For the week of Monday, January 30, 2012 through Friday, February 3, 2012
- Standard & Poor’s 500 Index: 2.17%
- Dow Jones Industrial Average: 1.59%
- NASDAQ Composite: 3.16%
Midweek, President Barack Obama announced a new plan to revive the housing market by letting millions of homeowners refinance their mortgages. It will require Fannie Mae and Freddie Mac to tell banks to refinance loans that are performing at 6% and refinance them at 4% with Fannie and Freddie’s backing. The positive side is it will help people who want to make their mortgage payments. They must be current within the last six months and have only defaulted once in the last year. It is designed to return $200 to $300 in the pockets of the homeowner, and ultimately, make the loans perform better. The negative side is that it will take money from the bondholders, and banks will lose money on the deal. Unfortunately, history shows us that these loans that are repackaged and refinanced eventually go bad at a 50% rate. Thus, we believe the plan will not work, as it is designed.
We believe the housing market needs to bottom, and that banks should foreclose on those who are not making their payments. We would like to see the banks stop holding the distressed properties by trying to manage them. We would like to see a scenario where banks were allowed to sell lots of 30 to 40 homes to entrepreneurs. They then would be required to make the necessary repairs and put the homes on the market as rentals. If this scenario were implemented this should fill the demand for homes without requiring more apartments to be built.
Earnngs:
- Earnings Season
- We are nearing the end of earnings season, and growth thus far is around 3.8% for companies reporting.
- While this seems to be light, investors should consider the huge decline in both the materials and financial sectors.
- Bright spots include:
- Technology saw 20% growth, and
- Industrials have experienced 15% growth thus far.
- Sales growth for those who have reported has averaged just below 7%.
- Shows clear, organic growth
- Exxon Mobil (NYSE: XOM)
- Exxon’s profit rose 2% because higher oil prices offset a drop in production.
- Higher prices also drove net income to $9.4 billion, or $1.97 per share during the quarter.
- Revenue rose 15.6% to $121.6 billion.
- For the full year, the oil giant’s net income rose 34.8%, while revenue rose 26.9%
- AFLAC Incorporated (NYSE: AFL)
- The supplemental insurer reported net income rose 25% to $546 million, or $1.17 per share over last year.
- Revenue rose nearly 13% to $6 billion.
- AFLAC had sales of $4.9 billion in Japan during the quarter; however, the company expects its Japan sales to slip 2% to 5% in 2012, after growing at an 18.6% rate in 2011.
- Sales in the United States are expected to increase 3% to 8% this year
- Qualcomm, Inc. (NASDAQ: QCOM)
- Profit for the telecommunications company rose 16%, as a result of global demand for smart phones.
- Net income was $1.4 billion, or $0.83 per share, up from $.17 billion last year.
- Facebook IPO
- We will not be joining the investors clamoring for a piece of Facebook’s IPO.
- There are six investment banks handling the offering, selling shares to their largest investors.
- The social network’s shares are oversubscribed prior to the IPO.
- We suspect shares will be available in the secondary market, but not at the stated prices.
- The company doesn’t have earnings, and we believe in buying a company based on earnings.
Unemployment
- The labor market grew in January with nonfarm payrolls increasing by 243,000 last month,
- This was the biggest gain since April 2011, and
- The increase is also the most robust since last spring, a sign that the economy’s momentum carried into the new year.
- The jobless rate fell by two-tenths of a point to 8.3%, the lowest it has been since February 2009.
Interest Rates
- The two-year Treasury rose one basis point to 0.22%, continuing to hover in the 0.15% to 0.30% range.
- The five-year Treasury ticked up two basis points to 0.73%, yet briefly hit an all-time low of .07% during the week.
- The 10-year Treasury fell five basis points to 1.84%.
- The 30- year Treasury yield dipped four basis points to 3.02%, remaining for another week around the 3% mark.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
