Adding 3 new Picks

I cut LVS loose earlier this week and the question was how to replace it? My first idea is to go with domestic companies that have a global reach...and make a large portion of their income from that "reach". Why this type of business? First, if we really are going to face a slowdown here at home, having a large portion of your income coming from outside the United States is great. Second, I don't think we are going to see the huge slowdown that most analysts are expecting, outside a few well worn sectors.

First choice: McDonald's (MCD). Now here is a comeback story. McDonald's went from a cheesy burger joint for kids to totally changing their product line and presenting their stores in a much more adult friendly kind of way. And it work. The stock has been on a great run over the last year or so. Don't expect it to slow down any time soon.

Second choice: Coca Cola Company (KO). Jim Cramer likes this company if the economy tanks. Great. I agree with Cramer on something. Now I don't feel so great about this pick. And I already hold PepsiCo also. I don't care. This company reaches around the globe and millions upon billions of the growing middle classes around the world will have to have their "Coke fix". Coca Cola has been buying up all sorts of little companies to diversify it's product offerings. It will work and continue to work.

Now for my third pick I am going away from the above reason and go back in the pharmaceutical area with my choice of Gilead Sciences Inc (GILD). This stock has grown and grown where most companies have big ups and downs. The company has a few hypertension drugs in the pipeline that are in Phase III trials, but the preliminary reports are looking good.

Here are the newbies. What do you think?

Leaving LVS Behind

I have been riding Las Vegas Sands to higher returns since I first started this blog. In fact, I've ridden it to a 55% gain over the last two months, but I think that it is time to say adieu to my beloved LVS.

Why? It will become increasingly harder for the stock to continue to outperform at current levels when earning for Q3 are announced. Two weeks ago, analysts had raised their price target to $120. It took two days for the stock to break through that amount. Today, another analyst raised his price target to $163. That would be about a double since I suggested the stock in July.

I just don't see it. When the announce Q3 earnings, it will only take a portion of the new Macau facility which opened at the end of last month. I don't care how good the numbers are, it won't be enough for those investors that are looking for the moon and stars from the stock.

With all this good news surrounding the stock, I think it is a big red flag that says, "Get out". And that is exactly what I will do. Can't argue with a 55% gain in two months time.

Week Review

I have been loud about my impression of the Fed rate cut this week. I was against it and I am fully against any other cuts that seem to be pricing into the system. It is a contrarian approach I'm aware. It's just by cutting now will only make the fallout later larger and more painfully. It's kind of like getting chicken pox when you're an adult...it is much worse than if you just got it over with when you were a kid.

That being said, I'm not against taking advantage of earning some money while the getting is good. The S&P advanced an impressive 2.8% this week. Someone over at Nesteggr had written that you had to be pretty dumb to not make money this week, or next. We will see about next week but it does look like it will shape up to be positive for equities.

How did I do? My portfolio sported a gain of 3.9%. It would have been better but a Merrill Lynch analyst downgraded ABX to neutral from buy based on the stocks current run. It shed over 2% Friday. Gold bullion is still a good place to be with a low dollar, which will only continue to trend lower.

AGN was one of my two stocks this week that posted a loss. Allergan was down a whopping 8 cents for the week. It should look a little brighter next week as analysts at Credit Suisse maintained their outperform rating on the stock and raised their price target to $67. That should be good news.

Where Has All The Equity Gone?

<---------- Is this what happened to your home equity?





Of course, that is not a funny joke. I have dealt with a number of people that had the experience of having their home burn down. They lost everything and had to fight with insurance companies. Not a good combination.

But many areas of the country feel that in many cases their value of their home has gone "up in smoke". I've had many people just in my community say, "But it just appraised at $xxx,xxx just last year and now it only appraised for$yyy,yyy?" My answer, normally? "Yes."

Greenspan, yeah he is still talking, has said he sees prices of homes falling even further. Can we really be surprised? Many areas saw home appreciation in the 20% range each year and some of the hottest areas even more than that. But what ultimately happens? Homes get overpriced. People find their brain and decide they won't overpay for a home. Rates go up (kind of). Builders build too many homes. Foreclosures start to spike (because of the kind of higher rates). And then down, down, down, come the prices.

The higher your market appreciated in the last few years the more accelerated the decline. It sucks if you bought at the top or need to sell your home but it is necessary for healthy growth in the future.

