Real Estate or Stocks in 2012?

How does an investor assess risk? How does an investor identify potential problems with the stocks of the firms in one's portfolio? For instance, is there exposure to Greece, Spain, Ireland or Turkey? Will the company experience parts shortages from Japan or Myanmar? What are the currency implications of an appreciating or depreciating US Dollar on corporate profits? Can the record profits be repeated year after year, after year, to justify the P/E that reflects that same growth? Labor problems in China, union problems in Europe, and fluctuating transportation and commodity costs exasperate attempts at research. Most of these issues are outside of the average investor’s ability to foresee or control. Furthermore, the stock market's movements seem to be faster going down than going up; months of steady improvement can be destroyed in the matter of a few days, causing extreme angst.

Relative tickers: SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD) and Calamos Asset Management (Nasdaq: CLMS).

Real Estate or Stocks?

With the possibility of a global recession and a European depression, the prospects for stocks seem to be limited. Opinions range from a mild downturn to an economic collapse; however, there are very few forecasting an immediate return to global growth. The financial and social burden caused by debt is escalating as additional debt is used to service existing debt, compounding the problem. Tax revenue is being diverted from essential social services and fiscal incentives used to promote employment to totally non-productive interest payments. As more debt is added, the portion of the revenue collected and allocated to debt service is expanding exponentially.

The world’s governments are essentially borrowing at 0%, but when the repression of rates comes to an end, rates will rise to their true market level and the debt service will overwhelm the economies of the globe. Rates have been artificially lowered to force conservative cash into the economy in search of a riskier return, but eventually true market forces will prevail and the ensuing result will be explosive. Holders of Treasury Bonds have enjoyed extraordinary returns, receiving both interest payments and capital gains as rates have been driven down by the Federal Reserve's “Operation Twist”. Holders of Greek, Spanish, Portuguese, and Italian bonds felt very comfortable just a mere 24 months ago, but now things are radically different for them. Understandably, Treasury Bonds offer protection from a deflating environment, and while backed by the world's reserve currency their safety should be assured. The key word here is “should”. There exist two possibilities of which neither is pretty!

Currently, the 30-year Treasury Bond rate is 3%. The Federal Reserve has been pushing the rate down; a slight rise to 4% would significantly reduce the value of the bond. Should the rates rise to 5% or 6%, which is a more normal rate historically speaking, the ensuing capital loss could be as high as 50%. If inflation or even inflationary expectations started to brew, the losses could be staggering. Events across Europe could force weaker nations to seek “bankruptcy protection,” and default on their debt. Chaos would ensue, but eventually order would be restored and a pathway to recovery established.

The calamity of a default might be considered the lesser of two evils. Default and nine months of chaos may be preferable over 10 to 20 years of austerity. Should default become an acceptable option, then a cascade of nations, provinces, states, municipalities, localities, councils, and corporations could default. It is then not totally unthinkable that our great reserve currency might also default to preserve its integrity. As unthinkable as a global default might be, it is a possibility that needs to be considered, as it would allow for recovery.

Accompanying recovery would be inflation, as everything would be adjusting to new currency values and things would be in demand. Perhaps the rise of gold and silver over the last decade in an obviously deflating economy is forecasting turmoil in fiat currency and government obligations. Commodities would eventually recover: gas, oil, minerals, lumber, farms, food, water, shelter, etc., causing inflation and further pressuring debt instruments. The silver lining of a default would be the balancing of budgets worldwide with a path to recovery unveiled. This recession that has started in Europe is different from past downturns; it is not controlled by the Federal Reserve regulating rates and money supply. This is a potential cyclic event to correct global excesses.

Long-term treasuries still offer protection of capital in a very uncertain world. They still provide a small income stream to supplement other revenue sources. A portfolio of bonds needs to be risk managed and an “exit strategy” needs to be in place. Should the U.S. slide into recession, interest rates on 30-year bonds could slide even further producing capital gains. However, there will be a time to take profits and not look back. Another advantage of the repression of rates caused by the Federal Reserve is the opportunity to lock in long-term money and leverage cash flowing rentals.

Ironically, the Real Estate Market may be the asset class that preserves and grows wealth. Real estate as an asset class has been devastated and much of the risk of decline has been mitigated by the severe market correction of the past few years. Population pressure will eventually absorb all of the excess and pockets of shortages that are starting to appear most notably in my home market of Phoenix, AZ, one of the most affected markets in the nation. The strategy to employ would be to accumulate rentals in second and third move-up properties in discounted markets with good forward growth prospects, and use current low interest 30-year fixed rate mortgages finance them. The possibility of rising rates and/or market turmoil will curtail new construction and positively enhance the existing housing market. Furthermore, Cap Rates of 5-7% are available increasing to 8-10% cash on cash with use of a simple Fixed Rate Mortgage. This cash flow will be exceptionally important in any economic slowdown as rates will continue to compress and yield will become elusive.

A key component of a 5-year holding horizon is the inflation protection afforded by the “real” in real estate, as well as the growth in revenue potential as scarcities develop. The revenue stream may become of utmost importance as other traditional sources of revenue and paid benefits are curtailed or jeopardized: CD's, money markets, insurance guaranteed annuities funded by sovereign debt, state and municipal pensions may also be at risk if defaults occur. Cuts in Social Security and Medicare may be needed to reduce entitlement costs. Distressed properties discounted below replacement cost are still available, but financial institutes are working hard to clear the properties and take the losses this year. Any “underwater” residence or non-cash flowing investment property needs to be reviewed for liquidation via the “short sale” process while the market is still viable. Looking forward, costs are to be cut, debt is to be reduced, and reserves accumulated.

Article should interest investors in SPDR Dow Jones Industrial Average (NYSE: DIA), SPDR S&P 500 (NYSE: SPY), PowerShares QQQ Trust (Nasdaq: QQQ), ProShares Short Dow 30 (NYSE: DOG), ProShares Ultra Short S&P 500 (NYSE: SDS), ProShares Ultra QQQ (NYSE: QLD), NYSE Euronext (NYSE: NYX), The NASDAQ OMX Group (Nasdaq: NDAQ), Intercontinental Exchange (NYSE: ICE), E*Trade Financial (Nasdaq: ETFC), Charles Schwab (Nasdaq: SCHW), Asset Acceptance Capital (Nasdaq: AACC), Affiliated Managers (NYSE: AMG), Ameriprise Financial (NYSE: AMP), TD Ameritrade (Nasdaq: AMTD), BGC Partners (Nasdaq: BGCP), Bank of New York Mellon (NYSE: BK), BlackRock (NYSE: BLK), CIT Group (NYSE: CIT), Calamos Asset Management (Nasdaq: CLMS), CME Group (NYSE: CME), Cohn & Steers (NYSE: CNS), Cowen Group (Nasdaq: COWN), Diamond Hill Investment (Nasdaq: DHIL), Dollar Financial (Nasdaq: DLLR), Duff & Phelps (Nasdaq: DUF), Encore Capital (Nasdaq: ECPG), Edelman Financial (Nasdaq: EF), Equifax (NYSE: EFX), Epoch (Nasdaq: EPHC), Evercore Partners (NYSE: EVR), EXCorp. (Nasdaq: EZPW), FBR Capital Markets (Nasdaq: FBCM), First Cash Financial (Nasdaq: FCFS), Federated Investors (NYSE: FII), First Marblehead (NYSE: FMD), Fidelity National Financial (NYSE: FNF), Financial Engines (Nasdaq: FNGN), FXCM (Nasdaq: FXCM), Gamco Investors (NYSE: GBL), GAIN Capital (Nasdaq: GCAP), Green Dot (Nasdaq: GDOT), GFI Group (Nasdaq: GFIG), Greenhill (NYSE: GHL), Gleacher (Nasdaq: GLCH), Goldman Sachs (NYSE: GS), Interactive Brokers (Nasdaq: IBKR), INTL FCStone (Nasdaq: INTL), Intersections (Nasdaq: INTX), Investment Technology (NYSE: ITG), Invesco (NYSE: IVZ), Jefferies (NYSE: JEF), JMP Group (NYSE: JMP), Janus Capital (NYSE: JNS), KBW (NYSE: KBW), Knight Capital (NYSE: KCG), Lazard (NYSE: LAZ), Legg Mason (NYSE: LM), LPL Investment (Nasdaq: LPLA), Ladenburg Thalmann (AMEX: LTS), Mastercard (NYSE: MA), Moody’s (NYSE: MCO), MF Global (NYSE: MF), Moneygram (NYSE: MGI), MarketAxess (Nasdaq: MKTX), Marlin Business Services (Nasdaq: MRLN), Morgan Stanley (NYSE: MS), MSCI (Nasdaq: MSCI), MGIC Investment (NYSE: MTG), NewStar Financial (Nasdaq: NEWS), National Financial Partners (NYSE: NFP), Nelnet (NYSE: NNI), Northern Trust (Nasdaq: NTRS), NetSpend (Nasdaq: NTSP), Ocwen Financial (NYSE: OCN), Oppenheimer (NYSE: OPY), optionsXpress (Nasdaq: OXPS), PICO (Nasdaq: PICO), Piper Jaffray (NYSE: PJC), PMI Group (NYSE: PMI), Penson Worldwide (Nasdaq: PNSN), Portfolio Recovery (Nasdaq: PRAA), Raymond James (NYSE: RJF), SEI Investments (Nasdaq: SEIC), Stifel Financial (NYSE: SF), Safeguard Scientifics (NYSE: SFE), State Street (NYSE: STT), SWS (NYSE: SWS), T. Rowe Price (Nasdaq: TROW), Visa (NYSE: V) and Virtus Investment Partners (Nasdaq: VRTS).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

