TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
Have we really bottomed? The stubborn lack of decline in the homebuilders, coupled with the better-than-expected retail sales, the strong transports, and the conclusion of a deal like Clear Channel (NYSE: CCU) (Cramer's Take), has created an environment where you are hard-pressed, if you rely on stocks as forecasters, to ignore the possibility of a bottom.
I watch the HGX like a hawk, the homebuilding aggregation, and it simply won't come down. That's despite the awful numbers, the covenant violations (Standard Pacific (NYSE: SPF) (Cramer's Take)) the bad loans, the lack of mortgage money, the insistence of a down payment and an abysmal spring traffic season.
So, why are people buying the group that signaled the downturn? I think it comes down to price. If you force the homebuilders to sell, as Toll (NYSE: TOL) (Cramer's Take) did this quarter, taking no gains on homes, you clean up inventory. If you clean up inventory, which is what happened in western Florida, you stabilize pricing. When you stabilize pricing, you bring out buyers. It is a virtuous circle.
TheStreet.com's Jim Cramer says the value guys threw this party, so respect the hosts.
Sometimes you just feel beaten into being positive. You just say, "OK, enough, I will accept the positives as they are being put out, not as I believe they are."
That's how I felt yesterday about Freddie Mac (NYSE: FRE) (Cramer's Take). The company put out financials yesterday that looked better than expected, and for once I didn't question whether they were.
I didn't because the earnings from so many of the feckless players -- the Fannies (NYSE: FNM) (Cramer's Take), the Washington Mutuals (NYSE: WM) (Cramer's Take) the MBIAs (NYSE: MBI) (Cramer's Take) and the Ambacs (NYSE: ABK) (Cramer's Take) -- are all being greeted with a bizarre positive response, so bizarre that I bought into the "better than expected" rhetoric because I don't want to fight the value guys who are in control right now.
Elsewhere on the site, Doug Kass has been putting up some very strong arguments that numbers from the likes of Freddie are less than meets the eye.
Fannie Mae (NYSE: FNM) announced disappointing earnings. But the stock went up. Is that a signal investors think the worst is over, that the future looks brighter for financial stocks? Maybe.
While Fannie Mae is only one company, it's the biggest in the mortgage business. That means everyone is watching what it's doing and how it's faring. As Fannie Mae goes, so goes the mortgage market. As of the latest earnings release, things aren't going too well. Earnings per share showed a loss of $2.57, much worse than the 81 cents analysts predicted. Management cut the quarterly dividend to 25 cents a share starting in the third quarter to save money. To bolster its capital, Fannie will raise $6 billion, most likely in preferred stock since there's a strong market for income shares.
TheStreet.com's Jim Cramer says the guys at the top don't know what they're doing, and it shows.
AIG's (NYSE: AIG) (Cramer's Take) making everyone's life difficult today. That's in part because AIG had been the biggest proponent of "super senior," meaning they repeatedly said that their collateralized debt obligation (CDO) exposure was of the kind that was intelligent, measured and thoughtful. They talked endlessly about how their due diligence made the difference and that unlike all of the other buyers, they kicked the tires three times and never bought the plain ol' CDOs. Then they brought in professors from Wharton to be sure that even if all heck broke loose and they were being too aggressive, they would be hedged.
They also were the first to give you the percentages of how much could go bad and that even in the worst-case scenario, they were overcapitalized. And, most important, they were insurers, no need to mark to market, they can play it all out.
Plus, they touted their own struggles. They made the point that because of the turmoil at the top, they hadn't bought any bad stuff and stopped buying residential real estate products after 2005. What they did buy -- they assured us in that big teach-in dog-and-pony show in December -- was the extra-special nature of their particular buys and that, unlike everyone else, risk officers scrutinized every single piece of paper that went into their super senior insurance, meaning only the top-top part of a CDO-squared, the part where everything had to default ahead of it; they made a point of how impossible that would be.
Fannie Mae (NYSE: FNM) is recently trading at $25.80 in pre-open trading, below its close of $28.29.
FNM reported Q1 EPS ($2.57) versus consensus estimates of (81c). FNM announced plans to raise $6 billion through common and preferred offerings. OFHEO will reduce FNM's capital requirement to 15% from 20%. FNM will reduce its 3Q dividend to 25c.
FNM May option implied volatility of 92 is above its 26-week average of 67 according to Track Data, suggesting larger price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
D. R. Horton (NYSE: DHI) shares are down over 6% in premarket trading after the homebuilder has swung to a loss for its fiscal second quarter of $1.31 billion, or $4.14 per share. With the continued housing slump, the company took hefty charges to write down the value of its inventory. Revenue plunged to $1.62 billion from $2.62 billion a year ago.
Fannie Mae (NYSE: FNM) shares are slumping over 9% this morning after the mortgage lender said it lost $2.2 billion or $2.57 a share in the first quarter due to mounting home-loan delinquencies as the housing slump continued. The results were below, far below that of estimates.
Vodafone Group (NYSE: VOD) said Tuesday that it's signed an agreement with Apple Inc. (NASDAQ: AAPL) to sell the iPhone in ten of its markets including Australia, the Czech Republic, Italy and India.
Stock futures were lower early Tuesday morning as oil prices remained high offsetting any recent optimism about the economy in light of Monday's surprise expansion in the service sector. Several companies are also reporting earnings today and will be in focus.
