Ironic Headline of the day: GMAC's Here we go again

Today's Ironic Headline of the day comes via the New York Times and their humorous and insightful take on GMAC. Granted this is the first 'headline of the day' post ever written for WC Power Tech Fund Investment Blog but reading the NYT article (Link) the irony was too pronounced to ignore.

Here's the New York Times Headline: "With Needed Cash, GMAC Will Ease Lending Rules"

Seriously?? GMAC, whose automobile financing business has been in utterly dire straits as the credit crisis unfolded in the 2nd half of 2008 in step with domestic auto maker General Motors (GM) own struggles on its way to the brink of bankruptcy, now starts back on the same path? Let's hope these firms learned a few lessons along the way.

It was the ease of lending restrictions that got infamous mortgage houses Fannie Mae (FNM) and Freddie Mac (FRE) into such a mess in the first place. Armed with $5Billion of Government Bailout money the auto lending business can get back into full swing, or so thinks GMAC. According to the New York Times, the company is lowering its credit score from 700 to 621 for Americans to qualify for financing in order to stimulate business and expand the current potential customer base.

Credit scores of 620 or below are considered by the credit bureau to be "higher risk transactions" so at the very least GMAC is steering clear of those for the time being. It has been a tumultuous few days for the financing company, which is jointly owned by GM and private Cerberus Capital Management, its last second win or approval to become a bank opened the possibility for bailout funds in order to keep the company afloat. The Federal Reserve gave tentative approval for GMAC to become a bank holding company and thus allowed it to tap into a portion of the $700Billion bailout passed by US Lawmakers those months ago.

Clearly the infusion of cash gives GMAC invaluable time and monetary room in which to conduct and grow a broken business, but for investor sake, the company had better not be on a path of 'Here we go again'.

Disclosure: Author holds no position in above mentioned companies.

Stock Gains from China Economic Plan evaporate in Afternoon Trade

In this continuing seemingly unprecedented global crisis the next stimulus injection attempt is being carried out by the Chinese. China announced a $586Billion US stimulus package it will use to try to guide that nation through the perils of today and tomorrow's economic pressures. The package, which was designed to boost business and consumer confidence, and hence bolster the economy was seen as a light for Asian markets.

US stocks began the day climbing about 2% at the open, but those gains were short lived as the realities of the harsh conditions facing many of America's most fundamental and historic firms flew across the news wires.

AIG (AIG), which was the recipient of an already large bailout from the Government, got a revamped agreement that bolstered it's rescue package up to $150Billion. This coming on the reports that AIG's quarter swung from $3Billion in profit last year to a $24Billion loss in the current frame. Not to be outdone by the atrocious market conditions and poor financial performance of its peers the now-infamous mortgage house Fannie Mae (FNM) posted a $29Billion loss for its quarter and reported the need to tap into the Government funding that it had earlier received.

Things are just as rosy for the American Automakers, with Ford (F) struggling operationally, posting a quarterly loss of $3Billion and having its financial future in jeopardy. Economic pressures are keeping buyers away from big ticket items, and Ford's formerly successful fleet of gas-guzzling SUVs and Trucks now sit on lots unable to be sold at today's gasoline prices.

If Ford's troubles were the only problems facing GM (GM), management may be able to crack a smile or two, however General Motors is much worse off from an operational standpoint. The company says it may run out of cash by the end of the year and it just had a Deutsche Bank analyst downgrade the stock and set a price target of $0. The analyst projected a path for GM that ended with little option other than bankruptcy. GM stock fell to its lowest levels in over 60 years after getting trimmed by nearly 30%.

The American consumer is facing tremendous pressure and these type of headlines flying through the business pages just add to the hurt. With unemployment in the US at its highest in 14 years and the election behind the Country a new direction is needed, and needed quickly in order to restore some confidence and needed stability to the markets.

Disclosure: Author holds no position in the above mentioned companies.

Fannie and Freddie plunge as Government takeover confirmed

US Treasury Secretary Henry Paulson announced Sunday that both Fannie Mae (FNM) and Freddie Mac (FRE) were being placed under government-operated conservatorship.  The executive branch was ousted and dividends eliminated.  Not good news for the embattled mortgage dealers whose hands are tied into about half of the nation's $12Trillion in mortgage debt.

