The founding fathers recognized the danger, e.g. president Thomas Jefferson, principal author of the Declaration of Independence, warned:
“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”
Despite yesterday’s technical rebound, we believe that the STI is not ready to turn up yet. Instead, the index has to undergo a bottoming process with 2650 as the ‘worst case scenario’.
DBS Research believes that US economic data could get worse before it gets better. This is because key leading indicators such as the Michigan consumer sentiment index and jobs data have yet to touch the 1990 and 2001 recession lows. The S&P500 could touch further lows if this happens with a 5-10% downside risk.
The market should continue to ride on yesterday’s technical rebound in early session trade on the back of the overnight rally on Wall Street but gains should be capped ahead of the release of US January retail sales data tonight, Michigan sentiment index Friday and local banks results, starting with DBS this Friday.
Last night’s rebound on Wall Street may not sustain if upcoming economic data continues to disappoint. For the STI, we continue to see the fall from 3168 in late January as the last stage of the stock market correction. STI should undergo a bottoming process with 2650 as the ‘worst case’ scenario.
Small cap stocks held firm on Monday despite the 2.2% fall in the STI. We re-iterate that this indicates the market is in the final stage of correction with selective blue chips pulling the index lower while investors find few reasons to sell down broad market stocks. We prefer to selective trade the small caps at this stage because STI is still in the process of finding a bottom.
KUALA LUMPUR - A ROYAL commission heard how a lawyer at the centre of a judge-fixing scandal wrote the judgment in a historic defamation suit on behalf of the judge.
The former secretary to V.K. Lingam, a lawyer shown apparently brokering judicial appointments in a secretly filmed video that triggered the inquiry, said she was asked to type the judgment that her boss had dictated.
‘Sometime in November to early December 1994, I remember vividly an occasion where three secretaries, including myself, were detained by V.K. Lingam for purposes of confidential typing,’ said Ms Jayanti Naidu.
‘I soon discovered that this was about preparation and typing of the judgment in relation to a civil suit, No S5-23-23-94,’ she said, referring to a defamation case lodged by business tycoon Vincent Tan.
Mr Tan, who often engaged Lingam as counsel, won the case and was awarded a sum of RM10 million (S$4.5 million), which lawyers said was unprecedented in Malaysia’s legal history.
Mr Tan, chairman of the Berjaya Corporation, a major conglomerate, testified previously and denied any involvement in brokering judicial appointments.
Mr Lingam said in the video that he could secure top appointments with the help of Mr Tan and a politician. But in his testimony, he said he must have been drunk or bragging in the video.
Ms Jayanti said he gave the typed judgment to the then High Court judge Mokhtar Sidin.
‘I later discovered that the judgment as written by V.K. Lingam was fully incorporated as the official judgment of the said judge,’ she said.
She said a copy was given to a lawyer in 1998 and later lodged with the Anti-Corruption Agency. ‘But they told me the case had to be closed because it involved too many high-ranking officials. They gave me RM3,000’ she said.
She also testified that a controversial vacation to New Zealand by Lingam and former chief justice Eusoff Chin was pre-planned and not a coincidence as the latter had claimed in his testimony.
Fundamentals still favour Chinese property stocks By Yi Tin Chak | 12 February 2008
Analysts expect more price declines in certain cities and suggest investors look north to make the most of a demand-driven rebound.
Chinese property stocks have been one of the worst hit sectors in the current market downturn, which entered its fourth month last week. But even as investors are at pains to avoid the sector, analysts project the trough is near and suggest it could be time to exchange the selling for some bargain hunting as fundamentals remain favourable.
Not every laggard property stock will be a winner though, and with fundamentals and earnings growth likely to be a key focus this year, the development of the underlying physical property market will be highly important for picking the right ones, they warn.
While most market participants still believe there will be stricter regulations and more credit tightening to come, Fitch ratings agency argues that robust economic growth, urbanisation and renminbi appreciation will continue to drive demand for Chinese property. Limited land supply, land hoarding, delay in property development and sales are also expected to create a shortage in the housing market, it says.
Analysts at UBS are cautious about the China property market in the near team, given the policy risks and unfavourable near-term macro factors, but longer-term they agree with Fitch and expect demand-driven growth in the physical market to resume in the second half of this year. Their counterparts at Credit Suisse are even more optimistic and predict that strong momentum in home sales will return already in the first and second quarters. According to a research report published last month, the Credit Suisse team believes strong investment and end-user demand will support prices in both the physical market and the stock market. The bank remains “overweight” on the Chinese property sector, although they contend that 2008 will be a much tougher year than 2007 for the Chinese developers.
In general, analysts favour property developers operating in northern China where prices haven’t risen at the same rapid pace as in the large cities further south. And William Leung at RREEF, a global alternative investment management division of Deutsche Bank, argues that developers focusing on commercial real estate are preferable to those focusing on residential properties as they are less affected by the austerity measures. He favours developers with more exposure in second-tier cities for the same reason.
“The latest monthly figures (of property prices and sales) show that Beijing, Shenzhen, Hangzhou and Chongqing are still growing much faster than other cities. We believe they will face more severe cooling measures, which may lead to a drop in both prices and volumes in the coming months,” UBS analysts say in a January research report.
The report projects a 10% decline in the Guangzhou property market in the first and second quarters of 2008 as a result of recent mortgage tightening measures. The price growth in Beijing and Shanghai will slow to 5% in 2008, from 17% (Beijing) and 9% (Shanghai) last year.
However, the analysts believe Shenzhen will be the worst hit among the four major cities, because of the high percentage of speculators among the property buyers in 2006 and 2007. Prices at several Shenzhen real estate projects corrected by more than 20% in 2007 and there could be another 20% of decline, they say.
According to Shenzhen Municipal Bureau of Land Resources and Housing Management, the residential property market started to adjust in September after a two-year boom and experienced a 13.15% decrease of home prices from October to November. New apartment sales fell to 179,900sqm in November, from 802,600sqm in January last year.
Other major cities have also seen substantial declines in prices over the past few months. For instance, several projects in Guangzhou have cut prices by around 10%, according to the UBS report.
“We expect more credit tightening measures to be announced and for southern Chinese cities to be hit harder than their counterparts in northern China because of the more prevalent use of mortgage financing,” the UBS analysts remark in the report and add that the decline of prices and sales volumes in Guangzhou and Shenzhen since the third quarter last year may also lead to downgrades of consensus earnings for fiscal 2009.
Others argue that substantial earnings downgrades are unlikely and that more data on prices and sales are in any case needed to make such a call.
“The first quarter around the Chinese New Year is not the peak season for home sales. But if the property market continues to perform poorly in May and June, some property companies could experience earnings downgrades,” comments Leung, who is the lead portfolio manager of Asia-Pacific real estate securities at RREEF.
However, Leung sees this as a good opportunity to invest in the sector for those who seek long-term gains, since shares prices have corrected a lot and are pricing in the bad news.
“Given the sharp correction of Chinese property stocks in recent months, the sector as a whole is currently trading at less than 15 times 2008 earnings with a 40% compound annual growth rate from 2006 to 2009. This looks markedly cheaper than their Asian peers and we believe the decline in sales volume is already in the price,” agrees Andy So, property research analyst at BNP Paribas Securities (Asia).
Although he thinks the short-term share price movement is still highly dependent on the potential release of more bad news regarding a slowdown in sales, price cuts and changes in government policy, So believes that the worst time might have passed.
“Guangzhou R&F has just announced their January 2008 contracted sales figures, which were in line with their target at Rmb1.08 billion. These are very encouraging figures, especially in light of the sour investment sentiment and the snow storms that have affected mainland China,” So says.
Indeed, a number of Chinese developers staged what appeared to be a pretty solid recovery after the Federal Reserve’s latest rate cut on January 30. The emerging uptrend was broken yesterday, however, after finance leaders from the Group of Seven nations raised their forecasts for subprime-related losses and warned the economic slowdown would spare nobody.
But even with yesterday’s losses, which range from 0.3% to 6.5%, Shimao Property Holdings has gained 19% over the past six sessions, Agile Property Holdings is up 15.5%, Guangzhou R&F Properties 8.9%, Country Garden Holdings 5.3% and Greentown China Holdings has added 7%.
While the gains are still fragile – as evidenced by yesterday’s negative turnaround – they have broken the downward trend which saw Shimao, Agile, Guangzhou R&F and Country Garden lose more than half of their market value between the beginning of November and the end of January. Greentown fell 45% in the same period, while the Hang Seng China Enterprises Index dropped 36.5%.
The latest recovery may convince a number of the real estate listing candidates in the pipeline to brave the volatile markets and go ahead with their initial public offerings. Among the listing hopefuls are Evergrande Real Estate Group and Central China Real Estate Group, which are both hoping to list in the first quarter, as well as Changsheng Properties, which withdrew its first attempt to list in mid-January after the markets turned sour but is pondering a return as soon as feels confident the markets will hold up, according to sources.
“The success of any IPO definitely hinges on the current market situation. If we continue to see a rebound in the Chinese property sector across the board, it is highly likely that these IPO candidates will have a successful listing -if they seek to list at a discount to net asset value or at a forward PE of 12 to 14 times,” remarks So.
