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3:58 PM, June 30, 2008
From Times staff writer Josh Friedman, who covers the movie biz:
Where is the love for "Wall-E"?
The animated, futuristic adventure about a lonely, love-struck robot opened to rave reviews and topped the weekend box office with $63.1 million in domestic ticket sales -- the ninth straight No. 1 launch for Walt Disney Co.’s Pixar studio.
But stock market investors gave Disney shares the cold shoulder Monday, bidding them down 37 cents, or 1.2%, to $31.20.
Part of the problem is that "Wall-E," which 97% of critics endorsed, according to RottenTomatoes.com, "was successful but wasn’t ‘Nemo’-like" in its opening, said Richard Greenfield, an analyst at Pali Research. "Finding Nemo" and "The Incredibles," Pixar’s two biggest hit movies, both opened to slightly above $70 million.
 What’s more, Disney got off to a slow start this summer at the box office when its highly anticipated sequel "The Chronicles of Narnia: Prince Caspian" fell short of lofty expectations. The first film in the series from Disney and Walden Media, November 2005’s "The Chronicles of Narnia: The Lion, the Witch and the Wardrobe," grossed $292 million domestically, but "Prince Caspian" has only hauled in about $138 million since its May 16 release.
"And in case you haven’t noticed, the entire media sector is melting down," added the ever-cheerful Greenfield, referring to the stocks. The Bloomberg-Hollywood Reporter index of 39 media issues dipped today to a fresh five-year low. Disney has held up better than many of its peers; the stock is off 3.3% year to date, compared with a 30% plunge in Viacom Inc. shares and a 10.4% drop in Time Warner Inc.
While shares of Disney’s highest-profile rival in the animated film genre, DreamWorks Animation SKG Inc., often are affected by its two feature releases each year, even a Pixar movie is unlikely to move the revenue needle much at a diversified media conglomerate like Disney.
Studio entertainment generates only about 15% of the company’s operating income, while Disney’s theme parks and TV networks, including ESPN, generate significantly larger portions, notes analyst David W. Miller at SMH Capital.
"The broader concern for Disney shareholders is how well are the theme parks going to hold up in this economy," Miller said.
Photo: Wall-E. Disney/Pixar
2:27 PM, June 30, 2008
UPDATE: Comments from Sen. Schumer's office now are included below.
Pasadena-based mortgage lender IndyMac Bancorp, battling fresh rumors that it is near collapse, conceded today that its financial position "has deteriorated since last quarter," and said it was working on a plan with its regulators to improve "the safety and soundness" of the bank.
The company's statement, put up on its corporate website, follows a weekend that saw depositors line up at some of its San Gabriel Valley branches to pull their money, as they reacted to news reports questioning the company’s survival.
It’s no secret on Wall Street that IndyMac has been ailing in the wake of huge losses on its loan portfolio as borrower defaults surge. The company’s stock price has been hammered down to mere pennies, and the plunge in the shares has accelerated over the last week. They ended at a record low of 62 cents today, down 23% from Friday’s close of 81 cents.
 But depositors may have been spooked by a letter late last week from Sen. Charles E. Schumer (D-N.Y.) to the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Federal Home Loan Bank of San Francisco, saying he was "concerned that IndyMac’s financial deterioration poses significant risks to both taxpayers and borrowers."
The letter stunned some Wall Street analysts, who said Schumer was in effect sealing the lender’s fate by raising the prospect of its failure. Schumer's response? Don't kill the messenger. “Make no mistake about it: IndyMac’s problems were caused by IndyMac’s management and no one else," Schumer spokesman Brian Fallon said in an email. "The home loan bank system has an obligation to lend responsibly and police its members. But it has not been doing its job. We have found the only way to get the home loan bank system to act appropriately and positively is to make public the concerns we’ve already expressed privately."
In its statement today, IndyMac said that after the Schumer letter appeared in the media, "we did experience elevated customer inquiries and withdrawals in our branch network last Friday and on Saturday of roughly $100 million." IndyMac said that amounted to about 0.5% of its total deposits of $19 billion.
"While branch traffic is somewhat elevated this morning, it is substantially lower than on Saturday," the bank said. It added that more than 96% of its deposits were fully insured by the FDIC (meaning the accounts were within federal insurance limits, and therefore should be safe no matter what happens to the company).
