If you haven't read "Blog Special Part 1: The Enron Story That Waited to be Told", a January 18, 2002 Washington Post story written by Howard Kurtz, please do so and just reflect on that story. I will attempt to correlate the striking similarities between Enron and Countrywide.
Just to refresh the reader's memory, Enron was quite possibly the biggest corporate scandal and fraud of the 21st Century. It had all the elements of main stream media irresponsibility, individual and corporate greed, and public gullibility.
So, here are the correlations:
Correlation #1: FULL SCALE PROPAGANDA
Countrywide continues to preach the strength of their business using CNBC twice (once with Maria Bartiromo and the other with Jim Cramer on Mad Money) all within the week. Mr. Mozilo appeared on CNBC's Mad Money on the same day that he sent his lieutenant, chief legal officer Sandor Samuels to testify on behalf of the company in front of Congressional panel assembled by Senator Christopher Dodd. This despite growing evidence of subprime crisis and unusually large insider selling. Countrywide continues to deny this day that their business model will not be affected adversely by the subprime crisis and housing bubble.
Enron, in response to a story broken by Fortune magazine reporter Bethany McLean, goes on full scale offensive defending the strength of their business. CEO Jeffrey Skilling calls McLean and tells her she is unethical and hangs up on her. Chairman Kenneth Lay calls the Fortune magazine managing editor to complain. COO Andrew Fastow flies to New York to tell McLean and the editors that the business was in great shape, contrary to the story by McLean.
Correlation #2: CLUELESS ANALYSTS
Countrywide has gotten continued support from Morningstar as a 5 star value and gets a Strong Buy rating. Many Wall Street Firms have upgraded this stock within the past 2 weeks. The notable decenter is S&P who continues to maintain a sell rating along with Goldman Sachs. But overall, Countrywide and its CEO Andrew Mozilo is highly regarded and is part of the S&P 500. Many of the Wall Street Pundits and Analysts still believe that this company is sound and should benefit from the fall out from the housing bubble and subprime crisis. This despite the fact that the insiders including Mozilo and others continue to liquidate their positions at an alarming rate. Additionally, the financial community continues to "believe" in this company despite the sudden departure of the COO Stanford Kurland in September 06, who was widely regarded to suceed Mozilo when he planned to retire in December 06 at age 68. Nothing is known why the sudden departure and my current efforts at unearthing the whereabouts of Mr. Kurland is met with no results. Additionally, today March 30, 2007, two long time board members have quit as of immediately without reason. These two board members are Kathleen Brown and Michael Dougherty. Mr. Dougherty has also been actively liquidating his shares in the company before this announcement.
Enron was also loved by Wall Street. Most analysts had a "buy" rating on the company before the whole scandal unraveled. Like Angelo Mozilo, Kenneth Lay was respected and shared a friendship with the president George Bush. Everything seemed to be business as usual and the general mainstream media could not uncover the dark truth of fraud and deception. At the time, Fortune magazine had named Enron the "America's most innovative company for six straight years". Likewise, Countrywide's Angelo Mozilo was named by Barron's Magazine as one of America's most influential CEO's, despite continued evidence mounting against possible irregularities in Angelo Mozilo and the company's insider selling activity. In August 2001, Kenneth Lay tells Fortune magazine managing editor Rik Kirkland that he didn't like McLean's story questioning Enron. A week later, Jeffrey Skilling CEO quits suddenly after 6 months on the job citing "personal reasons". Even then, the mainstream financial business media was clueless and did not run with McLean's story.
Correlation #3: OFF THE BOOKS ACCOUNTING
Countrywide is doing a $2.8 billion buy back of its shares by using debt. But that debt is categorized as "Off Book" balance. Additional observation into the recent 10K for the entire year of 2006 shows that Countrywide is using aggressive "Off Book" accounting measures in addition to the $2.8 billion in buy back of stocks. There are more questions than answers in regards to the CDO's and rising foreclosures. Additional questions arise when dealing with the Alt A- option ARMS which are "technically" classified as prime loans despite their risky nature. Countrywide continues to maintain that their mortgage portfolio only consists of 7% of subprime loans despite being number 3 in subprime mortgage originations to the now nearly defunct New Century. In recent article by LA Biz Observer http://laobserved.com/biz/2006/09/will_angelo_mozilo_r.php also states that Countrywide has been a notoriously "opaque" company and they don't really know how the company is actually run.
Enron abruptly fired Fastow CFO in October 2001 for questionable "Off the Books Partnerships" and later in November 2001 admitted to overstating its profits by $600 million. I believe the ALT-A Option ARM loans and being #3 highest originator of subprime loans coupled with meteoric rise of foreclosure inventory in Countrywide's books can be similar to this situation. But the main take home message is the Off Books accounting.
Correlation #4: TIME LINE TO MELTDOWN
Countrywide is set to change guards when possibly Angelo Mozilo will announce his retirement on CNBC in what will turn out to be the third appearance in less than two weeks at that television network. We already had the sudden departure of COO Stanford Kurland in September 8, 2006 for "personal" reasons. Then departure of two long time board members Mr. Dougherty and Mrs. Brown who were long time fixtures on the board on March 30, 2007. This was announced well after the markets had closed at 8:00 PM EST. Despite growing evidence towards something being drastically wrong, many analysts and financial commentators remain bullish on the "long term" prospects of this company.
Enron's Jeffrey Skilling CEO suddenly resigned on August 2001 after serving 6 months as CEO finanlly raising questions. Just as Stanford Kurland COO who was slated to replace Angelo Mozilo who left abruptly in September 2006 for "personal" reasons. In October 2001, Fastow CEO was fired for questionable "off book partnerships". On December 2, 2001, Enron declared bankruptcy.
All in all it took Enron 5 months before declaring bankruptcy and for the mainstream media to finally catch on. Even Jim Cramer who was bullish on Enron until Skilling abruptly quit for "personal" reasons, was not bearish until then despite overwhelming evidence. Likewise, Countrywide had the departure of their future CEO Kurland on September 2006 and the two long time board members abruptly quit without reason, after dumping all of their shares, Mrs. Brown and Mr. Dougherty on March 30, 2007. If we correlate the similarities of Enron and Countrywide, then Countrywide should announce something earth shattering soon. Because Angelo Mozilo is slated to announce something on Monday April 2, 2007, full 6 months after sudden departure of Mr. Kurland.
MY TAKE:
There are too much similarities between Enron and Countrywide.
1. We are coming off of a bubble (dot com for Enron) (housing for Countrywide)
2. Too many insiders are abruptly leaving for both.
3. Enron and Countrywide were much loved by the Wall Street.
4. Analysts continued to have buy ratings or were upgrading both stocks before the down fall.
5. Both are using aggressive "off the books" accounting.
6. Both companies are aggressively resorting to Public relations scheme to keep shares afloat.
7. Insiders are dumping the shares of the stocks.
8. Founders of both companies Kenneth Lay and Angelo Mozilo relinquished the CEO job and remained on the Board.
9. Financial communities are still seeing Countrywide in positive "light" despite evidences to the contrary and growing scandals in other similar companies as did Enron.
10. Time line is much too close before events unfold just as Enron took full 5 months before these departures of insiders currently, Countrywide is 6 months out since the departure of Mr. Kurland who left abruptly.
