Articles from 01/27/08 to 02/02/08

You have to marvel at the twists and turns in this presidential campaign.

Consider the case of John McCain. The man takes a stand on immigration, backing President Bush. The effort implodes in the Senate, enrages anti-illegal immigration activists, and destroys McCain's campaign. Every Beltway pundit worth his column labels McCain political road kill.

Fast forward to California. McCain is leading in the state by double digits. This is the state where the Minuteman movement was organized and first took off. This is also a state that is considered safely Democratic, mainly because Republicans overplayed their hand and alienated Latinos. Latinos by the way, make up 25% of the electorate, but a larger share of the younger population. Meaning, Latinos will increasingly dominate the political future of California.

It’s not often I get to call a media relations contact for a major company and be the first to inform him of a major news event involving his client. That’s how closely Microsoft’s management held its decision to make its “unsolicited” offer for Yahoo!

It was fairly well known that Microsoft had been interested in such a deal for some time. And equally well known that some of Yahoo!’s most senior managers were cool on the idea.

What’s changed?

I got lots of emails from people who were furious that my story last night did not lay the California health care crisis at the feet of the undocumented/illegal alien population. (No my head is not in a bucket.) I did a bit more digging on this and wanted to present a quick cut on the blog.

Check out this report by RAND: http://www.rand.org/news/press.06/11.14.html Here's the headline: "Researchers estimate that total medical spending on undocumented immigrants in Los Angeles County was $887 million in 2000 – 6 percent of total costs, although undocumented immigrants comprise 12 percent of the region's residents."

While much of the focus in rising foreclosures has been on subprime loans, there are more dangers on the horizon. Payment resets on “non-traditional” loans are about to kick-in next year. These are the “interest-only” and “payment option loans” that helped people “get into” increasingly expensive homes.

Studies indicate that 75 percent or more of borrowers with payment option loans have only been making the minimum payments during the starter period, which is typically five years. Many of these loans have what’s called negative-amortization, which means that if you only made minimum payments, the amount of your loan will have increased.

One thing I didn’t talk about in tonight’s story about the Fed's latest interest rate cut was the one dissenting vote -- from Richard W. Fisher, who preferred no change in rates.

Economists tell me it was the fourth meeting in a row with a dissent -- each time from a different Fed president.

This policymaker debate mirrors the debate on Wall Street: whether the Fed is taking wise action to combat the economic downturn, or perhaps it is overreacting to the recent weakness in global equity markets.

I learned a new phrase when I was out in California last week: "Couch Surfing."

As far as I can tell, "couch surfing" started out as a way to describe the practice of crashing on friends sofas around the world as a way to travel without the nuisance of paying for a hotel. There is now an organization devoted to promoting coach surfing as a way to develop understanding around the world.

Language evolves to meet the times, and now couch surfing has caught a new wave. As more and more Californians are tossed out of their homes, I'm told many are taking to couch surfing. They stay for a week or so on a friend or relative's couch before moving on to another home and another. We're talking about middle class families. Since everyone can't shower at the same time, the parents end up getting ready for work at the gym.

The waiting game is over and the Fed has delivered just what the markets ordered... a half-point cut in interest rates. In the statement accompanying today's decision on rates policymakers said, "Financial markets remain under considerable stress, and credit has tightened further for some businesses and households." The central bankers also noted a deepening of the housing contraction and some softening in the labor market. Stocks had been trading lower ahead of the announcement and popped higher on the news. But sellers appear to have stepped in just ahead of the close of trading. Susie Gharib analyzes the Fed statement with Mike Holland, Chairman of Holland and Company, and Michele Girard, Sr. Economist at RBS Greenwich Capital Management.

Ah.. the waiting game. Investors around the world are waiting on the Fed. Federal Reserve policy makers are wrapping up a two-day meeting in Washington, D.C. today with a decision on interest rates expected at 2:15 eastern time. Wall Street has been calling for and many say has even priced in a 50-basis point cut. But with the data we've seen this week, a more restrained quarter point cut could be in the offing. No matter what the central bankers decide.. we'll have complete coverage of the decision and analysis of the Fed's statement accompanying that decision in tonight's broadcast. Erika Miller is following the Fed and Susie Gharib will have her Fed panel on to discuss the move. She'll talk live in the program with Mike Holland, Chairman of Holland and Company, and Michele Girard, Sr. Economist at RBS Greenwich Capital Management.