But the final part of IndyMac’s statement sounds more like a plea than a declaration that it will survive: "We are hopeful that this issue appropriately abates soon," the bank said about the deposit outflows, "so that we can focus, with our regulators’ involvement, on the important issue of continuing to keep IndyMac Bank safe and sound through this unprecedented crisis period."
Separately today, the non-profit Center for Responsible Lending published a report slamming IndyMac's lending practices in recent years. Read it here.
Photo: Nick Ut/Associated Press
10:21 AM, June 30, 2008
Some notes from around the markets early today:
-- Bear still at bay: As on Friday, the Dow Jones industrial average once again crossed the bear-market boundary this morning -- and once again quickly rallied back above it. The Dow fell as low as 11,287, which put it down 20.3% from its record closing high of 14,164.53 on Oct. 9. The market then turned higher. At about 10 a.m. PDT the Dow was up 65 points, or 0.6%, to 11,411.08, trimming the decline from the October high to 19.4%.
A drop of 20% or more is Wall Street’s classic threshold for designating a bear market -- although, let's face it, to most investors the pain of a 20% decline is indistinguishable from the pain of a 19.5% decline.
-- Window dressing -- or undressing? As the end of any quarter approaches, the worst-performing stocks often get hammered even harder. The reason: Some portfolio managers want to jettison their dogs so clients don’t see them on their quarter-end statement and ask, "Why do we own that loser?"
The usual term for these end-of-quarter moves is "window dressing." But Marc Pado, U.S. market strategist for Cantor Fitzgerald, says "window undressing" is a more fitting description of the selling that in recent days has hammered shares of financial companies, automakers and other already beaten-down issues.
It’s still going on today: The financial-stock index within the Standard & Poor’s 500 was down as much as 2% early in the day -- on top of the 17.2% drop it suffered from March 31 through Friday. General Motors this morning fell to $10.57, its lowest since 1954 and down from $11.55 on Friday.
-- Check, please: The winner of last week’s annual auction of a charity lunch with billionaire Warren Buffett was ID’d over the weekend: He is Zhao Danyang, who manages the Pureheart China Growth Investment Fund in Hong Kong, Bloomberg reports. The auction, conducted on EBay, was won by Zhao with a bid of $2,110,100, according to Denise Lamott, a spokeswoman for the Glide Foundation in San Francisco. Glide will get the proceeds from the auction.
From Bloomberg: "Buffett will entertain Zhao and seven companions at a New York steakhouse and answer virtually any question except what he is buying and selling."
11:46 AM, June 28, 2008
Times staff writer Ken Bensinger, who covers the auto industry, filed this post:
A living legend in the auto industry, Bob Lutz has worked for Ford, Chrysler, BMW and, since 2002, General Motors, where he heads product development. The Swiss born, fighter-jet-flying, bespoke-suit-wearing ex-Marine isn’t known to mince words. This spring, he famously referred to global warming as a "crock of sh**." When outcry ensued, Lutz, in his trademark raspy growl, told reporters that those were his personal opinions, not those of the General.
 On Friday, Maximum Bob (as gearheads call him), showed he’s not afraid to mix it up with the rabble as well.
In response to a Times article on the multiple woes of GM and other automakers, a particularly vociferous reader -- known to call electric cars more important that "the so-called immigration issue, falling home values, and man-bites-dog stuff" -- copied Lutz in on a letter to the editor. The gist: GM, after losing $39 billion last year and with its stock at a three-decade low, could save itself by bringing back a 10-year old, two-seat electric car.
"There is one option GM has not considered, which would turn things around, both in image and in reality. GM could resume production of the 1999 EV1, using Panasonic lead-acid batteries," the reader asserted.
Furthermore, he wrote, GM’s plans to produce a four-seat extended-range electric car called the Volt, set for release in 2010, "depends on Lithium batteries which don't yet exist."
Maximum Bob was not about to let that backtalk from a green transportation activist go by without comment:
He shot back in an email: "The EV will not meet any current safety laws. Putting a version into production that meets regulations would put us out to ’11 or ’12. They cost us well over $80,000 to produce, and, being a two-seater, we could only sell 800 in four years. We lost over one billion dollars on that experiment."
