BP oil refinery should be fined more
February 19, 2008
On February 18th, the attorneys representing the people who were victims of the BP Texas City oil refinery explosion in the year 2005 argued that the oil company got away with a very small fine. They claim that the company must be actually giving billions instead of the meager $50 million it has proposed in a plea agreement. The estimate, the attorneys feel the company could be fined, for the hardships the victims of the explosion had to suffer is $3.2 billion.
They however said that the fine should never have been just $50 million but at least $400 million. The fines that were proposed were incorporated in the court documents that were filed by the victim’s lawyers in the week before. This was done on the request of a federal judge who is currently contemplating on whether or not to agree to a plea deal from the BP oil giant.
The current agreement has in it the provisions which propose that the BP oil refinery plead guilty for the violation of the Clean Air Act. It also says that the company will have to pay $50 million as a fine for the criminal manner of the explosion. The explosion had taken the lives of 15 people and had caused injury to more than 170 people. The agreement also says that the company would also be in probation for the next three years.
Earlier this month the plant manager of the oil refinery, Keith Casey, had formally registered the guilty plea as a representative of the entire company. The guilty plea that was made was in accordance with the agreement BP had come in the month of October last year where they had said that they will pay $373 million as a settlement fees. The fee was to settle the various civil and criminal charges that were piled up against them.
However the attorneys who are representing the victims has now asked the U.S. District Judge Lee Rosenthal to rebuff this deal saying that the compensation fee that was imposed on the oil giant was too low. They also claim that the deal which they had come to did not take care of the need for an autonomous monitor who would be able to report whether the company was taking enough measures to meet the safety obligations. The attorneys were also of the opinion that the prosecutors had not consulted the victims while the deal was being formulated.
The BP oil refinery and the prosecutors were, however, of the view that the deal was the harshest punishment they could get and hence were defending the deal. They feel that the procedure that was undertaken was the harshest there was in analyzing the criminal nature of the explosion. BP also said that the company has already paid in excess of $1.6 billion as compensation to more than 2000 victims after the unfortunate incident took place. They say that they have settled almost half of the 4000 lawsuits that were filed after the explosion.
Venezuela to keep exporting oil to USA
February 19, 2008
On February seventeen, the Venezuelan President Hugo Chavez reassured the people of America that he will not be cutting off the oil supply to the great nation. This comes as a great relief to the nation as only last week he had threatened to cut off the oil supply to the United States to show his displeasure when Exxon Mobil Corp. successfully convinced the courts in the United States of America and Europe to freeze the Venezuelan assets. He however on this Sunday said that Venezuela was not planning to halt the shipments of oil. His earlier statements had led to widespread havoc in the oil markets in the previous week.
Chavez made the remark while on a visit to the heavy oil projects in the Orinoco river basin in Venezuela which is very rich in petroleum. He said that Venezuela at present has no plans to stop the shipment of oil to the United States of America. He however made it clear that if the United States was to attack or try and harm Venezuela in any way they would not hesitate in halting the oil supply. This is the umpteenth time he is saying this because he has always warned against the chances of an upcoming US invasion of Venezuela so that USA would have control over immense oil reserves of Venezuela. The fact that USA is dependant on Venezuela for getting almost 10 percent of the oil it requires adds substance to this belief of the socialist leader. However the United States officials have said that no such scheme exists.
The Venezuelan government led by Hugo Chavez is currently engaged in a legal encounter with a Texas based company, Irving, over the issue of compensation for the nationalization of a heavy oil project in the Orinoco river basin. Exxon Mobil is currently trying to freeze billions of dollars of Venezuelan assets which are there in United States and Europe. This they were trying to do to make sure that a payoff would follow and if in case they win they manage to win a decision by an international arbitration panel.
Only one month earlier had a British court ordered an injunction which provided for the freezing of almost $12 billion in assets of a government run unit known as Petroleos de Venezuela SA or PDVSA. Last week, on the 14th, the oil minister for Venezuela let it be known that the demand that Exxon Mobil Corp. was making was far beyond the scope of rational thinking. He said that the demand Exxon Mobil Corp. was making was at least more than 10 times the compensation it might deserve from the country for nationalizing one of its own oil venture.
Chavez was therefore very specific last week when he said that his country was going to cut off the oil shipments to make it very clear to USA and Europe that they would not appreciate it if the assets from Venezuela were frozen.
Stocks remained largely unchanged as a result of disappointing economic data
February 18, 2008
The prices of stocks remained in a mixed state as a result of the rather depressing economic data that came out in the last week. The disheartening data about the manufacturing, import prices and the consumer confidence proved to be enough to remind the investors that the economy is not doing all that well currently. As a result of all this lackluster economic data that came out, the week that had begun with a rally came to a rather subdued end.
