Good morning, investors and traders! You are reading the Daily Download (”Daily DL”), which includes summaries and links to the day’s selected economic and stock investing news. The Daily DL is maintained by Chain Bridge Investing, which is a financial blog at www.chainbridgeinvesting.com. Chain Bridge Investing is constantly improving and adding new financial and investing content to the website. Please let us know if you have any suggestions at the following email address:  .

General News & Headlines Summary

The news continues to debate bankers’ bonuses and the power that both the Treasury and the Fed possess.  Weak economic news continues to emerge, while the equity markets declined again on Thursday.  The Treasury yields declined as a result of more aggressive buying and apparent increased uncertainty regarding the global recovery.  Furthermore, both the U.S. dollar and gold rose in price.   Some of the topics mentioned in the news not covered below are the following: (1) Gap profit increased 25% in the third quarter from a year earlier; (2)  Nike increased quarterly dividend to 27 cents; (3) U.S. newspaper ad revenue drops 28% to $6.4 billion, adding to the 13-quarters of consecutive year-over-year declines; (4) AOL looks to reduce its workforce by nearly 2,500 jobs; (5) Dress Barn reported increases in sales and an improved outlook as its quarterly profit increased 10%; (6) Oil and gas drillers are not participating in many oil-and-gas lease auctions in the Rocky Mountains due to the Obama Administration’s willingness to take the bidders money but not issue the lease in a timely fashion if at all;  and (7) GameStop increased third-quarter profit by approximately 12% from last year due to increased game sales.

No Upcoming Economic Data for the Day (all times EST)

Initial Public Offerings (”IPOs”) for the Week of November 16-20, 2009

11-17-09       Fortinet – Network security and IT security (“FTNT”)

11-18-09      HealthPort – Healthcare technology (“HPRT”)

11-19-09      7 Days Group Holdings – Company of hotel chains in China. (“SVN”)

11-19-09      Archipelago Learning – Online eduction company (“ARCL”)

11-19-09      Cloud Peak Energy – coal mining (“CLD”)

11-20-09     Global Defense Technology  Sys. – Engineering service provider (“GTEC”)

Source: WSJ Market Data Group.

For Daily Market Performance Data, Please Visit the Daily Market Sheet

List of Selected Companies with Third-Quarter Earnings for 11-20-09

News

U.S. Mortgage Delinquencies Reach a Record High – The New York Times

Summary: According to a survey conducted by the Mortgage Bankers Association, nearly 5 million households, or one in 10 homeowners, were delinquent on at least one mortgage payment during the third quarter.  This is the highest delinquency rate that has been recorded since records began in 1972.  In the third quarter of 2008, the delinquency rate was at one in 14 homeowners.  Furthermore, one in seven homeowners are either delinquent or in foreclosure.  The worst mortgage problems are concentrated in California, Florida, Arizona, and Nevada.  At present, high-quality prime loans with fixed rates account for the largest share of the new foreclosures.  The rising defaults on the high-quality prime loans appears to be fueled by increased unemployment.  With the value of homes tending to be less than the mortgage, homeowners cannot just sell the house and move to a new, cheaper area.  Meanwhile, 14.4% of the loans insured by the Federal Housing Administration (“FHA”) were at least one month delinquent for the third quarter, compared to 12.9% a year earlier. Basically, unless foreclosure modification efforts begin succeeding, then there will be a large supply of houses entering the market and adding downward pressure to home prices.

CB: With the rising foreclosures and delinquencies, another downturn in housing is looking more probable.  Not only are those with subprime mortgages entering foreclosure, but now the high-quality prime loans account for the largest portion of new foreclosures.  The housing industry is demonstrating its dependence on the economy.  Yes, the economy may have a jobless recovery, but as long as unemployment persists at these levels there will be other parts of the economy that lag and weaken the strength of a recovery.  Furthermore, the article didn’t mention the large amount of adjustable-rate mortgages that are expected to have higher rates kick in over the next two years.  When those rates adjust, delinquencies will likely increase significantly, thus further adding to the potential housing supply.

Yet, one argument that CB has encountered recently in support of a housing market recovery is that there is pent-up demand waiting to buy these foreclosed homes and this will reduce the excess supply on the market.  Nevertheless, one should consider for every foreclosed home, there are people being displaced and potentially leaving the housing market for the near-term, thus shrinking the market and potential demand unless new buyers can enter at a higher rate than those leaving.  CB is interested in where the displaced households go next.  Do they: (1) move in with relatives; (2) move to multi-family housing; (3) rent; or (4) re-enter the housing market?  Multi-family housing might be a legitimate investment category to consider during these times.  Also, one may want to consider other areas that may benefit from these trends such as renovations and home repairs.

Related Reading: More Homeowners Fall Behind on Mortgages – The Wall Street Journal, Record Numbers Late on U.S. Home Loans – Financial Times

HealthPort’s IPO is Postponed – The Wall Street Journal

Summary: The IPO for HealthPort Inc., a medical-record-management company, has been postponed due to inability to determine a price on Wednesday and overall market conditions. While the company has been growing its revenue rapidly, it has failed to produce profit since its founding in 2006.  