 As for the Volt, Lutz had choice words as well:
"I don't know why you insist that lithium-ion doesn't exist. We are getting packs from our suppliers, they test well in both hot and cold, they store the energy as claimed, we are fast-cycling them to make sure they last, we are doing high-temp, high-load testing with the cooling system shut down and are experiencing no thermal problems. Trust me, the battery will not delay the car."
As any outraged activist would, the reader quickly fired back a reply, copying four Times addresses, an additional GM employee and a contact at California’s Air Resources Board, calling for distribution to all members of the body.
Too early to tell if Lutz will call these revealing comments his own personal opinions as well.
Photos: Bob Lutz. Paul Sancya/Associated Press; a funeral for the EV1 in the movie "Who Killed the Electric Car."/Sony Pictures Classics
3:58 PM, June 27, 2008
Conspiracy theorists can run wild with this one: Just after the Dow Jones industrial average this morning crossed the classic bear-market threshold of a 20% decline from its record high, it rallied.
It wasn’t much of a rally, but it was enough to keep the Dow above the 20%-down mark. The blue-chip index finished the day at 11,346.51, off 106.91 points, or 0.9%. That left it down 19.9% from its record closing high of 14,164.53 reached Oct. 9.
At its intraday low of 11,298 today, the Dow was off 20.2% from its peak.
The mind reels: Does some Wall Street cabal of big market players want to make sure the Dow doesn’t fall into official bear territory and panic the masses?
Wait -- wouldn’t the cabal want to panic the masses, so it could pick up stocks cheap?
 Or maybe the cabal wants to keep the market from collapsing just long enough to unload its shares?
Is the Trilateral Commission somehow involved?
Just having a little sick fun here; you have to laugh to keep from crying in this market. To that end, check out this very entertaining picture-post.
As for the market backdrop today: Oil finished at another record high ($140.21 a barrel) and financial stocks again were hammered. That bad combo set the tone for another losing session, although the selling abated sharply compared with Thursday’s rout.
And as has been the case all month, blue-chip stocks were hit hardest today. Smaller stocks continued to fare much better than big stocks. And most market indexes, other than the Dow, still are above their March lows.
The question is whether the general (the Dow) is leading the rest of the troops into a certain massacre.
The Standard & Poor’s 500 fell 4.77 points, or 0.4%, to 1,278.38 today. It’s off 18.3% from its peak reached in October. The New York Stock Exchange composite, down 0.2% today, is off 16.4% from its record high, also set in October.
The Russell 2,000 small-stock index was off fractionally today to 698.14, and is down 18.4% from its record high reached last July.
Note, though, that the Russell was in bear-market territory in March. At its low that month, it was off almost 25% from its peak.
The Russell index’s relative resilience since March may be stoking hopes that if this is a bear market, it’s a kind of mild-tempered, Yogi-style bear -- not the grizzly that ate half the market value of the S&P 500 in 2000-02.
That last bear market, led by technology stocks, was fueled by a collapse of corporate earnings. Just what’s happening to the corporate bottom line this time around will be the market’s main focus in July, as second-quarter profit reports roll out.
How much more fun can investors stand?
Image: The one, the only . . . Yogi Bear. Hanna-Barbera Studios
3:00 AM, June 27, 2008
Bill Strazzullo had warned his clients against chasing any rally that might follow the Federal Reserve’s unprecedented steps to prop up the financial system in mid-March.
The veteran trader, a partner at the small financial advisory firm of Bell Curve Trading in Freehold, N.J., told me on March 21 that he was sure the credit crunch wasn’t over and that its effects on the economy were just beginning.
It looks like Strazzullo got it right. Bank and brokerage stocks are in meltdown mode again this month, and they led the plunge in the market on Thursday that slashed 358 points off the Dow industrials and left the index at its lowest since September 2006.
So, what now, Bill? He told me Thursday that he’s still longer-term bearish. But in the near term he thinks that this market sell-off could be reaching a crescendo. "I don’t want to be an aggressive seller here," he said.
 He’s advising his clients with short sales (bets on lower prices) to take some of their profits, particularly in battered financial issues.
