Options Update: Oil Services Holders Trust Volatility Flat; Oil Below $75

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Oil Services Holders Trust (OIH) closed at $122.72. Crude oil futures are recently down 1% to $74.51, according to Bloomberg. OIH holdings include BHI, BJS, DO, ESV, GRP, GSF, HAL, SLB, HC, NBR, NE, NOV, RDC, RIG, SII, SLB, TDW and WFT. OIH February and April put option implied volatility of 35 is near its 26-week average, according to Track Data, suggesting non-directional price movement.

Consumer Discretionary Sector SPDR (XLY) closed at $29.17. XLY February and March call option implied volatility is at 22, puts are at 23; near its 26-week average of 25, according to Track Data, suggesting slightly decreasing price movement.

Financial Select Sector (XLF) closed at $14.26. XLF February put option implied volatility is at 35, June is at 34, versus its 26-week average of 30, according to Track Data, suggesting larger price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Options Update: Oil Services Holders Trust Volatility Flat; Oil Below $75 originally appeared on BloggingStocks on Tue, 26 Jan 2010 09:00:00 EST. Please see our terms for use of feeds.

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Verizon Q4 Revs Slightly Light; EPS In Line; Adds 2.2M Net New Wireless Customers

Verizon (VZ) this morning reported Q4 revenue of $27.1 billion, a bit below the Street consensus at $27.33 billion. Non-GAAP EPS of 54 cents a share was in line with the Street.

The telecom giant said Verizon Wireless, its joint venture with Vodafone (VOD), added 2.2 million net new customers in the quarter, and now has 91.2 million subscribers. That was better than the Street consensus estimate that the company would add 1.5 million net new subs, according to Reuters.

The company said it added 153,000 net new FiOS Internet customers in the quarter, and an identical number of net new FiOS TV customers.

Consumer wireline business continued to erode, with the number of primary residential lines falling 10.2% from a year ago, and total residential lines down 12.3%.

In early trading, VZ is up a penny at $30.69.

CHRW forms big triangle

CH Robinson (CHRW), a trucking company, formed a big triangle consolidation over the last nine months. The stock has recently been consolidating near triangle support and a break below 56 would be bearish.



100126chrw Click this chart for details

EMC Q4 Tops Guidance; Stock Rises

In one more solid December quarter financial report from the IT sector, storage and software giant EMC (EMC) this morning posted Q4 revenue of $4.1 billion, up 17% sequentially and 14% year over year, and ahead of the company’s own guidance of $4 billion. Non-GAAP EPS of 33 cents was three pennies better than its own guidance and the Street consensus.

For all of 2010, the company sees revenue of $16 billion and non-GAAP profits of $1.12 a share; the Street has been expecting $15.45 billion and $1.11.

In pre-market trading, EMC is up 55 cents, or 3.3%, to $17.49.

Texas Instruments Books Bigger Profit in Q4, but Is It a Buy?

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Texas Instruments (TXN), a chipmaker whose related companies include Intel (INTC) and Qualcomm (QCOM), reported results for the fourth quarter on Monday after the bell. Profit growth was incredible, but it's difficult to call the stock a buy at this time, at least based on price action.

Revenues increased a whopping 27%. Earnings came in at 52 cents per share. That was more than 100% better than the adjusted 21 cents per share earned in Q4 2008. Operational cash flow went down 10%, but overall, you've got to call this a much improved quarter (a note on cash flow: it pretty much covered capital expenditures, dividends, and share repurchases, which is good news).

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Texas Instruments Books Bigger Profit in Q4, but Is It a Buy? originally appeared on BloggingStocks on Tue, 26 Jan 2010 08:30:00 EST. Please see our terms for use of feeds.

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A Modest Proposal for the Fed: Term Limits for Chairmen

Ben Bernanke’s bloody confirmation battle is yet another sign that Congress, and the public more broadly, are looking for change at the nation’s central bank. Congress is playing with many different ideas for how to do that: 1) Fire Mr. Bernanke by denying him a second term (something that’s looking less likely as pledges of ‘yes’ votes from the Senate trickle in); 2) Strip the Fed of its power to regulate banks; 3) Give Congress’s Government Accountability Office the power to audit Fed decisions; 4) Give Congress more say on the governance of regional Fed banks. Each of these ideas has a flaw … GAO audits, for instance, could invite congressional meddling on tough decisions about raising interest rates. Taking regulation away from the Fed isn’t necessarily going to make regulation better.

