This is The Wall Street Digest Hotline Update for Friday, March 30, 2007, at 6:00 p.m. EST.
First-quarter window dressing offset good economic news this morning. At the close, the Dow gained 5 points, closing at 12,354, while the Nasdaq rose almost 4 points, closing at 2,421. Oil fell $0.16 to $65.87 per barrel, and gold closed up $1.40 at $669.00 an ounce.
Stock prices opened higher this morning on good economic news. However, the Dow Industrial Average dropped 100 points after the U.S. placed tariffs on China’s paper imports. China is selling a $1,000 roll of glossy paper below cost at $800 to the U.S. market. The Dow then recovered and closed flat for the day.
End of the quarter window dressing also contributed to the confusion and volatility of today’s trading. I would not base any investment decisions on today’s market action.
Record global liquidity, including record liquidity in the U.S., should keep stock prices in a trading range before moving higher this year. The U.S. stock market is still substantially undervalued at 34 percent. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Tuesday, April 3, 2007, at 6:00 p.m. EST.
Friday, March 30, 2007
"Market Monitor"-Sam Stovall
"Market Monitor"-Sam Stovall, Chief Investment Strategist at Standard & Poor's
Friday, March 30, 2007
PAUL KANGAS: Here we are at the end of the first quarter of 2007 and with us to review how the major stock averages did and to sort out the quarter's big winners and losers is Sam Stovall, chief investment strategist at Standard & Poor's. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Happy to be here, Paul.
KANGAS: Now as we view the performance of the Dow, the Standard & Poor's 500 Index and the NASDAQ, give us your description of the markets and what they've done over these last three months. Not a whole lot, looks like.
STOVALL: No, it really, certainly seems as if they've treaded water. The first month was a fairly good one posting an average increase of 1.4 percent which is equal to the average since 1945. We were doing pretty well in February, but then we got tripped up by China. This was after the Dow had hit a new high and the S&P had reached 1460. We tumbled sharply posting our first 2 plus percent one day decline in almost four years. And now in March with questions about whether the Fed will be raising or lowering rates, investors are out there scratching their heads.
KANGAS: Right. Well, the correction though is actually healthy for the market, would you agree?
STOVALL: Absolutely. We have not had a 10 percent correction in four years. And actually typically we have more than one in every bull market.
KANGAS: OK. Now let's take a look at the best performers in the Dow 30. And what do we see, Alcoa at the top.
STOVALL: Well, this company certainly benefited from higher than expected metals prices this quarter, as well as an ongoing takeover speculation.
KANGAS: And AT&T has done well.
STOVALL: Well, this old - SBC telecommunications has experienced a continuation of last year's strong wireless performance and the integration of prior acquisitions.
KANGAS: And Caterpillar was no slouch, that's for sure.
STOVALL: No, it wasn't. Last quarter, however, it was. It had disappointed investors with poor guidance. But I think this quarter we snapback from being oversold and also there a still a good outlook for construction activities internationally.
KANGAS: Now let's have a look at the worst three in the Dow over that quarter, Johnson & Johnson, that's kind of a surprise.
STOVALL: Well, it was hit pretty hard because the company's device diagnostics head had resigned. Also it was on the wrong side of a study that questioned the effectiveness of coronary stents.
KANGAS: And of course Home Depot has had its problems.
STOVALL: Yes. It was nailed by the trimming of earnings forecast due to a continued slump in housing.
KANGAS: OK and Citigroup, that's a surprise too.
STOVALL: Well, concern I think surrounding the financial conglomerate's exposure to the sub-prime mortgage market.
KANGAS: Good point. Let's have a look at the best performers in the Standard & Poor's 500 index topped off by Radio Stack.
STOVALL: This a consumer electronics retailer and it is benefiting from the strong trends in this category. Also benefiting from cost efforts by closing under performing stores.
KANGAS: And Goodyear tire has rolled right along too.
STOVALL: Well, certainly it hasn't blown out yet. Increased investor confidence in this tire manufacturer's turn around.
KANGAS: OK and the Standard & Poor's 500, two worst performers lead by Advanced Micro Devices.
STOVALL: Well, it's said that it might miss its first quarter revenue guidance, also influenced by the complicated integration of a recent acquisition.
KANGAS: And Consolation Brand on the downside.
STOVALL: Well, here is a company that recently acquired Svedka (ph), a Swedish vodka brand and Vincor (ph) at very high prices so investors are questioning the benefits of these.
KANGAS: Moving over to the NASDAQ 100 index, we see at the top of the best performers Milicom.
STOVALL: This is a global telecom company that has benefited from very strong revenue growth as well as investor interest in emerging market wireless operators.
KANGAS: And Intuitive Surgical did well.
STOVALL: Yes, it did. Fundamental news, the company reported sales that had surged 66 percent on strong sales of its da Vinci surgical systems.
KANGAS: And the NASDAQ 100's dogs so to speak, Virtex Pharmaceutical.
STOVALL: Here there was concern over phase 3 clinical trial of its hepatitis C drug.
KANGAS: And Cepracor.
STOVALL: And Cepracor. Investors woke up to the weakening trend in prescription sleep medications.
KANGAS: OK, very interesting, indeed, Sam. Now we just have a little less then a minute. But I wanted to ask you how you see the second quarter shaping up on Wall Street.
STOVALL: Well, on average the second quarter is the second best of all for gaining about 2.8 percent since 1990. None of the 10 sectors in the S&P 500 posted average declines. I think however it could be a bit challenging. We're forecasting a 5 percent increase in first quarter earnings which is half of what we saw in the fourth quarter of '06.
KANGAS: What sectors are your favorite for that period of time?
STOVALL: Well, I think that we could see some good growth in the health care category, also likely to see continuation of good earnings in the material sector.
KANGAS: OK, very interesting indeed, Sam. It's great to see you again and thanks for being with us.
STOVALL: Thank you, Paul.
KANGAS: My guest, Sam Stovall, chief investment strategist at Standard & Poor's.
Friday, March 30, 2007
PAUL KANGAS: Here we are at the end of the first quarter of 2007 and with us to review how the major stock averages did and to sort out the quarter's big winners and losers is Sam Stovall, chief investment strategist at Standard & Poor's. Sam, welcome back to NIGHTLY BUSINESS REPORT.
SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POOR'S: Happy to be here, Paul.
KANGAS: Now as we view the performance of the Dow, the Standard & Poor's 500 Index and the NASDAQ, give us your description of the markets and what they've done over these last three months. Not a whole lot, looks like.
STOVALL: No, it really, certainly seems as if they've treaded water. The first month was a fairly good one posting an average increase of 1.4 percent which is equal to the average since 1945. We were doing pretty well in February, but then we got tripped up by China. This was after the Dow had hit a new high and the S&P had reached 1460. We tumbled sharply posting our first 2 plus percent one day decline in almost four years. And now in March with questions about whether the Fed will be raising or lowering rates, investors are out there scratching their heads.
KANGAS: Right. Well, the correction though is actually healthy for the market, would you agree?
STOVALL: Absolutely. We have not had a 10 percent correction in four years. And actually typically we have more than one in every bull market.
KANGAS: OK. Now let's take a look at the best performers in the Dow 30. And what do we see, Alcoa at the top.
STOVALL: Well, this company certainly benefited from higher than expected metals prices this quarter, as well as an ongoing takeover speculation.
KANGAS: And AT&T has done well.
STOVALL: Well, this old - SBC telecommunications has experienced a continuation of last year's strong wireless performance and the integration of prior acquisitions.
KANGAS: And Caterpillar was no slouch, that's for sure.
STOVALL: No, it wasn't. Last quarter, however, it was. It had disappointed investors with poor guidance. But I think this quarter we snapback from being oversold and also there a still a good outlook for construction activities internationally.
KANGAS: Now let's have a look at the worst three in the Dow over that quarter, Johnson & Johnson, that's kind of a surprise.
STOVALL: Well, it was hit pretty hard because the company's device diagnostics head had resigned. Also it was on the wrong side of a study that questioned the effectiveness of coronary stents.
KANGAS: And of course Home Depot has had its problems.
STOVALL: Yes. It was nailed by the trimming of earnings forecast due to a continued slump in housing.
KANGAS: OK and Citigroup, that's a surprise too.
STOVALL: Well, concern I think surrounding the financial conglomerate's exposure to the sub-prime mortgage market.
KANGAS: Good point. Let's have a look at the best performers in the Standard & Poor's 500 index topped off by Radio Stack.
STOVALL: This a consumer electronics retailer and it is benefiting from the strong trends in this category. Also benefiting from cost efforts by closing under performing stores.
KANGAS: And Goodyear tire has rolled right along too.
STOVALL: Well, certainly it hasn't blown out yet. Increased investor confidence in this tire manufacturer's turn around.
KANGAS: OK and the Standard & Poor's 500, two worst performers lead by Advanced Micro Devices.
STOVALL: Well, it's said that it might miss its first quarter revenue guidance, also influenced by the complicated integration of a recent acquisition.
KANGAS: And Consolation Brand on the downside.
STOVALL: Well, here is a company that recently acquired Svedka (ph), a Swedish vodka brand and Vincor (ph) at very high prices so investors are questioning the benefits of these.
KANGAS: Moving over to the NASDAQ 100 index, we see at the top of the best performers Milicom.
STOVALL: This is a global telecom company that has benefited from very strong revenue growth as well as investor interest in emerging market wireless operators.
KANGAS: And Intuitive Surgical did well.
STOVALL: Yes, it did. Fundamental news, the company reported sales that had surged 66 percent on strong sales of its da Vinci surgical systems.
KANGAS: And the NASDAQ 100's dogs so to speak, Virtex Pharmaceutical.
STOVALL: Here there was concern over phase 3 clinical trial of its hepatitis C drug.
KANGAS: And Cepracor.
STOVALL: And Cepracor. Investors woke up to the weakening trend in prescription sleep medications.
KANGAS: OK, very interesting, indeed, Sam. Now we just have a little less then a minute. But I wanted to ask you how you see the second quarter shaping up on Wall Street.
STOVALL: Well, on average the second quarter is the second best of all for gaining about 2.8 percent since 1990. None of the 10 sectors in the S&P 500 posted average declines. I think however it could be a bit challenging. We're forecasting a 5 percent increase in first quarter earnings which is half of what we saw in the fourth quarter of '06.
KANGAS: What sectors are your favorite for that period of time?
STOVALL: Well, I think that we could see some good growth in the health care category, also likely to see continuation of good earnings in the material sector.
KANGAS: OK, very interesting indeed, Sam. It's great to see you again and thanks for being with us.
STOVALL: Thank you, Paul.
KANGAS: My guest, Sam Stovall, chief investment strategist at Standard & Poor's.
Wednesday, March 28, 2007
Home Prices Go Negative For First Time in 11 years
By Rex Nutting
From MarketWatch
U.S. home prices continued to fall in January, with prices in 10 major cities now down 0.7% year-over-year, according to Standard & Poor's and MacroMarkets LLC, which released the January Case-Shiller price indexes on Tuesday.
The 10-city index is down 0.7% in the past year, the first year-over-year negative reading since 1996. The 20-city index is down 0.2% year-over-year. A year ago, prices were rising 15%.
"The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market," said Robert J. Shiller, chief economist at MacroMarkets, in a statement. Read the full report.
Related Link
New-Home Sales Tumble To 7-Year Low in February
http://www.realestatejournal.com/buysell/markettrends/20070326-bater.html
"We look for price declines in the bubble regions but flat prices nationally," wrote Michelle Meyer, an economist for Lehman Bros. Goldman Sachs economists said they expect prices to fall 5% in 2007 compared with 2006.
The report comes amid heightened concerns about the housing market. Inventories of unsold homes continued to build up in February, recent data have said. See full story. And at a hearing on Capitol Hill on Tuesday, lawmakers pointed fingers at federal bank regulators for letting lending standards get too loose, putting many people with less-than-stellar credit at risk of losing their homes. See full story.
Falling home prices will exacerbate credit problems, because many borrowers will not be able to refinance their loan or sell their house because they owe more than it's worth.
The 10-city Case-Shiller index turned negative in mid-1990 and remained negative for much of the next three years. Prices did not return to the peak seen in October 1989 until January 1998.
Home prices fell from December to January in 17 of the 20 cities; only Miami showed any price gains. Prices were flat in Charlotte, N.C., and Seattle. Prices were falling fastest in January in San Diego, down 1.7%, or a 22.4% annual rate. Prices dropped 1.1% in Los Angeles, or a 14% annual rate.
[nutting2]
The 10-city index was down 0.8% in January, or an annual rate of 10%. The expanded 20-city index was down 0.7% in January, or an 8.7% annual rate.
Eleven of the 20 cities had negative price appreciation in the past year, led by Detroit (down 6.9%) and Boston (down 5.6%). The biggest increases were in Seattle (up 11.1%) and Portland, Ore. (up 8.7%).
Prices have now retreated year-over-year in some of the regions that had the biggest price gains in 2004 and 2005. Phoenix is down 0.7% year-over-year. San Francisco is down 1.4%. Washington is down 3.9%.
