for lifelong income, the report said. And there are plenty of Americans who plan to -- and perhaps need to -- tap their home equity in retirement, according to an accompanying survey of more than 1,400 retirees and preretirees.
About one in five of those between the ages of 55 and 75 have used or plan to use equity in their home to help fund retirement, according to the survey. The survey also found that two-fifths of retirees moved after they retired and 15% plan to move. Twenty-three percent of preretirees plan to move, and another 29% are unsure if they will.
Thirty-five percent of preretirees believe their reason for moving will be to access home equity, while only 10% of retirees are motivated by equity. Thirty-one percent of retirees received more than they thought they would when they sold their home and relocated, while 23% earned less than they expected.
Eight percent of retirees who leveraged their home equity used a reverse mortgage to do so, the survey found.
Email your comments to rjeditor@dowjones.com.
-- February 26, 2007
Friday, February 23, 2007
Couple Moves from New York To a Simpler Life in North Carolina
By Sue Shellenbarger
From The Wall Street Journal Online
Many cubicle dwellers in their 20s feel blocked off from the American Dream by killer work hours, job stress and housing prices that far exceed their grasp. After asking herself at age 28, "Is this all there is?" Melissa Mauro and her husband took what family members said was a crazy risk -- and found a satisfying answer. Her story shows the potential power of risk-taking at critical stages of a marriage.
Ms. Mauro, now 32, still remembers the moment in 2002 when, sitting in her cube at a New York City communications agency, she tapped out an email to me at The Wall Street Journal lamenting the "pre mid-life crisis that afflicts a tremendous number of people in the 28-35 age range." Working 12-hour days to pay the rent on their Manhattan apartment, she and her husband of two years, Marc Hineman, a trading-desk manager, had "all kinds of questions" about how they would afford to buy a house and raise a family, she wrote.
"I have over 20 friends who are all unhappy with the rat race," she wrote. "It has reached the point where we joke about packing our belongings and moving to an island in the tropics to start our own modern-day commune." Looking back, Ms. Mauro says now, she and her friends did start a commune of sorts. Her story:
The Problem: "I was at a great New York company with progressive family-friendly policies. That was the scary thing. It was just the work itself, the nature of the business, that made life so hard. My husband and I were both making six-figure salaries, but buying a house seemed like an impossible dream. And I was letting work consume me. I felt like a leaf in a current, having no real effect on which way the water swept me.
The Solution: "After our daughter Ava was born in 2004, we made a decision: We want to live away from the craziness. We didn't want to feel pigeonholed by housing and financial obstacles. Life is so much bigger. I wanted to work, but I didn't want to have to work to pay a mortgage.
"It wasn't until Marc and I took a huge leap of faith that things started to fall into place for us. About 10 of my friends had moved to Charlotte, N.C., after college. They said, 'We're getting out of New York.' On a visit there in 2005, we saw a new house in a new subdivision that was under construction. It was priced attractively, and we took the leap and bought it. We made plans to move there with Ava -- before my husband even got a job in Charlotte. Talk about having faith! My grandfather said, 'You guys are nuts. You bought a house and your husband doesn't even have a job there? What are you doing?' But we felt we had to step out of our comfort zone a little and say, 'What if?'
"We knew we might have to have a commuter marriage temporarily, but that was a risk we were both prepared to take. Luckily, my husband got a job in Charlotte the day after we closed on the house. The power of positive thinking has a lot to do with that. Sometimes you just have a vision -- you know, 'This is right and we're going to find a way to make it work.'
"Living down here has given me the opportunity to be a full-time mom. I live two doors down from my best friend in college. On my block alone there are six kids within a month of my daughter's age. Half the people in our neighborhood are from the tri-state area. We call it 'Little New York.' It was the quality of life that attracted all of us. I went from an 800-square-foot apartment in Brooklyn to a 3,000-square-foot house with four bedrooms.
"I'm freelancing about 10-to-15 hours a week for my former boss. My income pays for extras, like vacations. [Ms. Mauro's New York-based boss, Ellen LaNicca Albanese, executive vice president, CRT/tanaka, of Richmond, Va., says the firm carved out a free-lance role for Ms. Mauro that has enabled her to help win new accounts and serve clients in the mid-Atlantic states.]
The Downside: "Being away from my extended family in New York has been a little tough. We talk all the time about their moving down here. My sister is 26 and she's facing some of the same questions I did. I told her to get on the five-year plan: Where do you see yourself in five years?
"Looking back, we have lost a few things. Nothing is ever going to be like New York. I'd like to be closer to family. And I'd love a really good bagel once in a while.
The Outcome: "But we've gained so much. Charlotte is a city that's growing. We can be at the beach in three hours and the mountains in 1-1/2 hours. Everybody is so family-oriented. In my old neighborhood in New York, I felt like people were working so much, always rushing, rushing. The pace of life is a little slower here. I don't feel like a leaf swept along in the current. I've learned to chill out a little more. That's been really good for my sanity. And my husband and I have the family life we want."
Email your comments to rjeditor@dowjones.com.
-- February 23, 2007
Tuesday, February 20, 2007
Two U.S. dollar funds begin trading on AMEX
By Vivianne Rodrigues
NEW YORK, Feb 20 (Reuters) - Two funds that track the U.S. dollar began trading on The American Stock Exchange on Tuesday, offering retail investors a way to wager on fluctuations in the value of the U.S. currency.
The PowerShares DB U.S. Dollar Bullish Fund and the U.S. Dollar Bearish Fund, launched by Deutsche Bank AG and PowerShares Capital Management LLC, will trade as a commodity pool under the symbols "UUP" and "UDN."
The currency exchange traded funds, or ETFs, will measure the value of the dollar against the DXY index <.DXY> , a basket of six currencies, and will be linked to three-month U.S. Treasury bills and futures contracts.
"Investors, especially in retail, have been seeking options to build positions in favor or against the dollar," said Kevin Rich, director for commodities structuring at Deutsche Bank in New York. "An ETF is more simplified and transparent for people who want that type of currency exposure."
The two ETFs trade like any other stock, with each share representing $25. Each fund will have an expense ratio of 55 basis points.
Against the euro, the dollar was trading 0.2 percent higher on Tuesday at $1.3134. It rose 0.4 percent versus the Japanese yen to 120.06 yen . Year-to-date, the dollar is up 0.5 percent versus the euro and 0.9 percent against the yen.
Average trading volumes that surpass $2 trillion a day and a growing number of online platforms have attracted retail investors to the foreign exchange market, traditionally dominated by institutional investors and hedge funds.
Demand for ETFs boosted total assets in such funds by about 38 percent to $417 billion in 2006, according to data from State Street Global Advisors. As recently as last week, a new Japanese yen exchange fund was launched on the New York Stock Exchange. Amex is the third-largest U.S. stock exchange by volume.