Home appreciation has outstripped gains in income within the last 10 years. It has to stop somewhere. For most, if they can "wait it out" before moving they will. Why sell the house today for $20,000 less than it was just two years ago when I don't have to move?

If it were any other type of market, such as the stock market, you would cut your losses and move on. But the housing market doesn't work that way. Both buyers and sellers think that they are going to find a sucker. Buyers are going to get a seller to sell their home for a song. Sellers think they can get buyers to pay the moon and stars. So nothing happens.

Meanwhile builders haven't ramped down production and have lots of inventory to move. They would rather move it for less than have it sit and make payments on it. So the home sells for less. With ARM resets and people walking away from their homes, banks are only able to sell those home for 50 cents on the dollar if their lucky. If too many foreclosures happen in one area, prices start to decline there too.

When will this end. Later rather than sooner. There isn't much that the Fed can do. Even if they continue to drop the rates, you will not see the froth that caused so much of this mess to begin with. Look to 2009 or later before prices in most parts of the country to start to rebound.

The Rally Ends & Inflation Begins

Told you that FedEx would play a roll in the rally. Today the company announced better than expected earnings but lowered their forecast based on the rising cost of energy. Probably wise on their part, with oil hitting $83.90 as an intraday high. Oil won't get better near term with producers in the Gulf still being jitterish about hurricane season. Also the low dollar doesn't help either.

Two more things about the dollar. First, the Canadian dollar hit parity with the US dollar. Uh, what? My Canadian nickel is actually worth 5 cents? Get out! And second, the Saudi's did not cut their rate in step with the US for the first time. Does this signal the end of their pegging their currency with the US dollar? If so, that is bad news for the dollar and the economy. If the Saudi's end the peg, so will other countries. This will trigger a mass pull out of the dollar, which will make our currency fall further. People, a rate cut cannot help this sort of issue. It would only enhance the issue.

Long term bonds continue to sell off, pointing to inflation. Oil hitting record highs, points to inflation. The lower dollar, points to inflation. Higher gold, points to inflation. You can't cut rates anymore in the face of inflation.

Want to guess what stock was my best performer on the day? Barrick Gold (ABX) was up 5.68% today. The stock is up over 30% on the month.

And just one more issue from my little meeting today. The genius who kept proclaiming the profitability of FHA loans, said that he fully expects mortgage interest rates to come down and we will see a refinance boom (though small) next year. Hey genius! If long term bonds keep selling off (which they will unless the dollar rebounds and oil comes down) the yield will increase pushing mortgage rates higher. Obviously I don't share his view. The mortgage arena is going to stay ugly next year. Rates, at best, will remain at current levels or move slightly higher. Rates aren't bad now.

If you are facing an ARM reset set and do not have a pre-payment penalty, do yourself a favor, get out of the loan sooner than later.

In a Room Full of Mortgage Originators

I'm back from the IMBA annual meeting. I'm a little glazed over with all the information and frankly, the crap that I had to listen to over the last day and a half. I love doing mortgages. I love helping people realize their goal of homeownership. I love helping people get out of financial quicksand or help them realize another long term goal (such as funding college educations or buying a dream home). I love the challenge of those ugly loans getting completed. What I can't stand are other mortgage originators.

Whenever I am in a room with other mortgage originators I just sit and watch them. It is amazing to see just how important they think they are. You should have seen the blackberries and elbow rubbing these people do. No wonder mortgage loan officers are considered less reliable than members of Congress. No lie, that was a Gallup survey from a few years ago.

First, all most of these people care about is what loan can fetch them the most money and not get them in trouble. Meeting the consumer's needs is just a facade to make them feel better about themselves. One of the speakers, an a-hole of the highest regard, called his loan office "a practice" so it is on par with other professions such as a law or doctors office. He insisted that he was a "Mortgage Planner" to make the mortgage part of the entire financial plan of an individual and not a transaction. He wasn't a loan officer or loan originator, oh no, he was so much more than that. He called his customers "clients", not borrowers. I get what he was trying to say, but that is all just window dressing to me. Shut up and tell me something profound.

This a-hole of the highest regard was great with his ideas for the high end customer. He discussed strategies for people with large amounts of equity or large down payments. He had partnered with financial planners, estate attorneys, and CPAs to create a one stop financial shop. The problem is, is that this is Indiana. I deal with large amounts of equity and down payments on a small scale. And when I do have those situations, they rarely fit the types of transactions he was discussing. Talk about missing your target audience. But to his credit he was a great presenter. Funny, engaging, and well prepared. No doubt that he was very smart and very successful at what he does.

