GM, Ford Scale Back Car Leases as Era Ends

By JOHN D. STOLL, LIZ RAPPAPORT and MATTHEW DOLAN
July 30, 2008; Page A1 WSJ.com

Detroit’s money troubles are starting to put a key part of the American dream — a pricey new car — out of reach for some people.

Squeezed by falling used-vehicle prices, as well as continued tumult in the credit markets on Wall Street, Ford Motor Co. and General Motors Corp. are significantly scaling back their auto-leasing business.

Ford on Tuesday began telling dealers that it is essentially ending leasing deals on most trucks and sport-utility vehicles. GMAC LLC, GM’s financing arm, is also expected to rein in leasing offers in the U.S. soon, possibly this week, people familiar with the matter said. On Tuesday, it said it will no longer offer subsidized leases in Canada. Chrysler last week said it is ending all leasing deals in the U.S.

Leases at the Big Three auto makers account for about 20% of their total new-vehicle business, according to Automotive Lease Guide.

The rise of hefty auto incentives — including subsidized leases — came amid the same broad expansion of easy borrowing in the 1990s and 2000s that buoyed American housing prices. Now, in both houses and autos, the previous virtuous circle has yielded to a vicious one, with prices falling and credit growing tighter.

Banks are also turning their backs on leasing as falling used-car prices make the business less profitable. The auto-finance unit of Wells Fargo & Co. has also told dealers it will no longer finance leases beyond this month, a spokesman confirmed. In reaction to Chrysler’s announcement, Chase Auto Finance, a unit of J.P. Morgan Chase & Co., decided it will no longer provide lease financing for any Chrysler, Dodge and Jeep models.

A Few ETF/ETN Picks

A little slower moving than our stock picks.

We’re going to cover two main areas: healthcare and commodities.

First we will add both the RYH (Rydex Equal Weight Healthcare ETF) and the IXJ (iShares Global Healthcare ETF). We like several stocks in the Healthcare sector right now and these two are a good way to cover it all with a lower volatility package. Look for specific stock picks to follow as we expand on this theme and follow the sector rotation of capital.

Next up are the recently beaten down commodity plays. Here we’ll pick up the JJA (iPath Dow Jones-AIG Agriculture Total Return ETN), KOL (Market Vectors Coal ETF) & GAZ (iPath Dow Jones-AIG Natural Gas Total Return ETN) while they are on sale. While KOL is an ETF comprised of stocks, that provides targeted exposure to companies worldwide that are engaged in the coal industry; both JJA & GAZ are Exchange Traded Notes based directly on the commodities. GAZ tracks the Henry Hub Natural Gas futures contract traded on the NYMEX.  JJA includes Soybeans, Corn, Wheat, Soybean Oil, Sugar, Coffee & Cotton with Soybeans & Corn comprising half of the weighting while the Softs (Sugar, Coffee & Cotton) only hold barely a quarter all together with Wheat & Soybean Oil roughly sharing the final 22.5%.  To balance out this mix, consider adding JJS (iPath Dow Jones-AIG Softs Total Return ETN) which includes roughly a third each of Sugar, Coffee & Cotton.  Finally, another Soft totally missed by the larger ETNs, yet available alone, is NIB (iPath Dow Jones-AIG Cocoa Total Return ETN).

Both JJS and NIB are barely a month old so there is not much to go on, but the charts of the underlying futures contracts look poised to bounce.  At this point, we would only nibble on NIB and use JJS to balance out the weighting of the JJA if you are trading large positions or have a strong desire to be equally allocated.

Bernanke the Magnificent? or The Amazing Bernanke?

Well, our president may not have a magic wand, but it looks like our Fed Chairman does.

This weekend Big Ben got together with his govt. cronies and they whipped up a wicked brew that is the antidote to the housing crisis and savior of all things financial. The SEC put the clamps on the shorts, the Treasury got into the mortgage underwriting business and Big Ben opened the Fed money faucet a little wider.

Hooray!??

Let’s see, that’s $30B for Bear Stearns, $8B for Indy Mac & now $5T worth of mortgages at Fannie and Freddie. I wonder if the cost of printing dollars has gone up with the increased raw material costs?

Our LD President Bush danced on the scene with an empty promise to drill the OCS for a few hundred thousand Bpd in 10 years and the world was right again.

