Fickle Media

Sigh, nothing ever changes. Just last week, you couldn't find anything negative from the media. As I went from bloomberg to CNBC to CNNFN to Marketwatch.com, it was nothing but positive spin about the economy and the market prospects. News items were filled with bullish analysts and commentators extolling the strength of the market and complete dismissal of the subprime crisis as being contained.

In just one day, the market sentiment has changed from chipper to trepidatious. What has changed to cause this 180 degrees of change in tone?

Has the market fundamentals changed? No.

Has the economic conditions changed? No.

Has the housing market issues change materially? In my eyes no.

Has oil prices come down from the Iran hostage crisis resolution? No.

As I am looking around the websites and news outlets, I see the following:

1. Cnbc.Com: http://cnbc.com

"Stocks May Move Lower Monday After Strong Jobs Report"
"Stock Outlook: Where to Find Value in an Uncertain Market"

2. Marketwatch.com: http://marketwatch.com

"Jobs Dash Rate Hopes" http://www.marketwatch.com/news/story/jobs-report-set-weak-tone/story.aspx?guid=%7B5196E765%2D803C%2D4B25%2D9C8F%2DCC7F02E25932%7D

"American Home's Warning-...'suggesting subprime woes spreading...'" http://www.marketwatch.com/news/story/american-home-warns-spreading-subprime-mortgage/story.aspx?guid=%7B2CECF2CE%2DB6E0%2D43CC%2D8D89%2D97C1BF952242%7D

3. Bloomberg.com: http://bloomberg.com

"Treasuries Drop as US Jobs Data Reduces Speculation FED Will Cut Rates"
http://bloomberg.com/apps/news?pid=20601087&sid=ayGvV0U1uDuI&refer=home

4. Thestreet.com: http://thestreet.com

"Financials That Shake OFF Subprime Slime" http://www.thestreet.com/_yahoo/pom/pomrmy/10348601.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA

I think that's enough for now.

The point is that the mainstream financial media is misleading and have not grasped the issues surrounding our economy. I don't know what the real deal is. I suppose that you have to stay loyal to the hand that feeds you- that is, you have to stay loyal to Wall Street. I just don't trust the media these days.

The next issue is that now, many media outlets are suggesting that subprime slime is spreading. This is because a "non-subprime" home lender, American Home Mortgage (AHM) announced a drastic cut in their first quarter earnings and also cut dividends. This should be a wake up call for those that have continued to assert their position that subprime meltdown and fears of spreading are over done. Well, they must rethink themselves. Especially Bill Nygren of Oakmark who thinks that people are blowing the subprime issues out of proportion.

How about thestreet.com's article which has the link above that suggest that American Home Mortgage is immune to the subprime mess? Boy was that article wrong.

I think everyone should also pay a visit to: http://market-ticker.denninger.net where he presents a good fundamental issues surrounding our economy and basic issues that should worry even the novice investors regarding our markets and especially the housing market.

And again, nothing would be complete without mention of the God Father itself, Countrywide Financial Corporation (CFC). The subprime issues did not affect American Home Mortgage (AHM), rather, it was the ALT-A Option ARMS and the CDOs. In fact, majority of AHM loans were made to individuals with FICO score greater than 700! I especially enjoyed about the fact that even though they cut the 1st quarter profit forecast and the full years earnings, they estimate that they can earn $3.75 to $4.25 down from their prior forecast of $5.40 to $5.70. They also cut their dividend from $2.80 annualized from $4.48. In that article in Marketwatch.com, it said the following:

"But American Home isn't a subprime lender. In early March, the company issued a statement to clear up any "confusion" about the type of loans it offers. Most are adjustable-rate mortgages and so-called Alt-A loans, which often require less documentation. American Home even offers conventional fixed-rate home loans. Subprime mortgage are less than 1% of its total loan portfolio.

Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.

Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added. "

Did anyone see the red bolded line in that excerpt? AHM subprime exoposure was less than 1% of its loan portfolio! CFC has at least 7-10% of its loan portfolio in subprime and when you add the debts that it holds from New Century (NEWC.PK) which revealed in its recent Chapter 11 filings that Countrywide was #10 right behind Lehman Brothers (LEH)! Additionally, AHM did some PR work in February leading investors to feel confident that subprime is not a material issue with them and that they dealt with ALT-A loans. ALT A Loans are considered prime loans that require less documentation. CFC owns at least 45% of their loan portfolio to ALT-A Option ARMS. But what muddles this picture even more is that CFC also owns a subsidiary called Fullspectrumlending.com http://fullspectrumlending.com that deals exclusively with subprime loans and the last time I checked, their 10K was not clear on how they account for this. It is possible that they have effectively separated the loan portfolio of this subsidiary completely away from CFC's.

Never the less, if American Home Mortgage (AHM) is affected in this fashion, don't you feel even a little bit suspicious that Countrywide isn't being forthright with the investors and to the general public? As I have said before, I have lost every confidence in Angelo Mozilo and company. I know a lot of people will disagree with me when I say this, but I think CFC will come out with an earnings warning next week to mitigate the damages. I cannot see how they can cook their books to shield their company away from the meltdown in the mortgage market. But perhaps their $40 billion dollars on off balance will shed some light. Since the shareholder law suit was upheld to go to trial and because CFC tried hard to block that law suit from going public, it has to make you wonder. I think we will find out soon enough when the books and options granting practices are scrutinized, somethings will be far too amiss to ignore.

I am impatiently awaiting for CFC to show some accountability and morality.