The Case-Shiller index is considered to be a superior gauge of home prices compared with the median sales-price data released by the Commerce Department or National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period.
In a separate report, the Conference Board said its consumer confidence index fell to 107.2 from 111.2, the first decline in five months. See full story.
Email your comments to rjeditor@dowjones.com.
-- March 28, 2007
From MarketWatch
U.S. home prices continued to fall in January, with prices in 10 major cities now down 0.7% year-over-year, according to Standard & Poor's and MacroMarkets LLC, which released the January Case-Shiller price indexes on Tuesday.
The 10-city index is down 0.7% in the past year, the first year-over-year negative reading since 1996. The 20-city index is down 0.2% year-over-year. A year ago, prices were rising 15%.
"The annual declines in the composites are a good indicator of the dire state of the U.S. residential real estate market," said Robert J. Shiller, chief economist at MacroMarkets, in a statement. Read the full report.
Related Link
New-Home Sales Tumble To 7-Year Low in February
http://www.realestatejournal.com/buysell/markettrends/20070326-bater.html
"We look for price declines in the bubble regions but flat prices nationally," wrote Michelle Meyer, an economist for Lehman Bros. Goldman Sachs economists said they expect prices to fall 5% in 2007 compared with 2006.
The report comes amid heightened concerns about the housing market. Inventories of unsold homes continued to build up in February, recent data have said. See full story. And at a hearing on Capitol Hill on Tuesday, lawmakers pointed fingers at federal bank regulators for letting lending standards get too loose, putting many people with less-than-stellar credit at risk of losing their homes. See full story.
Falling home prices will exacerbate credit problems, because many borrowers will not be able to refinance their loan or sell their house because they owe more than it's worth.
The 10-city Case-Shiller index turned negative in mid-1990 and remained negative for much of the next three years. Prices did not return to the peak seen in October 1989 until January 1998.
Home prices fell from December to January in 17 of the 20 cities; only Miami showed any price gains. Prices were flat in Charlotte, N.C., and Seattle. Prices were falling fastest in January in San Diego, down 1.7%, or a 22.4% annual rate. Prices dropped 1.1% in Los Angeles, or a 14% annual rate.
[nutting2]
The 10-city index was down 0.8% in January, or an annual rate of 10%. The expanded 20-city index was down 0.7% in January, or an 8.7% annual rate.
Eleven of the 20 cities had negative price appreciation in the past year, led by Detroit (down 6.9%) and Boston (down 5.6%). The biggest increases were in Seattle (up 11.1%) and Portland, Ore. (up 8.7%).
Prices have now retreated year-over-year in some of the regions that had the biggest price gains in 2004 and 2005. Phoenix is down 0.7% year-over-year. San Francisco is down 1.4%. Washington is down 3.9%.
The Case-Shiller index is considered to be a superior gauge of home prices compared with the median sales-price data released by the Commerce Department or National Association of Realtors, because it tracks multiple sales on the same property and is therefore not influenced by a different mix of homes sold in a period.
In a separate report, the Conference Board said its consumer confidence index fell to 107.2 from 111.2, the first decline in five months. See full story.
Email your comments to rjeditor@dowjones.com.
-- March 28, 2007
Monday, March 26, 2007
Sales of new homes fall sharply
By MARTIN CRUTSINGER, AP Economics Writer 9 minutes ago
WASHINGTON - Sales of new homes fell sharply for a second consecutive month in February, a weaker-than-expected performance that dimmed hopes for a rebound in the troubled housing market.
The Commerce Department reported Monday that sales of new single-family homes fell by 3.9 percent last month to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years. All regions of the country except the West experienced weakness last month.
The February decline followed an even larger 15.8 percent drop in sales in January, which had been the largest one-month plunge in 13 years. The back-to-back declines provided evidence that the housing market is continuing to struggle with lagging demand and a glut of unsold homes.
The weakness in sales pushed the median price of a new home down to $250,000 in February, a drop of 0.3 percent from a year ago. It marked the second straight month that the median price fell compared with the same period a year ago. The median is the point where half the homes sold for more and half for less.
By region of the country, sales were up 24.6 percent in the West, a rebound after a 25.8 percent plunge in January.
However, every other region showed weakness last month, led by a 26.8 percent drop in sales in the Northeast and a 20 percent decline in the Midwest, two areas which experienced a series of winter storm. Sales also fell in the South, dropping by 7 percent.
The performance of new home sales was in contrast to a report last week that sales of existing homes rose in February by the largest amount in nearly three years.
Analysts had expected new home sales to increase in February as well, based on a view that January's steep plunge had overstated the weakness in housing.
The back-to-back declines in the new home market served to support the forecasts of private analysts who believe the slowdown in housing has more months to run its course.
The housing bust is coming after a housing boom in which sales of both new and existing homes set records for five straight years.
Some analysts see the current slowdown as a correction from a period of speculative frenzy in which investors were buying second homes in hopes of reselling them quickly to make profits on the double-digit gains in prices in the hottest sales areas in the country such as California and Florida.
The sales decline that has occurred over the past year has left a glut of unsold homes on the market, forcing builders to slash prices and offer a number of incentives to attract buyers.
For February, the number of unsold homes rose by 1.5 percent to 546,000. That meant it would take 8.1 months to sell all of those homes at the February sales pace, up from 7.3 months in January.
The problems in housing are being increased by spreading financial difficulties with mortgage lenders who specialized in the subprime market, where borrowers with weaker credit histories could qualify for mortgages.
The plunge in housing has trimmed overall economic growth and is occurring as part of an effort by the
Federal Reserve to raise interest rates as a way of slowing economic activity and keeping inflation under control.
WASHINGTON - Sales of new homes fell sharply for a second consecutive month in February, a weaker-than-expected performance that dimmed hopes for a rebound in the troubled housing market.
The Commerce Department reported Monday that sales of new single-family homes fell by 3.9 percent last month to a seasonally adjusted annual rate of 848,000, the slowest sales pace in nearly seven years. All regions of the country except the West experienced weakness last month.
The February decline followed an even larger 15.8 percent drop in sales in January, which had been the largest one-month plunge in 13 years. The back-to-back declines provided evidence that the housing market is continuing to struggle with lagging demand and a glut of unsold homes.
The weakness in sales pushed the median price of a new home down to $250,000 in February, a drop of 0.3 percent from a year ago. It marked the second straight month that the median price fell compared with the same period a year ago. The median is the point where half the homes sold for more and half for less.
By region of the country, sales were up 24.6 percent in the West, a rebound after a 25.8 percent plunge in January.
However, every other region showed weakness last month, led by a 26.8 percent drop in sales in the Northeast and a 20 percent decline in the Midwest, two areas which experienced a series of winter storm. Sales also fell in the South, dropping by 7 percent.
The performance of new home sales was in contrast to a report last week that sales of existing homes rose in February by the largest amount in nearly three years.
Analysts had expected new home sales to increase in February as well, based on a view that January's steep plunge had overstated the weakness in housing.
The back-to-back declines in the new home market served to support the forecasts of private analysts who believe the slowdown in housing has more months to run its course.
The housing bust is coming after a housing boom in which sales of both new and existing homes set records for five straight years.
Some analysts see the current slowdown as a correction from a period of speculative frenzy in which investors were buying second homes in hopes of reselling them quickly to make profits on the double-digit gains in prices in the hottest sales areas in the country such as California and Florida.
The sales decline that has occurred over the past year has left a glut of unsold homes on the market, forcing builders to slash prices and offer a number of incentives to attract buyers.
For February, the number of unsold homes rose by 1.5 percent to 546,000. That meant it would take 8.1 months to sell all of those homes at the February sales pace, up from 7.3 months in January.
The problems in housing are being increased by spreading financial difficulties with mortgage lenders who specialized in the subprime market, where borrowers with weaker credit histories could qualify for mortgages.
The plunge in housing has trimmed overall economic growth and is occurring as part of an effort by the
Federal Reserve to raise interest rates as a way of slowing economic activity and keeping inflation under control.
Friday, March 23, 2007
Existing homes rose 3.9 pct in February
31 minutes ago
WASHINGTON (Reuters) - The pace of U.S. existing home sales rose an unexpected 3.9 percent in February to a 6.69 million-unit annual rate as mild weather spurred home buying, the National Association of Realtors said on Friday.
Economists polled by Reuters were expecting existing home sales to slide to a 6.31 million rate. It was the biggest rise since an matching increase in March 2004.
Inventories rose 5.9 percent to 3.748 million units available for sale, or a 6.7 months' supply at the current sales pace.
Woes in the subprime mortgage market are likely to cut sales of new or existing homes by up to 250,000 a year over the next two years, NAR economist David Lereah said.
WASHINGTON (Reuters) - The pace of U.S. existing home sales rose an unexpected 3.9 percent in February to a 6.69 million-unit annual rate as mild weather spurred home buying, the National Association of Realtors said on Friday.
Economists polled by Reuters were expecting existing home sales to slide to a 6.31 million rate. It was the biggest rise since an matching increase in March 2004.
Inventories rose 5.9 percent to 3.748 million units available for sale, or a 6.7 months' supply at the current sales pace.
Woes in the subprime mortgage market are likely to cut sales of new or existing homes by up to 250,000 a year over the next two years, NAR economist David Lereah said.
Monday, March 12, 2007
Subprime Defaults Prompt Calls For Rules to Protect Borrowers
By Ruth Simon
From The Wall Street Journal Online
As more homeowners fall behind on their mortgage payments, the debate is heating up over whether lenders should be required to ensure that the loans they issue are suitable for their customers.
Just what is a suitable mortgage is likely to depend on a borrower's circumstances. But already, some states, including Ohio and Pennsylvania, are calling on mortgage lenders and brokers to do their best to put borrowers in loans that they are able to repay. Toward that goal, federal banking regulators last week proposed guidelines for lenders who issue adjustable-rate mortgages to subprime borrowers. Congress also is taking a close look at mortgage lending practices, with consumer groups pressing lawmakers to impose a suitability standard on lenders.
The Mortgage Bankers Association, which says a suitability requirement would make mortgages more costly, is working on voluntary disclosure standards for its members aimed at making it easier for borrowers to understand the pros and cons of various loans. But mandating lenders to consider a loan's suitability likely would force them to make only the most conservative loans, says Kurt Pfotenhauer, a senior vice president of the association. Lenders will "deny credit...to people who deserve credit," he says.
Suitability standards exist elsewhere in the financial-services industry: Securities brokers and brokerage firms are required to have reasonable grounds for believing that investments such as stocks and bonds are suitable for their customers' financial status and investment objectives.
Imposing similar requirements on mortgage lenders, proponents say, would help homeowners such as Joseph Ripplinger, a former construction worker. Mr. Ripplinger was happy to refinance when his mortgage broker late last year offered a loan that would lower the Minneapolis resident's monthly payments. "He told me he could get me a good deal because my credit is a lot better," says Mr. Ripplinger.
What Mr. Ripplinger wound up with was a loan called an option adjustable-rate mortgage, which offers a low introductory interest rate but the loan balance can grow over time if the borrower regularly makes the minimum payment. Given his monthly income from Social Security and disability payments, Mr. Ripplinger says it will be hard to keep current on his loan as his payments begin to climb over the next few years. "I believed him when he told me it was a good deal, but I guess it wasn't," Mr. Ripplinger says. He plans to testify on Friday before the Minnesota House of Representatives, which is considering mortgage legislation.
"It's not suitable to put someone in a loan they can't pay back or if it's going to be unaffordable in two years," says Jordan Ash, director of the Acorn Financial Justice Center in St. Paul, Minn., an advocacy group.
The heightened focus on mortgage suitability comes as delinquencies are on the rise. Some 2.51% of mortgages were delinquent in the fourth quarter, the highest level since early 2002, according to Equifax Inc. and Moody's Economy.com Inc. Lenders also are being affected. A growing list of lenders that cater to borrowers with scuffed credit records have shut their doors. Other lenders are tightening their standards, making it harder for some individuals to refinance into new mortgages or buy a home.
Roughly two-thirds of mortgages are now packaged into securities and sold to investors world-wide. That and other innovations have made credit cheaper and more available, helping more people to afford a home. The national homeownership rate stood at 68.9% in the fourth quarter, according to the U.S. Census Bureau. That's up from about 65% in 1996.
But many borrowers still think they are dealing with a "paternal" lender "who wouldn't put me in a loan I can't repay," says Ohio Attorney General Marc Dann. An Ohio law that took effect in January requires mortgage brokers and loan officers to make "reasonable efforts" to secure a loan with terms that are "advantageous" to the borrower.
Pennsylvania's Department of Banking will in the next few weeks publish proposed rules that would require mortgage lenders to discern whether borrowers will be able to repay their loan over its life, rather than just make the introductory payment.
In Iowa, Attorney General Tom Miller is proposing legislation that would require mortgage brokers to place customers in loans that are in the "best interests of the borrower and not ... the mortgage lender." North Carolina already requires that mortgage brokers "make reasonable efforts ... to secure a loan that is reasonably advantageous to the borrower."