But following a four-year bull run and a record 30%-60% surge in home prices across China in 2007, China’s property market is by no means without risks.
The People’s Bank of China (PBOC) raised the bank reserve ratio by 0.5% in January, less than a month after it had announced increases of the one-year base deposit rate and lending rate by 27bp and 18bp respectively. It also required mortgage holders to make a down-payment of at least 40% and pay a 10% premium on their interest rate.
The possibility of more such austerity and monetary policy measures together with a slowdown in the US and an increase in alternative investment opportunities could divert liquidity away from the domestic market and ultimately hurt the demand for properties. So while the long-term fundamentals are still positive, the road ahead seems destined to be much bumpier than in recent years.
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
30% of recent U.S. homebuyers have negative equity: report
February 12, 2008 CBC News
Almost one-third of those who bought homes in the U.S. in the last two years owe more than the home is worth, according to a housing market research firm.
The price of the average U.S. condominium fell 7.4 per cent year-over-year, Zillow said Tuesday in its quarterly home value report. The average single-family home lost 5.5 per cent of its value in 2007.
Adding in price declines in 2006, the firm says 30.4 per cent of those who made home purchases in 2006 and 2007 have negative equity.
By comparison, Zillow says only three per cent of those who bought in 2003 owe more than their homes are worth.
The report said the highest rates of negative equity are in areas that have had significant price declines and relatively low down payment requirements. It singled out parts of California, Florida, Arizona and Nevada.
In Las Vegas, for instance, more than half of those who bought in 2007 and almost three-quarters of those who purchased in 2006 are in a negative equity situation.
"With consecutive declines over the past five quarters, we haven't seen the housing market bottom yet, and it may very well get worse before things get better," said Stan Humphries, Zillow vice-president of data and analytics.
"Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter," he said.
The Zillow report is based on data on about 80 million homes.
White House announces foreclosure help
Negative equity makes it more likely that Americans will walk away from their mortgage obligations if they run into financial difficulty.
So the Bush administration on Tuesday announced a new program that would give many homeowners threatened with foreclosure a 30-day reprieve.
"Project Lifeline" is aimed at people who are at least 90 days overdue on their monthly mortgage payments. The program is the brainchild of six big American lenders who together account for almost half of the mortgages in the U.S.
Homeowners will get a chance to stop the foreclosure process for 30 days while lenders try to work out some way to make it easier for them to make their payments.
The Mortgage Bankers Association said at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure at the end of September.
Americans Selling Homes Find Prices Sink Below Mortgage Values
By Kathleen M. Howley
Feb. 13 (Bloomberg) -- When Mary Kamanu paid $409,000 for a house in Folsom, California, she never imagined that three years later it would be worth about 20 percent less and she would have to pay the bank more than $80,000 just to sell the place.
By the end of this year as many as 15 million U.S. households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc. That may fuel an increase in foreclosures, erode prices, and increase mortgage bond losses, he said in a Feb. 1 report.
``If borrowers who are underwater go into foreclosure, the properties are likely to be sold at discount prices and will further depress the price of housing,'' said Robert Engle, a Nobel laureate in economics who teaches at New York University's Stern School of Business in Manhattan. ``It becomes a spiral.''
Thirty-nine percent of people who purchased a home two years ago already owe more than they can sell it for, according to a Feb. 12 report from Zillow.com, a real estate data service. Only 3.2 percent who bought five years ago are in that situation, the report said.
Home prices probably will decline 4.5 percent this year and 2.6 percent next year after falling 2.2 percent in 2007, according to Fannie Mae, the world's largest mortgage buyer. New foreclosures averaged about 2,900 a day in the fourth quarter, double the pace of a year earlier, according to RealtyTrac Inc., an Irvine, California-based real estate data company.
Walking Away
``If people owe more on their mortgage than their house is worth, a substantial number of them will give their keys back,'' said Kenneth Rosen, head of the University of California's Fisher Center for Real Estate and Urban Economics.
Refinancing won't be an option for homeowners with negative equity who have mortgage rates that are spiking, he said. About a third of U.S. borrowers have adjustable-rate home loans, according to the Federal Housing Finance Board in Washington.
``They will lack refinancing ability, and will obviously be under financial strain as their rates adjust,'' Rosen said. ``We're going to see credit card delinquencies rise and car loan delinquencies rise as a result.''
As many as 5 million U.S. homeowners may have mortgages that exceed the value of their homes by the end of this year, according to estimates from Rosen. He said he expects a 16 percent decline in home prices from 2006 to 2009, compared with Hatzius' estimate of a 22 percent drop.
Economic Threat
Falling prices and rising foreclosures are a threat to an already slowing economy since many homeowners used their equity to finance purchases such as cars or computers.
U.S. property owners took out about $318 billion of equity from their homes in 2006 by refinancing home loans, according to Freddie Mac, the world's second-largest mortgage buying company. Add to that $146.2 billion lent in home equity lines of credit, according to the Federal Reserve.
In all, $2.2 trillion of home equity has been liquidated since 2001, which was the first of five years of record-setting house prices and sales.
Kamanu refinanced her house in May 2007 and owes $415,000 on her mortgage. Homes in her neighborhood now sell for about $330,000, she said. The median home price in California dropped 17 percent from a year earlier in December, according to the state's association of Realtors.
Sunset Wedding
Kamanu said she doesn't want to put her life on hold until the housing market improves. She's planning a sunset wedding later this year on the beach at Folsom Lake, about half a mile from her property, even as she waits for a buyer.
She said she's willing to sell the three-bedroom, two-bath, 1,272-square foot house fully furnished and include two wide- screen televisions to entice a buyer. The home has a fireplace and a two-car garage.
``I'm hearing it might be a year or two before the housing market comes back, and I can't wait that long,'' said Kamanu, 38. ``I'm relying on luck, hoping that someone will come along and fall in love with the house, like I did.''
Real estate assets represent about one-third of the net worth of U.S. households, said Michael Darda, chief economist of MKM Partners in Greenwich, Connecticut. In 2006, Americans owned $20.5 trillion in homes, compared with $6.3 trillion in corporate equities, according to Federal Reserve data.
``The decline in home prices will cause a ding in household balance sheets,'' said Darda.
Riding Out the Slump
Declining values may keep many people from trading up. Owners with fixed-rate mortgages probably will ride out the slump without moving, even if they have a growing family and need more room, said David Berson, chief economist at PMI Group Inc. in Walnut Creek, California. They won't be spending much for clothes or dishwashers or Disneyland vacations, he said.
``Economists call it a negative wealth effect,'' said Berson, the former chief economist of Fannie Mae. ``When housing values go down, people tend to stay put, save more and spend less.''
The economy probably will shrink 0.5 percent in the current quarter and 1 percent more in the second quarter as the real estate decline takes its toll, said Hatzius. An economic recession began in late 2007 and will last until at least July, he forecasts.
Values in `Freefall'
``All aspects of residential real estate remain in freefall,'' said Hatzius. ``At present, there is no sign of a bottom.''
Ricardo Fornos is part of that plunge. He's trying to sell his two-bedroom, two-bath condominium in Davie, Florida, near the Miami Dolphin football team's practice field at Nova Southeastern University. Fornos paid $190,000 two years ago and now expects he may get $165,000 for it.
With a mortgage of $171,000, Fornos said he may have to pay as much as $20,000 to sell the property after covering the broker's fee and the buyer's closing costs. The Florida market is so bad buyers must now reimburse sellers for the cost of closing a transaction, he said.
Fornos, 50, is eager to get out now before prices worsen. In December, the median price for a condominium declined 8 percent from a year ago and sales dropped 31 percent, the Florida Association of Realtors said.
``It comes to the point where you have to decide: Do I want to take a big loss now or an even bigger loss later?'' he said.
Asian Energy Shares Rise on China Demand; Australian Banks Fall
By Chen Shiyin
Feb. 13 (Bloomberg) -- Asian energy and shipping-line stocks rose on speculation Chinese demand for commodities will rise as the nation recovers from its worst snowstorms in 50 years. Commonwealth Bank of Australia led a decline in banks after profit growth slowed.
China Shenhua Energy Co. paced gains among fuel suppliers. Mitsui O.S.K. Lines Ltd. jumped to its highest this year after a measure of commodities-shipping prices rose for a fourth day. Commonwealth, Australia's biggest mortgage lender, dropped the most in eight years after funding costs and provisions for bad debts increased.
``The volumes of raw-material traffic are going to remain reasonably strong,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. ``We're not seeing a generalized reduction in the overall risk for banks.''
The MSCI Asia Pacific Index was little changed at 139.45 at 7:09 p.m. in Tokyo, paring earlier gains of 1.3 percent. Japan's Nikkei 225 Stock Average gained 0.4 percent to 13,068.30, its first consecutive advance since Jan. 25.
China's CSI 300 Index dropped 2.2 percent on its first day of trading after the Lunar New Year holidays. Australia's S&P/ASX 200 Index lost 1.2 percent. South Korea retreated 0.7 percent.
Woori Finance Holdings Co. fell in Seoul after posting a 54 percent decline in profit, while Tokyo Electron Ltd., the world's second-largest maker of semiconductor equipment, gained as bigger rival Applied Materials Inc. forecast orders that topped some analyst estimates.