Deutsche Bank's Rich said the bank does not have immediate plans to launch more ETFs tracking other currencies.
© Reuters 2007. All Rights Reserved.
NEW YORK, Feb 20 (Reuters) - Two funds that track the U.S. dollar began trading on The American Stock Exchange on Tuesday, offering retail investors a way to wager on fluctuations in the value of the U.S. currency.
The PowerShares DB U.S. Dollar Bullish Fund and the U.S. Dollar Bearish Fund, launched by Deutsche Bank AG and PowerShares Capital Management LLC, will trade as a commodity pool under the symbols "UUP" and "UDN."
The currency exchange traded funds, or ETFs, will measure the value of the dollar against the DXY index <.DXY> , a basket of six currencies, and will be linked to three-month U.S. Treasury bills and futures contracts.
"Investors, especially in retail, have been seeking options to build positions in favor or against the dollar," said Kevin Rich, director for commodities structuring at Deutsche Bank in New York. "An ETF is more simplified and transparent for people who want that type of currency exposure."
The two ETFs trade like any other stock, with each share representing $25. Each fund will have an expense ratio of 55 basis points.
Against the euro, the dollar was trading 0.2 percent higher on Tuesday at $1.3134
Average trading volumes that surpass $2 trillion a day and a growing number of online platforms have attracted retail investors to the foreign exchange market, traditionally dominated by institutional investors and hedge funds.
Demand for ETFs boosted total assets in such funds by about 38 percent to $417 billion in 2006, according to data from State Street Global Advisors. As recently as last week, a new Japanese yen exchange fund was launched on the New York Stock Exchange. Amex is the third-largest U.S. stock exchange by volume.
Deutsche Bank's Rich said the bank does not have immediate plans to launch more ETFs tracking other currencies.
© Reuters 2007. All Rights Reserved.
Friday, February 16, 2007
"Market Monitor"-Frank Cochrane
"Market Monitor"-Frank Cochrane, President of Investment Timing Consultants
Friday, February 16, 2007
PAUL KANGAS: My guest market monitor this week is Frank Cochrane, president of Investment Timing Consultants, a financial advisory firm based in Bloomfield Hills, Michigan. Welcome back to NIGHTLY BUSINESS REPORT, Frank.
FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Thank you, Paul. It's great to be here.
KANGAS: The stock market has racked up some impressive gains this week, especially the blue chip Dow, which of course has reached three records in a row. Do you think these price levels are getting a bit rich in relation to the condition of the economy or is the market fairly priced or even under priced?
COCHRANE: Well, certainly, the highs that we made back in 2000 as far as the NASDAQ’s concerned, we’re not even half way there. The Dow’s just started late last year, this year to make new highs. But I believe that the bearish case, or the benign case for the economy is actually a bullish case for the market. If we look at the economic data that's come out with respect to retail sales, consumer confidence and certainly housing starts today, which were abysmal, that lends itself to a very friendly fit and the Fed itself has basically said that we're seeing benign inflation – a little higher than they'd like to see, but I think overall, the economy is just at that sweet spot and that should continue for some time.
KANGAS: Goldilocks is here, correct?
COCHRANE: I think so.
KANGAS: When you were with us last in mid-August, you correctly predicted that the Federal Reserve would leave interest rates unchanged. Do you see any changecoming in the foreseeable future? Apparently not.
COCHRANE: No, Paul, I think over say, the next six months or so, I think it will be steady-Eddie. Rates should stay pretty much where they were.
KANGAS: Also in August when oil was around $75 per barrel, you predicted it would fall into the 50s and that was one reason why you were so bullish on stocks back then and you really were bullish. Those are two great calls. Where do you see oil headed now?
COCHRANE: I think we're at near the upper end of the range. We could maybe go as high as 65 to maybe 70, which would obviously be a little higher from here. But I wouldn't be surprised longer term, going into late this year, that we go back Tuesday towards the 40s. I think from a technical basis, that's entirely possible.
KANGAS: And that's good for the stock market.
COCHRANE: Absolutely.
KANGAS: On your last visit, you had three buy recommendations. Let's see how they've done since mid-august. We had Semiconductor Holders, an ETF, up 4 percent. And then the NASDAQ, the quadruple Q’s up 15.3 percent. Those did very well for you. And the third recommendation was Pulte Homes which is up 8.2 percent. Are you still with all three or have you gotten some money off the table?
COCHRANE: As far as the high-tech stocks, the semiconductors, and the triple Q’s, I would -- I would take the money off the table there. I think the technology areas should be somewhat weak, looking into the spring and summer. And I like the big blue chip stocks, and we'll talk about that in a moment. As far as Pulte Homes is concerned, I think the dirge is playing there and I would buy home builders here, and Pulte is certainly one I would hang on to. It’s certainly at the low end of the range and I think that they should see nothing but up. It may take some time to get there but it should start moving higher shortly.
KANGAS: OK. Do you have some new recommendation? We have just a little over a minute.
COCHRANE: Sure, Paul. The first one is SSO. This is the Profunds two times. Now if, for example, the S&P 500 is up 1 percent, this will be up 2 percent. So it's twice the pain or twice the gain, depending on which side of the market --
KANGAS: So it's a leveraged situation. COCHRANE: Leverage the S&P 500. That's correct. I’m very bullish on that over the course of the next several months. Secondly is MVV, which is the same thing, Profunds, but for the Midcap 400. Again, another leverage situation. And if you're bullish on the market, which I am, I think that that's a good place to be.
KANGAS: OK.
COCHRANE: Third one is ADRE, Bank of New York emerging markets, ADR for the emerging markets 50. Again, they have some international flair in there. That's one that I would buy. Finally Beazer Homes, BZH. Again, I believe home builders, much longer term -- this is not a short-term trade -- are certainly a good core holding in a portfolio because again they're scraping the bottom in terms of the (INAUDIBLE).
KANGAS: All right Frank, do you personally own any of the securities?
COCHRANE: No, I do not, Paul.
KANGAS: OK. Listen, our time has run out, unfortunately. But I want to thank you for being with us again.
COCHRANE: Great, Paul, thank you.
KANGAS: My guest Frank Cochran of Investment Timing Consultants.
Friday, February 16, 2007
PAUL KANGAS: My guest market monitor this week is Frank Cochrane, president of Investment Timing Consultants, a financial advisory firm based in Bloomfield Hills, Michigan. Welcome back to NIGHTLY BUSINESS REPORT, Frank.
FRANK COCHRANE, PRESIDENT, INVESTMENT TIMING CONSULTANTS: Thank you, Paul. It's great to be here.
