Tuesday, February 07, 2006

GM Slashes Dividend

In an article that will appear in Wednesday’s WSJ, “Finding a House Gets Easier”, we find a few items that bear mentioning (yes, I said “bear”).  This type of article really points up the fact that the housing market has quickly cooled from last spring’s crazy pace.  On Tuesday, Toll Brothers (TOL) reported a 29% decline in new orders for first quarter, ending January 31.  We have mentioned TOL in these pages due to its high profile among home builders, selling luxury homes.  With Tuesday’s news, TOL slipped to a 52 week low under 30 after trading near 60 last summer.  The company represents our position very well that the housing market is in a little trouble at the moment.

The same article mentioned the inventory of houses and condo’s on the market has continued at a very high level saying that with seasonal adjustments, inventories have climbed 38% since April, the largest 8 month increase on record.  This inventory has provided buyers a good chance to take their time about buying due to the available selection.  The article has a chart that shows the change in inventory in various markets such as DC, Miami, Los Angeles, and Manhattan, which are, respectively, 149.2%, 98.3%, 88.0%, and 86.9% more than last year.  Detroit made the list with a 38.0% increase.  Could that be due to two causes, US automaker woes and general housing woes?  

Speaking of the US automakers, GM was in the news again today finally deciding to slash its dividend, in half.  In another WSJ article from Wednesday, front page, “Pressured GM Slashes Pay, Benefits”, we learn that GM will cut its dividend and pay for its top five executives as well as curtail benefits for salaried workers.  The article says that GM may have to file for bankruptcy protection in things don’t change.  This is in sharp contrast to the Toyota Motor Corporation which is “gnawing at GM and Ford’s market share”.  Toyota, the article continues, is on track to invest $11.8 billion in plant and equipment before the end of its fiscal year which ends March 31.  This is up nearly 30% from the year before.

In precious metals, we weren’t shocked to learn that gold fell about $20 today with silver down about 35 cents.  With that move, Jim Cramer’s influence on PAAS is just about over as PAAS fell over $2 back to levels prior to Cramer’s tout last week.  Cramer was also long one our favorite shorts, INTC.  I’m not sure if he ever told you to sell it but INTC has not had such a good month closing today under 21 after trading over 26 in early January and over 27 in early December.  

One of our readers, an avid follower of Cramer I guess, mentioned he said that if the Fed raises rates one more time, he will quit his TV program.  Come on Ben, let’s help him out.  You do remember that the new Fed chairman is Ben Bernanke, right?  That decision is more than a month away and a lot can happen between now and then.  Sadly, we are expecting the Fed to find it difficult to raise rates in March with the trouble we may see.  But, Go BEN !!!

After the close this evening, we heard from CSCO.  The news wasn’t really outstanding but the market liked something.  Yes, the revenues were up but earnings were down, with CSCO up to its old tricks of earning how much above expectations???  You guessed it, 1 penny.  Isn’t it amazing?!?

Well, let’s see what happens on Wednesday.  Will CSCO be able to give a short term boost to the market or not?  To us, it would just be a good selling opportunity, the market wants to go down so…you Be careful out there.

Dow Industrials:  10,749.76  -48.51
RYVNX:  19.27
RYAIX:  22.32
TLT:  90.60
BEGBX:  13.05

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