Mining Companies
Citigroup Inc. and Bank of America Corp. climbed in the U.S. yesterday after Warren Buffett, the world's No. 1 investor, said he's willing to take on $800 billion in insurers' municipal debt obligations, raising speculation credit losses will be stemmed. The Standard & Poor's 500 Index rose 0.7 percent.
China Shenhua, the nation's largest coal producer, advanced 1.1 percent to HK$40.50 in Hong Kong. PetroChina Co. the country's largest energy explorer, jumped 2.4 percent to HK$11.20. PT Bumi Resources, Indonesia's biggest coal exporter, gained 5.1 percent to 7,200 rupiah in Jakarta.
China has deployed more than 15,000 soldiers to restore power in two provinces after the worst blizzards since 1954. Power shortages affected at least half of the 31 provinces in China, which burns coal to generate about 78 percent of its electricity.
Coal Prices
``Output and transport disruption'' in China ``further support coal prices,'' Credit Suisse analysts including Trina Chen said in a report dated yesterday. ``Weaker hydropower, aggressive coal mine closures and transport difficulty, due to snow storms, will continue to add more temporary strength this winter.''
Mitsui O.S.K., Japan's second-largest shipping line, jumped 4.9 percent to 1,403 yen, adding to yesterday's 4.1 percent rally. The stock climbed to its highest since Dec. 28. Nippon Yusen K.K., the No. 1, gained 2.1 percent to 968 yen and Hanjin Shipping Co., South Korea's biggest, rose 7.1 percent to 35,400 won.
The Baltic Dry Index, a measure of commodities-shipping prices, climbed 2.9 percent yesterday, the highest close since Jan. 16. The measure jumped 8.6 percent in the previous three days.
``Shipping lines, despite their positive outlook for earnings, have been ignored amid concern the global economy will slow,'' said Hiroaki Osakabe, who helps oversee $365 million at Chiba-Gin Asset Management Co. ``With the Baltic index bottoming out, investors are grabbing their stocks for a quick profit.''
Australia Banks
Commonwealth Bank dropped 6.5 percent to A$46.20, the biggest drop since March 2000. Australia's biggest mortgage lender said net income in the six months ended Dec. 31 gained 8 percent to A$2.37 billion ($2.1 billion) as funding costs and provisions for bad debts increased. Profit missed the A$2.5 billion median estimate in a Bloomberg survey of analysts.
National Australia Bank Ltd., the largest by assets, dropped 5.6 percent to A$30.40. Australia & New Zealand Banking Group Ltd., the third biggest, tumbled 5.9 percent to A$23.80, its lowest close since Dec. 19. Westpac Banking Corp., the fourth, lost 4.1 percent to A$23.25.
``We believe that what is bad for Commonwealth will be worse for other banks,'' said Brian Johnson, an analyst at JPMorgan Chase & Co. Commonwealth Bank's rivals will report half-year profits in April and May.
A measure of Australian finance stocks fell 4.1 percent, the biggest drop out of 10 industry groups on the S&P/ASX 200, and its lowest level since December 2005.
Subprime Investments
Woori Finance, South Korea's third-largest financial services company, slipped 3.1 percent to 17,200 won. Fourth- quarter profit slumped 54 percent to 199.3 billion won ($210 million) because of losses on U.S. subprime-related investments.
Sumitomo Mitsui Financial Inc., Japan's second-largest bank by market value, fell 2.2 percent to 762,000 yen. Mitsubishi UFJ Financial Group Inc., the biggest, dropped 0.4 percent to 939 yen.
Japanese banks booked 600 billion yen ($5.6 billion) of losses on investments in subprime-related assets in the nine months ended Dec. 31, the nation's chief financial regulator said after the market closed.
Tokyo Electron gained 3 percent to 6,500 yen. United Microelectronics Inc., the No. 2 maker of customized chips, advanced 1.2 percent to NT$17.15 in Taipei. Stats Chippac Ltd., Southeast Asia's largest provider of testing and packaging services for computer chips, jumped 3.7 percent to S$1.39.
Applied Materials said orders would rise as much as 5 percent this quarter, exceeding some analysts' estimates. The shares climbed 5.2 percent in extended U.S. trading.
Toyama Chemical Co. surged 16 percent to 731 yen. Fujifilm Holdings Corp. agreed to buy the drugmaker for as much as 154.6 billion yen ($1.4 billion), giving it about 10 experimental medicines, including the first new class of anti-flu drug in a decade.
Platinum Rises to Record on Speculation Over South Africa Power
By Claudia Carpenter
Feb. 12 (Bloomberg) -- Platinum rose to a record in London on speculation power cuts will disrupt South African mines after state-run utility Eskom Holdings Ltd. said it runs the risk of running out of money to fund expansion plans.
Platinum climbed for a fifth day to within 1.4 percent of $2,000 an ounce, with money managers and analysts expecting blackouts to worsen as the southern hemisphere winter boosts demand for heating and power. Assets in platinum-backed shares created by ETF Securities Ltd. rose 6.6 percent yesterday to a record 262,743 ounces, data on the company's Web site showed.
``People want to see $2,000 and it could happen any day that power will fail again,'' said Mark Augustynak, a trader at Natixis Commodity Markets Ltd. in London.
Platinum for immediate delivery gained $2, or 0.1 percent, to $1,941 an ounce as of 1:25 p.m. in London after earlier rising to $1,972.75, an all-time high.
Eskom today said it is studying how to secure enough cash to keep operating after Standard & Poor's threatened to cut its credit ratings because of rising expansion costs.
``We have to take a long-term view of the business because we could run the risk of having insufficient funds to sustain the business,'' Eskom spokesman Andrew Etzinger said by phone today. Costs are ``increasing rapidly,'' he said.
A majority of mining companies shut their operations for five days last month because Johannesburg-based Eskom couldn't guarantee supplies.
``When winter strikes in July and August, further acute power problems could again close mines,'' UBS AG analyst Robin Bhar wrote in an e-mailed report from London published today.
Shrinking Supply
The energy crisis may cause global platinum supplies to fall short of demand by as much as 700,000 ounces this year, UBS analyst John Reade predicted last month.
Platinum prices rose 34 percent last year after a supply shortfall of 265,000 ounces, according to London-based metals trader Johnson Matthey Plc. They have climbed 28 percent this year, while the UBS Bloomberg Commodity Index of 26 raw materials gained 8.6 percent.
Industrial demand for the metal is also rising in the face of cuts in output by companies including Anglo Platinum Ltd., the world's largest producer. The Johannesburg-based company yesterday said it expects its production to drop to 2.4 million ounces this year, from 2.47 million ounces in 2007.
Automakers, the biggest buyers of platinum, have ``no alternative'' but to keep buying, said Wolfgang Wrzesniok- Rossbach, head of marketing and sales at refiner Heraeus Holding GmbH, in a phone interview from Hanau, Germany. ``They can't stop production of cars.''
Automakers' Demand
Vehicle makers, which use platinum in catalytic converters to reduce emissions, consumed a record 4.2 million ounces of the metal last year, up from 4.1 million in 2006, according to Johnson Matthey.
Palladium for immediate delivery fell $3.75 to $436.75 an ounce after advancing earlier to $448.50, the highest since September 2001. Palladium is also used in catalytic converters, while South Africa accounted for 34 percent of supplies last year, according to Johnson Matthey.
Gold fell $8.25 to $915.25 an ounce and silver dropped 11 cents to $17.375 an ounce.
To graph technical gauges for platinum: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges
Mortgage insurer MGIC Investment Corp. said Wednesday it lost almost $1.5 billion for the last three months of 2007 on higher home delinquencies and payouts. It also said it is looking for ways to boost its capital.
Chairman and chief executive Curt S. Culver said the company still doesn't see making money this year, if delinquencies and losses continue to rise and fewer homeowners get back on track with payments.
The Milwaukee-based company said it lost $1.47 billion, or $18.17 per share, in the fourth quarter compared with a profit of $121.5 million or $1.47 per share in the same period a year ago.
A survey by Thomson Financial indicates Wall Street analysts had expected the company to lose, on average, $6.77 per share. Those estimates typically exclude one-time items.
The company said it has hired an advisor to assist it in exploring alternatives for increasing its capital, though Culver said MGIC has enough money to pay claims.
The company announced late last month that it could pay $2 billion in claims this year, up from previous estimates of up to $1.5 billion. It finished 2007 paying out $870 million in claims, up from $611 million in 2006.
Home buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When they miss payments, the insurers pay lenders. If homes end up in foreclosure, both lenders and insurers lose money.
Revenues for the fourth quarter were $399.1 million, up 8.7 percent from $367.2 million in the last three months of 2006. The company increased its net premiums written for the quarter nearly 25 percent to $380.5 million, up from $367.1 million in the same quarter in 2006.
MGIC finished 2007 with a loss of $1.67 billion, or $20.54 a share. In 2006, MGIC earned $564.7 million, or $6.65 a share. For the year, revenues rose to $1.69 billion, from $1.47 billion in 2006. New insurance written was $76.8 billion, compared to $58.2 billion in 2006.
MGIC had $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.
The company has been limiting its exposure to weaker housing markets by demanding higher credit scores and larger down payments. Starting March 3, MGIC said it will require at least 5 percent down on homes in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.