Then he had to sit at my table to lunch. What is the first thing out of his mouth? He complained about people who called his "practice" and just wanted a rate and good faith estimate. And I quote, "I could care less about them. I just put it together and hope they go somewhere else." Nice. Then for the next two hours I listened to his buddy talk about FHA mortgages (good products) and that they paid very nice yield spreads.

I left when the a-hole of the highest regard was going to tell everyone how to read a tax return. They had to go into this because most originators over the last few years just put self employed borrowers into stated income, no ratio, or no doc loans. Again, nice. This is one originator that knows how to document income from a tax return. Why? Because I used the products that were available to me correctly and a self employed borrower didn't always need to be put into a stated income loan. I'm not lazy as many originators are.

I guess that I'm just jaded today. I've never been about the money or about pushing myself as some big hot shot. Maybe I do by writing this blog. Maybe I should cut the a-hole of the highest regard some slack.

But I don't think my anger is misplaced. I really don't. And what I came away from this meeting today? Even though the market has changed for the better, the people running the game are still looking for additional ways to squeeze a buck out of the person sitting in front of them.

Bad times all around.

More on the Rate Cut & A Couple Friends

The market continued to rally today, though obviously not to the same extent, intoxicated on the Fed's rate cut. How long that intoxication lasts? As long as it takes to get a really sobering report that brings everything into focus. Tomorrow is a good chance the run comes to an end with Goldman Sachs and Bear Stearns reporting tomorrow. I have a feeling that those two will post earnings numbers closer to what Morgan Stanley did today versus what Lehman reported earlier this week.

We also will find out how Nike faired after the Michael Vick fiasco. Circuit City, Carnival, and FedEx report tomorrow also. Keep a close eye on FedEx, they have tended to predict the future based on their business.

Overall, I'm still underwhelmed by the impact of the rate cut. Maybe I'm bitter. Maybe it's that I sat through half a day of the Indiana Mortgage Banker's Association's annual meeting. Talk about underwhelming. I have another FULL day of it tomorrow. I should have some nice nuggets to share though when everything is said and done.

All two of you who read The Financial Bullet know that I also write for Nesteggr. I want to bring to your attention a couple of other individuals who write for Nesteggr and also maintain their own blogs. I feel that they are the best bloggers on Nesteggr and think you should check them out.

First is The Curious Investor.

I have referenced Dan before but I think he is worth mentioning again. He is a college student with some serious investment chops.

The other is Zach Stocks

Zach helps manage a hedge fund in his real life. He always has a wealth of ideas and an awesome perspective on individual stocks...and not just buys.

Check them out to help them out.

Samuri Ben

Ok, I gave 10 reasons not to cut this weekend and did Ben & Co. listen? Nope. They didn't listen to a darn thing that I wrote. I was encouraged that they did still mention that inflation was still a concern. If I say it once, I will say it a hundred times...inflation should forever and always be the Fed's main concern. Look at what treasuries did today.

Short term bonds are already starting to price in another cut. I think that may be misplaced. By cutting the rate .50 basis points here, the Fed can sit back and watch how things unfold over the next couple of months (as long as things don't get worse) and see what happens. If they had cut by only .25 basis points, that would have signaled a rate cutting campaign.

But notice that longer term treasuries sold off? Long term bonds determine long term interest rates, i.e. mortgages. It also is a clear signal that inflation is going to raise. Not a good thing.

Ultimately, I'm a little disappointed that the Fed did not make a stand here. By cutting the rate, it sets up the future to be more grim. Throwing easy money at an issue created by easy money doesn't make sense and someday in the future, maybe not this year or next, or even the year after that but someday we will all have to pay for the excesses we have seen over the last few years.

So we had a good rally today because of the Fed. Lehman Brothers posted a better than expected earnings report. Does this make everything gung-ho going forward? Not so fast my friend. Too many issues still remain and will remain no matter what the Fed does. It makes the holiday season a little brighter as credit card rates will decline. It will make businesses reinvest and start spending money again but these are short term fixes to a long term problem.