European Disease Infecting U.S. Manufacturing

The latest Empire State Manufacturing Survey, produced by the Federal Reserve Bank of New York, indicates a pickup in May manufacturing activity on the surface. Closer inspection always adds color, and in this case, we believe reflects growing concern about the outlook. It also shows a bifurcation developing within the sector, as mixed messages are delivered about the trend of business. We believe the report intimates infection from European markets reaching relative U.S. exporters. Given the data we’ve reported on around the industrial sector and manufacturing and international trade, and based on what we see developing globally, we view the headline improvement as just a blip in a trending dip.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers include the SPDR Dow Jones Industrial Average (NYSE: DIA), Industrial Select Sector SPDR (NYSE: XLI), BHP Billiton (NYSE: BHP), Vale S.A. (NYSE: VALE), Alcoa (NYSE: AA), General Electric (NYSE: GE), Caterpillar (NYSE: CAT), United Technologies (NYSE: UTX) and UPS (NYSE: UPS).

Europe Infecting U.S.

The market celebrated Tuesday morning’s early release of the Empire State Manufacturing Survey because of the headline index increase. The SPDR Dow Jones Industrial Average (NYSE: DIA) rose to start the day, before other considerations (read Greece) weighed. The Industrial Select Sector SPDR (NYSE: XLI) traded choppy, though higher. Major industrial names including General Electric (NYSE: GE), Caterpillar (NYSE: CAT), UPS (NYSE: UPS) and United Technologies (NYSE: UTX) were each convincingly in the green. The NY Fed’s measure of area business showed its General Business Conditions Index gained to a mark of 17.09, up from 6.56 in April. Bloomberg’s survey of economists pegged the increase at a lesser level of 10.0 based on past performance and other indicators that reflected an uncertain direction.

The sub-index measuring new orders, which is a tangible indicator of how the business environment might be developing, inched higher to 8.3, from 6.5 in April. Shipments, however, were significantly higher, with the component measure rising to 24.1, from 6.4. Price increase has been contributing to gains here and likely continued to do so in May. That said, the indexes measuring both prices paid and received showed some moderation of the increases.

While the data showed overall gain, closer inspection shed light on a sort of bifurcated manufacturing environment. Something is developing, as the gain hid the fact that while many businesses reported improved activity, there was a similar increase in the number of manufacturers reporting less business activity. Even as 40.5% of those surveyed reported better business conditions, a gain over April’s 27.9%, 23.4% reported deteriorated business, versus 21.3% in April. Worse yet, 31.6% of those surveyed saw decreased new ordering activity, versus the 22.7% that said the same in April. That contrasted with the May gain in those who saw improved new ordering, where 39.9% saw improvement versus the 29.2% that said so in April.

The weird changes were fueled by decreasing numbers of managers reporting no change. The divergence of data may be reflective of specific markets served by manufacturers. Perhaps those serving Europe to a greater extent are now seeing decreased business. The latest International Trade Report reflected a wider trade deficit between the U.S. and Europe, which we intimated could be due to decreased European demand for U.S. goods and services. Of course, we now know that Spain is in recession as Greece falls into depression. Trouble seems to be spreading as an ill-timed austerity movement is implemented too aggressively across the euro region.

The NY Fed’s report also showed a perception among manufacturing managers that business conditions might deteriorate over the next six months. The forward looking indicators for General Business Conditions, New Orders, Shipments and Employment all decreased in value. Also, expectations for capital expenditures and technology spending declined. This all portends trouble, as the expert ear on the rail is feeling a bad vibe coming. Ironically, given the expected business slowdown, price increases are seen by manufacturing managers. I see inflation coming too, but I believe it will be selective and dynamic, and will follow nearer term deflation in industrial commodity prices. As a result, I’m not a fan of names like BHP Billiton (NYSE: BHP), Alcoa (NYSE: AA) and Vale S.A. (NYSE: VALE) over the short-term, though I believe scarcity, global demand and a breakdown of global trade, combined with fiat currency devaluation, will eventually drive the price of all materials and goods much higher.

This article should interest investors in Boeing (NYSE: BA), Raytheon (NYSE: RTN), Digital Globe (NYSE: DGI), GenCorp (NYSE: GY), General Dynamics (NYSE: GD), Goodrich (NYSE: GR), Northrop Grumman (NYSE: NOC), Honeywell (NYSE: HON), Lockheed Martin (NYSE: LMT), Rockwell Collins (NYSE: COL), L-3 Communications (NYSE: LLL), EMBRAER (NYSE: ERJ), FLIR Systems (Nasdaq: FLIR), BE Aerospace (Nasdaq: BEAV), TransDigm (NYSE: TDG), Spirit Aerosystems (NYSE: SPR), CAE (NYSE: CAE), Alliant Techsystems (NYSE: ATK), Hexcel (NYSE: HXL), Triumph Group (NYSE: TGI), Esterline Technologies (NYSE: ESL), Moog (NYSE: MOG-A), Heico (NYSE: HEI), Teledyne (NYSE: TDY), Curtiss-Wright (NYSE: CW), Cavco (Nasdaq: CVCO), Skyline (NYSE: SKY), Mohawk Industries (NYSE: MHK), Interface (Nasdaq: IFSIA), Albany International (NYSE: AIN), Unifi (NYSE: UFI), Illinois Tool Works (NYSE: ITW), Tyco International (NYSE: TYC), Cummins (NYSE: CMI), Kubota (NYSE: KUB), Ingersoll-Rand (NYSE: IR), Dover (NYSE: DOV), ITT Corp. (NYSE: ITT), Flowserve (NYSE: FLS), Pall (NYSE: PLL), Dresser-Rand (NYSE: DRC), SPX (NYSE: SPW), Gardner Denver (NYSE: GDI), IDEX (NYSE: IEX), Nordson (Nasdaq: NDSN), Graco (NYSE: GGG), Actuant (NYSE: ATU), Middleby (Nasdaq: MIDD), ABB (NYSE: ABB), Eaton (NYSE: ETN), Nidec (NYSE: NJ), Rockwell Automation (NYSE: ROK), Ametek (NYSE: AME), Regal Beloit (NYSE: RBC), Thomas & Betts (NYSE: TMB), Woodward Governor (Nasdaq: WGOV), Caterpillar (NYSE: CAT), Deere (NYSE: DE), CNH (NYSE: CNH), Joy Global (Nasdaq: JOYG), Bucyrus (Nasdaq: BUCY), Agco (Nasdaq: AGCO), Emerson Electric (NYSE: EMR), Parker Hannifin (NYSE: PH), Roper Industries (NYSE: ROP), Pentair (NYSE: PNR), Waste Management (NYSE: WM), Republic Services (NYSE: RSG), Fastenal (Nasdaq: FAST), Vulcan Materials (NYSE: VMC), MDU Resources (NYSE: MDU), Martin Marietta Materials (NYSE: MLM), Owens Corning (NYSE: OC), Valspar (NYSE: VAL), Precision Castparts (NYSE: PCP), United States Steel (NYSE: X), Reliance Steel (NYSE: RS), CRH (NYSE: CRH), CEMEX (NYSE: CX), Eagle Materials (NYSE: EXP), Fluor (NYSE: FLR), McDermott International (NYSE: MDR), Foster Wheeler (Nasdaq: FWLT), Empresas ICA (NYSE: ICA), Stanley Black & Decker (NYSE: SWK), Timken (NYSE: TKR), Kennametal (NYSE: KMT), Leucadia National (NYSE: LUK), Masco (NYSE: MAS), Weyerhaeuser (NYSE: WY), Quanta Services (NYSE: PWR), Chicago Bridge & Iron (NYSE: CBI), EMCOR (NYSE: EME), Snap-on (NYSE: SNA), Toro (NYSE: TTC), GM (NYSE: GM) and Ford (NYSE: F).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Look Beyond Today’s Jobless Claims

