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Business, Finance, Occupation & Industry

Why the Dow's Winning Streak May End Today

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By Matt Thalman, The Motley Fool

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The Dow Jones Industrial Average‘s 10-day winning streak and nine-day run of record-setting highs may come to an end today. The University of Michigan posted preliminary results from its Consumer Sentiment Index this morning, and economists were expecting a reading of 78. But the report indicated that sentiment fell to 71.8 in March from a previous reading of 77.6 in February. Not only does the falling number frighten investors, but because it was much worse than estimates, some fear the economy may quickly and unexpectedly head in the wrong direction.

As of 12:45 p.m. EDT, the Dow has lost 30 points, or 0.21%, with only eight of its 30 components currently trading in the green.

Today’s Dow downers
The poor consumer sentiment numbers are affecting a number of Dow components today. Blue-chip telecoms AT&T and Verizon are down 1.1% and 1%, respectively. These declines come a day after Samsung launched its new Galaxy S4, which might ordinarily spur upgrades and perhaps even attract new consumers to smartphones. Both trends would help AT&T’s and Verizon’s profits, as smartphones come with higher margins.

But the University of Michigan report clearly shows that consumers are losing confidence in the economy, which may signal that they will curb their spending. That would hurt not only the telecommunications industry, but also every retailer and consumer service provider. The Dow’s big retailers, Wal-Mart and Home Depot , have lost a respective 1% and 1.1, while entertainment giant Walt Disney has lost 0.1% today.

Fellow Fool Morgan Housel recently pointed out that Wal-Mart performs better when the economy is struggling because it can offer quality products at low prices. When consumers have a poor view of the economy and turn to counting pennies, they flock to the lowest-price retailers.

Furthermore, fellow Fool John Maxfield argues that the same could be said of Home Depot. He feels that when the economy is bad, average homeowners are more inclined to perform their own household projects, rather than pay contractors.

While I agree more with the argument for Wal-Mart, I can also see why cash-strapped customers might do home improvements themselves. Regardless, though, when consumers are not confident about the economy or the reliability of their future paychecks, they will likely increase savings and cut spending, which will hurt every retailer.

Should you buy Disney?
It’s easy to forget that Walt Disney is more than just the House of Mouse. True, Disney amusement parks around the world hosted more than 121 million guests in 2011. But from its vast catalog of characters to its monster collection of media networks, much of Disney’s allure for investors lies in its diversity, and The Motley Fool’s new premium research report lays out the case for investing in Disney today. This report includes the key items investors must watch, as well as the opportunities and threats the company faces going forward. So don’t miss out — simply click here …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Chimera Filing Should Spook Even the Pluckiest Investor

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By Amanda Alix, The Motley Fool

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For those steadfast Chimera Investment investors who were always certain that the wayward mortgage REIT would come through with its long past-due passel of financial disclosures, Friday was a banner day. Or rather, evening — since Chimera waited until after closing time to file its 10-K from 2011 with the Securities and Exchange Commission.

That in itself seems a little fishy, doesn’t it? Was Chimera hoping no one would notice the filing? Surely, management can’t be that daffy, since no one with even a fleeting interest in the sector could have missed all the hullaballoo over these overdue filings. Even the NYSE was ready to give this outfit the boot, though it did allow them more filing extensions than I would have expected.

Now that some information is finally available, I took a gander at Chimera’s 2011 10-K, and it’s a hoot. Truly, I have to agree with fellow Fool John Maxfield, who has expressed doubts regarding this trust’s reliability and trustworthiness.

Risk factors ad infinitum
Every company lists risk factors on these 10-K forms, and while often they are somewhat predictable, they can also be quite telling. Because of their nature, mREITs may have more to say about risk than other types of companies. Chimera has a good 35 pages dedicated to risk factors, which seems like a lot; Annaly Capital , the established mREIT whose subsidiary FIDAC manages Chimera, has 27 pages. By contrast, American Capital Agency , has about 19. 