11. Board members are abandoning the company abruptly without giving a statement for both companies.
I think something like Bankruptcy might be on the horizon.
Friday, March 30, 2007
Blog Special Part 1: The Enron Story That Waited to be Told
The Enron Story That Waited To Be Told
By Howard KurtzWashington Post Staff WriterFriday, January 18, 2002; Page C01
Bethany McLean, a 31-year-old Fortune magazine reporter with an impossibly soft voice, decided to take a hard look at Enron last January. 'The Houston energy company didn't like her questions. The CEO, Jeffrey Skilling, called her unethical and hung up on her. The chairman, Kenneth Lay, called Fortune's managing editor to complain. The chief financial officer, Andrew Fastow, flew to New York to tell McLean and her editors that Enron was in great shape. McLean refused to be intimidated. "The company remains largely impenetrable to outsiders," she wrote in Fortune's March 5, 2001, issue. "How exactly does Enron make its money? Details are hard to come by because Enron keeps many of the specifics confidential. . . . Analysts don't seem to have a clue." All this amounted to a "red flag" that "may increase the chance of a nasty surprise."
The story sank without a trace. "At that point the coverage of Enron was pretty glowing," McLean says. After all, the stock had soared 90 percent the previous year and was selling for $76 a share.
Now that the company has collapsed amid charges of financial chicanery, devastating its employees' retirement funds, Enron is the hottest story in the country. Political reporters joined the fray after learning that Enron had sought help from the Bush White House. Teams of business journalists are digging into the largest corporate meltdown in American history.
But as in the savings and loan debacle a dozen years ago, it took news organizations too long to piece together the clues.
"It's fair to say the press did not do a great job in covering Enron," says Steve Shepard, editor-in-chief of Business Week magazine, which ran only briefs on the company's financial problems until a cover story in November. "Enron was really a systemic failure of all the checks and balances we have on corporate governance: integrity of management, board of directors, audit committee of the board, outside accounting firm, Wall Street analysts and ultimately the press. And all of us failed."
There were some notable early efforts. Last May, the Wall Street Journal ran a front-page story on Lay getting a half-hour meeting to lobby Vice President Cheney on the administration's energy program. The story noted that over the years Enron had donated nearly $2 million to President Bush, Lay's longtime friend, and that some top administration officials had worked for Enron.
"I feel pretty good about what we've done on Enron," says Alan Murray, the Journal's Washington bureau chief. "What we clearly did not understand was that it was heading for a disaster."
The problem, he says, is that such stories often turn on "arcane and technical" practices. "The press doesn't pay as much attention to some of these regulatory issues that have more impact on the world than the political issues we do pay attention to," Murray says. If company auditors -- in this case, Arthur Andersen -- don't raise questions, "it's very hard to know where to look," says Larry Kramer, chief executive of CBS MarketWatch.com. "We didn't get a lot of rumblings. Our coverage was robust, but was still based on events after the fact." A dramatic decline in stock is not necessarily a warning of foul play, says Kramer, noting that his own company went public at $97 a share and the stock is now worth $4. "People just got dazzled by the size of the business," he says of Enron.
David Morrow, editor of TheStreet.com, says the press is "too reactionary. It's too easy for the business press to look at what the analysts are saying." Most Wall Street analysts had a buy rating on Enron stock. Indeed, only one group wanted Enron's stock to tank: the short-sellers, professional traders who bet on a stock's decline. One short-seller, Jim Chanos of Kynikos Associates, suggested to Fortune's McLean that she look at Enron's Form 10-K, a required annual filing with the Securities and Exchange Commission. McLean says she understood Chanos's motive but was struck by the document. There were "strange transactions," "erratic cash flow" and huge debt. "It made you wonder, if their business was so phenomenally profitable, why they had to be adding debt at such a rapid rate," she says. But the story was hard to write: "You can't just spout off about derivatives and mark-to-market accounts and expect people to get it."
Ironically, Fortune's own surveys had named Enron America's most innovative firm for six straight years, and much of the coverage was similarly upbeat. Last January, a Houston Chronicle story was headlined: "Houston has $100 billion company; Enron Corp. sets records for sales, earnings in 2000." There were a few critical pieces, but they mainly focused on politics.
In February, the Los Angeles Times reported on the close ties between Lay and the president, noting that Bush had flown on Enron jets during the campaign. In March, The Washington Post ran a piece on Lay's growing influence. In May, the New York Times quoted the federal government's top electricity regulator, Curtis Hebert Jr., as saying Lay had offered to support his continued tenure if he changed his views on energy deregulation. Hebert says he declined. Bush replaced him months later. In August, at a Fortune conference in Aspen, Lay told Rik Kirkland, Fortune's managing editor, that Enron really disliked McLean's story. A week later, Skilling quit as CEO after just six months on the job, calling it a "personal decision."
"The main point of failure was when Skilling resigned, because unless he had cancer or something it was inexplicable," Business Week's Shepard says. "The failure of the press was not saying, 'What's going on here?' " Business Week talked to Skilling off the record but could shed no further light on the situation.
To be sure, journalists were skeptical. "The abruptness of the departure left many analysts questioning whether a series of setbacks the company has suffered played a part in the decision," the New York Times said. Enron's stock, which had fallen by 50 percent since January, dropped another 14 percent in two days. Some commentators unloaded on the company. "Until they clear this one up, Enron's a goner," former money manager Jim Cramer wrote on RealMoney.com. But hard information was scarce. "It's almost as if you have to use forensic accountants when you're doing a company story because many companies are using very aggressive accounting techniques that are perfectly legal," Shepard says. Enron fired Fastow in October for overseeing questionable off-the-books partnerships, and in November the company admitted overstating its profits by $600 million. But most papers played these stories on their business pages. Even Enron's Dec. 2 declaration of bankruptcy failed to make the front pages of USA Today, The Washington Post, the Boston Globe and the Philadelphia Inquirer. The CBS, NBC and ABC evening newscasts each gave the announcement two sentences. The media were still heavily focused on the war in Afghanistan.
Now that Enron's stock has been booted off the New York Stock Exchange, Fortune staffers can't say enough about the way McLean defied both Enron executives and conventional wisdom.
"It was a gutsy thing to do," Kirkland says. "We trusted her. When you look back it's obvious: Why weren't we all asking these questions?"
© 2002 The Washington Post Company
Countrywide Will Unravel
For those who believed the main stream media and pundits who continued to say that the economy was strong, that no recession was on the horizon, and that recent volatility in the market was a good thing and everyone should be buying the "bargains" are in for a rude awakening. It does't take a rocket scientist to figure out that the US economy is slowing and there is a real possiblity of negative growth for the unforeseeable future. For those who hope for a rate cut soon, even if that should materialize, there is no easy way out of this. Take your poison, recession or stagflation. We as a society have grown complacent, lethargic, and forgotten the good value of hard work. Thus we are always looking for a quick fix or an easy way out without considering the future consequences. It is no different from our leaders who is supposed to be the stewards of our economy.