CB: The postponing of the HealthPort IPO is significant because it demonstrates that the market is not just buying any new IPO, which may send caution to firms planning IPOs over the next few weeks.  The fact that market participants are showing caution on some of these IPOs is a good sign.

Treasuries in Demand as Investors Turn Cautious – Financial Times

Summary: The actions between the various asset markets are revealing there are concerns the party in equities could end at any moment.  On Thursday, market participants’ uncertainties helped push the yield on the two-year U.S. government bonds down by 7 basis points to .68%, the lowest yield of the year.  Meanwhile, the yields on Treasury bills maturing in January dropped below zero during the day.  The drop in Treasury yields is a result of more aggressive buying, which results from (1) uncertainty in the equity markets as well as (2) the need of banks and investors to increase their liquidity for the end of the year.  Furthermore, the Vix index of equity volatility increased during the trading day for the first time in five days.

CB: Another possible explanation for the behavior witnessed on Thursday is that some investment funds may be trying to lock in their gains for the year.  If a fund has performed exceptionally well during the year, then it almost behooves them to reduce their risk in December and trim some of their positions.  As a result, regardless of what happens in December, they will be able to  record their great performance number for the year on their marketing materials.  Fund raising usually takes place with renewed fervor during the early part of the year.  CB doesn’t support these behaviors due to the unnecessary increased taxes the fund managers push on the investors, but does understand how the managers may want to preserve an already good performance number to obtain more investors.

GE Prices First Western Islamic Bond – Financial Times

Summary: On Thursday, General Electric (“GE”) priced the first Islamic, or sukuk, bond by a western industrial company.  The company raised $500 million in five-year sukuks at 175 basis points over U.S. Treasuries.   The sukuk is structured to pay lenders the profits and rents from the assets that back the bond, rather than interest, which is banned under Islamic law. GE claims to have entered the sukuk market to further diversify.  The sukuk market has undergone a recent revival that allowed GE to receive attractive terms on the sukuk issue.  If this sukuk had been issued last year, experts predict GE could have paid as much as 10 times more on the spreads in order to appeal to buyers.  It is likely that GE’s entrance into the sukuk market will be followed by other western companies.  Yet, one lingering issue that must be considered is the treatment of  sukukholders to bondholders during bankruptcies.

Golden Era for Gold?  Maybe, Even at $1,141.40 – The Wall Street Journal

Summary: Despite Thursday’s broad-market sell off, Comex gold futures continued to rise to a record-high $1,141.40, which is a gain of 62% since November 2008.  Gold is still below the inflation-adjusted record high it set at $2,290 an ounce in January of 1980.  The tailwinds behind gold’s current movement upwards are: (1) a public questioning of the central banks ability to handle inflation; (2) if the U.S. dollar were on a gold standard, then gold would have to be priced at $7,648 an ounce, a calculation based on a monetary base of approximately $2 trillion and 261.5 million ounces of gold; (3) general fear that policy makers do not have a handle on geopolitical events, trade imbalances, and budget deficits.  Yet, the economy shows the presence of many deflationary forces and over the last 30 years, gold did not hold its value well when inflation declined.

CB:  The surge in gold is mentioned several times everyday.  There is definitely a news bubble for this topic, but how does that translate into an actual bubble?  Like the majority at this time, CB believes that gold has a good chance at continuing to rise; however, CB will continue to look for evidence to the contrary.  In full disclosure, CB  is long a small amount of GLD shares.

Dell Trails Tech Peers in Nascent Recovery – The Wall Street Journal

Summary: Dell reported that in the most-recent quarter its revenue declined 15% from a year earlier, while its profit dropped 54%.  Dell’s results stand out due to the fact that its technology peers and competitors like Hewlett-Packard (“HP”), Cisco Systems, Intel, International Business Machines Corp., and Microsoft Corp all reported improved results.  Earlier in the year Dell had stated that it was going to trade off increased profitability for reduced market share.  However, the near-term results indicate both dropped.  Dell states that its profit declined primarily due to sales to large companies, which is its largest market, decreasing by 22% from a year earlier.  Apparently, the consumer market has recovered faster than the corporate market.  Yet, Dell’s consumer sales decreased 10% from a year earlier as well.  At present, Dell is the world’s third largest PC maker based on units after HP and Acer; however, earlier in the 2000s it was the worlds largest PC maker.  Furthermore, as Dell continues to emphasize profitability, it also seeks to expand into new markets such as the technology outsourcing market.

More Links of Note

Bill Gross’ Investment Outlook

Central Bankers Blowing Global Bubbles

Fears of China Property Bubble

Myths of Asset Reflation Explained – PragCap

Four Lessons from the Recession – Ben Stein

10 Characteristics of a Successful Trader