Here’s a proposal that hasn’t come up, but maybe ought to be on the table: Term limits for Fed chairmen. Two terms, eight years, and then you step down to a governor’s job, which gets 14 years, or leave.

It has the merit of addressing a problem that may actually have helped to cause the crisis. Former Federal Reserve chairman Alan Greenspan ran the Fed for nineteen years. Critics make the argument that the Fed became complacent during the latter years of his reign, keeping interest rates too low for too long, treating banks with light-touch regulation and underestimating building risks in the financial system. Because the economy seemed to do so well for so long, it became harder over time to second-guess the approach championed by Mr. Greeenspan. One example: Edward Gramlich, the late former Fed governor, tried to raise alarms about subprime mortgages, but he got nowhere.

If the Fed chairman were subjected to a limit of two terms it could help ensure that one person or set of views wouldn’t come to dominate the central bank again. It would be a simple move that voters would understand and populists would likely appreciate. It’s hard to see how it would threaten the Fed’s cherished independence – if anything it would insulate the Fed from political meddling because a chairman would know that there would be no point to pleasing political masters because the job runs out after eight years. The presidency of the European Central Bank runs for eight years – and that seems to be working well.

It fits in with the more consensus-driven approach that Mr. Bernanke has built over four years. On a personal level, if he gets another four years on the job, it’s hard to imagine him wanting even more after that.

“It would accomplish the goal of giving the public a greater sense of oversight without creating undue political influence,” says Simon Gilchrist, a Boston University economist and specialist on central banking. “It would also have the benefit of forcing the Fed to be more articulate about its specific goals and policies,” he said, because it would de-emphasize the power of single chairman.

Marvin Goodfriend, former director of research at the Richmond Fed official who is now a professor at Carnegie Mellon’s Tepper School of Business, is less enthusiastic. “Imposing term limits on a central bank chairman is not necessary or sufficient to produce effective monetary policy independence,” he says.


Apple Q1 Earnings Call Transcript

Sales up 32% to $15.68 billion & net income rose 49.5% to $3.38 billion or $3.67 a share. Operating margin was highest ever at $3.73 billion representing 30.1% of revenue. Total gross margin was 40.9%. Operating expenses were $1.69 billion & included $168 million in stock-based compensation expense.

Volcker’s Rule Could Cause A Crash?

The rhetoric surrounding the so called Volcker Rule kicked up a notch yesterday when Dick Bove put out a lengthy report which you can read here calling for a crash if this gets put into place. He later went on CNBC to recap his thoughts. Basically limiting the growth of banks will, in his opinion, be crash inducing.

As financial stocks were falling and falling for two years the question on CNBC was always about whether now was the time to buy financial stocks. I was on CNBC in March 2008 saying no. I've been saying no for a while and still feel that way.

Part of my thesis, as simplistic as it has been, is that if this was the worst financial crisis in 80 years then we should expect more shoes to drop. I don't know if the Volcker Rule is another shoe or not because it has a long way to go before it can be possibly implemented. Between here and there it could be changed for the better, changed for the worse or simply disappear.

I would not argue with you if you think that the financial system is messed up but heavy handed fixing is going to bring problems because anything that might impede the flow of capital has consequences; how'd that short sale ban work out? I'm not saying things should not be changed or "fixed" just that the initial reaction could be unpleasant. If there is an unpleasant reaction then ok, the market will adjust and then move on. Fiddling with the financial system is different than options expensing (do you even remember that one?).

How complicated do you think this entire topic is? Do you think there are a lot of moving parts? How much of your money do you want to bet on getting this right?

One way to make navigating market cycles easier is avoiding the right things. This is where I am with the US financial system, choosing to avoid it. I was leery of the sector quite a few years ago as it flirted with being 20% of the SPX and then made a big stink later when the yield curve first inverted.

I've owned the same foreign banks for a long time (one from Australia, one from Chile and one from Canada), I also have a publicly traded exchange and just added an index provider. Fundamentally this combo avoids whatever might happen with the Volcker Rule. And if that is not another shoe, ok but I think there will be another one that will come and I don't want to expose the portfolio it.