A Federal Reserve survey conducted in New York on the regional manufacturing showed that conditions have worsened further in this month. Another survey on the consumer sentiments of the country which was conducted by the University of Michigan showed that the consumer sentiments have fallen by a great deal as compared to last month’s standing. Another piece of data which paved path for more worries was the report that the Labor Department came up with. It showed that the import prices have jumped the roof just when the oil prices in the world were soaring.
The decline the market suffered on last Friday came just one day after the investors across the country let it be known that they were not too hopeful about the economy and sent the prices of the stocks down by more than one percent. This was a major hit for the economy as only earlier that week the market had gained strongly. The pull back by the investors were followed by some depressing remarks from the chairman of the Federal Reserve about the nation’s economy.
The investors all across the country appeared to be uninterested in making any sizable move even as the stocks closed on Monday because of the Presidents Day Holiday and other fresh economic concerns.
The fear factor is still very high in the minds of the investors. The Dow Jones industrial average fell by 0.23 percent and the Blue-chip index on the other hand finished the week with a small profit of 1.36 percent. The tech heavy NASDAQ took a fall of 0.46 percent to close the week. The value of government bonds also rose as the week came to an end. The US dollar yet again was in a mixed state as compared to the other major currencies in the world. The gold prices in the country however took a fall. The price of crude oil went up by four cents to come to a hault at $95.50 a barrel on the New York Mercantile Exchange.
Even though some of the data that came out on Friday was discouraging the investors largely remained uninterested. The central bank in the nation reported that the industrial output increased ever so slightly last month. This was something most experts were predicting because of the strength that was coming from the utilities.
The reason the investors are hesitant to go forth with investments is because they feel that the consumers are still uneasy about spending money. This they find to be a mortifying prospect as the consumer spending usually accounts for more than two-thirds of the total economic activity.
The uneasiness increases further
February 18, 2008
Many American citizens are of the opinion that the living conditions in the country is getting more uneasy by the day. This opinion is coming even while most of the economists in the country are of the opinion that the economy of the country is healthy enough to get out of the minor troubles it is in at the moment.
In the last few years when jobs were available in plenty and it was relatively simple and cheap to borrow many people did not feel that everything was right. High prices of homes and the availability of plenty of credit cards allowed the people of the country to go out and splurge on commodities. But even during those golden days many people felt things were not right. Now that the golden period has come to an end finally the undertow that was present ever since then has gotten stronger. Now if the easy credit is taken away most of the consumers in the country find that the pay cheques they get have not kept the same pace with their needs and their affinity to spend cash.
The hard truth that they have to pay $3 for gas and $4 for milk has finally hit the people of the country who earlier were not too concerned about the fact. The health care expenses most people of the country incur in a year are almost four times the amount they get as pay. Even the certainty of getting the retirement security that they have been promised is solely dependant on the state of the stock market.
The confidence of the American consumers are decreasing by the day and the main reasons that can be attributed to this are the collapse of the housing market in the country, unavailability of credit and the heavy debts most people in the country have. All this when combined with the anxiety that was there all along broadcasts the situation out of control. The fact that the economy is currently in a recession or on the verge of going into one is definitely playing on the people’s minds. The increasing levels of anxiety and fear that is present in the people’s mind right now is not going to go away any time soon even after the economy shows some signs of improvement.
Much of the anxiety that is present right now is because of the uncomfortable feelings that one gets from the economic roller coaster ride. The consumers become less confident about clinging on to their jobs or about getting new ones. The growing fear of meeting the household expenses and other future prospects make the life of the people even more uneasy.
The truth that the people of the nation have been facing for quite some time is visible from the fact analysis which was taken months before the economic crisis broke out. The report showed that nearly 2 out of 3 Americans felt that the economy was not as secure as it used to be nearly a decade ago. Another half said that the economy was going to get even worse in the future.
Mortgage rates almost unchanged
February 15, 2008
As the week comes to an end the mortgage rates were mixed throughout the country but remained largely unchanged. The mortgage rates did not go through any amount of significant change even as the labor productivity went higher than the predictions this week and the pending sales of the innumerable homes weakened as per the report of Freddie Mac on Thursday this week. This left the people who are trying to get a refinance done in a tricky position.
The loan purchaser who is sponsored by the Government said that the thirty year fixed rate loans were averaged at 5.72 percent as the week came to an end. This was actually higher than the previous week’s standing, which was at 5.67 percent. But Freddie Mac said that last year at the same time the rate was averaged at a figure of 6.3 percent. The rates for a fixed rate loan for 15 years averaged at 5.25 percent which was higher than last week’s rate of 5.15 percent. The rate for a fifteen year fixed rate loan at the same time last year was however averaged at 6.03 percent. When the rates for a five year adjustable rate loan were averaged at 6.01 percent in the previous year, this week it was averaged at 5.19 percent after it came down from last week’s average of 5.21 percent.
