“Once the global economy emerges from the current financial crisis, which it will, the countries that do well on our index are those that are best prepared to bounce back and perform well in the longer term,” Jennifer Blanke, director of the WEF’s global competitiveness network told The Financial Times.

And the United States is at the top. That’s the good news.

The bad news is that the safety of U.S. banks dropped to 40th this year from 26th in the WEF’s 2007 – 2008 report.

“Despite rising concerns about the soundness of the banking sector and other macroeconomic weaknesses, the country’s many other strengths continue to make it a very productive environment,” the report said of the United States.

But such a fall in the rankings for bank safety is a bit frightening for U.S. banking customers already spooked by the collapse of investment bank such as Lehman Brothers Holdings Inc. (OTC: LEHMQ) and regional banks such as IndyMac Bancorp Inc. (OTC: IDMC).

Summing a Country’s Competitive Balance Sheet

The WEF analyzes 110 economic indicators in 12 different categories for each of 134 countries to come up with its overall GCI ranking. One of those 12 areas is financial market sophistication, which is made up of factors such as “venture capital availability,” “strength of investor protection” and even “regulation of securities exchanges.”

But perhaps the most important factor in this category is the soundness of banks.

Confidence in a nation’s banks is what keeps citizens from stuffing dollars under a mattress. Banks need deposit assets to keep the wheels of U.S. industry turning, as deposit assets are used to fund the short-term credit markets that are so vital to the daily operations of many corporations.

And it’s an area where the United States ranks a disappointing 40.

Coming in behind such well-developed nations as Canada, which tops the list, or even Hong Kong in the 11th spot, might not seem so bad. But even the small African nation of Namibia ranks in at 17, illustrating the United States has some definite room for improvement.

While there are plenty of surprises at the type of the bank safety list, there aren’t many such surprises at the bottom. Algeria comes in dead last with Libya just above it.

Of the “BRIC” nations – Brazil, Russia, India and China – most moved up the list this year against better-developed nations. China landed in the top 30 for the first time as it moved up four spots to reach 30, but China’s banking system is still near the bottom of the list at 108. India, however, slipped two spots to 50 from 48 due to a widening budget deficit. India’s banks also slipped, falling to 51 from 46.

Meanwhile, Brazil was the biggest mover with an eight-spot jump to 64 on the overall list, and also tops the United States when it comes to the soundness of its banks with its 24th spot on the banking safety list. Oil revenues gave Russia a gain of seven to move to 51 from 58 the year prior, but Russia’s banks clocked in at 107 on the soundness rankings.

Slipping Bank Titans?

The United States wasn’t the only nation to find its ranking slipping in the bank safety category. The United Kingdom made a stunning plunge from 4th in the 2007 – 2008 survey, to 44th in the current one, after the emergency nationalization of banks such as Northern Rock PLC (PINK: NHRKF).

Even Switzerland, synonymous with banking to many, was hit hard by the global banking crisis, as it slipped from its top spot in last year’s banking soundness rankings to 16th this year. Swiss giants such as UBS AG (UBS) got caught with over-exposure to U.S. subprime mortgage-backed securities that necessitated government intervention while #2 rival Credit Suisse Group AG (ADR: CS) was forced to raise fresh capital.

Nations from Sweden to the United Kingdom to the Netherlands have all introduced government-sponsored packages to help support ailing domestic banks and avoid the fate of nearly bankrupt Iceland and Pakistan.

The United States $700 billion bailout package is by far the largest, but even that might not be enough to return the domestic banking industry back to safety.

The U.S. financial landscape has been changed forever as firms such, as Lehman Brothers – old enough to have weathered the Great Depression – toppled under the crushing weight of a credit market. The strong – Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC) – have bought out the weak.

Bank of America bought both mortgage lender Countrywide Financial Corp. (CFC) and former standalone investment bank Merrill Lynch & Co. Inc. (MER). JPMorgan bought both regional bank Washington Mutual Inc. (OTC: WAMUQ) and the failed Bear Stearns Cos. Inc. Wells Fargo is buying Wachovia Corp. (WB).

But in the wake of such massive acquisitions, the United States is left with huge nationwide banking complexes dangerously close to the 10% regulator’s cap any one bank is allowed to have of domestic market share.

And with 117 financial firms on the Federal Deposit Insurance Corp.’s (FDIC) “Problem List” at the end of the second quarter, more bank acquisitions and rescues could be on the way. The FDIC’s list for the third quarter won’t be published until November.

The FDIC’s coffers have already taken a hit from the rescue of IndyMac and with the recent bailout law raising the cap for FDIC-insured deposits, it doesn’t seem like much of a stretch to imagine the nation’s banking insurance coming up short if one of the largest banks were to fail.

