Friday Thoughts

We’ll be glad to get out of this week even on the indexes!

I’m anxious to move on to an exciting options expiration week, we’ve gotten rid of pretty much all of our February contracts but there’s a lot of great opportunities to enter quick trades with small premiums especially during an earnings quarter…

Here’s a nice, level-headed article on the HBC with the key paragraph: :"Such subprime customers have always been risky, but HSBC figured it could control that risk. In 2005 and 2006, it bought billions of dollars of subprime loans from other lenders, lured by the higher interest rates they carry."

Many of those loans have soured, sometimes quickly. The percentage of HSBC mortgages more than 60 days past due is climbing. Fraud by borrowers has been higher than expected. "We made some decisions that could have been better," says Tom Detelich, the HSBC executive in charge of understatement, who is in the U.S. spearheading an effort to clean up the mortgage virtual portfolio.

In 2005, HSBC stepped up its mortgage buying. By early 2006, interest rates were rising and home-price appreciation was slowing. The rate increases made it difficult for some borrowers to lower their monthly payments by refinancing, one way that borrowers in a financial pinch try to avoid default.

This is nothing to panic over – yet!  If it starts spreading we can panic but for now, HBC and their "150 Ph.D.s skilled at modeling credit risk" can simply hang their heads in shame…

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A WSJ survey of economists found 40 out of 47 rejecting President Bush’s energy proposal in favor of a premium tax on fossil fuels.  "Economists generally are in favor of free-market solutions, but there are times when you need to intervene," said David Wyss at Standard & Poor’s Corp. "We’re already in the danger zone because of the outlook for oil supplies and concerns about climate change", he said.

There’s a solution that would have OPEC folding up their tents.  If the US started paying European prices for energy and ended up becoming as energy efficient as Europe, we’d knock about 7Mb a day off global demand!  Couple that with pouring the extra $200M a week into alternate energy research and we could curtail global warming while defunding terrorists and taking away the political leverage of our enemies in the Persian Gulf. 

A solution like that could make the United States an energy independent economic powerhouse by 2020 but the solution would never work…  At least according to conservatives who vilified Al Gore when he proposed it both as the Vice President and as a candidate. 

Had we started back in 2001, that date would have been just 7 more years away with tremendous progress already made (a few million less Hummers on the road perhaps).  This link is a must read for those of you who may forget they level of hypocrisy we are dealing with here!

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Retail numbers were pretty good yesterday!  Very good if you don’t count the two biggest losers:  Sharper Image, the barely solvent catalog company lost another 25% year over year sales and Pier 1 Imports, another walking disaster, dropped 13%.  ANN was down 10% but on plan to reorganize inventories (up 3.5% yesterday) and the rest of the sector was fairly healthy.

BA is doing so well that the EU is trying to argue that, while they are guilty of subsidizing Airbus, it doesn’t matter because Boeing still kicks their butts!  So if you cheat and you lose it’s not cheating?

I said last night, maybe they’re just trying to shake out more buyers before taking the market up…  Here’s some interesting data:  PC sales were up 67% vs. last year for the first week of February and up 173% from the week before as Vista (already being touted as a "disappointment") hit the market.  70% are going out with Vista Premium ($159).  Revenue at computer retail chains is up 54% vs. last year, ka-ching for our CC calls!  Also strange – how do INTC and AMD sleep through this news?

Copper is still struggling and a crisis is looming as Red Kite Metals, a commodity hedge fund, seems to have lost 20% of their $1Bn in January as copper fell from $280 to $240.  They’ve sent out letters to their investors asking that they give at least 45 days notice before withdrawing funds.  Shades of Amaranth already!   "At a commodities conference in Shanghai just more than a week ago, the firm’s Mr. Lilley told reporters that copper prices had fallen further than he had expected, suggesting it was a good time to buy."

 Very nice article on Toll Brothers by David Phillips, uncovering lots of shenanigans that are easy to ignore in a good market but tend to tick off investors when things start slowing down!