Weekly Jobless Claims for the week ending May 5, 2012 hung around the same territory, as we wait for the next economic inflection point. The media offers promotional headlines to get you to read the story, and so today’s most popular theme seems to be that better claims have eased concern on labor. What’s true is that the last two weeks have been better. What’s troubling is that there’s no vision in these articles for the ramifications of what is developing in Europe and China.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers include: Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN)

Jobless Claims

The latest Weekly Jobless Claims Report showed a decrease of 1,000 new benefits filers to 367K, though that’s off a prior week figure that was revised higher by 3,000, to 368K. It’s mixed news that basically offers the same truth; not much changed last week.

The trend of the last four weeks is a more useful metric for vision into what’s developing in labor in most instances. It would be less important than the weekly figure should war break out in the Middle East, or looking back at history, when events like the attacks on the World Trade Center occurred. In today’s dynamic, though gradually changing environment, we can look to the moving average for guidance. What we see is that it’s down 5,250, reaching 379K in the latest reporting period. We should note that through the four-week period, it swung higher and then retrenched. Before that, the claims count had been trending lower to a sticking point approaching 350K.

The problem with claims is that it is a lagging indicator, though a current data point. We get a good look at what’s happening in real time, but it doesn’t mean much. For this reason, we have to look ahead to what may drive the trend to come. For that reason, I say, we’re waiting on the next inflection point. What seems to be developing is a gradual creep toward recession, with deterioration happening in slow motion.

Yet, as Europe deteriorates, China is likewise offering signs of slowing economic growth. Just today, China reported weaker than expected trade growth. This is but one of many recent data points souring for the emerging nation. This all plays back to America, because we serve and participate in those markets in a big way. They have offered support in our times of distress, and they have offered means of growth as our markets have matured. The deterioration has led me to suggest industrials and other multinationals might suffer looking forward. I even believe the high-flying growth offered to our best brands might come under pressure as these markets correct. This is why I said recently that I would not buy Starbucks (Nasdaq: SBUX), a market favorite high growth multinational play. Starbucks recently showed softness in its European market, and even McDonald’s (NYSE: MCD) just offered some concerning news about global conditions as it missed the Street’s April sales expectations.

Remember that with this weekly jobless claims data point, looking forward is the key. We can garner some information from the moving average and even the weekly count, but it’s what will happen that matters to stocks, which look ahead.

Article should interest investors in Paychex (Nasdaq: PAYX), Manpower (NYSE: MAN), Robert Half International (NYSE: RHI), 51Job Inc. (Nasdaq: JOBS), Monster World Wide (NYSE: MWW), Korn/Ferry International (NYSE: KFY), Administaff (NYSE: ASF), Kforce (Nasdaq: KFRC), TrueBlue (NYSE: TBI), Dice Holdings (NYSE: DHX), Kelly Services (Nasdaq: KELYA), CDI Corp. (NYSE: CDI), Cross Country Healthcare (Nasdaq: CCRN), On Assignment (Nasdaq: ASGN), AMN Healthcare Services (NYSE: AHS), Barrett Business Services (Nasdaq: BBSI), Hudson Highland Group (Nasdaq: HHGP), StarTek (NYSE: SRT), RCM Technologies (Nasdaq: RCMT), VirtualScopics (Nasdaq: VSCP), American Surgical (OTC: ASRG.OB), Medical Connections (OTC: MCTH.OB), iGen Networks (OTC: IGEN.OB), St. Joseph (OTC: STJO.OB), General Employment Enterprises (NYSE: JOB), Total Neutraceutical (OTC: TNUS.OB), TeamStaff (Nasdaq: TSTF), Stratum (OTC: STTH.PK), Purespectrum (OTC: PSRU.OB), Corporate Resource Services (OTC: CRRS.OB).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

A Plea for Greece, Europe and Us All

In April 2010 I authored a concerned and prescient plea entitled, Greece News & My Disgust, within which I penned such wisdom as: "The current plan inspired by Greece's big brothers is not feasible. It will only open up black markets, torch the streets of Athens and lead more Greek wealth to leave the country." My prediction did not end there unfortunately, and I hope it is never fulfilled, because I said, "It will only usher in a radical government to replace the current."

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relevant tickers: NYSE: DB, NYSE: STD, Nasdaq: ITUB, NYSE: UBS, NYSE: WBK, NYSE: LYG, NYSE: BCS, NYSE: CS, NYSE: AIB, NYSE: BLX, NYSE: NBG, NYSE: RY, NYSE: BFR, NYSE: IRE, NYSE: BMO, NYSE: CM, NYSE: ING, NYSE: C.

A Plea for Greece

The rating agencies are correct about Greece. The nation of my forefathers will default on its debts, despite all the latest efforts of the Greek government and the EU. It’s a shame that a bleak end seems inevitable for Greece, given the great sacrifices of the Greek people. Yet, it’s only inevitable because of the blind, bullheaded nature of thinking leading governments today, including in Greece and across Europe. I’ll be offering several creative ideas for legislators that should be digestible to most of them, yet will likely be ruled out because of their out-of-the-box nature, and due to the hard work that would be involved in implementing them. It’s much easier to sign on to pay and pension cuts, until the people will have no more of it, at which point pain is returned to sender, and perhaps earned due to disconnection and ignorance.

Fitch downgraded Greece last week to a level predicting default and S&P cut the Greek Republic this week to a mark indicating “select default”. The rating agency actions were despite the Greek government’s efforts to reduce the country’s debt burden and to cover its current principal and interest payments via troika payout. Greece took the strides necessary for it to assure it could survive through its latest deadlines, but that will not be enough in the end, because they are also undermining themselves with increasingly deeper austerity. Greece will effectively force its private debt holders to swallow a deep cut in the value of their loans through legislation. That move in itself is indicative of default, but remained an option for the already understood to be unreliable sovereign debtor.

When they naively promised not to issue any new austerity measures last year, government representatives Venizelos and Papademos showed a lack of economic foresight that matched poorly against the technocrat label of the latter. That said, judging by the poor excuses passing for economic plans prevailing across the spectrum of decision makers today, the two have plenty of company in poor judgment. Venizelos simply accepts the prevailing option offered up by the majority of intermingled and politically corrupted economic minds, but Papademos should know better.

Our leaders, globally, look to me increasingly like blind mice traversing through a field of big cats. Yet, I fear an overhaul of them would only usher in more ignorant minds with more dangerous courage. For some sad reason, the European actors in the Greek tragedy were surprised when they bumped into revised lower Greek economic activity which left debt levels short of agreed upon watermarks for aid delivery. In Mid-February, fourth quarter GDP fell short of expectations, cut to a level indicating contraction of 7.0% in Greece, down from 5.0% contraction in Q3.