Bank Safety Plays

The FDIC doesn’t publish the names of the banks on its watch list, but luckily there are some simple ways to help ensure your banking deposits are safe. Here are three quick and easy steps from Money Morning Investment Director Keith Fitz-Gerald that you can take to determine if your bank is safe or not:

1. Click over to Bankrate.com’s Safe & Sound ratings page. There you can plug in your bank’s name and see how it scores on the basis of 22 objective measures designed to gauge the capital adequacy, asset quality, profitability and liquidity of thousands of banks. “If your bank doesn’t make the cut with a higher rating, then switch to one that does,” says Fitz-Gerald.

1. Use the FDIC’s electronic deposit insurance estimator to see if your assets are covered in full. With the recent signing of the bailout legislation into law, the FDIC now covers accounts up to $250,000 at any one bank in any single account or $250,000 per co-owner for joint accounts. Traditional and Roth IRAs, SEPS and other retirement accounts on deposit at an FDIC-insured bank or savings institutions are insured up to $250,000 separately from any other deposits you may have at the same institution. “But remember,” said Fitz-Gerald, “this is mainly deposit accounts and doesn’t include stocks, bonds, mutual funds or life insurance policies.”

1. Double-check your ownership. If a portion of your assets is uninsured, getting full coverage may just be a matter of changing ownership or spreading out your accounts to different banks. “Like most things the government doesn’t make this easy, so that means more paperwork,” Fitz-Gerald said.

Source: Global Credit Crisis Takes a Toll on Former Titans of Banking

In the past few days alone, the Bernanke Bomb Squad – also known as the U.S. Federal Reserve – was able to defuse two ticking time bombs – Fannie Mae (FNM) and Freddie Mac (FRE) – before the full force of their explosive power could be felt. Fannie and Freddie are now being propped up and will eventually have to be taken over or put into receivership, meaning there ultimately will be damage to deal with.

So, why do I still hear a ticking sound? Because there’s another bomb out there, and it’s getting closer and closer to its point of ignition. Most folks aren’t aware of it, and others who should know better are ignoring it.

The upshot: Most investors are completely oblivious to the danger it poses.

When FHA is Pronounced as “TNT”

This latest threat we’re referring to, of course, is the Federal Housing Administration, more generally known as the FHA.

Congress believes that the FHA is the institution it can count on as the salve that covers the housing gash, and heals it – thereby delivering us from a New Millennium version of the Great Depression. But in reality, the FHA is not only an additional ticking time bomb – it’s one that Congress is packing with additional gunpowder.

The Federal Housing Administration was created as part of the National Housing Act of 1934; in 1965 it became part of the Department of Housing and Urban Development (HUD). In a nutshell, FHA provides insurance – paid for by borrowers – that insures lenders, making certain that interest and principal will be paid on the mortgages that lenders grant to borrowers. FHA insurance and FHA-predicated loans facilitate home buying by low- to middle-income borrowers. When there were eager subprime-mortgage lenders and a plethora of similar lenders bending over backwards to provide mortgages (usually with teaser rates), FHA loans were not in the spotlight.

Legislative Shortfalls Certain to Surface

Within short order, perhaps as soon as next week, the Senate and House versions of their respective housing-recovery-legislation efforts will cross each other and be reconciled. In this politically charged election year, both U.S. political parties and both houses of Congress want to appear both proactive and decisive. The result will be a housing-relief package whose centerpieces are based on Fannie, Freddie and the FHA.

Because of the already-existing burdens of Freddie and Fannie, it’s obvious that further encumbering them with loans from banks – or mortgage companies such as Countrywide Financial Corp. (CFC) – is flat out a bad idea. These are loans, after all, that no one else wants. Ultimately, Freddie and Fannie would take these newly acquired loans, would repackage them as securities, and would end up selling them to themselves, since no one else will buy them.

The centerpiece of the legislation provides $300 billion to the FHA to insure new mortgages for borrowers who are in danger of being foreclosed. This inane and stillborn idea is predicated on a reality
that just doesn’t exist.

What will happen is that the legislation will shoehorn borrowers into mortgages that they have no real incentive to repay. In the end, when those dead-end mortgages are abandoned, we the taxpayers will pay to bail out the FHA.

Here’s why the legislation won’t work.

The Top Two Reasons Congress Can’t Win

First, troubled borrowers will have to get lenders to forgive existing loans and take the write-off so that borrowers can refinance with an FHA loan. The trouble here is that lenders just can’t unilaterally decide to forgive the loan. Most of these borrowers have second loans and equity credit lines – usually with more than one lender – and many of these lenders have no incentive to forgive the loans. After all, if the lenders forgive the indebtedness, what will they get?

Exactly nothing – nothing at all.

Another major impediment to this approach is that most of these loans were packaged into “trusts” that issued securities (collateralized mortgage bonds) based on the collective mortgages. The “servicers” of these trusts do not speak for the original lenders, and furthermore have absolutely no incentive to allow individual mortgage holders to opt-out.