The temptation of fast, easy money is at the heart of the ongoing subprime loan and foreclosure crisis.
With many lenders eager to loan money to almost anybody, small organized crime rings sprung up around the country. Some found it pretty easy to scam mortgage companies out of millions of dollars.
In one case, prosecutors say a home renovator in Akron, Ohio, named David Willan scammed mortgage companies and local investors out of more than $18 million.
He allegedly did that by flipping hundreds of homes — that is, buying run-down homes on the cheap and then quickly selling them for far more than they were actually worth. Prosecutors say appraisers, a mortgage broker and a title company were also in on the scheme.
Housing Gets Seedy and Strange
On Brittain Street in Akron, a lit-up sign with an exotic dancer on it stands as a testament to just how seedy and strange parts of the housing industry became in recent years. Willan was allegedly laundering money from his mortgage fraud ring through this strip club.
Those close to Willan say he was living large — driving fancy cars, partying, dating exotic dancers. He owned a yacht. Attorneys involved with the case say Willan funneled upwards of $700,000 into the strip club, setting it up as a side business to fall back on as his housing company headed into bankruptcy.
Akron is not Manhattan or San Diego. It is a gritty manufacturing town that never had a housing boom. Willan probably wasn't going to get rich quick buying and selling houses if he played by the rules.
Brad Gessner is a criminal prosecutor with the county. He's bringing the case against Willan. Gessner says Willan gamed the system and made off with "in excess of $18 million."
"We're talking, in a four-year period, about 300 homes," Gesner says.
Gessner says Willan was part of an outbreak of mortgage fraud that played a role in the epidemic of foreclosures. "A lot of those are due to greedy people," he says.
Reports of suspected mortgage fraud to the U.S. Treasury Department rose 700 percent between 2000 and 2006. Gessner says many people figured out how to live a lifestyle they could only dream of by breaking the rules.
"When the mortgage companies were playing free and loose with this, it leads to these problems," Gesner says.
How It Worked
In this case, Willan had a company called Evergreen Homes that renovated and built houses.
Gessner says Willan would buy a run-down house in a troubled neighborhood. In some parts of Akron, that can be done for around $20,000. He'd paint it and spruce it up a bit. Then he would sell it for a lot more — in some cases, around $80,000 — with the help of a crooked appraiser.
"The value of the house through a bogus appraisal goes up, the money is pulled out, and ultimately you're going to find a financial institution holding an $80,000 loan on a house that truly isn't worth more than $20,000," Gessner says.
In some of these scams, the buyer is in on it and takes off without ever paying the mortgage. But Willan allegedly sold the houses to unsophisticated lower-income buyers who didn't know what the houses were really worth.
He allegedly also was working with a mortgage broker who was complicit in the scam. Gessner says the broker put the buyers into loans they couldn't afford, telling them this was their path to homeownership. But half of them quickly ended up in foreclosure.
"We have a mortgage broker who pleaded guilty to his part in this conspiracy," Gessner says.
Wrongly Accused
Evergreen Homes is now in bankruptcy. Willan is in jail awaiting trial.
But his lawyer, Bill Whitaker, says all of this is a big misunderstanding. Whitaker says there was no fraud. Rather, he says, Willan was a victim of the downturn in the housing market.
"They're a housing company and, so, as a result, the downturn in the market affected all companies in the business," Whitaker says. He also says that everyone in real estate is suffering from the real estate downturn, and Willan is no different.
As far as the allegations that Willan was in cahoots with crooked appraisers, Whitaker says Willan "never put pressure on the appraisers and never influenced the appraisers."
Whitaker says the mortgage companies often had their own independent appraisals done on the properties. And he says the investigation itself helped to doom Evergreen Homes by casting doubt on it in the community.
Retiree Investors Say They Were Cheated
Some people in the Akron community became investors in Evergreen homes. They say it seemed legitimate. Evergreen got on Inc Magazine's "Inc 500" list of the nation's fastest growing businesses.
Willan at one point won an award for some houses he built in inner-city Cleveland. Retiree Bernie Wolak was a manager at Ford who invested $135,000 in Evergreen Homes, a "large portion" of his retirement money.
"In the office of Evergreen, there's a picture of the former mayor of Cleveland giving Mr. Willan a plaque for the best builder," Wolak says.
Wolak now believes the fraud charges. He is part of a bankruptcy creditors committee that has been digging through the company's books.
"It looks like the numbers that we were presented were all lies," Wolak says, adding that many people who invested would like to see Willan go to jail for a long time.
"There were friends of his family who invested, friends of his parents who invested, and they are totally betrayed," Wolak says.
And, as if that doesn't sound bad enough, there was the strip club Willan set up toward the end, allegedly so he would have another business after Evergreen failed.
Michael Steel is an attorney for the creditors in the ongoing bankruptcy case. He says after Willan had thrown himself at the mercy of the bankruptcy court, "in that forum, he continued to funnel money to this strip club."
Steel says up to about $700,000 was spent on the strip club, "which was the ultimate slap in the face as far as the creditors were concerned."
Nationwide Problem
Prosecutors around the country are just now figuring out how widespread these mortgage fraud rings became in recent years.
In the area around Akron alone, Gessner says, its like "digging up the roots to an old tree." The more they dig, the more they find spread all over the place.
Gessner says anybody looking to make fast money got involved. He has prosecuted former drug dealers who, rather than risk mandatory drug sentences, have geared their efforts toward mortgage fraud.
In this case, Willan sits in jail. But the strip club remains open. It turns out that he didn't want the club in his name, so he set it up to be owned and run by a friend and his ex-girlfriend, who is a former stripper.
Toward the end, though, the ex-girlfriend said in a deposition that Willan began stealing money from them, too, by taking it right out of the register. They changed the locks and locked him out of the club, she says.
Allco Finance Group Ltd has extended the trading halt in its shares initially placed last Monday.
Allco has made the request for suspension because stock exchange policy does not allow an extension to the two day limit applicable to trading halts.
Allco ordinary shares initially were placed in a trading halt from the commencement of trading last Monday, February 9.
Allco has asked that the suspension remain in place until it is in a position to make a further announcement to the market, the company said in its letter to the Australian Securities Exchange.
In recent weeks, Allco's stock price has been hammered by investors concerned about the level of debt used in its complex investment strategy.
Allco is due to report is half year results on Friday.
Soaring prices of essential goods bite into consumers' pockets
By Irish Eden Belleza February 13, 2008
Dubai: As 2008 began, UAE consumers have been crying over skyrocketing prices as basic commodities have become more expensive in many places in the past few months, posting increases as high as 25 per cent.
Increases in consumer prices are not unique to the UAE.
It is a worldwide phenomenon caused by soaring agricultural prices and the global economic slowdown, triggered by the lingering crisis in capital markets.
Solutions
Some retailers of fast-moving consumer goods (FMCG) are consequently coming up with innovative solutions to ease the burden on consumers.
"Most of the goods sold here are imported. But at LuLu Centre we are now producing our own range of goods such as frozen foods to give consumers an alternative and offer them more value for their money," Ashraf Ali, executive director of the LuLu chain of hypermarkets, told Gulf News.
Due to pressure from suppliers to raise prices, some retail outlets are suffering severe shortages of basic commodities.
"We are experiencing a 40 to 50 per cent shortage or reduction of goods like rice, milk, dairy products, poultry and especially imported goods," said Ashraf Ali.
"Suppliers are asking for price revisions but we are not implementing them since the suggested price increase has not yet been approved by the Ministry of Economy," the official added.
Inflation
Inflation is expected to intensify over the next couple of months as, industry experts have revealed, consumers are confronted with more price hikes in basic commodities ranging from 20 to 40 per cent.
An industry insider also revealed that the UAE market is experiencing severe shortages of products produced by some multinationals.
However, some lucky consumers may have to take advantage of the current lull in price increases of many consumer goods that remained stable.
Choice
The latest consumer price index released by the Ministry of Economy indicates that consumers must be careful where they shop.
For instance, one kilo of cheese (Akkawi) from the Czech Republic has risen to Dh34.90 in some supermarkets, but is available for as little as Dh23.95 from others.
Butter from Denmark costs Dh7.95 for 400g in some stores while some others offer it for Dh7.75.
Most of the goods sold hereare imported. At LuLu Centre we are now producing our own range of goods such as frozen foods to give consumers an alternative and offer them more value for their money," said Ashraf Ali, Executive director of LuLu chain of hypermarkets.
12 comments:
The founding fathers recognized the danger, e.g. president Thomas Jefferson, principal author of the Declaration of Independence, warned:
“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”
From DBSV:
Despite yesterday’s technical rebound, we believe that the STI is not ready to turn up yet. Instead, the index has to undergo a bottoming process with 2650 as the ‘worst case scenario’.
DBS Research believes that US economic data could get worse before it gets better. This is because key leading indicators such as the Michigan consumer sentiment index and jobs data have yet to touch the 1990 and 2001 recession lows. The S&P500 could touch further lows if this happens with a 5-10% downside risk.
The market should continue to ride on yesterday’s technical rebound in early session trade on the back of the overnight rally on Wall Street but gains should be capped ahead of the release of US January retail sales data tonight, Michigan sentiment index Friday and local banks results, starting with DBS this Friday.
