Mortgage Saga Rages On

Seeing Red:
Why Anemic Income Statements Anticipated.

The fallout from the foreclosure debacle will lie heavily on the banks, who will be forced to take back more and more faulty loans. A Federal Reserve official, Chris Whalen, was quoted as saying this could cost the biggest banks upwards of $50 billion to buy backs of problem loans.

Fannie Mae and Freddie Mac who guarantee 90% of the mortgage loans in the Unites States, will have no choice but to exercise their right to force loan originators to repurchase erroneous or fraudulent loans. Income statements for mortgage underwriters are not going to be a pretty sight for the next 2 quarters, particularly the 4th quarter . It will be interesting to who will push the limits of creative accounting in order to spread out the bad news over time, to avoid the possible ramifications of reporting larger than anticipated losses

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K. Reilly
Cohn-Reilly Report / News Flash

Toxic Mortgages Haunt Goldman

Meanwhile, Toxic Mortgages continue to haunt Goldman Sachs. Barely recovering from the poor publicity derived from an SEC investigation which ended in a settlement, Goldman is facing another law suit. The tainted Golden Goose of the Investment Banking industry was hit with a suit from a German Bank concerning a pool of mortgage assets sold to them in 206.

According to the Wall Street Journal, the suit alleges that Goldman failed to fully disclose the risks underlying the mortgage back securities. According to court documents, the suit contends that Goldman knowingly dumped collateralized debt obligations on their subsidiary LBBW Luxemburg, even though they saw signs that the market was tanking.

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K. Reilly
Cohn-Reilly Report / News Flash

NY Fund Mgrs Dodge Tax Increases

Hedge funds can breathe a sigh of relief as the expected State tax increase was voted down by State lawmakers.The controversial tax increase was to target out-of-state fund managers, which could have lead to an exodus to nearby states, namely Connecticut._____________
NY State lawmakers did manage to finalized the $136 billion budget, approving a final piece of legislation that will raise about $1 billion through a array of tax hikes and other measures. These measures are anticipated to cover the over $9 billion in deficits.

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K. Reilly
Cohn-Reilly Report / News Flash

Internaltional And Domestic Market Clips

Europe: Corporations Brace for tighter credit
Unlike US corporations, the majority of the companies in Europe heavily depend on banks for financing. Most of Europe’s banks passed the stress test, but have a steep hill to climb with respect to raising several billions in capital to fund new lending. It looks as though European banks have won the battle, but the war rages on.
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Wall St. Journal reported that the financial-overhaul law may force public firms to toughen up on “clawback” rules, and make executives repay improperly awarded incentive compensation.
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Maket was inspired today, with a little help from news about BP’s CEO stepping down, and Housings sales, which spiked 24% in June, following slump in May
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Cohn-Reilly Report / News Flash

Major Dow Components Boost Market

AT&T, UPS and Caterpillar beat analyst estimates and reported strong revenues to propel the market over 200 points higher yesterday. Today, although McDonalds, Honeywell and Ford did equally well, the market is struggling to remain in the black in early trading. Let's see if the bulls can continue the rally by the end of the day

Cohn-Reilly Report / News Flash

Historic Reform Bill Passes

Congress managed to pass a sweeping overhaul of Financial Regulations Thursday, thereby securing for a 3rd major (hard-fought legislative victory for President Obama, amid his lowest approval rating since taking office.

The president is expected to sign the bill sometime next week. Obama is quoted as saying "I'm about to sign Wall Street reform into law, to protect consumers and lay the foundation for a stronger and safer financial system, one that is innovative, creative, competitive and far less prone to panic and collapse"

K. Reilly
Cohn-Reilly Report / News Flash Check out the new Music and Art Forum on BlogSpot! "Its a refreshing departure from economics. it's like life's little desert snack."doARTorDIE

July Mini Rally, with Low Trading Volume

On the heels of positive earnings reports from Alcoa and CSX, kicking off the new earnings season, the markets are up for the 6th consecutive day, around 6%. Traditionally, as reported in a prior post, July is a good rally month for the markets. I would call this a mini-rally because of the uncertainty going forward.

Technically, all the major indexes are overbought - stiff resistance is ahead as the price levels near the 20, 50 and 200 day moving averages. Also, the rally is on lower than average volume, which shows a lack of conviction. Still, if earnings continue on an upbeat note, we should expect the rally to follow suit, barring any major new negative
economic news.

C. Cohn
Cohn-Reilly Report / News Flash