Consumer groups say they are looking to ensure that borrowers aren't put into mortgages that are destined to fail. "At its very core, suitability is about the borrower's ability to repay the loan," says Deborah Goldstein, executive vice president of the Center for Responsible Lending, a nonprofit research and lobbying group. A recent study by the center estimated that about 20% of subprime loans originated in 2005 and 2006 will end in foreclosure.
Borrowers who took out exotic mortgages also are running into trouble. Felipe Duluna, a landscaper, bought a house in Watsonville, Calif., in 2005. Mr. Duluna used his life savings of $75,000 as a down payment and took out a first and second mortgage to finance the balance of the $729,000 purchase price. Less than two years later, as his interest rate reset higher and his loan balance grew, Mr. Duluna is unable to make even the minimum payment on the option adjustable-rate mortgage he received.
Speaking through a translator because he is fluent only in Spanish, Mr. Duluna says he was told that the loan was something he could afford. Mr. Duluna says he trusted the mortgage broker, who was also the real-estate agent on the sale, and told him repeatedly that he couldn't spend more than $1,800 a month on mortgage payments. Given Mr. Duluna's annual income of $27,000, and his family's combined income of about $72,000, "these folks have no ability to actually afford this loan," says Mr. Duluna's attorney Pamela Simmons, with Simmons & Purdy.
In weighing whether a loan is suitable, lenders might need to consider the borrower's financial circumstances, ability to repay the loan and their objectives, consumer groups say. "It's not enough to say somebody is qualified for a loan...if they are left with $200, or a small amount, after the mortgage is paid," says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.
Whether a loan is suitable depends on a variety of factors, including a borrower's current situation and future plans, experts say. An adjustable-rate mortgage could be a smart choice for borrowers who expect to move in a few years or believe their salaries will rise to accommodate higher monthly payments. But the same loan could be dangerous for someone on a fixed income.
Another factor to consider is how much of a borrower's income will be devoted to housing. Some lenders will allow homeowners to spend as much as 50% of their gross income on mortgage payments, taxes and insurance, but that doesn't leave enough of a cushion for most people, says Mitch Ohlbaum, a mortgage broker in Los Angeles. Even in a high-cost market such as California, "for a regular guy in a regular job, 45% is the most they should be looking at."
Mr. Miller, the Iowa attorney general, advises borrowers to be wary of loans with low "teaser rates" and loans with prepayment penalties that can make selling a home or refinancing costly. Rather than focusing on the initial payment, borrowers should consider their ability to pay "not just the first payment or payments for the first couple of years, but the first five years or even longer" if they plan to stay put, he says.
Another consideration is what will happen if things don't work out as planned. Many borrowers took out adjustable-rate mortgages and exotic loans, figuring they would refinance in a few years. "One of the things that is driving the increased default rate is people who thought they could solve their problems by refinancing," says Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif. Tighter lending standards, a soft housing market and, in some cases, their own credit problems are making refinancing less of an option for some borrowers.
Email your comments to rjeditor@dowjones.com.
-- March 09, 2007
From The Wall Street Journal Online
As more homeowners fall behind on their mortgage payments, the debate is heating up over whether lenders should be required to ensure that the loans they issue are suitable for their customers.
Just what is a suitable mortgage is likely to depend on a borrower's circumstances. But already, some states, including Ohio and Pennsylvania, are calling on mortgage lenders and brokers to do their best to put borrowers in loans that they are able to repay. Toward that goal, federal banking regulators last week proposed guidelines for lenders who issue adjustable-rate mortgages to subprime borrowers. Congress also is taking a close look at mortgage lending practices, with consumer groups pressing lawmakers to impose a suitability standard on lenders.
The Mortgage Bankers Association, which says a suitability requirement would make mortgages more costly, is working on voluntary disclosure standards for its members aimed at making it easier for borrowers to understand the pros and cons of various loans. But mandating lenders to consider a loan's suitability likely would force them to make only the most conservative loans, says Kurt Pfotenhauer, a senior vice president of the association. Lenders will "deny credit...to people who deserve credit," he says.
Suitability standards exist elsewhere in the financial-services industry: Securities brokers and brokerage firms are required to have reasonable grounds for believing that investments such as stocks and bonds are suitable for their customers' financial status and investment objectives.
Imposing similar requirements on mortgage lenders, proponents say, would help homeowners such as Joseph Ripplinger, a former construction worker. Mr. Ripplinger was happy to refinance when his mortgage broker late last year offered a loan that would lower the Minneapolis resident's monthly payments. "He told me he could get me a good deal because my credit is a lot better," says Mr. Ripplinger.
What Mr. Ripplinger wound up with was a loan called an option adjustable-rate mortgage, which offers a low introductory interest rate but the loan balance can grow over time if the borrower regularly makes the minimum payment. Given his monthly income from Social Security and disability payments, Mr. Ripplinger says it will be hard to keep current on his loan as his payments begin to climb over the next few years. "I believed him when he told me it was a good deal, but I guess it wasn't," Mr. Ripplinger says. He plans to testify on Friday before the Minnesota House of Representatives, which is considering mortgage legislation.
"It's not suitable to put someone in a loan they can't pay back or if it's going to be unaffordable in two years," says Jordan Ash, director of the Acorn Financial Justice Center in St. Paul, Minn., an advocacy group.
The heightened focus on mortgage suitability comes as delinquencies are on the rise. Some 2.51% of mortgages were delinquent in the fourth quarter, the highest level since early 2002, according to Equifax Inc. and Moody's Economy.com Inc. Lenders also are being affected. A growing list of lenders that cater to borrowers with scuffed credit records have shut their doors. Other lenders are tightening their standards, making it harder for some individuals to refinance into new mortgages or buy a home.
Roughly two-thirds of mortgages are now packaged into securities and sold to investors world-wide. That and other innovations have made credit cheaper and more available, helping more people to afford a home. The national homeownership rate stood at 68.9% in the fourth quarter, according to the U.S. Census Bureau. That's up from about 65% in 1996.
But many borrowers still think they are dealing with a "paternal" lender "who wouldn't put me in a loan I can't repay," says Ohio Attorney General Marc Dann. An Ohio law that took effect in January requires mortgage brokers and loan officers to make "reasonable efforts" to secure a loan with terms that are "advantageous" to the borrower.
Pennsylvania's Department of Banking will in the next few weeks publish proposed rules that would require mortgage lenders to discern whether borrowers will be able to repay their loan over its life, rather than just make the introductory payment.
In Iowa, Attorney General Tom Miller is proposing legislation that would require mortgage brokers to place customers in loans that are in the "best interests of the borrower and not ... the mortgage lender." North Carolina already requires that mortgage brokers "make reasonable efforts ... to secure a loan that is reasonably advantageous to the borrower."
Consumer groups say they are looking to ensure that borrowers aren't put into mortgages that are destined to fail. "At its very core, suitability is about the borrower's ability to repay the loan," says Deborah Goldstein, executive vice president of the Center for Responsible Lending, a nonprofit research and lobbying group. A recent study by the center estimated that about 20% of subprime loans originated in 2005 and 2006 will end in foreclosure.
Borrowers who took out exotic mortgages also are running into trouble. Felipe Duluna, a landscaper, bought a house in Watsonville, Calif., in 2005. Mr. Duluna used his life savings of $75,000 as a down payment and took out a first and second mortgage to finance the balance of the $729,000 purchase price. Less than two years later, as his interest rate reset higher and his loan balance grew, Mr. Duluna is unable to make even the minimum payment on the option adjustable-rate mortgage he received.
Speaking through a translator because he is fluent only in Spanish, Mr. Duluna says he was told that the loan was something he could afford. Mr. Duluna says he trusted the mortgage broker, who was also the real-estate agent on the sale, and told him repeatedly that he couldn't spend more than $1,800 a month on mortgage payments. Given Mr. Duluna's annual income of $27,000, and his family's combined income of about $72,000, "these folks have no ability to actually afford this loan," says Mr. Duluna's attorney Pamela Simmons, with Simmons & Purdy.
In weighing whether a loan is suitable, lenders might need to consider the borrower's financial circumstances, ability to repay the loan and their objectives, consumer groups say. "It's not enough to say somebody is qualified for a loan...if they are left with $200, or a small amount, after the mortgage is paid," says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.
Whether a loan is suitable depends on a variety of factors, including a borrower's current situation and future plans, experts say. An adjustable-rate mortgage could be a smart choice for borrowers who expect to move in a few years or believe their salaries will rise to accommodate higher monthly payments. But the same loan could be dangerous for someone on a fixed income.
Another factor to consider is how much of a borrower's income will be devoted to housing. Some lenders will allow homeowners to spend as much as 50% of their gross income on mortgage payments, taxes and insurance, but that doesn't leave enough of a cushion for most people, says Mitch Ohlbaum, a mortgage broker in Los Angeles. Even in a high-cost market such as California, "for a regular guy in a regular job, 45% is the most they should be looking at."
Mr. Miller, the Iowa attorney general, advises borrowers to be wary of loans with low "teaser rates" and loans with prepayment penalties that can make selling a home or refinancing costly. Rather than focusing on the initial payment, borrowers should consider their ability to pay "not just the first payment or payments for the first couple of years, but the first five years or even longer" if they plan to stay put, he says.
Another consideration is what will happen if things don't work out as planned. Many borrowers took out adjustable-rate mortgages and exotic loans, figuring they would refinance in a few years. "One of the things that is driving the increased default rate is people who thought they could solve their problems by refinancing," says Kurt Eggert, a professor at Chapman University School of Law in Orange, Calif. Tighter lending standards, a soft housing market and, in some cases, their own credit problems are making refinancing less of an option for some borrowers.
Email your comments to rjeditor@dowjones.com.
-- March 09, 2007
Homes of the Future Promise Easier Access for Aging Boomers
By June Fletcher
From The Wall Street Journal Online
Universal design may actually be getting universal.
Home builders have long given lip-service to designing houses that accommodate people of all ages and physical abilities, but few companies actually built them. Now, though, the idea is gaining traction. Big builders such as K. Hovnanian on the East Coast and Standard Pacific on the West are touting wheelchair-friendly doorways, shelves and countertops that require less bending and reaching, and master suites on the first floor. And while furniture and housewares manufacturers have already discovered the market for remote-control recliners and ergonomic potato peelers, major appliance manufacturers are now stepping in, with the likes of General Electric, Delta and Jacuzzi offering new appliances and fixtures for homeowners with physical limitations.
Traditionally, the market for these products has been the elderly and handicapped, but builders and manufacturers see a bigger prize: middle-aged homeowners who don't need them yet. The beleaguered housing industry is hoping it can attract these buyers with more stylish, less institutional fare such as "smart" kitchen faucets and dishwashers and walk-in spas with "chromatherapy mood lighting."
Garry and Kathleen Houghton are in their 50s and aren't disabled. Still, the $944,000 Craftsman-style home they're building in Sisters, Ore., will be a model of accessibility. The three-bedroom house will be all on one level. Wide doorways will accommodate wheelchairs, as will the tile and wood flooring used instead of carpeting. Oversized showers in each of the three bathrooms will have built-in seats, and in the kitchen, to cut down on back-straining bending and reaching, the oven will have a door that swings open to the side and there'll be no hard-to-get-at upper cabinets.
[buildimprove]
Form and Function: The floor of Gaggenau's Lift Oven raises and lowers.
"We want to be prepared," says Ms. Houghton, a retired nurse. The Houghtons say they're also creating a haven for their elderly parents, currently living on their own but in declining health.
Wider Halls, Higher Sockets
Although no one tracks the number of homes built with accessibility in mind, new demonstration houses across the country reflect a groundswell of interest. In December, Centex Homes built a 4,000-square-foot model home in Bristow, Va., with gently sloping sidewalks, lower cabinets for the wheelchair-bound, and a staircase with contrasting-color wood for the sight-impaired. The model has attracted thousands of visitors amid a slow local market, the company says. The two official show houses at February's International Builders Show in Orlando, Fla., featured elevators, wide hallways and shower stalls, and "rocker" light switches easily operated by arthritic hands. And in Omaha, Neb., Curt Hofer Construction has broken ground on a "barrier-free" house that will have lowered closet rods, high electrical sockets and a ramp leading up to stadium-style seating in the media room. The 4,300-square-foot home will open to the public in July and cost $700,000.
Builders and architects who already incorporate accessible design into their projects say demand is growing. McLean, Va., architect William Devereaux says about a third of the 100 large production-home builders he works with nationwide now ask him to include features like the ones he included in the Bristow demonstration house. "Five years ago, no one did," he says. Builder Roy Wendt says sales of his three- and four-bedroom ranch-style homes in the Atlanta area were up 10% last year over the year before. Marketed mostly to able-bodied boomers, the homes have higher toilets, pull-out trash containers and more drawers than doors in kitchen cabinets. Mr. Wendt started specializing in accessibility seven years ago after two wheelchair-bound visitors couldn't get in the front door of one of his models.
Designers say that installing accessibility features like wider doorways can add as much as 20% to the price of a home if it's done as a retrofit, although the cost is negligible if the features are included in the plans for a new house. And many of the new offerings are in the marble-countertop and Tuscan-tile price range. At the International Builders Show, Delta showed a $1,064 faucet that can be turned on and off by tapping it or by waving hands past a sensor. Jacuzzi prominently featured its $10,600 Finestra Therapy Bath, a bubbling spa with a chair-high seat that is entered via a waist-high door. And Gaggenau introduced a $3,300 over-the-range convection oven with a floor that drops down to countertop height at the touch of a button so it can be loaded.