KANGAS: The stock market has racked up some impressive gains this week, especially the blue chip Dow, which of course has reached three records in a row. Do you think these price levels are getting a bit rich in relation to the condition of the economy or is the market fairly priced or even under priced?
COCHRANE: Well, certainly, the highs that we made back in 2000 as far as the NASDAQ’s concerned, we’re not even half way there. The Dow’s just started late last year, this year to make new highs. But I believe that the bearish case, or the benign case for the economy is actually a bullish case for the market. If we look at the economic data that's come out with respect to retail sales, consumer confidence and certainly housing starts today, which were abysmal, that lends itself to a very friendly fit and the Fed itself has basically said that we're seeing benign inflation – a little higher than they'd like to see, but I think overall, the economy is just at that sweet spot and that should continue for some time.
KANGAS: Goldilocks is here, correct?
COCHRANE: I think so.
KANGAS: When you were with us last in mid-August, you correctly predicted that the Federal Reserve would leave interest rates unchanged. Do you see any changecoming in the foreseeable future? Apparently not.
COCHRANE: No, Paul, I think over say, the next six months or so, I think it will be steady-Eddie. Rates should stay pretty much where they were.
KANGAS: Also in August when oil was around $75 per barrel, you predicted it would fall into the 50s and that was one reason why you were so bullish on stocks back then and you really were bullish. Those are two great calls. Where do you see oil headed now?
COCHRANE: I think we're at near the upper end of the range. We could maybe go as high as 65 to maybe 70, which would obviously be a little higher from here. But I wouldn't be surprised longer term, going into late this year, that we go back Tuesday towards the 40s. I think from a technical basis, that's entirely possible.
KANGAS: And that's good for the stock market.
COCHRANE: Absolutely.
KANGAS: On your last visit, you had three buy recommendations. Let's see how they've done since mid-august. We had Semiconductor Holders, an ETF, up 4 percent. And then the NASDAQ, the quadruple Q’s up 15.3 percent. Those did very well for you. And the third recommendation was Pulte Homes which is up 8.2 percent. Are you still with all three or have you gotten some money off the table?
COCHRANE: As far as the high-tech stocks, the semiconductors, and the triple Q’s, I would -- I would take the money off the table there. I think the technology areas should be somewhat weak, looking into the spring and summer. And I like the big blue chip stocks, and we'll talk about that in a moment. As far as Pulte Homes is concerned, I think the dirge is playing there and I would buy home builders here, and Pulte is certainly one I would hang on to. It’s certainly at the low end of the range and I think that they should see nothing but up. It may take some time to get there but it should start moving higher shortly.
KANGAS: OK. Do you have some new recommendation? We have just a little over a minute.
COCHRANE: Sure, Paul. The first one is SSO. This is the Profunds two times. Now if, for example, the S&P 500 is up 1 percent, this will be up 2 percent. So it's twice the pain or twice the gain, depending on which side of the market --
KANGAS: So it's a leveraged situation. COCHRANE: Leverage the S&P 500. That's correct. I’m very bullish on that over the course of the next several months. Secondly is MVV, which is the same thing, Profunds, but for the Midcap 400. Again, another leverage situation. And if you're bullish on the market, which I am, I think that that's a good place to be.
KANGAS: OK.
COCHRANE: Third one is ADRE, Bank of New York emerging markets, ADR for the emerging markets 50. Again, they have some international flair in there. That's one that I would buy. Finally Beazer Homes, BZH. Again, I believe home builders, much longer term -- this is not a short-term trade -- are certainly a good core holding in a portfolio because again they're scraping the bottom in terms of the (INAUDIBLE).
KANGAS: All right Frank, do you personally own any of the securities?
COCHRANE: No, I do not, Paul.
KANGAS: OK. Listen, our time has run out, unfortunately. But I want to thank you for being with us again.
COCHRANE: Great, Paul, thank you.
KANGAS: My guest Frank Cochran of Investment Timing Consultants.
Home building at lowest level since '97
By MARTIN CRUTSINGER, AP Economics Writer Fri Feb 16, 6:21 PM ET
WASHINGTON - Housing construction plunged to the lowest level in nearly a decade last month as the housing industry continued to struggle with a severe slowdown. Meanwhile, wholesale prices dropped by 0.6 percent in January, the biggest amount in three months, providing fresh evidence that inflation pressures are easing.
Construction of new homes and apartments plunged by 14.3 percent in January, pushing total activity down to a seasonally adjusted annual rate of 1.408 million units, the
Commerce Department reported Friday.
The decline pushed activity to the slowest pace since August 1997 with construction in January 37.8 percent below the pace of a year ago. The steep decline last month followed two months of construction increases which had raised hopes that perhaps the worst of the housing slump was over.
The weather was blamed for part of the setback. November and December had been unusually mild while more normal winter weather returned to much of the country in January, depressing building activity.
However, economists said the depth of the decline showed that housing was still facing major problems after a five-year boom which ended last year with falling construction and declining sales of both new and existing homes.
David Seiders, chief economist of the National Association of Home Builders, said that builders were slashing sales prices and offering other incentives such as upgraded kitchens and free decks to move homes.
"The use of incentives has not abated," he said. "The percentage of builders trimming prices has been increasing and the use of non-price incentives is expanding as well," he said.
The report showed that applications for new building permits, considered a good barometer of future activity, fell in January for the 11th month out of the past 12, dropping by 2.8 percent to an annual rate of 1.568 million units.
By region of the country, housing construction was down 28.5 percent in the West, 15.2 percent in the Midwest and 11.8 percent in the South. Construction starts were up only in the Northeast, a gain of 8.9 percent.
Analysts said the weakness in January construction meant that housing, which shaved more than a percentage point off economic growth in the last half of 2006, will continue to be a drag going into the new year.
On Thursday, the National Association of Realtors said that sales of existing homes fell in 40 states in the fourth quarter of 2006 and home prices dropped in 49 percent of the metropolitan areas surveyed, the widest price decline in the history of the Realtors' survey.
Mark Zandi, chief economist at Moody's Economy.com, said he looked for prices to continue falling.
"This market will not find a bottom until this inventory is worked off and the only way for that to occur is through further price declines," he said.
In the inflation report, the Labor Department said that the 0.6 percent drop in its
Producer Price Index was the biggest one-month decline since a 1.8 percent fall in October.
The decline last month occurred because of a 4.6 percent plunge in energy costs, reflecting lower prices for gasoline, natural gas and home heating oil.
But even outside of the volatile energy and food categories, inflation pressures were well contained, rising by a modest 0.2 percent as the price of new cars and trucks fell as automakers struggle with huge inventories of unsold cars.
Federal Reserve Chairman Ben Bernanke told Congress this week that the central bank believed inflation pressures would gradually recede over the coming two years as the economy expands at a moderate pace.
