Wells Earnings Down 24%, Why Rates Won’t Drop, PPI/Retail Sales, Bathroom Humor

Normally I avoid discussing any advice regarding buying or selling of stocks, but I felt this is important enough to share and give a warning since this explosive situation might prove to be yet another ENRON. Please review any holdings you might have in the following stocks: American Can, Interstate Water, National Gas Company, Northern Tissue Company.

Due to uncertain market conditions, I advise you to sit tight on your American Can, hold your Water, and let go of your Gas. You may be interested to know that Northern Tissue touched a new bottom yesterday, and millions were wiped clean.

It’s a tough market out there. Be careful!

WHY WON’T RATES GO DOWN?
Why can’t someone just snap their fingers and make rates, especially mortgage rates, go down? A glance at a rate sheet shows some mortgage prices worse by 3 points in one week! Unlike some rates that are set, like the Prime Rate or Fed Funds, mortgage and Treasury rates are determined by supply and demand. If a mortgage is at 6%, but I, as an investor, don’t want to own it, or think it is too risky, the yield will have to go up to induce me to buy it. IF I buy it at any price or yield. For example, the markets have seen and heard news for the last several weeks that should help the credit markets, and in theory bring rates down, but the demand to own mortgage-related products is low. So we have moved higher. Mortgage rates edged higher yesterday on another dismal mortgage-backed security performance, in spite of some positive sentiment following the announcement of the $250 billion bank equity stake. On the news, however, sellers came into the market, and down the prices went, in some cases as much as .75 in price worse for mortgages–which translates into about .375% in rate. The 10-yr closed at 4.07%.

ECONOMIC NEWS
We had a flurry of news out this morning. Mortgage applications last week were up 5.1% due to a 12.5% increase in refis. (Purchases were -.3%.) September’s Producer Price Index fell for a second consecutive month on lower fuel costs, while the rate excluding food and energy rose more than economists forecast. PPI was -0.4% (August was -0.9%), and the core rate (excluding fuel and food) was + 0.4%. Remember that falling oil prices and weaker consumer spending are making it harder for American companies to raise prices, which should eventually lead to lower interest rates. In another sign of weakening consumer demand, Retail Sales dropped in September by the most in three years. Purchases fell 1.2 percent, more than forecast, following a 0.4 percent decline the prior month, the Commerce Department said today in Washington. Excluding autos, sales fell 0.6 percent, also more than anticipated.

Wells Earnings Down 24%
Wells Fargo’s third-quarter net income declined about 24%, but the results were much better than expected. Wells had a net income of $1.64 billion, down 25% from a profit of $2.17 billion year ago. The news comes on the heels of a better-than-expected quarterly report from JPMorgan Chase, who reported third-quarter profit of $527 million which fell 84% from the quarter a year ago, when it reported $3.4 billion in income.

Daily Humor
A priest, a doctor, and a mortgage banker were waiting one morning for a particularly slow group of golfers.
The mortgage banker fumed, “What’ s with those guys? We must have been waiting for fifteen minutes!”
The doctor chimed in, “I don’t know, but I’ve never seen such inept golf!”
The priest said, “Here comes the greens keeper. Let’s have a word with him.” He said, “Hello, George! what’s wrong with that group ahead of us? They’re rather slow, aren’t they?”
The greens keeper replied, “Oh, yes. That’s a group of blind fire fighters. They lost their sight saving our clubhouse from a fire last year, so we always let them play for free anytime.”
The group fell silent.
The priest said, “That’s so sad I think I will say a special prayer for them tonight.”
The doctor said, “Good idea. I’m going to contact my ophthalmologist colleague and see if there’s anything he can do for them.”
The mortgage banker said, “Why can’t they play at night?”