A surprise to the blind rodents, the decimation of the Greek economy was of course exacerbated by austerity, which was something that I warned my followers would happen from day one. Perhaps the captains on the hollow hill will not overlook my advice planned for publishing over the weeks ahead, through which I will offer a series of lifesaving strategies for Greece, Europe and the global economy. I hope I will at least be able to communicate my ideas well enough for them to reach a few ears that might help make a difference. If not, perhaps I’ll come home to clean house.

Greece will certainly default, because the trajectory plotted by its pilots is flawed. Greek navigators from the famed island of my descent would see that what Europe and Greece have done is negligently plan a path that fails to compensate for all factors. It is as if they have plotted a critical course without compensating for the gremlin wind. Thus, we continue to find ourselves obscenely off-course. Now that Germany and a few other mini-members have promised their constituents that no new aid will be issued to Greece, the destination is determined and it is the bottom of the Mediterranean Sea. Though some see the latest promises as political, and so easily undone when the surprise of unmet fiscal goals and uncovered debt expenses resurface after elections across Europe and Greece this year. If that is the case, like Venizelos, they will open their mouths, shrug their shoulders and pass a new tranche of aid as fires fury at their feet.

Without creative thinking, including the ideas I will present shortly to whoever will listen (including the few important ears attendant to me in Greece and Greek-America) Greece will certainly default. With that, spreads will certainly widen for the Portuguese, Spanish, Italians and probably the rest of the previously considered to be untouchables. So whoever is in political office post elections might do better to reconsider political ploys to remain there, because a burning seat is worse than no seat. At the same time, the abandonment of Greece is not the optimal direction for Europe, and may even work more in favor of Greece when Europe fails anyway.

"What I suggest is to save Greece, but by helping Greece to save itself rather than to starve itself."

What I suggest is to save Greece, but by helping Greece to save itself rather than to starve itself. Since the global market is clearly intertwined, it is in the global interest to put the best minds to work developing creative and immediately value-adding strategies into effect. My first suggestion will be one that will require global consideration and approval. For the sake of the globe, I hope it is seriously considered and employed. Stay tuned…

The Default Disaster Missed by Markets

Unless creative ideas are embraced, Greece, Europe and probably the global economy will disintegrate, for related though separate reasons. Given my lack of confidence today in our global leadership, I would shy far from celebrating the stocks of Greece, Europe and even the United States to a lesser extent, if not the world. The argument is only solidified by the Iran trigger, which I’ll soon have more to say about. So the high flying Global X FTSE Greece 20 ETF (NYSE: GREK), up 13.7% since inception, though down 12% since my recent warning, should move even lower. Likewise, European shares, contaminated by where the EU’s terrible trajectory will take them, are likewise threatened. The iShares S&P Europe 350 Index ETF (NYSE: IEV) is up roughly 11% through February, and slightly higher since my sell call. This is because European investors could initially view the prospect of a Greek exit from the euro-zone as a positive, but I expect they will be wrong. The Vanguard European ETF (NYSE: VGK) is also up roughly 12% year-to-date, and a bit higher since the February 7th based call. Deutsche Bank (NYSE: DB) shares are up roughly 24% year-to-date on, dare I say, on a premature vision for European recovery. Reflecting capital flows and prospective hope, American financials like Citigroup (NYSE: C) shares are also up about 28% this year. Reiterating, I see these latest capital gains at risk, though at varying degrees and on perhaps different timing, based on the above detailed economic reasoning.

Article is relevant to Deutsche Bank (NYSE: DB), Banco Santander (NYSE: STD), ITA (Nasdaq: ITUB), UBS (NYSE: UBS), Westpac Banking (NYSE: WBK), Lloyds Banking Group (NYSE: LYG), Barclays (NYSE: BCS), Credit Suisse (NYSE: CS), Allied Irish Bank (NYSE: AIB), Banco Latinamericano (NYSE: BLX), National Bank of Greece (NYSE: NBG), Royal Bank of Canada (NYSE: RY), BBVA Banco Frances (NYSE: BFR), The Bank of Ireland (NYSE: IRE), Bank of Montreal (NYSE: BMO), Canadian Imperial Bank of Commerce (NYSE: CM), ING Groep (NYSE: ING), Citigroup (NYSE: C).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Facebook IPO Windfall if Open to its Users

Imagine how awesome it would it be for Facebook (NYSE: FB) to offer its shares via a social IPO™. With some 800 million users of its now iconic social networking platform, the new king of the internet might score yet more points with its “friends” if it were to offer them access to the company’s IPO. Beyond being just a brilliant public relations maneuver, such access to the new shares should allow the company to achieve an even better valuation than it might otherwise.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

For Facebook a Social IPO Would Rock

Just do the math. With 800 million active users, if it were to offer its shares at $100 per, Facebook could generate $80 billion if each of its members bought just one share. Valuation aside, the unsophisticated marketplace would likely bid up Facebook’s value beyond the $100 billion valuation some sophisticated investors say Facebook is worth. And given that there would likely remain strong demand among many institutions, Facebook might then achieve an even greater than $100 billion valuation.

Furthermore, the news of a social IPO would likely push more people globally to join the social network, giving lift to the company’s intrinsic value. Thus, like a Newton’s Cradle, the metal balls that rock each other in perpetual motion on executive desks across the country, Facebook’s members would drive its share value as its share offering drives membership growth. I think that’s just brilliant.

As is, the Facebook IPO is the most heralded and anticipated since Google’s (Nasdaq: GOOG) blockbuster offering about a decade ago. The offering’s proceeds and valuation should exceed Google’s and other major internet IPOs like that of Zynga (Nasdaq: ZNGA), Groupon (Nasdaq: GRPN), Vonage (NYSE: VG), Orbitz Worldwide (NYSE: OWW) and LinkedIn (Nasdaq: LNKD). Just the news of Facebook’s registration sent the shares of stocks that might benefit from Facebook’s valuation soaring. Renren (Nasdaq: RENN) and Zynga (Nasdaq: ZNGA) took off like rockets late last week.

I only wonder if the bankers at Morgan Stanley (NYSE: MS), the investment bank said to be heading up Facebook’s offering, have considered this novel idea. If not, just a tiny cut from the commission would do me just fine fellas.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Q4 GDP Growth Severely Flawed

Fourth quarter Gross Domestic Product (GDP) was reported higher, but the growth rate fell short of economists’ views. Stocks started lower on the news Friday and kept that way as a closer look at the data shows it has gaping holes in it. Thus, American economic activity may not be as supportive of stocks as valuations had accounted for up to today. Our analysis of the GDP report and our global economic outlook certainly advise for investor restraint.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Q4 GDP Warning

The government reported Friday that fourth quarter GDP grew 2.8%, which was well above the third quarter growth rate of 1.8%. Yet, stocks fell at the start of trading, leaving casual observers wondering what gives. Just ahead of closing, the SPDR Dow Jones Industrial Average (NYSE: DIA) was still roughly 0.6% lower, while the SPDR S&P 500 Index (NYSE: SPY) was off by 0.2%. That can be partially explained by the shortfall of Q4 growth to economists’ expectations, which were set at a +3.1% consensus based on Bloomberg’s survey. Still, you would think the much better growth would outweigh a few tenths of a point here or there. Well, that would be a correct assessment, so the reaction of stocks must be defined by a more complex set of factors, and those can be found in the details of the data.

The two most significant issues detracting from the best quarterly GDP growth since Q2 2010 both tie into consumer spending. First, and most importantly, GDP was lifted 1.94 percentage points by a build in inventories. Some are saying that this is okay, since third quarter growth was penalized by 1.35 percentage points due to an inventory draw down, however, I see no relevance. Despite the promotional environment of the fourth quarter, the aggregate performance of retailers was poor. This was also apparent by the December Retail Sales data. In other words, discounters like Wal-Mart (NYSE: WMT) and Costco (Nasdaq: COST) may have continued to steal market share alongside bargain online salesmen like Amazon.com (Nasdaq: AMZN) and eBay (Nasdaq: EBAY), while general operators like J.C. Penney (NYSE: JCP) and poor performers like Sears (Nasdaq: SHLD) now employ reinvention strategies to save themselves. In electronics, the success of Apple (Nasdaq: AAPL) and Amazon seems to come at the cost of Research in Motion (Nasdaq: RIMM) and Hewlett-Packard (NYSE: HPQ). Thus, on the whole, a soft economy leaves a competitive environment that can no longer support all players.

