Contrarian Stock Market Investing News - Featuring Bargain Stocks » Countrywide Financial

Bubble Babble

Ajit Dayal — Thu, 05 Jun 2008 18:23:17 +0000

Everywhere I look, I see the word “bubble” – quickly followed by the word “burst” or “deflate”. So what exactly is a “bubble”? Well, it used to be the sort of thing that one had in a hot tub bath when there was a lot of soap.

But now water is not always available 24 hours a day and it is sort of wasteful to have a “bath tub” bath. A quick shower will do.

And the price of oil and coal and electricity is also “bubbling” – that makes the hot tub bath an even more expensive experience.

And in everyday life, “bubbles” may still be the pet name that many north Indians prefer to an alternative like “tinkoo” or “pinkoo”.

But, in financial jargon, “bubble” means something that is inflated and – like your bath soap bubble – eventually goes “phut”.

Investing – avoiding the bubbles.

Here are some stocks that were very popular and were owned by many portfolio managers and mutual funds and then, in true bubble-like fashion, went “phut”.

Yahoo! was quite the junglee of the technology bubble (circa 1998 to 2000).

The company still has a product that is widely used so while the bubble did deflate, the company has still managed to grow.

Source: Bloomberg

For all its “bubbliness” Yahoo has grown sales by a very respectable 45% each year since the year 2001 and the stock is up some 5x in 6 years. Of course, if you were the unlucky enough to buy it in March 2000 at about USD 100 per share, well you are still sitting on a 75% loss, eight years later.

In India we had our share of TMT bubbles. For those old enough to remember (and young enough to recall) there was Himachal Futuristic – the darling of the stock market and a media favourite. Well, they ran into a rough patch. An investment in HFCL in March 2000 would still leave an investor deep in the red today.

Source: Bloomberg

Financial Indicator – Countrywide Financial

Karim Rahemtulla — Fri, 30 May 2008 17:18:03 +0000

Follow This Indicator To Gauge Financial Sector Health – And Grab Profits.
It’s one of the most important companies in America today…But like any company, it’s got its share of pros and cons.

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

Global Investing Roundups Tuesday, May 6, 2008

William Patalon III — Tue, 06 May 2008 16:54:20 +0000

U.S. Service Sector Shows Signs of Life; Morgan Stanley to Slash More Jobs; Random House to Turn the Page on Chief Executive; Countrywide Rated “Underperform”, Shares Dive; Sprint Nextel Corp. Considering Spinning Off Nextel; Warren Buffett’s Warning; Principal Financial Slumps; Wal-Mart Widens Drug Plan Scope

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.

10 Reasons Why We May Have Hit A Bottom, But Not The Bottom

Keith Fitz-Gerald — Thu, 17 Apr 2008 11:46:44 +0000

Since the start of the year, the debate over the state of the U.S. economy seems to escalate by the day.

The ongoing subprime mortgage mess, the resultant credit crunch and daily stories about housing defaults, escalating oil prices and lousy corporate earnings only seem to further fuel the debate.

Of course, we all see the government reports and analyst research notes that seem to contradict one another from one day to the next – and sometimes from one hour to the next.

So here at Money Morning, we thought we’d take a bit of a different approach, and use some of the social indicators that we’ve come across to develop a “Top 10 List” of reasons the U.S. economy may have achieved a new market bottom – though perhaps it’s not yet the ultimate market bottom.

Admittedly, this list is absolutely tongue in cheek. But social indicators do play a huge role in successful investing, even though the scholarly types often consider them little more than slightly disguised voodoo.

Nevertheless, here’s our Top 10 List:

10. Although its company stock is down 14% year-to-date, there are still 172 Starbucks Corp. (SBUX) employees for every citizen of Vatican City.

9. The world’s three richest men – Warren Buffett ($62 billion), Carlos Slim Helu’ ($60 billion) and Bill Gates ($58 billion) – are worth as much as the combined gross domestic product (GDP) of the world’s 40 poorest countries.

8. Chairman and Chief Executive Officer Angelo Mozilo of Countrywide Financial Corp. (CFC), and former executives Charles O. “Chuck” Prince III who was ousted from Citigroup Inc. (C) and E. Stanley “Stan” O’Neal of Merrill Lynch & Co. Inc. (MER), can still make house payments.

7. Upscale hedge fund managers still prefer Mercedes SUVs for their nannies.

6. Weathermen have a better predictive record than economists.

5. History shows that recessions wipe out between 20% and 25% of financial assets. Even with the almost $300 billion in financial write-downs we’ve seen so far, we’re still at a mere 5% of the total (depending on which numbers you believe).

4. Alan Greenspan reportedly makes more money per speech now than he did annually as chairman of the U.S. Federal Reserve.

3. U.S. Federal Reserve Chairman Ben S. Bernanke still has a job.

2. As of the close yesterday (Wednesday), the Standard & Poor’s 500 Index has only fallen 13% from its intraday peak on Oct. 11, 2007. Like a barber-school trainee, recessions typically clip 25%-30% off the top.

And the number-one reason we haven’t reached the bottom yet:

1. BusinessWeek has yet to publish a successor issue to their infamous Aug. 13, 1979 cover story that predicted “The Death of Equities.” That story preceded one of the greatest bull market runs in history.