Some of the selling this week could be tied to end-of-quarter portfolio shifts by nervous investors. With the turn of the calendar page on Tuesday, that kind of selling pressure would end.
Still, Strazzullo doubts that the market is going to turn sharply higher anytime soon, even if it gets a dose of good news. For one thing, he notes that many investors who bought into the spring bounce -- and now are underwater -- may be eager to exit at the first uptick in prices. Once bitten, twice shy, after all.
It’s the fundamentals that really worry him, though. He sees the American consumer as severely strapped financially, a view that was validated by the latest consumer confidence report this week.
"Consumers have never been this insecure," Strazzullo said.
That may not be a novel thought, but I think it’s one that more people on Wall Street are just beginning to ponder.
As for new help for the economy or the markets from Congress or the Federal Reserve, "there are no more rabbits to pull out of the hat," Strazzullo said, echoing what even many market bulls will concede.
The tax rebate checks are spent. And the Fed is boxed in on interest rates: It doesn’t want to cut its key rate further, from the current 2%, because of inflation pressures and because policymakers know that another cut could devastate the dollar all over again.
Something else came to light on Thursday that I didn’t discuss with Strazzullo, but left me a little chilled: reports that the Fed is talking about loosening restrictions on private-equity firms that want to invest in banks.
Why do that? Obviously, because many loss-ridden banks, large and small, are desperate for capital to bolster their balance sheets.
Anything that helps keep the financial system from crumbling ought to be welcomed, you’d suppose. But remember: When the Fed began doling out hefty new loans to cash-strapped banks and (for the first time) brokerages in March, Wall Street figured, "Mission accomplished!"
Evidently not.
7:31 PM, June 26, 2008
Investors who are trapped in so-called auction-rate securities found a friend today in Massachusetts Secretary of State William Galvin: He sued brokerage UBS for fraud relating to the firm’s sale of the securities in the Bay State. Read the complaint here.
From Bloomberg: "We want complete rescission and restitution for all investors in Massachusetts," said Galvin, who estimated that UBS sold at least $190 million of the auction-rate securities to 237 investors in the state. "We think the conduct on the part of UBS was totally unacceptable."
Auction-rate securities are a form of debt issued by many municipalities and closed-end mutual funds in recent years. They are, in effect, long-term bonds masquerading as short-term debt. The interest rate they paid typically was reset at weekly or monthly auctions.
Brokers often pitched the securities as equivalent to money market funds, but with higher yields. As the credit crunch worsened this year, however, many investors have pulled back from complex debt issues. As auction-rate issues failed to attract new buyers at their weekly or monthly rate resets, most current owners of the $300-billion-plus in securities were told they were stuck with them.
Some issuers have been able to refinance the securities in the last month or so. Nuveen Investments today announced plans for the refunding of some of its municipal bond mutual funds' auction-rate issues. But many investors will remain trapped in the securities at Nuveen funds and elsewhere.
Also from Bloomberg: Karina Byrne, a spokeswoman for UBS in New York, said the firm was "disappointed" with Galvin’s complaint and "will defend the specific allegations."
A good place for investors to stay updated on the auction-rate mess is here. For more on what the states are doing to help investors, look here.
5:18 PM, June 26, 2008
It may not be an official bear market in your personal stock portfolio, but odds are that you’re looking at a lot of red ink this year -- and very little that’s in the black.
In other words, there haven’t been many places to hide in the stock market. Even some of the classic "defensive" stocks have failed investors this time around. Buy-and-holders are being severely tested here, and it doesn’t feel like it’s over.
Measured from the record high in the Standard & Poor’s 500 index reached Oct. 9, nine of the 10 major industry sectors in the index now are in the red, according to S&P’s chief number-cruncher, Howard Silverblatt.
The one holdout, predictably enough, is the energy sector. The average energy stock in the S&P 500 is up 8.8% since Oct. 9.
 Thanks to energy, the drop in the S&P 500 overall hasn’t crossed the bear-market threshold of minus-20% from the record high. The index, which plunged 2.9% today to 1,283.15, now is off 18% from its October peak.