With a nod to Occam's Razor, more problems ahead seems to be the simpler conclusion. To the extent you agree there are plenty of way to invest in the financial sector while still avoiding US and European banks. There are obviously plenty of stocks, and ETFs that allow access. iShares just launched several financial sector ETFs and one of them fits right in to the conversation. Decide for yourself if any are right for you, but beyond these new iShare funds there will be other products in the future if you are not comfortable picking individual stocks.

Tom Renyi Joins CVC Capital Partners

Tom Renyi has joined CVC Capital Partners as a senior advisor. He recently retired as chairman of The Bank of New York Mellon Corp., after also having served as its chief executive.

PRESS RELEASE
CVC Capital Partners (“CVC”), a leading global private equity firm, is pleased to announce the appointment of Thomas (“Tom”) Renyi as a senior advisor to CVC. Mr. Renyi will become a member of CVC’s U.S. Advisory Board and Global Financial Institutions Advisory Board to support CVC’s activities in the financial services sector.

Mr. Renyi has had a distinguished career in the financial services industry and recently retired as Executive Chairman and Director of The Bank of New York Mellon Corporation. Previously, Mr. Renyi served as Chairman and Chief Executive Officer of The Bank of New York Mellon Corporation and its predecessor institution, The Bank of New York, from 1997 to 2007. In addition to successfully growing the Company through numerous strategic initiatives, Mr. Renyi played an essential role in initiating, leading, executing and integrating the merger of The Bank of New York and Mellon Financial, one of the industry’s most successful and transformational transactions.

Mr. Renyi’s career at the Bank of New York began in 1971 and included key leadership roles in securities servicing, credit policy and capital markets. In 1989, Mr. Renyi led the transition team responsible for integrating the Irving Trust Company into The Bank of New York, which was the largest merger in the U.S. Banking industry at the time and set the stage for the next chapter in The Bank of New York’s global growth.

Mr. Renyi currently serves on the Board of Directors of Public Service Enterprise Group Incorporated and RiskMetrics Group. He is a past chairman of The Financial Services Roundtable.

Kamil Salame, CVC Partner and Head of the U.S. Financial Institutions Group, said: “We are delighted to welcome Tom to CVC. He is a tremendously successful executive who is held in the highest regard in our industry. Tom has played an important role in shaping and transforming the financial services sector and we are confident Tom’s experience will be extraordinarily valuable to CVC as we assess opportunities at this particularly dynamic time.”

With 19 offices throughout Europe, Asia, and the United States, CVC has an industry-leading global presence. CVC currently has approximately $20 billion of uninvested equity capital, making the firm one of the top five sources of available private equity funds in the world. CVC has significant experience in financial services investments, and its dedicated Global Financial Institutions Group focuses on investing in leading financial businesses across Europe, North America and Asia.


Before the Bell: Futures Point to a Lower Start

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U.S. stock futures declined Tuesday morning as global growth concerns hit markets following S&P downgrade of Japan's outlook and reports of further tightening in China that could hamper growth. Meanwhile, in the U.S., the Federal Reserve begins its two-day policy meeting on Tuesday, amid several economic indicators due out.

U.S. stocks rose Monday as bargain hunters jumped in. But trading was light as Wall Street awaited news from later in the week regarding the confirmation of Federal Reserve Chairman Ben Bernanke, the State of the Union address and bank regulatory developments. Meanwhile, the earnings season continues to give mixed results, not fully convincing investors a recovery is underway.

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Before the Bell: Futures Point to a Lower Start originally appeared on BloggingStocks on Tue, 26 Jan 2010 08:12:00 EST. Please see our terms for use of feeds.

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BaltCap Closes Deal, Fund

BaltCap has acquired aircraft repair company Air Maintenance Estonia from SAS for an undisclosed amount. In unrelated news, BaltCap has partnered with the European Investment Fund to launch a 30 million vehicle focused on VC opportunities in Latvia. www.baltcap.com


QuinStreet Scales Back IPO Ambitions

QuinStreet Inc., a Foster City, Calif.-based provider of online vertical marketing solutions, has set its IPO terms to 10 million common shares being offered at between $17 and $19 per share. It had originally filed to raise $250 million.