Oil plunged, bank stocks soared. It must have brought a smile to their faces.

But is it reality? Have the finance gods truly been appeased?

What goes around comes around

This post is a follow up to Rotation, Rotation, Rotation in June.

Over the last month, we have seen the trends highlighted in that note accelerate. The March lows did not hold in the SPX and the financials led the way with the XLF (Financials Select Sector SPDR) dropping a full 26% for the month at its lows just two days ago. The SPX “only” dropped almost 11% in comparison.

But in the last two trading days, both have almost halved their losses for the month with the XLF jumping almost 25% from top to bottom in two days! Of course the math still leaves XLF down over 12.5% since our writing and SPX lagging relatively in the comeback with a loss of still over 7%. Since Wrong Again Ben in December, the XLF is down over 31% with the SPX down almost 15%.

Mean girls

Commentary: Pssst … rumor is truth on Wall Street
By David Weidner, MarketWatch
Last update: 12:01 a.m. EDT July 15, 2008

NEW YORK (MarketWatch) — Wall Street, like a girl in junior high school, has come home crying.

It seems the Mean Girls in the marketplace keep spreading nasty rumors, and everyone’s cell phones are alight with SMS messages. “OMG did you hear Bear Stearns can’t meet its obligations?” they whisper. “Fannie (FNM) and Freddie (FRE) r FSBO.

“B4 the credit crunch Lehman used 2b QT, but has toxic balance sheet; it could go BNKRPT b4 2MORO,” they snicker.

The Mean Girls buy a bunch of short positions and then collect when the stock tumbles. On June 10, there were 90,000 puts in the first hour of trading in the option market against Lehman shares, after a rumor was floated that Pimco had pulled its business from the investment bank. Even though Lehman Brothers Holdings Inc. (LEH) has been a big put stock in recent weeks, the puts represented two-thirds of the average daily volume for the stock.

Until Pimco shot down the rumors, it was BBB (bye-bye, baby) for LEH.

News travels pretty fast around here. Text messages, cell phones and the old face-to-face method are the shovels used to move dirt. If recent insider cases are any indication, text messages and emails remain popular even though they are recorded.

It’s been a scandalous spring, but now the Mean Girls are getting some payback. First they’ve been exposed by Bryan Burrough in the latest issue of Vanity Fair. In that article, Burrough alleges that rumors either were transmitted to or originated from hedge funds SAC Capital Management, Citadel Investment Group and traders at Goldman Sachs Group (GS) . He suggests that Bear Stearns may have been ruined by rumors, a tactic that some call a “Bear raid.”

Government shuts down mortgage lender IndyMac

Saturday July 12, 7:21 am ET
By Alex Veiga, AP Business Writer

Office of Thrift Supervision steps in and closes IndyMac Bank; FDIC takes over operations

LOS ANGELES (AP) — IndyMac Bank’s assets were seized by federal regulators on Friday after the mortgage lender succumbed to the pressures of tighter credit, tumbling home prices and rising foreclosures.

The bank is the largest regulated thrift to fail and the second largest financial institution to close in U.S. history, regulators said.

The Office of Thrift Supervision said it transferred IndyMac’s operations to the Federal Deposit Insurance Corporation because it did not think the lender could meet its depositors’ demands.

IndyMac customers with funds in the bank were limited to taking out money via automated teller machines over the weekend, debit card transactions or checks, regulators said.

Other bank services, such as online banking and phone banking were scheduled to be made available on Monday.

“This institution failed today due to a liquidity crisis,” OTS Director John Reich said.

The lender’s failure came the same day that financial markets plunged when investors tried to gauge whether the government would have to save mortgage giants Fannie Mae and Freddie Mac.

Shares of Fannie and Freddie dropped to 17-year lows before the stocks recovered somewhat. Wall Street is growing more convinced that the government will have to bail out the country’s biggest mortgage financiers, whose failure could deal a tremendous blow to the already staggering economy.

The FDIC estimated that its takeover of IndyMac would cost between $4 billion and $8 billion.

IndyMac’s collapse is second only to that of Continental Illinois National Bank, which had nearly $40 billion in assets when it failed in 1984, according to the FDIC.