Most interesting are the risks related to management. As Mr. Maxfield has pointed out before, the Annaly-Chimera relationship is an especially intimate one: The CEO of Chimera is the son of one of Annaly’s directors, and A. Alexandra Denahan is Chimera’s CFO — as well as Annaly CEO Wellington Denahan-Norris’ sister. To be fair, close relationships like this may not be unusual in this industry. After all, American Capital Agency and its hybrid cousin, American Capital Mortgage share a common CIO in Gary Kain — though both those companies seems to be well-run, in contrast to Chimera.

The risks laid out in the 10-K in regards to its management setup are myriad, and it is interesting to note the management fees paid. For 2011, Chimera paid fees of $52 million, in 2010, it paid nearly $41 million, and for 2009, the management fee was close to $26 million — and that’s not even counting all the expenses they were reimbursed. Fees were halved as of November 2012, something agreed to this very month. A little late, it seems: A share performance graph shows the mREIT consistently underperforming both the BBG REIT Index and the S&P 500 since 2008.

A little too scary
This article touches on just a tiny portion of the plethora of issues plaguing Chimera. It really is amazing that a well-managed company like Annaly can have a hand in such a muddled entity like Chimera, which seems just too creepy to seriously consider as …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Stress Test Fears? Not at U.S. Bancorp

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By Matt Koppenheffer, The Motley Fool

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At the end of the day tomorrow, the Federal Reserve is going to release the summary results from the Dodd-Frank stress tests for the largest U.S. banks, including U.S. Bancorp .

While the word “stress” may make investors think there’s something to be concerned about, there’s little for owners of USB to lose sleep over heading into tomorrow. The Dodd-Frank specific stress tests look a little like an amped-down version of the Fed’s Comprehensive Capital Analysis and Review (CCAR). That is, they will offer some similar capital-level insight, but without taking into account the all-important capital plans of the individual banks. So for investors waiting to hear whether USB will be able to increase its dividend or buy back more shares, that answer isn’t going to come from the Dodd-Frank test results.

More importantly though, U.S. Bancorp aced last year’s CCAR tests and looks even stronger this year.

Source: Company and regulatory filings.

Notably, the stressed ratios from last year’s CCAR included USB‘s aggressive capital-return plans, which included a 56% dividend increase and a 100 million-share repurchase program.

And as we look to USB‘s loan portfolio, we’ve seen loan exposures move slightly, but in regulator-friendly ways.

Source: Company filings.

Commercial real estate and residential mortgages were the largest increases in loans, while credit card loans barely grew and other retail loans fell slightly. While there may be a differing take on what this means from a business perspective, it’s a positive in the regulators’ eyes, as residential mortgage loans tend to carry lower risk ratings than, say, credit card loans. The latter is especially true for mortgage loans with lower loan-to-value ratios, and between 2011 and 2012, the portion of USB‘s mortgage loans with LTVs above 80% (that aren’t backed by Ginnie Mae) fell.

With all of this in mind, if we wanted to find something to worry about in the stress-test results release, we could fret about the fact that this is the first time the Fed is running through the specific Dodd-Frank stress tests, so there’s the possibility of confusion as to what the results mean and how they relate to the CCAR coming out next week. 

I figure there’s a good chance of that happening. But even a moderate level of confusion and nuttiness is unlikely to do much to push USB around. As I’ve outlined here, the bank is in a really good capital position.

Maybe more importantly, though, much of the focus tomorrow will be on more, shall we say, “questionable” banks like Bank of America . My fellow Fool John Maxfield thinks that B of A is going to pass the tests “with flying colors” (I concur), but if there’s any sort of maelstrom tomorrow, it’ll be revolving around either B of A, or fellow beaten-up big bank Citigroup.

The big picture at U.S. Bancorp
Of course the stress-test results are only a small piece of the puzzle when it comes to U.S. Bancorp. To dig …read more
Source: FULL ARTICLE at DailyFinance