The company plans to trade on the Nasdaq under ticker symbol QNST, with Credit Suisse, BoA Merrill Lynch and J.P. Morgan serving as co-lead underwriters.

QuinStreet has raised nearly $60 million in VC funding, from firms like Split Rock Partners (16.3% pre-IPO stake), Sutter Hill Ventures (10.5%), Granite Global Ventures (7.6%), Catterton Partners (5.8%), Partech International (5.5%), Focus Ventures, Rosewood Capital,Charter Growth Capital, VSP Capital, J&W Seligman and Stanford University. Direct secondaries firm W Capital Partners holds a 6.8% stake. www.quinstreet.com


MiLife Changes Course, Raises $4 Million

MiLife has raised $4 million in new VC funding from return backers New Venture Partners and Unilever Ventures. The company spun out from Unilever in late 2008 to provide technology solutions for personalized weight management. It is now renaming itself Imperative Health, and changing its focus to managing health risks associated with diabetes, high blood pressure, obesity and raised cholesterol.

PRESS RELEASE
MiLife, a spin-out from Unilever Corporate Research (UCR), today announced that it has completed an additional funding of $4 million to accelerate its development and growth. To reflect a shift in strategic direction, the Company has changed its name to Imperative Health and changed its focus to managing health risks associated with diabetes, high blood pressure, obesity, and raised cholesterol.

Imperative’s ground-breaking health management technology leverages five years of research from within Unilever – research that focused on linking psychological and computational theories to achieve effective, scalable behavioural change. Unilever research also encompassed artificial intelligence discoveries that enable the Imperative solution to use information collected from client experiences to continually adapt, improve and personalize its programmes.

Good Habits for Life; It’s Imperative

Unilever Ventures created Imperative Health (then known as MiLife) in 2008 via a spin-out of the Unilever technology. New Venture Partners became joint investors in 2009. Focused initially on personalised weight management, Imperative appointed Chris Jessop as Chairman and CEO in early 2009. Mr. Jessop strengthened the Imperative team by recruiting key healthcare industry experts: Dr. Sabine Donnai, a leading UK authority on preventative medicine, was appointed a director and Chief Medical Officer; and Mr. Clive Pinder, an international healthcare entrepreneur was appointed as a non-executive director. The new executive team created and will implement the refined corporate strategy.

“Trials and client experience clearly demonstrated that the original MiLife proposition was hugely effective at generating sustainable lifestyle change. To realize its full commercial potential and to clearly differentiate the service, we felt we should focus on a sector where behavioral change was an essential — not just a nice to have,” said Chris Jessop, Chairman & CEO of Imperative. “Once we considered global growth of high-risk health conditions such as diabetes, high blood pressure, and raised cholesterol, and the need to find cost-effective, scalable solutions to manage these conditions, we realized the exciting potential of the Imperative solution.”

Imperative’s service consists of a wireless activity monitor, a heart-rate monitor, a scale, an online coaching system, and telephone and e-mail access to health experts. The solution has been validated through clinical trials for its level of user engagement and effectiveness. Users are those struggling with high-risk health conditions who have no other option but to take action; Imperative helps them do this. The service will be available directly to consumers in the UK, and through a number of affinity and channel partnerships. Imperative Health is a preferred partner of the Blood Pressure Association, is featured on their website and will be promoted to its membership base. Imperative will also be available through a major pharmacy chain, and has been purchased by a number of major corporates and the National Health Service to manage higher-risk populations.

Executive Leadership from Healthcare Industry Top Talent

Chairman and CEO, Chris Jessop is respected in the UK healthcare industry for his entrepreneurial success and executive leadership roles with established healthcare companies. Most recently, he was the Chief Executive of Nuffield Health Wellbeing, comprising Nuffield Proactive Health, the UK’s leading employee wellness provider; and Cannons Health & Fitness, a leading commercial health club chain. Mr. Jessop was also previously Managing Director of BUPA Wellness, part of the BUPA Group, a UK-based healthcare company with a global membership of 10 million in 200 countries. Mr. Jessop was recognised as UK Healthcare Entrepreneur of the Year in 2006.

