Annual Home Prices
Hit 7-Year High

(Source: Marketwatch) - Home prices ticked up in September, pushing annual growth to the fastest pace since early 2006, according to data released Tuesday.

In September, about five years after the housing crisis started, home prices rose 0.2%, while the annual pace reached 12%, according to CoreLogic, an Irvine, Calif.-based analysis firm. National home prices in September were about 17.4% below a peak level, but continued to increase, supported by pent-up demand and relatively low inventory.

“Average home prices in nearly half the states are now within striking distance of their pre-downturn pricing peaks,” Anand Nallathambi, CoreLogic CEO told Marketwatch.

At the state level, home prices in Nevada saw the fastest growth, posting an annual rate of 25%, including distressed sales. However, Nevada was hit particularly hard when the bubble burst, and prices there remain about 41% below peak. Meanwhile, home prices in states such as New York and Kansas are less than 5% below bubble peak levels. Elsewhere, home prices in states such as Vermont and Colorado recently reached new peaks.

Excluding distressed properties, such as short sales, annual price growth reached 10.8% in September, also the fastest pace since early 2006. Monthly growth excluding distressed properties was 0.3%.

CoreLogic’s report echoes other recently released housing data that show speedy annual price growth. However, there are signs that monthly gains are slowing down. The S&P/Case-Shiller gauge that tracks 20 cities showed that seasonally adjusted home prices rose 0.9% in August, below a recent peak rate of 1.9% in March.

Economists expect home-price growth to moderate, as rising mortgage rates curb some demand, cutting pressure on prices. However, the Federal Reserve recently announced that it is maintaining its massive asset-purchase plan that has been exerting downward pressure on long-term rates. Industry experts expect the Fed to start tapering next year.

Price growth could also slow due to expanding inventories as more sellers become willing and able to place their homes on the market. Buyers like slower home-price growth more than sellers. However, appreciation that’s too fast will keep some buyers from entering the market, possibly hurting sales.

While CoreLogic’s fresh price data “raise some question” about whether growth will moderate over the next few quarters, it’s “hard to believe” that prices will post a new stronger trend, said Ed Stansfield, chief property economist at Capital Economics. Indeed, a recent report on pending sales of home showed a drop in September, signaling that sales may be lower in the fourth quarter, cutting upward pressure on prices.

“The prospect of a drop in home sales during the fourth quarter and perhaps the early months of 2014 make it hard to see how home price gains will continue to gather pace,” Stansfield said. “The lack of any obvious explanation for last month’s jump in house prices reinforces our view that it will ultimately prove to be a blip in a gradually softening trend.”

Twitter Causes Stir
with Tweaked IPO

(Source: Marketwatch) - Twitter’s upwardly revised price range of $23 to $25 (from $17 to $20), which would make it bigger than Google’s IPO, inevitably stirred up worries that it was getting swept up in the hype, similar to what happened to Facebook’s disastrous public trading debut.

“With Twitter’s IPO, can we use a little common sense and look at the numbers?” Brian Hamilton, chairman of Sageworks, a financial information company, said in a statement. “They are a profound example of another company with a serious overvaluation challenge.”

He said the implied valuation in Twitter’s price range is “significantly higher” than Facebook when the social media giant went public last year. Hamilton also pointed to a key difference that should give investors pause: Facebook was profitable when it went public, while Twitter is still in the red.

“The company is also still losing money, and at least Facebook was profitable when they went public,” he added.

That kind of skepticism around Twitter’s IPO appeared to be underscored by an AP-CNBC poll that found that nearly half of active investors think Twitter is not a good investment.

But a different picture emerges from IPO Boutique, which pointed to signs of strong interest in the Twitter IPO.

“Channel checks just completed are currently revealing that Twitter is multiple times oversubscribed,” an IPO Boutique notice said. But the firm also added: “Those familiar words on hot deals are being heard to ‘manage expectations accordingly.’”

Wedbush analyst Michael Pachter said he thinks the deal is “really small and there is huge appetite for social media stocks.”

“So I believe that it is multiple times oversubscribed at $17 to $20,” he told MarketWatch. “We’ll see who shakes out at $23 to $25.”

Topeka Capital’s Victor Anthony said raising the price range “makes more sense.” “With the previous range, Twitter was leaving too much money on the table,” he told MarketWatch. Anthony has a pre-IPO buy rating on Twitter, with a 12-month-price target of $54.

But Hamilton of Sageworks, pointing to Twitter’s financials, was skeptical.

“Why would IPOs get a pass on fundamental things like quality of revenue and earnings?” he said.

“Twitter’s proponents are arguing that the tech sector is hot right now and a positive outlier in an already bullish market. Sure, tech IPOs have been doing very well so far in 2013, but we’ve seen countless examples of the dangers of investing directly in line with market trends, as opposed to looking at a company’s fundamentals.”