The average rates of one-year Adjustable Rate Mortgages (ARMs) which are indexed by the treasury were at 5.03 percent at the end of the week and this was the same average in the previous week too. The average rate of this one year ago at the same time was however 5.52 percent.
Since the amount of economic data that was let out was relatively small the present state of the economy remained in a situation of haze and doubt. According to Freddie Mac vice president and chief economist Frank Nothaft, this was one of the main reasons as to why the mortgage rates remained almost unchanged. Freddie Mac however believes that once more data regarding the present scenario of the current economic situation is let out the confusions that are present now about the credibility of the economy would clear. This would ultimately lead to the mortgage rates changing by a significant amount. Now that the stimulus plan has been authorized by the President the home owners are going to find getting a refinance for their home relatively more easy.
He however said that one of the good things that happened in the week is that the labor productivity went higher than what was expected in the last quarter of the year 2007. Another thing that happened in the labor sector is that the profits in the labor expenses slowed. But he also said that the existing sale of homes which were pending went down in the month of December. This was reason enough to indicate that the home sales were going to be very weak in January and February as well.
Small businesses benefits from SEC’s change in rule
February 15, 2008
The change that has been made to rule 144 by the Securities and Exchange Commission is going to help the small companies in negotiating their private investment deals in a better way. It is predicted that the change will facilitate for a huge amount of small-cap stock being liquidized in the week. The change that has been made is that the holding-time for investors has been shortened as well as restricting the securities from one year to six months. The change will come into effect from the 15th of February. The change however might provide for a massive small-cap sell-off as well, if the investors decide to get rid of their stocks.
The change which has been brought about in rule 144 of the SEC, is to make sure that the undersized publicly owned companies in the competition are able to raise enough capital by making the lockdown period shorter during which time the investors from outside have no option but to hold on to their individual shares. Usually these small companies raise the required capital through the policy often known as “private investment in public equity” (PIPE) deals. Such deals usually involve the selling of huge chunks of stock to the outside investors at a discounted rate. These outside investors are then required to hold on to these shares during the time known as the holding-period. There are various holding-period rules they have to abide by before they are able to sell off their shares. Now that the holding period has been shortened, as per the new change in the rule of the SEC, the companies will be able to negotiate more private investment deals. The rule 144 being retroactive will make all those restricted securities which were issued between the periods of February 15 to August 15th of year 2007 be eligible for trade immediately.
The market experts are expecting the changes in rule to encourage the investors to follow private investment agreements more vehemently. They believe that the revision in rules could not have come at a better time because of the ongoing credit crunch situation due to which many small businesses are suffering. They believe that if the securities are liquidized in six months instead of one year it would attract more people to invest in such stocks. The change would also help these small companies to negotiate better terms as well during the sale of stocks. The outside investors who would have earlier required a discount of ten percent for a PIPE deal may now agree on a five percent discount because of the reduced holding period. This is because there will be a change in perspective of the investors when they find that the holding period is only half of what it used to be earlier. The investors would now even consider investing larger amounts into these small businesses.
However these revisions might also ignite a massive sell-off by the current private stock holders. This is because once the change comes into effect billions of dollars become saleable and the investors might try to make full use of this. However this volatility is expected to be a short lived one and that it will level off in some time.
Home prices drop again
February 15, 2008
As the week came to an end the home prices across the country continued its fall. The prices which have been falling throughout the last year managed to create a record for being the highest ever drop in home prices on a quarterly basis. The realtors however were of the opinion that the prices have fallen at a faster pace in many other places around the world in the same period of time. The fall that the national median price took this time was of 5.8 percent. That is from $206,200 to $219,300, which was the steepest fall that was ever recorded by the National Association of Realtors (NAR). NAR has been amassed by this report since 1979 and was quite disturbed by the recent fall of such a big magnitude. They said that the reason for this drop was mainly because of a liquidity squeeze that has been happening since last summer. Because of this the homeowners were finding it difficult to obtain mortgage finances, especially for the more costly properties.
The reason the home prices are still going down is mainly because very few expensive properties were sold in this time, which ultimately brought down the median prices. This can be seen from the high cost markets like California, South Florida, and D.C. etc. in contrast to the year 2006, all the four regions in USA reported loss in the last quarter of the year 2007. The region which was the worst affected was the West which was at 8.7 percent. The prices dropped by 4.8 percent in the Northeast region, 5.4 percent in the South, and by 3.2 percent in the Midwest.
As a result of the decreasing home prices many of the nation’s real estate markets came up with profits. 73 of the 151 real estate markets in the country were able to record a price gain. As the prices in Youngstown, Ohio dropped by 9.2 percent to reach $72,000 the cheapest single family home market in USA got even cheaper.
