A market fear gauge slides further, and SEC touts XBRL

A few items of note from the markets today:

     --Investors’ mood about the stock market has reached its best level since October, as measured by the so-called Volatility Index, or VIX. The index, which tracks activity in Standard & Poor’s 500 index put and call options, is a gauge of investors’ expectations of near-term volatility in the market. I wrote more about it in this post on April 28. The VIX closed at 17.66 today, its lowest since Oct. 10, indicating relatively little fear that the market could face a serious sell-off ahead. What’s significant about Oct. 10: The Dow Jones industrial average and S&P 500 both reached their all-time highs on Oct. 9, then began to slide in the second wave of selling triggered by the sub-prime mortgage crisis. So the question is whether investors now, as then, have been lulled into a false sense of security about the bullish trend in share prices.

    --Corporate financial documents would get easier for investors to read and analyze under a new filing system the Securities and Exchange Commission proposed. SEC commissioners voted today to propose requiring large companies to use Extensible Business Reporting Language, or XBRL, in their quarterly and annual reports. The technology uses data tags that allow investors to conduct fast searches of financial figures and compare results across companies and industries. Reuters has a good explainer here. XBRL has long been a pet project of SEC Chairman Christopher Cox.

    --Struggling IndyMac Bancorp got more bad news: Standard & Poor’s decided to kick the stock out of the S&P 400 index of mid-size companies, effective at the close of business on Thursday. That will cause funds that track the S&P 400 to jettison the shares. The Pasadena-based lender's stock ended today at a record low of $2.01, down 31 cents, or 13%. More on IndyMac's woes here.

The pain at the grocery checkout counter gets worse

The government’s report today on consumer price inflation in April looked pretty good on the surface, with the overall price index edging up 0.2%, compared with a 0.3% rise in March.

But as my colleague Maura Reynolds points out here, energy prices in April were flat within the CPI only because of the "seasonal adjustment" factor employed by the government’s statisticians. We all know what really happened with gasoline prices last month.

The CPI’s tracking of April food prices, meanwhile, will ring truer with consumers: Food and beverage costs overall rose 0.9%, and food bought for home consumption jumped 1.5%. Both were the largest monthly increases since 1990, says Peter Kretzmer, economist at Bank of America.

Rising global demand for grain -- for human consumption and, in the case of corn, for ethanol -- has been a driving force behind higher food costs in general, of course.

The accompanying chart, worked up by Bespoke Investment Group, shows where the price bite has been most severe over the last year among major food items in the CPI. White flour tops the list, up 46.3% in the 12 months through April, as the price of a bushel of wheat nearly doubled in the period.

Not everything in your grocery cart costs more these days. Within the CPI, lettuce prices fell 8.5% in the 12 months through April, according to Bespoke. Prices of many meats are down as well; sirloin steak has fallen 4.7% from a year ago (fire up the grill!).

But as Bespoke notes, the drop in meat prices may be temporary: The number of animals being sent up for slaughter has risen as farmers have been squeezed by high feed prices. "While a short-term effect of this is lower prices for meat items, longer term it’s likely to lead to higher meat prices," Bespoke says.

Dump those global-recession worries, the big money says

Few big money managers buy the idea that we’re headed for a global recession, a new Merrill Lynch & Co. survey shows.

If you want something to worry about, focus on inflation, they say.

The money pros’ views are more optimistic on the economy than U.S. consumers’ views in a Los Angeles Times/Bloomberg poll this month. (Those results are here.) But the two are of the same mind on inflation.

Merrill polls money managers worldwide each month for their take on markets and the economy. The latest survey, performed May 2-8, tallied the opinions of about 200 managers who oversee a total of $615 billion.

Just 18% of the managers said they believed the world has tipped into recession, down from 24% in April. And most don’t see a global recession on the horizon. Only 6% said a recession was "very likely" in the next 12 months and 23% said one was "fairly likely." Sixty-nine percent said recession was either "fairly unlikely" or "very unlikely," up from 58% in April.

Inflation is what’s making these investors nervous. Asked where they thought global core inflation would be in 12 months, 53% now expect it to be higher, up from 44% who said so in April.

And that, in turn, is affecting the managers’ views of where long-term interest rates are headed. Thirty percent now say long-term bond yields will go "a lot higher" in the next 12 months, up from 18% in April, while 50% expect yields to be "slightly higher" and 20% see them unchanged. None predicted yields would fall.