Also in tonight's program, Paul Kangas adds a new guest to his Street Critique lineup. He's Josh Peters, Editor of Morningstar's Dividend Investor. And Darren Gersh is just back from California with the first of his Economic Choices '08 coverage of the issues facing California voters. Tonight's segment focuses on California's healthcare crisis.

I consider myself an optimist -- a glass half full kind of gal. So, it was nice to have some positive economic data to report today. Durable goods surged far more than anyone expected in December -- over 5 percent.

This data supports the perspective of Bob Brusca at Fact and Opinion Economics that recession is UNLIKELY. Brusca thinks the Fed will cut its Federal Funds target by a 1/4 of a percentage point tomorrow -- not the 1/2 point the markets expect.

As I mentally prepare to cover the market’s reaction to the rate decision tomorrow, I’ve been playing the “what if” game.

Today's story on the Florida primary focused in on the effects that the ongoing foreclosure crisis is having on voters' moods and the political rhetoric of GOP and democratic candidates. But two other factors in Florida's "real estate economy" also figure prominently in voters' minds -- property taxes and property insurance. Both have risen sharply in recent years: property taxes as a result of the housing boom, and property insurance because of the adjustments made by insurance companies in the wakes of hurricanes Katrina, Ivan, Charlie, and Wilma in 2005 and 2006.

I haven’t conducted a poll, but I think I’m on solid ground when I say most Americans think the Federal Reserve is boring. (Here, of course, I’m refusing to acknowledge that quite a few Americans have never heard of the Fed.) No doubt there are a handful of Americans out there who get heart palpitations before each FOMC rate cut decision, but I’d be willing to bet that a vast majority of those excitable souls are economists with posters of Irving Fisher above their headboards.

Yet, as we sit waiting for what will likely be the central bank’s second rate cut in just a little over a week, I’m finding the Fed more and more intriguing. I wouldn’t quite say I think the Fed “exciting,” but I did just yesterday pick up a copy of the Federal Reserve Bank of St. Louis Review for January/February 2008 and, in it, read a copy of William Poole’s September 28, 2007 speech, “Thinking Like a Central Banker.” (The text of the speech is also available on the St. Louis Fed’s website.)

I went to a school event for my sons on Saturday morning, and I had a chance to catch up with the other parents, many of whom I hadn’t seen in a while.

In addition to talking about school acceptances, celebrity gossip and kids, many people wanted my prediction for mortgage rates -- and whether now is a good time to buy or refinance.

What I told them is what economists tell me: If the Fed cuts rates by a half a percentage point, as expected, Monday, it could be good news for homebuyers and re-financers -- especially those seeking jumbo loans.

It sounds like the nation's housing crisis is going to get worse before it gets better. Researchers say subprime lending reached its zenith in 2006. Many of those subprime loans carried adjustable rates which are expected to reset this year and next. That could mean even more foreclosures ahead.

Foreclosed homes take a toll on neighborhoods and entire communities. Boarded up homes lower the value of the properties around them and that can lead to lower tax revenues for their communities.

Foreclosures also carry a special burden for banks. Banks are in the business of loaning money, not managing real estate. But, once a home goes into foreclosure, the lender must maintain the property and pay taxes on it. Also, the longer a home sits vacant, the greater the chances that it will be vandalized.

A funny thing happened last week at the U.S. Conference of Mayors. As I reported, the Mortgage Bankers Association had a studio set up so mayors could videotape public service announcements, also knows as PSA’s, about what to do if you’re facing foreclosures. This was the idea of the Mortgage Bankers Association as a potential solution to the foreclosure crisis hitting so many cities. With some cities suing and others threatening, I think of it more as a peace offering.

I thought this would be a good place to find mayors concerned about foreclosures in their towns. I spoke with a mayor who had just completed a taping. A representative from the MBA told me foreclosure wasn’t a big problem where this mayor was from. So I asked the mayor, “You’ve just finished taping a PSA on the foreclosures; what prompted you to do this?” I thought he would say something about wanting to be proactive to respond to the problem. Instead, after looking uncomfortable for a half a second, he said, “I’m embarrassed to tell you this, but I thought I was doing something about prostate cancer awareness.”