About Interest Rates & Credit Scores

Here is an article I found interesting. It basically states that your interest rate is based more on what your loan to value (LTV) is, rather than your credit score. The article focuses on home equity loans and lines of credit. I do firtst mortgages, I constantly hear people complain that the rate I am offering them is because of their credit. It is as often a case that they are combining a high LTV (80% or above), the loan purpose, and credit scores...in that order.

The less equity you have in your home, the higher the rate on your loan. If you are purchasing a home, using 100% financing is going to yield the highest interest rate and PMI. Putting at least 5% down will give you a better rate and 20% down will avoid the PMI altogether. The reason behind this is proven by statistics. The higher the LTV the more likely the loan is to default. Think about it. If you buy a home at 100% (no down payment) and you start to have issues making payments, if you have nothing into the home, the easier it is to walk away.

Loan purpose makes a big difference on rates. If you are refinancing and only refinance your current balance plus closing costs, the rate you will receive will be better than if you cash out for debt consolidation or home improvements. Combining a cash out refinance and a high LTV (80% is again the magic number) the better the chance your interest rate will increase.

Your credit score is next on the list. A score of 620 or more traditionally will get you an approval. The higher the score the more likely you are going to get a better interest rate.

So what do you do if you have a high LTV, a need to consolidate credit card debt, and a low credit score? Don't panic. Other aspects of your loan file can help offset your weaknesses. Providing your lender with assets can make a huge difference on your credit score. If you have other bank accounts, give your lender the last two months. Provide your most recent 401k or equivalent to your lender. Does your life insurance have a cash value? If so, provide that too.

The above article also references knowing the details of credit cards. Check out the Discover card that is on this page. Discover offers good cards, at decent rates, and offer cash back on your purchases. Good deal all the way around.

Also if you are wondering what your credit score is, check out the Equifax ad right beside the Discover Card ad on my page. If you do pull your credit and have any questions...feel free to contact me, I'd be happy to answer any questions you may have.

10 Reasons To Leave Rates Alone

Alan Greenspan, while he states he wasn't fully aware of the mess that he was causing in the mortgage markets, in his new book states the Fed will have to hike rates to 10% to fight off inflation by 2010. And you know what? For once, the old goon is right.

But in the meantime, Tuesday the FOMC meets and is widely expected to reduce the rate from 5.25% to 5%. I have seen a number of analysts call for a .50 decrease in the rate to "jump start" the economy.

I have a number of issues with the whole reasoning for a rate decrease.

1) Outside financials, certain hedge funds, and builders, where is the fire? Retail sales, have been inconsistent, but not bad. Techs are doing well. The Dow, Nasdaq, and S&P are all showing gains so far this year. So, why cut?

2) Unemployment numbers have stayed consistent at around 4.6%. This historically is a good low number showing high resource utilization. Yes, the jobs figures for August showed a decrease of 4,000 and June and July numbers were revised downward but a few more months worth of data is needed to determine if this is truly a trend or a financial/construction fallout.

3) The dollar is hovering around it's lows against the euro. A rate cut here will put further downward pressure on the dollar. Want to know why gold has made another run as of late? There it is. A lower dollar pushes investors into gold.

4) Inflation is just inside the Fed's target rate of 1-2%. Just because we are inside the magic 2% number doesn't mean that inflation is under control. Remember, that range does not include food or energy prices. Anyone taken a look at those in the last 6 months or so. Oil eclipsed $80 a barrel this week for the first time. I invite anyone to go to the grocery store and get as much food as they could just a year ago for the same amount of money. It won't happen. That is inflation too, it just is more volitile and that is why it is stripped out of the Fed's core numbers. And believe me, the Fed is aware what I like to call "beer inflation". A cost of my favorite 24 pack is up at least $2 over what I was paying last year.

5) GDP grew in Q2 over Q1, right? We won't know what Q3 will look like until the end of October but the most recent earnings season just ended and prospects for the up coming earnings look good too. I know that I mentioned it in this space before but have you noticed that for all the hoopla the financial sector has been making, not one of them has issued an earnings warning? Weird huh?

6) A cut will not fix all the current ills of the mortgage market. A .25 or .50 cut will leave no dent. Mortgage rates move in anticipation of what the Fed will do (so you won't see a big drop in rates after the announcement) and the market still stinks. Too many people are on the sidelines and are willing to stay put rather than risk buying a home today that will be worth less tomorrow.

7) So who does this really benefit? The investors and speculators that are accustomed to 30% plus gains each year and unfortunately are having a bad year. They are the ones screaming the loudest about the ugliness of the situation. Guess what? I don't feel sorry for them. Do you?