Last night’s rebound on Wall Street may not sustain if upcoming economic data continues to disappoint. For the STI, we continue to see the fall from 3168 in late January as the last stage of the stock market correction. STI should undergo a bottoming process with 2650 as the ‘worst case’ scenario.
Small cap stocks held firm on Monday despite the 2.2% fall in the STI. We re-iterate that this indicates the market is in the final stage of correction with selective blue chips pulling the index lower while investors find few reasons to sell down broad market stocks. We prefer to selective trade the small caps at this stage because STI is still in the process of finding a bottom.
Lingam ‘wrote judgment for judge in case’
AGENCE FRANCE-PRESSE – 13 February 2008
KUALA LUMPUR - A ROYAL commission heard how a lawyer at the centre of a judge-fixing scandal wrote the judgment in a historic defamation suit on behalf of the judge.
The former secretary to V.K. Lingam, a lawyer shown apparently brokering judicial appointments in a secretly filmed video that triggered the inquiry, said she was asked to type the judgment that her boss had dictated.
‘Sometime in November to early December 1994, I remember vividly an occasion where three secretaries, including myself, were detained by V.K. Lingam for purposes of confidential typing,’ said Ms Jayanti Naidu.
‘I soon discovered that this was about preparation and typing of the judgment in relation to a civil suit, No S5-23-23-94,’ she said, referring to a defamation case lodged by business tycoon Vincent Tan.
Mr Tan, who often engaged Lingam as counsel, won the case and was awarded a sum of RM10 million (S$4.5 million), which lawyers said was unprecedented in Malaysia’s legal history.
Mr Tan, chairman of the Berjaya Corporation, a major conglomerate, testified previously and denied any involvement in brokering judicial appointments.
Mr Lingam said in the video that he could secure top appointments with the help of Mr Tan and a politician. But in his testimony, he said he must have been drunk or bragging in the video.
Ms Jayanti said he gave the typed judgment to the then High Court judge Mokhtar Sidin.
‘I later discovered that the judgment as written by V.K. Lingam was fully incorporated as the official judgment of the said judge,’ she said.
She said a copy was given to a lawyer in 1998 and later lodged with the Anti-Corruption Agency. ‘But they told me the case had to be closed because it involved too many high-ranking officials. They gave me RM3,000’ she said.
She also testified that a controversial vacation to New Zealand by Lingam and former chief justice Eusoff Chin was pre-planned and not a coincidence as the latter had claimed in his testimony.
Fundamentals still favour Chinese property stocks
By Yi Tin Chak | 12 February 2008
Analysts expect more price declines in certain cities and suggest investors look north to make the most of a demand-driven rebound.
Chinese property stocks have been one of the worst hit sectors in the current market downturn, which entered its fourth month last week. But even as investors are at pains to avoid the sector, analysts project the trough is near and suggest it could be time to exchange the selling for some bargain hunting as fundamentals remain favourable.
Not every laggard property stock will be a winner though, and with fundamentals and earnings growth likely to be a key focus this year, the development of the underlying physical property market will be highly important for picking the right ones, they warn.
While most market participants still believe there will be stricter regulations and more credit tightening to come, Fitch ratings agency argues that robust economic growth, urbanisation and renminbi appreciation will continue to drive demand for Chinese property. Limited land supply, land hoarding, delay in property development and sales are also expected to create a shortage in the housing market, it says.
Analysts at UBS are cautious about the China property market in the near team, given the policy risks and unfavourable near-term macro factors, but longer-term they agree with Fitch and expect demand-driven growth in the physical market to resume in the second half of this year. Their counterparts at Credit Suisse are even more optimistic and predict that strong momentum in home sales will return already in the first and second quarters. According to a research report published last month, the Credit Suisse team believes strong investment and end-user demand will support prices in both the physical market and the stock market. The bank remains “overweight” on the Chinese property sector, although they contend that 2008 will be a much tougher year than 2007 for the Chinese developers.
In general, analysts favour property developers operating in northern China where prices haven’t risen at the same rapid pace as in the large cities further south. And William Leung at RREEF, a global alternative investment management division of Deutsche Bank, argues that developers focusing on commercial real estate are preferable to those focusing on residential properties as they are less affected by the austerity measures. He favours developers with more exposure in second-tier cities for the same reason.
“The latest monthly figures (of property prices and sales) show that Beijing, Shenzhen, Hangzhou and Chongqing are still growing much faster than other cities. We believe they will face more severe cooling measures, which may lead to a drop in both prices and volumes in the coming months,” UBS analysts say in a January research report.
The report projects a 10% decline in the Guangzhou property market in the first and second quarters of 2008 as a result of recent mortgage tightening measures. The price growth in Beijing and Shanghai will slow to 5% in 2008, from 17% (Beijing) and 9% (Shanghai) last year.
However, the analysts believe Shenzhen will be the worst hit among the four major cities, because of the high percentage of speculators among the property buyers in 2006 and 2007. Prices at several Shenzhen real estate projects corrected by more than 20% in 2007 and there could be another 20% of decline, they say.
According to Shenzhen Municipal Bureau of Land Resources and Housing Management,
the residential property market started to adjust in September after a two-year boom and experienced a 13.15% decrease of home prices from October to November. New apartment sales fell to 179,900sqm in November, from 802,600sqm in January last year.
Other major cities have also seen substantial declines in prices over the past few months. For instance, several projects in Guangzhou have cut prices by around 10%, according to the UBS report.
“We expect more credit tightening measures to be announced and for southern Chinese cities to be hit harder than their counterparts in northern China because of the more prevalent use of mortgage financing,” the UBS analysts remark in the report and add that the decline of prices and sales volumes in Guangzhou and Shenzhen since the third quarter last year may also lead to downgrades of consensus earnings for fiscal 2009.
Others argue that substantial earnings downgrades are unlikely and that more data on prices and sales are in any case needed to make such a call.
“The first quarter around the Chinese New Year is not the peak season for home sales. But if the property market continues to perform poorly in May and June, some property companies could experience earnings downgrades,” comments Leung, who is the lead portfolio manager of Asia-Pacific real estate securities at RREEF.
However, Leung sees this as a good opportunity to invest in the sector for those who seek long-term gains, since shares prices have corrected a lot and are pricing in the bad news.
“Given the sharp correction of Chinese property stocks in recent months, the sector as a whole is currently trading at less than 15 times 2008 earnings with a 40% compound annual growth rate from 2006 to 2009. This looks markedly cheaper than their Asian peers and we believe the decline in sales volume is already in the price,” agrees Andy So, property research analyst at BNP Paribas Securities (Asia).
Although he thinks the short-term share price movement is still highly dependent on the potential release of more bad news regarding a slowdown in sales, price cuts and changes in government policy, So believes that the worst time might have passed.
“Guangzhou R&F has just announced their January 2008 contracted sales figures, which were in line with their target at Rmb1.08 billion. These are very encouraging figures, especially in light of the sour investment sentiment and the snow storms that have affected mainland China,” So says.
Indeed, a number of Chinese developers staged what appeared to be a pretty solid recovery after the Federal Reserve’s latest rate cut on January 30. The emerging uptrend was broken yesterday, however, after finance leaders from the Group of Seven nations raised their forecasts for subprime-related losses and warned the economic slowdown would spare nobody.
But even with yesterday’s losses, which range from 0.3% to 6.5%, Shimao Property Holdings has gained 19% over the past six sessions, Agile Property Holdings is up 15.5%, Guangzhou R&F Properties 8.9%, Country Garden Holdings 5.3% and Greentown China Holdings has added 7%.
While the gains are still fragile – as evidenced by yesterday’s negative turnaround – they have broken the downward trend which saw Shimao, Agile, Guangzhou R&F and Country Garden lose more than half of their market value between the beginning of November and the end of January. Greentown fell 45% in the same period, while the Hang Seng China Enterprises Index dropped 36.5%.
The latest recovery may convince a number of the real estate listing candidates in the pipeline to brave the volatile markets and go ahead with their initial public offerings. Among the listing hopefuls are Evergrande Real Estate Group and Central China Real Estate Group, which are both hoping to list in the first quarter, as well as Changsheng Properties, which withdrew its first attempt to list in mid-January after the markets turned sour but is pondering a return as soon as feels confident the markets will hold up, according to sources.
“The success of any IPO definitely hinges on the current market situation. If we continue to see a rebound in the Chinese property sector across the board, it is highly likely that these IPO candidates will have a successful listing -if they seek to list at a discount to net asset value or at a forward PE of 12 to 14 times,” remarks So.
But following a four-year bull run and a record 30%-60% surge in home prices across China in 2007, China’s property market is by no means without risks.
The People’s Bank of China (PBOC) raised the bank reserve ratio by 0.5% in January, less than a month after it had announced increases of the one-year base deposit rate and lending rate by 27bp and 18bp respectively. It also required mortgage holders to make a down-payment of at least 40% and pay a 10% premium on their interest rate.
The possibility of more such austerity and monetary policy measures together with a slowdown in the US and an increase in alternative investment opportunities could divert liquidity away from the domestic market and ultimately hurt the demand for properties. So while the long-term fundamentals are still positive, the road ahead seems destined to be much bumpier than in recent years.