Condo prices however fared better than the home prices. The prices of condos changed to some extend in the last quarter of last year. But it was not the case in all the places, all the places lying in the Sun Belt had to take remarkable price hits. The home prices were 2.7 percent lower in the last quarter of the year 2007 as compared to the last quarter of the year 2006. The housing markets which are not doing well at the moment are those which have experienced a job loss or population loss or both. Once this problem is overcome the housing markets will start gaining and will get out of the current crisis. The other reason which has deeply affected the housing market is the high number of foreclosures in the country. Very high numbers of empty homes and ‘for-sale’ boards adversely affected the housing market in the country.
News of Buffet’s helping gesture welcomed with glee
February 14, 2008
On Tuesday this week the people welcomed the news that Warren Buffet has lend a helping hand to those bond insurers who are suffering. News that also created reasonable amount of joy was that the major lenders of the country have declared that a plan has been formulated by them which are designed to help the homeowners stay clear of a foreclosure.
The news prompted the Dow Jones industrial Average (INDU) to gain around 133 points which is almost 1.1 percent increase. The Standard 7 Poor’s 500 (SPX) index also gained 0.7 percent. However the NASDAQ composite did not change much after reporting some increase early in the day. The future trades in the market are most likely to be affected by the information of retail sale of January before trade starts each day.
The stocks in most indices went up through most of the session and the Dow was ahead with one point up at 225 points. However because of the decrease in the stock price of the tech sector and the commodities the market was not able to sustain the gains it had achieved. As the treasury prices took a fall the corresponding yields went up. The value of dollar was in a mixed state against the main currencies of the world. Another field which took a fall was the oil and the gold sectors.
Wall Street however welcomed the news that the Berkshire Hathaway chairman and CEO Warren Buffet has lent a helping hand to the bond insurers and those people who are facing foreclosures as they might get some help from the money lenders. The news greatly helped in relieving the tension about the current economic outlook. The good thing about such a move is that even if it does not really help the people it does give the people a hope that the issue can be contained and it helps in getting the environment back to a state of calm.
Buffet has put forward an offer to insure almost $800 billion in tax-exempt bonds. He had made the offer to the three main bond insurers in the country, MBIA (MBI), Ambac Financial (ABK) and the FGIC. But the responses from these companies have not been all that favorable. When Buffet admitted that one of the companies have rejected the offer completely, two others have not responded as of yet. One of the companies that rejected the offer is Ambac.
The move from the financial giant was speculated to be a move which proved that major fallout in the economic sector can be avoided if the proper precautions were taken. This is a further reassurance for those people who were planning to invest in any field. But the critics however felt that the move from Buffet was just going to benefit his own Berkshire Hathway and not the bond insurers. What the outcome of this offer is going to be has to be waited and seen.
Countrywide Financial to broaden its mortgage workout scope
February 14, 2008
On February 2008 the Countrywide Financial announced that it is going to broaden its current programs to give a helping hand to the borrowers handle their mortgage payments. The move is the same for all people regardless of the type of sub prime loan they have or whether they have fallen short on repayments.
Countrywide Financial is the country’s largest lender of mortgages and home loan providers. They are determined to reduce the number of delinquencies that are happening yearly on its books. This they plan to achieve by bringing into action many new loan terms, making long-term repayment plans and other such actions which will make it easier for the borrowers. Company officials last month said that they helped almost 81,000 borrowers who are facing trouble repaying their mortgage payments that were manageable in the year 2007. The policies that are being offered by the company has changed considerably since the last few months after it was targeted by many forced sale prevention advocates on the charge that Countrywide was the company that was the least responsive to the worries that were faced by the borrowers.
Only months ago had the Countrywide started a program to provide help to those people who had taken a sub prime Adjustable Mortgage (ARM). This new measure that the Countrywide Financial along with Association of Community Organizations for Reform Now (ACORN) adds the borrowers of fixed rate loans also into the previous category.
Countrywide’s managing director for loan administration in a call conference said that they are very eager to help all those people who are facing difficulty with mortgage regardless of whether the mortgage is of fixed rate type or adjustable rates.
Countrywide has till date not specified as to how many borrowers the plan is going to help. As per the statistics of the trade group, the Mortgage Bankers Association, the number of fixed rate borrowers comes to almost half of the total number of people who have taken sub prime loans in the country. The number of people who default on a Sub prime fixed rate loan is placed at about 12.2 percent according to the Mortgage bankers Association. But this is very low as compared to the delinquency rate that is recorded by borrowers of sub prime arms, which is almost 18.8 percent. Out of the 9 million loans that are serviced by the Countrywide almost 735,000 falls into the category of sub prime loans.