[buildimprove]
Brizo's Pascal Culinary faucet is operated by tapping or placing hands under the spout.
Functional, but Ugly
The term "universal design" was coined about two decades ago by the late Ron Mace, an architect who spent most of his life in a wheelchair and who established what is now known as the Center for Universal Design at North Carolina State University. As Mr. Mace explained it, universal design would make living spaces fully functional for everyone, not just the disabled. While the idea met with much praise at the time, it didn't catch fire. Proponents soon learned that even things as obviously useful as grab bars in the shower were a turnoff to consumers because they suggested frailty and decline. Not only that: "They were ugly," says Dick Duncan, a spokesman for the center.
Indeed, the concept as it is known today might better be identified as "universal-design lite." Full access is no longer the goal and features that obviously point to disability are left out unless customers request them -- and they usually don't until they actually need them. "I even had trouble convincing a couple in their 80s to put in grab bars," says Vince Butler, a Clifton, Va., remodeler, who retrofits homes for accessibility.
But since one in three Americans will be over 50 by the year 2010, consumers' acceptance is probably inevitable. Marc Hottenroth, leader of industrial design for GE Consumer & Industrial, says aging consumers in hundreds of recent focus groups and in-home observations have expressed frustration with home appliances that require so much bending and reaching. As a result, the company recently rolled out a refrigerator with French doors that is more accessible for people with walkers, front-loading washers and dryers that sit on pedestals for ease of loading, and a "smart" dishwasher that dispenses liquid detergent from a bottle so users won't have to bend down to add soap each time.
[buildimprove]
Kohler Memoirs' shower seat is part of the fiberglass surround.
A changing legal landscape is encouraging builders to take accessibility seriously. Although the Americans With Disabilities Act of 1990 requires public places to be barrier-free, no such federal law applies to single-family homes. But 14 states and numerous localities have enacted a patchwork of laws that either mandate builders to make homes more accessible or offer tax credits or other incentives for doing so. Almost two-thirds were passed within the past five years, and nine more states have initiatives pending.
More accessible public spaces -- sidewalk curb cuts, hands-free faucets -- have also changed expectations, says California remodeler Iris Harrell. "People just assume that they'll be able to go anywhere, uninterrupted," Ms. Harrell says. The designer soon plans to install an elevator in her own house and to replace three steps with a ramp. She and her partner, both 60, want to make sure they can stay there long after they retire; the changes will also make visits easier for Ms. Harrell's brother, recently wheelchair-bound after several surgeries.
Hidden Downsides
Putting in features that you don't really need can have unintended consequences, says Mr. Devereaux. Stoves with knobs in front can be helpful for arthritic fingers but a danger to curious toddlers unless there is a locking mechanism. Curbless entry doors and showers can leak. And wider hallways, bathrooms and kitchens may mean smaller bedrooms, dining areas and living rooms.
Anne-Marie and Bill Peters know all about the downsides. Four years ago, they paid $275,000 for a four-bedroom house in Chapel Hill, N.C., with features they loved, including an automated revolving rack in the closet, and shower nozzles set at different heights. But the home's tall countertops were too high for visiting children. And the kitchen cabinet on casters was annoying: Meant to slide out so a wheelchair-bound person could work at the countertop, the cabinet rolled around and got jammed whenever someone tried to open its door. "It drove me crazy," says Ms. Peters, a homemaker. They eventually hired a handyman to install slide-in shelves instead.
Need has a way of turning skeptics into converts, however. When she bought a new home in Atlanta for $250,000, Rhonda Buckley wasn't particularly impressed with the oversize shower, the lever door handles and the fact that there were no steps to the front door. In fact, the 49-year-old marketing manager was more worried that such things would make her seem over-the-hill.
Then she sprained her ankle. The functional benefits of her home became so clear that she recently convinced her elderly parents to buy a similar house down the street. "I never plan to move," says Ms. Buckley. "As I get older, this house will be there for me."
Email your comments to rjeditor@dowjones.com.
-- March 12, 2007
From The Wall Street Journal Online
Universal design may actually be getting universal.
Home builders have long given lip-service to designing houses that accommodate people of all ages and physical abilities, but few companies actually built them. Now, though, the idea is gaining traction. Big builders such as K. Hovnanian on the East Coast and Standard Pacific on the West are touting wheelchair-friendly doorways, shelves and countertops that require less bending and reaching, and master suites on the first floor. And while furniture and housewares manufacturers have already discovered the market for remote-control recliners and ergonomic potato peelers, major appliance manufacturers are now stepping in, with the likes of General Electric, Delta and Jacuzzi offering new appliances and fixtures for homeowners with physical limitations.
Traditionally, the market for these products has been the elderly and handicapped, but builders and manufacturers see a bigger prize: middle-aged homeowners who don't need them yet. The beleaguered housing industry is hoping it can attract these buyers with more stylish, less institutional fare such as "smart" kitchen faucets and dishwashers and walk-in spas with "chromatherapy mood lighting."
Garry and Kathleen Houghton are in their 50s and aren't disabled. Still, the $944,000 Craftsman-style home they're building in Sisters, Ore., will be a model of accessibility. The three-bedroom house will be all on one level. Wide doorways will accommodate wheelchairs, as will the tile and wood flooring used instead of carpeting. Oversized showers in each of the three bathrooms will have built-in seats, and in the kitchen, to cut down on back-straining bending and reaching, the oven will have a door that swings open to the side and there'll be no hard-to-get-at upper cabinets.
[buildimprove]
Form and Function: The floor of Gaggenau's Lift Oven raises and lowers.
"We want to be prepared," says Ms. Houghton, a retired nurse. The Houghtons say they're also creating a haven for their elderly parents, currently living on their own but in declining health.
Wider Halls, Higher Sockets
Although no one tracks the number of homes built with accessibility in mind, new demonstration houses across the country reflect a groundswell of interest. In December, Centex Homes built a 4,000-square-foot model home in Bristow, Va., with gently sloping sidewalks, lower cabinets for the wheelchair-bound, and a staircase with contrasting-color wood for the sight-impaired. The model has attracted thousands of visitors amid a slow local market, the company says. The two official show houses at February's International Builders Show in Orlando, Fla., featured elevators, wide hallways and shower stalls, and "rocker" light switches easily operated by arthritic hands. And in Omaha, Neb., Curt Hofer Construction has broken ground on a "barrier-free" house that will have lowered closet rods, high electrical sockets and a ramp leading up to stadium-style seating in the media room. The 4,300-square-foot home will open to the public in July and cost $700,000.
Builders and architects who already incorporate accessible design into their projects say demand is growing. McLean, Va., architect William Devereaux says about a third of the 100 large production-home builders he works with nationwide now ask him to include features like the ones he included in the Bristow demonstration house. "Five years ago, no one did," he says. Builder Roy Wendt says sales of his three- and four-bedroom ranch-style homes in the Atlanta area were up 10% last year over the year before. Marketed mostly to able-bodied boomers, the homes have higher toilets, pull-out trash containers and more drawers than doors in kitchen cabinets. Mr. Wendt started specializing in accessibility seven years ago after two wheelchair-bound visitors couldn't get in the front door of one of his models.
Designers say that installing accessibility features like wider doorways can add as much as 20% to the price of a home if it's done as a retrofit, although the cost is negligible if the features are included in the plans for a new house. And many of the new offerings are in the marble-countertop and Tuscan-tile price range. At the International Builders Show, Delta showed a $1,064 faucet that can be turned on and off by tapping it or by waving hands past a sensor. Jacuzzi prominently featured its $10,600 Finestra Therapy Bath, a bubbling spa with a chair-high seat that is entered via a waist-high door. And Gaggenau introduced a $3,300 over-the-range convection oven with a floor that drops down to countertop height at the touch of a button so it can be loaded.
[buildimprove]
Brizo's Pascal Culinary faucet is operated by tapping or placing hands under the spout.
Functional, but Ugly
The term "universal design" was coined about two decades ago by the late Ron Mace, an architect who spent most of his life in a wheelchair and who established what is now known as the Center for Universal Design at North Carolina State University. As Mr. Mace explained it, universal design would make living spaces fully functional for everyone, not just the disabled. While the idea met with much praise at the time, it didn't catch fire. Proponents soon learned that even things as obviously useful as grab bars in the shower were a turnoff to consumers because they suggested frailty and decline. Not only that: "They were ugly," says Dick Duncan, a spokesman for the center.
Indeed, the concept as it is known today might better be identified as "universal-design lite." Full access is no longer the goal and features that obviously point to disability are left out unless customers request them -- and they usually don't until they actually need them. "I even had trouble convincing a couple in their 80s to put in grab bars," says Vince Butler, a Clifton, Va., remodeler, who retrofits homes for accessibility.
But since one in three Americans will be over 50 by the year 2010, consumers' acceptance is probably inevitable. Marc Hottenroth, leader of industrial design for GE Consumer & Industrial, says aging consumers in hundreds of recent focus groups and in-home observations have expressed frustration with home appliances that require so much bending and reaching. As a result, the company recently rolled out a refrigerator with French doors that is more accessible for people with walkers, front-loading washers and dryers that sit on pedestals for ease of loading, and a "smart" dishwasher that dispenses liquid detergent from a bottle so users won't have to bend down to add soap each time.
[buildimprove]
Kohler Memoirs' shower seat is part of the fiberglass surround.
A changing legal landscape is encouraging builders to take accessibility seriously. Although the Americans With Disabilities Act of 1990 requires public places to be barrier-free, no such federal law applies to single-family homes. But 14 states and numerous localities have enacted a patchwork of laws that either mandate builders to make homes more accessible or offer tax credits or other incentives for doing so. Almost two-thirds were passed within the past five years, and nine more states have initiatives pending.
More accessible public spaces -- sidewalk curb cuts, hands-free faucets -- have also changed expectations, says California remodeler Iris Harrell. "People just assume that they'll be able to go anywhere, uninterrupted," Ms. Harrell says. The designer soon plans to install an elevator in her own house and to replace three steps with a ramp. She and her partner, both 60, want to make sure they can stay there long after they retire; the changes will also make visits easier for Ms. Harrell's brother, recently wheelchair-bound after several surgeries.
Hidden Downsides
Putting in features that you don't really need can have unintended consequences, says Mr. Devereaux. Stoves with knobs in front can be helpful for arthritic fingers but a danger to curious toddlers unless there is a locking mechanism. Curbless entry doors and showers can leak. And wider hallways, bathrooms and kitchens may mean smaller bedrooms, dining areas and living rooms.
Anne-Marie and Bill Peters know all about the downsides. Four years ago, they paid $275,000 for a four-bedroom house in Chapel Hill, N.C., with features they loved, including an automated revolving rack in the closet, and shower nozzles set at different heights. But the home's tall countertops were too high for visiting children. And the kitchen cabinet on casters was annoying: Meant to slide out so a wheelchair-bound person could work at the countertop, the cabinet rolled around and got jammed whenever someone tried to open its door. "It drove me crazy," says Ms. Peters, a homemaker. They eventually hired a handyman to install slide-in shelves instead.
Need has a way of turning skeptics into converts, however. When she bought a new home in Atlanta for $250,000, Rhonda Buckley wasn't particularly impressed with the oversize shower, the lever door handles and the fact that there were no steps to the front door. In fact, the 49-year-old marketing manager was more worried that such things would make her seem over-the-hill.
Then she sprained her ankle. The functional benefits of her home became so clear that she recently convinced her elderly parents to buy a similar house down the street. "I never plan to move," says Ms. Buckley. "As I get older, this house will be there for me."
Email your comments to rjeditor@dowjones.com.
-- March 12, 2007
Buy A House Now, Or Wait For Prices to Fall Some More?
By June Fletcher
Question: Is now a good time to buy a home, or should I wait for prices to fall further?
Everybody: With the housing market on life support, just about everyone I talk to these days is asking some version of this question. So rather than answering for one person in a specific market, I'll tackle the issue generically.
Nineteen months past its peak, residential real estate continues to weaken, with prices and sales down and inventories rising across the U.S. For sellers, this is ghastly news, of course, but buyers have mixed feelings. On the one hand, after years of bidding wars, instant offers without home inspections and even penning poems to convince sellers to hand over the keys, it's delightful to finally have choices and negotiating room. On the other hand, it's a bit frightening to make a commitment now, when there's a chance that prices could drop even lower.
Caught between opportunity and risk, what's a buyer to do? Here are some ideas to keep in mind in our current "buyer's market":
Buyers, not sellers, set prices. This may seem counterintuitive, but all a seller can do is suggest an asking price. The real price is whatever a buyer pays for it.
In 2004 and 2005, home prices rose because buyers flooded the market -- now prices are falling because buyers are sitting on the sidelines. Meanwhile, the number of homes being built hasn't changed drastically; rather, supply is growing because existing-home sellers can't figure out what buyers are now willing to pay, so their homes are sitting on the market.