Given the fund managers’ views on the economy and interest rates, maybe it’s no surprise that global stock markets continue to rally -- and that government bond yields continue to rise.

A poll on pocketbook issues -- and your chance to weigh in

The country is in a surly mood about the economy, energy prices and inflation prospects, a Los Angeles Times/Bloomberg poll suggests.

But many people aren't feeling surly enough to say no to government help for strapped homeowners -- or to say no to a boost in the capital gains tax rate.

I'm highlighting here some of the findings in the nationwide telephone poll of 2,208 adults conducted May 1-8 -- and inviting blog readers to chime in with their views.

Here goes:

--The economy: Those tax rebates landing in Americans' mailboxes aren't doing a lot to brighten the mood. Most people in the poll (78%) believe the economy is in recession, and few see much hope for things to improve in the next six months. Just 19% of all respondents predict the economy will be in better shape in six months, while 37% say things will be worse and 40% see things staying about the same.

The rally in stock prices since mid-March indicates much more optimism about the economy on Wall Street than on Main Street. Who's going to be right this time?

--Crude realities: Almost no one believes oil prices will come down -- which naturally means this would be the perfect time for prices to break because it would contradict conventional wisdom. Asked where they expected oil prices to be in one year (compared with the cost of about $119 a barrel at the time of the survey), 67% of all respondents predicted higher prices. Just 14% predicted a lower price and 14% said they expected the price to be about the same.

--Inflation angst: The majority believe inflation will continue to rise over the next year from the current annualized rate of 4% in the consumer price index: Sixty-one percent of respondents expect inflation will be higher in the next 12 months. Just 11% foresee lower inflation.

If the public is right on inflation, the Federal Reserve will be hard-pressed to keep holding short-term interest rates at 2% -- and there will be a lot of shocked investors in the Treasury bond market, where a 10-year note now pays just 3.9%, or less than the current inflation rate.

--Housing help: In something of a surprise to me, 60% of respondents said they supported "the federal government providing assistance to individual homeowners who have been caught between rising mortgage payments and falling home values." Just 25% opposed the idea of government help; 15% said they weren't sure.

But I wonder if the majority would have had the same view if the question had been phrased differently -- say, to include the words "taxpayer-funded bailout." Some respondents' idea of "government assistance" may not extend that far, but we can't tell from the simple poll answers of "support" or "oppose."

There is more sympathy for government help for struggling homeowners among lower-income groups than higher-income groups. Among poll respondents earning less than $40,000 a year, 68% support the idea of government aid. Among those earning $101,000 or more, just 40% are in favor.

--Capital gains give-back: Investors seem to be mentally preparing themselves for an increase in the long-term capital gains tax rate, which many people presume would be on the agenda if either Hillary Clinton or Barack Obama wins the White House.

Asked if an increase in the tax rate to 20%, from the current 15%, would cause them "to sell shares, for tax reasons, that you otherwise would not sell," just 20% of people who own stock said they would be motivated to sell. By contrast, 66% said they wouldn't sell; 14% weren't sure. The results weren't materially different for investors above and below the $100,000 income line. For example, 65% of those earning between $60,000 and $100,000 said the prospect of a tax increase from 15% to 20% wouldn't drive them to sell, and that was echoed by 70% of those earning $101,000 or more.

There is a threshold for pain out there with a higher capital gains tax rate, but 20% apparently isn't it.

Did you sacrifice your retirement plan for the house?

From Times Staff Writer Walter Hamilton:

The national housing obsession in recent years may have dulled the urge to invest in 401(k) retirement plans.

After expanding strongly throughout the 1990s, participation in 401(k) and other employee-funded retirement plans has grown more slowly in recent years, according to data released today by a Washington-based research group. (PDF of report highlights.)

The number of people investing in 401(k) and similar plans climbed from 42.2 million in 1995 to 50.9 million in 2000, the Employee Benefit Research Institute said. From there, though, participation rose only to 52.2 million through 2004, the institute said.

There are several reasons for that, including fewer small companies offering plans and lingering investor concerns about the stock market after the bursting of the technology bubble in 2000, said Craig Copeland, author of the study.

But the preoccupation with housing played a role, Copeland said, as some people earmarked cash for new or remodeled dwellings as home prices surged instead of funding retirement accounts.