The other point that I see as significant came from the growth of the services sector in Q4, which only managed 0.2%, according to the government. Our services dominant economy cannot sustain significant economic growth without robust activity in services. Also, as I’ve pointed out in the past, the sales galore and holiday imploring environment of Q4 is likely to cost consumption in Q1, if not further. Without demand for services, what then will drive our economy?

Regarding the sustainability of economic growth, we also find issue in another factor that helped to drive spending in Q4. Americans dipped into their savings in order to fund consumption. The government noted that the personal savings rate, which measures savings as a percentage of personal income, fell to 3.7% in Q4, from 3.9% in Q3. Clearly, there’s only so far Americans can dip into savings, and considering the private debt problem that our nation still faces, there’s only so far this factor can drive our economy.

Therefore, and in conclusion, the market is just in its determination to penalize stock valuations now. Also, given the pitfalls that litter our path forward, including European economic recession (20% of American exports sold there) and geopolitical deterioration (Iran et al), investors are correct to proceed with caution.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Noise Still Drowns Out Housing Data

Over the last month or so the weekly mortgage activity data produced by the Mortgage Bankers Association has been choppy to say the least. That is because of the imperfect adjustment for holidays, including Christmas, New Year’s and in this week’s data, Martin Luther King Day. However, moving forward, except for President’s Day on February 20, there should be very little noise in the data, barring wild swings in weather. Therefore, we should be able to get a clearer sense of the trend in housing, and as the weather warms, an early idea about the spring surge some real estate pundits expect.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

Relative tickers: NYSE: AF, NasdaqCM: ASBI, Nasdaq: ABCW, AMEX: BKJ, Nasdaq: BKMU, NYSE: BBX, Nasdaq: BFIN, Nasdaq: BANR, Nasdaq: BCSB, Nasdaq: BFED, Nasdaq: BHLB, Nasdaq: BOFI, Nasdaq: BYFC, Nasdaq: BRKL, Nasdaq: BFSB, Nasdaq: CAFI, Nasdaq: CFFN, Nasdaq: CARV, Nasdaq: CLFC, Nasdaq: CFBK, Nasdaq: CBNK, Nasdaq: CSBC, Nasdaq: CSBK, Nasdaq: COLB, Nasdaq: DCOM, Nasdaq: EBTC, Nasdaq: ESBF, Nasdaq: ESSA, Nasdaq: FFCO, Nasdaq: FFDF, Nasdaq: FBSI, Nasdaq: FCAP, Nasdaq: FCLF, Nasdaq: FDEF, Nasdaq: FFBH, Nasdaq: FFCH, Nasdaq: FNFG, Nasdaq: FSGID, Nasdaq: FSBK, NYSE: FBC, Nasdaq: FFIC, Nasdaq: GCBC, Nasdaq: HFFC, Nasdaq: HMNF, Nasdaq: HBCP, Nasdaq: HOME, Nasdaq: HFBC, Nasdaq: HCBK, Nasdaq: INCB, Nasdaq: ISBC, Nasdaq: JXSB, Nasdaq: JFBI, Nasdaq: KFFG, Nasdaq: KRNY, Nasdaq: KFFB, Nasdaq: LSBK, Nasdaq: LABC, Nasdaq: LSBI, Nasdaq: MLVF, Nasdaq: EBSB, Nasdaq: CASH, Nasdaq: NASB, Nasdaq: NVSL, Nasdaq: NEBS, Nasdaq: NHTB, NYSE: NYB, Nasdaq: FFFD, Nasdaq: NECB, Nasdaq: NWBI, Nasdaq: OCFC, NYSE: OCN, Nasdaq: ONFC, Nasdaq: PFED, Nasdaq: PVSA, Nasdaq: PBHC, Nasdaq: PBCT, Nasdaq: PCBS, Nasdaq: PROV, NYSE: PFS, Nasdaq: PBNY, Nasdaq: PBIP, Nasdaq: PSBH, Nasdaq: PULB, Nasdaq: PVFC, Nasdaq: QCCO, Nasdaq: RIVR, Nasdaq: RVSB, Nasdaq: ROMA, AMEX: SAL, Nasdaq: SIFI, Nasdaq: SMBC, Nasdaq: STSA, AMEX: TSH, Nasdaq: THRD, Nasdaq: TSBK, Nasdaq: UCBA, Nasdaq: UCFC, Nasdaq: UBNK, Nasdaq: VYFC, Nasdaq: WFSL, Nasdaq: WSBF, Nasdaq: WAYN, Nasdaq: WSB and Nasdaq: WVFC.

Noise Drowned Housing & Economic Data

This week’s Weekly Application Survey, covering the week ending January 20, included the Martin Luther King Jr. holiday. It was a bank holiday, and so comes to play in mortgage activity. For the week, the MBA’s Market Composite Index fell by 5% from the week before, handicapped by what we see as inadequate adjustment for the business drop-off that occurs on the Friday before and the Tuesday that follows every three day weekend. I’ve originated this viewpoint and continue to put it forth here.

Purchase Activity, which measures mortgage application activity tied to the purchase of homes, fell by 5.4% from the week just prior. I again attribute this decline to the holiday impact, despite the adjustment by the MBA. On an unadjusted basis, this index fell by 9.7%. However, we still cannot use this data in pure form in our forecasting or investment assumptions, for the reasons aforementioned.

The Refinance Index fell by 5.2%, again on the holiday noise. Mortgage rate direction varied across mortgage categories. For instance, the average contracted rate on 30-year fixed rate mortgages with conforming loan balances (417,500 or less) increased to 4.11% from 4.06% the week before. While the points decreased for 80% loan to value ratios, the effective mortgage rate still rose. As for jumbo loan balances (greater than conforming), the average contracted rate for same term fixed rate mortgages fell slightly to 4.39%, from 4.4%. While points rose here, the effective rate still decreased. FHA sponsored loans saw the average contracted rate on 30-year fixed rate loans rise to 3.97% from 3.91% the week before. Average contracted rates on 15-year fixed rate mortgages rose to 3.4% from 3.33%.

Even the four-week moving average of the Market Composite Index seems to me seasonally skewed as it moves out of the holiday inclusive period. For the latest period, this average was up 4.12%, and it should continue higher as it leaves the holiday season behind.

As we move forward, the weekly data faces little distraction, except for what may come from weather and also President’s Day in February. Thus, those of us studying this data point, and others, will get a clearer view to which to base more solid forecasts upon. That said, this benefit will not account for what may lie ahead of us, which I’ve begun talking about in recent columns. In fact, in my latest article, I based a sell call on paper profit rich homebuilders on this view. Today’s mortgage activity data, along with the Pending Home Sales Index decline and FHFA House Price Index’s monthly price increase have the relative shares of Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), J.P. Morgan Chase (NYSE: JPM) and K.B. Home (NYSE: KBH) trading mixed at this hour. K.B. Home was up 2.9% near noontime, while J.P. Morgan and Wells Fargo were lower by about 1%.

