First I find out that TANG (the orange drink that I was raised on) was not developed in space or for astronauts. It actually came along a year before NASA was created, and marketing wizards tied the two together! Now Cheerios is under fire. The Food and Drug Administration posted a warning letter to General Mills saying that the promises to “lower cholesterol and reduce the risk of heart disease and cancer” may be exaggerated. The FDA allows food companies to make nutritional claims backed by scientific studies, but believes that the labeling on Cheerios has gone beyond what the science supports.” Who knows what will be next – maybe I will find out that my practice of burning goat entrails in the back yard doesn’t lead to lower rates.

When the US Government took over Freddie and Fannie (are they still two separate companies?) they may have underestimated the amount needed. Now they expect the takeover to cost taxpayers $171 billion. Budget details released by the administration project that the companies are likely to need $92 billion more to cover losses. Fannie Mae and Freddie Mac have already received or requested $79 billion in aid as losses have mounted. Fannie Mae posted a $23 billion loss last week, prompting a $19 billion government investment, and Freddie Mac asked for another $6.1 billion in government aid after reporting a $9.9 billion quarterly loss. Including this, Freddie Mac has drawn $51.7 billion of its $200 billion lifeline from the Treasury Department. Last quarter, when it reported a loss of $23.9 billion, the company asked the government for $30.8 billion.

Federal Agricultural Mortgage Corp. (AGM), better known as Farmer Mac, was created by Congress in 1988 to buy mortgages and other loans that banks made to farmers and ranchers. Of course, given that their business model was aided by securitizing those loans, they are not immune to the credit market problems although Farmer Mac just reported a profit of $33 million. They reversed a prior-year loss caused by derivative losses, but core results slumped on loss provisions as loans in danger of going bad continued to rise. Farmer Mac’s capital surplus exceeds $67 million, compared with $13 million at year's end. Like their cousins, they have also received help, in effect being rescued by a lending group's $65 million capital injection last autumn. Farmer Mac's 90-day delinquencies were 1.9% of its portfolio as of March 31, or 0.61% excluding ethanol loans, up from 1.35% at the end of the year.

ING has been around a little longer – since 1743 to be precise. ING is the largest Dutch financial-services company, and they reported their third consecutive quarterly loss (about $1 billion, worse than expected) because of equity write downs, higher loan-loss provisions and reorganization costs.

The impact of the real estate downturn is definitely making itself felt in the commercial market. If you own a bond backed by commercial real estate, and vacancies have shut down the cash flow so that the servicer doesn’t have money to remit to you, what is the next step? http://www.reuters.com/article/ousiv/idUSTRE54B65Q20090512

Mortgage applications here in the United States fell last week by 8.6%, down to their lowest level since mid-March. Don’t tell me everyone who can refinance already has! The Mortgage Bankers Association said refinance applications fell 11.2% (the lowest since mid-February), but the purchase loan index climbed 0.5% to where they were a month ago.

US Bank is still apparently making a decent market in jumbo ARM lending, which is a program that some markets still need. For loans up to $1 million here in California (and Nevada) they will go up to 75% LTV, and can even add a 2nd on there and go as high as $1,350,000. And for a 70% LTV they’ll go up to $1.5 million, or $1.85 million with a 2nd. Nice to see.

Back to interest rates. It appears that stock markets are coming under some pressure in here, as the news about the economy continues to be mixed.  This morning we had U.S. retailers reporting that sales fell for a second straight month in April, mostly attributed to gasoline and electronic goods purchases. Retail Sales were -0.4% after falling by a revised 1.3 percent in March, but analysts were expecting sales to be flat. U.S. import prices climbed again in April (+1.6%) as imported oil prices posted their sharpest jump in more than seven years. But import prices on a year-over-year basis were down over 16% due to gas. Export prices rose 0.5 percent in April after a revised 0.7 percent decrease in March but were down 6.8 percent from April a year earlier. The news has helped the bond market, which has been oversold recently, and we find mortgage security prices better by .125-.250 and the 10-yr yield back down to 3.12%.

In case anyone was wondering how to shampoo a cat:

• Put both lids of the toilet up and add 1/8 cup of pet shampoo to the water in the bowl.
• Pick up the cat and soothe him while you carry him towards the bathroom.
• In one smooth movement put the cat in the toilet and close the lid. You may need to stand on the lid.
• The cat will self agitate and make ample suds. Never mind the noises that come from the toilet, the cat is actually enjoying this.
• Flush the toilet three or four times. This provides a 'power-wash' and rinse'.
• Have someone open the front door of your home. Be sure that there are no people between the bathroom and the front door.
• Stand behind the toilet as far as you can, and quickly lift the lid.
• The cat will rocket out of the toilet, streak through the bathroom, and run outside where he will dry himself off.
• Both the commode and the cat will be sparkling clean.
  
  Yours Sincerely,
  The Dog.

Rob

(For archived commentaries, check www.robchrisman.com, or to subscribe write to rchrisman@robchrisman.com)