Yesterday Wells Fargo (NYSE:WFC) announced that they planned to cut 2,300 jobs due to a slowdown in refinancings for mortgages (see story here). The move is obviously in reaction to the rise in the 10-year T-Note rate, which is the rate that the traditional mortgage is pegged to. With the rapid rise in yields, that has been caused by market participants betting that the Federal Reserve will move to taper their fixed income buying in the next month, has made it uneconomical for many homeowners who still could refinance to do so. You need a lower rate to justify refinancing and as home prices were increasing many people were finding the opportunity to take advantage of the rates and not being underwater anymore. Now that is not the case and we would caution readers to pay attention to a possible rise in foreclosures as rates rise to their highest levels in years and adjustable rate mortgages (ARMs), and yes there are still many out there, are reset to higher rates.
We would watch Bank of America (NYSE:BAC) to see if they follow suit as those two are two of the biggest in the country when it comes to mortgage lending.
Chart of the Day:
Rates are up almost 50% during a 3-month period. Is there any question as to why refinancings are slowing and investors are worried about the housing market now?
Source: Yahoo Finance
We have economic news today and it is as follows:
- Initial Claims (8:30 a.m. ET): 337K
- Continuing Claims (8:30 a.m. ET): 2959K
- FHFA Housing Price Index (9:00 a.m. ET): N/A
- Leading Indicators (10:00 a.m. ET): 0.5%
- Natural Gas Inventories (10:30 a.m. ET): N/A
Asian markets finished lower today:
- All Ordinaries -- down 0.46%
- Shanghai Composite -- down 0.28%
- Nikkei 225 -- down 0.44%
- NZSE 50 -- down 0.48%
- Seoul Composite -- down 0.98%
In Europe, markets are higher this morning:
- CAC 40 -- up 0.94%
- DAX -- up 1.08%
- FTSE 100 -- up 0.88%
- OSE -- up 0.54%
Yahoo (NASDAQ:YHOO) received more good news as they now rank ahead of Google (NASDAQ:GOOG) in unique users visiting their portfolio of sites on the web. It is interesting on the surface, but even more interesting when one considers that the company's newest acquisition, Tumblr, was not included in the traffic numbers and that site is #28 in the rankings. Now that Mrs. Mayer has the largest audience we suspect she directs her attention and effort towards getting that large audience to constantly visit the Yahoo sites they do use in order to bring her company's overall traffic more in line with Google and other competitors.
If there was a pullback to $26/share we think that would be an excellent entry point for long-term investors.
Source: Yahoo Finance
Yahoo has been one of the top performing tech names we have thrown out there for readers and although the share price has stalled out recently we think that with the current management team in place and the steps that the company has taken over the past year the shares should continue higher. The key now is to monetize their users, and there is no secret formula that can be used across the board. Google has monetized their audience very well and Facebook (NASDAQ:FB) now appears to have cracked the code for their users, but Yahoo we think is still trying to figure out how to optimize their offerings to work for both advertisers and users. When that happens, if it happens, the shares could see a quick 20% upside by our estimation.
Forget 'what have you done for me lately' and focus on 'what have you done for me long-term.' The answer to that is not a whole lot as it has been a very bumpy ride and the stock will open up at a level this morning below where it traded pre-2000. Not good.
Source: Yahoo Finance
We are not one who generally cheers for companies to do poorly, but there are some figures in the corporate world who are just so polarizing that one finds themselves not only rooting against them but their entire organization... especially when that individual is the CEO. There have been a few names recently that have drawn our ire, and now that Ron Johnson is gone we are simply counting down the days until Abercrombie & Fitch (NYSE:ANF) parts ways with their troubles. Leadership has been lacking at the company and worse there seems to be a disconnect with the company's customer. A retailer focused on selling clothes to teenagers and young adults should not be saying we do not want obese people to wear our clothes as it hurts the brand. When you sell clothes you sell clothes, to whoever... especially when you are a general retailer. We are not surprised the earnings were such a disappointment this quarter, nor would we be surprised if the company's earnings were poor next quarter. In fact, we would only be surprised if the company were able to post a good quarter. Readers need to stay away from this retailer and invest elsewhere, a statement we have made before and want to reiterate again today. This company is poorly run and has a disconnect between their product offerings and their target consumer and those two things always spell trouble in the retail industry, even when just one of them is the problem. Here they are both a problem, and the reason we have zero interest in A&F.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.