Article should interest investors in Savings & Loan stocks including Alaska Pacific Bankshares (OTC: AKPB.OB), Allied First Bancorp (OTC: AFBA.OB), Astoria Financial (NYSE: AF), AMB Financial (OTC: AMFC.OB), Ameriana Bancorp (NasdaqCM: ASBI), Anchor Bancorp Wisconsin (Nasdaq: ABCW), Bancorp of New Jersey (AMEX: BKJ), Bank Mutual (Nasdaq: BKMU), BankAtlantic (NYSE: BBX), BankFinancial (Nasdaq: BFIN), Banner (Nasdaq: BANR), BCSB Bancorp (Nasdaq: BCSB), Beacon Federal (Nasdaq: BFED), Berkshire Hills (Nasdaq: BHLB), Blackhawk Bancorp (OTC: BHWB.OB), Blue River Bancshares (OTC: BRBI.OB), Bofi (Nasdaq: BOFI), Broadway Financial (Nasdaq: BYFC), Brookline (Nasdaq: BRKL), Brooklyn Federal (Nasdaq: BFSB), Camco Financial (Nasdaq: CAFI), Capitol Federal (Nasdaq: CFFN), Carver (Nasdaq: CARV), Cecil Bancorp (OTC: CECB.OB), Center Financial (Nasdaq: CLFC), Central Federal (Nasdaq: CFBK), Chicopee (Nasdaq: CBNK), Citizens South (Nasdaq: CSBC), CKF Bancorp (OTC: CKFB.OB), Clarkston Financial (OTC: CKFC.OB), Clifton Savings (Nasdaq: CSBK), Close Brothers (OTC: CBGPY.PK), Columbia Banking (Nasdaq: COLB), Consumers (OTC: CBKM.OB), Dime Community (Nasdaq: DCOM), Enterprise (Nasdaq: EBTC), ESB Financial (Nasdaq: ESBF), ESSA Bancorp (Nasdaq: ESSA), Eureka Financial (OTC: EKFC.OB), FedFirst Fin’l (Nasdaq: FFCO), FFD Fin’l (Nasdaq: FFDF), FFW (OTC: FFWC.OB), First Bancorp of Indiana (OTC: FBPI.OB), First Bancshares (Nasdaq: FBSI), First Capital (Nasdaq: FCAP), First Clover Leaf (Nasdaq: FCLF), First Defiance (Nasdaq: FDEF), First Federal Bancshares of Arkansas (Nasdaq: FFBH), First Financial Holdings (Nasdaq: FFCH), First Independence (OTC: FFSL.OB), First Investors Fin’l Services (OTC: FIFS.PK), First Niagara (Nasdaq: FNFG), First Robinson (OTC: FRFC.OB), First Security Group (Nasdaq: FSGID), First South (Nasdaq: FSBK), Flagstar (NYSE: FBC), Flatbush Federal (OTC: FLTB.OB), Flushing Financial (Nasdaq: FFIC), Greene County (Nasdaq: GCBC), HF Financial (Nasdaq: HFFC), HMN Fin’l (Nasdaq: HMNF), Home Bancorp (Nasdaq: HBCP), Home Federal (Nasdaq: HOME), HopFed (Nasdaq: HFBC), Hudson City (Nasdaq: HCBK), Indiana Community (Nasdaq: INCB), Investors Bancorp (Nasdaq: ISBC), Jacksonville Bancorp (Nasdaq: JXSB), Jefferson Bancshares (Nasdaq: JFBI), Kaiser Federal (Nasdaq: KFFG), Kearny Fin’l (Nasdaq: KRNY), Kentucky First Federal (Nasdaq: KFFB), Lake Shore Bancorp (Nasdaq: LSBK), Louisiana Bancorp (Nasdaq: LABC), LSB Fin’l (Nasdaq: LSBI), Malvern Federal (Nasdaq: MLVF), Meridian Interstate (Nasdaq: EBSB), Meta Fin’l (Nasdaq: CASH), NASB Fin’l (Nasdaq: NASB), Naugatuck Valley (Nasdaq: NVSL), New England Bancshares (Nasdaq: NEBS), New Hampshire Thrift (Nasdaq: NHTB), New York Community (NYSE: NYB), North Central Bancshares (Nasdaq: FFFD), Northeast Community (Nasdaq: NECB), Northwest Bancshares (Nasdaq: NWBI), OceanFirst (Nasdaq: OCFC), Ocwen (NYSE: OCN), Oneida (Nasdaq: ONFC), Park Bancorp (Nasdaq: PFED), Parkvale Fin’l (Nasdaq: PVSA), Pathfinder Bancorp (Nasdaq: PBHC), People’s United (Nasdaq: PBCT), Provident Community (Nasdaq: PCBS), Provident Fin’l (Nasdaq: PROV), Provident Fin’l Services (NYSE: PFS), Provident New York (Nasdaq: PBNY), Prudential Bancorp of PA (Nasdaq: PBIP), PSB Holding (Nasdaq: PSBH), Pulaski Fin’l (Nasdaq: PULB), PVF Capital (Nasdaq: PVFC), QC Holding (Nasdaq: QCCO), River Valley Bancorp (Nasdaq: RIVR), Riverview Bancorp (Nasdaq: RVSB), Roma Fin’l (Nasdaq: ROMA), Salisbury Bancorp (AMEX: SAL), SI Financial (Nasdaq: SIFI), Southern Missouri (Nasdaq: SMBC), Sterling Fin’l (Nasdaq: STSA), Teche Holding (AMEX: TSH), TF Fin’l (Nasdaq: THRD), Timberland Bancorp (Nasdaq: TSBK), United Community (Nasdaq: UCBA), United Community Fin’l (Nasdaq: UCFC), United Fin’l Bancorp (Nasdaq: UBNK), Valley Fin’l (Nasdaq: VYFC), Washington Federal (Nasdaq: WFSL), Waterstone Fin’l (Nasdaq: WSBF), Wayne Savings (Nasdaq: WAYN), WSB Holdings (Nasdaq: WSB) and WVS Financial (Nasdaq: WVFC).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Mortgage Activity No Reason to Rally

Seasonal influences are still at play in the weekly mortgage application data produced by the Mortgage Bankers Association (MBA), but soon, we should see real improvement. That said, the latest reported increase is no reason to get giddy about a real estate recovery.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

No Reason to Rally

Over the course of the last several weeks, we’ve continuously pointed out the seasonal noise we see in the data produced within many economic metrics. One of the data points we’ve keyed on has been the MBA’s Weekly Applications Survey. Activity dropped off significantly in the weeks of December, as Americans were too busy shopping, preparing their homes, visiting with friends, baking and cooking to spend time applying for a mortgage. Even despite the lowest mortgage rates of the year, they kept from refinancing, and certainly there were some refinancing opportunities created by those historical troughs.

However, now that we’re fully immersed in 2012, the data should begin to reflect economic value adding opportunities like those offered in the mortgage market. The latest period, reported today, still included the New Year’s Day holiday, and so is not clean of noise. For the week ended January 6, though, the MBA’s Market Composite Index (of mortgage activity) picked up 4.5% on a seasonally adjusted basis.

Besides discussing the seasonal influences on data in recent weeks, we’ve also discussed the imperfect work of seasonal adjustment, especially in dynamic periods like the current times. You can see just how hard it must be to make this adjustment based on historical data by simply looking at the unadjusted change, which this week marked a 34.4% increase against the week just prior.

We’ve noted that three-day holidays likely give adjusters a problem because they fail to fully account for the soft business activity that occurs the day before the weekend begins and the day after the holiday. There is certainly a slacking of business activity during those crossover periods as people prepare for the holiday and also return from a tiring or relaxing weekend and reenter into “work mode.”

Alas, all that noise will be going away over the weeks ahead, and the market should begin to take advantage of low mortgage rates, though depending upon weather now. Many strategists, economists and housing specialists are pointing to a true spring selling season this year, given supply rundown and employment improvement (so called). I’m a skeptic with regard to labor, again due to seasonal ringers in the data and other issues described in my labor market work.

Rounding out the most recent week’s data for financial sector and housing enthusiasts, the seasonally adjusted Purchase Index increased 8.1%. Remember, the Purchase Index measures activity tied to the purchase of a home. Homebuilder investors will likely add this news to their lists of reasons to rally the industry’s shares, but it’s not a solid data point to build on in that regard. Filling in the rest of the data, the unadjusted Purchase Index increased 41.9%. The MBA’s Refinance Index increased 3.3% from the week before.

Take note now, dear smoke and mirror crew, because what is useful here is the year-to-year comparisons. In that regard, the Purchase Index was severely lower against the prior year period, down 17.9%. That doesn’t sound like a reason to buy homebuilders to me, but you won’t find that information in the current frenzied flurry of news on the industry, except from me. I’ll have more to say on the homebuilders specifically in the near future, so stay tuned.