Comps may not matter now. When markets are in upheaval, either up or down, recent sales of comparable houses are of less value than they are in more stable times. So take a look at public records, which are now often listed on Web sites, as well as Internet tools like Zillow and Trulia. But take them all with a grain of salt. They may be guiding sellers as they set their asking prices, but they don't necessarily indicate what a seller will accept, since the market is in flux.
Agents are talking. When times are good, listing agents typically reveal little about their sellers' motivations or pricing strategies ... which is as it should be. Listing agents have a duty to get the best possible deal for the seller.
But agents don't get paid unless deals are made, and many are hurting now. So many have looser lips than usual -- something that sellers should keep in mind when they tell their agents about why they're moving and what price they'd ultimately expect. Buyers, however, aren't breaking any rules by asking, and the information they receive could help them decide what and when to bid.
For instance, I recently visited two open houses in Naples, Fla. -- a place with extremely high levels of unsold inventory -- where the respective agents both told me their sellers planned to drop prices drastically the following week. That's not what agents are "supposed" to do, but it's happening, especially in the softest markets.
Timing the market isn't possible. Although many economists predict that nationally, housing still has a way to go to reach bottom, you don't have to wait for that to happen to get a good deal. In fact, it's better to buy when housing is trending down than when it reaches the floor, since at that exact moment, the balance of power begins to shift toward the seller again. So if you see a house you like and can afford, make a bid now. And don't worry about insulting sellers with a "lowball" offer. They may be desperate to move because of a new job, marriage, divorce, overstretched bank account or other motive. Yours may be the only bid they've received in months and they may be very glad to have it.
-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
Share your comments on the House Talk discussion board.
Email your comments to june.fletcher@wsj.com.
-- March 12, 2007
Question: Is now a good time to buy a home, or should I wait for prices to fall further?
Everybody: With the housing market on life support, just about everyone I talk to these days is asking some version of this question. So rather than answering for one person in a specific market, I'll tackle the issue generically.
Nineteen months past its peak, residential real estate continues to weaken, with prices and sales down and inventories rising across the U.S. For sellers, this is ghastly news, of course, but buyers have mixed feelings. On the one hand, after years of bidding wars, instant offers without home inspections and even penning poems to convince sellers to hand over the keys, it's delightful to finally have choices and negotiating room. On the other hand, it's a bit frightening to make a commitment now, when there's a chance that prices could drop even lower.
Caught between opportunity and risk, what's a buyer to do? Here are some ideas to keep in mind in our current "buyer's market":
Buyers, not sellers, set prices. This may seem counterintuitive, but all a seller can do is suggest an asking price. The real price is whatever a buyer pays for it.
In 2004 and 2005, home prices rose because buyers flooded the market -- now prices are falling because buyers are sitting on the sidelines. Meanwhile, the number of homes being built hasn't changed drastically; rather, supply is growing because existing-home sellers can't figure out what buyers are now willing to pay, so their homes are sitting on the market.
Comps may not matter now. When markets are in upheaval, either up or down, recent sales of comparable houses are of less value than they are in more stable times. So take a look at public records, which are now often listed on Web sites, as well as Internet tools like Zillow and Trulia. But take them all with a grain of salt. They may be guiding sellers as they set their asking prices, but they don't necessarily indicate what a seller will accept, since the market is in flux.
Agents are talking. When times are good, listing agents typically reveal little about their sellers' motivations or pricing strategies ... which is as it should be. Listing agents have a duty to get the best possible deal for the seller.
But agents don't get paid unless deals are made, and many are hurting now. So many have looser lips than usual -- something that sellers should keep in mind when they tell their agents about why they're moving and what price they'd ultimately expect. Buyers, however, aren't breaking any rules by asking, and the information they receive could help them decide what and when to bid.
For instance, I recently visited two open houses in Naples, Fla. -- a place with extremely high levels of unsold inventory -- where the respective agents both told me their sellers planned to drop prices drastically the following week. That's not what agents are "supposed" to do, but it's happening, especially in the softest markets.
Timing the market isn't possible. Although many economists predict that nationally, housing still has a way to go to reach bottom, you don't have to wait for that to happen to get a good deal. In fact, it's better to buy when housing is trending down than when it reaches the floor, since at that exact moment, the balance of power begins to shift toward the seller again. So if you see a house you like and can afford, make a bid now. And don't worry about insulting sellers with a "lowball" offer. They may be desperate to move because of a new job, marriage, divorce, overstretched bank account or other motive. Yours may be the only bid they've received in months and they may be very glad to have it.
-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
Share your comments on the House Talk discussion board.
Email your comments to june.fletcher@wsj.com.
-- March 12, 2007
Friday, March 9, 2007
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, March 9, 2007, at 6:00 p.m. EST.
The February Jobs Creation report pushed stock prices higher this morning. At the close, the Dow added 16 points, closing at 12,276, while the Nasdaq remained flat at 2,387. Oil closed down $1.59 at $60.05 per barrel, and gold closed down $3.50 at $652.00 an ounce.
In February, 97,000 new jobs were created. January's report was revised higher to 146,000 jobs created from the 110,000 jobs originally reported last month. The unemployment rate fell to 4.5 percent from 4.6 percent. January's trade deficit fell to 59.1 billion and helped to strengthen the dollar.
A second consecutive day of gains in Japan's Nikkei stock index calmed concerns over further unwinding of the carry trade, which is the practice of borrowing money from Japan at its rate of one-half percent, then investing the money elsewhere at much higher rates of return, such as U.S. Treasury bills at 4.5 percent.
However, the most important issue today is record global liquidity, including record liquidity in the U.S. The bears were hoping for a ten percent correction, but only achieved five percent because money poured into the market from the sidelines and pushed stocks back up again. The battle between bulls and bears will continue for awhile, but the vast majority of the selling is over.
Don't forget, this correction began in Shanghai after the vice chairman of China's largest legislative body said 70 percent of the domestically traded companies were worthless and should be delisted. We have not heard the end of problems in China. I continue to recommend that you avoid investing in China. You would be far better off owning the ETFs from surrounding countries, such as Malaysia and Singapore, or the Emerging Markets ETFs, all of which are listed on our page 16 recommended list.
The U.S. stock market is still substantially undervalued at 34 percent. Stay close to our telephone/e-mail/website Hotline Updates. You should become fully invested immediately.
The next Hotline Update will be on Tuesday, March 13, 2007, at 6:00 p.m. EST.
The February Jobs Creation report pushed stock prices higher this morning. At the close, the Dow added 16 points, closing at 12,276, while the Nasdaq remained flat at 2,387. Oil closed down $1.59 at $60.05 per barrel, and gold closed down $3.50 at $652.00 an ounce.
In February, 97,000 new jobs were created. January's report was revised higher to 146,000 jobs created from the 110,000 jobs originally reported last month. The unemployment rate fell to 4.5 percent from 4.6 percent. January's trade deficit fell to 59.1 billion and helped to strengthen the dollar.
A second consecutive day of gains in Japan's Nikkei stock index calmed concerns over further unwinding of the carry trade, which is the practice of borrowing money from Japan at its rate of one-half percent, then investing the money elsewhere at much higher rates of return, such as U.S. Treasury bills at 4.5 percent.
However, the most important issue today is record global liquidity, including record liquidity in the U.S. The bears were hoping for a ten percent correction, but only achieved five percent because money poured into the market from the sidelines and pushed stocks back up again. The battle between bulls and bears will continue for awhile, but the vast majority of the selling is over.
Don't forget, this correction began in Shanghai after the vice chairman of China's largest legislative body said 70 percent of the domestically traded companies were worthless and should be delisted. We have not heard the end of problems in China. I continue to recommend that you avoid investing in China. You would be far better off owning the ETFs from surrounding countries, such as Malaysia and Singapore, or the Emerging Markets ETFs, all of which are listed on our page 16 recommended list.
The U.S. stock market is still substantially undervalued at 34 percent. Stay close to our telephone/e-mail/website Hotline Updates. You should become fully invested immediately.
The next Hotline Update will be on Tuesday, March 13, 2007, at 6:00 p.m. EST.
Thursday, March 8, 2007
Solar technology gets White House boost
By MARK JEWELL, AP Business Writer Thu Mar 8, 3:06 AM ET
BOSTON - A company trying to harness energy from sunlight and interior light to wirelessly power everything from cell phones to signboards now has financial backing from the White House.
President Bush's program to help solar energy compete with conventional electricity sources will help fund Konarka Technologies' development of flexible plastic solar cell strips — material that could be embedded into the casings of laptop computers and even woven into power-producing clothing to energize digital media players or other electronics.
The technology, which received its first
Pentagon funding three years ago, offers a lightweight, flexible alternative to conventional rigid photovoltaic cells on glass panels.
Energy Secretary
Samuel Bodman is scheduled Thursday afternoon to tour Konarka's headquarters in a former textile mill in Lowell, where he's expected to announce funding from Bush's Solar America Initiative.
The award amount and other details were to be announced in a news conference at Konarka, a six-year-old private company that has attracted nearly $60 million in venture capital funding.
Konarka's nearly $10 million in grant money to date from U.S. and European governments includes funding from the Pentagon to supply lightweight portable battery chargers and material for tents to draw power from sunlight.
Chief Executive Howard Berke said the new White House support is a milestone for Konarka.
The first commercial product using Konarka's technology isn't expected to hit the market until next year, and the company isn't saying what that product might be. Konarka expects to provide prototypes in the second half of this year to commercial partners that would bring the technology to market.
Konarka's approach "is potentially a great breakthrough technology, but like all breakthroughs, they don't happen instantaneously," Berke said in a phone interview.
Observers say Konarka has a good chance of becoming a leader in solar power, an industry enjoying a recent surge in initial public stock offerings by startup companies as well as growing investments from traditional energy companies — for example, one of Konarka's financial backers is Chevron Corp.
Konarka's development of plastic solar cell strips that can be manufactured like rolls of photographic film "has the promise of becoming a low-cost manufacturing technique," said Jeffrey Bencik, a Jefferies & Co. analyst who follows the solar industry. "Some of their laboratory production has worked as advertised. But can they mass-produce it and get the same result? That's the biggest question."
Among developers of solar technology for small-scale uses, Konarka is "definitely doing the best job at developing what ultimately will have to be a mass-manufactured material," said Dan Nocera, a Massachusetts Institute of Technology chemistry professor.
However, Nocera said it remains to be seen whether Konarka's so-called "Power Plastic" is sufficiently chemically stable to convert energy efficiently both when light is dim and when it's bright.
Konarka, which takes its name from an ancient temple in India dedicated to the sun god Surya, was founded by Berke and Alan Heeger, who shared the 2000 Nobel Chemistry prize for showing that certain plastics can be made to conduct electricity.
The discovery about polymers — long considered to be useful only as electrical insulators — led to the development of new types of plastics to create flexible and lightweight alternatives to traditional solar cells on heavy glass panels.
Konarka developed low-cost plastics that could be used as the top and bottom surfaces of the photovoltaic cell. The 50-employee company says it has more than 280 patents and patent applications for materials, manufacturing and other processes and devices.
The company says its solar cells are efficient across a much broader spectrum of light than traditional cells, allowing them to draw energy from both the sun and indoor lighting.
Konarka says its material is lightweight and flexible so that it can be colored, patterned and cut to fit almost any device. The firm envisions embedding its material in cell phones, laptops and toys to provide power on the go. Clothing could be woven with the material to supply power for handheld electronics, and signboards, traffic lights and rooftops could be fitted with solar strips.
Berke foresees wide use of such technology in the developing world and areas off the electrical grid.
To that end, Berke said Konarka has held confidential discussions with the manufacturer of an inexpensive portable computer developed for the nonprofit One Laptop Per Child project, which seeks to provide computers to young students in the developing world. The project's current design features a hand crank for charging batteries.
"In the developing world, great demand exists for off-the-grid support of electronic devices," Berke said.
BOSTON - A company trying to harness energy from sunlight and interior light to wirelessly power everything from cell phones to signboards now has financial backing from the White House.
President Bush's program to help solar energy compete with conventional electricity sources will help fund Konarka Technologies' development of flexible plastic solar cell strips — material that could be embedded into the casings of laptop computers and even woven into power-producing clothing to energize digital media players or other electronics.
The technology, which received its first
Pentagon funding three years ago, offers a lightweight, flexible alternative to conventional rigid photovoltaic cells on glass panels.
Energy Secretary
Samuel Bodman is scheduled Thursday afternoon to tour Konarka's headquarters in a former textile mill in Lowell, where he's expected to announce funding from Bush's Solar America Initiative.
The award amount and other details were to be announced in a news conference at Konarka, a six-year-old private company that has attracted nearly $60 million in venture capital funding.
Konarka's nearly $10 million in grant money to date from U.S. and European governments includes funding from the Pentagon to supply lightweight portable battery chargers and material for tents to draw power from sunlight.
Chief Executive Howard Berke said the new White House support is a milestone for Konarka.
The first commercial product using Konarka's technology isn't expected to hit the market until next year, and the company isn't saying what that product might be. Konarka expects to provide prototypes in the second half of this year to commercial partners that would bring the technology to market.