Dr. Sabine Donnai is a highly-regarded private physician and an experienced medical director of major healthcare companies. Previously she was Medical Director of Nuffield Health Wellbeing, Managing Director of Prestige Health, and a Regional Clinical Director of BUPA. Dr. Donnai is responsible for leading the clinical development of the Imperative solution, as well as its clinical governance.

Clive Pinder was the CEO of Vielife, an on-line healthcare management company that delivered individual and corporate health and wellbeing programmes to over 10 million users worldwide through clients including the Department of Health, Blue Cross Blue Shield, Citibank, BUPA, Standard Life, CIGNA, GSK, Unilever, National Grid, and Royal Bank of Scotland. CIGNA Health Solutions acquired Vielife in 2006. Mr. Pinder will focus on Imperative’s expansion into the US market.

Imperative’s new leadership team will leverage decades of medical and healthcare industry experience to shape Imperative’s business-to-business strategy. Imperative intends to provide its solution and potential services to medical professionals, health insurance companies, and corporate wellness departments, globally.

“We’re impressed by the exceptional, world-class team that Chris has assembled,” said Anton Arts, Partner, New Venture Partners. “We’ve always been confident in the core solution and are even more excited about the company and its future success based on this rebranding and revitalized corporate strategy. Imperative will undoubtedly resonate with consumers and business partners.”

About Imperative Health

Imperative Health (formerly known as MiLife) is a spin-out from Unilever Corporate Research (UCR), focused on providing ground-breaking health management technology solutions to address high-risk health conditions, including diabetes, high blood pressure, obesity, and raised cholesterol. The Imperative Health solutions are based on Unilever research that links psychological and computational theories to achieve effective, scalable behavioural change. With headquarters in London, the Company is venture-backed by Unilever Ventures and New Venture Partners. Visit the website at www.imperativehealth.com.

About New Venture Partners

New Venture Partners LLC, the global venture capital firm dedicated to corporate technology spinouts, has over $700 million under management. New Venture Partners provides a bridge between technology corporations and traditional venture capital. Through its unique, hands-on approach, the firm offers a systematic process for commercializing innovations and provides an alternative path to market for corporate technologies. The New Venture Partners team has completed over 50 spinouts from the R&D labs and business units of global technology corporations including Lucent/Bell Labs, British Telecom, Philips Electronics, Agere, Boeing, Freescale Semiconductor, Intel, Telstra, and others, and has become the benchmark for corporate spinout venturing. www.nvpllc.com

About Unilever Ventures

Formed in 2002 and backed by Unilever Plc, Unilever Ventures is a venture capital firm providing funding and management skills to start-up and early stage businesses with high growth ambitions. Having initially focused on start-up investment, Unilever Ventures now also considers later stage investment, including expansion-led capital and management buyouts with an enterprise value of up to €50m. Drawn from within Unilever and the private equity sector, Unilever Ventures’ London-based team has invested in over 20 businesses, mainly in the UK. Unilever Ventures invests in businesses where it is able to add value by leveraging Unilever position in the market through its brands, IP, infrastructure and market knowledge. Its primary objective is to support technology driven businesses that deliver a compelling customer proposition in growth markets, be this consumer products, B2B or service bases businesses. www.unileverventures.com


Quest Discovery Raises $3.75 Million

Quest Discovery Services Inc., a San Jose, Calif.-based provider of outsourcing solutions for medical and public records acquisition, has raised $3.75 million in mezzanine funding from the Central Valley Fund. Proceeds will be used to refinance debt and support acquisitions.

PRESS RELEASE

The Central Valley Fund, a private investment fund focused on middle market Central Valley companies, today announced a mezzanine investment of $3.75M in Quest Discovery Services, Inc. (”Quest” or the “Company”).  The capital was used to refinance the Company’s previous subordinated debt holder and to provide funds for acquisitions.

Founded over 40 years ago, Quest offers outsourcing solutions for medical and public records acquisition, including process serving, document acquisition, copying, deposition reporting, and other special services.  The Company primarily operates in California, but offers nationwide services to National Accounts.

Ed McNulty, a partner with The Central Valley Fund, stated, “We are pleased to be business partners with the team at Quest.  CVF seeks to partner with strong management teams, like Quest’s, in order to effectively use its capital to help businesses grow.”