As I noted in this earlier post, even though the Dow industrial average today sank through its worst levels of March, the S&P 500 and most other indexes still are above their March closing lows.
But that may not be much comfort to investors who are having trouble identifying even a single winner in their portfolios this year.
The carnage in financial stocks has been well-documented. That sector in the S&P index is down 41.8% since Oct. 9. Likewise, it’s no surprise that the so-called consumer discretionary sector, which includes automakers, home builders and a raft of retailers such as J.C. Penney and Starbucks Corp., has been hammered. That sector is down 24.1% since October.
But this is the kind of enviroment that’s supposed to favor industries such as healthcare, whose sales and earnings typically don’t depend on the economy’s swings. Yet the average healthcare stock in the S&P has plunged 17.1% since Oct. 9, as rising costs and tougher competition have squeezed profit at many drug companies and HMOs.
The consumer-staples sector, which includes many producers of food products and toiletries, also is supposed to be a good place to hide in a sinking economy. People still have to eat -- and bathe (we hope).
Compared with a lot of other stocks, the staples sector has suffered less since October. But you’re still in the red by 4.6%, on average, in the stocks. And some of the biggest (and supposedly safest) names have been hit the worst. Procter & Gamble’s shares, for instance, are down almost 17% since peaking in December.
One definition of a bear market, apart from the 20%-loss rule, is a downtrend that inflicts widespread pain. By that definition, I'd say we’re there.
12:10 PM, June 26, 2008
It isn’t often that a CEO can lament that his company’s stock price is lower than it was before he was born.
Could that soon be Rick Wagoner’s fate at General Motors Corp.?
 The auto giant’s shares traded as low as $11.21 early today, which by Reuters’ reckoning was the lowest since 1955.
Wagoner was born in 1953. So the trend here doesn’t look good for him.
But it isn’t clear to me that the Reuters calculation adjusts for GM stock splits that occurred in 1950 and 1955 (according to Standard & Poor’s). As you might imagine, 50-year-old stock data isn’t easy to come by.
UPDATE: GM today closed down $1.38 to $11.43, a price level the stock last saw late in 1974, according to research firm Global Financial Data in L.A. Before that, you do indeed have to go back to 1954-55 to find GM at this price -- and that includes the adjustment for stock splits and spinoffs, Global Financial Data says.
Investors bailed out of GM today for the eighth time in nine sessions after Goldman Sachs & Co. downgraded the stock to "sell" from "hold." Goldman said it expected GM to burn through so much cash this year and next that the company probably would have to raise fresh capital, "which we believe could lead to significant shareholder dilution and/or a cut to the company’s dividend."
The stock has plunged 54% year to date, and is one of the big reasons why the Dow Jones industrial average is having such a miserable June.
Among the major brokerages, Goldman is alone with its "sell" rating on GM, according to Bloomberg’s tally of analyst recommendations. Merrill Lynch & Co. has a "buy" on the stock, Lehman Bros. rates it "hold" and Citigroup also gives it a "hold," says Bloomberg.
They’re riding this SUV right over the cliff.
Photo: GM CEO Rick Wagoner. Paul Sancya/Associated Press
11:05 AM, June 26, 2008
Bad as it feels today in the stock market, it’s not yet as grim a situation as Wall Street faced in mid-March -- at least, if you use any major index but the Dow Jones industrials as your yardstick.
I’m not trying to minimize the situation, just point out some facts, such as they are.
The Dow now has plunged through its March 10 closing low of 11,740.15, and was down 254.11 points, or 2.2%, to 11,557.72 at about 10:45 a.m. PDT. Blame the usual suspects: Another rise in oil prices, another drop in the dollar, and another batch of investors too depressed to keep holding GM, Citigroup, Boeing, etc.
But the Standard & Poor’s 500, down 2.2% to 1,292.36, would have to lose another 1.5% to take out its March 10 closing low of 1,273.37.
Some broader indexes have even larger cushions, relatively speaking. The New York Stock Exchange composite index, off 2.2% to 8,674.82, would have to drop another 2.1% to blow through its March low. And the technology-dominated Nasdaq composite would have to slump nearly 7% from its current level to hit a new low.
What’s more, even with this latest selloff, the Dow still isn’t in bear-market territory as it’s usually defined -- meaning a drop of at least 20% from the recent high.
