Banking on a strong recovery

Stock Spotlight: Major bank stocks have been socked by credit market problems. But analysts believe some banks have been unfairly punished.

NEW YORK (CNNMoney.com) -- The past five years were heady times for financial services companies as they lent money out at low interest rates to home buyers and corporations alike and watched profits soar.

Bank stocks climbed as the firms cashed in on a booming housing market. Strong merger activity, led by private equity firms borrowing money to finance deals, also boosted demand for loans.

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But when it became apparent a few months ago that many banks handed out too much money too easily and that some borrowers weren't able to pay back their loans, the market panicked.

Companies like Countrywide (Charts, Fortune 500), a big mortgage lender that had lots of subprime borrowers -- borrowers with less-than-perfect credit -- were hit the hardest, but even those with less exposure to the subprime housing market weren't spared by the sell-off.

And now, the market is worried that the corporate debt market could also be heading into trouble, fueling further fears of a looming banking crisis.

But is this already priced in the shares of many bank stocks? The recent panic may have created some great values for investors.

Investment banks tank

Among the first victims of the subprime fallout was investment bank Bear Stearns (Charts, Fortune 500), which was caught holding securities that were backed by the risky mortgages.

When home buyers stopped paying their loans off, the value of Bear's holdings dropped, and three hedge funds that Bear Stearns managed plunged sharply.

Shares of Bear Stearns are down 20 percent in just the past month and other investment banks have plummeted as well. Lehman Brothers (Charts, Fortune 500) has lost 19 percent; Goldman Sachs (Charts, Fortune 500) has shed 17 percent; and Merrill Lynch (Charts, Fortune 500) has fallen 15 percent. In all but Goldman's case, the subprime problems have wiped out stock gains made during an otherwise bountiful past year for the firms.

"What's got investors worried is that this is beyond subprime," said Jaime Peters, an analyst with Morningstar. "As a result it's harder to fund bonds and commercial businesses are also having a harder time getting loans."

Investors are concerned that 2007 earnings will take a big hit because of the subprime problems.

Borrowing fuels economic growth across all sectors and has been a big part in the private equity-fueled M&A boom. So if the credit spigot shuts off, the whole economy and financial markets could suffer.

In the same way that soaring home prices justified banks' willingness to fund riskier loans over the past five years, the tanking mortgage and corporate bond markets are now making firms a lot more reticent about loaning money.

Goldman has taken a smaller hit than some of its investment banking rivals because it avoided securities backed by subprime mortgages. While the subprime market was booming, that didn't seem like a wise move, but in retrospect the decision seems prudent.

Of course, Goldman, like its rivals, could face more problems if the corporate debt and merger markets grind to a halt since that would lead to a big drop in fees.

Effect on your local bank

Regional banks that lack exposure to investment banking have been getting whacked by investors as well though. Firms like Washington Mutual (Charts, Fortune 500) and Wells Fargo (Charts, Fortune 500) both have extensive home loan operations that are susceptible to the problems in the subprime market.

Mortgage banker Countrywide slashed its 2007 outlook last month on fears that the real estate market won't see a complete recovery for two more years.

Wells Fargo could potentially lose money on its big exposure to the home equity loan market, which constitutes 22 percent of its total loans, said Morningstar analyst Ganesh Rathnam.

But even though Washington Mutual's home loan department posted a $37 million loss in the second quarter, which ended in June, it still reported an 8 percent earnings increase overall.

That's because the company's management saw the subprime mess coming and sold much of its high-risk portfolio in 2006. It also tightened its lending standards.

Credit fallout = cheap stocks?

To be sure, if the credit market deteriorates further, bank earnings could take a big hit. But investors may be overestimating how bad the problems will be for some banks.

"I think the market is over-discounting bank stocks and they're very attractive at current levels," said Christopher Bingaman, portfolio manager at Diamond Hill Financial Long-Short Fund, which owns many bank stocks. He said diversified companies like Wells Fargo and Citigroup, which he owns in the fund, are good bargains.

Wells Fargo is trading at 12.6 times its expected 2007 earnings, near historical lows, while Citigroup is valued at only 10.3 times earnings. So now might be a good time to scoop up the largest banks while they are relatively cheap.