If individual mortgage-holders opted out because they could refinance, that would shrink the size of the mortgage pool. Since trust-servicers are compensated based on total size of the pool, where’s their incentive even if they could negotiate on behalf of the underlying lender? Another idea that was tragically stillborn.

But it’s the second problem that’s the most worrisome. If borrowers could refinance based on the reduced appraised value of their homes (there’s another issue right there: what appraisals?), they would have to agree to share any appreciation with the federal government.

I’m trying very hard not to laugh. Because it’s really not funny. And here’s why: Because all these folks need help and because the FHA requires down-payments of only 3%, those who can refinance actually might do so instead of just walking away – particularly since the FHA allows the down-payment to be borrowed, gifted or provided by charitable organizations. (Builders and developers can actually constitute themselves as charitable organizations, believe it or not).

So, banks will hold onto those loans that have decent recovery prospects. More than likely, anything valued at less than 80 cents on the dollar they have already written off – or will, soon – and will then dump those borrowers on the FHA. The FHA will end up with subprime and junk mortgages where the borrowers have “no skin in the game,” and no upside incentive. And, as a last laugh, new legislation, already in place, allows the FHA to raise the amount of a loan they can insure from the previous level of $362,790 to a new total of $729,750.

(Special note to lawmakers: Hey folks, it was the extension of credit to borrowers who were unable to afford homes in the first place that got us into this mess).

The FHA is supposed to be revenue neutral, last year it lost $4.6 billion. Can you see where this is going?

The bottom line: This plan is not a panacea. It is a sea of pain – for the taxpayers, and for the housing market.

Market Notes From “Inside Wall Street:” Don’t Get “Faked Out”

Don’t be fooled by the “head-fake” rally. The truth is that the congressional efforts being pushed along at breakneck speed to “fix” the U.S. housing disaster are short-sighted and inept, and serve to hide the massive FHA time bomb that’s destined to blow up in our collective face.

Color me unimpressed.

Wednesday’s stock-market rally – and the follow-up advance yesterday (Thursday) – do not portend a sea change in momentum and no previous sell-offs would constitute a “capitulation” bottom.

To the contrary, it was what we professional traders call a”dead cat bounce.” It was a technical rally based not on fundamentals, but on technicals. Shorts ran for cover, thanks chiefly to newly proposed Securities and Exchange Commission rules that would force short-sellers to actually “locate” shares of stock before they can sell that stock short.

There are massive shorts out there and from time to time such squeezes will result in “head-fake” rallies. The fundamentals have not changed. Keep your eyes on the prize.

Editor’s Note: Contributing Editor R. Shah Gilani has toiled in the trading pits in Chicago, run trading desks in New York, operated as a broker/dealer and managed everything from hedge funds to currency accounts. In his new column, “Inside Wall Street,” Gilani vows to take readers on a journey through the “shadowy back alleys” of the U.S. capital markets – and to conduct us past the “velvet rope” that guards Wall Street’s most-valuable secrets – in an ongoing search for the investment ideas with the biggest profit potential.

Source: Inside Wall Street: That Ticking Sound You Hear Out in the Mortgage Market is the FHA

Thomson Reuters now estimates that second-quarter earnings declined by 11.1%, which is significantly worse than the projected 2% decline that was made back in April.

Of course, financials will lead the charge in terms of these dire expectations, followed closely behind by consumer discretionary (which reflects the lagging confidence measures). Technology is also expected to struggle; these days management must think long and hard about investing in any major systems upgrades.

But the real key to the stock market’s future may well lay with major multinationals. In recent quarters, many multinational companies – we often refer to them as “Global Titans” – have weathered the domestic storm. The reason: They’ve been able to generate substantial revenue and profits from continued growth in emerging markets and from the weak dollar (which increases demand for the “cheaper” U.S. goods). Unfortunately, this trend may be coming to an end as global inflation heats up and slower international growth means that multinationals may be losing their safety net.

Investors get a bit of a reprieve (and time to recover from second-quarter hangovers) as few economic releases of substance are on the calendar for the week ahead.

Market Matters

Good-bye and good riddance. That general sentiment was shared by investors and traders alike, as the second-quarter came to a close (and none too quickly). Many folks expected the market negativity to shift after a poor first quarter, since the U.S. Federal Reserve jumped in with both feet and attempted to end the credit crisis. Unfortunately, the past three months brought more of the same and the outlook for the remainder of the year does not look much stronger.

The Dow Jones Industrial Average suffered its worst 1st half of the year since 1970, while the bleak performances of the Standard & Poor’s 500 Index and the Nasdaq Composite Index brought back memories of the dot-com bubble collapse of 2001 and 2002.

Likewise, certain emerging markets (Shanghai and India) plunged in value, leaving equity investors few attractive options in the global marketplace.