I feel bad for Ben Bernake because he has to now deal with the impossible and unenviable situation of dealing with this mess that "Easy Al" Greenspan has created. I for one believe that Greenspan is to blame for this current mess in housing industry which I believe will be worse than our previous dot com bubble fiasco. While dot com was a relatively isolated event to that industry and Wall Street, the ramifications of housing bubble burst will have profound consequences on our economic growth, inflation, and standard of living. Perhaps we all deserved this. No one is immune from what I fear is just around the corner. Massive job market contractions, unemployment, loss of economic leverage to the rest of the world, and increasing debt with no way of ever climbing out of them. It is a bleak prospect but one that must be heeded and acted on before it is too late. I find in amazement that people are looking for a rate cut because that would be the single worst mistake that the FED can make and it would not be in the best interest of this national economic security. With rising oil prices and geopolitical tensions circumscribing this issue, it becomes more important to do the right thing and raise the interest rate. We must control the inflation above all else. If inflation should run out of control, there is not much anyone can do, and the consequences will reverberate throughout the global economy, thus creating further degradation of world peace. You think I am kidding? Just look at what Iran can do right now to the supposed "super powers", GBR and USA. That type of disregard and blatant disrespect will continue to acclerate and decay.
Now, Countrywide appears to be changing the guard, with Mozilo appearing to possibly appear on CNBC and announce his "retirement" and handing the reins to David Sambol. I do not think that the market will react too kindly to this event. Countrywide is engaged in a fight for life struggle with the housing bubble, subprime crisis, and continued crack down on all lenders related to Mortgage industries. The rate of insider activity is old news but one that will plague this company for years to come if it is to survive. Plus, contradictory statements from Mozilo's interviews (see yesterday's blog) shows that Mozilo might have conceded defeat and will place the burden on David Sambol. Once the dust settles, I am hopeful that more wrongdoings and deceit will be uncovered.
I feel bad for Ben Bernake because he has to now deal with the impossible and unenviable situation of dealing with this mess that "Easy Al" Greenspan has created. I for one believe that Greenspan is to blame for this current mess in housing industry which I believe will be worse than our previous dot com bubble fiasco. While dot com was a relatively isolated event to that industry and Wall Street, the ramifications of housing bubble burst will have profound consequences on our economic growth, inflation, and standard of living. Perhaps we all deserved this. No one is immune from what I fear is just around the corner. Massive job market contractions, unemployment, loss of economic leverage to the rest of the world, and increasing debt with no way of ever climbing out of them. It is a bleak prospect but one that must be heeded and acted on before it is too late. I find in amazement that people are looking for a rate cut because that would be the single worst mistake that the FED can make and it would not be in the best interest of this national economic security. With rising oil prices and geopolitical tensions circumscribing this issue, it becomes more important to do the right thing and raise the interest rate. We must control the inflation above all else. If inflation should run out of control, there is not much anyone can do, and the consequences will reverberate throughout the global economy, thus creating further degradation of world peace. You think I am kidding? Just look at what Iran can do right now to the supposed "super powers", GBR and USA. That type of disregard and blatant disrespect will continue to acclerate and decay.
Now, Countrywide appears to be changing the guard, with Mozilo appearing to possibly appear on CNBC and announce his "retirement" and handing the reins to David Sambol. I do not think that the market will react too kindly to this event. Countrywide is engaged in a fight for life struggle with the housing bubble, subprime crisis, and continued crack down on all lenders related to Mortgage industries. The rate of insider activity is old news but one that will plague this company for years to come if it is to survive. Plus, contradictory statements from Mozilo's interviews (see yesterday's blog) shows that Mozilo might have conceded defeat and will place the burden on David Sambol. Once the dust settles, I am hopeful that more wrongdoings and deceit will be uncovered.
David Sambol to Become Chairman and CEO of Countrywide
CFC enters into employment agreement with David Sambol to serve as Chairman and Chief Executive of Countrywide Home Loans Inc. It appears that this agreement goes through 2009. It also appears then that Mozilo is stepping aside?
By Denise Jia, Dow Jones News Wires; 202-862-1359; denise.jia@dowjones.com
Also, Mozilo registered 46,000 more on March 29, 2007 wtih SEC. Date of sale 3/15/2007, date registered 3/22/2007.
selling continues. There is also rumors that Mozilo will appear on CNBC Monday to probably announce his retirement.
By Denise Jia, Dow Jones News Wires; 202-862-1359; denise.jia@dowjones.com
Also, Mozilo registered 46,000 more on March 29, 2007 wtih SEC. Date of sale 3/15/2007, date registered 3/22/2007.
selling continues. There is also rumors that Mozilo will appear on CNBC Monday to probably announce his retirement.
Watch for Higher Open and Fade to Close
Another inflationary number in consumer spending and personal income is leading the market futures to nudge higher. Repeat, inflationary numbers. Today is the last day of "Window Dressing" but most of that action was concluded yesterday to avoid SEC scrutiny. Today will be interesting as oil continues to edge higher towards $67 on the news of British sailor's aired confessions by Iran. Look for this situation to escalate before calming down. As I said yesterday, Iran has no real vested interest in seeing this crisis cool down as the price of oil has jumped dramatically since this crisis and Iran benefits.
I am looking for continued weakness in the housing market and mortgage market as more "noise" is filtering down to ALT-A loans as not being "prime" and in the same catagory as subprime.
Good luck everyone and please be careful.
I am looking for continued weakness in the housing market and mortgage market as more "noise" is filtering down to ALT-A loans as not being "prime" and in the same catagory as subprime.
Good luck everyone and please be careful.
Thursday, March 29, 2007
Why Did Stanford Kurland Suddenly Leave Countrywide?
Here is what the Countrywide PR News Said:
"Countrywide Financial Corporation Appoints David Sambol President & Chief Operating Officer 09/08/2006
Stanford L. Kurland to Step Down
CALABASAS, Calif., Sept. 8 /PRNewswire-FirstCall/ -- Countrywide Financial Corporation (NYSE: CFC) announced today that it has appointed David Sambol as President and Chief Operating Officer. Additionally, Stanford L. Kurland will step down from his current role and will leave the Company.
A 21-year veteran of Countrywide, Mr. Sambol most recently served as Executive Managing Director of Business Segment Operations, and has led all revenue generating functions of the Company since assuming that post, including serving as President and Chief Operating Officer of Countrywide Home Loans ("CHL"), which is the Company's principal mortgage originations and servicing subsidiary. He has also had oversight responsibility for Countrywide Bank, Countrywide Insurance Group, Countrywide Capital Markets ("CCM") and Countrywide's Global Operations.
In addition to overseeing all of Countrywide's revenue generating business units, Mr. Sambol's responsibilities currently include leadership of corporate operational and support units comprised of Administration, Marketing and Corporate Communications and Enterprise Operations and Technology. Mr. Sambol is a member of the Executive Committee of Countrywide Financial Corporation. In his new position as President and Chief Operating Officer of Countrywide Financial Corporation, Mr. Sambol will be responsible for leading all operations of the Company.
Mr. Sambol began his career with the Company as a director of internal audit. Prior to joining Countrywide, Mr. Sambol served as a Certified Public Accountant with the accounting firm of Ernst & Whinney.
"Dave Sambol is an extremely talented operations executive and entrepreneur, and he has been one of the driving forces behind the Company's extraordinary growth during the past five years," said Chairman & CEO Angelo R. Mozilo. "He possesses the unique combination of business building, operations, and risk management skills to lead Countrywide's day-to-day operations and carry it through the challenges and opportunities of both the current and future business environments," added Mr. Mozilo.