Previously the foreclosure prevention efforts were primarily centered on the ARM borrowers who were facing the risk because of resetting interest rates. This happens because such loans will have relatively low interest rates for two or three years and after that the percentage points will be reset to a higher figure after that.
The new plan does not leave behind the ARM borrowers. The people who are having hybrid adjustable rate mortgage are given the option of going for a refinance or to have their first interest rate frozen for the next five years.
President admits economic vagueness
February 13, 2008
The US President George W bush on Monday this week admitted that the country is suffering from a bad case of uncertainness in most spheres of its economy. He therefore asked the congress to give as much help as possible to all those people as well as businesses that have been upset by the credit crunch and the housing slump. He also conveyed his hopes during his brief introductory speech before he presented the annual economic report that the $168 billion economic stimulus plan would help the economy to keep growing and the people of the nation working. The stimulus plan was passed by the congress last week and it has provisions for massive tax rebates for the tax payers of the nation. It gives rebates to all single as well as married people in the country. And in addition to that it also has provisions which give a rebate of 300 to disabled men of war, elderly people and other low income citizens. The bill is expected to reach the President’s table later this week for his authorization. According to the measures that are given in the plan the money will go directly to the workers, individuals, and families of America. Bush expressed his utmost confidence in the plan and said that it would help a great deal in getting rid of the uncertainties that are there in the economy currently.
The President however felt that other steps needed to be taken to bring the economy to a stronger position than it used to be in. He said that even though the stimulus plan has provisions for giving tax rebates for businesses and people many other steps also have to be taken by the Congress to reinforce the economy. For this, he asked the Congress to make this reduction in tax a permanent measure and also to give ample help to those people who are struggling to retain their homes. The President also feels that the congress should endorse legislations which allow state housing agencies to give tax-free bonds to homeowners to help them do a well needed refinance.
The collapse of the housing market and the ongoing credit crunch has taken the number of home foreclosures to a record number. This then led to the financial companies facing multi billion dollar losses in the form of bad mortgage investments. Ultimately all this led to the country’s economy taking a powerful blow. The growth of the economy had come to a near standstill by the last three months of 2007 and is currently growing at a snail’s pace of just 0.6 percent. Another thing that the economists are worrying about is the rumors of an upcoming recession. Many such economists now believe that the US economy has finally started shrinking. The president however chose to play it safe and called the current scenario one full of uncertainties and that there is considerable risk to the future growth of the country. He however reinstated his belief that the stimulus plan would help the country in getting back to its prime glory soon.
Stocks going to drop again
February 12, 2008
The stocks were continuing to drop through the day again and the trend is feared to continue for some more time as well. Friday, the 8th of February, saw the stocks in the New York market dropping again. The main reason for the continuing depression is considered to be the fear of a recession that is on its way. Just three hours before it was time to open, NASDAQ and S&P futures went lower, but a promise of fair value was pointing to small opening losses for NASDAQ which is heavy on the tech industry. It also showed a steeper decline for the blue chip index. Thursday however saw the stocks gain for the first time in the week after days of heavy falls. This prompted many investors to take up many of the battered stocks.
But the studies show that the investors will not be able to gain anything from these gains as they are predicted to be only a temporary phenomenon. This is because the state economy is degrading by the day and is not likely to recover soon.
The disturbances that are happening in the financial markets are due to some elementary problems which are not going to be settled in the near future. Even thought the US market can avoid the recession, the economic scenario is oddly tentative. And negative risks pertinent to the current economic augmentation remain.
The one thing which has the potential to help the situation is the economic stimulus plan that was passed by the Congress late on Thursday last week. The plan has a total budget of nearly $170 billion and contains provisions of sending $600 to every single taxpayer, and $1,200 to couples plus $300 for every kid they have. The bill was passed to boost consumer spending as well as the economy of the state. The cheques are scheduled to start arriving by the end of May. The bill also has the provisions which would lift the magnitude of loans which can be insured by the mortgage finance firms which are sponsored by the government. This is aimed at helping the already battered housing market.
The latest corporate news is that the shares of MBIA, a bond insurer took a fall of another 8 per cent in the after market trading. This comes right after they announced that they are going to boost the size of their public stock offers to a total of $1 billion from the $750 million they had announced earlier. The effort was taken to make sure that they retain their AAA credit rating.
Nikkei Company of Japan finished lower after the session’s end in the global scenario. Because of the Lunar New Year Holiday, many Asian markets were closed on the day. The European markets however rallied when the telecom company Alcatel-Lucent reported that the operating loss they incurred was smaller than they had predicted. This prompted the value of its share to rise by 3% in Paris.
