CNN (among nearly all mainstream media outlets) is reporting that investors are bracing for a tough week as the nation’s biggest banks are releasing quarterly earnings reports.

“It’s not going to be a pretty sight,” said Frank Barkocy, director of research at the investment advisory firm Mendon Capital Advisors in New York, which owns shares of a number of large banks including Bank of America and Washington Mutual.

Of the five banks and brokers scheduled to report results next week, three are expected to post a fourth-quarter loss - Merrill Lynch (MER, Fortune 500), Citigroup (C, Fortune 500) and Washington Mutual (WM, Fortune 500). JPMorgan Chase (JPM, Fortune 500) and Wells Fargo (WFC, Fortune 500) are expected to report a decline in quarterly earnings.

Once this is over, can we put the problems behind us? Or are we just seeing the tip of the iceberg?

One area of concern among analysts covering mortgage-focused banks like Washington Mutual and Wells Fargo is how these companies’ commercial real estate portfolios are holding up, an area that some suspect could be the next trouble spot in the credit markets.

“If it does happen, that’s another whole leg down for these banks,” said Paul Miller, an analyst with Friedman, Billings, Ramsey & Co., regarding the possibility of a commercial real estate slump.

“If it does happen”? “Possibility of a commercial real estate slump”? We recall reading not too long ago that office vacancy rates were already increasing, indicating a ’slump’ is underway.

Financial Market, Kool-Aid, Economy, Stock Market | No Comments »

Forbes reports that US Treasury Secretary Henry Paulson said there’s no simple answer to the housing crisis.

“By preventing avoidable foreclosures, we will safeguard neighborhoods and communities and fulfill our responsibility of protecting the broader U.S. economy,” Paulson said in excerpts of his speech released by Treasury. “However, let me be clear: there is no single or simple solution that will undo the excesses of the last few years.”

On top of that, there’s some talk at CNN that Wall Street is calling for the Fed to lower interest rates again.

The government reported December employment figures on Friday. Only 18,000 jobs were added to the nation’s payrolls while economists were predicting job growth of 70,000. What’s more, the unemployment rate was expected to come in at 4.8 percent, up from 4.7 percent in November.

As a result of these gloomy numbers, expectations for a half-point rate cut grew Friday morning. According to futures listed on the Chicago Board of Trade, investors are pricing in a 84 percent chance that the Fed will lower the federal funds rates by 50 basis points, to 3.75 percent, at the conclusion of its two-day meeting on January 30.

It seems there’s no simple answer to any of the issues our economy is facing. In other news, Marketwatch is reporting that Anheuser Busch shipments to wholesalers are up 2%. With all the turmoil in the stock market and housing market, are people drinking their worries away? That’s a simple (although temporary) solution!

Interest Rates, Financial Market, Kool-Aid, Economy, Stock Market | 1 Comment »

CNN reports that Manhattan home prices are still holding strong as overseas buyers and Wall Street workers compete for the few homes for sale.

Manhattan real estate continues to buck national trends - New York home prices soared during the last three months of the year, according to several surveys released Thursday.

Several factors buoyed the Manhattan market:

Bonus Money
Wall Street brokerages, despite a hit from cratering mortgage bonds, still paid out big, end-of-year bonuses.

Overseas Buyers
Another major factor is the influence of foreign buyers, according to Greg Heym, chief economist for Brown Harris Stevens. The dollar’s decline made buying in Manhattan something of a bargain for them.

Low Interest Rates
On the lower end, reasonable interest rates kept monthly mortgage payments within reach for many New Yorkers.

“It’s like the Energizer bunny,” said Pam Liebman, CEO of Corcoran. “It just keeps going and going and going.”

This will just keep going on forever, because New York has never seen declines in real estate, right? It’s been said before that the NYC housing market is very closely related to the stock market. With the Fed keeping interest rates low (and possibly lowering them) the stock market should hold up well.

Kool-Aid, Real Estate | 1 Comment »

CNN is featuring a great article that highlights how it’s difficult to believe what so-called experts predict will happen in the housing market.

Before you put much hope in forecasts for a 2008 rebound in the battered housing market, consider this: A year ago at this time many top economists were looking for that recovery to begin in 2007.

Instead, the year saw historic declines in nearly every measure of housing strength and home building, and left a trail of predictions from some of the nation’s top economists that look - at best - foolish.

Anyone can be an expert at anything. It’s about time a mainstream media outlet is reminding us of these incorrect predictions.

“A lot can go wrong here,” said David Wyss, chief economist at Standard & Poor’s.

“I thought we’d have problems, but I thought it’d be a smoother adjustment,” Wyss said about the problems that developed in mortgage-backed securities. “The financial side was much worse than I thought it was going to be.”

A year ago Wyss was forecasting a 7 percent drop in home prices from peak levels. Instead prices fell nearly 10 percent from the July 2006 record.

“Everyone thought I was nuts. Now it turns out I was an optimist,” he said.

There are two lessons to be learned:

1. It’s difficult to predict exactly what will happen with the housing market (or any market for that matter)
2. Don’t believe predictions from so-called experts

The build-up or inflation of the housing bubble was based heavily on speculation without much regard to market fundamentals. The future of the housing market will likely be determined by the same speculation, for better or for worse.

Kool-Aid, Real Estate | No Comments »