"People need to be looking at the firms that can weather the subprime problems the best," said Morningstar's Peters. "When the problems are done, these companies are going to be the largest players in a less competitive market. They're going to be even more profitable."

Peters thinks the best value in the sector is Bank of America, which is currently trading at less than 10 times earnings estimates for this year. The company has had its share of credit-related problems, but Peters thinks they can be offset by the surging growth in its retail and wealth management divisions.

Peters said JPMorgan Chase, which is valued at about 9 times 2007 earnings estimates, is undervalued as well. He points out that, despite mortgage problems, revenue growth has still been strong.

And some investors, if they are willing to tolerate the risk, might want to look at some of the troubled investment banks. Lehman Brothers, for example, is trading at such a low multiple -- just 7.6 times this year's earnings estimates - that it's widely considered to be a takeover target.

So even though it may seem like sky is falling for bank stocks, long-term investors should look for bargains.

None of the Morningstar own shares of the companies they cover, nor does Morningstar do business with any of the firms. The mutual fund that Bingaman manages owns shares of Wells Fargo and Citigroup.

By Rob Kelley, CNNMoney.com staff writer

Solar IPOs shine

Recent offerings, most out of China, have surged along with the sector in general. Is a correction coming?

NEW YORK (CNNMoney.com) -- Talk about a sun spot.

The solar power sector has been rolling in dough lately as concern over global warming and dwindling oil supplies has fueled massive investor interest in renewable energy companies.

Recent solar power offerings, most out of China, have surged along with the sector in general. Is a correction coming?

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Since the start of the year, the 17-company solar component in the Wilder Hill Global Innovation index has soared 75 percent.

This recent surge in stock prices seems to indicate that now is the perfect time to take a company public.

Going nuclear

Money pouring into solar initial public offerings has set a record in 2007 - $4.7 billion so far, according to the research firm New Energy Finance. That compares to $2.2 billion in 2006 and $1.5 billion in 2005.

But with interest so high and recent performance so stellar, is now really the time to get hot for solar companies?

"There's a lot of media hype in current solar stock prices," said Jenny Chase, a London-based solar analyst at New Energy Finance. "We certainly can expect a correction at some point."

The media hype isn't totally unjustified.

Oil and natural gas prices have skyrocketed in recent years. Scientists are more certain than ever global warming is real, is largely caused by burning fossil fuels, and could have devastating effects. A switch to renewable energy like solar could ease the effects of both these things.

Chase said solar companies have been benefiting from a series of recent changes to government policies, implemented to address these rising concerns.

More on alternative energy

In California, Gov. Arnold Schwarzenegger plans on putting solar panels on a million roofs, and he's vowed the state would help pay for them. In Germany, the subsidy for solar power production is being reduced, but not by as much as previously thought, while In Spain it was recently increased.

This enthusiasm is one reason some recent IPOs have done well.

Many recent IPOs come from China where companies can take advantage of cheap labor and a manufacturing subsidy.

On U.S. exchanges, LDK Solar (Charts) and Yingli Green Energy Holding (Charts) both debuted in the last three months. Both are up over 60 percent.

According to New Energy, three other companies debuted on exchanges overseas in the last three months.

In the last six months, four Chinese companies went public on U.S. markets - JA Solar (Charts), Solarfun (Charts), Trina Solar (Charts) and Canadian Solar (Charts).

Not all the companies have done well.

China Sunergy (Charts) is down 27 percent since its IPO in May. Analysts blame the drop on the company not having enough long term silicone contracts in a tight silicone market to manufacture all their solar products.

Because these companies are foreign and so new, not many analysts cover them. That means earnings projections are bound to be volatile.

Using Thomson Financial 2008 earnings projections however, some solar companies seem like relative bargains. LDK has a 2008 price to earnings ratio of 18, China Sunergy trades at 15, and Yingli trades at just three.

Eighth-grader launches green tech company

By contrast, the big U.S. solar firm SunPower has P/E ratio of 35.

SunPower (Charts) shares have also shown an impressive gain - 67 percent in the last 6 months.

And despite the relatively higher P/E ratio and the recent share runup, some analysts are still bullish on the company and the sector.

"These companies have real products and real profitability," Jeffrey Bencik, an analyst at Jefferies & Co, said while distinguishing the recent jump in solar power shares from that of tech companies in the late 1990s. "When you consider the potential growth of the industry, [stock prices] are actually inexpensive."