Mr. Sambol has been instrumental in building Countrywide's mortgage business into becoming the leading mortgage lender in the financial services industry. Under his leadership, Countrywide Home Loans has expanded to become the most comprehensive end-to-end platform in the industry, with the largest market share growth of any mortgage lender in the United States. Countrywide's mortgage market share has grown from 6% at the end of 2000 when Mr. Sambol assumed oversight of CHL, to more than 15% at the end of 2005.
Mr. Sambol also established Countrywide Capital Markets, and served as its President and Chief Executive Officer. Under his direction, CCM has become one of the nation's leading fixed income securities firms. In 2005 CCM traded $3 trillion in securities and generated pre-tax earnings of $452 million.
"Countrywide's continued growth and success will be fueled by the same drivers that have propelled our historic success: our customer-centric business philosophy, our performance-driven culture, continuous enhancement of our business processes, and our effective governance and risk-management framework," said Mr. Sambol.
"Our focus on real estate finance and related activities is Countrywide's most powerful competitive advantage, and we plan to maintain our focus on the Company's core businesses and leverage our unique capabilities to capitalize on the ongoing consolidation in our industry," added Mr. Sambol.
The Company also announced that Stanford L. Kurland will step down from his role as President and Chief Operating Officer, and will leave the Company. Mr. Kurland's career at Countrywide spans 28 years, during which he served in a number of different roles. "Stan has made significant contributions to Countrywide's success," said Chairman and CEO Mozilo. "On behalf of Countrywide, we thank Stan for his years of service to the Company and wish him well in his future endeavors," added Mr. Mozilo.
About Countrywide Financial Corporation
Founded in 1969, Countrywide Financial Corporation is a diversified financial services provider and a member of the S&P 500, Forbes 2000 and Fortune 500. Through its family of companies, Countrywide originates, purchases, securitizes, sells, and services prime and nonprime loans; provides loan closing services such as credit reports, appraisals and flood determinations; offers banking services which include depository and home loan products; conducts fixed income securities underwriting and trading activities; provides property, life and casualty insurance; and manages a captive mortgage reinsurance company. For more information about the Company, visit Countrywide's website at www.countrywide.com.
SOURCE
Countrywide Financial Corporation
CONTACT:
Media Inquiries, Corporate Communications, +1-800-796-8448, pressroom@countrywide.com, or
Investor Inquiries, Investor Relations, +1-818-225-3550, ir@countrywide.com
both of Countrywide Financial Corporation"
It barely mentions anything about Stanford Kurland's sudden departure, instead focusing almost exclusively on David Sambol and his attributes. Hmmm...
Here is another article from LA Biz Observer:
http://laobserved.com/biz/2006/09/will_angelo_mozilo_r.php
This story goes on to talk about succession plans at Countrywide with Stanford Kurland to take over for the "little guy"-Mozilo. There appears to be some conflicting indication whether or not Mozilo was ready for retirement. They cite two separate interviews where he is and is not ready for retirement. There is some speculation that possibly Stanford Kurland left the company because he might have lost favor from Mozilo and David Sambol was heir apparent at Countrywide. They also discuss how Countrywide is a notoriously "opaque" company so they don't exactly know how the company is actually run. All in all, the notion that Mozilo is selling his interest in CFC like it is going out of fashion based on the premise that he is ready to call it quits is conflicting. This story seems to point more towards the fact that Mozilo is selling for selfish reasons. Hence that may be the reason why Stanford Kurland left the company because Mozilo was not ready to give up the reins.
How about this one from topix.net titled "Countrywide President Kurland Departs"?
http://www.topix.net/content/trb/3999914420108332761429609168823917572746
It appears from this article that Stanford Kurland left the company due to contraction of the business and the fact that Mozilo who did not retire at age 68 as he said previously on December 16, 2006. This article continues to state that who ever takes over as CEO will have a difficult time due to contraction in the home lending business. But it is now March 29, 2007 and Mozilo is still the CEO and Chairman of the company while selling his shares of the company. That contradicts his interview with Maria Bartiromo (CNBC) when he said he was running out of time and that he needed balance in his life. If that is the case, why has he not stepped down as CEO yet? Is something else going on? Why are the insiders selling? Did Stanford Kurland know something was wrong? Why hasn't David Sambol take over as CEO on Mozilo's 68th birthday as planned?
How about this one from thefreelibrary.com?
http://www.thefreelibrary.com/As+market+softens,+countrywide+chief+decides+he'll+stay-a0152745854
This story quite possibly is the most important story that might tie in the reasons for Mozilo's deciding to stay on as CEO and Chairman at Countrywide. It appears that Stanford Kurland was the man that Mozilo had the most confidence in to take over as the CEO of Countrywide. With his departure for "personal reasons", Mozilo has indirectly demonstrated that he possibly doesn't have much faith in David Sambol to be the CEO and decided not to retire. What again is questionable is this. Did Stanford Kurland leave the company for something that he didn't agree with? Possibly due to accounting irregularites? Is Mozilo staying on trying to save this company from disaster? It doesn't make much sense because Mozilo and the insiders have been liquidating their shares like its dooms day. Remember, Stanford Kurland was an accountant for Grant Thorton and he audited Countrywide's books in 1970's before joining Countrywide.
The question is, did Kurland see something that was not right? Why was Countrywide or Kurland so mum on the reasons for departure. Where is Stanford Kurland now? I have emailed the LA Times staff writer that wrote this article to find out. We will see.
My Take:
Stanford Kurland's sudden departure and Mozilo deciding not to retire at age 68 remains a mystery. What did Stanford Kurland know that led to his departure from Countrywide? Why did Mozilo decide to remain the CEO and Chairman when all he talked about was enjoying his life and not suffering the same fate as his butcher father who died at age 59? Why did Mozilo hint that his time was near in an interview with Maria Bartiromo (CNBC) when asked about his rather alarming rate of insider activity on the sell side?
I think something is drastically wrong with Countrywide. It may be accounting irregularities but something is not right. With David Sambol, who in my analysis, was passed up by Mozilo as the next heir apparent, earning a whopping $19.3 million dollars in 2007. The astonishing rate of "liquidation" by Countrywide insiders point to something drastically wrong at Countrywide. In addition, the spin put on by Mozilo on CNBC to keep share prices where they are might just be a ploy to buy time to unload most of the insider shares in the company. I am anticipating something gigantic to break in the near future for Countrywide.
"Countrywide Financial Corporation Appoints David Sambol President & Chief Operating Officer 09/08/2006
Stanford L. Kurland to Step Down
CALABASAS, Calif., Sept. 8 /PRNewswire-FirstCall/ -- Countrywide Financial Corporation (NYSE: CFC) announced today that it has appointed David Sambol as President and Chief Operating Officer. Additionally, Stanford L. Kurland will step down from his current role and will leave the Company.
A 21-year veteran of Countrywide, Mr. Sambol most recently served as Executive Managing Director of Business Segment Operations, and has led all revenue generating functions of the Company since assuming that post, including serving as President and Chief Operating Officer of Countrywide Home Loans ("CHL"), which is the Company's principal mortgage originations and servicing subsidiary. He has also had oversight responsibility for Countrywide Bank, Countrywide Insurance Group, Countrywide Capital Markets ("CCM") and Countrywide's Global Operations.
