The reason that home prices went parabolic in so many communities around the country is easy credit. As credit became easier to get, this created an artificial demand for houses that went way beyond people wanting to buy a primary residence. By 2005, 40% of all homes purchased were by speculators or second homes. Soros, The New Paradigm, at p. xvi. All of the exotic mortgages were designed to enable people to participate in the further expansion of this bubble, with those responsible at the mortgage companies, Wall Street and the ratings companies taking commissions, and the crap would be unloaded to investors around the world. The only remedy for this nonsense is a contraction in home prices to levels that individuals can actually afford to pay. The Case-Shiller index of home prices in 10 major markets fell for the 25th consecutive month in August.Case-Shiller Yahoo! Finance Prices have plunged by 17.7% since August of last year. Cities which had the greatest rises in prices are falling the hardest, with Las Vegas down 30.6%, Phoenix down 30.7% and Miami down 28.1%. Easy credit was the fuel for the rise.
Whirlpool announced that it would cut 5,000 jobs by the end of 2009, citing the economic downturn. It also lowered its 2009 earnings forecast from $7 to $7.5 to $5.75 to $6, and it suspended its share buyback. Yahoo! Finance
As you would expect, given the events of the past few weeks, consumer confidence in October plunged to a record low. MarketWatch
A dismal Christmas for retailers can reasonably be expected.
Aegon reported that it will receive 3.74 billion from the Dutch government. Like ING, it will omit its last dividend for the year. Yahoo! Finance MarketWatch Aegon will issue 750 million shares at 4 euros a share. This is how Aegon described the remainder of the transaction in its press release:
"Before October 10, 2009 AEGON has the right to repurchase 250 million of the securities at a price between EUR 4 and EUR 4.52 per security, depending on AEGON's share price and the date of the repurchase, and after that date at EUR 6 per security. AEGON may at any time repurchase the remaining 500 million securities at EUR 6 per security (equivalent to 150% of the original issue price). Alternatively, after three years, AEGON may choose to convert these securities into common shares on a one-for-one basis. In this situation, the Dutch State may opt for repayment either in cash (at the original issue price of EUR 4) or in shares.
AEGON retains full discretion over its policy regarding dividends paid on common shares. The coupon on the non-voting securities will be paid only if a dividend is also paid to holders of common shares.
As the holder of the non-voting securities, Vereniging AEGON will receive either an annual coupon of EUR 0.34 per security or, if higher, an amount linked to the value of the dividend paid on AEGON common shares. This amount has been fixed at 110% for 2009, rising to 120% for 2010 and 125% for 2011 and beyond. The coupon is not tax deductible. Vereniging AEGON will use income from the non-voting securities to service the loan from the Dutch State."
I view this transaction as favorable to the Aegon preferred shareholder like myself. The dividend for the new shares appears reasonable, tied mainly to the common dividend for 2009 and beyond.
I thought that this article in the WSJ today provides a good discussion of the pros and cons of the rising dollar. WSJ.com
So we found a way to break the back of the five year decline in the dollar. That is, the U.S. financial institutions sell crap and toxic waste to investors around the world, wait for a financial meltdown, and then people, acting like a bunch of chickens with their heads cut off, start buying U.S. dollars and Japanese Yen while selling all other currencies regardless of the price and the fundamentals. Why exactly has the Australian dollar fallen almost 40% against the U.S. dollar in the past few weeks?
I am seeing this morning further weakness in First Industrial and its preferred shares. I may take my second nibble later today. With the large influx of cash in the banking system, it is hard to see how a real estate company could not get a first mortgage on a nice commercial property, unless the banks just hoard Uncle Sam's money or use it for purposes other than lending money. This article from the WSJ suggests that may be the case, and taxpayers should be deservedly angry about it.Much Bank Aid May Not Go to Loans - WSJ.com
The 3 month LIBOR rate is hovering around 3.5%, falling just a tad yesterday to 3.465%. At that level, the METPRA floater provision on LIBOR would kick in since 1% + 3 month LIBOR is higher than the 4% guarantee.