Homebuilders are up again today despite insight like this, with the SPDR S&P Homebuilders (NYSE: XHB) up 1.4% in late afternoon trading Wednesday. The shares of K.B. Home (NYSE: KBH) and Hovnanian (NYSE: HOV) are up near 13% on the day, with shares of Lennar (NYSE: LEN) up 6.1% partly on its own news. Financials are not missing a beat either, with big home financer Bank of America (NYSE: BAC) up 3.3% and the Financial Select Sector SPDR (NYSE: XLF) up 0.8%.

Be warned though, because the latest days' rise has been driven more by greed than by reason, in my view. Don't label me as a perennial pessimist though, because I suggested investors get into homebuilders last year. I see the latest move as indicative of subtle signs for housing, ample hope for investor profit and complete ignorance of the importance of Europe to the U.S. economy and the growth of emerging markets.

Editor's Note: Article should interest investors in Bank of America (NYSE: BAC), Freddie Mac (OTC: FMCC.OB), Fannie Mae (OTC: FNMA.OB), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), BB&T (NYSE: BBT), CIT (NYSE: CIT), Bank United (NYSE: BKU), First Citizens (OTC: FCNCA.PK), Synovus (NYSE: SNV), United Bankshares (Nasdaq: UBSI), Hampton Roads Bankshares (Nasdaq: HMPR), WesBanco (Nasdaq: WSBC), City Holding (Nasdaq: CHCO), Sandy Spring (Nasdaq: SASR), First Citizens (OTC: FCBN.OB), SCBT Financial (Nasdaq: SCBT), Wilmington Trust (NYSE: WL), WSFS Financial (Nasdaq: WSFS), Southside Bancshares (Nasdaq: SBSI), Stellar One (Nasdaq: STEL), Union First Market (Nasdaq: UBSH), Eagle Bancorp (Nasdaq: EGBN), First Bancorp (Nasdaq: FBNC), Ameris (Nasdaq: ABCB), The Bancorp (Nasdaq: TBBK), First Community (Nasdaq: FCBC), Capital City (Nasdaq: CCBG), Financial Institutions (Nasdaq: FISI), National Bankshares (Nasdaq: NKSH), Citizens & Northern (Nasdaq: CZNC), Charter Financial (Nasdaq: CHFN), Seacoast Banking (Nasdaq: SBCF), TIB Financial (Nasdaq: TIBB), American National (Nasdaq: AMNB), United Community (Nasdaq: UCBI), Middleburg Financial (Nasdaq: MBRG), Heritage Financial (Nasdaq: HBOS), Zions Bancorp (Nasdaq: ZION), East West Bancorp (Nasdaq: EWBC), City National (NYSE: CYN), Bank of Hawaii (NYSE: BOH), SVB Financial (Nasdaq: SIVB), Westamerica (Nasdaq: WABC), Cathay General (Nasdaq: CATY), Umpqua (Nasdaq: UMPQ), Glacier Bancorp (Nasdaq: GBCI), Pacific Capital (Nasdaq: PCBC), PacWest (Nasdaq: PACW), Western Alliance (NYSE: WAL), First National Alaska (OTC: FBAK.OB), First Interstate Bancsystem (Nasdaq: FIBK), Nara (Nasdaq: NARA), West Coast (Nasdaq: WCBO), TriCo (Nasdaq: TCBK), Territorial (Nasdaq: TBNK), Washington Banking (Nasdaq: WCBO), Bank of Marin (Nasdaq: BMRC), Hanmi (Nasdaq: HAFC), PNC Bank (NYSE: PNC), J.P. Morgan Chase (NYSE: JPM), United Bankshares (Nasdaq: UBSI), Bank of New York Mellon (NYSE: BK), MB Financial (Nasdaq: MBFI), Astoria Financial (NYSE: AF), New York Community (NYSE: NYB), Hudson City (Nasdaq: HCBK), People’s United (Nasdaq: PBCT), First Niagra (Nasdaq: FNFG), Capitol Federal (Nasdaq: CFFN), Washington Federal (Nasdaq: WFSL), Investor’s Bancorp (Nasdaq: ISBC), Northwest Bankshares (Nasdaq: NWBI), Sterling Financial (Nasdaq: STSA), Ocwen (NYSE: OCN), Flagstar (NYSE: FBC), Provident (NYSE: PFS), Colombia Banking (Nasdaq: COLB), Kearny (Nasdaq: KRNY), Brookline (Nasdaq: BRKL), Dime Community (Nasdaq: DCOM), Flushing Financial (Nasdaq: FFIC), Danvers (Nasdaq: DNBK).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

How the 24-Hour Retail Cycle Skewed Labor Data

On almost all accounts, December’s Employment Situation Report was interpreted as good news. However, I see a problem that was only partially broached by the popular press last week. I think a seasonal and unique to 2011 factor supported the labor market last month. This, combined with other seasonal factors I’ve been pointing out throughout December, could be exaggerating job gains. If I’m right, given the short-term nature of this impact, we’ll see some counteracting data in early 2012. Compounding this contrary view of the economic situation, the recession overcoming Europe and the economic growth decay in China are not going to pass without impact to a vulnerable American economic state.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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How the 24-Hour Retail Cycle Skewed Labor Data

The Labor Department reported the unemployment rate fell two-tenths of a point to 8.5%, from 8.7%. December’s report also showed an addition of 200K nonfarm payrolls. Both data points represented improvement and both reached above the expectations of economists, who were reportedly looking for an 8.7% unemployment rate and the addition of 150K jobs, based on Bloomberg’s survey. So why did economists fall short?

I think evidence of this is readily available in the report itself. What caught my eye initially was the increase in the average workweek, which was lauded by many talking heads in the popular press. Average hours worked rose to 34.4 hours, up from 34.3, marking an unexpected increase against economists’ views.

We know the retail sector added another 28,000 jobs in December, but the reason behind it was simply attributed to the holiday shopping season. However, there were dynamic factors at play that reached beyond normal seasonal trend. Many stores stayed open 24 hours or otherwise extended their hours of operation through the holiday shopping period of 2011. It was a trend that was initiated by Target (NYSE: TGT) and Wal-Mart (NYSE: WMT) at the formal start of the shopping period, which this year even preceded Black Friday. Operating managers kept the lights on at select Macy’s (NYSE: M), Toys “R” Us and Old Navy, which is owned by The Gap (NYSE: GPS), among other stores. Clearly, doing so requires additions to the workforce count, which would boost December employment beyond the usual seasonal additions at retailers. However, those extraordinary additions would be quickly let loose post the holidays, and so do not present as strong an economic signal as perhaps some see in the December data.

A portion of the holiday’s temporary additions to the employed pool is also notable in the Transportation and Warehousing segment, where the courier and messenger industry contributed 42,000 of the segment’s 50K in workforce growth in December. UPS (NYSE: UPS) and FedEx (NYSE: FDX) each make public notice of the increase on seasonal demand. With this regular trend well understood by the market, it seems to be overlooking the dynamic change in the creative marketing and operation of the retail industry, which I believe also drove increased workforce counts.

What’s not accounted for in this argument is the 23,000 job increase in manufacturing. I suspect this growth is being driven by the increasing effort in domestic energy production, which is a secular trend and a real driver for ongoing employment. Likewise, the long-term growth in health care has been driven by secular demand on the aging demographics of America, and this would also support manufacturing. I see the mining increase driven by the rising prices of commodities, including gold, silver and rare earth metals. Again, manufacturing is indirectly aided.

Jobs have been created over the course of the year, which is reflective of the slowly improving economic environment. There’s no denying that. However, my concern is that new burden lies ahead, driven by deep recession in Europe and related slowing growth in the domestic economies of the emerging markets. Given that the late 2011/ early 2012 market has fed off what has been viewed as a healthy holiday shopping period, I worry about a different reality that could be reported by retailers for the quarter. That reality should reflect leaner profit margins and many earnings shortfalls on the stores’ deep discounting and long hours of operation, as desperate retailers sought any pull possible to lure market share. Thus, I suggest investors take the holiday-relative economic data for what it is, full of noise and distortion.

