Wanna Know The Details of Financial Instutions' Mortage Exposure?

http://data.nationalmortgagenews.com

Now, Even Borrowers With Good Credit Pose Risks

http://online.wsj.com/article/SB119802116320237959.html

"In an interview last week with Wall Street Journal editors, Kenneth Lewis- CEO of BofA- expressed concern that even borrowers with strong credit scores might turn out to be default risks if housing prices keep tumbling. In other words, what is being portrayed as a credit-quality problem with the riskiest 20% of the mortgage market could spread to a much wider cross-section of home loans."

"In such an environment credit scores don't really provide a definitive gauge of how hard a borrower will work to avoid default, says Mark Zandi, chief economist of Moody's Economy.com Inc., a West Chester, Pa., economic-research firm. A better test, he says, is how much equity owners have in their home. If they have a lot at stake, default becomes almost unthinkable. Without much equity, the commitment to keep paying the mortgage, no matter painful that may be, begins to dwindle."

Best Buy's Impressive FY 3Q Performance

The consumer-electronic retailer's profits soared 52% amid strong sales in videogame products, notebook computers, flat-panel TVs, and notebook computers, flat-panel TVs, and computer- and home-theater services. This result highlights the mixed performance among retailers this holiday season. Some benefit as consumers are still buying consumer electronics, gaming-related products, and teen apparel. Meanwhile, chains tied to housing market and women's clothing are struggling.

Morgan Stanley Economist Expects Mild Recession

http://blogs.wsj.com/economics/2007/12/10/morgan-stanley-economists-recession-ahead/

"In a research note today, chief economists Richard Berner and David Greenlaw say tightening financial conditions, coming weakness in business capital spending and slowing global growth “have tipped the balance.” They say a “mild recession” is now likely, with domestic demand contracting by an average annualized rate of 1% in each of the next three quarters, no growth in overall GDP for the year ending in the third quarter of 2008 and corporate earnings contracting by 5% to 10%.
“Since the shock of tighter financial conditions surfaced in August, we’ve incrementally reduced our outlook for future growth,” the economists write. “But the time for incremental changes is over.” “Three factors have tipped the balance to the downside: Financial conditions continue to tighten, domestic economic weakness is broadening into capital spending, and global growth — for us, long the key bulwark against a downturn — is slowing.”
And while growth abroad remains strong, they say, slowdowns in Europe and Japan are undermining that. Their forecast is for global growth to slip to 4.3% in 2008 from 5% this year, though “the risks like south of that still-hearty pace” and translate into downside risks to growth in U.S. exports."

EBIT Margin, Net Interest Margin, and Price to Book

In diagnosing growth, we often look at sales, earnings, and cash flow growth. However, margins are also an important variable to gauge growth prospects. I prefer EBIT vs. profit margins because EBIT is less susceptible to accounting tricks (income statement manipulation and extraordinary variances between lines such as tax rates, interest income, share buybacks, etc), which in turn provides a truer snapshot of a company, industry, or sector's operating activities.

Nonetheless, net interest margins are a more applicable analysis tool for financials since a large part of revenues is derived from interest income, while interest paid is a major expense. Net interest margin is the spread between a bank's cost of money and the rate it gets on loans.

Banks in emerging markets such as India's HDFC Bank has been benefiting from the soaring stock market, which provides the bank cheap deposits and higher net interest margin. The bank is a leader in processing payments for those securities transactions. Six out of ten brokerages have their accounts at HDFC Bank.

Meanwhile, price to earnings ratios are not relevant in valuing brokerage firms' shares. The ratio is usually low, reflecting the difficulty in forecasting volatile earnings. The more relevant is price-to-book ratio.

