Fed’s Beige Book Shows Downturn Slowing; Home Depot Says Worst Is Over; ReFi Apps Slowest Since November; Senate Mulls Bigger Home Loan Tax Credit; U.S. Becomes Largest Shareholder in Citi; Rising Energy Costs Could Stunt Global Recovery; Top Economist Considering Senate Run

• The U.S. economic downturn may be slowing, but conditions remained weak in almost half of its regions, the Federal Reserve reported in its Beige Book business survey. “Contacts from several districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year,” the central bank said in the report. But the words “stable” or “stabilize” appeared in some form more than 60 times in yesterday’s (Wednesday’s) report,according toBloomberg. Many district banks reported that homebuilding “appeared to have stabilized at very low levels,” and some regions said “manufacturing employment levels may soon stabilize.” The Fed report reflects information collected through June 1 and summarized by staffers at the Cleveland Fed bank. It is published two weeks before the next Federal Open Market Committee meeting.

• Home Depot Inc. (NYSE: HD) yesterday (Wednesday) raised its 2009 profit forecast and said economic indicators signal the worst of the U.S. housing correction has passed. The company, which has been upgrading services and products in its stores to win back market share from rival Lowe’s Co.’s Inc (NYSE: LOW), said earnings could be flat this year, rather than falling as it previously forecast.  Admitting its sales were hit hard by the housing market slump and recession, the nation’s biggest home-improvement chain said it sees better margins this year through improved efficiencies,Reuters reported.

• Total home loan applications were driven down by spiking U.S. mortgage rates last week as demand for refinancing shriveled to the lowest level since November, the Mortgage Bankers Association said yesterday (Wednesday).  Borrowing costs have soared as bond yields have risen, even as the Federal Reserve has purchased hundreds of billions of dollars in bonds to keep rates low and stimulate the housing market, Reuters reported. The average 30-year fixed mortgage rate jumped 0.32 percentage points in the week ended June 5 to 5.57%. That’s nearly a full point, about 100 basis points, above the record low rate of 4.61% in March, the trade group said.

• Legislation introduced in the Senate yesterday would almost double an $8,000 tax credit for first-time homebuyers and expand the program to all borrowers, Bloomberg reported. Senator Johnny Isakson (R-Georgia) is co-sponsoring a bill that increases the tax credit to $15,000 and removes income and other restrictions on who can qualify for the credit, according to his spokesman, Sheridan Watson.  It would eliminate income caps of $75,000 and $150,000 on individuals and couples seeking to claim the credit and extend it to owner-occupied, multi-family units.  “The housing market continues to be a drag on the economy,” said John Castellani, president of the Washington-based Business Roundtable, which represents the interests of more than 100 large-company CEOs. “We believe that if we don’t stabilize this vital sector, we can’t turn the tide on the recession.”

• Citigroup, Inc. (NYSE: C) yesterday (Wednesday) began a $58 billion recapitalization process that will make the U.S. government the company’s largest shareholder, MarketWatchreported. The Treasury will exchange up to $25 billion of the bank’s preferred securities for interim securities and warrants. The recapitalization would create roughly $58 billion in new common Citi shares.

• Oil prices have eclipsed $70 a barrel for the first time in seven months, and now analysts say escalating energy costs could inhibit global recovery, MarketWatchreported. “As if the U.S. consumer didn’t have enough to worry about,” said Peter Boockvar, equity strategist at Miller Tabak, referring to gas prices, which are rising to their highest levels since last fall. The U.S. government reported an unexpected decline in supplies last week. “If gasoline prices stay elevated, it will dramatically dilute the tax-cut portion of the Obama stimulus plan,” said Boockvar, adding that for every dollar the price of gasoline rises, “it’s an extra $140 billion more in consumer spending at the pump.”

• Euro Pacific Captial, Inc. President and Chief Global strategistPeter D. Schiff is considering a run for the U.S. Senate on the Republican ticket, Reuters reported, citing his Tuesday appearance on Comedy Central’s “The Daily Show.” He would challenge Connecticut Sen. Christopher Dodd. Supporters have launched schiff2010.com to encourage Schiff to run. Schiff is an occasional guest columnist for Money Morning.

Source: Investment News Briefs Thursday June 11, 2009