Continental Resources shares up on 2nd Bakken Shale well results

Thu Jul 10, 2008

By Chakradhar Adusumilli

BANGALORE, July 10 (Reuters) – Shares of Continental Resources Inc (CLR) rose as much as 20 percent to a life high, a day after the company said its second crude oil well in the Bakken Shale area of North Dakota reported a higher flow rate than its first.

The oil and gas explorer’s flow rate for the second well was about 58 percent higher than the first, which flowed at an average rate of 693 barrels of crude oil equivalent per day in its initial week of production in May.

The second well, Mathistad 1-35H, began production on July 4 and flowed at an average rate of 1,095 barrels of crude oil equivalent per day, with 90 percent of production being crude oil and 10 percent natural gas.

Natixis Bleichroeder analyst Curtis Trimble said the latest results from the Three Forks/Sanish formation increased the productive profile of the Bakken Shale area.

“Future wells will be closer to the 600 to 1000 barrel a day level versus previous wells that were averaging about 450 barrels a day,” Trimble said by phone.

The analyst, who maintained his “hold” rating, raised his price target on the company to $78 from $75 a share, citing higher estimated commodity prices.

A Few Nuggets of Wisdom From John Murphy at Stockcharts.com

SECTOR ROTATION MODEL … One of our readers asked where we are in the Sector Rotation Model. That model shows the normal sector rotation that takes place at various stages in the business cycle. The chart shows that basic materials and energy are market leaders at a market peak. As the economy starts to slow, money starts to rotate out of those two inflation-sensitive groups. Basic materials peak first and energy last. This week’s downturn in basic material stocks suggests that the topping process is moving even further along. Energy may be the next to roll over. As the economy slows, money flows into consumer staples, healthcare services, and utilities. That’s where we appear to be right now. One way we can tell that a bottom is near is when money starts to flow into financial and consumer discretionary stocks. So far, there’s no sign of that happening. That leaves us in the midst of a bear market with money flowing toward staples, healthcare, and utilities.

Chart 6

STOCKS ALWAYS PEAK BEFORE THE ECONOMY … Every time I show the Sector Rotation Model in Chart 6 I feel the need to point out that the stock market (red line) peaks well before the economy (green line). Although most of us are aware that the stock market is a leading indicator of the economy, that point keeps getting lost on Wall Street and the media. Ever since the market peaked last fall, the media has presented a parade of economists arguing that the economy was still on sound footing. I remember seeing a headline “fear versus fundamentals” back in January (that was repeated again this week on CNBC). The implication being that the market was falling on “fear” instead of “fundamentals”. With the stock market having had one of the worst first halfs in decades, we’re now getting confirmation that the economy is in bad shape. It’s a little late for that to do anybody any good. That’s why we study the market and pretty much ignore the media and Wall Street economists. They’re always behind the curve at important tops because they insist on following the green line in Chart 6. We follow the red line which has been falling for nine months.

Energy’s easiest fix: Use less

While calls for more oil drilling dominate the headlines, experts say taking simple steps to use less could save twice as much.

By Steve Hargreaves, CNNMoney.com staff writer
Last Updated: July 3, 2008: 11:06 AM EDT

NEW YORK (CNNMoney.com) — Want to help the country save a quick million barrels of oil a day? Drive 5% less. Slow down. Inflate your tires.

Those three steps would reduce U.S. oil consumption by 1.3 million barrels a day immediately, according to the Alliance to Save Energy, a conservation group running an efficiency campaign backed not only by environmental groups but also the auto and oil industries.

That’s nearly twice the estimated daily oil production that could come from drilling in the Alaska’s Arctic National Wildlife Refuge, according to the government’s Energy Information Administration.

According to Julius Pretterebner, a vehicles and alternative-fuels expert at Cambridge Energy Research Associates, a consultancy that does a lot of work for the oil companies, how fast people drive and how quickly they accelerate is responsible for 10% to 30% of fuel consumption.

“It’s significant, and it’s the only thing we can do in the short term,” said Deron Lovaas, vehicles campaign director at the Natural Resources Defense Council, which partners with the Alliance to Save Energy on an effort to educate drivers on efficiency.

The United States consumes 20 million barrels of oil a day, nearly 10 million of which goes to making gasoline. The world gobbles up 85 million barrels of oil in all.

Rather than focusing on reducing demand for oil, the debate over the soaring cost of energy in recent weeks has been about boosting supply and more regulation of “speculators.”