8) And finally, the worst one...the president would like the mortgage mess all figured out and in the past for the next election. A rate cut now, which would take between 6 to 9 months to filter through the system will be in full impact by next November's election.

9) You can't bandage the wound by throwing money at it. We all know that the issues we face now is an indirect result of the tech bubble bursting. If we bail everyone out with rate cuts now, a new bubble will form somewhere else and inflation will rise. Ultimately, someday down the road, inflation will be out of control and we will have a Volcker moment. Just like the one Alan Greenspan expects in his book.

10) Can we really afford to see Greenspan be correct on this? Do we really want to suffer with a 10% Fed rate...which will correlate to prime rate being 12%? If the Fed just stays put at this time, maybe we can avoid that in the future.

I'm not totally against a rate cut. I just think that more data that truly points to a rate cut need actually manifesting before one is done. Will that be too late to avoid recession? Maybe, maybe not. But if rates have to be hiked to 10% to fight inflation, we will have a recession then, and a long and deep one at that. A little recession now can be a large amount of cure later.

Weekly Review

Since I missed it last week I thought I'd get out my weekly performance early for all three of you who read this. S&P had a good week, advancing 2.1% mostly on hopes of a Fed rate cut and analysts who are clamoring for a .50 basis point cut. Even Countrywide gained a little bit of their loses back. Too bad.

I handed it to the S&P this week with my portfolio gaining a healthy 4.2% on the week. Las Vegas Sands of course was my big winner as I detailed earlier this week. It ended the week with a 18.1% gain. Proctor & Gamble posted a 3.5 percent gain and Allergen also posted a gain of 3.2%.

At this time I am going to announce my first sale out of my portfolio. I am cutting Bank of America. I added BAC to my portfolio on August 14th. I am cutting them showing a whopping 3% gain in the month that I have held them. I feel that with the big investment banks reporting next week and none of them have issued any type of earnings warnings it could be an ugly week for banks in general. I can't imagine Lehman Brothers, Bear Stearns, and Morgan Stanley can possibly put up good numbers. It also may shed some light on just how much exposure that they have to sub-prime loans. With that in mind, I cannot see holding Bank of America through this earnings season.

I think I drank a little too much of the kool-aid when the stock price had dropped. I am still not crazy about financial sector and may not be for a while.

Otherwise, have a good weekend. I am sure that I will have my say on what the Fed should do on Tuesday.

My Portfolio

I did get a little heat for making a pick based on Jim Jubak's recommendation. I'm not really sure why this should be such an issue for some. Look, I don't proclaim to be some stock picking guru. I understand basics such as P/E ratios etc but by no means am I a technical analyst.

So why shouldn't I cherry pick other people I trust choices? One, it can save some research. Two, it can introduce me to stocks that I would otherwise not know that they existed. And three, I don't use one person as the gospel. DVA is the first stock pick by Jim Jubak that I have used.

Of my portfolio so far the picks for ABX, LVS, PEP, and a portion of my BAC choice were influenced directly by other writers on the web. That means that F, PG, AGN, RIG, & DGX were all picks on my own without any outside influence. So, exactly half of all my picks were on my own. But notice anything else? I haven't performed nearly as well on the stocks that I have picked on my own vs what I have read.

I think that goes to show that maybe I don't know as much as I think I know. But I still chose those other stocks based on others recommendations. And by no means were these the only recommendations that some of these "stock" experts have made.

I also don't cherry pick from writers that I like. I also pick from those that I traditionally don't agree with. My choice of Bank of America was backed by Markman also on MSN. I don't normally agree with his analysis on many of his stock picks. In fact, I think he recently picked Countrywide. Hadn't been so bright of an idea, even including today's action. And even though I don't agree with Markman I still read his column every week.

Why do I read people who I don't agree with? He can't be wrong all the time right? What if he or anyone else I don't particularly agree with write about a stock that is perfect for my portfolio and investment style? He can't hit a home run? Of course he can, and does.

Read, read, read and take what you glean from individual perspectives and use it for your personal use. That is why you read it in the first place right? Cherry pick everybody as long as it meets your goals as an investor. Stay on top of that stock and what the person you used as a recommendation says about that stock. If they say sell, you might want to heed the advice.