The news sent stock soaring this morning, led by the Financial sector, as investors saw this as the "beginning of the end" of mortgage related turmoil in the US. While the banks led the Dow to an over 200 point gain out of the gate, the Tech-heavy Nasdaq lagged behind, by midday being up only a third of a percent.

While banks like Citigroup (C), and Bank Of America (BAC) were enjoying gains of 4 or 5% the same could not be said for Fannie and Freddie. The selling off was swift, and very ruthless with Fannie dropping 83% and Freddie following closely behind down 79% by midday.

While Investors assumed the worst case scenario for F & F, even the US Treasury was unable to put a price tag on the bailouts. Paulson came on television earlier Monday and admitted that the final cost is an unknown and will depend on several factors including the ultimate turnaround of the housing market. At least one estimate by William Poole (St. Louis Federal Reserve Bank President) has the bailout costing about $300Billion, according to Forbes.

A hefty price tag indeed, but certainly not something any Investor of the F & F twins surely will be to happy about.

Disclosure: Author does not own FRE or FNM

Morning Market Musings 8/28

As the Democratic Convention rolled on with another star-studded political night, the morning Markets turned positive from the opening bell. While the majors opened nearly half a percent higher, several news points stood out.

Previous gloomy growth forecasts for the US economy were actually revised higher, as GDP for quarter 2 of the year came in at 3.3% growth versus the initially estimated 1.9%. However this result was propped up by the stimulus package provided in the quarter and economists still expect slowing growth for the rest of the year.

Freddie and Fannie continue their torrid rebound, as the 5 day tally for Fannie Mae (FNM) now stands at a 43% gain, and trying not to be outdone by it's mortgage partner in crime Freddie Mac's (FRE) 5 day tally stands at 65% in gains. As the yells of government bailouts turn into whispers and some optimism the street has rewarded these battered companies by showing Investment support. Quite the turnaround from even just a few days ago!

All is still not well with Sears Holdings (SHLD) as it continues to limp along from quarter to quarter with sales declines. Sears delivered an over 60% profit decline year over year, earning $65Million of $0.50/share all the while adding a gain that without would have pegged earnings at $0.21/share. The outlook? Not so bright either as the company predicted earnings to continue to fall compared to 2007 on a year to year basis.

iPhone comes to Russia via Vimpel Communications. The Russian mobile operator announced earnings earlier this morning and announced it had signed a deal to bring Apple's (AAPL) iconic mobile handset to Russia, being the first official carrier to do so. Russia has always been one of the largest grey-markets for iPhones, having an estimated 600,000 units floating around unofficially on local carriers. With no signs of exclusivity, Apple will likely continue negotiating an eventually offer the iPhone through other large Russian providers.

Disclosure: Author owns AAPL

Buyer Beware, Monday belongs to the Bears

Coming off the weekend and looking ahead to the start of school years the the Labor day holiday, Traders were decidedly negative with the markets today, selling off in droves. Once again uncertainty in the Financial sector was the biggest catalyst of downward pressure.

Stocks started the day lower with the major indices hitting bottoms by mid-day, staying around those levels through the rest of the trading session. AIG (AIG) stock was making the most noise after having its price target cut by an analyst at Credit Suisse, following Friday's rumblings of falling ratings against the insurance giant. AIG was down over $1 (around 5.5%) to under $19.

The debate over Financial sector strength has swung negative lately with the rumors of Lehman Brothers (LEH) potentially needing a bailout, or impending partial sale abroad. Coupled with the daily Freddie Mac (FRE)and Fannie Mae (FNM) exploits it makes for a Financial situation in the US as turbulent as any in recent memory. Although both Mac and Mae were up substantially in this session, the bottom dwelling trades have to be timed and even with slight rallies, the only real course of action for both appears to be a government-led bailout effort.

When that kind of talk is on the table not even a 3% jump in Existing Home Sales can rally this market on this day.