In addition to overseeing all of Countrywide's revenue generating business units, Mr. Sambol's responsibilities currently include leadership of corporate operational and support units comprised of Administration, Marketing and Corporate Communications and Enterprise Operations and Technology. Mr. Sambol is a member of the Executive Committee of Countrywide Financial Corporation. In his new position as President and Chief Operating Officer of Countrywide Financial Corporation, Mr. Sambol will be responsible for leading all operations of the Company.
Mr. Sambol began his career with the Company as a director of internal audit. Prior to joining Countrywide, Mr. Sambol served as a Certified Public Accountant with the accounting firm of Ernst & Whinney.
"Dave Sambol is an extremely talented operations executive and entrepreneur, and he has been one of the driving forces behind the Company's extraordinary growth during the past five years," said Chairman & CEO Angelo R. Mozilo. "He possesses the unique combination of business building, operations, and risk management skills to lead Countrywide's day-to-day operations and carry it through the challenges and opportunities of both the current and future business environments," added Mr. Mozilo.
Mr. Sambol has been instrumental in building Countrywide's mortgage business into becoming the leading mortgage lender in the financial services industry. Under his leadership, Countrywide Home Loans has expanded to become the most comprehensive end-to-end platform in the industry, with the largest market share growth of any mortgage lender in the United States. Countrywide's mortgage market share has grown from 6% at the end of 2000 when Mr. Sambol assumed oversight of CHL, to more than 15% at the end of 2005.
Mr. Sambol also established Countrywide Capital Markets, and served as its President and Chief Executive Officer. Under his direction, CCM has become one of the nation's leading fixed income securities firms. In 2005 CCM traded $3 trillion in securities and generated pre-tax earnings of $452 million.
"Countrywide's continued growth and success will be fueled by the same drivers that have propelled our historic success: our customer-centric business philosophy, our performance-driven culture, continuous enhancement of our business processes, and our effective governance and risk-management framework," said Mr. Sambol.
"Our focus on real estate finance and related activities is Countrywide's most powerful competitive advantage, and we plan to maintain our focus on the Company's core businesses and leverage our unique capabilities to capitalize on the ongoing consolidation in our industry," added Mr. Sambol.
The Company also announced that Stanford L. Kurland will step down from his role as President and Chief Operating Officer, and will leave the Company. Mr. Kurland's career at Countrywide spans 28 years, during which he served in a number of different roles. "Stan has made significant contributions to Countrywide's success," said Chairman and CEO Mozilo. "On behalf of Countrywide, we thank Stan for his years of service to the Company and wish him well in his future endeavors," added Mr. Mozilo.
About Countrywide Financial Corporation
Founded in 1969, Countrywide Financial Corporation is a diversified financial services provider and a member of the S&P 500, Forbes 2000 and Fortune 500. Through its family of companies, Countrywide originates, purchases, securitizes, sells, and services prime and nonprime loans; provides loan closing services such as credit reports, appraisals and flood determinations; offers banking services which include depository and home loan products; conducts fixed income securities underwriting and trading activities; provides property, life and casualty insurance; and manages a captive mortgage reinsurance company. For more information about the Company, visit Countrywide's website at www.countrywide.com.
SOURCE
Countrywide Financial Corporation
CONTACT:
Media Inquiries, Corporate Communications, +1-800-796-8448, pressroom@countrywide.com, or
Investor Inquiries, Investor Relations, +1-818-225-3550, ir@countrywide.com
both of Countrywide Financial Corporation"
It barely mentions anything about Stanford Kurland's sudden departure, instead focusing almost exclusively on David Sambol and his attributes. Hmmm...
Here is another article from LA Biz Observer:
http://laobserved.com/biz/2006/09/will_angelo_mozilo_r.php
This story goes on to talk about succession plans at Countrywide with Stanford Kurland to take over for the "little guy"-Mozilo. There appears to be some conflicting indication whether or not Mozilo was ready for retirement. They cite two separate interviews where he is and is not ready for retirement. There is some speculation that possibly Stanford Kurland left the company because he might have lost favor from Mozilo and David Sambol was heir apparent at Countrywide. They also discuss how Countrywide is a notoriously "opaque" company so they don't exactly know how the company is actually run. All in all, the notion that Mozilo is selling his interest in CFC like it is going out of fashion based on the premise that he is ready to call it quits is conflicting. This story seems to point more towards the fact that Mozilo is selling for selfish reasons. Hence that may be the reason why Stanford Kurland left the company because Mozilo was not ready to give up the reins.
How about this one from topix.net titled "Countrywide President Kurland Departs"?
http://www.topix.net/content/trb/3999914420108332761429609168823917572746
It appears from this article that Stanford Kurland left the company due to contraction of the business and the fact that Mozilo who did not retire at age 68 as he said previously on December 16, 2006. This article continues to state that who ever takes over as CEO will have a difficult time due to contraction in the home lending business. But it is now March 29, 2007 and Mozilo is still the CEO and Chairman of the company while selling his shares of the company. That contradicts his interview with Maria Bartiromo (CNBC) when he said he was running out of time and that he needed balance in his life. If that is the case, why has he not stepped down as CEO yet? Is something else going on? Why are the insiders selling? Did Stanford Kurland know something was wrong? Why hasn't David Sambol take over as CEO on Mozilo's 68th birthday as planned?
How about this one from thefreelibrary.com?
http://www.thefreelibrary.com/As+market+softens,+countrywide+chief+decides+he'll+stay-a0152745854
This story quite possibly is the most important story that might tie in the reasons for Mozilo's deciding to stay on as CEO and Chairman at Countrywide. It appears that Stanford Kurland was the man that Mozilo had the most confidence in to take over as the CEO of Countrywide. With his departure for "personal reasons", Mozilo has indirectly demonstrated that he possibly doesn't have much faith in David Sambol to be the CEO and decided not to retire. What again is questionable is this. Did Stanford Kurland leave the company for something that he didn't agree with? Possibly due to accounting irregularites? Is Mozilo staying on trying to save this company from disaster? It doesn't make much sense because Mozilo and the insiders have been liquidating their shares like its dooms day. Remember, Stanford Kurland was an accountant for Grant Thorton and he audited Countrywide's books in 1970's before joining Countrywide.
The question is, did Kurland see something that was not right? Why was Countrywide or Kurland so mum on the reasons for departure. Where is Stanford Kurland now? I have emailed the LA Times staff writer that wrote this article to find out. We will see.
My Take:
Stanford Kurland's sudden departure and Mozilo deciding not to retire at age 68 remains a mystery. What did Stanford Kurland know that led to his departure from Countrywide? Why did Mozilo decide to remain the CEO and Chairman when all he talked about was enjoying his life and not suffering the same fate as his butcher father who died at age 59? Why did Mozilo hint that his time was near in an interview with Maria Bartiromo (CNBC) when asked about his rather alarming rate of insider activity on the sell side?
I think something is drastically wrong with Countrywide. It may be accounting irregularities but something is not right. With David Sambol, who in my analysis, was passed up by Mozilo as the next heir apparent, earning a whopping $19.3 million dollars in 2007. The astonishing rate of "liquidation" by Countrywide insiders point to something drastically wrong at Countrywide. In addition, the spin put on by Mozilo on CNBC to keep share prices where they are might just be a ploy to buy time to unload most of the insider shares in the company. I am anticipating something gigantic to break in the near future for Countrywide.