Refinancing is becoming a difficult task
February 12, 2008
When many people in the country are happy that the mortgage rates have gone down in the country, the scene behind the curtains is that most people are finding it more and more difficult to get a refinance done for their house. Since this is the best time do a refinance with the rates as low as possible, many people are trying their best to get a new loan for their house or property. On Friday the 8th of February, the news from Washington was that the rates were at an all time low in the last few days.
The people who are the worst hit because of this difficulty are the people or borrowers who have taken loans or mortgages in the form of Adjustable Rate Mortgages (ARMs). This is because of the fact that these mortgage people are now resetting their interest rates and the borrowers are left with no other option but to go for a refinance. This they cannot do because the requirements that is required to qualify for a refinance now is very high.
Most banks and mortgage agencies are now telling off almost 60 to 70 percent of the people who approach them for a refinance. This is the case with almost all banks and agencies in the country. The grounds on which the people are not given a new loan are many. The problem that arises most often is that almost all the people who approach will not be having enough equity or would be having a bad credit score.
The funny part about this situation is that while the industry was booming the lenders used to approve almost anyone for a refinance without even going through half of their credit reports. But right now this is just not the case. The brokers and banks are now very selective about the clients whom they would give approval for a mortgage or loan. If they think that the client has too bad a credit report or that their property is losing its value at a very fast pace, they just turn them down right at the beginning. The banks will only consider a refinance if they find that the person has a reasonably good income, strong assets, and a high credit score. They need to have a good guarantee that the money is there to retrieve. If they see neither of this it is almost impossible to get a mortgage loan now.
The interest rates in the country are at an all time low right now. As of today the interest rates are way down at 5.67 percent which is the rate for a 30 year fixed loan according to Mr. Freddie Mac. This is the prime reason as to why there is such a rise in demand for refinance now. This can be seen from the fact that the number of applications for refinance have gone up by 73 percent last week from the previous year.
Service sector in US facing slow down
February 11, 2008
As per the reports that have come from New York on the sixth of February, the US economy is not at all in a position to avert a recession in its service sector. Even the smallest sliver of hope had diminished by the end of Tuesday that the country might avoid the slowdown. This is the first time that it is happening in the last five years. The news turned out to be a harsh one for many investors who were starting to believe that Federal Reserve would come with something to find a way out of the worst potential slowdown that has happened since 1991. The seriousness of the situation can be understood from the fact that Dow Jones industrial average lost 370 point in one day which was the biggest drop that took place since August. The result was a massive tumble of stocks and points.
What most people are concerned about is not whether or not there would be a recession, but about how bad the recession is going to be. What even the optimist find hard to digest is the fact that the numbers are almost terrible and beyond belief. The talk has been only about this says Scott Anderson a senior economist working at the Wells Fargo & Co; whether or not the recession is going to be a mild one or a severe one. The true nature of what is to be expected can be derived from the reading from the Institute of Supply Management which said “what is in store was going to be as big a shock as you can probably get”. According to Mr. Anderson, the month of January might be known in the future as the month which was the official start of one of the biggest recessions in the near past.
Many companies in the country are now filing for bankruptcy and are saying that they fell victims the recent slide in the housing market as well as their own debt load. Many other companies and shops are now cutting down on their employees and are not recruiting anymore. Other companies and commercial establishments are also employing such measures cut down on their loss. Some of the measures employed are slashing its 2007 earnings guidance. There are companies in the country which eliminated 28,000 jobs in the month of January alone and 269,000 jobs in the last 12 months. 17,000 was the total number of jobs the economy alone lost and this was the first country wide loss of jobs since the august of 2003. Another part of the service sector which has been hit badly is the financial services industry. It was very badly struck by the decreasing home prices, mortgage defaults, and the devaluation of other mortgage backed investments. The other people who find themselves in trouble are the banks, mortgage lenders, and the brokers.
ISM fuel recession causes equities to tumble
February 11, 2008
The ongoing slide of the European and US markets continue to slide even further as it was seen on Tuesday, the 5th of February. The US stock market went down again as more proof of an economic slowdown was seen from both parties of the Atlantic. However, the biggest revelation was shot by the US institute for Supply and management’s non-manufacturing business activity index that went on to fall to a mere 41.9 per cent from last year’s closing of 54.4 per cent. This was the largest ever monthly slide to have taken place and also happens to be the lowest stage since the October of 2001. It is the foremost time that the index was under the 50 mark since March 2003. The only thing that it indicates is that there is a contraction occurring. The results of various researches that were conducted were termed as disastrous.
As the slide increased in Wall Street during the after noon session, credit spreads took a sharp widening. This was to make sure that the support for the government was maintained. One thing that held to its ground was the dollar as it did not lose it value. However, gold and oil were two things that lost a lot of ground.