Quick Update & Adding a Stock Pick

So I didn't write a weekly recap last week. Sorry, busy with a trip to Indianapolis, playing Madden on the Wii and drinking. And I'm not going look back either. I'm not going to take the time to crunch the numbers. It isn't worth it. Why?

Well, because I am running away and hiding from the S&P this week. Las Vegas Sands (LVS) has broken out of it's trading range and made a significant move higher. Since the start of the week the stock is up over 16%. The move is based on an upgrade by JP Morgan analyst calling for the stock to hit $120 and giving it an "overweight" value. The stock closed today at $117.

I have also had Barrick Gold (ABX) on a nice little run. The stock has gained over 14% percent since we returned from the Labor Day Holiday. Gold has been the talk lately with so much talk of the Fed cutting rates. If rates are indeed cut, gold does move separately from the dollar. Not a bad place to be.

JP Morgan also issued an upgrade to "neutral" from "underweight" for both Transocean (RIG) and GlobalSantaFe (the company RIG is acquiring). Let's see what that does for the stock over the next couple of days.

At this time, I am going to add another stock to my portfolio. I am going to add DaVita (DVA) based on Jim Jubak recommendation here. Diabetes is something that is immune to stock price ups and downs and DaVita provides the services necessary (such as dialysis).

I think this is a great idea and I am not afraid to ride on someone else's research and know-how. I think Jim Jubak is someone you should read every Tuesday and Friday. He covers a lot of ground in his writing. Is not afraid to admit when he is wrong. And explains the most difficult ideas in easy to understand terms.

Moderator vs Mozilo

Thank you and welcome to this week's edition of The Moderator. Our fake guest this week is CEO of Countrywide Angelo Mozilo. I know that FB has been waiting for this inview since we first decided to do this.

Mozilo: Glad I could make it.

Moderator: Rough week or month or so?

Mozilo: You could say that. It is always a difficult decision to let people in your organization go.

Moderator: 10-12 thousand more in the next 3 months?

Mozilo: We have to be concerned about the future of the company. This is a necessary step to insure that Countrywide continues in the future.

Moderator: And what about news today about the company looking for more help?

Mozilo: No comment.

Moderator: That means it is true. Bank of America put $2 billion up for you and now your company can't even deliver the stock price of $18 that they convert to common stock. And you need even more help?

Mozilo: It is a difficult market out there.

Moderator: No one can do what Countrywide can.

Mozilo: ..............

Moderator: Sorry, must have struck a nerve. Ok, so you don't blame your company for a large part of the current fallout from sub-prime lending?

Mozilo: No, I don't. We originated loans to what the market called for.

Moderator: But you were the largest sub-prime lender in the country. Don't you hold responsibility for some of the issues that now plague the market?

Mozilo: I am responsible to my shareholders.

Moderator: And how is that working out, Spanky?

Mozilo: No so well at the moment...not so well.

Moderator: Yeah. Down 57% on the year. But you personally aren't hurting. You have a high compensation package. You were on the board when Robert "Count the Money and Run" Nardelli was stealing Home Depot blind.

Mozilo: So? You don't think it kills me to see the company I created struggle the way it has? Do you think I enjoy cutting staff? Do you think I give a darn about what I make personally when the rest of the company is basically dying?

Moderator: No, I don't think it bothers you at all.

Mozilo: Ok, (laughing) you're right. I do have a lot of money. I had you going no? You thought for a moment I was a good guy right? Can I sell it? Huh? Huh? Can I sell it?

Moderator: No. Not impressed in the slightest. Well that is all for this week. We haven't decided on who I will interview for next week. I am hoping the Bullet will let me choose someone from another arena other than personal finance. It would be nice.

Later.

Killing Countrywide

<-------Scumbag, Angelo Mozilo


So, you know by now how much I like Countrywide. It's not a lot for those of you new to my blog. And I have again and again mentioned how surprised I have been that the company has not suffered from larger lay off numbers. Last month the company shed 500 jobs and Wednesday cut another 900. But this is/was a company of 60,000 employees. If Countrywide was going to originate mortgages to Fannie Mae and Freddie Mac guidelines, there just wasn't going to be enough work to go around. For all intents and purposes the company was going to basically cease doing all their sub-prime lending. This is/was the largest sub-prime lender in the country. How could they not be cutting more jobs, if they were changing the way the do business? The other shoe finally dropped today. The company announced it was laying off 12,000 workers.