Elizabeth Whitmore, Quest’s President, remarked, “Partnering with a local fund like CVF, both financially and strategically, is an instrumental step in allowing Quest to capitalize on the growth opportunities ahead of us.”

About The Central Valley Fund, LP: The Central Valley Fund was established by the principals of Gael Partners, LLC to finance later stage growth through mezzanine and preferred equity investments.  The fund has offices in Davis, CA and Fresno, CA. It is focused on making investments in California’s Central Valley and throughout the state. For more information, please visit http://www.centralvalleyfund.com.

About Quest Discovery Services, Inc.: Quest provides document acquisition, duplication, and distribution solutions to law firms and insurance companies.  From subpoena preparation and service to online order and record management, to large volume reproduction and photo duplication, to court reporting, to Bates numbering, and rush delivery, Quest’s dedicated professionals deliver high quality services and products that affordably meet its clients’ needs.  For more information, please visit http://www.questds.com.


Prometheus Labs Acquires Right to Novartis Kidney Cancer Drug

Prometheus Laboratories Inc., a San Diego-based drug and diagnostics company, has acquired U.S. licensing rights to Proleukin, a treatment in adults with metastatic melanoma and metastatic kidney cancer, from Novartis. No pricing terms were disclosed for the deal, which includes an up-front fee and possible milestone payments. Net U.S. sales last year for Proleukin were $75 million.

Prometheus is in registration for a $100 million IPO, and has raised around $73 million in VC funding from DLJ Merchant Banking Partners (21.4% stake), Split Rock Partners (17.4%), New Leaf Ventures (12.5%), Apax Partners (11%) , Wachovia Capital Partners (11%) and Brentwood Venture Capital (7.5%).

PRESS RELEASE

Prometheus Laboratories Inc., a specialty pharmaceutical and diagnostic company, today announced the execution of a commercialization agreement with Novartis under which Prometheus acquired exclusive rights to distribute, promote and sell PROLEUKIN® (aldesleukin) in the United States. Proleukin is a recombinant human interleukin-2 for treatment in adults with metastatic melanoma and metastatic kidney cancer. Net sales for Proleukin were approximately $75 million in the U.S. in 2009.

Under the terms of the agreement, Novartis received an upfront fee and will receive royalties on net sales of Proleukin in the U.S. Novartis is also eligible to receive potential sales milestone payments. Prometheus will have the option to extend the initial six-year term on an annual basis for up to an additional six years. In addition, the companies will have an option to amend the agreement to include the rest of the world upon the completion of certain conditions.

“This represents a transformational event for Prometheus as we continue to build our oncology presence and execute on our integrated therapeutics and diagnostics business model,” said Joseph M. Limber, President and Chief Executive Officer of Prometheus. “We have established ourselves as a leader in the gastroenterology market by offering a complementary portfolio of pharmaceutical and diagnostic products promoted via Prometheus’ highly trained sales force. Now, following the recent launch of our three ProOncDx microRNA-based diagnostic tests and the continued development of our emerging and proprietary diagnostics platform, we are well positioned to repeat this success in the oncology market.”

A portion of the proceeds from Prometheus’ previously announced $260 million Senior Secured Credit Facility was used to finance this transaction.

About Proleukin

PROLEUKIN® (aldesleukin) for injection is a recombinant human interleukin-2 for treatment in adults with metastatic melanoma and metastatic kidney cancer. Proleukin therapy is a form of immunotherapy that enhances the body’s natural immune system to help fight these types of cancer. Proleukin has been used for over 10 years in the treatment of metastatic melanoma and over 15 years in the treatment of metastatic kidney cancer (renal cell carcinoma). For complete prescribing information, please visit www.Proleukin.com.


Rise of the news-reading machines

From the FT — some giant leaps for robot-kind in the world of trading:

The arms race in trading technology is set to intensify this week as Thomson Reuters, the news and market data company,...

Canon Net Surges; NEC Electronics Sales Down 8%

Canon Inc fourth quarter sales fell 4.1% to ¥954.1 billion and net profit rose 431% to ¥61.6 billion. NEC Electronics Corporation third quarter sales fell 8% to ¥117.9 billion and net loss was ¥14.3 billion or ¥115.53 a share.