The Dow is off 18.4% from its all-time closing high of 14,164.53 reached on Oct. 9, 2007. Measured from their respective highs last year, the S&P 500 is down 17.4% and the Nasdaq is down 18.4%.
So by Wall Street’s usual standards, we’re still just in a "correction" within a bull market.
Do you feel better yet?
"Techically it’s not a bear market, but that’s semantics," concedes Paul Hickey, co-founder of research firm Bespoke Investment Group in Harrison, N.Y. For most investors, he says, "It doesn’t feel like a bull market."
Even so, he says that the overall reading he gets from 35 market indicators Bespoke tracks is that the stocks are "deeply oversold right now" after four straight weeks of losses, meaning the market is more likely to bounce higher -- at least in the near term --- than keep sinking like a stone.
8:19 PM, June 25, 2008
Their merger with Bank of America Corp. now a done deal, Countrywide Financial Corp.’s shareholders won’t be getting much for turning in their stock in the next few days, as I’ve previously noted: BofA will swap just 0.1822 of a share for each Countrywide share.
But Countrywide's investors will enjoy a whopping dividend yield on whatever BofA stock they get and keep. That is, they’ll enjoy it if BofA doesn’t join the growing list of banks that are slashing their payouts to conserve capital.
 BofA’s annual cash dividend now is $2.56 a share. At Wednesday’s closing stock price of $26.61, that gives the stock a yield of 9.6%.
There are a lot of high-yielding bank stocks out there, as investors have hammered down the shares amid rising loan losses. But very few are yielding as much as BofA. Which, of course, is the strongest warning from the market that it doesn’t believe the dividend will be sustained.
BofA CEO Ken Lewis has said in recent months that he expected to maintain the dividend at its current rate, but he has qualified that by saying he wouldn’t rule out a cut if the economy worsened significantly and the bank’s loan losses deepened. So that’s not much of a commitment.
One big unknown, of course, is how much Countrywide will cost BofA in additional loan losses and potential legal settlements.
Yet with BofA shares down 35% since Jan. 1, Lewis has good reason to want to keep the dividend where it is: Payout cuts have enraged shareholders at other banks this year and helped cost some CEOs their scalps. One prominent victim was Ken Thompson, who was CEO of BofA’s arch-rival, Wachovia Corp., before he was ousted earlier this month.
Lewis may be asked about the dividend once more when he comes to L.A. on July 9 to deliver a speech to Town Hall Los Angeles. The title of his planned address is timely enough, given the Countrywide takeover: Lewis will speak on "Mending Our Mortgage Markets."
5:28 PM, June 25, 2008
A few notes from around the markets today:
-- As Federal Reserve meeting days go, this one was fairly uneventful for markets. Blue-chip stocks finished modestly higher and Treasury bond yields were mixed after the Fed, as expected, kept its key short-term rate at 2%. It was the first Fed meeting without a change in rates since August.
The central bank suggested in its post-meeting statement that the economy wasn't in such bad shape after all. "Although downside risks to growth remain, they appear to have diminished somewhat," the Fed said -- obviously discounting the abysmal consumer confidence survey results reported Tuesday.
-- "Inflation has been slightly higher than expected and there are prospects that inflation will move up further," the central banker said. "We give weight to preventing the higher rate of inflation from becoming entrenched."
 The Fed's Ben S. Bernanke? No, that was the Norwegian central bank's deputy governor, Jan F. Qvigstad, in a statement today after the Norges Bank raised its benchmark interest rate to 5.75% from 5.5%.
Bernanke & Co. continue to talk a good game about inflation concerns, but other central banks are taking action by tightening credit, the usual step to show you're serious about damping price pressures. Norway's rate hike followed similar moves recently by China, Mexico, Turkey, Brazil, India and South Africa.
Who cares what other central banks do? The dollar does. It slid today against many other currencies after the Fed's statement. (There go your hopes for that Oslo pub-crawl tour.)
It was just a few weeks ago that Bernanke strongly signaled the need for a rebound in the dollar to combat rising prices of imports, including oil. Yet there was no mention of the greenback in today's Fed statement, notes Joe Battipaglia, chief investment officer at brokerage Stifel, Nicolaus & Co. in Florham Park, N.J.