U.S. Stocks Slump
on Europe Outlook

(Source: Bloomberg) - U.S. stocks declined Tuesday, snapping two days of gains for the Standard & Poor’s 500 Index, as the euro region’s growth outlook was trimmed while investors weighed a report showing expansion in American service industries.

Chris Harvey, director of disciplined portfolio strategies at Wells Fargo Securities, talks about the equity market, investment strategy and shareholder activism. He speaks with Betty Liu, Julie Hyman and Olivia Sterns on Bloomberg Television’s “In the Loop.”

“A lot of people are nervous by how strong the market has been this year,” Patrick Kaser, a managing director and portfolio manager at Brandywine Global Investment Management in Philadelphia, told Bloomberg by phone. His firm oversees about $45 billion. “There is still skepticism about how the economy is really doing and whether these gains are from artificial factors, like the Fed, or from real strength in company results.”

The S&P 500 has surged 23.6 percent this year, poised for the best annual performance since 2003, as company earnings beat forecasts and the Federal Reserve maintained stimulus measures.

Investors are watching data to gauge the health of the U.S. economy after the central bank last week said it needs to see more evidence of sustained improvement before slowing the pace of its $85 billion monthly bond purchases.

Europe, ISM

The European Union cut its forecast for euro-area growth next year and raised its unemployment estimate as the economy struggled to regain momentum after a record-long recession.

The Institute for Supply Management’s U.S. non-manufacturing index increased to 55.4 in October from 54.4 the prior month, a report from the Tempe, Arizona-based group showed today.

Reports later this week may show the U.S. economy slowed in the third quarter and employers hired fewer workers in October.

Gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace from April through June, according to the median forecast of 69 economists surveyed by Bloomberg before Commerce Department figures due Thursday. Payrolls rose by 125,000 workers last month after a 148,000 gain in September, Labor Department figures may show Friday.

Jobs Report

“We will probably see some profit taking before all the data releases later in the week,” said Jacques Porta, who helps oversee about $780 million as a fund manager at Ofi Gestion Privee in Paris. “The payrolls report is the main event in the U.S. this week. The markets are strong and the rally is not finished, but we will probably see a lot of volatility in the coming weeks.”

Of the 401 S&P 500 companies that have reported earnings so far, 75 percent have beaten analysts’ forecasts, according to data compiled by Bloomberg. Income for the broad index probably increased 4.1 percent in the third quarter, according to estimates compiled by Bloomberg.

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, climbed 1.6 percent to 13.13, trimming its decline for the year to 27 percent.

Telephone, raw-materials and industrial companies fell more than 0.4 percent for the worst performance among 10 S&P 500 industry groups. IBM declined 1.2 percent to $178.13 for the steepest loss in the Dow while Goldman Sachs slipped 1 percent to $161.51.

WTI Crude Slumps to Four-Month Low on U.S. Supplies

(Source: Bloomberg) - West Texas Intermediate crude dropped to the lowest level in more than four months on speculation that inventories increased for a seventh week in the U.S., the world’s biggest oil-consuming country.

Futures fell as much as 1.1 percent. An Energy Information Administration report tomorrow will probably show crude supplies rose 2.1 million barrels last week, according to the median of 11 analyst responses in a Bloomberg survey. U.S. crude output surged to a 24-year high in October while refinery demand fell. WTI’s drop accelerated as stocks fell on the outlook for reduced U.S. stimulus and euro-region growth.

“The market is pulling back on the perception that the supply-demand balance isn’t going to tighten anytime soon,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania. “The correlation with equities and appears to be sending us lower today.”

WTI for December delivery declined 98 cents, or 1 percent, to $93.64 a barrel mid-day Tuesday. Futures touched $93.45, the lowest intraday price since June 24. The volume of all WTI futures traded was 23 percent below the 100-day average.

Brent oil for December settlement slipped 48 cents, or 0.5 percent, to $105.75 a barrel on the London-based ICE Futures Europe exchange. Volume was 12 percent lower than the 100-day average. The European benchmark crude traded at a $12.11 premium to WTI, compared with $11.61 Monday.

Surging Output

WTI fell 5.8 percent in October, the biggest monthly decrease in a year, as a surge in U.S. crude production bolstered inventories. Output rose to 7.9 million barrels a day as of Oct. 18, the fastest rate since March 1989, according to the EIA, the Energy Department’s statistical unit.

“The U.S. is swimming in oil right now, and there’s been no sign of a pickup in seasonal demand,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

Refineries probably operated at 87.1 percent of capacity in the seven days ended Nov. 1, down 0.2 percentage point from a week earlier, the survey showed. Maintenance is scheduled after the peak summer gasoline-demand season and before heating-fuel demand increases in the winter.