Observations On Bernanke

Like Paul Krugman, I am torn over the issue of Bernanke’s confirmation.  Certainly, he was instrumental in bringing us back from the brink.  Regrettably, he was also instrumental in getting us there in the first place.  Here are some of my observations about Dr. Bernanke over the past several years.

On August 9, 2005, Bernanke, then chairman of president George W. Bush’s Council of Economic Advisors, met with the president and subsequently fielded questions from the media.  I recall the question below as if it were only yesterday.  (Director Hubbard is Al Hubbard, then Director of the National Economic Council.)

Q Did the housing bubble come up at your meeting? And how concerned are you about it?

DIRECTOR HUBBARD: Let me let Ben answer that question.

CHAIRMAN BERNANKE: We talked some about housing. There’s a lot of good news on housing. The rate of homeownership is at a record level, affordability still pretty good. The issue of the housing bubble is one that people have — whether there is a housing bubble is one that people have raised. Housing prices certainly have come up quite a bit. But I think it’s important to point out that house prices are being supported in very large part by very strong fundamentals.

And particularly, we have a strong economy, we have lots of jobs, employment, high incomes, very low mortgage rates, growing population, and shortages of land and housing in many areas. And those supply-and-demand factors are a big reason for why housing prices have risen as much as they have.

I think over a period of time, the housing prices are likely to stabilize. I don’t expect them to keep rising at this rate indefinitely; I don’t think anybody really does. But, again, I do think that the bulk of the increases are associated with strong economic fundamentals.

Bernanke’s position on housing would soon begin to evolve, and continue to do so over the next couple of years, as economist David Rosenberg — then plying his trade for Merrill Lynch – chronicled beautifully in August 2007:

“Low mortgage rates, together with expanding payrolls and incomes and the need to rebuild after the hurricanes, should continue to support the housing market. Thus, at this point, a leveling out or a modest softening of housing activity seems more likely than a sharp contraction, although significant uncertainty attends the outlook for home prices and construction. In any case, the Federal Reserve will continue to monitor this sector closely.” (15 February 2006).

“At this point, the available data on the housing market, together with ongoing support for housing demand from factors such as strong job creation and still-low mortgage rates, suggest that this sector will most likely experience a gradual cooling rather than a sharp slowdown.” (27 April 2006).

“Home prices, which have climbed at double-digit rates in recent years, still appear to be rising for the nation as a whole, though significantly less rapidly than before. These developments in the housing market are not particularly surprising, as the sustained run-up in housing prices, together with some increase in mortgage rates, has reduced affordability and thus the demand for new homes.” (9 July 2006).

“Although residential construction continues to sag, some indications suggest that the rate of home purchase may be stabilizing, perhaps in response to modest declines in mortgage interest rates over the past few months and lower prices in some markets.” (28 November 2006).

“Some tentative signs of stabilization have recently appeared in the housing market: New and existing home sales have flattened out in recent months, mortgage applications have picked up, and some surveys find that homebuyers’ sentiment has improved. However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels … Despite the ongoing adjustments in the housing sector, overall economic prospects for households remain good. Household finances appear generally solid, and delinquency rates on most types of consumer loans and residential mortgages remain low.” (14 February 2007).

“Although the turmoil in the subprime mortgage market has created severe financial problems for many individuals and families, the implications of these developments for the housing market as a whole are less clear. The ongoing tightening of lending standards, although an appropriate market response, will reduce somewhat the effective demand for housing, and foreclosed properties will add to the inventories of unsold homes. At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency. We will continue to monitor this situation closely.” (28 March 2007).

“The rise in subprime mortgage lending likely boosted home sales somewhat, and curbs on this lending are expected to be a source of some restraint on home purchases and residential investment in coming quarters. Moreover, we are likely to see further increases in delinquencies and foreclosures this year and next as many adjustable-rate loans face interest-rate resets. All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system. The vast majority of mortgages, including even subprime mortgages, continue to perform well. Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable”. (17 May 2007).

“Of course, the adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected. Thus far, however, we have not seen major spillovers from housing onto other sectors of the economy … However, fundamental factors–including solid growth in incomes and relatively low mortgage rates–should ultimately support the demand for housing, and at this point, the troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.” (5 June 2007).