Many private economists believe the central bank is close to achieving its hoped-for soft landing in which growth slows enough to keep inflation contained without pushing the country into a recession.
WASHINGTON - Housing construction plunged to the lowest level in nearly a decade last month as the housing industry continued to struggle with a severe slowdown. Meanwhile, wholesale prices dropped by 0.6 percent in January, the biggest amount in three months, providing fresh evidence that inflation pressures are easing.
Construction of new homes and apartments plunged by 14.3 percent in January, pushing total activity down to a seasonally adjusted annual rate of 1.408 million units, the
Commerce Department reported Friday.
The decline pushed activity to the slowest pace since August 1997 with construction in January 37.8 percent below the pace of a year ago. The steep decline last month followed two months of construction increases which had raised hopes that perhaps the worst of the housing slump was over.
The weather was blamed for part of the setback. November and December had been unusually mild while more normal winter weather returned to much of the country in January, depressing building activity.
However, economists said the depth of the decline showed that housing was still facing major problems after a five-year boom which ended last year with falling construction and declining sales of both new and existing homes.
David Seiders, chief economist of the National Association of Home Builders, said that builders were slashing sales prices and offering other incentives such as upgraded kitchens and free decks to move homes.
"The use of incentives has not abated," he said. "The percentage of builders trimming prices has been increasing and the use of non-price incentives is expanding as well," he said.
The report showed that applications for new building permits, considered a good barometer of future activity, fell in January for the 11th month out of the past 12, dropping by 2.8 percent to an annual rate of 1.568 million units.
By region of the country, housing construction was down 28.5 percent in the West, 15.2 percent in the Midwest and 11.8 percent in the South. Construction starts were up only in the Northeast, a gain of 8.9 percent.
Analysts said the weakness in January construction meant that housing, which shaved more than a percentage point off economic growth in the last half of 2006, will continue to be a drag going into the new year.
On Thursday, the National Association of Realtors said that sales of existing homes fell in 40 states in the fourth quarter of 2006 and home prices dropped in 49 percent of the metropolitan areas surveyed, the widest price decline in the history of the Realtors' survey.
Mark Zandi, chief economist at Moody's Economy.com, said he looked for prices to continue falling.
"This market will not find a bottom until this inventory is worked off and the only way for that to occur is through further price declines," he said.
In the inflation report, the Labor Department said that the 0.6 percent drop in its
Producer Price Index was the biggest one-month decline since a 1.8 percent fall in October.
The decline last month occurred because of a 4.6 percent plunge in energy costs, reflecting lower prices for gasoline, natural gas and home heating oil.
But even outside of the volatile energy and food categories, inflation pressures were well contained, rising by a modest 0.2 percent as the price of new cars and trucks fell as automakers struggle with huge inventories of unsold cars.
Federal Reserve Chairman Ben Bernanke told Congress this week that the central bank believed inflation pressures would gradually recede over the coming two years as the economy expands at a moderate pace.
Many private economists believe the central bank is close to achieving its hoped-for soft landing in which growth slows enough to keep inflation contained without pushing the country into a recession.
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, February 16, 2007, at 6:00 p.m. EST.
Traders headed home early today. Weak volume in front of a three-day holiday weekend didn't help stock prices today. At the close, the Dow added 2 points, closing at 12,767, while the Nasdaq lost about a point, closing at 2,496. Oil closed up $1.40 at $59.39 per barrel, and gold closed up $0.14 at $672.80 an ounce.
The Producer Price Index matched inflation forecasts. The focus now turns to next week's Consumer Price Index.
Housing starts plunged 14.3 percent to a 10-year low last month. However, housing analysts say the numbers are insignificant because of the weather.
You should continue to stay fully invested. Global liquidity is producing the biggest bubble ever in a global stock price melt-up. Fifty percent of your investment portfolio should be in our global/international recommendations. The stock market is still undervalued by 28 percent. Stay close to our telephone/e-mail/website Hotline Updates.
The stock market and the offices of The Wall Street Digest will be closed on Monday, February 19th in observance of Presidents' Day. The next Hotline Update will be on Tuesday, February 20, 2007, at 6:00 p.m. EST.
Traders headed home early today. Weak volume in front of a three-day holiday weekend didn't help stock prices today. At the close, the Dow added 2 points, closing at 12,767, while the Nasdaq lost about a point, closing at 2,496. Oil closed up $1.40 at $59.39 per barrel, and gold closed up $0.14 at $672.80 an ounce.
The Producer Price Index matched inflation forecasts. The focus now turns to next week's Consumer Price Index.
Housing starts plunged 14.3 percent to a 10-year low last month. However, housing analysts say the numbers are insignificant because of the weather.
You should continue to stay fully invested. Global liquidity is producing the biggest bubble ever in a global stock price melt-up. Fifty percent of your investment portfolio should be in our global/international recommendations. The stock market is still undervalued by 28 percent. Stay close to our telephone/e-mail/website Hotline Updates.
The stock market and the offices of The Wall Street Digest will be closed on Monday, February 19th in observance of Presidents' Day. The next Hotline Update will be on Tuesday, February 20, 2007, at 6:00 p.m. EST.
Thursday, February 15, 2007
Realtors Are Worried There Are N ow Too Many Housing Vacancies
Thursday, February 15, 2007
KANGAS: The National Association of Realtors said today there are signs the housing slowdown could be bottoming out. The NAR says sales of previously owned homes in the United States fell in the fourth quarter from year-ago levels, marking the worst point for housing in the current cycle. That raises hopes the real estate market could now begin to show solid signs of life again. But as Stephanie Dhue reports, the NAR and others are concerned there is still one major problem: the growing number of vacant units.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kent Laraway bought a condo with hopes of flipping it three years ago when the real estate market was red hot. By the time the unit was completed this winter, the real estate market had cooled. Laraway says canceling the contract would have cost him a $30,000 deposit.
KENT LARAWAY, HOUSING INVESTOR: I considered backing out of the contract and just dealing with whatever repercussion, but then after talking to a few people, I thought I could sell it and at least, break -- make a little money.
DHUE: Laraway's empty condo is part of a growing problem in the housing market, vacant houses. The Census Bureau reports that there were 2.1 million vacant homes for sale at the end of last year, an all time high and a 34 percent increase over 2005. Economist David Seiders says those vacancies are an issue for builders.
DAVID SEIDERS, ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: If you have existing homes that are occupied and for sale, it's no big deal really because the seller is either going to buy something else or rent a unit somewhere, so it's a sign of vitality, almost. But if the composition of that for sale inventory is more heavily toward vacant units, then it's a heavier issue for the housing market overall.
DHUE: Realtors are also concerned about vacant property. Realtor David Bediz of Coldwell Banker says it's not just investors who leave homes empty.