Thus far, the new quarter brings a continuation of those same “tired” themes: Financials and energy. Lehman Brothers Holdings Inc. (LEH) actually moved to the backburner as investors focused on European competitor UBS AG (ADR: UBS) and a Justice Department investigation into the potential tax fraud of several key clients. To date, the Swiss banking giant has reported more than $35 billion in asset write-downs, while reshuffling its board and revising certain governance policies to appease disgruntled shareholders. Meanwhile, Standard & Poor’s downgraded much of the banking-and-financial services sectors, as losses become the norm and many firms search for significant capital infusions.

Bank of America Corp. (BAC) enhanced its leadership position in the mortgage origination and servicing markets (but is that really a good idea these days?), as it completed its acquisition of Countrywide Financial Corp. (CFC). At closing, the transaction was estimated at $2.5 billion, down significantly from the initial $4 billion proposal due to BofA’s plunging stock price.

In non-financial-sector news, Starbucks Corp. (SBUX) is feeling the pain of a sluggish economy, given its customers’ inability to pay $5 for a “Cup of Joe,” as the company announced the closing of 600 stores during the next year. The General Motors Corp. (GM) liquidity struggles continued, as a key analyst even threw out the term “bankruptcy” in a recent report. Microsoft Corp. (MSFT) still has interest in Yahoo! Inc. (YHOO) and opened discussions with News Corp. (NWS) and Time Warner Inc. (TWX) about potential partnerships in such a deal.

The markets took their clues from surging crude oil prices yet again as supply concerns and tensions between Iran and Israel helped push prices to a new record near $146 per barrel. Since the beginning if the year, oil has jumped by more than 50% and gas prices have followed, causing many Americans to alter their July 4 plans and stick closer to home because of record ($4.098) gasoline prices.

The Dow and Nasdaq have both tumbled into “bear” territory as the indexes have fallen in excess of 20% since the highs set last year. On the international front, the markets have struggled in Britain, Germany, and Paris (among others), as escalating inflationary fears in Europe prompted a European Central Bank interest-rate increase (much to the chagrin of the Fed)

[For a related story on the ECB rate increase in today’s issue of Money Morning, please click here.]

Economically Speaking

While Fed Chief Ben S. Bernanke and friends fret over their “Mission: Impossible” task of guiding a struggling economy through a period of inflation, the European Central Bank increased its short rate by a quarter percentage point to counter its own price concerns. That move just made Bernanke’s job even harder as the higher rate abroad puts new pressures on the dollar – and, subsequently, on the entire U.S. domestic economy.

On the economic front, all eyes and ears were on the Thursday morning release of unemployment and non-farm payroll additions as investors got a quick glance at the labor picture before heading out for the long weekend. As expected, the jobless rate held steady at 5.5% and the economy lost more jobs for the sixth-consecutive month. Clearly, all businesses and not just financial firms remain nervous about the immediate future. Many have issued pink slips or offered early retirement buyouts in an attempt to lower their expenses. Construction, manufacturing, and retail were among the sectors that reported payroll contraction in June. [For a related story on the job numbers in today’s issue of Money Morning, please click here.]

The manufacturing sector got some good news in the form of a higher ISM survey release, though the euphoria was short-lived as a closer look inside the numbers revealed that higher prices contributed more to the increase than rising demand for U.S.-made products.

Likewise factory orders gained less than expected, another bad reflection on the state of manufacturing. As has become the norm during the housing slowdown, construction activity declined again in May, the fifth time that’s happened in six months.

Additionally, the ISM Services (non-manufacturing) index revealed sector contraction in June, surprising analysts who were calling for a third straight month of growth.

The week ahead doesn’t hold any big economic releases, giving investors a welcome break after last week’s disappointing round of reports.

Weekly Economic Calendar

Source: It’s an Ill Wind That Blows, as Earnings Seasons Approaches

• Bank of America Corp. (BAC) announced yesterday (Tuesday) that it had completed its purchase of Countrywide Financial Corp. (CFC). The all-stock deal was initially announced in January. Bank of America expects to eliminate 7,500 jobs now that the acquisition is complete, MarketWatch reported.

• The Institute for Supply Management’s index of manufacturing activity had a 0.6 gain to 50.2 in June, the first measurement since January that showed the manufacturing sector was expanding. “While it may be too soon to say that manufacturing has begun to start growing again, it is possible that a bottom is being reached,” Joel Naroff, president and chief economist of Naroff Economic Advisors, said in a note to clients yesterday (Tuesday).

• Moody’s Corp. (MCO) announced yesterday (Tuesday) that staff in its Moody’s Investor Service unit, which assigns credit ratings to various types of investment vehicles, had breached certain rules in assigning ratings to European constant proportion debt obligations (CPDO), Bloomberg News reported. A computer glitch was initially responsible for assigning the highest rating to CPDO debt in May, however, certain staff did engage in “conduct contrary to Moody’s code of professional conduct,” the ratings company said.

• Hong Kong’s stock, forex and debt markets were closed yesterday (Tuesday) to mark the anniversary of the July 1 handover of the territory to China from Britain, Reuters reported. Hong Kong’s markets will reopen today (Wednesday).

