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tv   First Business  FOX  May 24, 2010 4:30am-5:00am EDT

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you're watching first business. financial news, analysis and today's investment ideas. good morning everyone. thanks for joining us. stocks are still on shaky ground to start the week. and let's talk about the headlines that could move the markets with matt shapiro president of mws capital. he joins us from the chicago board options exchange. matt, no doubt europe's debt troubles are still gripping the markets, do you think? definitely. i mean, one of my big positions is that these european governments. the interest rates on their bonds are just way too low. so there's a repricing of the credit risk and that's of course what we've been contending with. with this really violent correction. but i think last week, last friday we finally, hopefully put in the bottom. so i think this week, i'm looking for a technical rebound in the market. really, ok. you think that there is a bottom? because some traders after seeing more than a 10% sell-off from april's
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highs. some traders actually say that we could see another leg down. but you don't think so? well, everyone likes to be negative. especially the professional traders. i'm usually optimistic. i think the united states investment market is really good. and in the vix pit, i do believe friday's trading showed that there's light at the end of the tunnel. ok, we've also got housing data involving sales and prices of homes coming in economic data this week. how do you think that could affect the markets? well, unfortunately the news coming out on the housing sector is just more of the same. and a heavy, heavy inventory of foreclosures. so unfortunately, i don't think we're going to go to that for some help with the market. ok, so we've seen a pretty good correction here. and you're a long-term investor, so have you been buying at these levels? yes, some the financial stocks i really like. and just big blue chips. they get hit in this sell-offs. but they have great dividends and great earnings, beejal. ok, in we're going to talk about some of those financial stocks that you are actually buying coming
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up in chart talk later on. and now let's get another perspective of the markets from the c m e group. we join jeffrey friedman of lind- waldock. and jeffrey, after a sharp sell-off last week, how are traders approaching the week ahead? i think what they have to do to approach the market is take a look at the technicals more than the fundamentals. i don't think anything decisive is changed completely for the fundamentals. so on a technical point of view, if the s&p 500 trades below 1048, then that would be a continuation of bearish. and momentum traders would be enforced. yeah there has been so much technical damage on the charts. is it really too early to expect any kind of recovery in stocks in the new week westermarck no, actually i think you can expect some kind of recovery. long term for investors versus short-term traders. i think i'll always least a with a 500, the s&p
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500, above 1000. it is not a bad level. we should be trying to look for a place to get long. for position traders. remember, this correction of last week is only about 13 and half percent from the high. and we were overbought with a nine month rally with no real significant corrections. ok jeff, let me just get your quick thought on gold. we've seen profit-taking almost 6 percent correction from the highs in april. is it too risky to get into gold at these levels? no, not at all. first of all, when i say not at all, i mean for a very short-term traders. you could take a stab in the june future gold contract around 1175, 1170. if we break that, we probably go back down to 1150. but, even if we went to 1100 or
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1050, i'm a buyer. i'm buying big dips and i'm very bullish on gold. low on term. but because we've had such a big rally and is been one of the best performers of in each asset class. you really will have to have the volatility. you have to take a $75 swing in the gold market. that's just the way it is. ok, thank you very much. jeffrey friedman of lind- waldock. as the euro drops and the dollar rises, people traveling to europe are getting a price break. compared to about a year ago, buying power for american travelers has increased roughly 20% because of the current weakness of the euro currency. "trends we're seeing this season is europe being extremely popular as we go into the busy travel season. with the euro being about $1.21, versus $1.60 last year at this time, that additional 40 cents on the
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dollar is fantastic." on the flip side of the coin, tim krenzien of paul klein travel says... air travel is the big issue for passengers. hundreds of flights are still being cancelled from time to time because of volcanic ash from iceland. most of the flight cancellations are happening in britain and the netherlands. also the price of air fare is higher as airlines are flying fewer planes. "our economy class atlantic fares are probably about 20 percent higher on average at this time last year and through the season." despite the debt crisis krenzien says travel to greece has not slowed. in fact, deep discounts are triggering more travel. however, there seems to be a dip in booking trips to athens because of rioting concerns. reports 20,000 hotel cancellations during the past few weeks. in the coming days lawmakers will work on combining both the