DAVID BEDIZ, REALTOR, COLDWELL BANKER: There are people that have already bought a new place and have to move into that new place for one reason or another, family reasons, perhaps and in doing so, leave their own properties vacant.
DHUE: Home builders say the demand for new homes has improved but the hidden inventory of cancellations and vacant for sale properties, like this one, could delay a housing recovery. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
KANGAS: The National Association of Realtors said today there are signs the housing slowdown could be bottoming out. The NAR says sales of previously owned homes in the United States fell in the fourth quarter from year-ago levels, marking the worst point for housing in the current cycle. That raises hopes the real estate market could now begin to show solid signs of life again. But as Stephanie Dhue reports, the NAR and others are concerned there is still one major problem: the growing number of vacant units.
STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Kent Laraway bought a condo with hopes of flipping it three years ago when the real estate market was red hot. By the time the unit was completed this winter, the real estate market had cooled. Laraway says canceling the contract would have cost him a $30,000 deposit.
KENT LARAWAY, HOUSING INVESTOR: I considered backing out of the contract and just dealing with whatever repercussion, but then after talking to a few people, I thought I could sell it and at least, break -- make a little money.
DHUE: Laraway's empty condo is part of a growing problem in the housing market, vacant houses. The Census Bureau reports that there were 2.1 million vacant homes for sale at the end of last year, an all time high and a 34 percent increase over 2005. Economist David Seiders says those vacancies are an issue for builders.
DAVID SEIDERS, ECONOMIST, NATIONAL ASSOCIATION OF HOME BUILDERS: If you have existing homes that are occupied and for sale, it's no big deal really because the seller is either going to buy something else or rent a unit somewhere, so it's a sign of vitality, almost. But if the composition of that for sale inventory is more heavily toward vacant units, then it's a heavier issue for the housing market overall.
DHUE: Realtors are also concerned about vacant property. Realtor David Bediz of Coldwell Banker says it's not just investors who leave homes empty.
DAVID BEDIZ, REALTOR, COLDWELL BANKER: There are people that have already bought a new place and have to move into that new place for one reason or another, family reasons, perhaps and in doing so, leave their own properties vacant.
DHUE: Home builders say the demand for new homes has improved but the hidden inventory of cancellations and vacant for sale properties, like this one, could delay a housing recovery. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
More Defaults Prompt Lenders To Cut Back on Risky Loans
By James R. Hagerty and Ruth Simon
From The Wall Street Journal Online
A rise in defaults is prompting some lenders to clamp down on the use of "piggyback" mortgages, a risky type of loan that helped prolong the housing boom by allowing borrowers to finance up to 100% of the purchase price.
Fremont General Corp., a major lender to people with weak credit records, has stopped providing these second mortgages, which are frequently used by financially stretched "subprime" borrowers who can't scrape together a down payment. A spokeswoman for Fremont, based in Santa Monica, Calif., confirmed the decision, which was first announced in emails to mortgage brokers earlier this week, but she declined to comment further.
Fremont's move comes amid a rapid tightening of credit standards by subprime lenders as they find investors no longer are eager to buy types of loans deemed particularly prone to default. The pullback by subprime lenders could put a further dent in demand for housing by preventing some potential buyers from getting loans at a reasonable cost.
Other lenders are likely at least to cut back on piggybacks this year because of the difficulty in selling them to investors, said Thomas Lawler, a housing economist in Vienna, Va., who refers to such loans as "oinkers" in light of their poor recent performance. This and other steps to tighten credit probably will prevent some people from buying homes this year, creating another "head wind" as the housing industry struggles to emerge from a sales slump, Mr. Lawler added.
Lenders are "getting back to the old-fashioned, makes-sense lending that prevailed before the last few years," said Daniel Jacobs, chief executive officer of 1st Metropolitan Mortgage, a nationwide mortgage brokerage firm based in Charlotte, N.C. Some are cutting back on piggybacks by making them more expensive and denying them to people with very weak credit records, Mr. Jacobs said. Mortgage brokers collect fees for signing borrowers up for loans.
Lenders also are tightening up in other ways, such as insisting borrowers provide pay stubs and other proof of their income or by making them put down at least a small down payment. "Across the board, everybody is ratcheting up" the minimum credit score at which they will make particular loans, said A.W. Pickel, a mortgage broker in Overland Park, Kan. Bob Moulton, president of Americana Mortgage Group, a broker based in Manhasset, N.Y., said he is still able to help most borrowers but that some requests for credit "are getting a little hairier."
Piggyback second mortgages typically cover as much as the final 20% of the home's cost, supplementing a first mortgage that covers 80%. Investors have grown increasingly wary of buying such loans from lenders amid a surge in defaults by recent subprime borrowers. The holder of the second-lien mortgage can hope to collect proceeds from the sale of collateral only if the holder of the first mortgage is fully repaid. In many foreclosure cases, second mortgages must be entirely or almost completely written off.
The subprime mortgage market has mushroomed in recent years as lenders found that investors both in the U.S. and abroad were eager to buy securities backed by such loans. Mr. Lawler, the economist, estimates that 17% to 18% of mortgage-financed home purchases in the U.S. last year involved subprime loans. About half of the subprime home-purchase loans included in mortgage securities last year were piggybacks, according to a recent report by Credit Suisse Group in New York. And about 43% of subprime loans packaged in securities in 2006 didn't require the borrowers to fully document their income or assets, a type of mortgage sometimes derided as a "liar's loan" because it can encourage borrowers to exaggerate their means to get a loan.
Borrowers have been rapidly falling behind on loans made in the past year or so. In November, payments were at least 60 days overdue on 12.9% of subprime loans packaged into mortgage securities, up from 8.1% a year earlier, according to First American Loan Performance, a research firm in San Francisco.
The Credit Suisse report said late payments and defaults have been particularly common on piggyback loans and those with less than full documentation. Borrowers who finance 100% of the home's cost have "no skin in the game" and so might be more inclined to walk away from the house when they begin to suspect they won't be able to afford it, the report said.
People who rent homes typically have to come up with a deposit to cover a couple months of rent, the report said. But "some homeowners who did not have enough savings to rent a home were able to actually buy a home," it said.
At a conference Monday, Goldman Sachs Group Inc. fixed-income strategist Michael Marschoun said 20% of the loans "cause more than half the losses" in the subprime market. "These are loans that have absolutely horrendous loss performance, and my prediction is these loans will simply not be originated going forward." These are "risk-layered" loans that have some combination of a low credit score, low down payment, low documentation and investment property.
Explaining the decision to stop providing such seconds, the Fremont email received by brokers said: "This is due to investors having no interest in second mortgage loans."
Fremont was the seventh-largest subprime mortgage lender last year, with $32 billion of such loans originated, for a market share of about 5%, according to Inside Mortgage Finance, a trade publication. About a quarter of Fremont's first mortgages originated last year came with a second mortgage, the publication estimates.