Due to oil losing value, the ISM was weakened very badly and this ultimately resulted in the stocks tracking a severe blow. It also resulted in the credit market performing badly today. Many are of the opinion that the organization Federal Reserve was not able to prevent the recession, because it did not take enough aggressive timely policies. While some are of the opinion that Fed rate decreasing is not the answer to get out of this tight situation. It also means that one cannot stop the slaughter of trust in the actual economy.
Many analysts warned and said that the report with which ISM came up with was not in accordance to the other indicators in January. The ISM indices have fallen this badly and rapidly only after the massive shock or incident which shook the world badly, the 9/11 mishap for example. Anyhow, the silver lining is that usually that the ISM has usually rebound back in the month that followed the month in which the prices fell sharply. Unsatisfactory services section and retail sales information in the Euro zone instigated similar delay fears and increased rumor that the ECB would be forced to alleviate its hawkish take on the interest rates.
The US credit spreads enlarged sharply as the stock markets went down. The Markit iTraxx Crossover index acts an extremely vigilant indicator of risk appetite in Europe, hyped to 504bp from 471bp. The Markit CDX index, which keeps an eye on the US investment-grade bond risk, jumped to 117bp from 109bp.
The flight out of equities provoked strong refuge for people to buy government bonds. The outcome of the 10-year US Treasury dipped to 8bp at 3.56 per cent, whereas the 2-year production stood to be 14bp lower at 1.92 per cent.
US stocks drops again
February 8, 2008
On the fifth of February, the US stock index fell again. This has to massive fretting amongst the investors in the stock about the state of the economy. The beginning of voting in US primaries to select the candidate for the president of the country is considered to be the main reason behind this latest slide in stock index. This slide was after the indexes in Europe continued to extend their slide.
The slide is continued to extend for at least a few more weeks. Since the presidential elections are upcoming, the investors around the world are not willing to take the risk as the outcome of the elections are bound to affect the policies of the state the investors who used to find the US market attractive are waiting for the outcome to be known. It is predicted that the index will start gaining heavily once the elections are done.
S&P 500 futures SPc1 took a fall of 5.5 points and ended below their fair value. Mind you this is the mathematical formula that evaluates the pricing of various stocks by considering the account rates, dividends and the time to expiry of the contract. Since this figure has met with a fall of this magnitude, the experts in the field are not so optimistic about the condition of the current day market.
Because of this looming recession in the USD market, its impact is felt on a global basis. One of the main reasons as to why the indexes in Europe are on a downward slide is because of the slide in the US stock index. Some of the main areas that are being affected seriously are the company earnings, especially those which are dependent on the household spending.
Due to ever increasing economic worries in the country, lately the overseas markets are also taking its share of damage. The investors around the world are forecasting a very light economic calendar year. The present slump in the index was following the slide that occurred on Monday. All this is happening whilst many investors pulled back from a big rally of protest. Lots of investors are waiting for the results of Super Tuesday to get a fair idea of whom the republican and democratic candidates are going to be. Tuesday is when 24 states in the country are going to go polling for their candidates. Many investors consider this day to be a clear indication of what is to be expected in the future. So most of the investors feel that the market will pick up some decency once the primaries are over and they get a fairly good idea of what the market situation is going to be like in the future. Regardless of the outcome of the results of the primaries one thing that most of the investors are very sure about is the fact that the US market is not going to be as strong as it was in the past. This is mainly attributed to the high popularity other upcoming markets around the world is getting.
Tyco International Inc. reports fall in earnings
February 8, 2008
On the fifth of February, the representatives of the diversified manufacturer Tyco International Inc. said that on Monday, it’s fiscal first quarter of a year earnings have fallen by 54 percent from the previous years. Same time a year ago, which also included its health care and electronics business which is no more a part of the company, the company’s earnings were a figure 54 percent higher than the present figure. Although the earnings have fallen by such a big figure the adjusted profits of the company was enough to top the Wall Street expectations by a reasonably wide margin.
The part of the company which is engaged in making security and fire protection products, has earned a remarkable figure of $363 million, which is almost 73 cents per share that was purchased. This was in the quarter that ended on the 28th of December. Anyhow, the figure becomes less remarkable when we come to know that the earnings of the same company in the quarter one year ago were $793 million, or almost $1.57 per share that was purchased. Excluding these items the company Tyco earned 49 cents per share from continuing operations in the 2006 period.
Earlier in the previous year in the month of July two segments of the Tyco Company spun off and began working as two separate independent entities. They are the Tyco Electronics and the Tyco health care business Covidien ltd.
The interesting thing to note now is that the revenue which the international company had pre announced in the month of January came to a total of $4.87 billion. This was very much against the analyst’s approximate estimate of $4.75 billion and this was very much more than the previous year’s sales which were only$4.37. So essentially, this year’s revenue had increased by an amazing figure of 12 percent.
