More bad news today (so of course the market is up). The durable-goods report was bad at -5.3%, but this number is notoriously volatile -- keep it in that context. The new-home sales report was abysmal, falling to a level not seen since February of 1995, and Fannie Mae (FNM - commentary - Cramer's Take) reported a worse-than-expected quarter. FNM is up at this moment, which shows that bad news can be overly discounted in a stock's price.
The Wall Street Journal reports that 2.2% of prime mortgages are at least 60 days past due, up from 1.5% a year ago. More than 20% of subprime loans are at least that late. Since FMN doesn't deal in subprime, the higher loss at FNM shows that the deteriorating levels of credit have spread into the prime arena. Moody's Economy.com figures that $1.75 trillion in mortgage debt is underwater and that the growing issue of "negative equity" will plague us for a while, especially if underwater homeowners choose to walk away.
While the Fed has cut rates 225 basis points and looks ready to do more (as evidenced by Benanke's dovish House testimony today), mortgage rates have not moved down. The average interest rate on a 30-year fixed rate loan was 6.38% yesterday (WSJ), which is actually up from 5.61% in September. "Jumbo" loans -- those greater than $417,000 -- were a full point higher at 7.35%. It's obvious that banks are unwilling to lend and will do so only under very favorable terms to themselves. That kind of negates the Fed's attempt to introduce some stimulus into the system. Applications for refinancings initially moved up when the Fed started cutting, but have since slowed markedly as banks have raised mortgage terms.
Market Commentary HON, a Value Buyer's Dream 2/26/2008 4:33 PM EST A 16 multiple for a 16%-21% growth rate is tough to beat.
Market Commentary The Debate Over Government Intervention Continues 2/25/2008 3:00 PM EST The argument over financial problem solving by the Feds is a long one and doesn't appear to be ending any time soon.
Vincent Farrell Jr. is a principal of Scotsman Capital Management. Prior to joining Scotsman in April 2005, Farrell was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships. He is a regular guest on CNBC as well as other national print and broadcast media.
Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.
Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.
RSS FEEDS
PODCASTS