Gasoline stockpiles probably declined 400,000 barrels, according to the survey. A decrease of that size would leave inventories of the motor fuel at the lowest level since Nov. 30, 2012. Supplies of distillate fuel, a category that includes heating oil and diesel, probably dropped 1.5 million barrels.

Exceeding Projections

“The EIA reports over the last few weeks have outperformed analyst estimates, and I wouldn’t be surprised if that happens again tomorrow,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “The supply situation is overwhelming everything else.”

The U.S. Institute for Supply Management’s gauge of service industries rose more than forecast, spurring concern the Federal Reserve will grow confident enough in the economy to reduce stimulus. The ISM’s non-manufacturing index gained to 55.4 from September’s 54.4, the Tempe, Arizona-based group said today. The median estimate in a Bloomberg survey of economists was 54.

Reports this week may show the U.S. economy slowed in the third quarter and employers hired fewer workers in October. Gross domestic product grew at a 2 percent annualized rate after a 2.5 percent pace from April through June, according to economists surveyed before Commerce Department data on Nov. 7. Payrolls rose by 120,000 workers last month after a 148,000 gain in September, Labor Department figures may show Nov. 8.

European Economy

The euro area’s economy will expand 1.1 percent in 2014 less than the 1.2 percent forecast in May, and unemployment will be 12.2 percent next year, above the 12.1 percent predicted earlier, the European Commission in Brussels said today.

Further declines in WTI may be limited as a technical indicator signaled that prices have dropped too quickly, Yawger and Armstrong said. The 14-day relative strength index fell below 27 today for the first time in a year, according to data compiled by Bloomberg. Investors typically buy contracts when the reading is less than 30, a sign a market is oversold.

“I don’t see prices sliding to $90 anytime soon because the market is so oversold,” Yawger said. “If not for rising supplies, prices would be up on the RSI.”

U.S. 10-Year Yields Reach 2-Week High as Services Tops Forecast

(Source: Bloomberg) - Treasury 10-year notes late Tuesday fell for the fourth time in five days as the U.S. services sector grew faster than forecast last month, underpinning speculation the Federal Reserve may move up the timing of asset-purchase cuts.

The benchmark yield reached the highest level in more than two weeks as the nonmanufacturing report and data last week showed a gauge of U.S. factories expanded more than projected, even after the 16-day partial government shutdown last month. Investors in Treasuries were betting on declines for the second straight week, according to a survey by JPMorgan Chase & Co. The U.S. will announce tomorrow the amounts it will sell in notes and bonds next week.

“Today’s data was generally stronger than anticipated and is suggesting that the economy may have withstood the shutdown better than anticipated,” said Christopher Sullivan, who oversees $2.2 billion as chief investment officer at United Nations Federal Credit Union in New York.” Investors are taking pause and are waiting for the picture to become clearer.”

Benchmark 10-year yields rose five basis points, or 0.05 percentage point, to 2.66 percent mid-day, according to Bloomberg Bond Trader data. The 2.5 percent note due in August 2023 fell 15/32, or $4.69 per $1,000 face amount, to 98 21/32.

The 10-year yield has risen 16 basis points in the past five days and reached the highest level since Oct. 17. Thirty-year yields added five basis points to 3.74 percent.

Market Measures

Treasuries have lost 0.6 percent this month, according to the Bloomberg US Treasury Bond Index (BUSY), extending the decline this year to 2.1 percent.

“You are not seeing the outside-money investor coming in,” said Michael Franzese, senior vice president of fixed-income trading at ED&F Man Capital Markets in New York. People “are waiting for signals from the Fed and we’re not getting them. There’s no definitive line. They may change the goalpost because they don’t want to affect the economic progress even though it’s anemic.”

The seven-day relative strength index for the Treasury 10-year note yield was at 68.8, up from 58.4 Monday, according to Bloomberg data. A reading lower than 30 or above 70 suggests the security may be poised for a change in direction.

Treasury trading volume at ICAP Plc, the largest inter-dealer broker of U.S. government debt, was $164.7 billion yesterday. The only time it was lower this year was Aug. 9, when it fell to $147.8 billion. The high was $662.3 billion on May 22.

Oil Futures Drop Below $94 on Supply Glut Concerns

(Source: Marketwatch) - Concerns over a glut of U.S. crude supplies and growing production pulled oil prices below $94 a barrel Tuesday.

Natural-gas futures, meanwhile, headed lower, poised for their fourth consecutive session decline as warmer-than-expected weather in recent days may have dulled demand for the energy source.