Copyright FinanceAsia.com Ltd., a subsidiary of Haymarket Media Ltd
30% of recent U.S. homebuyers have negative equity: report
February 12, 2008
CBC News
Almost one-third of those who bought homes in the U.S. in the last two years owe more than the home is worth, according to a housing market research firm.
The price of the average U.S. condominium fell 7.4 per cent year-over-year, Zillow said Tuesday in its quarterly home value report. The average single-family home lost 5.5 per cent of its value in 2007.
Adding in price declines in 2006, the firm says 30.4 per cent of those who made home purchases in 2006 and 2007 have negative equity.
By comparison, Zillow says only three per cent of those who bought in 2003 owe more than their homes are worth.
The report said the highest rates of negative equity are in areas that have had significant price declines and relatively low down payment requirements. It singled out parts of California, Florida, Arizona and Nevada.
In Las Vegas, for instance, more than half of those who bought in 2007 and almost three-quarters of those who purchased in 2006 are in a negative equity situation.
"With consecutive declines over the past five quarters, we haven't seen the housing market bottom yet, and it may very well get worse before things get better," said Stan Humphries, Zillow vice-president of data and analytics.
"Even many markets that have been largely insulated from recent declines, like some in the Pacific Northwest, reported notable value declines in the fourth quarter," he said.
The Zillow report is based on data on about 80 million homes.
White House announces foreclosure help
Negative equity makes it more likely that Americans will walk away from their mortgage obligations if they run into financial difficulty.
So the Bush administration on Tuesday announced a new program that would give many homeowners threatened with foreclosure a 30-day reprieve.
"Project Lifeline" is aimed at people who are at least 90 days overdue on their monthly mortgage payments. The program is the brainchild of six big American lenders who together account for almost half of the mortgages in the U.S.
Homeowners will get a chance to stop the foreclosure process for 30 days while lenders try to work out some way to make it easier for them to make their payments.
The Mortgage Bankers Association said at least 1.3 million home mortgage loans were either seriously delinquent or in foreclosure at the end of September.
Americans Selling Homes Find Prices Sink Below Mortgage Values
By Kathleen M. Howley
Feb. 13 (Bloomberg) -- When Mary Kamanu paid $409,000 for a house in Folsom, California, she never imagined that three years later it would be worth about 20 percent less and she would have to pay the bank more than $80,000 just to sell the place.
``I'm completely upside-down on my mortgage, like a lot of people,'' said Kamanu, who wants to move 12 miles away to live with her fiancé in a suburb of Sacramento. ``I know I'm going to have to come up with a big chunk of change.''
By the end of this year as many as 15 million U.S. households may owe more on their mortgages than their homes are worth, according to an estimate from Jan Hatzius, chief U.S. economist of New York-based Goldman Sachs Group Inc. That may fuel an increase in foreclosures, erode prices, and increase mortgage bond losses, he said in a Feb. 1 report.
``If borrowers who are underwater go into foreclosure, the properties are likely to be sold at discount prices and will further depress the price of housing,'' said Robert Engle, a Nobel laureate in economics who teaches at New York University's Stern School of Business in Manhattan. ``It becomes a spiral.''
Thirty-nine percent of people who purchased a home two years ago already owe more than they can sell it for, according to a Feb. 12 report from Zillow.com, a real estate data service. Only 3.2 percent who bought five years ago are in that situation, the report said.
Home prices probably will decline 4.5 percent this year and 2.6 percent next year after falling 2.2 percent in 2007, according to Fannie Mae, the world's largest mortgage buyer. New foreclosures averaged about 2,900 a day in the fourth quarter, double the pace of a year earlier, according to RealtyTrac Inc., an Irvine, California-based real estate data company.
Walking Away
``If people owe more on their mortgage than their house is worth, a substantial number of them will give their keys back,'' said Kenneth Rosen, head of the University of California's Fisher Center for Real Estate and Urban Economics.
Refinancing won't be an option for homeowners with negative equity who have mortgage rates that are spiking, he said. About a third of U.S. borrowers have adjustable-rate home loans, according to the Federal Housing Finance Board in Washington.
``They will lack refinancing ability, and will obviously be under financial strain as their rates adjust,'' Rosen said. ``We're going to see credit card delinquencies rise and car loan delinquencies rise as a result.''
As many as 5 million U.S. homeowners may have mortgages that exceed the value of their homes by the end of this year, according to estimates from Rosen. He said he expects a 16 percent decline in home prices from 2006 to 2009, compared with Hatzius' estimate of a 22 percent drop.
Economic Threat
Falling prices and rising foreclosures are a threat to an already slowing economy since many homeowners used their equity to finance purchases such as cars or computers.
U.S. property owners took out about $318 billion of equity from their homes in 2006 by refinancing home loans, according to Freddie Mac, the world's second-largest mortgage buying company. Add to that $146.2 billion lent in home equity lines of credit, according to the Federal Reserve.
In all, $2.2 trillion of home equity has been liquidated since 2001, which was the first of five years of record-setting house prices and sales.
Kamanu refinanced her house in May 2007 and owes $415,000 on her mortgage. Homes in her neighborhood now sell for about $330,000, she said. The median home price in California dropped 17 percent from a year earlier in December, according to the state's association of Realtors.
Sunset Wedding
Kamanu said she doesn't want to put her life on hold until the housing market improves. She's planning a sunset wedding later this year on the beach at Folsom Lake, about half a mile from her property, even as she waits for a buyer.
She said she's willing to sell the three-bedroom, two-bath, 1,272-square foot house fully furnished and include two wide- screen televisions to entice a buyer. The home has a fireplace and a two-car garage.
``I'm hearing it might be a year or two before the housing market comes back, and I can't wait that long,'' said Kamanu, 38. ``I'm relying on luck, hoping that someone will come along and fall in love with the house, like I did.''
Real estate assets represent about one-third of the net worth of U.S. households, said Michael Darda, chief economist of MKM Partners in Greenwich, Connecticut. In 2006, Americans owned $20.5 trillion in homes, compared with $6.3 trillion in corporate equities, according to Federal Reserve data.
``The decline in home prices will cause a ding in household balance sheets,'' said Darda.
Riding Out the Slump
Declining values may keep many people from trading up. Owners with fixed-rate mortgages probably will ride out the slump without moving, even if they have a growing family and need more room, said David Berson, chief economist at PMI Group Inc. in Walnut Creek, California. They won't be spending much for clothes or dishwashers or Disneyland vacations, he said.
``Economists call it a negative wealth effect,'' said Berson, the former chief economist of Fannie Mae. ``When housing values go down, people tend to stay put, save more and spend less.''
The economy probably will shrink 0.5 percent in the current quarter and 1 percent more in the second quarter as the real estate decline takes its toll, said Hatzius. An economic recession began in late 2007 and will last until at least July, he forecasts.
Values in `Freefall'
``All aspects of residential real estate remain in freefall,'' said Hatzius. ``At present, there is no sign of a bottom.''
Ricardo Fornos is part of that plunge. He's trying to sell his two-bedroom, two-bath condominium in Davie, Florida, near the Miami Dolphin football team's practice field at Nova Southeastern University. Fornos paid $190,000 two years ago and now expects he may get $165,000 for it.
With a mortgage of $171,000, Fornos said he may have to pay as much as $20,000 to sell the property after covering the broker's fee and the buyer's closing costs. The Florida market is so bad buyers must now reimburse sellers for the cost of closing a transaction, he said.
Fornos, 50, is eager to get out now before prices worsen. In December, the median price for a condominium declined 8 percent from a year ago and sales dropped 31 percent, the Florida Association of Realtors said.
``It comes to the point where you have to decide: Do I want to take a big loss now or an even bigger loss later?'' he said.
Asian Energy Shares Rise on China Demand; Australian Banks Fall
By Chen Shiyin
Feb. 13 (Bloomberg) -- Asian energy and shipping-line stocks rose on speculation Chinese demand for commodities will rise as the nation recovers from its worst snowstorms in 50 years. Commonwealth Bank of Australia led a decline in banks after profit growth slowed.
China Shenhua Energy Co. paced gains among fuel suppliers. Mitsui O.S.K. Lines Ltd. jumped to its highest this year after a measure of commodities-shipping prices rose for a fourth day. Commonwealth, Australia's biggest mortgage lender, dropped the most in eight years after funding costs and provisions for bad debts increased.
``The volumes of raw-material traffic are going to remain reasonably strong,'' said Angus Gluskie, who helps manage the equivalent of $500 million at White Funds Management in Sydney. ``We're not seeing a generalized reduction in the overall risk for banks.''
The MSCI Asia Pacific Index was little changed at 139.45 at 7:09 p.m. in Tokyo, paring earlier gains of 1.3 percent. Japan's Nikkei 225 Stock Average gained 0.4 percent to 13,068.30, its first consecutive advance since Jan. 25.
China's CSI 300 Index dropped 2.2 percent on its first day of trading after the Lunar New Year holidays. Australia's S&P/ASX 200 Index lost 1.2 percent. South Korea retreated 0.7 percent.
Woori Finance Holdings Co. fell in Seoul after posting a 54 percent decline in profit, while Tokyo Electron Ltd., the world's second-largest maker of semiconductor equipment, gained as bigger rival Applied Materials Inc. forecast orders that topped some analyst estimates.