The potential for future growth was a reoccurring theme for other analysts as well.

"Once you reach grid potential, demand is just going to explode," said Jesse Pichel, a clean tech analyst at the Minneapolis-based investment bank Piper Jaffray.

But creating enough solar energy to make a substantial contribution to the nation's electricity needs, especially when solar power remains far more expensive per kilowatt hour than other utility favorites like coal or, more recently, wind is far from certain.

And as New Energy's Chase points, if other technologies come along, like thin film solar that doesn't use solar panels at all, "then all these companies are in danger."

By Steve Hargreaves, CNNMoney.com staff writer

Ford recalls 3.6 million vehicles

There is concern about a flaw involving a cruise control switch that could lead to fires.

NEW YORK (CNNMoney.com) -- Ford Motor Co. will recall 3.6 million vehicles to remove a cruise control switch that has been associated with fires in other vehicles.

Vehicles being recalled range from the 1992 to 2004 model years and include the Ford Bronco, Lincoln Town Car, Ford Explorer, Ford Ranger and Mercury Grand Marquis among others.

The company is doing this in order to respond to customer concerns about the safety of the switch, which has been the subject of previous recalls.

The reason for this recall is different from any other recall we've done in the past related to cruise control deactivation switches," said Ford spokesman Dan Jarvis.

None of the vehicles involved in this recall have experienced an abnormal number of fires, Jarvis said. The company is recalling the vehicles so that customers will not be concerned about the switch, he said.

In 2005 and 2006, the company recalled nearly 6 million vehicles because of problems with the cruise control cut-off switch.

The switch shuts off the cruise control when the driver firmly steps on the brakes. The switch is located under the hood of the vehicle and is attached to the brake master cylinder on one end and wired to the cruise control on the other.

The switch is powered at all times, even when the vehicle is turned off. In some cases fluid leaking the switch could cause it to short circuit resulting in a fire, which led to the earlier recalls.

The recall will begin on August 13. Vehicle owners will have the cruise control switch, also called the speed control switch, deactivated as an interim repair. When new parts are available, which is expected to be October, Ford (Charts, Fortune 500) dealers will begin installing new parts.

Ford recalls vehicles

These are the vehicles in the recall

Vehicle Model Vehicle Type Year Ford Bronco SUV 1993 Ford Crown Victoria Sedan 1992-1998 Ford E150 Van 1992-1993, 1997-2002 Ford E250 Van 1992-1993, 1997-2003 Ford E350 Van 1992-1993, 1997-2003 Ford E450 Van 2003 Ford Explorer SUV 1991-2001 Ford Explorer Sport SUV 2001-2002 Ford Explorer Sport Trac SUV 2001-2002 Ford F150 Lightning Pickup 2003-2004 Ford F150 Pickup 1993 Ford F250 Pickup 1993 Ford F350 Pickup 1993 Ford F450 Pickup 1995-2002 Ford F53 Motor home 1995-2002 Ford Ranger Pickup 1998-2002 Ford Taurus SHO Sedan 1993-1995 Lincoln Mark VII Sedan 1993-1998 Lincoln Town Car Sedan 1992-1998 Mercury Capri 2-seat Convertible 1994 Mercury Grand Marquis 1992-1998 Mercury Mountaineer SUV 1999-2001

Source:National Highway Traffic Safety Administration

Berkshire Hathaway's profit soars 33%

Warren Buffett's insurance and investment company says earnings were lifted by higher insurance underwriting profit, investment income.

NEW YORK (Reuters) -- Warren Buffett's Berkshire Hathaway Inc said Friday second-quarter earnings rose 33 percent as higher insurance and utility profits offset pressure on housing-related businesses from the slowing U.S. real estate market.

Net income for the Omaha, Nebraska-based insurance and investment company rose to $3.12 billion, or $2,018 per Class A share, from $2.35 billion, or $1,522, a year earlier.

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Operating profit, excluding investment gains, rose 22 percent to $2.51 billion, or $1,625 per share, from $2.05 billion, or $1,331.

Analysts on average had expected profit of $1,460 per share, according to Reuters Estimates.