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house and senate versions of the financial reform package into one final law. adolfo laurenti, deputy chief economist at mesirow financial is here to talk about the bigger picture. comeback adolfo. let's talk about the issue of dealing with failing firms. and there's a big question still on how to wind down firms that fail in the financial sector. do you liquidate them first and then charge the rest of the banks for the cleanup costs? or do you do the $150 billion fund that the house is proposing, but it's not the senate version? well, we'll see what the solution will be out of washington d.c.. i don't think that that fund will be that damaging. to some extent it might actually help the financial markets because it will price exactly what will be the contribution from each company. otherwise it will be a big surprise. like tax that comes when institutions are failing, but nobody can anticipate it. usually financial markets do not like
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uncertainty. and now when you look at the news, all the lawmakers are saying this not going result in another taxpayer funded bailout in the future. and in fact, there was an amendment passed in the senate's version that "prohibits taxpayers from ever having to bailout the financial sector in terms of requiring the liquidation of firms. and all funds if they are used, have to be recovered from the sale assets." now, does that really end the chance of tax payers ever having to foot the bill? absolutely no. i'm very sympathetic with the philosophy behind that amendment. but when, if, and we know it will be a matter of probably when, and not if. if we will find ourselves again in this situation with extensive failures in the financial markets. i think the political pressure will be so strong that the government will not resist the temptation to go in and do another bailout. so, i would really like to have rules, but i don't think that this type of
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amendments really will prevent future bailouts. and, even if you want to be pragmatic. you probably want the government to have some flexibility. we are coming out from a very traumatic experience. but we cannot fully anticipate what might be in for the next time. so it's good to have flexibility in that respect. ok, what do you think is really missing? what is the big thing that is really missing? is it the cap on leverage perhaps that the banks don't have to be under? well, they are a few items that still need to find a final solution. and reconciliation between house and the senate. the cap on leverage might be one. i am personally not completely in favor. not because it is wrong. but we have similar experiences like with the basil to. they did not work too well. so they are releasing the details for these things and i always want to be very careful in how they're implemented. bottom- line, it does not stop banks from getting even bigger. no, that is something that unfortunately this bill does not address. it's not as damaging as many fear, but there are still unresolved issues. thanks as always. we appreciate your time.
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adolfo laurenti, economist at mesirow financial. treasury secretary tim geithner is heading to europe to get a better handle on the debt crisis there. this week, geithner will hold meetings with officials in germany and the united kingdom to discuss the european economy and what's being done to improve conditions. major market movers leading up to geithner's overseas trip include a euro currency that has fallen to a four year low against the us dollar. members of the federal reserve have said they are concerned that europe's debt crisis will hurt our financial markets and slowdown the economic recovery. toyota is making headlines once again, but this time it has nothing to do with faulty gas pedals. the japanese car maker is teaming up with electric car company tesla to help develop electric vehicles and parts. toyota says it will buy 50- million dollars worth of tesla's common stock. but not until tesla completes its i-p-o. meanwhile tesla announced plans to buy a plant owned by toyota
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in fremont, california. there, tesla will produce its model "s" electric sedan. a check up on housing. are foreclosure and default rates expected to get worse? and, another perspective on the financial reform bill. that's next.
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now that the senate has passed sweeping financial reform legislation, committees will begin working out differences between the senate finance reform package and a similar bill the house adopeted in december. joining me now is george simon of foley and lardner law firm. great have you on to talk about this big reform. what do you think? good morning to you by the way. what do you think about these restraints on wall street? well, its interesting. here, you have 1500 page bill. and the three areas that the government lost the money in, in the tarp program were fannie mae and freddie mac, aig, and the auto industry. and there's not a page in that bill that deals with any of those issues. so you make it sound like we have the wrong bill? well, in some ways we do. we have a lot of legislation, but none of it really addresses the very fundamental problems that we have a regulating activities
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that take place abroad. such as what aig was doing in the stock market. so, it's very difficult for us to come up with legislation that works. but by the same token, here you you have a bill that imposes a sweeping reform that really doesn't address the most pressing issues. and what about flash-crash? does it help there at all, do you think? i don't think so. i think that what happened in the flash-crash is you have a systemic lack of liquidity in times of stress. when the sec changed rules for the markets about 40 years ago, they basically did away with mandatory specialist and market makers. people who had to be there all the time. so now you have voluntary liquidity. people are there when it's fun to be there and when it's not fun to be there, they're not.