Now, I'm not saying this makes me happy. As much as I dislike Countrywide's business model & CEO, it is sad to see a large employer announce reducing staff by over 20%. But if Countrywide wants to survive, it is what had to happen. It is amazing that it didn't happen sooner. The company was actually adding staff up until July when the wheels fell off and people started to wonder if the company would have to seek bankruptcy protection.

It is still to be seen as to what extent the company is really damaged. They reduced their own origination outlook for 2008 by 25% (which makes sense when you are cutting roughly the same percentage of staffing) but I think those estimates are still too rosy. I wouldn't be surprised if Countrywide drops originations by 40% next year. Most people seeking a mortgage, either for purchasing or refinancing, will likely seek out other lenders because of all the negative press Countrywide has received in the last few months. Impressions linger.

And you know what? I can't remember seeing one of those, "Nobody can do what Countrywide can," in a at least a week. If that commercial is dead. I would be happy.

More Cuts at Countrywide & More Bad News

Countrywide's stock price fell below the deal price set when Bank of American injected $2 billion into the company today. It didn't stay below the magic $18 price, closing at $18.48. This comes as news of 900 more lay-offs at the company follow 500 from the previous month.

Not a big shocker here. Countrywide will continue to lay-off staff in the coming months. The company employs some 60,000 people and was actually increasing their staffing up until July of this year. Not too smart for a company that ran smack dab into liquidity problems. And why do I expect more layoffs? The company continues to assert that most of their business will be underwritten to Fannie and Freddie guidelines. For the most part, that is considered A paper. Countrywide is/was the largest sub-prime lender in the country. How can they not cut more staff...well unless they move all the sub-prime origination into the collections and foreclosure departments.

Now, what I find interesting is that I was all about BAC buying CFC at a "discount". I remember mentioning it to my Executive VP at the time and he said. It is a good deal if Countrywide can maintain their stock price, and he continued by saying, "I doubt they can." I didn't believe him at the time. And even with today's events, I still don't believe him. But the doubts are starting to enter my mind.

And to recap all the other outstanding news of the day.

The Fed had to inject over $31 billion into the markets, the most in weeks. Not an encouraging sign.

National City also announced that they were reducing mortgage personnel by 1,300. The regional bank, the 9th largest in the US, sold their sub-prime unit to Merrill Lynch last year.

Lehman Brothers announced another 850 lay-offs following firing 1,200 people just two weeks ago. Nice.

And to top off another bad day in the mortgage market, the Mortgage Bankers Association reported that homes entering foreclosure set a record for the third straight quarter.

It's not getting better. It will get worse. No matter the bailout plan. Pain will be felt all over the markets. Be prepared.

Bernanke vs Bush

So this weekend, my friend and I discussed my blog over here at Financial Bullet and he was excited that he had started his political blog on his own home page here. Of course, the two worlds collided when he stated that Bernanke was more powerful than the president. I grunted my agreement at the time but then the statement started to eat at me. Just who is the more powerful? Let's take a look.

I think you have to look at what each job's responsibilities are.

First, take a look at home the Federal Reserve works and their responsibilities as a whole.

In a broader outlook the Federal Reserve has a responsibility to two things.
1) Inflation - see the long wikipedia definition here. The Federal Reserve tries to maintain a healthy balance between inflation (growing prices) and deflation (falling prices) by using the Federal Funds rate that determines borrowing costs.
2) Maintain the value of the dollar. The Federal Reserve also is responsible to monitor the dollar's value versus other currencies from around the world. Raising and lowering rates also has a direct effect on the value of the dollar.

So the Federal Reserve controls the almighty dollar. Pretty cool right? And Ben is running the show.

What does the President do?

Below is taken directly from wikipedia (I can't think of a better way of saying it.)

The President of the United States of America (sometimes referred to as POTUS)^[1] is the head of state and head of government of the United States. The president is at the head of the executive branch of the federal government, whose role is to enforce national law as given in the Constitution and written by Congress. Article Two of the Constitution establishes the president as commander-in-chief of the armed forces and enumerates powers specifically granted to the president, including the power to sign into law or veto bills passed by both houses of Congress, to create a Cabinet of advisors, to grant pardons or reprieves, and, with the "advice and consent" of the Senate, to make treaties and appoint federal officers, ambassadors, and federal judges, including Justices of the Supreme Court.