“Rising delinquencies and foreclosures are creating personal, economic, and social distress for many homeowners and communities — problems that likely will get worse before they get better … even if demand stabilizes as we expect, the pace of construction will probably fall somewhat further as builders work down stocks of unsold new homes. Thus, declines in residential construction will likely continue to weigh on economic growth over coming quarters, although the magnitude of the drag on growth should diminish over time.” (17 July 2007).

Now let’s get back to Bernanke’s August 2005 presser.  The fundamentals were anything but strong, as Rosenberg had pointed out in this prescient piece (a true gem of research) he penned in August of 2004, which I wrote up over at Blah3.com after the bubble had popped.

In response to Bernanke’s affordability comment at the press conference, I dropped him a note through then Chief of Staff Gary Blank:

Dear Mr. Blank:

On August 9, Dr. Bernanke participated in a press briefing during which he fielded questions about his meeting with the president.

Among the questions Dr. Bernanke was asked was this one:

Did the housing bubble come up at your meeting?  And how concerned are you about it?

Dr. Bernanke’s answer, in part, follows [emphasis mine]:

We talked some about housing.  There’s a lot of good news on housing.  The rate of home ownership is at a record level, affordability still pretty good.

I have reproduced below two charts created by brokerage firm Merrill Lynch using data compiled from the National Association of Realtors.

The charts speak for themselves:  First-time buyer affordability has collapsed to a 16-year low, and overall homeowner affordability has plunged to a 14-year low.

So, Mr. Blank, my question is simply this:  Given the hard data, on what basis did Dr. Bernanke make the claim that housing affordability is “still pretty good”?

Below is an updated chart of the National Association of Realtors Monthly Housing Affordability Index, one of two I’d included in my letter.  At the time Dr. Bernanke spoke (solid line), the fact of the matter is that housing affordability was already at about a 14-year low — hardly “still pretty good.”  (The dotted line is where it’s gone since, which actually is “pretty good.”)

[Source: National Association of Realtors]

I never did get a response.  Fancy that.

Regardless, unlike Calculated Risk, I’m not sure we should be looking for a better steward for the Fed at this time.  I believe the economy is still way too fragile and the risks of new Fed leadership at this time are too great.  Personally, I’m with the “Don’t Block Ben” crowd.  If Bernanke’s confirmation is not to be, however, my preference would be to see San Fran Fed president Janet Yellen get the job.


Links Australia Day

If you are down under, pet a roo for me today!

Partnered in the struggle for a place to call home Boston Globe

Here comes the new cell phone etiquette ComputerWorld

Consequences of the Mass. Election Bruce Krasting

Fallout Is Wide in Failed Deal for Stuyvesant Town New York Times

Funding Public Health Care With a Publicly Owned Bank: How Canada Did It Ellen Brown, Huffington Post (hat tip reader joebhed)

How to bypass populism and tackle banking Arthur Levitt, Financial Times. I hate the title (so populism is now dirty word?) but the substance is solid.

Wall Street Journal Questions Bernanke’s Credibility and Political Will Mike Shedlock

This Is Such a Disaster in the Making II Brad DeLong On Obama’s lastest “all hat, no cattle” move, his budget freeze that includes very little of the Federal budget. Is Obama constitutionally incapable of doing anything that lives up to its billing?

Dustbin of History Looking Increasingly Attractive to the Obama Administration Tim Bozzo Angry Bear

The Democrat’s Circular Firing Squad Set To Go Into Hyper-Mode After News Of Obama’s Spending Freeze Clusterstock

“Greek crisis over” Eurointelligence

The Press Angle of the Fed’s Backdoor-Bailout Cover-up Columbia Journalism Review

Antidote du jour. From Bill R, who writes:

This is “T,” short for Tyler. He is a rescue Norwegian Elkhound. We got him from the owner through the Elkhound Rescue Association. He is the smartest we have ever owned.

T and I have walked hunderds of miles together while I am out of work (2+ years) in Michigan. I sometimes have him run with me. When I had pneumonia, he would crawl up on top of me and lay on me as while I was under 4 blankets from being cold. He is a rescue Elk Hound, 3 years old in this picture, and a source of comfort. This is the 3rd Elkhound I have owned since 1977. Great family dogs, great with kids and women, and they love the snow and cold weather.

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