Never mind, Dr. Bernanke?
-- The Fed's relatively upbeat take on the economy must not have been persuasive to investors in financial-company shares, which have been battered by expectations of mounting loan losses. The BKX index of 24 major bank stocks jumped as high as 65.44 early in the session, a 4.9% leap from Tuesday's finish. But the index gave almost all of that back by the closing bell, ending at 62.62, up just 0.4% for the day.
That's still above the 10-year closing low of 60.87 reached Monday. But as Jay Shartsis, head of options trading at RF Lafferty & Co. in New York, reminds: "Every time the financial stocks look like they can't possibly go any lower, they go lower."
The BKX is down 29% year to date, compared with a 10% drop in the Standard & Poor's 500 index.
12:04 PM, June 25, 2008
California and Illinois both filed suit against Countrywide Financial Corp. today, alleging deceptive business practices in the mortgage giant’s lending operations in the last few years.
These cases are likely to be the first of a flood of state suits against Countrywide (soon to be a unit of Bank of America Corp.) for its role in the mortgage boom and bust. But the end result of the legal pile-on is far from clear -- in particular, whether the states’ cases will mean even a penny of help for borrowers who were, in fact, victims.
And how to separate the victims from the greedy borrowers who knew all too well that they were taking out loans they couldn’t afford?
In any case, the California and Illinois allegations will resonate with many people who did business with Countrywide (and with plenty of other lenders in the boom years). They’ll also resonate with people who were responsible borrowers and who were aggravated by Countrywide’s nonstop mail solicitations begging them to borrow more money. Yes, this is America, and you're allowed to market your business. But it's one thing to hawk, say, cable TV services; it's another to help load a family with so much debt that it ruins their lives.
 Here are some of the highlights of the California complaint against Countrywide, Chief Executive Angelo Mozilo and President David Sambol (none of whom is commenting). Note the generic nature of these allegations. This case could really use some meat on these bones:
-- "Defendants viewed borrowers as nothing more than the means for producing more loans, originating loans with little or no regard to borrowers’ long-term ability to afford them and to sustain homeownership. This scheme was created and maintained with the knowledge, approval and ratification of defendants Mozilo and Sambol.
-- "To further the deceptive scheme, defendants created a high-pressure sales environment that propelled its branch managers and loan officers to meet high production goals and close as many loans as they could without regard to borrower ability to repay.
-- "Countrywide received numerous complaints from borrowers claiming that they did not understand their loan terms. Despite these complaints, defendants turned a blind eye to the ongoing deceptive practices engaged in by Countrywide’s loan officers and loan broker ‘business partners,’ as well as to the hardships created for borrowers by its loose underwriting practices.
-- In the case of home-equity lines of credit, or HELOCs, "Countrywide typically urged borrowers to draw down the full line of credit when HELOCs initially funded. This allowed Countrywide to earn as much interest as possible on the HELOCs it kept in its portfolio. For the borrower, however, drawing down the full line of credit at funding meant that there effectively was no ‘equity line’ available during the draw period, as the borrower would be making interest-only payments for five years.
-- "Underwriters were under intense pressure to process and fund as many loans as possible. They were expected to process 60 to 70 loans per day, making careful consideration of borrowers’ financial circumstances and the suitability of the loan product for them nearly impossible.
-- "Because of the intense pressure to produce loans, underwriters increasingly had to justify why they were not approving a loan or granting an exception for unmet underwriting criteria to their supervisors, as well as to dissatisfied loan officers and branch managers who earned commissions based on loan volumes.
-- "Countrywide’s high-pressure sales environment and compensation system encouraged serial refinancing of Countrywide loans. The retail compensation systems created incentives for loan officers to churn the loans of borrowers to whom they had previously sold loans, without regard to a borrower’s ability to repay, and with the consequence of draining equity from borrowers’ homes."
Photo: Countrywide CEO Angelo Mozilo. Credit: Ric Francis / Associated Press
3:00 AM, June 25, 2008
Like a hypnotherapist, the Federal Reserve keeps trying to talk us into an economic recovery.
