Kurt Brouwer March 20th, 2008
Source: Bloomberg
Three headlines from Bloomberg News:
Gold Falls, Capping Biggest Weekly Drop Since 1990 as the Dollar Rallied
Crude Oil Drops Below $100 on Concern U.S. Slowdown May Limit Fuel Demand
Copper Falls, Capping Biggest Weekly Drop in 10 Months, as Demand May Slow
Kurt Brouwer January 11th, 2008
Bank of America already had a significant investment in Countrywide and now it has agreed to buy the whole thing. Previously, we have seen other investors buying up stakes in depressed financial services companies (see Bill Miller of Legg Mason Value Trust: Buy Battered Financial & Housing Stocks and Investors Buying The Dogs of 2007).
This Bloomberg article spells out why BA is eager to buy Countrywide [emphasis added]:
Bank of America To Acquire Countrywide For $4 Billion (Bloomberg, January 11, 2008, David Mildenburg)
Bank of America Corp., the biggest U.S. bank by market value, agreed to buy Countrywide Financial Corp. for about $4 billion, taking over the largest mortgage lender during the worst housing slump in more than two decades…
…“There are near-term challenges, but where there are challenges, there are always opportunities,” Lewis said during a conference call today. “We view this as a one-time opportunity.”
Countrywide’s market value plummeted 85 percent to $4.5 billion during the past 12 months as the lender reported its first quarterly loss in 25 years. Lewis has said the U.S. housing slump probably won’t bottom until mid-2008.
Adding Countrywide’s $209 billion in assets to Bank of America’s $1.6 trillion would leave the combined companies second in size to Citigroup Inc., which had $2.35 trillion in assets as of Sept. 30. Bank of America’s market value is 20 percent greater than New York-based Citigroup’s.
…The purchase, expected to close in the third quarter, will add to earnings beginning in 2009, Bank of America said. Savings resulting from the combination will be about $670 million, with about a third of that coming next year, the bank said. Credit Review
Bank of America’s financial strength rating is under review for a possible downgrade because of integration, litigation and mortgage value challenges, Moody’s Investors Service said today. Moody’s affirmed the bank’s short-term ratings….
…Countrywide may represent the opportunistic deal-making that turned regional bank NCNB Corp., which Lewis joined as a credit analyst in 1969, into the most valuable U.S. bank. He was former Bank of America Corp. CEO Hugh McColl Jr.’s Texas point man in 1988 after the government-assisted rescue of failing First Republic Bank, the largest bank in the Lone Star State…
…`Great Technology’
“It is an absolute opportunity for Bank of America to acquire an infrastructure they admire, including Countrywide’s great technology, and, at these levels, it’s mitigating most of the asset issues,” he said…’
For BA this represents a golden opportunity to buy a market leader in mortgages at a very attractive prices. Smart move in my opinion. Some recent buyers of Countrywide stock may have actually made a profit too as the stock ran up quite a bit on the announcement of the deal.
Kurt Brouwer January 4th, 2008
The year 2007 was a wild and rather woolly year for investors. Many ups and downs. The stock market finished up for the year although it slid late in the year (and that slide has continued in the New Year). Here is a quick reprise of the year in an oddly-titled piece from the Wall Street Journal (registration required):
Dazed and Confused (Wall Street Journal, January 3, 2008, Tom Lauricella)
‘After last year, you can’t blame mutual-fund investors for feeling a little dizzy.
Stock markets around the globe spent the early part of 2007 still booming, though the U.S. bull market that began back in 2003 looked increasingly frail even as stocks hit new highs.
By the second half of the year, big portions of the financial markets were in disarray. Some of the most widely held bank and Wall Street stocks were cratering amid fear of huge waves of mortgage defaults — and concerns mounting about risks in supposedly safe short-term-bond and money-market mutual funds.
“It was a tale of two markets,” says Marc Baylin, a portfolio manager at OppenheimerFunds Inc.