People considered housing to be "the big investment," he said.

Of course, for some people, their home is their retirement plan. But with prices now sliding, the long-term payoff may be a lot less certain.

As for 401(k) plans, the mean annual contribution amount inched up from $4,607 in 2001 to $4,993 in 2005, according to the study.

Plan participation rates are likely to pick up in coming years because the government has given companies legal clearance to automatically enroll workers in 401(k)s.

Nevertheless, the study showed that many people still fail to put enough emphasis of retirement saving, Copeland said. "It shows that people aren't getting the message that they're going to have to do more to plan for their retirement," he said.

Smaller stocks shine in market's spring rebound

Small fry may be the biggest pleasant surprise in your stock portfolio this spring.

Small- and mid-size stocks have rebounded faster than blue-chip stocks from the market’s lows in mid-March. And in the case of mid-size issues, the rebound has been substantial enough to put a key index of those shares back in the black, year to date -- a trick blue-chip indexes haven’t yet managed.

The Standard & Poor’s index of 400 mid-size stocks jumped 16% from March 10 through Monday, leaving it up 0.7% year to date.

By contrast, the S&P 500 index of big-name issues is up 10.2% from its March low but still is down 4.4% for the year.

The better recent performance of small- and mid-size shares partly reflects a natural snap-back from their sharp declines in the fall and winter market sell-off. As usual when the market goes south, smaller stocks tumbled faster than bigger issues.

Investors also may just be responding to what have been surprisingly good first-quarter earnings reports for many small and mid-size companies.

Steven DeSanctis, small-stock strategist at Merrill Lynch & Co. in New York, says overall earnings of the small-capitalization companies in the universe he tracks dipped 1.8% in the first quarter from a year earlier, counting reports issued through last week.

That’s a far better showing than the 17% drop in earnings of the S&P 500 companies.

Losses racked up by banks and other financial companies have skewed overall results for big and small companies alike. But take out the financials, and profit growth at smaller firms still was stronger -- up nearly 8% in the quarter, DeSanctis says, compared with a 7.1% increase for the S&P 500.

Mid-cap companies’ overall results look even better, up 6.1% in the first-quarter, including financial companies, according to DeSanctis.

One key to decent results for small and mid-size companies, as for larger companies, has been the weak dollar’s beneficial effect on foreign sales. Although investors tend to think of blue-chip firms as the main beneficiaries of the sliding dollar, plenty of smaller companies do business abroad.

DeSanctis found that mid-cap companies that derive more than one-fifth of their sales outside the U.S. posted total earnings growth of 13.5% in the first quarter, compared with 1.6% growth for mid-cap firms with lower foreign sales.

IndyMac at 18-year low; CEO sounds tough on 'put-backs'

On a good day for most financial stocks, IndyMac Bancorp shares finished at a new 18-year closing low after the company’s first-quarter loss report and conference call with analysts -- despite CEO Michael Perry’s continuing efforts to paint the Pasadena-based mortgage lender as a survivor.

The stock slid 37 cents to $3.06, below the previous closing low of $3.25 on April 30.

Frustrated investors in the stock may be tempted to blame short sellers -- traders who borrow stock and sell it, betting on falling prices. The shorts have targeted IndyMac over the last year, and they may be jumping on it again. But if so, that would be a switch from the last few months: The total number of shorted shares was 34.8 million as of April 30, down from 41.9 million at the end of February, according to New York Stock Exchange data. Looks like the shorts have been getting bored with this one.

Some analysts have raised questions about losses the company could face on now-troubled loans it previously sold to investors, if those buyers try to renege by arguing that IndyMac failed to properly vet the loans.

Perry, asked about put-backs on today’s conference call with analysts, said he expected them to increase. "You know, clearly it is one of those environments where you don’t know for certain how that’s all going to work its way out. You are going to have investors trying to ask you to repurchase more loans. I mean, that is just the way it is," he said.

He also indicated that IndyMac would go to the mat with investors. The loan-evaluation team for potential put-backs is headed by Richard Wohl, the bank’s president and "a Harvard lawyer," Perry reminded analysts. "They have got a strong team in that area really looking through each one of these loans, making sure the reason that the loss has been incurred is something that we did wrong as opposed to the housing market just declining."

Of course, it's likely the investors employ some Harvard-educated lawyers as well.