Konarka's approach "is potentially a great breakthrough technology, but like all breakthroughs, they don't happen instantaneously," Berke said in a phone interview.
Observers say Konarka has a good chance of becoming a leader in solar power, an industry enjoying a recent surge in initial public stock offerings by startup companies as well as growing investments from traditional energy companies — for example, one of Konarka's financial backers is Chevron Corp.
Konarka's development of plastic solar cell strips that can be manufactured like rolls of photographic film "has the promise of becoming a low-cost manufacturing technique," said Jeffrey Bencik, a Jefferies & Co. analyst who follows the solar industry. "Some of their laboratory production has worked as advertised. But can they mass-produce it and get the same result? That's the biggest question."
Among developers of solar technology for small-scale uses, Konarka is "definitely doing the best job at developing what ultimately will have to be a mass-manufactured material," said Dan Nocera, a Massachusetts Institute of Technology chemistry professor.
However, Nocera said it remains to be seen whether Konarka's so-called "Power Plastic" is sufficiently chemically stable to convert energy efficiently both when light is dim and when it's bright.
Konarka, which takes its name from an ancient temple in India dedicated to the sun god Surya, was founded by Berke and Alan Heeger, who shared the 2000 Nobel Chemistry prize for showing that certain plastics can be made to conduct electricity.
The discovery about polymers — long considered to be useful only as electrical insulators — led to the development of new types of plastics to create flexible and lightweight alternatives to traditional solar cells on heavy glass panels.
Konarka developed low-cost plastics that could be used as the top and bottom surfaces of the photovoltaic cell. The 50-employee company says it has more than 280 patents and patent applications for materials, manufacturing and other processes and devices.
The company says its solar cells are efficient across a much broader spectrum of light than traditional cells, allowing them to draw energy from both the sun and indoor lighting.
Konarka says its material is lightweight and flexible so that it can be colored, patterned and cut to fit almost any device. The firm envisions embedding its material in cell phones, laptops and toys to provide power on the go. Clothing could be woven with the material to supply power for handheld electronics, and signboards, traffic lights and rooftops could be fitted with solar strips.
Berke foresees wide use of such technology in the developing world and areas off the electrical grid.
To that end, Berke said Konarka has held confidential discussions with the manufacturer of an inexpensive portable computer developed for the nonprofit One Laptop Per Child project, which seeks to provide computers to young students in the developing world. The project's current design features a hand crank for charging batteries.
"In the developing world, great demand exists for off-the-grid support of electronic devices," Berke said.
Wednesday, March 7, 2007
Housing Bubble: Toil and Trouble Follows Predictable Pattern
By Justin Lahart
From The Wall Street Journal Online
So much for once burned, twice shy.
Seven years after the stock-market bubble busted, the troubles in the housing market look strikingly familiar. In fact, everything is going according to the textbook -- the textbook in this case being Charles Kindleberger's 1978 classic, "Manias, Panics, and Crashes."
Mr. Kindleberger found speculative bubbles tended to follow similar patterns. First, there is some "displacement" -- such as the development of the Internet or a prolonged period of ultralow interest rates -- that radically improves the outlook for some area of the economy. People take advantage of the opportunity, fueling a boom that is fed by progressively easier access to cash. At the height of the bubble, there's "pure speculation"; assets are bought to quickly sell them again at a higher price -- day-trading in 2000, condo-flipping more recently, tulips long ago.
The speculation eventually runs its course and in the ensuing downturn, swindles come to light. That leads to "revulsion." Lines of credit dry up and regulators, Sarbanes-Oxley style, rush to shut the door of the empty cow barn. In the worst cases, selling panics follow.
Revulsion is where housing appears to be.
Early February, the Federal Reserve reported a sharp increase in the number of banks tightening mortgage-lending standards. On Tuesday, Freddie Mac -- whose main business is repackaging mortgages into mortgage-backed securities -- said it was tightening standards on purchases of risky, subprime mortgages. On Friday, banking regulators proposed stricter mortgage guidance.
As Mr. Kindleberger showed, financial shenanigans in housing are coming to light. A jump in "early defaults," where borrowers stop paying shortly after taking out their mortgage, stems in part from questionable lending practices.
Jon Goodman, a Boulder, Colo., real-estate lawyer with Frascona, Joiner, Goodman & Greenstein, says he has seen dozens of cases where buyers tried to buy a house for more than it was worth in return for a kickback from the seller. The buyer might pay $500,000 for a house that is really worth $450,000 and get $50,000 back from the seller. The kickback gets used as a kitty to make mortgage payments while the buyer waits for someone to buy the house for more than he paid. Works great in a rising market; horribly in a falling one.
It is too early to know the extent of such gimmickry or how tough lenders and regulators will get. But it isn't too early to wonder why, so shortly after the 2000 bust, a bubble cycle repeated itself.
In early 2004, then-Fed Chairman Alan Greenspan said he thought "we don't have to worry much about the emergence of bubbles for a while because it takes a number of years for the trauma of the collapse to wear off." Back then, of course, the Fed's ultralow interest rates were helping to feed the housing boom.
Mr. Kindleberger documented that bubbles frequently come not long after the previous bust. The 1800s included repeated bubbles in canal and rail securities in the U.S. and abroad. Housing wasn't the only place where low rates bred an easy money culture. Emerging-market stocks and bonds, corporate debt and buyouts come to mind.
Email your comments to rjeditor@dowjones.com.
-- March 06, 2007
From The Wall Street Journal Online
So much for once burned, twice shy.
Seven years after the stock-market bubble busted, the troubles in the housing market look strikingly familiar. In fact, everything is going according to the textbook -- the textbook in this case being Charles Kindleberger's 1978 classic, "Manias, Panics, and Crashes."
Mr. Kindleberger found speculative bubbles tended to follow similar patterns. First, there is some "displacement" -- such as the development of the Internet or a prolonged period of ultralow interest rates -- that radically improves the outlook for some area of the economy. People take advantage of the opportunity, fueling a boom that is fed by progressively easier access to cash. At the height of the bubble, there's "pure speculation"; assets are bought to quickly sell them again at a higher price -- day-trading in 2000, condo-flipping more recently, tulips long ago.
The speculation eventually runs its course and in the ensuing downturn, swindles come to light. That leads to "revulsion." Lines of credit dry up and regulators, Sarbanes-Oxley style, rush to shut the door of the empty cow barn. In the worst cases, selling panics follow.
Revulsion is where housing appears to be.
Early February, the Federal Reserve reported a sharp increase in the number of banks tightening mortgage-lending standards. On Tuesday, Freddie Mac -- whose main business is repackaging mortgages into mortgage-backed securities -- said it was tightening standards on purchases of risky, subprime mortgages. On Friday, banking regulators proposed stricter mortgage guidance.
As Mr. Kindleberger showed, financial shenanigans in housing are coming to light. A jump in "early defaults," where borrowers stop paying shortly after taking out their mortgage, stems in part from questionable lending practices.
Jon Goodman, a Boulder, Colo., real-estate lawyer with Frascona, Joiner, Goodman & Greenstein, says he has seen dozens of cases where buyers tried to buy a house for more than it was worth in return for a kickback from the seller. The buyer might pay $500,000 for a house that is really worth $450,000 and get $50,000 back from the seller. The kickback gets used as a kitty to make mortgage payments while the buyer waits for someone to buy the house for more than he paid. Works great in a rising market; horribly in a falling one.
It is too early to know the extent of such gimmickry or how tough lenders and regulators will get. But it isn't too early to wonder why, so shortly after the 2000 bust, a bubble cycle repeated itself.
In early 2004, then-Fed Chairman Alan Greenspan said he thought "we don't have to worry much about the emergence of bubbles for a while because it takes a number of years for the trauma of the collapse to wear off." Back then, of course, the Fed's ultralow interest rates were helping to feed the housing boom.
Mr. Kindleberger documented that bubbles frequently come not long after the previous bust. The 1800s included repeated bubbles in canal and rail securities in the U.S. and abroad. Housing wasn't the only place where low rates bred an easy money culture. Emerging-market stocks and bonds, corporate debt and buyouts come to mind.
Email your comments to rjeditor@dowjones.com.
-- March 06, 2007
Tuesday, March 6, 2007
What if you won $370 million
POSTED: 1:25 p.m. EST, March 6, 2007
CNN) -- The estimated jackpot for the Mega Millions lottery has reached a record $370 million, spurring throngs of hopeful winners to scoop up lottery tickets in 12 participating states ahead of Tuesday night's drawing in New York's Times Square.
CNN.com asked readers what they would do if they won the jackpot. Below is a selection of their responses, some of which have been edited for length and clarity:
Patricia Hebert of Ovilla, Texas
I would keep $3 million and give the rest to Enron's employees that were duped out of their retirement. Getting close to retirement myself I'm really looking at what I'll have when that day comes. I just can't imagine how devastating it must have been when they got the news. Makes me want to cry.
LeoLin Lopez of Chicago, Illinois
I would pay off all of mine, my husband's and my family's debt. I would make sure that all my little family members have college funds. I would save and invest money to ensure that my fortune lasts as long as I do. Then I would take my newly hitched husband on the honeymoon that we have yet to receive. Finally, I would spend my time finding a career that I actually love to do.
Daisy Buck of Bluff, Utah
I would quit my job and retire. Then, I would give some money to my children/grandchildren and to my family. Most of it would probably go to fixing my house, paying the bills, and just kicking back and enjoying life.
Greg Porter of San Jose, California
I would go back to my hometown of Centerville, Iowa, and pay off the bill/loans, if any, of the people who helped me when I needed a place to live when I was young. I owe those people so much that I don't know how else I would ever be able to pay them back for all their help. I left there over 15 years ago and haven't been back since. I just want to make up for all the time that has passed and to help those who helped me.
Patty Riddle of Ventura, California
First, see a financial planner. Secondly, pay off all of my bills. Thirdly, set up a trust fund for my kids for school, etc. Then I would give generously to educational/medical trusts to help others here at home and in Third World countries.
Nancy Schaefer of Blue Springs, Missouri
I would buy a house or condo in New York City; Malibu Beach, California; Los Angeles; Naples, Florida; Dayton, Ohio; Portland, Oregon; Kansas City, Missouri; Jersey Shore; the Hamptons; Vermont; Boston, and hire people to keep them going. The rest I would donate to the homeless.
Charles Robinson of Vineyard Haven, Massachusetts
Start a sustainable ecological engineering company concentrating on developing nations.
Kathy Gloer of Fayetteville, Georgia
There are several things I would like to do. ... For starters ... make sure my grandmother is taken care of. She's close to running out of [money] to cover her costs for her assisted living home where she resides. Secondly ... we have two kids in college ... so that's a given (pay off college tuition). I would cover the cost of our church's need to build more buildings due to our substantial growth, and limited space. I would retire, but not until they have a replacement for me, as my employer has been very good to me. My husband and I have put off vacations and traveling due to college costs, etc, so we would buy an RV and travel the country. I would of course save some ... and give away some as well. This is all after I change my phone numbers, get a lawyer and financial adviser.
Michael Nichols of Caledonia, New York
Hide!
Nancy Kolowich of Bishop, California
The first thing I would do is grab a sleeping bag, my two dogs and go camping in the wilderness so I could grasp the conception that I just won [the jackpot]. The second thing I would do would [be to] hire a financial adviser and then start my search for buying 20 acres of land and building a state-of-the-art site for the country's best and largest animal rescue center. I would also start a program that would capture the general public's knowledge and education of the importance of spaying and neutering animals. Oh, and I would buy a Range Rover.
Robert Harris of Augusta, Georgia
Retire from present job and start up business to help the disabled and poor in a much needed area of Georgia.
Thomas Tasker of Levittown, Pennsylvania
I would travel to 20 major U.S. cities over an extended period of time and appear unannounced to their largest homeless shelter. I would lock in whomever is currently in the building at that time and hand out envelopes with $5,000 cash each.
Joe Pollard of Lucama, North Carolina
The first thing I would do is pay off everything I own. Take a trip somewhere and stay for a couple of weeks. I would help people that are really in need (I know of a few personally). I would put the rest in an account to earn interest. I would definitely quit working.
Margaret Adams of Houston, Texas
I would start a foundation to help people get their lives back on track once they have been released from prison. It is such a tough road for those who really, really want to turn their life around -- sometimes just the journey back into the free world drives them right back to prison -- because they don't have any structure.
Russell Virgils of Phoenix, Arizona
I would embark on a nonstop worldwide tour with my family. I would have a teacher join us for my sons' education. Plus, I'd go to Disneyland.
Miriam McGeehan of Baltimore, Maryland
1. Set up a nonprofit pharmacy service for seniors and children -- shaming pharmaceutical companies into donating drugs.
2. Set up a nonprofit basic medical and dental service for children asking all teaching hospitals to send their interns there to help.
3. Help my children buy homes.
4. Pay off debts and go on an extended vacation with my husband of 38 years since we have never had a vacation, celebrated an anniversary or given each other presents.
Wheeler McLilly of Woodbridge, Virginia
I would first inform my 75-year-old mother she would no longer have to work and purchase her a home. Pay off all my bills, take care of the rest of my family and a few select friends, then retire.