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they know how to go away. now, shakers of c m e group, for instance rallied on friday off of news on this bill. because the derivatives market is definitely going to change. isn't that a good thing, putting some restraints on the over- the-counter trading that was going on there really cause a lot of the problem that we're in today? yeah, it's to the extent that it does do that, it will be in affect. because they have the clearing corporation that's going to clear most of these things. the problem that you have is the most of the transactions that created this problem took place in london. what do you mean? ok, very true there. what about the consumer protection laws. those have to be a good thing for people, stopping people from getting ripped off from mortgage companies and credit-card companies? right, i think they will. and actually the house bill is in certain respects much better that way. because it creates an independent
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agency. and, you know angela the worst thing about the senate bill in this regard is putting it in the fed. the fed's job is to make sure that banks make money. that's what their job is. safety and soundness of the banking industry. so it really is a bit of a conflict of interest to say that they should be the watchdog over it. it will be interesting to see how all turns out. thank you very much. we've been speaking with george simon of foley and lardner law firm. great to talk to you this morning. have a terrific day. are foreclosures finally hitting a peak? one mortgage expert tells us where the housing market stands. that's coming up next.
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default and foreclosure rates seem to be at a plateau. and about the only good news is that they're not getting too much worse. marve stockert of illinois association of mortgage professionals is here with his insight. welcome back marve. let's go over the latest data. 4.6% of loans were in a foreclosure process at the end of the first quarter. that's up almost 1% from a year ago. and it's at a record high. so are we finally seeing a peak in foreclosures? or is it going to get worse? i believe its going to continue to get worse. because we're seeing people who are losing their jobs. unable to sell their homes. i think we have another rough at least two quarters. ok, and perhaps one of the reasons why you think foreclosures are going to get worse is because the delinquency rates are higher.
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let's take a look at the latest data here. 10% of all mortgages are at least one payment late. at the end of the first quarter. that is also up almost 1% from a year ago. so more people continue falling behind on their loans. and you don't think that's going to ease up any time soon? i think we're still going to have a struggle through 2010. only because again, people are losing their jobs, trying to make the mortgage payments. and people are trying to decide whether they want to continue their mortgage payments when they can't sell their houses. because they are upside-down. and it's with one or two income households, now down to one. it's a struggle. ok, what else are you seeing as far as people trying to refinance and even gave new lows for mortgages out there. is it just as hard today
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as it was a year ago? i'll have to say right now, the regulations have tightened up the criteria even more. a regulation called hvcc has stranglehold the appraisal process. i think the quality of appraisals has deteriorated. and it's hurting the people that need to refinance and people that need to sell their homes. i mean it's really unfortunate because mortgage rates are still so low. let's take a look at this. 30 year mortgage 4.84%. did anyone expect rates to stay this low for so long? no, but the government has been supplementing and making sure that these rates, so of the housing industry can recover. it's not the interest rates that are the problem. i will love to be able to say that interest rates are causing it. this is. people should be all buying and should be doing refinances. prime example, they stop buying and looking at houses as soon as the $8,000 tax credit went away. and so, as soon as that expired, realtors are saying wow, people are not
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looking now. and so you are expecting a drop-off in sales in the months? i would have to say yes. because any property up through april 30th, they had to have contracts. so a property that sells this month or next month, they don't count. ok, well we will continue to brace ourselves for another tough several more months in the housing market. thank you very much. marve stockert with the illinois association of mortgage professionals. matt shapiro tells us why he's looking at financial stocks for bargains.
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time now for a chart talk. matt shapiro president of mws capital back with us. and matt, you're finding some bargains in the financial sector. what have you got your eye on? well, definitely. during the worst of the sell-off last week, the s&p 500 was down 40 handles on thursday. scrounged around client accounts looking for extra cash. and what i bought was a u.s. bancorp. still, already one of my biggest holdings. but it's a very conservative, large, multi- regional bank based here in the midwest. and when the market down like that, you look for something solid that's been hit. so about $23, it was high as 28. but in general, i like all the financials. and they've all been hit about 15-20%. so if you're on the sidelines now, now is the time to get back in and take a look at them. because they definitely lead the market higher before we had the correction. ok, you've already bought u.s. bancorp. are you adding to your other financial stock positions? like j.p. morgan, bank of america? i
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really like them all. especially american express at 40. because consumer spending, despite all the gloom is pretty good. so, again, being on the sidelines here. here, we've backed down, we've had this correction. what are you going to do? i think it's time to get back into these financials. ok, talking about kind of a dog in the financial sector, citi group. it's still under $4 a share. matt, i know that you currently own the stock. and the treasure department is still in the process of unloading its shares. and boy, it's really just not going anywhere. well, i own it at about three and a half. it's been as high as about 4.20. and yes, it's kind of a dog. but, i like the long term. and i think, over time. was the treasury gets out of the way, in the housing market over the next few years recovers. citi group is going to be a $5, $6, $7 stock. all right, thanks as always. we appreciate it. matt shapiro, president of mws capital. thanks so much. and thank you for joining us everyone. we hope you enjoyed today's show. and we will see you right back here tomorrow.
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