Photo: Nick Ut/Associated Press

Sellers hammer Standard Pacific, IndyMac on loss reports

Wall Street’s reaction to quarterly financial reports from home builder Standard Pacific Corp. and mortgage lender IndyMac Bancorp this morning: Sell first, ask questions later.

Shares of Irvine-based Standard Pacific slid as low as $2.72 from $3.77 on Friday after the firm said its first-quarter loss ballooned to $216 million, or $3.34 a share, far exceeding analysts’ estimates. Read the report here. The company also said it’s working with its lenders to extend an easing of restrictions on its finances and hopes to have a final agreement by Wednesday.

The average home sale price across all of Standard Pacific’s markets was $347,000 in the quarter, down 10% from a year earlier, because of "the level of incentives and discounts and price-cutting required to sell homes," the company said.

By contrast, the average selling price was $406,000 in the fourth quarter, down 3% from a year earlier.

Pasadena-based IndyMac's shares fell as low as $3.08, from $3.43 on Friday, after the company said it lost $184 million, or $2.27 a share, in the quarter, also worse than analysts had expected. The report is here.

Although IndyMac reiterated its recent forecast that losses should grow smaller as the year progresses, CEO Michael Perry warned that "we do not expect that IndyMac will be able to return to overall profitability until the current decline in home prices decelerates."

Based on Standard Pacific’s selling experience, the hoped-for "deceleration" of price declines still looks to be somewhere on the far horizon.

Corporate earnings: It could be worse

Times Staff Writer Walter Hamilton filed this report on the first-quarter earnings picture:

As earnings-reporting season winds down, the numbers aren't pretty. But considering that the economy may be in a recession, it could be worse.

For the first quarter, S&P 500 profits thus far have tumbled 17.4% from last year, according to Thomson Reuters.

Although that’s horrible, the number is skewed by the disastrous performance of the financial sector, which is off a jaw-dropping 79%.

Excluding financials, profits actually would be up 7.1%, according to Thomson Reuters. And even discounting the first-quarter’s best-performing sector -- energy, with a 26% rise -- earnings still would eke out a 2.8% gain.

That’s far from stellar, but doesn’t suggest an economy that’s headed for deep trouble.

With about 90% of companies having reported so far, 62% have beaten estimates, according to Thomson Reuters. That’s in line with historical standards. But 28% of companies have missed their numbers, far more than the 20% historical average.

Financial companies are the primary offenders -- with American International Group last week becoming the latest financial behemoth to drop an earnings bomb on shareholders in the form of a large unexpected write-off.

“It seems the [financial] companies themselves don’t have a strong grasp” of their earnings picture, said John Butters, director of U.S. earnings research at Thomson Reuters.

Where do we go from here? Wall Street soothsayers expect S&P 500 earnings to droop 5.9% this quarter -- then perk up significantly in the second half of the year.

In part thanks to easy comparisons, they're looking for profits to jump 17.3% in the third quarter and a whopping 64.1% in the fourth.

It seems that analysts are drinking from the same punchbowl as Wall Street’s most bullish investors: They’re betting on stimulus from government tax rebates and the Federal Reserve’s interest rate cuts to stir the economy.

Not a glowing debut for Real Goods Solar

From Times Staff Writer Edward Silver

A crowd of solar energy stocks came public in the last two years. So far In 2008, the flow of new shares, solar and otherwise, is all but stopped up. One offering made it through Thursday, however. Real Goods Solar Inc. has been installing and distributing panels and other products in California since 1978, so it must be run by a patient bunch.

Real Goods, a subsidiary of New Age supermarket Gaiam Inc., raised $55 million in its IPO. One of the littler operations to hit the market, it generated net revenue of $6.5 million in the March quarter, its prospectus shows, along with a loss in the vicinity of $325,000.

Noting the deficit and perhaps realizing that Real Goods’ business is fairly hard to scale up and easy to enter, investors have bid the shares down. After being priced at $10, they were going for $8.50 at midday Friday.

“Green” is currently the top theme for new issuance, noted Kathleen Smith of Renaissance Capital in Greenwich, Conn. Per the IPO research firm’s accounting, 17 new stocks displayed an ecological tinge last year, out of 273 total. In a sluggish 2008, the proportion is much higher: five of 29. Said Smith: “We think there will be a lot of opportunity for that group this year.”

Money & Co. blogger Tom Petruno is on vacation this week. He returns Monday.