Crude for December delivery Tuesday shed 95 cents, or 1 percent, to $93.67 a barrel on the New York Mercantile Exchange. It closed Monday with a gain of only a penny after tallying a decline of more than 4% in the previous four trading sessions.

The American Petroleum Institute was scheduled to release its oil supply figures at 4:30 p.m. Eastern time, and analysts polled by Platts expected oil stocks to show a climb of 2.5 million barrels in crude inventories for the week ended Nov. 1.

Supplies have increased during the past six weeks as domestic production continues to climb, Platts wrote on Monday.

The expected rise for the week ending Nov. 1 comes as refiners are forecast to lower their utilization, or run rates. The projected increase in supply “runs counter to the figure based on the [Energy Information Administration’s] five-year average, which indicates that crude-oil stocks could decline by as much as 1.3 million barrels.”

Gasoline stockpiles are expected to fall by 1 million barrels, while distillate supplies, which include heating oil, likely fell by 1.5 million barrels, according to the Platts survey of analysts.

The Energy Information Administration was slated to release its own weekly supply figures on Wednesday at 10:30 a.m. Eastern time.

On the ICE Futures exchange, December Brent crude shed 45 cents, or 0.4 percnet, to $105.78 a barrel. Brent futures on Monday rose, with Agence France-Presse reporting that protestors continued to block Libya’s main oil facilities, as talks with Libyan authorities reached a deadlock.

A “shoot-out in Tripoli shows that Libya remains far from secure, but the market remains more focused on the possibility of a recovery in Libyan output than the ongoing unrest, with the failure to rally on bullish news reinforcing the current bearish sentiment,” Tim Evans, energy analyst at Citi Futures, wrote in a daily note.

BlackBerry Abandons Sale Process

(Source: Marketwatch) - BlackBerry Inc.’s failure to secure a full-buyout deal may come as little surprise to some who have been tracking the rapid demise of the once-powerful smartphone pioneer, but the jury is still out on how long the company can keep its lights on while the business restructures — or scavengers look for value in its parts.

That’s clearly the impetus for the $1 billion investment that Fairfax Financial Holdings is putting into BlackBerry, per its announcement on Monday. That investment involves convertible debt — thus putting Fairfax and whoever its partners are in front of equity shareholders in the event of a liquidation, which remains a distinct possibility for a company that was selling more than $3 billion worth of smartphones per quarter just two years ago.

The struggling smartphone maker abandoned a plan to sell itself and instead will sell $1 billion of convertible debt to its major shareholder and other investors, and said it would replace CEO Thorsten Heins. Dana Mattioli reports on MoneyBeat.

But for BlackBerry, the main question on remaining investors’ minds is: What’s next?

A breakup seems most likely, given the obvious failure to find a bidder interested in taking on the business such as it is — even at a depressed stock price. Investors are already assigning essentially no value to the handset portion of the business, which is consuming the most cash and deteriorating the fastest. Device sales are plunging, especially for the newest BlackBerry 10 handsets that were just launched earlier this year. Unlike Microsoft’s pending acquisition of Nokia’s handset business, there is not a strategic buyer that needs BlackBerry’s devices to give its own platform legs, as BlackBerry owns its platform as well.

“This buys them more time to break things up and sell it,” Mike Walkley of Canaccord Genuity told MarketWatch of the Farifax investment. “If the [BlackBerry] board committee had anything close to $7 per share, they would have taken it.”

The value of that BlackBerry platform is where many questions remain. The company still generates high-margin revenues from the back-end services that power its BlackBerry handsets, but that business is now in jeopardy as handset sales slide and subscribers exit. Service revenue plunged 27% in the most recent quarter compared with the same period a year ago; and newer handsets on the BlackBerry 10 platform do not generate the same level of service revenues as older devices do, making it highly unlikely that this metric will reverse soon — if ever.

BlackBerry’s appointment of former Sybase and SAP executive John Chen as CEO is a clear signal that the company sees its future primarily in enterprise software and services. But Chen has a tough hill to climb, in that he needs to convince enterprise customers that there is still value in paying for BlackBerry services that may no longer be tied to its handsets, as it looks like the days are numbered for those handsets.

It’s likely that BlackBerry will seek value from its patent portfolio while trying to restructure as an enterprise services business. How much those patents could be worth remains unclear, though Qualcomm’s reported involvement with an investor group considering an offer indicates some level of interest there, and a new big lawsuit against Google and makers of Android phones may boost the perceived value of wireless patents. But with BlackBerry’s shares near a 10-year-low, it seems few are interested in finding out.

“As long as the company continues to sell handsets below cost and is unable to stem the decline in services revenue and subscribers there’s no reason to own the shares, and no sum of the parts to provide a floor value, in our view,” wrote Stuart Jeffrey of Nomura in an early note to clients on Monday.