U.S. stocks dropped on Monday after Microsoft withdrew its takeover bid for Yahoo and as commodity prices once again spiked. The Dow industrials lost 88 points, or 0.68%, the Nasdaq Composite fell 12 points, or 0.52%, and the S&P 500 lost 6 points, or 0.45%.
Without much economic news today, no doubt investors will have no choice but to focus on the high oil prices. After setting a record close Monday and hitting a new trading high of $120.93 a barrel Tuesday, crude retreated to $119.88, down 9 cents from Monday's close. It is interesting that just as hopes were growing the slowdown of the US economy may not be as deep and long as originally thought, crude prices surge again, concerning investors about inflation and profits once again.
TheStreet.com's Jim Cramer says there's some reason for caution, but no reason to get out of the market here.
There all right there. Don't you feel it? Hundreds of stocks at resistance. Hundreds have formed a nice base. The Transports and the Dow are moving in synch. The earnings period surprisingly great, with so many companies not stung by the raw costs. Three straight up weeks, with all the commodity stocks showing signs of rolling over; most at crucial "must hold" levels except for gold, which has already crashed, making the inflation case much dimmer in the eyes of the traders.
Yet, you simply can't read the papers. They are too awful. The cost to the consumers for everything from food to gasoline is humongous and going higher, according to all the food execs I had on last week. We are getting nowhere near a bottom in housing. The layoffs, while not significant in the Labor Report on Friday, sure seem endless. The two major presidential candidates from the Democratic side want to tax the oil companies into oblivion, the leaders of the last year. Exxon (NYSE: XOM) (Cramer's Take) blew the quarter. So did GE (NYSE: GE) (Cramer's Take).
Too far, too fast, based on those grim items.
To me, this is the first week since the Bear Stearns (NYSE: BSC) (Cramer's Take) bottom that I think seems aimless.
But perhaps there's a "split the difference" way to approach this week: options expiration.
Fannie Mae (NYSE: FNM) closed at $29.75. FNM is scheduled to report Q1 EPS on May 6. FNM May option implied volatility of 73 is above its 26-week average of 67 according to Track Data, suggesting larger price movement.
Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
TheStreet.com's Jim Cramer says the good stuff out there -- and there's a lot of it -- will keep us going up.
How high can we go? That's pretty much the only question worth asking after you put in a bottom, as we did after the Bear Stearns (NYSE: BSC) (Cramer's Take) collapse.
Nobody's talking about a new bull market. But let me give you some thoughts about what has happened in the past few weeks to make it so that you could become more positive.
First, we went down so much because the systemic risk in the biggest part of the S&P, the financials, was overwhelming. It is why we "overcorrected" because the market feared -- and shorts pressed their bets -- that the following institutions could go under: Bear Stearns, Washington Mutual (WM) (Cramer's Take), Wachovia (WB) (Cramer's Take) -- yes, Wachovia, because of the miserable buy of what turned out to be a really reckless lender, Golden West -- Lehman Brothers (LEH) (Cramer's Take), Merrill Lynch (MER) (Cramer's Take), Citigroup (C) (Cramer's Take), National City (NCC) (Cramer's Take), Capital One (COF) (Cramer's Take) and even Wells Fargo (WFC) (Cramer's Take). Fannie (FNM) (Cramer's Take) and Freddie (FRE) (Cramer's Take), too.
A newly published report by Standard & Poor's said that the performance of organizations such as Federal National Mortgage Association (NYSE: FNM), or Fannie Mae, and Federal Home Loan Mortgage Corporation (NYSE: FRE), or Freddie Mac, could directly affect the U.S. economy and the country's credit rating, especially if they have to be rescued by the government, according to the Wall Street Journal's "Credit Markets" column.
Seagate Technology LLC (NYSE: STX), a hard drive maker, filed a patent infringement suit in San Francisco against STEC Inc (NASDAQ: STEC) over four patents related to technology used to store data on computer chips, the Wall Street Journal reported.
The Financial Times reported that Citigroup Incorporated (NYSE: C) is allowing private equity groups such as Apollo, The Blackstone Group LP (NYSE: BX) and TPG that are bidding for up to $12B of its leveraged loans to 'cherry-pick' from a wide range of assets with different credit ratings and prices.
TheStreet.com's Jim Cramer says that until we have some clarity on the way out, we'll have a tough road ahead.
This is a confusing moment, for the same reason as always -- the darned mortgage market. Dueling plans seem destined to go nowhere while defaults continue to go up. We need something to stabilize the house price depreciation and someone to take the hit: FHA, Fannie Mae (NYSE: FNM) (Cramer's Take), Freddie Mac (NYSE: FRE) (Cramer's Take)? I don't care.
The president's plan sounds like it tries to address who should take the hit -- a little bit bank, a little bit government -- but it is piecemeal, as is everything that has been done about this issue.
I am and have been banking on an expanded FHA plan that would put the onus on that organization to do long, low-interest-rate loan guarantees. It is a simple plan, and I bet the government would make money from it. It would end the madness of trying to figure out how to deal with each one of these stopgappers.
TheStreet.com's Jim Cramer says the homebuilders won't quit, and that's making the early-cycle plays work.
Ted Allrich is the founder of 
Fannie Mae
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