My Thoughts on Today's Market Action
Today's market action was a wild ride to nowhere. As I posted earlier, GDP report today was another indication of inflationary pressure in the market and that it was even more unlikely for the FED to cut rates now. While the Wall Street initially cheered the 2.5% rise compared to the expected 2.2%, this inflationary issues must have settled in. Of course oil's relentless climb to top $66 didn't help. The market recovered some of the losses today to have the Dow finishing up +48.39 to 12348.75, Nasdaq +0.78 2417.88, and S&P 500 +5.30 1422.53. The market basically got nowhere. My point and figure chart analysis shows that major indicies continue to remain on defense.
My take is this. I think that the Iranian crisis, yes I will call it a crisis, will linger longer than anyone gives it credit for. I don't know if this will blow up into a full scale military confrontation between the US, Great Britain, and Iran, but certainly, Iran has no incentive to end this hostile hostage situation. This is because since they grabbed the 15 British sailors and Marines, the oil has jumped from $58 to $66 in a matter of one week. Since this oil revenue dependent nation is also cash strapped to continue on with their nuclear bomb quest (which they deny is for energy production). I honestly don't think that they will release these detainees or hostages until oil hovers at least above $75 per barrel. However, US has recently stepped up its military presence of 2 air craft carriers and intensifying its military exercises near the Iranian coast in a show of force. Tony Blair seems to be escalating his tone towards Iranians. i don't thin UN will be able to resolve anything. "UN"able should be the name placed to UN whose best days have passed and stands as a reminder of excess and incompetence.
All of these things point to continued rise in inflation and those that are hoping for a rate cut are in for a long wait. It just won't happen anytime soon. The path of least resistance still remains to the "downside". I still stand firm on my analysis that our economy will see more tough times ahead before seeing the good times.
CFC finished below trend line today and reversed to finish on the low range of the trading range on below aveage volume today. This is a bearish reversal. I anticipate that the next support will be found at $32 level and if it breaks below this, we can expect this stock to quickly test the $29 to $27 support level.
BIDU failed to break out of the $105 resistance level and sits poised to test the $93 200 SDMA. If that is broken we can expect to see $85's in relatively short order.
I still remain bullish on LHCG which has held up rather well during these turbulent times.
My take is this. I think that the Iranian crisis, yes I will call it a crisis, will linger longer than anyone gives it credit for. I don't know if this will blow up into a full scale military confrontation between the US, Great Britain, and Iran, but certainly, Iran has no incentive to end this hostile hostage situation. This is because since they grabbed the 15 British sailors and Marines, the oil has jumped from $58 to $66 in a matter of one week. Since this oil revenue dependent nation is also cash strapped to continue on with their nuclear bomb quest (which they deny is for energy production). I honestly don't think that they will release these detainees or hostages until oil hovers at least above $75 per barrel. However, US has recently stepped up its military presence of 2 air craft carriers and intensifying its military exercises near the Iranian coast in a show of force. Tony Blair seems to be escalating his tone towards Iranians. i don't thin UN will be able to resolve anything. "UN"able should be the name placed to UN whose best days have passed and stands as a reminder of excess and incompetence.
All of these things point to continued rise in inflation and those that are hoping for a rate cut are in for a long wait. It just won't happen anytime soon. The path of least resistance still remains to the "downside". I still stand firm on my analysis that our economy will see more tough times ahead before seeing the good times.
CFC finished below trend line today and reversed to finish on the low range of the trading range on below aveage volume today. This is a bearish reversal. I anticipate that the next support will be found at $32 level and if it breaks below this, we can expect this stock to quickly test the $29 to $27 support level.
BIDU failed to break out of the $105 resistance level and sits poised to test the $93 200 SDMA. If that is broken we can expect to see $85's in relatively short order.
I still remain bullish on LHCG which has held up rather well during these turbulent times.
Countrywide Compensation of Executives
In what appears to be a farewell free for all, Countrywide continues to exhibit troubling signs of excess. It has been revealed that COO David Sambol is getting a total salary of $19.3 million dollars and "other" packages for 2007. David Sambol is getting a base salary of $1.4 million dollars. His compensation package is higher than many CEOs at many top banks in the nation including Wachovia's CEO Ken Thompson who earned $18.26 million in 2006.
This outrageous pay package is in addition to CEO Angelo Mozilo's outlandish compensation in 2005 of $160 million and possible severance package of $250 million, if he actually left the company. His contract with Countrywide is set to expire in 2009. We all know the intensive selling of the Countrywide CEO and other executives in a time, when this industry is mired in a severe scrutiny for its lending practices. Many of the competitors are either out of business or filing for Chapter 11 bankruptcy protection. It is either a brazen efforts to milk the shareholders for what appears to be the final swan song for the company or an exhibition of strength of the company. I would agree with the final swan song. If true, this would bring up serious conflict of interest between the shareholders of the company and its insiders.
The release by Reuters of this fact appears to be another clever PR efforts by Countrywide to legitimize the recent insider selling. It is likely that the insiders plan on using this as a shield for possible scrutiny that this excessive pay package will have if and when the company's financial troubles surface. It is a preemptive strike for legitimacy of the insider selling in recent months. I disagree, if this notion is true, that the American investment community will be that easily fooled. This is a brazen exhibition of irresponsible greed that seems to have infected this beloved darling of Wall Street. While the analysts contiue to look the other way in addressing these issues, the insiders continue to pad their wealth by selling out of the company. I don't know if anyone reading this blog remembers Lucent during 1999 to 2000 before its downward spiral. It was quite frankly, one of the most beloved companies in Wall Street. Even as their booking of future earnings, which inevitably got them into trouble, and their customers began to die out one by one, defaulting on the "loan" that was incorrectly posted as earnings, Wall Street continued to stay enamoured with this company. As the shares continue to dwindle in price, the investment community continued to urge the shareholders to buy and hold until, of course, it was too late. By the time sell ratings became ubiquitous on Lucent, it was too late.
The interesting thing about Countrywide is that it has the makings of an Enron but also has a strong resemblence to Lucent, all before each respective company's downfall from grace. Therefore, I can only deduce that the fallout from Countrywide can only be uglier than either Enron or Lucent. I do not believe that anyone remotely related to the mortgage or housing industry will be found to be clean years from now, when the dust settles. Sadly, once again, it will the retail investors who will be left holding the bag, and the news media who once extolled the virtues of this once great company, will be pointing fingers as if a pulitzer worthy journalistic event has occurred. Oh the hypocrisy.
Democrats in the House and the Senate who are already harping on excessive CEO packages should think twice and possibly consider just concentrating on Countrywide. Not only is this company paying excessively to its CEO, every bit of their insiders are making out quite nicely. $19.3 million for a COO? Give me a break. It should be a nice spot light on these politicians who can kill two birds with one stone. That is to expose the fraud that Countrywide potentially represents but also an opportunity to condemn the excessive greed that permeates this company.