Revenue rose 13 percent to $27.35 billion. Berkshire ended the quarter with $46.95 billion of cash, giving Buffett ammunition to make the big acquisition he says he wants.

Warren Buffett and Darfur

Insurance underwriting profit rose 70 percent to $632 million, and insurance investment income rose 10 percent to $862 million. Earnings from utilities and energy rose 46 percent to $231 million.

These helped offset declines in pre-tax profit of 34 percent at Shaw Industries, which makes carpeting and flooring, and 20 percent in furniture and transportation equipment leasing. Profit from manufactured housing rose 4 percent.

"Berkshire has substantial exposure to the housing and building cycle," said Thomas Russo, who helps invest $3 billion at Gardner, Russo & Gardner, of which 8 percent is in Berkshire stock.

"The beauty is that a unit like Shaw can decline without having investors question the overall value of Berkshire's long-term structure and capacity to weather the storm."

More investments

Known as the Oracle of Omaha, Buffett has transformed Berkshire since 1965 from a failing textile company into a $168 billion conglomerate by acquiring out-of-favor companies with consistent earnings and capable management, and investing in stocks.

Berkshire's equity investments swelled 13 percent since March to $73.61 billion, while its fixed-income investments grew more - up 15 percent to $24.92 billion. These were before the recent stock market swoon, where investors have tried to reduce their perceived exposure to market risk.

"People are trying to play guessing games as to what equities he'll buy, and this is the kind of market Buffett waits for," Russo said. "But he could just as easily buy mortgage-backed securities - if other investors panic, that's the time extraordinary returns could be available."

Berkshire's Class A (Charts, Fortune 500) shares closed Friday down $100 at $109,990 and its Class B (Charts) shares rose $11 to $3,599. The Class A shares are little changed this year, while the Standard & Poor's 500 and insurance indexes are up 1 percent and down 9 percent, respectively.

Currency bet

Insurance generated about half of Berkshire's profit. Underwriting gains before taxes at Geico Corp rose 13 percent, as the auto insurer boosted premiums 7 percent. Gains from underwriting more than doubled Berkshire's reinsurance group and its General Re Corp reinsurance unit.

Berkshire posted a $34 million gain from currency bets. Buffett once had a $21 billion bet against the dollar, but unwound most of it as he bought more non-U.S. companies and stocks. He said at Berkshire's May 5 annual shareholder meeting that he was betting on one currency that would "surprise you."

Berkshire owns more than 70 companies that make such things as paint, ice cream and underwear. It also invests in stocks including American Express Co (Charts, Fortune 500), Coca-Cola Co (Charts, Fortune 500) and Procter & Gamble Co. (Charts, Fortune 500) The company's book value was $115.27 billion on June 30 versus $108.42 billion at year end.

(money.cnn.com)

Mu & Chelsea - The Top Event This Weekend

Mu-Chelsea, the affirmation of authority
This Sunday, 4th Au, Mu will face Chelsea in the Community Shield, mean the Super Cup of England.
In this transfer duration, Mu have made many big transfer such as Owen Hagreaves from Bayern, Anderson from Porto, and specially is Nani, a powerful winger from Sporting Lisbon, who has had a very successfully first-appearance in the friendly competition in China, will improve the attacking of this team. Beside this, Rooney with the number 10 in his kit this season, C.Ronaldo with his tricky deals, Ryan Gigs, inform as twenty, will be expect a perfomance this match.
In opposition of Mu, this Summer was the most quiet transfer period since Mr.Mourinho came to Stamford Bridge. Although often paying so much in transfer times in the nearby years, this Summer, The Blues only take away some free transfer, anh the biggest pay is for Florent Malouda from Lyon. But, Chelsea still very strong. Didier Drogba is still here, extremely fast and trong, J.Terry-solid blocker of the defending with the new contract, will bring up many dificult to Mu.
Mu has won the Priemer League last season, but it is not enough for them, especially they will never forget the lose by Chelsea in the Final of FA Cup in the end minutes. Tomorrow, they will revenge the biggest rival this time, Chelsea, to show everyone that they are the real king of English football, and the last losing was an unfortunately. As me, I’m fan of Mu, and I hope that Red Devil will have a sweetnight tomorrow. The very good preparation for a new season and the moral drawed from the lose with Inter this week may allow them to win this trophy.
So, surely the match will be very eventful and may be strained, of course this is the match, the fight for honor, for the real throne of English football.