• Construction spending dropped 0.4% in May, the Commerce Department reported yesterday (Tuesday). It was the 11th decline in the past year, as a lack of demand in residential areas continued to offset relative strength elsewhere. Residential construction dropped 1.6% in May, the 25th decline out of the past 26 months, The Associated Press reported.

• Constellation Brands Inc. (STZ) said yesterday (Tuesday) that its fiscal first-quarter profit jumped 50% boosted by strong sales of newer wine brands such as Clos du Bois and Wild Horse, The Associated Press reported. The results beat Wall Street expectations, and its shares rose nearly 6%.

• Beginning July 11, iPhones will go on sale for $199 for the model with 8 gigabytes of storage and $299 for the 16-gigabyte version. These prices apply to customers signing up for a two-year AT&T contract. However, those who don’t want to be locked into such a contract will be able to buy the iPhone for $599 or $699 as long as they sign up for some kind of AT&T wireless subscription, Reuters reported.

• The foreign staff of BP PLC’s joint venture in Russia will be required to leave the country this month, some of them permanently, because their work permits were not renewed, the International Herald Tribune reported. BP is struggling to maintain control over TNK-BP, which is unraveling under pressure from its Russian partners and the Russian government, who are seeking to usurp complete control over the project.

Source: Global Investing Roundups Wednesday, July 2nd, 2008

With the Dow in Bearish Territory, and Oil Prices in the Stratosphere, New Potential Problems Abound

By William Patalon III

With the Dow Jones Industrial Average down 20% from its October peak — placing it firmly in bear-market territory after what’s so far been its worst June since the Great Depression — neither institutional traders nor individual investors seem able to find anything positive about the economy, corporate climate or financial markets.

The subprime-mortgage mess and the ensuing credit crisis continues to exact a toll on the financial-services sector, meaning we can be certain those write-downs won’t be ending anytime soon. Oil prices can’t seem to find a ceiling as new records are again being set – regardless of whether you choose to call it market fundamentals or speculation. The U.S. Federal Reserve surveyed the financial landscape last week and left interest rates unchanged for the time since September as Chairman Ben S. Bernanke & Co. try to find a compromise between a slow (and hopefully not recessionary) economy and escalating inflation.

A new debate rages on with some analysts forecasting an August rate hike, while others expect no activity until after the November elections. The European Central Bank meets in the coming days and is expected to bump up its short-term rate, putting additional pressure on the U.S. dollar and on Bernanke. On one hand, the economy remains weak (though not recessionary at this point) and higher rates could prove devastating. On the other hand, rising commodity prices could trickle (or free-flow) into other areas, inflation could escalate, and higher rates would be justified (needed) to offset those price risks. (Sounds a bit like another Catch-22.)

The economic calendar remains hectic in advance of the July 4 holiday. Traders will have to settle for a mere three-day weekend as Thursday brings the much-anticipated unemployment and nonfarm-payroll reports, which will give us another view of the struggling U.S. labor market. Crucial news from manufacturing (Institute for Supply Management and factory orders) should reveal whether the factory sector is still contracting.

Also coming up in the week ahead: Construction Spending (tomorrow -Tuesday); ISM – Manufacturing (tomorrow); Unemployment Rate (Thursday); Nonfarm Payroll Additions (Thursday); ISM – Services (Thursday); Independence Day (Friday).

Market Matters

Once upon a time, homeownership became much more than the American Dream. It became more of an entitlement as politicos grandstanded for virtually everyone to be able to afford a house. Then, lenders began offering “less-than-qualified” buyers some “interesting” rates and real estate speculators took advantage of easy terms, fully intending to flip properties for quick profits. Greedy investors bought those complex mortgage securities to enhance the yield in their portfolios and credit agencies failed to recognize the actual risks involved. Regulators often turned the other way and allowed the entire debacle to escalate into a full-fledged credit crisis.

Last week, California’s attorney general sued Countrywide Financial Corp. (CFC), claiming deceptive advertising and unfair competition. Meanwhile, Securities and Exchange Commission Chairman Christopher Cox has moved onto the hot seat for not doing enough to intervene or attempting to restore confidence in the financial system as the crisis spread out of control. History shows that past SEC chairs took far more active roles during such challenging times as the collapse of junk-bond king Drexel Burnham Lambert and the economic aftermath of 9-11; and yet Cox has seemed AWOL throughout, allowing Bernanke and U.S. Treasury Secretary Henry Paulson to offer plans and compete for headlines.

And that begs the question some on Wall Street are asking these days: Just how relevant is the SEC these days?

Financials took shots at each other this week as Goldman Sachs Group Inc. (GS) lowered its rating on the whole sector from “Attractive” to “Neutral;” Lehman Brothers Holdings Inc. (LEH) and Sanford Bernstein & Co. LLC predicted additional write-downs for Merrill Lynch & Co. Inc. (MER); and Wachovia Corp. (WB) downgraded Goldman (perhaps a little tit for tat?). Citigroup Inc. (C) kept those pink slips flying in their investment banking area as the one-time global giant continued to struggle through billion-dollar losses.

