Urbanomics Market Update - June 20th

Urbanomics Market Update
~the update for people that don’t watch the “stock channel”

GAS, the last time I wrote my update I predicted gas prices were going to rise and boy did they take off. As of a couple of days ago, the price of gas at the pump has risen for 50 (this is not a typo) straight days!! AAA, noted recently that the nationwide price average is around $2.679 and every state is joining in this party at the pump. Since I was sport on with my last analysis I will include my most recent prediction on the direction of gas.

Gas Prediction: My thoughts are that gas will start to top out at these levels. The fundamentals of economy just can’t support gas at these levels…people will take other measures as they did last year to ease this costly burden. At the right price, I would look to make an investment that gas begins to drop.


STOCK MARKET, this week the stock market was down roughly 3%! You may think that there are a few signs that things may be improving but I would not be running to join the crowd. Be afraid because a number of experts are betting that the rally is running out of steam just as the everyday investor is starting to pump money back into their investment portfolios, mutual funds, and retirement portfolios. My prediction won’t change…so check out my write up from last time below.

Market Prediction: if you had peeked at the stock market you might have seen that it has been doing really well in the last couple of months. If you feel like you missed the party…DON’T. The reasons vary as to why it was moving up rapidly (like people spending their tax checks at the beginning of the year) but it probably won’t continue going up so quickly much more. This is my opinion but the economic data doesn’t lie. The data recently released says:
- Consumers are saving and not spending money
- Housing foreclosures are on the rise again (And rates continue to rise!)
- Unemployment continues to reach record monthly numbers (Unemployment dipped last month and is on the rise again!)

WHAT TO EXPECT NEXT,

Cash for Clunkers – The Congress just passed a bill known on the streets as “Cash for Clunkers”. It probably took a cue from Germany which has passed a wildly popular strategy in their country. This bill was going to be hard to argue against as it helps boost a lagging industry, cleans up the environment, and lowers the consumer’s bills. The bill requires you to buy a car that is more fuel efficient that your last car and you will get a voucher of up to $4500 to make this switch. The real name of the program and a link to the website can be found here: www.ConsumerAssistanceToRecycleAndSaveProgram.org
Or try the auto industry’s site aimed at promoting the bill:www.CashForClunkersHeadquarters.com

Home Buyer Tax Credit – A new proposal is moving around the senate to INCREASE the existing tax credit. Senator Johnny Isakson of Georgia is the brains behind this new proposal which want to raise the existing $8000 credit to $15000!!! The other changes are this bill would be for ALL homebuyers in contrast with the last which was just for first time buyers. The other change would be to eliminate the income limits which are currently capped at $75000.

Prediction: My opinion is this will have some trouble passing through Washington. At a time when Wall Street and the Real Estate industry have lost our trust, this bill will raise too many questions about who is really benefitting from the latest home tax credit. By removing the income limit and opening it up to anyone this could potentially benefit wealthy homeowners and property investors…two groups who may need the least assistance out there and have the least amount of trust out there.

HOUSING, things still look uncertain for this part of the market.
- A new wave of foreclosures are still set to hit the market
- The tax credit deadline is looming
- Rising interest rates are not positive for consumers

Urbanomics Market Update ~ May 15

Urbanomics Market Update
~the update for people that don’t watch the “stock channel”

GAS, the price of a barrel of oil (better know as gas you put in your car) continues to rise, so this means that the cost you pay at the pump will be rising also. I know you want to know why, and all I can tell you is that has to do with the season, speculation, and investors betting the economy is turning around.

STOCK MARKET, if you had peeked at the stock market you might have seen that it has been doing really well in the last couple of months. If you feel like you missed the party…DON’T. The reasons vary as to why it was moving up rapid (like people spending their tax checks) but it probably won’t continue going up so quickly much more. This is my opinion but the economic data doesn’t lie. The data recently released says:

• Consumers are saving and not spending money
• Housing foreclosures are on the rise again
• Unemployment continues to reach record monthly numbers

WHAT TO EXPECT NEXT, the talk around the investing water coolers is the next shoe to drop is the realization that the Credit Card and Commercial Real Estate industries are hurting. In a nutshell, unemployment is bad for consumers who stop paying their credit card bills and a recession is bad for businesses that stop paying for the buildings they use. Both of these problems affect banks and real estate companies which have hundreds of billions of dollars at risk.