Mining Companies
Citigroup Inc. and Bank of America Corp. climbed in the U.S. yesterday after Warren Buffett, the world's No. 1 investor, said he's willing to take on $800 billion in insurers' municipal debt obligations, raising speculation credit losses will be stemmed. The Standard & Poor's 500 Index rose 0.7 percent.
China Shenhua, the nation's largest coal producer, advanced 1.1 percent to HK$40.50 in Hong Kong. PetroChina Co. the country's largest energy explorer, jumped 2.4 percent to HK$11.20. PT Bumi Resources, Indonesia's biggest coal exporter, gained 5.1 percent to 7,200 rupiah in Jakarta.
China has deployed more than 15,000 soldiers to restore power in two provinces after the worst blizzards since 1954. Power shortages affected at least half of the 31 provinces in China, which burns coal to generate about 78 percent of its electricity.
Coal Prices
``Output and transport disruption'' in China ``further support coal prices,'' Credit Suisse analysts including Trina Chen said in a report dated yesterday. ``Weaker hydropower, aggressive coal mine closures and transport difficulty, due to snow storms, will continue to add more temporary strength this winter.''
Mitsui O.S.K., Japan's second-largest shipping line, jumped 4.9 percent to 1,403 yen, adding to yesterday's 4.1 percent rally. The stock climbed to its highest since Dec. 28. Nippon Yusen K.K., the No. 1, gained 2.1 percent to 968 yen and Hanjin Shipping Co., South Korea's biggest, rose 7.1 percent to 35,400 won.
The Baltic Dry Index, a measure of commodities-shipping prices, climbed 2.9 percent yesterday, the highest close since Jan. 16. The measure jumped 8.6 percent in the previous three days.
``Shipping lines, despite their positive outlook for earnings, have been ignored amid concern the global economy will slow,'' said Hiroaki Osakabe, who helps oversee $365 million at Chiba-Gin Asset Management Co. ``With the Baltic index bottoming out, investors are grabbing their stocks for a quick profit.''
Australia Banks
Commonwealth Bank dropped 6.5 percent to A$46.20, the biggest drop since March 2000. Australia's biggest mortgage lender said net income in the six months ended Dec. 31 gained 8 percent to A$2.37 billion ($2.1 billion) as funding costs and provisions for bad debts increased. Profit missed the A$2.5 billion median estimate in a Bloomberg survey of analysts.
National Australia Bank Ltd., the largest by assets, dropped 5.6 percent to A$30.40. Australia & New Zealand Banking Group Ltd., the third biggest, tumbled 5.9 percent to A$23.80, its lowest close since Dec. 19. Westpac Banking Corp., the fourth, lost 4.1 percent to A$23.25.
``We believe that what is bad for Commonwealth will be worse for other banks,'' said Brian Johnson, an analyst at JPMorgan Chase & Co. Commonwealth Bank's rivals will report half-year profits in April and May.
A measure of Australian finance stocks fell 4.1 percent, the biggest drop out of 10 industry groups on the S&P/ASX 200, and its lowest level since December 2005.
Subprime Investments
Woori Finance, South Korea's third-largest financial services company, slipped 3.1 percent to 17,200 won. Fourth- quarter profit slumped 54 percent to 199.3 billion won ($210 million) because of losses on U.S. subprime-related investments.
Sumitomo Mitsui Financial Inc., Japan's second-largest bank by market value, fell 2.2 percent to 762,000 yen. Mitsubishi UFJ Financial Group Inc., the biggest, dropped 0.4 percent to 939 yen.
Japanese banks booked 600 billion yen ($5.6 billion) of losses on investments in subprime-related assets in the nine months ended Dec. 31, the nation's chief financial regulator said after the market closed.
Tokyo Electron gained 3 percent to 6,500 yen. United Microelectronics Inc., the No. 2 maker of customized chips, advanced 1.2 percent to NT$17.15 in Taipei. Stats Chippac Ltd., Southeast Asia's largest provider of testing and packaging services for computer chips, jumped 3.7 percent to S$1.39.
Applied Materials said orders would rise as much as 5 percent this quarter, exceeding some analysts' estimates. The shares climbed 5.2 percent in extended U.S. trading.
Toyama Chemical Co. surged 16 percent to 731 yen. Fujifilm Holdings Corp. agreed to buy the drugmaker for as much as 154.6 billion yen ($1.4 billion), giving it about 10 experimental medicines, including the first new class of anti-flu drug in a decade.
Platinum Rises to Record on Speculation Over South Africa Power
By Claudia Carpenter
Feb. 12 (Bloomberg) -- Platinum rose to a record in London on speculation power cuts will disrupt South African mines after state-run utility Eskom Holdings Ltd. said it runs the risk of running out of money to fund expansion plans.
Platinum climbed for a fifth day to within 1.4 percent of $2,000 an ounce, with money managers and analysts expecting blackouts to worsen as the southern hemisphere winter boosts demand for heating and power. Assets in platinum-backed shares created by ETF Securities Ltd. rose 6.6 percent yesterday to a record 262,743 ounces, data on the company's Web site showed.
``People want to see $2,000 and it could happen any day that power will fail again,'' said Mark Augustynak, a trader at Natixis Commodity Markets Ltd. in London.
Platinum for immediate delivery gained $2, or 0.1 percent, to $1,941 an ounce as of 1:25 p.m. in London after earlier rising to $1,972.75, an all-time high.
Eskom today said it is studying how to secure enough cash to keep operating after Standard & Poor's threatened to cut its credit ratings because of rising expansion costs.
``We have to take a long-term view of the business because we could run the risk of having insufficient funds to sustain the business,'' Eskom spokesman Andrew Etzinger said by phone today. Costs are ``increasing rapidly,'' he said.
A majority of mining companies shut their operations for five days last month because Johannesburg-based Eskom couldn't guarantee supplies.
``When winter strikes in July and August, further acute power problems could again close mines,'' UBS AG analyst Robin Bhar wrote in an e-mailed report from London published today.
Shrinking Supply
The energy crisis may cause global platinum supplies to fall short of demand by as much as 700,000 ounces this year, UBS analyst John Reade predicted last month.
Platinum prices rose 34 percent last year after a supply shortfall of 265,000 ounces, according to London-based metals trader Johnson Matthey Plc. They have climbed 28 percent this year, while the UBS Bloomberg Commodity Index of 26 raw materials gained 8.6 percent.
Industrial demand for the metal is also rising in the face of cuts in output by companies including Anglo Platinum Ltd., the world's largest producer. The Johannesburg-based company yesterday said it expects its production to drop to 2.4 million ounces this year, from 2.47 million ounces in 2007.
Automakers, the biggest buyers of platinum, have ``no alternative'' but to keep buying, said Wolfgang Wrzesniok- Rossbach, head of marketing and sales at refiner Heraeus Holding GmbH, in a phone interview from Hanau, Germany. ``They can't stop production of cars.''
Automakers' Demand
Vehicle makers, which use platinum in catalytic converters to reduce emissions, consumed a record 4.2 million ounces of the metal last year, up from 4.1 million in 2006, according to Johnson Matthey.
Palladium for immediate delivery fell $3.75 to $436.75 an ounce after advancing earlier to $448.50, the highest since September 2001. Palladium is also used in catalytic converters, while South Africa accounted for 34 percent of supplies last year, according to Johnson Matthey.
Gold fell $8.25 to $915.25 an ounce and silver dropped 11 cents to $17.375 an ounce.
To graph technical gauges for platinum: Moving Averages Relative Strength Index Fibonacci Back Test Technical Gauges
MGIC Swings to $1.5B Loss in 4Q
The Associated Press
February 13, 2008
Mortgage insurer MGIC Investment Corp. said Wednesday it lost almost $1.5 billion for the last three months of 2007 on higher home delinquencies and payouts. It also said it is looking for ways to boost its capital.
Chairman and chief executive Curt S. Culver said the company still doesn't see making money this year, if delinquencies and losses continue to rise and fewer homeowners get back on track with payments.
The Milwaukee-based company said it lost $1.47 billion, or $18.17 per share, in the fourth quarter compared with a profit of $121.5 million or $1.47 per share in the same period a year ago.
A survey by Thomson Financial indicates Wall Street analysts had expected the company to lose, on average, $6.77 per share. Those estimates typically exclude one-time items.
The company said it has hired an advisor to assist it in exploring alternatives for increasing its capital, though Culver said MGIC has enough money to pay claims.
The company announced late last month that it could pay $2 billion in claims this year, up from previous estimates of up to $1.5 billion. It finished 2007 paying out $870 million in claims, up from $611 million in 2006.
Home buyers typically must get mortgage insurance when they put down less than 20 percent of their home's value. When they miss payments, the insurers pay lenders. If homes end up in foreclosure, both lenders and insurers lose money.
Revenues for the fourth quarter were $399.1 million, up 8.7 percent from $367.2 million in the last three months of 2006. The company increased its net premiums written for the quarter nearly 25 percent to $380.5 million, up from $367.1 million in the same quarter in 2006.