According to the analysts who studied the growth of the company, its growth can be attributed to the strength it has acquired in its flow control and ADT worldwide businesses. The other factor which can also be held responsible is the lower corporate expenses.
On Tuesday this week, the shares of the company fell 94 points to touch $40.22 when trade opened on the day. But on the other hand, Tyco’s largest as well as most well known division, the ADT security monitoring business, had a 7 percent jump in its revenues this year. This was mainly due to the double digit growth in the Asian and Latin American countries.
After all the hue and cry the shares of the company’s share created the Tyco International Inc. has again ascertained that its 2008 profit prediction will be what it had said itself. This is including the raise the company had made only one month before which was of the range of almost $2.60 to $2.70 per share. But this prediction is excluding the separation and restructuring charges that were borne by the company as a part of the spin off of the 2 divisions of the company.
Studies: US minorities in big cities pay more for mortgages
March 16, 2007
Two different reports, one from the Woodcock Institute, based in Chicago, and the other from the University of Massachusetts Boston have found that minorities in the United States are more likely to get home loans at higher interest rates in large cities around the country.
The Woodcock Institute study, carried out in cooperation with four other groups, looked at lending practices in Boston, Charlotte, Chicago, Los Angeles, New York City, and Rochester, New York. It focused on lending institutions Citigroup (NYSE: C), Countrywide (NYSE: CFC), GMAC, HSBC (LSE: HBSA; NYSE: HBC; Euronext: HSBC; SEHK: 005), JPMorgan Chase (NYSE: JPN; TYO: 8634), Washington Mutual (NYSE: WM), and Wells Fargo (NYSE: WFC). In the six cities studied, the study found that African American borrowers were 3.8 times more likely to get a higher-cost loan and Latinos were 3.6 more likely to get a higher-cost loan than were white borrowers in those cities.
The University of Massachusetts Boston study, carried out by economics professor Jim Campen, was more narrowly focused on Boston, found that high-income minorities were between six and seven times more likely than high-income whites to have a high-interest mortgage. Specifically, Professor Campen found that 70 percent of African American and Latino borrowers in Boston who had incomes between $92,000 and $152,000 had high-interest mortgages. Professor Campen attributed some of the disparity to suspicion of the banking system among minorities and to aggressive recruiting tactics from subprime lenders.
Foreclosures, late payments at new highs
March 13, 2007
According to the Mortgage Bankers Association, late mortgage payments were at 4.95 percent in the final quarter of 2006, a three and a half year high. That delinquency rate was up from 4.67 percent in the third quarter of last year and was the highest it has been since Spring 2003.
The rate for late payments was substantially higher on subprime mortgages, at 13.33 percent in the fourth quarter, up from 12.56 percent in the third quarter. Subprime late payments in the October to December quarter were the highest in four years. Additionally, late payments on adjustable-rate subprime mortgages in the fourth quarter were even higher, at 14.44 percent.
Foreclosure starts in the fourth quarter were at 0.54 percent, also a record high. The previous high, 0.50 percent, was reached in the second quarter of 2002. Like late payments, foreclosure rates were much higher on subprime mortgages.
The new numbers come just as New Century Financial (NYSE: NEW) seems likely to go under. The second-biggest subprime lender in the United States has quit accepting new loan applications as its bank lenders have cut off funding or have said they will do so. Bank regulators have cautioned subprime lenders to be cautious in granting supreme loans as defaults have risen.
New home construction in US declines in January
February 16, 2007
According to a new report from the US Commerce Department, the number of new homes built in the United States dropped much more than had been expected in January, with 14.3 percent fewer houses built. New home starts were at 1.4 million units on an annualized basis. The new data comes on the heels of a report showing that the number of new applications for new homes dropped 2.8 percent to an annual rate of 1.56 million in the month. In addition, the National Association of Realtors has said that sales of existing homes was down in 40 of the 50 US states in the last quarter of 2006.
The new data, which indicates collectively that the slowdown in the US housing market is likely to continue for awhile longer rather than stabilizing, worries analysts. The new housing numbers received more attention than Labor Department figures showing that wholesale inflation was 0.6 percent lower in January. The numbers show, analysts said, that the slowdown in the housing sector will likely affect the gross domestic product for a longer period of time than had originally been expected.
Cash for a quick house sale
February 8, 2007
The recent trend in property development has seen the private sector - including a number of motivated individuals - turn to buying up run down property, or other homes in need of repair, and develop them to a high quality standard for sale.
However, these house buyers depend on being able to buy a home quickly, and then sell house quick after.
Usually these property development companies and individuals will pay cash for house and homes, so can make for a very good property buyer if you are in need of quick sale.
So if you need to “sell my house” because of a poor state of repair, then property developers can prove to be a valuable buyer in the property market.