U.S. Automakers Continue to Suffer

As reflected byNovember's light vehicle retail sales data released by Autodata, Detroit's Big Three (GM, Ford, Chrysler), which relies on fuel-thirsty but profitable pickups and SUVs, continue to lose ground against Japanese automakers Toyota and Honda, that produces better-mileage vehicles. Other risks that will continue to loom in 2008 are worse-than-expected U.S. economic slowdown and high energy prices.

http://www.motorintelligence.com/m_frameset.html

ETF Proxies for Various Indices

iShares Russell 3000 Growth Index Fund (IWZ): proxy for the universe of U.S. growth stocks
iShares Russell 3000 Value Index Fund (IWW): proxy for the universe of U.S. value stocks

2007 marked a shift among money managers to favor"growth" stocks, those whose earnings are growing faster than market average, over "value" stocks, which look cheap relative to their assets or earnings. The technology and health care sectors, for example, is believed to continue to deliver steady growth as the economy slows in 2008.

iShares S&P 500 Index (IVV)
Financial Select Sector SPDR (XLF)
KBW Bank ETF (KBE)
Energy Select Sector SPDR (XLE)
SPDR S&P Homebuilders (XHB)
Oil Services HOLDRs (OIH)
Market Vectors Gold Miners ETF (GDX)
iShares MSCI Brazil Index (EWZ)
iShares FTSE/Xinhua China 25 Index (FXI)

Florida Blues

One of the states that has been hit the hardest in this housing downturn is Florida. According to WSJ and Commerce Department, in October building permits for new construction- an important indicator of future housing activity- came to just one-quarter of their 2005 peak levels (Hit by U.S. automakers troubles, Ohio has the highest foreclosure rate in the country, according to the Mortgage Bankers' Association) . GS economist Jan Hatzius said that Florida is unlikely to get much help from strong global economic growth due to low exports level. Companies that supply homebuilders continue to feel the pain, such as PGT, Inc., a manufacturer and supplier of residential impact-resistant windows and doors. During the third quarter of 2007, new housing starts continued to decline, and housing inventory levels continued to rise,'' said Rod Hershberger, PGT's President and Chief Executive Officer. Home starts in the third quarter of 2007 were down 53% compared to the third quarter of 2006 and down 29% from the second quarter of 2007. Unsurprisingly, its quarterly earnings growth also fell 78.90% yoy. Furthermore, MarineMax, Inc., a Florida-based operator and dealer of recreational boats, reported that its fiscal fourth-quarter profit slid 48 percent on higher costs and lower margins due to a soft retail environment.

Credit Conditions Tighten Again

http://online.wsj.com/mdc/public/page/mdc_bonds.html?mod=mdc_topnav_2_3000

The closely watched gap beween the important lending rate 3-month Libor and fed funds rate has been widening. Libor is a short-term borrowing rate used as a benchmark for floating rate debt, from corporate borrowings to ARMs; the rise signals tightening in credit conditions. This usually means the banks see increased risk of loan defaults. Nonetheless, this gap could be one of the factors that may influence the Fed to ease rates further next week.

As of Nov. 30:
Federal-funds rate target: 4.5%
Libor, 3-month: 5.13% (it touched 5.73% in August)

Food Retailers Metrics to Watch

Example: Whole Foods, Kroger, Safeway
Compare forward P/E, quarterly same store sales growth, gross margin, operating margin

Great Valuation Tutorials

Valuation is certainly one the central concepts in finance. I found these resources very helpful in enhancing my understanding of the topic.

http://www.thestreet.com/university/personalfinance/10385275.html
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/

Who are the bigget players in the alcoholic beverage industry?

Constellation Brands = world's largest wine industry; it has about 20% market share of the fragmented U.S. wine market after the acquisition of Fortune Brands' wine business (the cash deal valued it at 14 times EBITDA)

Fortune Brands = big player in premium spirits business (which has higher margins and less CapEx intensive than wine). It makes Jim Beam bourbon and Sauza tequila

Sweden's Vin & Spirit = maker of Absolut vodka

Diageo = Maker of spirits,wine and beer. Its brands include: Smirnoff, Johnnie Walker, Captain Morgan, Baileys, J&B, José Cuervo, Tanqueray, Guinness (my favorite), Crown Royal, Beaulieu Vineyard and Sterling Vineyards wines, and Bushmills Irish whiskey.

Free ABX Indices

Bloomberg does not provide ABX indices data, but I managed to find this free resource:

http://www.markit.com/information/products/abx/history.html

Check it out!

According to BofA, interest rates are set to rise or "reset" on $362 billion worth of adjustable-rate subprime mortgages. This can worsen the subprime turmoil, since a lot of subprime mortgages already went bad in their first year even before their rates rose.