Barclays PLC (ADR: BCS) turned to Middle East sovereign funds (namely the Qatar Investment Authority) for a significant capital infusion. And news from the non-financial world was not much better. UPS, Inc. (UPS) reduced its profit forecast; The Dow Chemical Co. (DOW) announced new price hikes; Blackberry-device-maker Research in Motion (RIMM) missed on its quarterly earnings and lowered future estimates; and General Motors Corp.’s (GM) stock price fell to a 53-year low. Oil prices surged further into record territory (over $142/barrel) on some untimely comments by the leader of the Organization of the Petroleum Exporting Countries and more of a run-up in commodities as global equities tumbled.

The bears officially came out of hibernation as the Dow Jones has plunged some 20% below the highs hit back in October 2007 to its lowest level in about two years (a 20% decline represents the definition of a bear market). Investors fretted over the weak financial company news (particularly the projections offered by their own analysts) and, of course, the never-ending rise in oil.

On the international front, the MSCI World Index fell to its lowest level since March – and is also on track for its worst monthly performance in almost six years. Bonds moved higher on a “flight-to-quality” as the yield on the benchmark 10-year Treasury once again fell below the 4% level.

Source: With the Dow in Bearish Territory, and Crude Oil Prices in the Stratosphere, New Potential Problems Abound

• Toyota Motor Corp. (ADR: TM) plans to drop more than $1 billion on a new factory in Sao Paulo, Brazil, Valor Economico reported without citing a source. The new factory would be a bid to capture a share of the economic growth and rising incomes in South America.

• A pair of mortgage executives in India said the country’s five-year property boom is coming to an end as the number of available homes increases along with interest rates. “Due to the state of the equity markets, many investors who would have bought a second or a third house are abstaining from doing so,” Keki Mistry, vice chairman of Housing Development Finance Corp., India’s largest provider of home loans, told Bloomberg News. “Genuine home buyers who are looking to buy a house for self occupation will continue to buy.”

• The economy turned in a better, though still unimpressive, performance in the first quarter of 2008, edging up a full 1%, the Associated Press reported. The Commerce Department had originally estimated a growth rate of 0.9% for the January-to-March quarter.

• Existing home sales picked up in May, but home values continued their decline, according to a report from the Associated Press. The National Association of Realtors reported that sales of existing single-family homes and condominiums rose by 2% to 4.99 million units last month. However, the median price of an existing home sold in May dropped to $208,600, down 6.3% from a year go.

• Anheuser-Busch Cos. Inc. (BUD) is expected to reject InBev NV’s unsolicited $46.3 billion offer, saying it undervalues the company, and announce its own restructuring plan, the Wall Street Journal reported. The company will then outline its own restructuring, which includes the sale of nonessential assets such its theme parks in an effort to boost its stock price.

• Bank of America Corp. (BAC) announced it would cut approximately 7,500 jobs after its merger with Countrywide Financial Corp. (CFC), Reuters reported. The second largest U.S. bank will let go of 3% of the combined workforce after its acquisition of the largest U.S. mortgage lender.

• Kinross Gold Corp. (KGC) stock gained almost 12% yesterday (Thursday) on the back of a gold increase, which saw a 4% gain to $915 an ounce. The gold miner’s shares gained $2.35 to close at $22.34. Canada-based Eldorado Gold Corp. (EGO) saw a similar gain, with shares climbing over 10% with a 77-cent increase to close at $8.02.

• Oshkosh Corp. (OSK) shares plunged over 33% yesterday (Thursday) after the aerial work platforms manufacturer forecast a loss of as much as $1.32 per share in the third quarter, Bloomberg News reported. Shares plunged $11.22 to close at $22.29.

Source: Global Investing Roundups Friday, June 27th, 2008

• In reporting a $164.8 million loss (or $1 per share), electronics retailer Circuit City Stores Inc. (CC) suspended its 4-cent dividend. The company also forecast a wider second-quarter loss but said it expects a “gradual recovery” in the second half, Reuters reported.

• Mitsubishi Motors Corp. (PINK: MMTOF) plans to introduce a line of plug-in hybrids as soon as 2013. The company’s all-electric i MiEV minicar plans to be charged from a standard electric outlet. About 1,000 of them will go on sale to fleet customers starting April 1, 2009, Bloomberg reported.

• Continental Airlines Inc. (CAL) and United Air Lines Inc. announced yesterday (Thursday) that despite deciding not to merge in April, the two carriers would form an alliance that includes linking their networks and operations worldwide, The New York Times reported. As part of the deal, Continental will join the Star Alliance, of which United is already a member.