Borrowers who can no longer get piggyback loans may turn to mortgage insurance, often sold as a way to let borrowers obtain loans totaling more than 80% of the home's estimated value, but mortgage insurers draw the line on some risks. "We're comfortable...insuring borrowers who have lower credit scores, provided that there is full documentation," said Mike Zimmerman, vice president of investor relations for mortgage insurer MGIC Investment Corp. MGIC doesn't insure subprime second-lien loans based on the borrower's "stated," or undocumented, income. MGIC also doesn't insure subprime loans that total 100% of the estimated home value, he said.
Most subprime loans are sold to Wall Street firms and others institutions that package them into securities for sale to investors world-wide. The lower-rated portions of these securities -- those that absorb the first losses from defaults -- typically are sold to hedge funds and a variety of other investors in the U.S. and abroad.
Email your comments to rjeditor@dowjones.com.
-- February 15, 2007
From The Wall Street Journal Online
A rise in defaults is prompting some lenders to clamp down on the use of "piggyback" mortgages, a risky type of loan that helped prolong the housing boom by allowing borrowers to finance up to 100% of the purchase price.
Fremont General Corp., a major lender to people with weak credit records, has stopped providing these second mortgages, which are frequently used by financially stretched "subprime" borrowers who can't scrape together a down payment. A spokeswoman for Fremont, based in Santa Monica, Calif., confirmed the decision, which was first announced in emails to mortgage brokers earlier this week, but she declined to comment further.
Fremont's move comes amid a rapid tightening of credit standards by subprime lenders as they find investors no longer are eager to buy types of loans deemed particularly prone to default. The pullback by subprime lenders could put a further dent in demand for housing by preventing some potential buyers from getting loans at a reasonable cost.
Other lenders are likely at least to cut back on piggybacks this year because of the difficulty in selling them to investors, said Thomas Lawler, a housing economist in Vienna, Va., who refers to such loans as "oinkers" in light of their poor recent performance. This and other steps to tighten credit probably will prevent some people from buying homes this year, creating another "head wind" as the housing industry struggles to emerge from a sales slump, Mr. Lawler added.
Lenders are "getting back to the old-fashioned, makes-sense lending that prevailed before the last few years," said Daniel Jacobs, chief executive officer of 1st Metropolitan Mortgage, a nationwide mortgage brokerage firm based in Charlotte, N.C. Some are cutting back on piggybacks by making them more expensive and denying them to people with very weak credit records, Mr. Jacobs said. Mortgage brokers collect fees for signing borrowers up for loans.
Lenders also are tightening up in other ways, such as insisting borrowers provide pay stubs and other proof of their income or by making them put down at least a small down payment. "Across the board, everybody is ratcheting up" the minimum credit score at which they will make particular loans, said A.W. Pickel, a mortgage broker in Overland Park, Kan. Bob Moulton, president of Americana Mortgage Group, a broker based in Manhasset, N.Y., said he is still able to help most borrowers but that some requests for credit "are getting a little hairier."
Piggyback second mortgages typically cover as much as the final 20% of the home's cost, supplementing a first mortgage that covers 80%. Investors have grown increasingly wary of buying such loans from lenders amid a surge in defaults by recent subprime borrowers. The holder of the second-lien mortgage can hope to collect proceeds from the sale of collateral only if the holder of the first mortgage is fully repaid. In many foreclosure cases, second mortgages must be entirely or almost completely written off.
The subprime mortgage market has mushroomed in recent years as lenders found that investors both in the U.S. and abroad were eager to buy securities backed by such loans. Mr. Lawler, the economist, estimates that 17% to 18% of mortgage-financed home purchases in the U.S. last year involved subprime loans. About half of the subprime home-purchase loans included in mortgage securities last year were piggybacks, according to a recent report by Credit Suisse Group in New York. And about 43% of subprime loans packaged in securities in 2006 didn't require the borrowers to fully document their income or assets, a type of mortgage sometimes derided as a "liar's loan" because it can encourage borrowers to exaggerate their means to get a loan.
Borrowers have been rapidly falling behind on loans made in the past year or so. In November, payments were at least 60 days overdue on 12.9% of subprime loans packaged into mortgage securities, up from 8.1% a year earlier, according to First American Loan Performance, a research firm in San Francisco.
The Credit Suisse report said late payments and defaults have been particularly common on piggyback loans and those with less than full documentation. Borrowers who finance 100% of the home's cost have "no skin in the game" and so might be more inclined to walk away from the house when they begin to suspect they won't be able to afford it, the report said.
People who rent homes typically have to come up with a deposit to cover a couple months of rent, the report said. But "some homeowners who did not have enough savings to rent a home were able to actually buy a home," it said.
At a conference Monday, Goldman Sachs Group Inc. fixed-income strategist Michael Marschoun said 20% of the loans "cause more than half the losses" in the subprime market. "These are loans that have absolutely horrendous loss performance, and my prediction is these loans will simply not be originated going forward." These are "risk-layered" loans that have some combination of a low credit score, low down payment, low documentation and investment property.
Explaining the decision to stop providing such seconds, the Fremont email received by brokers said: "This is due to investors having no interest in second mortgage loans."
Fremont was the seventh-largest subprime mortgage lender last year, with $32 billion of such loans originated, for a market share of about 5%, according to Inside Mortgage Finance, a trade publication. About a quarter of Fremont's first mortgages originated last year came with a second mortgage, the publication estimates.
Borrowers who can no longer get piggyback loans may turn to mortgage insurance, often sold as a way to let borrowers obtain loans totaling more than 80% of the home's estimated value, but mortgage insurers draw the line on some risks. "We're comfortable...insuring borrowers who have lower credit scores, provided that there is full documentation," said Mike Zimmerman, vice president of investor relations for mortgage insurer MGIC Investment Corp. MGIC doesn't insure subprime second-lien loans based on the borrower's "stated," or undocumented, income. MGIC also doesn't insure subprime loans that total 100% of the estimated home value, he said.
Most subprime loans are sold to Wall Street firms and others institutions that package them into securities for sale to investors world-wide. The lower-rated portions of these securities -- those that absorb the first losses from defaults -- typically are sold to hedge funds and a variety of other investors in the U.S. and abroad.
Email your comments to rjeditor@dowjones.com.
-- February 15, 2007
Monday, February 5, 2007
Prediction: More pain for homeowners
A glut of almost 1 million homes sitting vacant may mean another downturn in the housing market, analysts say.
February 5 2007: 12:26 PM EST
CHICAGO (Reuters) -- A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note released Monday.