This outrageous pay package is in addition to CEO Angelo Mozilo's outlandish compensation in 2005 of $160 million and possible severance package of $250 million, if he actually left the company. His contract with Countrywide is set to expire in 2009. We all know the intensive selling of the Countrywide CEO and other executives in a time, when this industry is mired in a severe scrutiny for its lending practices. Many of the competitors are either out of business or filing for Chapter 11 bankruptcy protection. It is either a brazen efforts to milk the shareholders for what appears to be the final swan song for the company or an exhibition of strength of the company. I would agree with the final swan song. If true, this would bring up serious conflict of interest between the shareholders of the company and its insiders.
The release by Reuters of this fact appears to be another clever PR efforts by Countrywide to legitimize the recent insider selling. It is likely that the insiders plan on using this as a shield for possible scrutiny that this excessive pay package will have if and when the company's financial troubles surface. It is a preemptive strike for legitimacy of the insider selling in recent months. I disagree, if this notion is true, that the American investment community will be that easily fooled. This is a brazen exhibition of irresponsible greed that seems to have infected this beloved darling of Wall Street. While the analysts contiue to look the other way in addressing these issues, the insiders continue to pad their wealth by selling out of the company. I don't know if anyone reading this blog remembers Lucent during 1999 to 2000 before its downward spiral. It was quite frankly, one of the most beloved companies in Wall Street. Even as their booking of future earnings, which inevitably got them into trouble, and their customers began to die out one by one, defaulting on the "loan" that was incorrectly posted as earnings, Wall Street continued to stay enamoured with this company. As the shares continue to dwindle in price, the investment community continued to urge the shareholders to buy and hold until, of course, it was too late. By the time sell ratings became ubiquitous on Lucent, it was too late.
The interesting thing about Countrywide is that it has the makings of an Enron but also has a strong resemblence to Lucent, all before each respective company's downfall from grace. Therefore, I can only deduce that the fallout from Countrywide can only be uglier than either Enron or Lucent. I do not believe that anyone remotely related to the mortgage or housing industry will be found to be clean years from now, when the dust settles. Sadly, once again, it will the retail investors who will be left holding the bag, and the news media who once extolled the virtues of this once great company, will be pointing fingers as if a pulitzer worthy journalistic event has occurred. Oh the hypocrisy.
Democrats in the House and the Senate who are already harping on excessive CEO packages should think twice and possibly consider just concentrating on Countrywide. Not only is this company paying excessively to its CEO, every bit of their insiders are making out quite nicely. $19.3 million for a COO? Give me a break. It should be a nice spot light on these politicians who can kill two birds with one stone. That is to expose the fraud that Countrywide potentially represents but also an opportunity to condemn the excessive greed that permeates this company.
GDP and Unemployment Claims
GDP rose to 2.5% from the forecast of 2.2% and the Unemployment Claims declined 10,000 from forecasted rise of 4,000. My take on this number is that it is essentially a compilation of old stale data. But judging by the way the market is reacting to this number, it shows that the market is willing to take any data that contradicts a Recession scenario. But if you heed what Ben Bernake said yesterday in front of Congress, you will note that these numbers are highly inflationary and does not bode well for rate cuts in the near term. Once the market digests this number you will see continued weakness in the market. These numbers essentially are a non event, nothing really exciting. Let's see how much the markets can advance today which should put us into the overbought territory rather quickly again, setting us up for another leg down.
Inflationary pressure is what is important and these data suggest that further pressures from inflation remains. Oil is up above $64 at the moment and the Iran tension is no where near resolution and can in fact escalate at the moment.
CFC is upgraded by Morningstar once again as a strong buy. They are anticipating a 20% rise in profits. Based on what metrics, I have no idea. But if you take the cues from the home builders and the data suggestive of contraction in this market, you can pretty much bet that Morningstar is off base again and analyst upgrades at this point is a contrarian indicator. Housing bubble has been pricked and there is no stopping it now. Again, I believe Morningstar's criteria is a bit archaic and relies heavily on PE and PEG / PS ratios and does not take into account the rising debt to equity ratio. Thus if you are a value investor, you must heed the red flag of high debt to equity ratio of above 7. That will give you an idea of the unsustainable price of CFC stock price.
Inflationary pressure is what is important and these data suggest that further pressures from inflation remains. Oil is up above $64 at the moment and the Iran tension is no where near resolution and can in fact escalate at the moment.
CFC is upgraded by Morningstar once again as a strong buy. They are anticipating a 20% rise in profits. Based on what metrics, I have no idea. But if you take the cues from the home builders and the data suggestive of contraction in this market, you can pretty much bet that Morningstar is off base again and analyst upgrades at this point is a contrarian indicator. Housing bubble has been pricked and there is no stopping it now. Again, I believe Morningstar's criteria is a bit archaic and relies heavily on PE and PEG / PS ratios and does not take into account the rising debt to equity ratio. Thus if you are a value investor, you must heed the red flag of high debt to equity ratio of above 7. That will give you an idea of the unsustainable price of CFC stock price.
Wednesday, March 28, 2007
Full Spectrum Lending by Countrywide
So, Mozilo told Jimmy Cramer the other day that Countrywide got out of the risky subprime business year ago and that their subprime portfolio wasn't that risky.
Well, Countrywide hides behind another company called "Full Spectrum Lending". This is a Countrywide company, artfully disguised as a separate entity to make home loans to customers with bad credit.
Another blatant lies that Countrywide is hiding behind.
http://fullspectrumlending.com
What does this tell you? Countrywide is not one of the largest originators of subprime loans for nothing.
Well, Countrywide hides behind another company called "Full Spectrum Lending". This is a Countrywide company, artfully disguised as a separate entity to make home loans to customers with bad credit.
Another blatant lies that Countrywide is hiding behind.
http://fullspectrumlending.com
What does this tell you? Countrywide is not one of the largest originators of subprime loans for nothing.
On Today's Testimony by Uncle Ben and All Things Countrywide
Am I obsessed with Countrywide or what? In what may quite possibly be the most sensational corporate story of our time, rivaling Enron, well not quite, I don't think anything can top Enron. But pretty close. More on that later.
I have been harping on the fact that Ben Bernake has become too dovish lately. I questioned whether or not he was too politically motivated to do the economy good. Ben Bernake is a respected academic who has authoried many of the text books that are being read by many of the would be future MBA and corporate leaders. Naturally, I thought that Ben Bernake's first allegiance isn't to George Bush, Wall Street, but to the economic forces governing our country and the world. That force is the subject of inflation and monetary fiscal policies. When Ben Bernake began to be known amongst the main stream media (and those of you who have been reading this blog know how I feel about them) as the "soothing" Ben or "Gentle" Ben or worse Ben "Dove" er. I made that last part up, but I couldn't resist. Today's congressional testimony today by Ben Bernake has eased some of my concerns.