Carol Pitts of Tampa, Florida
I would pay all of my debts off, remodel my house, buy the car of my dreams ... 1997 Toyota Celica or older (hard to believe, huh?). Then I would buy two houses: one for my parents and one for my husband's parents -- but I would only spend at the most $60,000 for both. I would then invest in some land. I would not donate to any charity at all (sorry). This money has to last me and my husband way through retirement. Believe me, we would both work but not as hard. I know a lot of people say I would quit my job ... but why?
David Bradford of Gastonia, North Carolina
First I'd request 50 percent sent to the [Internal Revenue Service] and 10 percent to [the North Carolina Department of Revenue]. No need flirting with jail time. Then I'd be a huge client of the Vanguard Group. Can you say municipal bond funds? The federally tax-exempt dividend income on $90 million is more than enough for me and my extended family to play forever (average of $4 million a year). The rest I'm going to start an auto restoration/modification/research center. I know a lot of good men who work hard but barely live above the poverty line. Using the remaining [money] would be more than enough to give them salaries over $60,000 a year (double what they have now) and do something that we all love.
Furthermore the ultimate in recycling is buying a used car. With all the aftermarket parts out there, some cars can be modified for better gas mileage than a Prius, and the cost to rebuild, own and insure it would be one-third that. Utopia! Not including a huge ranch in West Texas (near Coleman) with Mustangs, some beach property near Galveston and in Guatemala. No private jets [by the way]. Waste of fuel. I can ride coach.
CNN) -- The estimated jackpot for the Mega Millions lottery has reached a record $370 million, spurring throngs of hopeful winners to scoop up lottery tickets in 12 participating states ahead of Tuesday night's drawing in New York's Times Square.
CNN.com asked readers what they would do if they won the jackpot. Below is a selection of their responses, some of which have been edited for length and clarity:
Patricia Hebert of Ovilla, Texas
I would keep $3 million and give the rest to Enron's employees that were duped out of their retirement. Getting close to retirement myself I'm really looking at what I'll have when that day comes. I just can't imagine how devastating it must have been when they got the news. Makes me want to cry.
LeoLin Lopez of Chicago, Illinois
I would pay off all of mine, my husband's and my family's debt. I would make sure that all my little family members have college funds. I would save and invest money to ensure that my fortune lasts as long as I do. Then I would take my newly hitched husband on the honeymoon that we have yet to receive. Finally, I would spend my time finding a career that I actually love to do.
Daisy Buck of Bluff, Utah
I would quit my job and retire. Then, I would give some money to my children/grandchildren and to my family. Most of it would probably go to fixing my house, paying the bills, and just kicking back and enjoying life.
Greg Porter of San Jose, California
I would go back to my hometown of Centerville, Iowa, and pay off the bill/loans, if any, of the people who helped me when I needed a place to live when I was young. I owe those people so much that I don't know how else I would ever be able to pay them back for all their help. I left there over 15 years ago and haven't been back since. I just want to make up for all the time that has passed and to help those who helped me.
Patty Riddle of Ventura, California
First, see a financial planner. Secondly, pay off all of my bills. Thirdly, set up a trust fund for my kids for school, etc. Then I would give generously to educational/medical trusts to help others here at home and in Third World countries.
Nancy Schaefer of Blue Springs, Missouri
I would buy a house or condo in New York City; Malibu Beach, California; Los Angeles; Naples, Florida; Dayton, Ohio; Portland, Oregon; Kansas City, Missouri; Jersey Shore; the Hamptons; Vermont; Boston, and hire people to keep them going. The rest I would donate to the homeless.
Charles Robinson of Vineyard Haven, Massachusetts
Start a sustainable ecological engineering company concentrating on developing nations.
Kathy Gloer of Fayetteville, Georgia
There are several things I would like to do. ... For starters ... make sure my grandmother is taken care of. She's close to running out of [money] to cover her costs for her assisted living home where she resides. Secondly ... we have two kids in college ... so that's a given (pay off college tuition). I would cover the cost of our church's need to build more buildings due to our substantial growth, and limited space. I would retire, but not until they have a replacement for me, as my employer has been very good to me. My husband and I have put off vacations and traveling due to college costs, etc, so we would buy an RV and travel the country. I would of course save some ... and give away some as well. This is all after I change my phone numbers, get a lawyer and financial adviser.
Michael Nichols of Caledonia, New York
Hide!
Nancy Kolowich of Bishop, California
The first thing I would do is grab a sleeping bag, my two dogs and go camping in the wilderness so I could grasp the conception that I just won [the jackpot]. The second thing I would do would [be to] hire a financial adviser and then start my search for buying 20 acres of land and building a state-of-the-art site for the country's best and largest animal rescue center. I would also start a program that would capture the general public's knowledge and education of the importance of spaying and neutering animals. Oh, and I would buy a Range Rover.
Robert Harris of Augusta, Georgia
Retire from present job and start up business to help the disabled and poor in a much needed area of Georgia.
Thomas Tasker of Levittown, Pennsylvania
I would travel to 20 major U.S. cities over an extended period of time and appear unannounced to their largest homeless shelter. I would lock in whomever is currently in the building at that time and hand out envelopes with $5,000 cash each.
Joe Pollard of Lucama, North Carolina
The first thing I would do is pay off everything I own. Take a trip somewhere and stay for a couple of weeks. I would help people that are really in need (I know of a few personally). I would put the rest in an account to earn interest. I would definitely quit working.
Margaret Adams of Houston, Texas
I would start a foundation to help people get their lives back on track once they have been released from prison. It is such a tough road for those who really, really want to turn their life around -- sometimes just the journey back into the free world drives them right back to prison -- because they don't have any structure.
Russell Virgils of Phoenix, Arizona
I would embark on a nonstop worldwide tour with my family. I would have a teacher join us for my sons' education. Plus, I'd go to Disneyland.
Miriam McGeehan of Baltimore, Maryland
1. Set up a nonprofit pharmacy service for seniors and children -- shaming pharmaceutical companies into donating drugs.
2. Set up a nonprofit basic medical and dental service for children asking all teaching hospitals to send their interns there to help.
3. Help my children buy homes.
4. Pay off debts and go on an extended vacation with my husband of 38 years since we have never had a vacation, celebrated an anniversary or given each other presents.
Wheeler McLilly of Woodbridge, Virginia
I would first inform my 75-year-old mother she would no longer have to work and purchase her a home. Pay off all my bills, take care of the rest of my family and a few select friends, then retire.
Carol Pitts of Tampa, Florida
I would pay all of my debts off, remodel my house, buy the car of my dreams ... 1997 Toyota Celica or older (hard to believe, huh?). Then I would buy two houses: one for my parents and one for my husband's parents -- but I would only spend at the most $60,000 for both. I would then invest in some land. I would not donate to any charity at all (sorry). This money has to last me and my husband way through retirement. Believe me, we would both work but not as hard. I know a lot of people say I would quit my job ... but why?
David Bradford of Gastonia, North Carolina
First I'd request 50 percent sent to the [Internal Revenue Service] and 10 percent to [the North Carolina Department of Revenue]. No need flirting with jail time. Then I'd be a huge client of the Vanguard Group. Can you say municipal bond funds? The federally tax-exempt dividend income on $90 million is more than enough for me and my extended family to play forever (average of $4 million a year). The rest I'm going to start an auto restoration/modification/research center. I know a lot of good men who work hard but barely live above the poverty line. Using the remaining [money] would be more than enough to give them salaries over $60,000 a year (double what they have now) and do something that we all love.
Furthermore the ultimate in recycling is buying a used car. With all the aftermarket parts out there, some cars can be modified for better gas mileage than a Prius, and the cost to rebuild, own and insure it would be one-third that. Utopia! Not including a huge ranch in West Texas (near Coleman) with Mustangs, some beach property near Galveston and in Guatemala. No private jets [by the way]. Waste of fuel. I can ride coach.
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Tuesday, March 6, 2007, at 6:00 p.m. EST.
Stock prices soared today as the global stock market melt-up resumed. At the close, the Dow gained 157 points, closing at 12,207, while the Nasdaq added 44 points, closing at 2,385. Oil closed up $0.62 at $60.69 per barrel, and gold closed up $7.00 at $646.20 an ounce.
Record global liquidity may produce a stock price melt-up to match the recent stock price meltdown. This meltdown mess was triggered by comments from Cheng Siwei, Vice Chairman of the National People's Congress, which is China's highest legislative body. Cheng said 70 percent of the domestically traded companies were worthless and should be delisted. He said, "We must force bad children out." A nine percent plunge in China's Shanghai Index followed. Let's continue to avoid all investments in China.
The stock market correction was aggravated by problems in the subprime lending market, which the Fed will probably seek to isolate. One thing is certain: The Fed will not raise interest rates nor tighten monetary policy with subprime lending problems and a housing market that could be in the process of bottoming. Local realtors tell me they are now out of the ER and into the recovery room.
Global liquidity, including the U.S., is at record levels. In 2006, global M&A activity soared to a record $4 trillion. January and February are up 16 percent over last year. A great boom and bull market will continue to unfold in the months and years ahead. The total put/call ratio is giving one of the strongest market buy signals ever. Another major market bottom unfolded today. You should become fully invested immediately.
The U.S. stock market is still substantially undervalued at 35 percent. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, March 9, 2007, at 6:00 p.m. EST.
Stock prices soared today as the global stock market melt-up resumed. At the close, the Dow gained 157 points, closing at 12,207, while the Nasdaq added 44 points, closing at 2,385. Oil closed up $0.62 at $60.69 per barrel, and gold closed up $7.00 at $646.20 an ounce.
Record global liquidity may produce a stock price melt-up to match the recent stock price meltdown. This meltdown mess was triggered by comments from Cheng Siwei, Vice Chairman of the National People's Congress, which is China's highest legislative body. Cheng said 70 percent of the domestically traded companies were worthless and should be delisted. He said, "We must force bad children out." A nine percent plunge in China's Shanghai Index followed. Let's continue to avoid all investments in China.
The stock market correction was aggravated by problems in the subprime lending market, which the Fed will probably seek to isolate. One thing is certain: The Fed will not raise interest rates nor tighten monetary policy with subprime lending problems and a housing market that could be in the process of bottoming. Local realtors tell me they are now out of the ER and into the recovery room.
Global liquidity, including the U.S., is at record levels. In 2006, global M&A activity soared to a record $4 trillion. January and February are up 16 percent over last year. A great boom and bull market will continue to unfold in the months and years ahead. The total put/call ratio is giving one of the strongest market buy signals ever. Another major market bottom unfolded today. You should become fully invested immediately.
The U.S. stock market is still substantially undervalued at 35 percent. Stay close to our telephone/e-mail/website Hotline Updates.
The next Hotline Update will be on Friday, March 9, 2007, at 6:00 p.m. EST.
Monday, March 5, 2007
Buy a House With Cash Or Take Out a Mortgage?
By June Fletcher
Question: My fiancé and I disagree on whether or not we should purchase our first home outright or get a mortgage. Our situation is this: He has a nice nest egg of $900,000 cash and a home he purchased with a business partner for $1 million (they each paid $500,000 cash) in North Carolina. I think we should get a mortgage, but his rationale is why should he pay the bank approximately 6%? He says a mortgage only makes sense for people who aren't cash rich. Assuming we purchase a home for $300,000, we will still have $600,000 in the bank, which is plenty in case of an emergency, and we always have the option to borrow against the house once we purchase it. What should we do?
-- Savannah Ziegler, Boca Raton, Fla.
Savannah: Wow, this is a problem most of us would love to have. It helps, I think, to think about spending in its simplest terms. That is, if you pay for something now, what won't you be able to buy in the future?
The money you put into your house is an investment. Whatever you spend on it can't be "grown" in other investments, like stocks, bonds, rental properties or a cousin's plan to open a chain of organic fast-food eateries. So you need to compare what you'd pay on a mortgage against potential returns in other investments. In other words, if you take out a 30-year fixed-rate mortgage at 6%, your other investments will have to average more than a 6% return over three decades for the mortgage to be worthwhile.
Of course, there are other factors to consider, too.
On the "don't pay cash" side: Many popular alternative investments, namely stocks and bonds, can be sold much more quickly than a house -- especially in a sagging housing market like we're in now, where supply far outstrips demand. So if you find yourself in a financial pinch, you can cash out other investments more quickly than you can liquidate the assets in a home. And the interest paid on a mortgage is tax-deductible.
On the "pay cash" side: You must have the financial discipline to invest all the money that you would have paid for a mortgage, and to keep it invested over the long haul -- come new babies, vacations, college bills and 400-point drops in the Dow Jones Industrial Average.
Eventually, though, it all comes down to temperament and tolerance for risk. Are you and your fiancé the sort of people who want to keep every last nickel leveraged and "moving" in various investments, and are you willing to devote considerable time and energy chasing after the best return? Or would you rather make one purchase and forget about it, content that your house might only appreciate at a rate only slightly better than inflation over your lifetime?
Given that your fiancé has already expressed a preference for Door Number Two -- and you'll have plenty of money left over after buying your home-- I'd say put at least part of that nest egg into a nice new nest.