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Housing Starts for the Suckers in Pottersville

The popular press, radio and television media celebrated the “strong housing starts” reported for November Tuesday. The shares of homebuilders had a good time too, with the SPDR S&P Homebuilders (NYSE: XHB) up 5.3%. However, after a look at the report, I say bah humbug! That’s because while housing starts ran at a higher rate, they occurred in a specific segment of the market that I suggest offers few good tidings for the real estate market. It’s a great sign for the likes of Mr. Potter, from It’s a Wonderful Life though.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Housing Starts for the Suckers in Pottersville

Housing Starts rose a strong 9.3% over October’s revised rate and an astounding 24.3% over last year’s sad affair. Building Permits ran at a 5.7% higher rate than in October and posted an impressive 20.7% increase over the prior year period. Yet, Starts at an annual rate of 685K and Permits at a rate of 681K were far less impressive after closer inspection of the data.

The reason for my lack of enthusiasm should be obvious, but is clearly not to an undiscerning majority, nor to investors in Hovnanian (NYSE: HOV), PulteGroup (NYSE: PHM) or Beazer Homes (NYSE: BZH), who all enjoyed double-digit gains Tuesday. However, I expect the gains in homebuilders will prove fleeting. You see, most of the activity occurred in multi-family housing, not in single-family homes. Single-Family Housing Starts only increased 2.3% over October’s rate, to 447K, and Single-Family Home Permits only rose by 1.6% over October’s rate, to 435K.

Multi-family projects could be intended to house renters. A housing start measures the start of construction of a project intended for residential use. The properties do not necessarily need to be presold. Therefore, the 32.2% increase in structures intended to house five or more family units may very likely be for a Pottersville-like purpose, to house the “suckers in Potter’s slums,” from the famed and seasonally appropriate film. We should not be surprised, given today’s higher credit standards, increased levels of unemployment and underemployment, and a population less likely to attain home ownership. This is not something to celebrate, though, not in my view.

Single-family starts were on the rise in the Northeast and the West though, increasing 35.7% and 10.7%, respectively. Single-family starts in the Midwest and the South fell 14.5% and 1.3%, respectively. Multi-family projects were on the sharp rise in both the Northeast and West as well, though, so there appears to perhaps be a housing shortage being filled. It makes sense that distressed property inventory would first be absorbed by the population dense Northeast and West. Generally speaking, this is a development that should be expected, given the length of the period with little construction and the continued growth and maturation of the population. However, it’s too early, and the data is too limited to make such a call.

Besides, with our economic view, and the related stumbling block we see for housing over the near-term, any green shoot that may sprout should be quickly dried out. In conclusion, I’ll hold my excitement for when single-family starts initiate a rising trend, and more importantly, when economic healing drives increased general demand for housing.

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Today’s Republican Disconnect with America

I sat up late the other night watching the C-SPAN coverage of the House of Representatives debate on the payroll tax break and unemployment benefit extensions. I was appalled by the Republican positions, and the recurring tone I keep hearing from the party I use to call my own and whose conservative values I continue to agree with. I’m now an independent due to the perversions that have eroded each party’s core message. Economically speaking, I see neither current version of the Republican nor Democratic Party as holding the perfect cure to what ails us. While another article might discuss my concern with the Democratic Party’s embrace and promotion of immoral practices for the sake of personal liberation, this article is focused on the Republican disconnect with America or the great poverty stricken segment of America. This broken rail was once again evidenced in the latest legislative lunacy.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Today's Republican Disconnect with America

In case you’ve been caught up in holiday shopping or catching up with work before your holiday vacation, our Congress is currently entangled in a messy legislative debate over the future of the payroll tax cut and unemployment insurance benefits. Basically, last year’s program extensions need to be renewed again this year, or those temporary benefits will expire. If that happens, Americans will face new burdens at a still vulnerable time for our economy.

The Payroll Tax break against Social Security payments would lift that rate back up to 6.2% from its current 4.2% break rate. Your shock is well-founded, as those tax cuts are shorting the same Social Security program that is already handicapped if not doomed. And yes, we are underfunding it even worse than usual today as part of an effort to stimulate spending and the economy. There is, however, a new budget-minded focus within Congress that is seeking ways to fund these cuts. For instance, the savings from the Iraq troop withdrawal have been put forth as one potential source. The Democrats would like to bank those savings against the budget deficit and instead institute a new surtax on those Americans with incomes of more than $1 million. As you may have guessed, the Republican Party opposes any tax increase, even if it be upon those who can afford to offer a helping hand now.

This legislative issue weighs for Americans who are already earning a steady income, though it is surely critical to part-timers with a shortage of fund flows. Another issue at hand could more significantly affect America, as it supports Americans who have no other source of income currently. It is what keeps people housed and from committing crimes of necessity; it is what keeps hope alive.

Unemployment benefits have proven inadequate for the massive pool of long-term unemployed Americans displaced by this deep economic recession and sluggish follow through. With the unemployment rate last listed at 8.6%, though arguably closer to 8.8%, given the drop in workforce count in November, it is clearly not yet time to cut off the unemployment benefit extension program (which takes insured unemployment to 99 weeks). The House Republicans are seeking to pass legislation that will ease coverage to 59 weeks after January 1. Of course, the percentage level of the unemployed more importantly represents about 13.3 million Americans, not including the disenchanted and desperate. Furthermore, the Republican version of aid would reportedly leave more than 3 million Americans high and dry immediately, with no other source of income to make mortgage or rent payments, or basically to survive.

Believe it or not, that’s not where the disconnect ends. You see, Republicans also want to make it harder for those people, who would still qualify, to qualify for unemployment insurance benefits. This obstacle to the critical aid that pays the rent for many who are jobless through little fault of their own would present itself via mandatory drug tests. The argument posed on the floor of the House for this was “to ensure benefit recipients are employable,” because if they are on drugs then they are likely to lose their next job. In other words, they are deemed to have a more important problem that should be addressed first, before our fellow Americans are awarded the insurance benefits they paid for through regular cuts from their weekly pay checks. Don’t forget that we pay directly for unemployment insurance; it’s not an unfunded social program. Next, I suppose, Republicans would ask seniors to pass a drug test to determine whether they should receive their hard-earned social security checks. This is obscene!

However, that’s still not where the lunacy ends. The bill passed by House Republicans, which was doomed to fail in the Senate or by the President’s pen, also calls for the building of the Keystone XL Pipeline, which, oh by the way, I support. As you might have guessed though, that was not in last year’s legislation. Rather, it’s the effort of the GOP to stick an energy action into an employment bill under the premise that it is a job creator. Clearly, the construction of a pipeline would create jobs, whether the tens of thousands or the 100K to 280K long-term total touted by some in the Republican Party, or about 20,000 or so that is more likely immediately. But it is misplaced within this bill. In fact, each particle of this legislation should be independent of one another, for the purpose of clarity and the sake of the American people.

The President and the Democrats were terrified that the House Republicans would pass this bill and then leave town (before the Senate could pass its own version), thus leaving the onus of unemployment benefits on the shoulders of the President and his party. Americans wouldn’t remember the pipeline or the drug test if the Senate voted the bill down or if the President vetoed it as promised. Rather, they would remember that “the Democrats and President Obama killed a critical bill, and thus left unemployed Americans helpless while raising taxes on the rest of us.” So, the Democrats held up the 2012 budget through political means, threatening to shut down the government and probably incite a sovereign rating downgrade, “because the Republicans went home for the holidays and left the nation’s business undone.”

One thing remains clear. The nation’s capitol is still disjointed and has not learned the lesson it should have by the hands of Standard & Poor’s (NYSE: MHP). We cannot afford to leave our fate now in the hands of Fitch or Moody’s (NYSE: MCO), who with S&P, have the power to drive paradigm shift in global confidence in American treasuries and the dollar. It’s about time the rhetoric ended in Washington and our elected representatives quit the political games and got some important work done. Break these bills apart and vote on them individually as they deserve, or at least resolve to form a best fit and get Americans what they need now. Remember, first do no harm!

Please share your opinion via the comment tab below. And let’s have some fun: please use this opportunity to guess who I favor for President in 2012.

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