"Now that oil prices and mortgage rates have stopped falling, we will be back lamenting the downturn in the housing market and its spreading effects on the economy in the second quarter, much as we were in the summer and fall 2006," Merrill Lynch economist David Rosenberg wrote.
"Looking at the inventory backlog and still-stretched affordability levels, this story is far from over."
The Federal Reserve's policy-setting Federal Open Market Committee cited "tentative signs of stabilization" in the housing market last week when it voted unanimously to keep interest rates on hold.
Pending home sales jumped a stronger-than-expected 4.9 percent in December, the biggest gain since March 2004, supporting ideas that the worst was over and the housing slowdown would not tank the broader economy.
But Rosenberg called the home sales data "more of a weather report than any serious commentary on the real estate market," pointing to unseasonably warm weather in December - typically a slow period for home sales - that likely spurred demand.
Instead, he focused on a Commerce Department report showing the homeowner vacancy rate rose to 2.7 percent in the fourth quarter, well above the year-earlier level of 2 percent.
That suggests a glut of almost 1 million homes sitting vacant, which will likely pressure selling prices for an extended period, Rosenberg said.
Goldman Sachs analyst Jan Hatzius noted that the vacancy rate had fluctuated between about 1 percent and 2 percent for the past 50 years.
"By itself, this would point to a fairly enormous supply overhang and little prospect of a bottom any time soon," Hatzius wrote in a research note.
February 5 2007: 12:26 PM EST
CHICAGO (Reuters) -- A glut of vacant homes suggests that the U.S. housing market has not yet stabilized and may be poised for another downturn, Merrill Lynch said in a research note released Monday.
"Now that oil prices and mortgage rates have stopped falling, we will be back lamenting the downturn in the housing market and its spreading effects on the economy in the second quarter, much as we were in the summer and fall 2006," Merrill Lynch economist David Rosenberg wrote.
"Looking at the inventory backlog and still-stretched affordability levels, this story is far from over."
The Federal Reserve's policy-setting Federal Open Market Committee cited "tentative signs of stabilization" in the housing market last week when it voted unanimously to keep interest rates on hold.
Pending home sales jumped a stronger-than-expected 4.9 percent in December, the biggest gain since March 2004, supporting ideas that the worst was over and the housing slowdown would not tank the broader economy.
But Rosenberg called the home sales data "more of a weather report than any serious commentary on the real estate market," pointing to unseasonably warm weather in December - typically a slow period for home sales - that likely spurred demand.
Instead, he focused on a Commerce Department report showing the homeowner vacancy rate rose to 2.7 percent in the fourth quarter, well above the year-earlier level of 2 percent.
That suggests a glut of almost 1 million homes sitting vacant, which will likely pressure selling prices for an extended period, Rosenberg said.
Goldman Sachs analyst Jan Hatzius noted that the vacancy rate had fluctuated between about 1 percent and 2 percent for the past 50 years.
"By itself, this would point to a fairly enormous supply overhang and little prospect of a bottom any time soon," Hatzius wrote in a research note.
Friday, February 2, 2007
"Market Monitor"-Michael Metz
"Market Monitor"-Michael Metz, Chief Investment Strategist for Oppenheimer & Co.
Friday, February 02, 2007
PAUL KANGAS: My guest market monitor this week is Michael Metz, chief investment strategist for Oppenheimer and Company. Welcome back to NIGHTLY BUSINESS REPORT, Mike.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: Thank you, Paul.
KANGAS: What are your thoughts on today's January employment report and do you think it supports all this talk about how we're in the midst of a Goldilocks economy?
METZ: First of all, Paul, you know those figures are notoriously unreliable. They'll probably be revised. But on balance, I think almost all the evidence indicates we're going to have a soft landing and a renewed growth in the second half of next year.
KANGAS: So you're a believer in the Goldilocks theory, is that correct?
METZ: More or less yes. There are problems out there and one of the problems with the market is to a large extent has been discounted but the economic outlook does look OK.
KANGAS: On your last visit with us in early August, you said of the major asset classes, real estate was too expensive. Bonds were not at all attractive, but stocks were about the only thing to own. Have you changed your mind or do you still feel that way?
METZ: I still feel that way. Actually, you're having sort of a bubble in commercial real estate which makes it even more overpriced. Unfortunately, stocks are the only place to go, in my judgment.
KANGAS: What about the housing slump? Do you believe that's over?
METZ: No, I don't, but it looks like it won't really upend the economy. I think it's going to be a little worse than expected, more durable, but it doesn't look like it brings about a recession.
KANGAS: How about the energy situation? Do you think oil is going to stay in the 50s or go higher or lower?
METZ: I think long-term supply-demand is in pretty good balance and there are all sorts of geopolitical risks. I think energy is a great investment here.
KANGAS: The other thing we have to cover of course, is interest rates. You didn't find bonds attractive back in August. How about now?
METZ: If you have to have income by the two-note, I think long rates will be going up. Look, we've had a bull market, that is declining rates for about 25 years. I think that period is over. To me there's no value in the long bond.
KANGAS: OK, you had only one buy recommendation back in August. Let's see how it's done since then. It was an energy stock and that was Anadarko. It's down about 5.5 percent from where it was. It's been over 50. Did you take profits when you were in a profitable position?
METZ: No, I still like it. I think it's a great candidate to be taken over at a very large premium. It has reserves already proven, most in North America. To me it's a real value stock with the chances for considerable upside excitement. I own it and I'd buy it here.
KANGAS: But you think that the major attraction is a takeover candidate, not earnings, the projection there?
METZ: Well, it's the value underlying the stock/ That is proven reserves I think are worth more than the market price of the stock and I think the big integrated companies have no alternative but to buy companies like this one.
KANGAS: We'll keep our eye on that one. Do you have any new recommendations for our viewers?
METZ: Well, DBA, doing business as, it's actually sort of an ETF, which represents four different grains.
KANGAS: Now this, judging by the chart, has not been public for even, what, a half a year or so?
METZ: No, it's a new invention by Wall Street. If you want to play the grains and frankly I think we have a real risk of very serious inflation in food prices, this is soybeans, corn, wheat and sugar. To me, it's a great speculation on rising prices there. I think it's a very good vehicle.
KANGAS: So it's a commodity play, basically, then.
METZ: That's right, without the leverage that you normally get with commodity plays.
KANGAS: OK, let's have another of your recommendations.
METZ: The other one is OEF, which really reflects the 100 biggest capitalization stocks in the S&P. The great paradox today is that the big quality multinationals have been the laggards. They're the real bargains in the market. Everybody is concentrating on small and midcaps. I think it's a great buy.
KANGAS: Quickly now, we have time for one more.
METZ: EWJ, which represents the Japanese market. It's done nothing for a year. I think it's the most attractive of the developed markets. I think it will have a big move upward this year.