-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
Share your comments on the House Talk discussion board.
Email your comments to june.fletcher@wsj.com.
-- March 05, 2007
Question: My fiancé and I disagree on whether or not we should purchase our first home outright or get a mortgage. Our situation is this: He has a nice nest egg of $900,000 cash and a home he purchased with a business partner for $1 million (they each paid $500,000 cash) in North Carolina. I think we should get a mortgage, but his rationale is why should he pay the bank approximately 6%? He says a mortgage only makes sense for people who aren't cash rich. Assuming we purchase a home for $300,000, we will still have $600,000 in the bank, which is plenty in case of an emergency, and we always have the option to borrow against the house once we purchase it. What should we do?
-- Savannah Ziegler, Boca Raton, Fla.
Savannah: Wow, this is a problem most of us would love to have. It helps, I think, to think about spending in its simplest terms. That is, if you pay for something now, what won't you be able to buy in the future?
The money you put into your house is an investment. Whatever you spend on it can't be "grown" in other investments, like stocks, bonds, rental properties or a cousin's plan to open a chain of organic fast-food eateries. So you need to compare what you'd pay on a mortgage against potential returns in other investments. In other words, if you take out a 30-year fixed-rate mortgage at 6%, your other investments will have to average more than a 6% return over three decades for the mortgage to be worthwhile.
Of course, there are other factors to consider, too.
On the "don't pay cash" side: Many popular alternative investments, namely stocks and bonds, can be sold much more quickly than a house -- especially in a sagging housing market like we're in now, where supply far outstrips demand. So if you find yourself in a financial pinch, you can cash out other investments more quickly than you can liquidate the assets in a home. And the interest paid on a mortgage is tax-deductible.
On the "pay cash" side: You must have the financial discipline to invest all the money that you would have paid for a mortgage, and to keep it invested over the long haul -- come new babies, vacations, college bills and 400-point drops in the Dow Jones Industrial Average.
Eventually, though, it all comes down to temperament and tolerance for risk. Are you and your fiancé the sort of people who want to keep every last nickel leveraged and "moving" in various investments, and are you willing to devote considerable time and energy chasing after the best return? Or would you rather make one purchase and forget about it, content that your house might only appreciate at a rate only slightly better than inflation over your lifetime?
Given that your fiancé has already expressed a preference for Door Number Two -- and you'll have plenty of money left over after buying your home-- I'd say put at least part of that nest egg into a nice new nest.
-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Her "House Talk" column appears most Mondays on RealEstateJournal.com. Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.
Share your comments on the House Talk discussion board.
Email your comments to june.fletcher@wsj.com.
-- March 05, 2007
Friday, March 2, 2007
"Market Monitor"-Randall Eley
"Market Monitor"-Randall Eley,President of the Edgar Lomax Company
Friday, March 02, 2007
PAUL KANGAS: My guest "market monitor" this week is Randall Eley, the president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Randall, welcome back to NIGHTLY BUSINESS REPORT.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you Paul. Good to see you.
KANGAS: Let's cut right to the chase. What happened to the markets this week, both overseas and especially on Wall Street?
ELEY: We're going through what could very well be a normal correction. No one can guarantee it won't end up being a bear market, but remember, it is not normal to have gone for nearly four years, depending on whatever commentary you read, since we had a week in which the market was down about 4 percent.
KANGAS: I remember you were on a panel I moderated in Orlando just about a month ago and you were the only bearish near-term analyst there and you made a great call. You said this market is way overdue for a correction and I compliment you.
ELEY: Thank you and Paul, I just want to point out, we have a long- term on it. When I say we, this is the Edgar Lomax Company, our analysts, optimistic view of the markets, but you have to be careful when markets have been going straight up for a long time.
KANGAS: On your last visit with us in September, you correctly predicted the Fed would keep interest rates unchanged for an extended period. Do you see any change in that over the next few months?
ELEY: Over the foreseeable future, I expect a continuation of the same. The Fed has to protect or at least they're trying to do their best to protect the value of the dollar. I see the flicker of some success here. So far this year, the dollar is holding its own against major world currencies.
KANGAS: It had a rough week this week, especially against the yen, but you think this will improve?
ELEY: That's right. Earlier this year it had been going up. So the fact that it has fallen some, it is just a correction. Over the last year, it was down 6 to 7 percent against major world currencies, but the last two, two-and-a-half months, it is about flat. We need to be flat before you see a positive reversal.
KANGAS: Now, has your investment strategy changed in the wake of this wild week on Wall Street?
ELEY: Not in the least. A well thought out investment plan should always have asset allocation and buying. So if that's 50 percent stocks or 50 percent bonds, then this sort of slide in the market gives the investor that has new money coming in a chance to buy. But I wouldn't buy just because it fell and I certainly wouldn't sell because of that.
KANGAS: But you would be more inclined to buy after the sharp downturn this week?
ELEY: Oh, yes. The stock market is always a lower-risk place to buy after a fall like this.
KANGAS: Well how about the big cap versus small cap, mid cap? Where is your favorite?
ELEY: I'm absolutely convinced that the best place to be is big cap. They've been out of favor for a long time and your mid-caps have been very hot so far this year. It may be the last chance for a while to get into big-caps while they're still relatively cheap.
KANGAS: OK. In any case, the only stocks you'll buy for your clients are big cap stocks because they all have to be members of the Standard & Poor's 500 index, correct?
ELEY: That's absolutely right. We can find some good low P/E ratios there.
KANGAS: In September you had three buy recommendations. Let's see how they have done since then. There we see ExxonMobil up 2.8 percent. And IBM was a real winner, up 11.7 percent and it wasn't too popular at the time. You had one other stock that I believe also moved higher and that was Merck, up nearly 8 percent. So three on the upside, very good call.
ELEY: And they both pay good dividends. So you add the dividends on top and you made some nice money.
KANGAS: How about some new recommendations?
ELEY: We're going to give you three again. First Chevron (CVX), you have a very low P/E stock in this market with a nine and this is nine times earnings for the last year and a nice dividend yield, 3.1 percent, also an energy company. We don't have to worry if they can be profitable in a recession.
KANGAS: OK, fair enough. Let's have another one.
ELEY: The second is Dow Chemical (DOW. Here you have a little higher P/E yield, but still cheap at 11, times past year's earnings and a little higher yield, 3.5 percent. So you'll be paid while you wait for the earnings to come in.
KANGAS: We have time for one more.
ELEY: And the final is Altria (MO). Here you have a spin off of Kraft Foods coming up, which, it should help that stock to bounce well in the near future and in the meantime, you get a little bit more than 4 percent dividend yield.
KANGAS: All right. Do you personally own any of these stocks, Randall?
ELEY: I own every one of them. So do our clients and the shareholders of the company.
KANGAS: You'd like tose, the new three, you liked way back in April of last year and they're higher than they were then now. So we'll see how they fare. Thanks very much for sharing your insights with us.
ELEY: Good to see you again.
KANGAS: My guest, Randall Eley of the Edgar Lomax Company.
Friday, March 02, 2007
PAUL KANGAS: My guest "market monitor" this week is Randall Eley, the president of the Edgar Lomax Company, an investment advisory firm based in Springfield, Virginia. Randall, welcome back to NIGHTLY BUSINESS REPORT.
RANDALL ELEY, PRESIDENT, THE EDGAR LOMAX COMPANY: Thank you Paul. Good to see you.
KANGAS: Let's cut right to the chase. What happened to the markets this week, both overseas and especially on Wall Street?
ELEY: We're going through what could very well be a normal correction. No one can guarantee it won't end up being a bear market, but remember, it is not normal to have gone for nearly four years, depending on whatever commentary you read, since we had a week in which the market was down about 4 percent.
KANGAS: I remember you were on a panel I moderated in Orlando just about a month ago and you were the only bearish near-term analyst there and you made a great call. You said this market is way overdue for a correction and I compliment you.
ELEY: Thank you and Paul, I just want to point out, we have a long- term on it. When I say we, this is the Edgar Lomax Company, our analysts, optimistic view of the markets, but you have to be careful when markets have been going straight up for a long time.
KANGAS: On your last visit with us in September, you correctly predicted the Fed would keep interest rates unchanged for an extended period. Do you see any change in that over the next few months?
ELEY: Over the foreseeable future, I expect a continuation of the same. The Fed has to protect or at least they're trying to do their best to protect the value of the dollar. I see the flicker of some success here. So far this year, the dollar is holding its own against major world currencies.
KANGAS: It had a rough week this week, especially against the yen, but you think this will improve?
ELEY: That's right. Earlier this year it had been going up. So the fact that it has fallen some, it is just a correction. Over the last year, it was down 6 to 7 percent against major world currencies, but the last two, two-and-a-half months, it is about flat. We need to be flat before you see a positive reversal.
KANGAS: Now, has your investment strategy changed in the wake of this wild week on Wall Street?
ELEY: Not in the least. A well thought out investment plan should always have asset allocation and buying. So if that's 50 percent stocks or 50 percent bonds, then this sort of slide in the market gives the investor that has new money coming in a chance to buy. But I wouldn't buy just because it fell and I certainly wouldn't sell because of that.
KANGAS: But you would be more inclined to buy after the sharp downturn this week?
ELEY: Oh, yes. The stock market is always a lower-risk place to buy after a fall like this.
KANGAS: Well how about the big cap versus small cap, mid cap? Where is your favorite?
ELEY: I'm absolutely convinced that the best place to be is big cap. They've been out of favor for a long time and your mid-caps have been very hot so far this year. It may be the last chance for a while to get into big-caps while they're still relatively cheap.
KANGAS: OK. In any case, the only stocks you'll buy for your clients are big cap stocks because they all have to be members of the Standard & Poor's 500 index, correct?
ELEY: That's absolutely right. We can find some good low P/E ratios there.
KANGAS: In September you had three buy recommendations. Let's see how they have done since then. There we see ExxonMobil up 2.8 percent. And IBM was a real winner, up 11.7 percent and it wasn't too popular at the time. You had one other stock that I believe also moved higher and that was Merck, up nearly 8 percent. So three on the upside, very good call.
ELEY: And they both pay good dividends. So you add the dividends on top and you made some nice money.
KANGAS: How about some new recommendations?
ELEY: We're going to give you three again. First Chevron (CVX), you have a very low P/E stock in this market with a nine and this is nine times earnings for the last year and a nice dividend yield, 3.1 percent, also an energy company. We don't have to worry if they can be profitable in a recession.
KANGAS: OK, fair enough. Let's have another one.
ELEY: The second is Dow Chemical (DOW. Here you have a little higher P/E yield, but still cheap at 11, times past year's earnings and a little higher yield, 3.5 percent. So you'll be paid while you wait for the earnings to come in.
KANGAS: We have time for one more.
ELEY: And the final is Altria (MO). Here you have a spin off of Kraft Foods coming up, which, it should help that stock to bounce well in the near future and in the meantime, you get a little bit more than 4 percent dividend yield.
KANGAS: All right. Do you personally own any of these stocks, Randall?
ELEY: I own every one of them. So do our clients and the shareholders of the company.
KANGAS: You'd like tose, the new three, you liked way back in April of last year and they're higher than they were then now. So we'll see how they fare. Thanks very much for sharing your insights with us.
ELEY: Good to see you again.
KANGAS: My guest, Randall Eley of the Edgar Lomax Company.
Wall Street Digest Hotline Update
This is The Wall Street Digest Hotline Update for Friday, March 2, 2007, at 6:00 p.m. EST.
Traders did not want to be long over the weekend, putting the bears in charge today. At the close, the Dow dropped 121 points, closing at 12,114, while the Nasdaq lost 36 points, closing at 2,368. Oil closed down $0.36 at $61.64 per barrel, and gold closed down $21.00 at $644.10 an ounce.
I would not base any investment decisions on today's market slides; the buyers went home very early today. Liquidity is abundant, with relentless cash takeovers and stock buybacks still taking place by cash-rich corporations.
Bull markets end when the Fed reverses money supply growth and raises interest rates to slow inflationary growth! None of that is happening now. The Fed is very accommodating and is verbally supporting the economy and the stock market.
Let's take a look at the market on Monday before we make any portfolio changes. Do not purchase any new positions until we see signs of a market bottom.
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 Tuesday, March 6, 2007, at 6:00 p.m. EST.
Traders did not want to be long over the weekend, putting the bears in charge today. At the close, the Dow dropped 121 points, closing at 12,114, while the Nasdaq lost 36 points, closing at 2,368. Oil closed down $0.36 at $61.64 per barrel, and gold closed down $21.00 at $644.10 an ounce.
I would not base any investment decisions on today's market slides; the buyers went home very early today. Liquidity is abundant, with relentless cash takeovers and stock buybacks still taking place by cash-rich corporations.
Bull markets end when the Fed reverses money supply growth and raises interest rates to slow inflationary growth! None of that is happening now. The Fed is very accommodating and is verbally supporting the economy and the stock market.
Let's take a look at the market on Monday before we make any portfolio changes. Do not purchase any new positions until we see signs of a market bottom.
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 Tuesday, March 6, 2007, at 6:00 p.m. EST.
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