MGIC finished 2007 with a loss of $1.67 billion, or $20.54 a share. In 2006, MGIC earned $564.7 million, or $6.65 a share. For the year, revenues rose to $1.69 billion, from $1.47 billion in 2006. New insurance written was $76.8 billion, compared to $58.2 billion in 2006.
MGIC had $211.7 billion primary insurance in force at the end of 2007, compared with $176.5 billion the previous year.
The company has been limiting its exposure to weaker housing markets by demanding higher credit scores and larger down payments. Starting March 3, MGIC said it will require at least 5 percent down on homes in so-called restricted markets. They include the entire states of Arizona, California, Florida and Nevada and major metro areas such as Washington, D.C., Detroit, Chicago, Boston and Atlanta.
Home Renovator Accused of Scamming $18 Million
By Chris Arnold
February 11, 2008
The temptation of fast, easy money is at the heart of the ongoing subprime loan and foreclosure crisis.
With many lenders eager to loan money to almost anybody, small organized crime rings sprung up around the country. Some found it pretty easy to scam mortgage companies out of millions of dollars.
In one case, prosecutors say a home renovator in Akron, Ohio, named David Willan scammed mortgage companies and local investors out of more than $18 million.
He allegedly did that by flipping hundreds of homes — that is, buying run-down homes on the cheap and then quickly selling them for far more than they were actually worth. Prosecutors say appraisers, a mortgage broker and a title company were also in on the scheme.
Housing Gets Seedy and Strange
On Brittain Street in Akron, a lit-up sign with an exotic dancer on it stands as a testament to just how seedy and strange parts of the housing industry became in recent years. Willan was allegedly laundering money from his mortgage fraud ring through this strip club.
Those close to Willan say he was living large — driving fancy cars, partying, dating exotic dancers. He owned a yacht. Attorneys involved with the case say Willan funneled upwards of $700,000 into the strip club, setting it up as a side business to fall back on as his housing company headed into bankruptcy.
Akron is not Manhattan or San Diego. It is a gritty manufacturing town that never had a housing boom. Willan probably wasn't going to get rich quick buying and selling houses if he played by the rules.
Brad Gessner is a criminal prosecutor with the county. He's bringing the case against Willan. Gessner says Willan gamed the system and made off with "in excess of $18 million."
"We're talking, in a four-year period, about 300 homes," Gesner says.
Gessner says Willan was part of an outbreak of mortgage fraud that played a role in the epidemic of foreclosures. "A lot of those are due to greedy people," he says.
Reports of suspected mortgage fraud to the U.S. Treasury Department rose 700 percent between 2000 and 2006. Gessner says many people figured out how to live a lifestyle they could only dream of by breaking the rules.
"When the mortgage companies were playing free and loose with this, it leads to these problems," Gesner says.
How It Worked
In this case, Willan had a company called Evergreen Homes that renovated and built houses.
Gessner says Willan would buy a run-down house in a troubled neighborhood. In some parts of Akron, that can be done for around $20,000. He'd paint it and spruce it up a bit. Then he would sell it for a lot more — in some cases, around $80,000 — with the help of a crooked appraiser.
"The value of the house through a bogus appraisal goes up, the money is pulled out, and ultimately you're going to find a financial institution holding an $80,000 loan on a house that truly isn't worth more than $20,000," Gessner says.
In some of these scams, the buyer is in on it and takes off without ever paying the mortgage. But Willan allegedly sold the houses to unsophisticated lower-income buyers who didn't know what the houses were really worth.
He allegedly also was working with a mortgage broker who was complicit in the scam. Gessner says the broker put the buyers into loans they couldn't afford, telling them this was their path to homeownership. But half of them quickly ended up in foreclosure.
"We have a mortgage broker who pleaded guilty to his part in this conspiracy," Gessner says.
Wrongly Accused
Evergreen Homes is now in bankruptcy. Willan is in jail awaiting trial.
But his lawyer, Bill Whitaker, says all of this is a big misunderstanding. Whitaker says there was no fraud. Rather, he says, Willan was a victim of the downturn in the housing market.
"They're a housing company and, so, as a result, the downturn in the market affected all companies in the business," Whitaker says. He also says that everyone in real estate is suffering from the real estate downturn, and Willan is no different.
As far as the allegations that Willan was in cahoots with crooked appraisers, Whitaker says Willan "never put pressure on the appraisers and never influenced the appraisers."
Whitaker says the mortgage companies often had their own independent appraisals done on the properties. And he says the investigation itself helped to doom Evergreen Homes by casting doubt on it in the community.
Retiree Investors Say They Were Cheated
Some people in the Akron community became investors in Evergreen homes. They say it seemed legitimate. Evergreen got on Inc Magazine's "Inc 500" list of the nation's fastest growing businesses.
Willan at one point won an award for some houses he built in inner-city Cleveland. Retiree Bernie Wolak was a manager at Ford who invested $135,000 in Evergreen Homes, a "large portion" of his retirement money.
"In the office of Evergreen, there's a picture of the former mayor of Cleveland giving Mr. Willan a plaque for the best builder," Wolak says.
Wolak now believes the fraud charges. He is part of a bankruptcy creditors committee that has been digging through the company's books.
"It looks like the numbers that we were presented were all lies," Wolak says, adding that many people who invested would like to see Willan go to jail for a long time.
"There were friends of his family who invested, friends of his parents who invested, and they are totally betrayed," Wolak says.
And, as if that doesn't sound bad enough, there was the strip club Willan set up toward the end, allegedly so he would have another business after Evergreen failed.
Michael Steel is an attorney for the creditors in the ongoing bankruptcy case. He says after Willan had thrown himself at the mercy of the bankruptcy court, "in that forum, he continued to funnel money to this strip club."
Steel says up to about $700,000 was spent on the strip club, "which was the ultimate slap in the face as far as the creditors were concerned."
Nationwide Problem
Prosecutors around the country are just now figuring out how widespread these mortgage fraud rings became in recent years.
In the area around Akron alone, Gessner says, its like "digging up the roots to an old tree." The more they dig, the more they find spread all over the place.
Gessner says anybody looking to make fast money got involved. He has prosecuted former drug dealers who, rather than risk mandatory drug sentences, have geared their efforts toward mortgage fraud.
In this case, Willan sits in jail. But the strip club remains open. It turns out that he didn't want the club in his name, so he set it up to be owned and run by a friend and his ex-girlfriend, who is a former stripper.
Toward the end, though, the ex-girlfriend said in a deposition that Willan began stealing money from them, too, by taking it right out of the register. They changed the locks and locked him out of the club, she says.
Allco Finance extends trading halt
February 13, 2008
Allco Finance Group Ltd has extended the trading halt in its shares initially placed last Monday.
Allco has made the request for suspension because stock exchange policy does not allow an extension to the two day limit applicable to trading halts.
Allco ordinary shares initially were placed in a trading halt from the commencement of trading last Monday, February 9.
Allco has asked that the suspension remain in place until it is in a position to make a further announcement to the market, the company said in its letter to the Australian Securities Exchange.
In recent weeks, Allco's stock price has been hammered by investors concerned about the level of debt used in its complex investment strategy.
Allco is due to report is half year results on Friday.
Soaring prices of essential goods bite into consumers' pockets
By Irish Eden Belleza
February 13, 2008
Dubai: As 2008 began, UAE consumers have been crying over skyrocketing prices as basic commodities have become more expensive in many places in the past few months, posting increases as high as 25 per cent.
Increases in consumer prices are not unique to the UAE.
It is a worldwide phenomenon caused by soaring agricultural prices and the global economic slowdown, triggered by the lingering crisis in capital markets.
Solutions
Some retailers of fast-moving consumer goods (FMCG) are consequently coming up with innovative solutions to ease the burden on consumers.
"Most of the goods sold here are imported. But at LuLu Centre we are now producing our own range of goods such as frozen foods to give consumers an alternative and offer them more value for their money," Ashraf Ali, executive director of the LuLu chain of hypermarkets, told Gulf News.
Due to pressure from suppliers to raise prices, some retail outlets are suffering severe shortages of basic commodities.
"We are experiencing a 40 to 50 per cent shortage or reduction of goods like rice, milk, dairy products, poultry and especially imported goods," said Ashraf Ali.
"Suppliers are asking for price revisions but we are not implementing them since the suggested price increase has not yet been approved by the Ministry of Economy," the official added.
Inflation
Inflation is expected to intensify over the next couple of months as, industry experts have revealed, consumers are confronted with more price hikes in basic commodities ranging from 20 to 40 per cent.
An industry insider also revealed that the UAE market is experiencing severe shortages of products produced by some multinationals.
However, some lucky consumers may have to take advantage of the current lull in price increases of many consumer goods that remained stable.
Choice
The latest consumer price index released by the Ministry of Economy indicates that consumers must be careful where they shop.
For instance, one kilo of cheese (Akkawi) from the Czech Republic has risen to Dh34.90 in some supermarkets, but is available for as little as Dh23.95 from others.
Butter from Denmark costs Dh7.95 for 400g in some stores while some others offer it for Dh7.75.
Most of the goods sold hereare imported. At LuLu Centre we are now producing our own range of goods such as frozen foods to give consumers an alternative and offer them more value for their money," said Ashraf Ali, Executive director of LuLu chain of hypermarkets.
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