"You will not need lower interest rates to feel better," Chairman Ben S. Bernanke tell us in so many words -- something he and his fellow Fedsters are likely to repeat again today as they gather and, almost certainly, hold their benchmark rate at the current 2%.
But the latest survey of consumer confidence shows that the Fed's relatively hopeful message isn't registering. Americans feel downright terrible about the economy as it is, and their expectations for the near future are even more depressed, according to the Conference Board's June consumer confidence report, issued Tuesday.
The overall confidence index, derived from questionnaires sent to 5,000 families, fell to 50.4 this month, down from 58.1 in May and the lowest since 1992.
 Worse, the expectations index in the survey -- how people figure things will look in six months -- dropped literally off the chart, to 41.0. That was the lowest figure in the 40 years of the survey, and broke through the previous low of 45.2 reached in December 1973 -- just as the economy was beginning to plunge into recession from the effects of the surge in oil prices that followed the Arab embargo announced that fall.
But something else in the latest survey really disturbed Lynn Franco, director of the Conference Board's consumer research center in New York, she tells me: The percentage of people who expect their income to drop in the next six months jumped to a record 15.9%. Even in December 1973, when consumers' overall expectations for the economy were dismal, only 10.8% expected their income to decline in the following six months.
Just 12.3% of consumers are expecting a rise in income over the next six months, compared with 19.4% a year ago.
It's true that consumer spending hasn't collapsed in recent months, thanks in large part to the federal tax rebate checks most families received. But once that money is gone, how do you have a consumer-led economic recovery in the second half with so many people feeling so bad about the big picture and about their personal financial situations?
Would lower interest rates help at this point? Maybe not. But in times of serious trouble it's always better for the Fed to have more bullets in the gun than fewer -- and right now, with its key rate at 2%, there aren't many bullets left.
What's more, with energy and food price inflation showing no signs of abating, Bernanke and other Fed officials have been talking in recent weeks about the need to begin raising interest rates as early as this fall to beat back price pressures.
Hike rates on consumers who are struggling to fill their gas tanks and have enough cash left over for groceries? It's true that quite a few other central banks around the world already have taken that unpopular policy route this year. But they're operating in economies that, for the most part, still are growing at a healthy pace.
The U.S. economy, by contrast, may not officially be in recession, but as Franco put it, never mind the terminology -- "to the consumer right now it feels like a recession."
Photo: And they thought they had it bad! President Nixon, right, listens to his energy policy advisor, John A. Love, in November 1973, one month after the Arab oil embargo was announced. Credit: John Duricka / Associated Press
6:02 PM, June 24, 2008
Ralphs shoppers may lament the grocery chain’s new cutback on double-couponing, but the company’s parent today showed why the need for that particular promotional hook has lessened: Struggling consumers are coming through the doors for other reasons, including for cheaper store-brand goods -- and because they can't afford to eat out.
Kroger Co., which owns Ralphs, Kroger, Food 4 Less, Smith’s and other chains nationwide, reported quarterly earnings that beat expectations, sending its shares up 7% for the day.
Cincinnati-based Kroger told analysts during a conference call that it’s benefiting as more cash-strapped consumers turn to its less-expensive store-brand items in place of brand-name products.
What’s more, people apparently aren’t kidding when they say in consumer surveys that they’ve stopped going to restaurants.
Here’s what Kroger’s CEO, David Dillon, said on the call: "When we dissect some of our data and we look at our very best customers, [they] are buying both more Kroger brand and more national brand, not just more Kroger brand. And we believe that the way to read that is that there’s of course a shift from restaurants and other places to buying more food in our stores. We think there’s a shift to preparing food at home more."
That trend helped drive Kroger’s earnings to $386 million, or 58 cents a share, in the quarter ended May 24, up 15% from a year earlier. Sales jumped 11% to $23.1 billion. Analysts had expected profit of 55 cents a share.
The company said it expected full-year profit to be up as much as 12% from 2007. And in an economy where many companies will be hard-pressed to show much or any profit growth this year, Kroger’s double-digit promise rang Wall Street’s bell: The stock jumped $1.82, or 7%, to $27.82. It’s now up 4.2% this year, compared with a drop of 10.5% for the Standard & Poor’s 500 stock index.
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