So the President seems to have a bit more power. He can make or break laws, develop foreign and domestic policy, and is the head of the military? Seems that Mr. Bush has more far-reaching power. And when the President speaks on the economy, he carries just as much weight in the markets as Bernanke.


Oh, and by the way, President Bush nominated Bernanke to succeed Greenspan as Fed Chair. Enough said.

The Moderator

Welcome to week two of The Moderator. This week's guest is new CEO of Chrystler Robert Nardelli. Welcome, Mr. Nardelli.

Nardelli: Start the clock!

Moderator: Excuse me?

Nardelli: You heard me. Your time is a wasting. Start asking the questions.

Moderator: I would be happy to start asking questions if you promise to stop counting your money in front of me...it's quite rude.

Nardelli: (Sighs) Sure kid. Whatever you what, it's your nickel.

Moderator: So your new salary at Chrystler is $1 but you have decided not to disclose how your compensation package is determined. Why?

Nardelli: Because I don't have to. PHHHHHHHHHT!

Moderator: Right. But the goal taking a company private is to reorganize and then make it public again. You will have to disclose your salary then.

Nardelli: Yeah, so what. I ain't talking until I have to.

Moderator: But if anyone should be talking about their compensation it should be you after the fallout at Home Depot.

Nardelli: I'm not here to talk about the past.

Moderator: But you put me on the clock? Isn't that what you did at your last shareholders meeting at Home Depot? Keeping commenter's to a strict time limit for asking questions?

Nardelli: I'm not here to discuss the past. I want to be a positive roll model for the future.

Moderator: You're not Mark McGuire. I bet you couldn't hit a baseball past your own shadow.

Nardelli: but I have lot of money. Lots of money.

Moderator: And you're counting it again.

Nardelli: 3,2,1...that's it. I'm outta here waferhead. You owe me $200,000 for an appearance fee. $30,000 for asking me about my new compensation package. $10,000 for making me wait for three minutes. $7400 for having a green bathroom. $5600 for....

Moderator: Thanks for joining us Mr. Nardelli. I won't pay your rich hind end on red cent. Next week we will have our fictional interview with CEO of Countrywide Angelo Mozilo.. I'm sure The Financial Bullet can't wait for that one! See you next week.

Weekly Roundup & The Monthly Buzz

Weekly Roundup

So the Dow ended the week in positive terrority. The same can't be said for the S&P and my portfolio. The S&P ended the week with a loss of .47% and my portfolio fell .88%. In fact, on the week, I only had one winner, Transocean (RIG), up 1.5%. That's it. Not much to write about here. I had only on significant loss this week also, Las Vegas Sands dropped 2.1% on the week. LVS has been a little bit on a ride lately. Two weeks ago it closed at $94.30, last week at $101.77 and this week at $99.70. There is so much hope and concern about the Macau properties that the stock is has been surfing any economic news that the consumer on a global scale may cut back on spending. Let's see what Q3 earnings look like before we make a decision on them.

The Monthly Buzz

We have finished our first full month on this site. I have really started to enjoy what I am building over here. I have seen an increase in traffic each week (albeit it still isn't much) and that keeps me going. I'm a bit of a stat nerd.

If you missed it, or just in case you're new here some of my more popular posts from the month.

The Fall of American Home Mortgage - Is a detailed description of how I felt about the undoing of American Home Mortgage and what it meant to me.

The Death of the 2/28 ARM - Details what the product what meant to do and how it all went wrong.

Option ARM's- A bad product, gone worse.

Countrywide...Continued- I'm tired of talking about Countrywide, but read this if you'd like some more details.

Introducing the Moderator- A fictional interview with Alan Greenspan.

and finally, Fannie & Freddie Can't Help Either- three reasons why the two government GSE's can't fix this mortgage mess.

As always you can check me out at Nesteggr. If you're not checking me out over there you are missing something totally different. I write on Nesteggr three times a week normally on Monday, Wednesday, and Friday and try to typically write a different type of blog than on here. Last week I focused on using creativity to garner some additional income. There is some overlap, see Bush, FHA, & Pipe Dreams, which is the companion piece to the Fannie and Freddie link above.

Nesteggr is continuing to build their site and talk of allowing each "star" to have their own theme much like Wordpress blogs. I'm looking forward to that. And Ravi, I know that you read this, I would love to be able to view my own stats. It motivates me. And thanks for the Digg on the Fannie and Freddie piece. It is appreciated.