H&R Block Inc. (NYSE: HRB) announced that it swung to a quarterly profit and surpassed analyst estimates. The tax preparer sold off its Option One mortgage servicing business to billionaire Wilbur Ross in April and forecast a full-year profit that was also higher than the market was expecting by a long shot.

Many traders had positioned themselves for poor results earlier this month, sending the stock some 10% lower on June 20th. Specifically, they expressed concerns about the company's guidance, saying the cash-poor households may start doing their own taxes rather than paying H&R Block to do them.

However, many contrarians were able to make a mint from this trade. There have been many economic slowdowns in the past, but professional filing of taxes has tended to be recession resistant. After all, many filers use professional tax preparers in order to access their refunds more quickly than otherwise possible.

Notably, H&R Block even managed to increase its U.S. retail client base by 3.8 percent while its number of international clients grew by 6.1 percent with particularly strong growth in Canada. The company said it was confident that it would realize significant gains in earnings per share through 2011.

In the end, however, it was the value of the dollar that helped the most. More than half of the revenue increase and a third of the profit increases from the international business resulted from favorable exchange rates when compared to the U.S. dollar. However, with continued weakness in the United States, this disparity should continue to grow.

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KB Home (NYSE: KBH) shares dropped after the nation's largest homebuilder announced that its losses widened in the second quarter. Weaker sales and falling home prices led to a 55 percent drop in revenues as the company also booked charges related to the lower value of unsold homes, joint venture deals and land option contracts.

KB Home reported a net loss of $255.9 million, or $3.30 per share, compared to a loss of $148.7 million during the same time a year ago. Meanwhile, revenues plunged to $639.1 million from $1.41 billion a year ago, driven down by lower housing and land sale revenues.

"Despite substantially lower home prices, relatively low interest rates and an abundance of choices, potential new home buyers remain reluctant to purchase a home," Mezger said in a statement. "But as housing affordability continues to improve, we expect todays hesitant buyers to become a healthy source of demand for new homes, fueling the eventual housing market recovery."

The problem is so large at this point that some rental rates are higher than mortgage rates for like-kind properties! Still, people prefer to pay rent instead in order to avoid paying money on a property that is going to decline in value. This simply emotional fear has been causing a very real decline as inventories continue to rise.

Foreclosures have risen substantially over the past few months, and very few buyers are stepping in to purchase houses on the cheap. This environment of high supply and low demand has forced down prices for simple economic reasons. The problems won't be resolved either until buyers start to step in and purchase inventory.

When will buyers step in? That's the million dollar question for home buyers and companies like KB Home alike...

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Goldman Sachs (NYSE: GS) advised selling shares of the financial services firm Citigroup, which sent shares sharply lower on the day. Goldman cut its recommendation for US Brokers to neutral from attractive and strongly recommended that investors sell shares of Citigroup, citing multiple problems, including more asset write-downs, higher loss provisions for consumer credit and the potential for more capital raises, dividend cuts or asset sales.

Shares of Citigroup fell more than 6% on the news, reaching a brand new 52-week low. Goldman's recommendation marks a sharp reversal from the positive stance that it took following the near collapse of Bear Stearns. The news also comes just days after Goldman Sachs itself was downgraded to market perform by analysts at Wachovia "in light of renewed economic fears" despite being the strongest investment bank in the U.S.

Goldman Sachs cut its second quarter and fully year forecasts for several brokers. The largest cuts were made on Citigroup and Merrill Lynch where it now sees the firms posting losses in both the second quarter and full year. Goldman expects Citigroup to take a $9 billion writedown and Merrill to take a $4.2 billion writedown in the most recent quarter. Both firms are expected to report their second quarter earnings in mid-July.

In the end, the brokers and investment bankers are still in big trouble and face large future writedowns. Goldman Sachs remains one of the few large investment banks that has been faring well against the problems, but even they have seen a downgrade. It will be very interesting to see where things head from here now that the negative sentiment is now out in the open with even analysts beginning to downgrade the sector...

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