Still, for all the gloom in recent months, mutual-fund investors have some reason to cheer: Stock funds came out of 2007 in pretty good shape. Diversified U.S.-stock funds delivered a respectable 6.6% average total return for the year, according to preliminary figures from fund tracker Lipper Inc. That beats the return of the big-company Standard & Poor’s 500-stock index, which delivered 5.5%, including reinvested dividends.
A number of factors fueled those stock-fund returns. Early in the year, buyout firms used cheap debt to fund ever-bigger mergers and acquisitions. Tech stocks rebounded, at long last. And companies that supply developing markets rode a global economic boom.
But even as those positive trends were driving the market higher, the subprime crisis was starting to gather steam. And when it hit in full force, it wrecked the party. Even though the end result for mutual-fund investors was positive, the gains in 2007 lagged behind U.S. stock funds’ average 12.4% return for 2006 and the 14% average of the past five years.
What comes next?
Kurt Brouwer December 27th, 2007
Very interesting juxtaposition of two stories [emphasis added below]:
US Braces For Baby Boom Retirement Wave (Breitbart, December 24, 2007)
‘The first of the vast US baby boom generation goes into retirement in January, setting off a demographic tidal wave with wide-ranging economic, political and social implications. Kathleen Casey-Kirschling, born on January 1, 1946, is acknowledged as the nation’s first baby boomer and the first to apply for social security benefits, for which she will be eligible in 2008.
The New Jersey grandmother is the first of an estimated 80 million Americans born between 1946 and 1964, a generation that led a social revolution in the 1960s and changed the fabric of most facets of society…’
US Fertility Rate Hits 35-Year-High, Stabilizing Population (Washington Post, December 21, 2007, Rob Stein)
‘For the first time in 35 years, the U.S. fertility rate has climbed high enough to sustain a stable population, solidifying the nation’s unique status among industrialized countries.
The overall fertility rate increased 2 percent between 2005 and 2006, nudging the average number of babies being born to each woman to 2.1, according to the latest federal statistics. That marks the first time since 1971 that the rate has reached a crucial benchmark of population growth: the ability of each generation to replace itself.
“It’s been quite a long time since we’ve had a rate this high,” said Stephanie J. Ventura of the National Center for Health Statistics. “It’s a milestone.”
While the rising fertility rate was unwelcome news to some environmentalists, the “replacement rate” is generally considered desirable by demographers and sociologists because it means a country is producing enough young people to replace and support aging workers without population growth being so high it taxes national resources.
Kurt Brouwer December 11th, 2007
Very large institutional investors have been increasing their asset allocation to foreign stocks for a while now. However, based on the following article, that trend may be accelerating. This article discusses the actions of multi-billion dollar plans such as CALPERS (the California Public Employee Retirement System) and other state-sponsored plans [emphasis added below]:
Equity allocations shed U.S. bias (Pensions & Investments, December 10, 2007, Douglas Appell)
‘More U.S. institutional investors are ditching the home-country bias that has kept the bulk of their equity allocations in domestic stocks.
With non-U.S. stocks now comprising 55% of global stock-market capitalization, a shift to a global benchmark promises to move assets to foreign equity markets, while accelerating outflows from U.S. equities.
Data from Casey Quirk & Associates LLC, a Darien, Conn.-based consultant to the money management industry, showed net institutional outflows of more than $100 billion from U.S. stocks for the 12-month period ended June 30. The latest data being crunched now show that trend accelerating, said Philip Kim, a senior associate with the firm.
Rodger F. Smith, a managing director with Greenwich, Conn.-based Greenwich Associates, said the portion of U.S. institutional equity holdings in non-U.S. equities could grow to almost 30% by the end of this year from 25% in 2006…
…The board of $259.5 billion California Public Employees’ Retirement System, Sacramento, is scheduled to meet Dec. 17 to consider a staff recommendation to shift the plan’s target equity benchmark to a global market weighting (roughly 45% U.S. to 55% non-U.S.) from its current 66.7% U.S. and 33.3% non-U.S. split.