KANGAS: Yes, you recommended it on the program about a year and a half ago and it was around 13. So if you still have it, you've got a profit, right?
METZ: Yes, but I think it has a lot of room on the upside for the year.
KANGAS: Mike, do you personally own any of these securities that we've mentioned?
METZ: Yes I do. I own EWJ and I own DBA and Anadarko.
KANGAS: OK, so you're confident of your choices?
METZ: I've been wrong on occasion, Paul, but I think they're very attractive.
KANGAS: OK. My thanks for being with us.
METZ: My pleasure, Paul.
KANGAS: My guest Michael Metz of Oppenheimer and Company.
Friday, February 02, 2007
PAUL KANGAS: My guest market monitor this week is Michael Metz, chief investment strategist for Oppenheimer and Company. Welcome back to NIGHTLY BUSINESS REPORT, Mike.
MICHAEL METZ, CHIEF INVESTMENT STRATEGIST, OPPENHEIMER & CO.: Thank you, Paul.
KANGAS: What are your thoughts on today's January employment report and do you think it supports all this talk about how we're in the midst of a Goldilocks economy?
METZ: First of all, Paul, you know those figures are notoriously unreliable. They'll probably be revised. But on balance, I think almost all the evidence indicates we're going to have a soft landing and a renewed growth in the second half of next year.
KANGAS: So you're a believer in the Goldilocks theory, is that correct?
METZ: More or less yes. There are problems out there and one of the problems with the market is to a large extent has been discounted but the economic outlook does look OK.
KANGAS: On your last visit with us in early August, you said of the major asset classes, real estate was too expensive. Bonds were not at all attractive, but stocks were about the only thing to own. Have you changed your mind or do you still feel that way?
METZ: I still feel that way. Actually, you're having sort of a bubble in commercial real estate which makes it even more overpriced. Unfortunately, stocks are the only place to go, in my judgment.
KANGAS: What about the housing slump? Do you believe that's over?
METZ: No, I don't, but it looks like it won't really upend the economy. I think it's going to be a little worse than expected, more durable, but it doesn't look like it brings about a recession.
KANGAS: How about the energy situation? Do you think oil is going to stay in the 50s or go higher or lower?
METZ: I think long-term supply-demand is in pretty good balance and there are all sorts of geopolitical risks. I think energy is a great investment here.
KANGAS: The other thing we have to cover of course, is interest rates. You didn't find bonds attractive back in August. How about now?
METZ: If you have to have income by the two-note, I think long rates will be going up. Look, we've had a bull market, that is declining rates for about 25 years. I think that period is over. To me there's no value in the long bond.
KANGAS: OK, you had only one buy recommendation back in August. Let's see how it's done since then. It was an energy stock and that was Anadarko. It's down about 5.5 percent from where it was. It's been over 50. Did you take profits when you were in a profitable position?
METZ: No, I still like it. I think it's a great candidate to be taken over at a very large premium. It has reserves already proven, most in North America. To me it's a real value stock with the chances for considerable upside excitement. I own it and I'd buy it here.
KANGAS: But you think that the major attraction is a takeover candidate, not earnings, the projection there?
METZ: Well, it's the value underlying the stock/ That is proven reserves I think are worth more than the market price of the stock and I think the big integrated companies have no alternative but to buy companies like this one.
KANGAS: We'll keep our eye on that one. Do you have any new recommendations for our viewers?
METZ: Well, DBA, doing business as, it's actually sort of an ETF, which represents four different grains.
KANGAS: Now this, judging by the chart, has not been public for even, what, a half a year or so?
METZ: No, it's a new invention by Wall Street. If you want to play the grains and frankly I think we have a real risk of very serious inflation in food prices, this is soybeans, corn, wheat and sugar. To me, it's a great speculation on rising prices there. I think it's a very good vehicle.
KANGAS: So it's a commodity play, basically, then.
METZ: That's right, without the leverage that you normally get with commodity plays.
KANGAS: OK, let's have another of your recommendations.
METZ: The other one is OEF, which really reflects the 100 biggest capitalization stocks in the S&P. The great paradox today is that the big quality multinationals have been the laggards. They're the real bargains in the market. Everybody is concentrating on small and midcaps. I think it's a great buy.
KANGAS: Quickly now, we have time for one more.
METZ: EWJ, which represents the Japanese market. It's done nothing for a year. I think it's the most attractive of the developed markets. I think it will have a big move upward this year.
KANGAS: Yes, you recommended it on the program about a year and a half ago and it was around 13. So if you still have it, you've got a profit, right?
METZ: Yes, but I think it has a lot of room on the upside for the year.
KANGAS: Mike, do you personally own any of these securities that we've mentioned?
METZ: Yes I do. I own EWJ and I own DBA and Anadarko.
KANGAS: OK, so you're confident of your choices?
METZ: I've been wrong on occasion, Paul, but I think they're very attractive.
KANGAS: OK. My thanks for being with us.
METZ: My pleasure, Paul.
KANGAS: My guest Michael Metz of Oppenheimer and Company.
The Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, February 2, 2007, at 6:00 p.m. EST.
Stock prices were mixed today after an excellent January Jobs report this morning. At the close, the Dow lost 20 points, closing at 12,653; the Nasdaq added 8 points, to close at 2,475; oil closed up $1.72 to $59.02 per barrel; and gold closed down $11.50 at $651.50 an ounce.
The January Jobs Creation report revealed that 111,000 new jobs were created last month. In addition, the November and December jobs reports were both revised higher, adding a total of another 81,000 new jobs. Stock prices moved higher during the morning session after the favorable job report was released at 8:30 a.m.
Yesterday, pending home sales were up 4.9 percent, indicating that future existing home sales will be positive for all four regions of the country.
Market volatility over fourth-quarter earnings will subside on/or about February 15, 2007, after which the market should move higher. The stock market is still undervalued by 28 percent. You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Tuesday, February 6, 2007, at 6:00 p.m. EST.
Stock prices were mixed today after an excellent January Jobs report this morning. At the close, the Dow lost 20 points, closing at 12,653; the Nasdaq added 8 points, to close at 2,475; oil closed up $1.72 to $59.02 per barrel; and gold closed down $11.50 at $651.50 an ounce.
The January Jobs Creation report revealed that 111,000 new jobs were created last month. In addition, the November and December jobs reports were both revised higher, adding a total of another 81,000 new jobs. Stock prices moved higher during the morning session after the favorable job report was released at 8:30 a.m.
Yesterday, pending home sales were up 4.9 percent, indicating that future existing home sales will be positive for all four regions of the country.
Market volatility over fourth-quarter earnings will subside on/or about February 15, 2007, after which the market should move higher. The stock market is still undervalued by 28 percent. You should be fully invested. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Tuesday, February 6, 2007, at 6:00 p.m. EST.
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