Randomly Noted

Today’s historically huge earthquake in Chile and, now, reports of tsunami waves measured in centimeters – in Hawaii, Australia and elsewhere in the Pacific – are fascinating scientific phenomena. What’s also remarkable, from a humanitarian and macroeconomic standpoint, is that Chile’s death toll has been so limited – it now stands at around 214. It’s a reminder of how robust Chile’s economy and infrastructure are. It’s easy to forget about the likes of Chile (smaller, thriving emerging economies) when all the EM-investing chit-chat is about Brazil, China, India and (decreasingly, for Putin-esque reasons) Russia.

Here’s a staggering statistic mentioned in Fannie Mae’s just released financial results – nearly 1 out of every four residential properties in the U.S. (24%) today has negative equity because the value of the homes are less than the mortgages against them. What that likely means is any rebound in housing prices will be slow at best. If homeowners with negative equity wal away from their obligations, forced home sales will tilt the supply-demand balance of homes in favor of supply, as in too much of it. Thus the continued pressure on housing prices.

And of course this isn’t good news for a company that holds a lot of these mortgages. Fannie Mae reported a 4Q loss of $16.3 billion, an improvement over the loss of $19.8 billion a year ago. Things are so bad at Fannie that it asked for an additional $15 billion from the Treasury just a few weeks ago. All of this comes on the same day that another government-owned company, AIG, posted staggering losses as well.

How bad is the outlook for Fannie? It says in its filing that it can’t be certain about its long-term sustainability (in other words, it may not be around.) And it says that the dividend payments it will have to start paying the Treasury for giving it money (via preferred stock investments) will be so large that the company will have to borrow from the Treasury to pay the Treasury those dividends. The question isn’t what the long-term sustainability of Fannie Mae is but how long can the Treasury sustain a situation like this.

“While there are a few shafts of encouraging light, results overall were murkier and messier than the market overall expected.” That’s what Nomura Securities analyst David Havens told Newswires reporter Joe Bel Bruno when asked about AIG’s 4Q results, released earlier today.

To get a sense of how difficult things are for AIG, the $9 billion loss in the most recent quarter was a significant improvement over the $62 billion loss a year ago. The company is making progress in unwinding some of the derivative products that got it into so much trouble to begin with – it’s now at $940 billion versus the $1.6 trillion a year ago. And it actually made some money off those unwinds.

But the underlying insurance business is suffering. It sees continued weakness in property and casualty insurance premium pricing. The stock fell nearly 10% today, and rests near $25. It is likely to get a lot closer to the 52-week low of $6.60 before it approaches the high of $55.90.

Now that a bipartisan commission has been named to find way to reduce the massive U.S. federal budget deficit sometime in medium term, it will be interesting if any of the usual untouchable spending areas will now be considered touchable.

It all likely depends on how much lawmakers really consider the budget deficit a crisis in the making. Few would advocate deep spending cuts now, with the fragile economy still in need of external support, but many think sometime reasonably soon the deficit issue has to be tackled.

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One of the interesting take aways from the Blackstone earnings report is that, at least in its real estate portfolio, there are signs of having hit or being near a bottom. The company said that it saw property values in the hotel and office segments begin to stabilize – the return for its real estate funds was a negative 0.5% in the most recent quarter versus a negative 29% in the year-ago quarter.

This could be a good sign for the overall commercial real estate market.

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Federal Reserve Chairman Ben Bernanke managed to avoid making many waves during two days of Congressional testimony.

His remarks about short -term interest rates – that they need to stay essentially around zero for a number more months – drew the biggest headlines and gladdened the hearts of some U.S. stock investors.

Today he showed Fed chairmen can still be masters of understatement.

Luca Di Leo and Tom Barkley of Dow Jones Newswires reported that Sen. Chris Dodd, D-CT, chairman off the Senate Banking Committee, asked Bernanke whether banks should be stopped from employing credit default swaps to potentially cause runs on a country’s economy.

After noting the benefits of swaps, essentially market issued insurance policies, in hedging, Bernanke said “obviously using these instruments in a way that intentionally destabilizes a company or country is counterproductive.”

Counterproductive indeed.

Brazil’s central bank, worried about inflation and other symptoms of an accelerating economy, has raised banking reserve requirements on term deposits to 15% from 13%. Granted, Brazil’s economy isn’t expanding at a China-esque pace. But like China, which has taken monetary tightening steps in recent weeks, Brazil wants to prevent a bubble. Henrique Meirelles, central bank president, notes that bank reserve requirements were reduced during the 2008 economic crisis; now stimulus measures need to be reined in. The central bank took some other steps today to restore charges on cash and term deposits. Final data aren’t out yet but it’s believed that Brazil’s economy didn’t grow at all last year; this year, it’s expected to expand a robust 5.5%. We should all have such problems.

It’s revealing how the presumed universal good of bolstering investor confidence can be claimed by both sides of an important issue such as short selling U.S. stocks.

Here are the quotes.

After duly noting the positives brought to the table by oft-despised short sellers (market liquidity and pricing efficiency), Securities and Exchange Commission Chairman Mary L. Schapiro today said, “We also are concerned that excessive downward price pressure on individual securitues, accompanied by the fear of unconstrained short selling, can destabilize our markets and undermine investor confidence in our markets.”

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The U.S. housing market‘s still a mess, unemployment’s still around 10%, markets are jittery – but Carnival says it will hike summer-cruise prices. Carnival shares rose on today’s news that bookings so far this year are “at unprecedented levels.” What’s up? Two factors are in force, I believe: First and foremost, cruises are relatively cheap – a reflection of cruise companies slashing prices as the economic crisis set in more than a year ago. Indeed, “pricing hasn’t fully recovered to 2008 levels,” said Gerry Cahill, Carnival’s CEO. Secondly, people who want to give themselves a treat as the economy stabilizes are gravitating toward cruises as opposed to do-it-yourself vacations, knowing they’ll get a pretty good ride for their money. Think about it: you’re feeling financially insecure yet you want a nice holiday. Do you book your own flights, hotels and rental cars; pore over maps and guidebooks to make sure you take in all the tourist attractions; and check internet restaurant reviews to ensure you’re not paying up for miserable meals? Or do you go with an all-inclusive cruise package? It may not be everyone’s cup of tea – I know many, many people who swear they would never take a cruise – but it’s a fairly secure option in these still-insecure times. When you book a cruise, you know what you’re getting. Plan your own trip, and anything can happen. By the way, it will be worth monitoring whether Carnival’s price hikes stick, and people pay up as the summer months approach. Generally speaking, companies in many sectors cut prices during the recession. Some did so to grab market share on the theory that when the economy recovered they’d be able to hike prices and restore profit margins. This remains to be seen.

The Conference Board’s barometer of consumer confidence fell pretty sharply in February, raising concerns about the outlook for consumer spending and the speed of economic recovery. But one company with fortunes tied very close to the consumer spend story – Home Depot – made a move today that seems to indicate a belief that consumers will increase spend and, if not doing so already, will be doing so in short order.

The company reported stronger earnings today but what caught the eyes of many an investor was the fact that Home Depot increased its dividend for the first time in three years.

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