We have been following the LIBOR story since the beginning of the credit crisis. Conventional wisdom suggests that if the LIBOR rate is going up then there are problems with the credit markets and if rates are going down then credit is flowing freely. This story highlights a possible wrinkle in this theory. Rates are clearly going down but the positive effects associated with the ease may not be felt in the economy which may cause some consternation for policy makers.
Credit thaw is spurring appetite for bank IOUs –
WSJ reports investors have developed a voracious demand for short-term debt issued by U.S. and European banks, and an important global lending benchmark has fallen to an all-time low — welcome signs that bank credit markets have improved.
But beneath the demand for short-term bank debt, known as commercial paper, and a drop in the London interbank offered rate, or Libor, significant kinks remain lodged in the bank markets: Banks are using the fresh cash to repay existing debt, or simply hoarding it. That cash buildup is potentially stymieing efforts by regulators to circulate funds to borrowers and the most needy banks.
In contrast to the panicked days early this year, bank commercial paper “flies off the screen,” said one New York trader. The market for this short-term bank debt runs from 7 a.m. to about 2 p.m. in New York. But investor demand has been so strong that some banks are turning away buyers by late morning… There is the possibility that three-month dollar Libor could fall yet further. The most healthy U.S. and European banks are selling three-month commercial paper at a range of 0.3 percentage point, or nearly 0.2 percentage point below the three-month Libor, according to one New York desk that trades commercial paper. That suggests Libor might fall further if it tracked the cost of selling the short-term IOUs.
In Thursday’s post I made reference to the dire condition of the real estate market. The following piece by Hanson Advisors lays credence to that claim. Please read the red highlights closely as they will protect you from the positive spin chicanery evangelized by government.
M Hanson Advisers – Real Estate & Finance:
Late last week, DataQuick released their monthly CA home sales report. June saw more sales and higher prices than May. More sales are better for the market than less, no doubt. But opening a bottle of Dom and slapping a high-five to your real estate investment partner — or proclaiming a bottom to the CA market on national tv — would be misguided and ultimately detrimental to your career.
This is especially true given that loan defaults and foreclosures are surging faster than sales, foreclosure-related resales are at a point of maximum demand, and all-important organic sales are off 65% from levels seen just a few years ago. In addition, the primary reason for the recent house price appreciation is due to mid-to-high end price slashing and short sales, which has led to an up-tick in sales, and a subsequent rise in the median due to the mix-shift. (Very important to understand and yet rarely discussed by traditional media sources.)
While lower prices are needed to ultimately put an end to the housing crisis, price dumping leads to increased negative equity across the homeowner population significantly increasing the likelihood of loan default. As you witnessed at the low-to-mid end of the market beginning in 2007, a lot of pain is experienced while a market finds its bottom.
This up-tick in mid-to-high end sales is the leading indicator I have been waiting for that signals the rest of the housing market is finally beginning its mark-to-market. This time around, however, the mid-to-high end earners and consumers are the ones most affected.
The bottom line is that foreclosure-related resales have peaked and organic sales are off 65% from their peak levels. In the foreclosure resale half of the market, supply is once again outpacing demand. The mid-to-high end is being swiftly re-priced lower. This cannot be viewed as a ‘market getting better’.
(Please click on the link above to review previous EPS posts)
Periodically I will post the EPS news of companies we find interesting. This is not a recommendation to purchase or sell the shares. I will not engage in the hackneyed approach of other bloggers and give advice about when to buy or sell. The purpose of these posts is to give you, the reader, an idea of what companies our research department deems worthy of review.
Of course, if you are an investor in any of the Fortune’s Favor Family of Funds or a client of RCM our door is always open. Feel free to call or email questions at any time.
Barrick Gold beats by $0.11, beats on revs (32.86 ) : Reports Q2 (Jun) earnings of $0.49 per share, excluding non-recurring items, $0.11 better than the First Call consensus of $0.38; revenues rose 3.2% year/year to $2.03 bln vs the $1.9 bln consensus. Barrick remains on track with its full year 2009 production guidance of 7.2-7.6 million ounces of gold at net cash costs of $360-$385 per ounce or total cash costs of $450-$475 per ounce. “Our portfolio of operations performed strongly in Q2, exceeding plan, and positioning us well to meet our production and cost targets for the year. The go-ahead decision on Pascua-Lama during the quarter marks an important milestone for Barrick and our strategy of developing long life, low cost mines. Pascua-Lama is expected to be one of the industry’s lowest cost gold operations and joins the world-class Cortez Hills and Pueblo Viejo projects in construction. Execution on this new generation of projects, combined with a favorable gold price outlook and our focus on cost management provides the foundation from which Barrick will continue to deliver shareholder value.”
NetLogic beats by $0.10, beats on revs (39.43 ) : Reports Q2 (Jun) earnings of $0.35 per share, $0.10 better than the First Call consensus of $0.25; revenues fell 11.0% year/year to $32.5 mln vs the $32.1 mln consensus.
NetLogic guides Q3 above consensus on earnings call (39.43 +0.15) -Update : On call mgmt guides Q3 sales to grow 8% to $46 mln vs $33.69 mln First Call consensus, EPS to $0.32 vs $0.27 First Call consensus. Guidance for Q3 will include the effects of both the acquisitions of network search engine business as well as the pending merger with RMI corporation.