DOES THE STIMULUS WORK, surprisingly the answer might be yes. The stimulus plan appears to be working with estimates stating that roughly a billion dollars a day has been released in the first 80 days, I will let you do the math ($80B). And states representatives have indicated that they are putting the money to work quickly. For example, I was shocked by the potential numbers noted by the state of Texas, which says they estimate that 69,000 jobs will be saved or created through the implementation of stimulus money for transportation projects.

HOUSING, number from two key sources, the National Association of Realtors & RealtyTrac (foreclosure experts) are out.

• Home Prices fell 14% since this time last year (Largest decline ever)
• First-time homebuyers accounted for HALF of all new sales
• “Distressed” (foreclosures and short sales) accounted for HALF of all transactions
• Foreclosures filing up 32% from a year ago (RealtyTrac record)
• 1 in every 374 housing units received a foreclosure notice

Industry Predictions: Housing may not return to normal until 2010, until then BUYERS are running the show

Genworth Financial, Genuinely A Mistake

This may have been a strategic move on Genworth Financial's part to not become a bank holding company due to all the restrictions being imposed by the government...but I think I will note that they may be strategic idiots for missing a very big opportunity to become a holding company as a savings and loans institution. This would have given them access to the Federal Reserve free flowing, cheap capital!! What else can we add to the list of things to take away from this strategic company. How about the ability to be eligible for the Treasury's purchase program and now they can't complete the acquisition of Interbank. So I won't pile anything else on this company, because all this news just broke and I take a calculated gamble here and say that this stock will get punished for its...how should I say strategically dumb move. SHORT GNW

I imagine that news will create a negative morning for GNW which will give us some time to determine what is a good exit point by researching whether this move has ANY possible upside for this company.

Banks Rally on Wells Fargo...Don't Believe It

My response is don't believe the hype of the banks! I know in my last post I told you to take advantage of the banks and buy FAS which is a fund that gives you 3x the normal returns of owning a basket full of bank stocks. This has worked out perfectly as FAS was recommended on April 2nd and if we use the price at the close of the stock market, you would have purchased them around 6.42. My recommendation is to sell FAS today and pocket a big gains in only a matter of seven days. I hope you enjoyed the ride up, the stock closed @ 8.74!!!

Play Defense!!! Here are my reasons why you should stay cautious of the banking sector.

First, the entire sectored rallied on just Wells Fargo (WFC) and let me remind you that every bank isn't built the exact same way WFC is!!!!

- One of biggest reasons why WFC is doing well and the other banks may not is WFC does not have an extensive consumer credit loan portfolio!!! Yep WFC doesn't have to worry about the risks associated with battered consumers who can't pay off their plastic.

- Second, just listen to the CFO, Howard Atkins who openly mention the huge profits can directly be attributed to large writedowns on Wachovia's bad loans. Wells Fargo is probably an exception that every other bank may not be able to replicate. A huge write-down do to their acquisition of Wachovia and a first quarter provision isn't in the cards (no pun intended) for most of the other banks.

So how to play the Fake Bank Rally:

- Start with the bad apples like Capital One (COF) They just got the big smack down by Moody's and Fitch Ratings who downgraded the stock due to the expectation of rising credit costs.

- How about American Express (AXP) and the fact that their default rate was leading the industry. WOW, now I would be slower here to pull the trigger because two firms just upgraded their shares...from basically Don't Touch to Think about it...Maybe

- Finally I am not a believer in Citigroup as their are being propped up by the government

Where Did Your Toxic Assets Go, Mr. Bank...

That's the question for an accounting group that sets up standards for companies reporting financial information. They have a standard that determines how to account for assets on companies books. Well today they decided to give companies more room when valuing these assets, and this could give a big lift to those banks we have grown to hate.