• Western oil majors will return to Iraq for the first time in 36 years, The New York Times reported yesterday (Thursday). Exxon Mobil Corp. (XOM), Chevron Corp. (CVX), Royal Dutch Shell PLC (ADR: RDS.A, RDS.B), BP PLC (ADR: BP) and Total SA (ADR: TOT) are at the forefront for contracts on the countries largest oil fields and are currently in talks with the government’s oil ministry, MarketWatch reported.

• Shares of Citigroup Inc. (C) dropped over 1% with a 23 cent decline to close at $20.17 yesterday (Thursday) after Chief Financial Officer Gary Crittenden said there would be “substantial” additional write-downs and losses on consumer loans, Bloomberg News reported. Citigroup has already written down $42 billion, or approximately 10% of the $396 billion in total write-downs.

• Matthew Tannin and Ralph Cioffi, two former Bear Stearns Cos. Inc. (BSC) managers, were arrested yesterday (Thursday) on securities fraud and other charges linked to the collapse of a hedge fund that bet heavily on subprime mortgages before the market collapsed, The Associated Press reported. The FBI announced Thursday that it had arrested about 300 real estate industry players since March.

• Transocean Inc. (RIG) said yesterday (Thursday) that BP PLC (ADR: BP) extended an ultra-deepwater drilling contract for five more years, The Associated Press reported. The extension for the semi-submersible vessel GSF Development Driller II begins in November and is expected to generate up to $1.06 billion in revenue over the life of the contract.

• Bank of America Corp. (BAC) expects to complete its acquisition of mortgage lender Countrywide Financial Corp. (CFC) by July 1, a source familiar with the matter told Reuters yesterday (Thursday). Bank of America has agreed to pay about $4 billion for Countrywide.

Source: Global Investing Roundups: Friday, June 20th, 2008

For example…

Pr It holds the position of the largest private, non-governmental originator of mortgages in the US.

Con: It also holds the dubious distinction of being one of the most blatant issuers of sub-prime paper.

I’m talking about Countrywide Financial (NYSE: CFC) – the much-beleaguered bank and mortgage company.

And there is an interesting trend occurring at the bank – one that bodes well for banks and the economy as a whole…

The Importance Of “Average Joes”As a banking institution, Countrywide accepts deposits from individuals.

While that’s an obvious point to make, it’s also a significant one, since this is the most important aspect of Countrywide’s business. Especially during the recent turbulent times.

In order for Countrywide to loan money, it must do so using available funds from deposits, which it can then leverage into loans. It makes money from the positive spread between what the money costs (deposit rates on the money from you or I) and what it charges (loan rates to customers).

Another alternative is to borrow funds from the institutional market and re-loan them. But since this requires a strong financial rating – something that Countrywide does not have at the moment – that idea is a non-starter.

Now, about that trend I mentioned…

What Countrywide’s Interest Rates Reveal About The Financial Sector’s Health

Prior to the subprime mess hitting the fan, Countrywide’s deposit interest rate was as pathetic as those being offered by most large banks.

However, once the subprime crisis and ensuing credit shortage gripped the market, Countrywide found access to easy funds very limited – meaning it could not borrow low and re-lend high.

With institutional funding not an option, Countrywide mounted a full-court press on folks like you and me – yield hungry investors seeking higher returns on cash. And as an FDIC insured bank, the funds were pretty secure, provided they didn’t exceed the $100,000 threshold.

And in January, it was evident just how tough a time Countrywide was enduring in trying to obtain funds to re-lend.

The bank’s money market rates for a minimum $10,000 deposit were as high as 6% – significantly higher than the average bank.

Even with the Federal Reserve in the midst of an aggressive interest rate-cutting program, Countrywide was still paying over 5%, while most banks were paying closer to 2%. Even Internet banks like ING Direct were paying 3% to 3.5%.

The situation stayed this way until last month…

Follow The “Countrywide Index”Just after the “tipping point” collapse of Bear Stearns on March 17, the subprime crisis began to ease.

Around the same time, Countrywide finally started to lower its interest rates. Thursday’s Countrywide deposit interest rates were under 4% – the high end of the deposit rate range.

The days of grabbing high interest rates from troubled institutions may be over. Countrywide is not only finding money, it’s doing so relatively cheaply, considering its risky profile.

While that’s not exactly great news if you’re looking for a higher rate of return on your deposits, on a broader scale, it does bode well for the US economy and banks in the long-term.

After all, if a bank like Countrywide can borrow at lower rates, then the liquidity crisis that almost brought the financial system down is surely easing.

For future reference, go to Countrywide’s website at: www.countrywide.com and keep an eye on the deposit rates.

When they hit the same level at the major money center banks like JP Morgan Chase – or even close to the rates offered by Chase – then you’ll know that the financial crisis is almost over and the sector is ready to rally again in earnest.

Karim Rahemtulla

Source: Financial Indicator – Countrywide Financial

• The U.S. service sector grew in April for the first time in four months, Reuters reported. The Institute for Supply Management said yesterday (Monday) that its non-manufacturing index was 52 in April, up from 49.6 in March. ISM’s jobs gauge for the sector posted its biggest improvement in seven months, however, inflation pressures remain at their highest in five months.