Writen by hieund.

The Real Transformers

was introduced to my first sociable robot on a sunny afternoon in June. The robot, developed by graduate students at the Massachusetts Institute of Technology, was named Mertz. It had camera sensors behind its eyes, which were programmed to detect faces; when it found mine, the robot was supposed to gaze at me directly to initiate a kind of conversation. But Mertz was on the fritz that day, and one of its designers, a dark-haired young woman named Lijin Aryananda, was trying to figure out what was wrong with it. Mertz was getting fidgety, Aryananda was getting frustrated and I was starting to feel as if I were peeking behind the curtain of the Wizard of Oz.

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Stephen Lewis

Mertz Programmed for kindly conversation.

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Stephen Lewis

Kismet Acting like a 6-month-old child.

Mertz consists of a metal head on a flexible neck. It has a childish computer-generated voice and expressive brows above its Ping-Pong-ball eyes — features designed to make a human feel kindly toward the robot and enjoy talking to it. But when something is off in the computer code, Mertz starts to babble like Chatty Cathy on speed, and it becomes clear that behind those big black eyes there’s truly nobody home.

In a video of Aryananda and Mertz in happier times, Aryananda can be seen leaning in, trying to get the robot’s attention by saying, “I’m your mother.” She didn’t seem particularly maternal on that June day, and Mertz didn’t seem too happy, either. It directed a stream of sentences at me in apparently random order: “You are too far away.” “Please teach me some colors.” “You are too far away.”

Maybe something was wrong with its camera sensor, Aryananda said. Maybe that was why it kept looking up at the ceiling and complaining. As she fiddled with the computer that runs the robot, I smiled politely — almost as much for the robot’s sake, I realized, as for the robot maker’s — and thought: Well, maybe it is the camera sensor, but if this thing wails “You are too far away” one more time, I’m going to throttle it.

At the Humanoid Robotics Group at M.I.T., a robot’s “humanoid” qualities can include fallibility and whininess as much as physical traits like head, arms and torso. This is where our cultural images of robots as superhumans run headlong into the reality of motors, actuators and cold computer code. Today’s humanoids are not the sophisticated machines we might have expected by now, which just shows how complicated a task it was that scientists embarked on 15 years ago when they began working on a robot that could think. They are not the docile companions of our collective dreams, robots designed to flawlessly serve our dinners, fold our clothes and do the dull or dangerous jobs that we don’t want to do. Nor are they the villains of our collective nightmares, poised for robotic rebellion against humans whose machine creations have become smarter than the humans themselves. They are, instead, hunks of metal tethered to computers, which need their human designers to get them going and to smooth the hiccups along the way.

But these early incarnations of sociable robots are also much more than meets the eye. Bill Gates has said that personal robotics today is at the stage that personal computers were in the mid-1970s. Thirty years ago, few people guessed that the bulky, slow computers being used by a handful of businesses would by 2007 insinuate themselves into our lives via applications like Google, e-mail, YouTube, Skype and MySpace. In much the same way, the robots being built today, still unwieldy and temperamental even in the most capable hands, probably offer only hints of the way we might be using robots in another 30 years.

Mertz and its brethren — at the Humanoid Robotics lab, at the Personal Robotics Lab across the street in another M.I.T. building and at similar laboratories in other parts of the United States, in Europe and in Japan — are still less like thinking, autonomous creatures than they are like fancy puppets that frequently break down. But what the M.I.T. robots may lack in looks or finesse, they make up for in originality: they are programmed to learn the way humans learn, through their bodies, their senses and the feedback generated by their own behavior. It is a more organic style of learning — though organic is, of course, a curious word to reach for to describe creatures that are so clearly manufactured.

Sociable robots come equipped with the very abilities that humans have evolved to ease our interactions with one another: eye contact, gaze direction, turn-taking, shared attention. They are programmed to learn the way humans learn, by starting with a core of basic drives and abilities and adding to them as their physical and social experiences accrue. People respond to the robots’ social cues almost without thinking, and as a result the robots give the impression of being somehow, improbably, alive.

...

By ROBIN MARANTZ HENIG
( www.nytimes.com )