The group is called the Financial Accounting Standards Board and they are supposed to be independent when establishing these rules. But it appears they may have caved to the pressures of Congress and Wall Street when it came to political pressure around the somewhat unpopular rule.

The rule, called mark-to-market, is supposed to increase transparency for investors because we can see what these assets are valued by today's standards. But the problem some critics say is what happens when the market tanks (like it has been) and their is NO VALUE. Well, what happens is the financial statements of the banks become horrible.

My Opinion - Keep the rule because it provides transparency and uncovers assets that are beginning to decline in value. But as the rule has been adjusted I won't cry I will just buy and that is the BANKS for a short period of time. The assets are still bad on the banks books the difference is now they don't have to tell is they are!!!!


BUY: Direxion Shares Financial Bull 3x Ticker: (FAS) - This gives you 3x the returns for the banks going up. But just buy a little cause it will take you for a crazy ride!

File Taxes for Free...

If you are a procrastinator like me its about that time to do your taxes. If you are wondering how to save a little bit of change and want some help filing your taxes, check out the list of software companies that have partnered with the federal government to help you file for free:

http://www.irs.gov/efile/article/0,,id=118986,00.html


Use the following websites to get discounts/promotions at TurboTax:

T. Rowe Price - http://individual.troweprice.com/public/Retail/Planning-&-Research/Tax-Planning/TurboTax-Discounts

Scottrade - www.scottrade.com (See the tax preparation section)

Fidelity - http://personal.fidelity.com/planning/tax/tax_content.shtml.cvsr?refhp=pr&ut=A22

Wall Street - When is Toxic Good?...

The resounding answer to this question is when you don't have to hold the toxic stuff anymore. That appears to be the solution to the problems plaguing America's banking system, which is clogged with these non-trading pools of mortgages that are usually packaged together to be sold off to investors. (Note: Other assets can be packaged together and sold off...like credit cards debt, however for this discussion we will just focus on mortgages)

The investors who usually bought these packages of assets lost faith in them and ran away and the market just dried up. So the assets began selling for less and less and the banks soon became stuck with these assets that "currently" had little to no value. But here is the tricky part for most people to understand: These assets could have value some day if the economy stabilizes.
So what the government is attempting to do is bring all the key players bank to the table and make it worth everyones while. Here are the players and how they will benefit:

Banks - They benefit, if and when they get these assets that "currently" have little value off of their books
Investors (Private Firms) - They benefit by being able to buy these assets again at reasonable prices, because they provide consistent income
Government - They benefit if both the Banks and Investors come together and hold hands again and start trading these assets again. It will help to stabilize the banks and assist in stabilizing the economy

How the Government plans on doing it:

The stock market is on the rise today because the government has officially unleashed its plan to loan $1 Trillion dollars to private firms(investors) who will share in the costs to find a price and buy these toxic assets from banks and split both the profits and losses around these assets.
This gets all the major players involved again and could change the way Wall Street looks at the banks.

Urb Thoughts:
I think that this plan is a well put together solution to the troubling problem around toxic assets. Ironically it helps and hurts the banks but overall it helps the banks and I will explain why. This hurts the banks because "one day" these assets will have value and they will miss out some of those gains but the biggest plus is getting these toxic assets off of their books. And in my opinion, once these assets are off the books, the banks should have no excuse to not make money. They are borrowing money and pay next to nothing for these dollars because the rate at which banks are being charged is at historic lows (Fed Funds Rate)...its between 0 and .025%!!! I could make money if I was borrowing money at these levels. Now the explosive part is all those bad assets that were sagging down their balance sheets will be sold off...this definitely puts the banks in a better position. The one thing to note is that as banks sell off these assets they will have to take a write-down and earnings for the next few quarters may not be pretty but LONG-TERM the banks may be the best BUY of the century.

I'm not sure how I will play this but I will gain some exposure to:

Direxion Financial Bull 3X Shares (FAS)

Also adding the banks that I belive have the best ability to survive will be key:

Wells Fargo (WFC)
JP MorganChase (JPM)
Bank of America (BAC)