• Morgan Stanley (MS) will reduce another 1,500 employees from its securities-firm workforce, CNBC reported. The company rebounded in the first quarter of 2008, reporting net income of $1.5 billion, but business conditions remain weak and profit margins are tight throughout the securities business.

• Shares of Countrywide Financial Corp. (CFC) fell almost 15% yesterday (Monday) after a report from Friedman, Billings, Ramsey & Co. suggested that Bank of America Corp. (BAC) back out of its takeover. The report lowered Countrywide’s price target to $2 a share, down from $7, and cut its rating to “underperform” from “market perform,” Bloomberg reported.

• Sprint Nextel Corp. (S) is considering spinning off its Nextel unit, The Wall Street Journal reported, citing sources familiar with the matter. In 2005, Sprint bought Nextel Communications for $35 billion. Cyren Call, a company founded by Nextel co-founder Morgan O’Brien, is trying to reel investors to buy Nextel from Sprint.

• Warren Buffett spoke to a record 31,000 shareholders at Qwest Center in Omaha, Nebraska on Saturday for Berkshire Hathaway Inc.’s (BRK.A, BRK.B) annual meeting. “There is absolutely no question” that Berkshire’s returns will decline, Reuters reported Buffett said. “Anyone that expects us to come close to replicating the past should sell their stock. It isn’t going to happen. I think we’re going to get decent results over time, but we’re not going to get indecent results.” Both classes of Berkshire Hathaway stock slumped over 2% yesterday (Monday).

• Late yesterday (Monday) afternoon, Principal Financial Group Inc. (PFG) announced first quarter revenue fell to $2.5 billion from $2.66 billion for the same period last year. The results were below mean analyst expectations of $2.87 billion, Thomson Financial reported. Shares slumped 74 cents, a 1.28% decline, to close at $57.18 after the announcement.

• Wal-Mart Stores Inc. (WMT) announced yesterday (Monday) that it would expand its generic prescription drug program to cover over 1,000 over-the-counter medications for $4 or less. “We expect that today’s extension will generate additional pharmacy volume for the company, especially given the current weak consumer environment and rising health-care costs,” wrote Uta Werner, a retail analyst with Sanford C. Bernstein & Co, in a research note, Reuters reported.

• Chinese Internet media company Sohu.com Inc. (SOHU) announced its first quarter revenue soared 156% year-over-year to $84.8 million, exceeding the high end of company guidance by $16.3 million. Shares climbed 14.51% on the news, closing at $70.81 a share.

• Crude oil rose to a record $119.93 a barrel in New York on the shutdown of a North Sea pipeline and as a strike and militant attacks reduced output from Nigeria. Oil has shot up 80% in the past year as supply failed to keep up with surging demand in China, India and the Middle East.

• Investor Kirk Kerkorian said he bought 100 million Ford Motor Co. (F) shares – a 4.7% stake in the company. He intends to buy more in a vote of support for Chief Executive Officer Alan R. Mulally, according to Bloomberg News.  Ford rose 9.5% to close at $8.21 a share.

• Verizon Communications Inc.’s (VZ) profit climbed 9.8% boosted largely by the telecommunications carrier’s wireless growth. Verizon reported net income of $1.64 billion, or 57 cents a share, for the first quarter, compared with $1.5 billion, or 51 cents a share, a year earlier. Revenue rose 5.5% to $23.83 billion.

• Visa Inc. (V) said profit jumped 28% in the company’s first earnings report since its record $19 billion initial public offering last month. Net income climbed to $314 million, or 39 cents a share, in the quarter ended March 31, from $246 million a year earlier, the company said today in a statement distributed by PR Newswire.

• Bank of America Corp. (BAC) will expand efforts to help Countrywide Financial Corp. (CFC) borrowers avoid foreclosure on troubled mortgages, the Associated Press reported. Liam McGee, president of Bank of America’s global consumer and small business banking operation, said the bank would modify at least $40 billion in loans from at least 265,000 borrowers over the next two years. “Bank of America will continue to offer home loan products to those who can afford them,” McGee said. “We also recognize that some consumers who are experiencing financial challenges but who ultimately have the ability to pay their loans need our help to pay their loans, and we are ready to help them.”

• Corn prices jumped yesterday (Monday) as investors bet that more rain in Midwestern states would force farmers to plant less of the staple crop. Corn for May delivery jumped 22.75 cents to settle at $6 a bushel on the Chicago Board of Trade. Corn prices have shot up 26% this year.

• Natural-gas producer Questar Corp. (STR) announced first-quarter profit rose 23% on higher output and soaring fuel prices yesterday (Monday). Net income for the three months ended March 31 rose to $185.8 million ($1.05 per share) compared with $151.1 million (86 cents per share) a year ago.