Now I know that Ben Bernake is not only a great academic but is soundly dedicated to the chief job position of a Federal Reserve Chief. That is to fight inflation and to shepard this country's great economy into the next phase of economic expansion. That was abundantly clear in his tone and delivery. Nothing could be mistaken or construed as anything else. Now, I have been saying for a while that hope is a dangerous thing and that the most recent rally was founded on that irrational hope- the hope for a rate cut in May. Bernake knows full too well the tough challenges that he inherited from Alan Greenspan. "Easy Al" has created two devastating bubbles in his wake, and I do feel bad for Ben for the compromises that he must make to renavigate through the mess that Mr. Greenspan has created. It won't be easy. Ben has the choice of sustaining the go go days of the stock market, as Mr. Greenspan has done while at the helm, or face the tough decisions to fight inflation. Inflation has the effect of continued devaluation of the US currency to the European and Asian currencies. To the extent that devaluation can have devastating consequences to US currency, our future economic growth depends on keeping our currency the global standard. Because the American manufacturing segment has been on the decline for well over 20 years, it is even more important to protect our currency value. If we continue to devalue our currency it will have the net effect of undermining our economy because we are increasingly dependent on emerging markets for our manufactured goods, raw materials, and consumer goods. No one ever mentions about this important consequence of US dollar devaluation.
Inflation is an economy killer and it must be realized that it is not relegated to just devaluation of the dollar. Inflation will have the net effect of diluting the American middle class. Middle class has acted as a buffer between the have's and the have nots of our economy. It is not surprising that the American middle class has been on the decline since the early 1990's. If you disagree with me, just look around you, even in some affluent communities, and you will see people in the fringes that are barely squeaking by despite making honest respectable wages. Why is this true and if true, how did it get this way?
Well, I could probably blame most of this issue with three things. One is that we live in an increasingly litigious society. Second is the artificial fiscal stimulus presented by the FED from 2000 to present. The third is the housing bubble. I knew I would somehow wind to the housing issue. Litigious society has the effect of creating the "lottery" mentality by its citizens. It could be suing your doctor, suing the grocery store for a slip and fall accident, or suing anything that exists in the commercial community that has any monetary value for stupidity. Just think about that McDonald's law suit over hot coffee. Need I say more? What has this done? It has had the net effect of raising health costs because health care providers and institutions are too busy protecting themselves from being a litigious target. It has had the net effect of rising disclosures and safeguards to prevent law suits for situations that are common sensical and avoided by anyone with an IQ slightly higher than a Chimpanzee. The ability to sue for just about anything has made the cost of doing business in the american commerce that much more expensive. Just look at any of the message boards for stocks, for example, Countrwide message board at Yahoo, there is more often than not chatter of class action law suits. You don't think that drives up prices? Who benefits? Not the middle class, in fact, the only people that really stand to benefit are the attornies and allied court industries. But it does have the net effect of raising prices for everyone on everything. I believe that this very effect has contributed much to destroying the American middle class. Law stands to protect, not inflate, but that is exactly what has happened.
The cause of inflation then has the net effect of the degradation of the moral fiber of the individual citizens. From the elite all the way to the vagrant on the street. And this is the effect that must be fought. Indirectly, the FED is responsible for containing inflation, and that alone must be the prime modus operandi for the FED. With runaway inflation over the past 10 years, I am sure you can see many scandals that took place in the government, in corporate environment, and even amongst your local communities. Inflation has that effect. It is slow, gradual, and certain. Thus fighting inflation is noble.
Now, Countrywide has benefited from and contributed to the very mechanism of inflation. By pushing increasingly large number of mortgage loans from subprime to prime Alt A loans, they have contributed to the very economic crisis that we face today. Unlike Ben Bernake, who is still on the fence about the effect of subprime crisis on the general economy, I see further expansion into mainstream life and commerce. Countrywide likes to play the guardian of the American dream. But all they have done was to create false hopes, dreams, and INFLATION. They have pushed millions of loans on Americans any way they can. They have partnered with various homebuilders both directly (KB Homes) and indirectly (buying loan packages from lender's gimimicky finance packages). They further fueled this inflation inferno by becoming the second largest subprime originator within the past 3 months. Yet they say that they are not at fault, and that they stopped doing "risky" subprime loans. Mr. Mozilo, I am sorry, but all subprime are risky. If you include the ALT-A option ARMS and negative amortizing loans or 50 year amortizing loans, you have single handedly created yourselves to be the riskiest lenders. Countrywide can hide behind their good name. But there is an old saying that the upstream river must be clean in order for the downstream river to be clean. Countrywide has gone on an impressive PR campaign of trying to distance themselves from the subprime fungus (Doug Kass). Yet, all roads will lead to the biggest mortgage lender in the United States. As I see that every argument of Mr. Mozilo's on why Countrywide will be stronger turn against him, so I am patiently waiting for the very act of inflationary pressure creation eventually back fire against him.
Lest anyone forgot to see that the insiders sold more today even as the stock price continued on a downward spiral, despite continued affirmations by their analyst buddies and Jim Cramer. Yes, one of the main culprit of inflation is Countrywide. They have created this inflation mess and Ben Bernake must find a way to clean it up. One way I see out of this mess is to garner short term extreme pain and raise the interest rate to flush out excess subprime, prime, and mortgage excess and clean the slate blank, so that inflation will deflate, and the good citizens of the United States can once again learn the virtues of hardwork, community, and integrity.
Ben Bernake has won my confidence for now. But he must go further and make tough choices. He is not in this position as a Fed chief to make friends, to become a celebrity (like "Easy Al"), or become a political power house. His job is more important than that. He has the chance to make American economy whole again and bring back the value of American dream and hard work. Inflation is the fungus that kills. And it must be fought.
I will continue to see Countrywide unravel. I think this may end up being the most sensational story of our generation, yes, possibly beating out Enron.
I have been harping on the fact that Ben Bernake has become too dovish lately. I questioned whether or not he was too politically motivated to do the economy good. Ben Bernake is a respected academic who has authoried many of the text books that are being read by many of the would be future MBA and corporate leaders. Naturally, I thought that Ben Bernake's first allegiance isn't to George Bush, Wall Street, but to the economic forces governing our country and the world. That force is the subject of inflation and monetary fiscal policies. When Ben Bernake began to be known amongst the main stream media (and those of you who have been reading this blog know how I feel about them) as the "soothing" Ben or "Gentle" Ben or worse Ben "Dove" er. I made that last part up, but I couldn't resist. Today's congressional testimony today by Ben Bernake has eased some of my concerns.
Now I know that Ben Bernake is not only a great academic but is soundly dedicated to the chief job position of a Federal Reserve Chief. That is to fight inflation and to shepard this country's great economy into the next phase of economic expansion. That was abundantly clear in his tone and delivery. Nothing could be mistaken or construed as anything else. Now, I have been saying for a while that hope is a dangerous thing and that the most recent rally was founded on that irrational hope- the hope for a rate cut in May. Bernake knows full too well the tough challenges that he inherited from Alan Greenspan. "Easy Al" has created two devastating bubbles in his wake, and I do feel bad for Ben for the compromises that he must make to renavigate through the mess that Mr. Greenspan has created. It won't be easy. Ben has the choice of sustaining the go go days of the stock market, as Mr. Greenspan has done while at the helm, or face the tough decisions to fight inflation. Inflation has the effect of continued devaluation of the US currency to the European and Asian currencies. To the extent that devaluation can have devastating consequences to US currency, our future economic growth depends on keeping our currency the global standard. Because the American manufacturing segment has been on the decline for well over 20 years, it is even more important to protect our currency value. If we continue to devalue our currency it will have the net effect of undermining our economy because we are increasingly dependent on emerging markets for our manufactured goods, raw materials, and consumer goods. No one ever mentions about this important consequence of US dollar devaluation.
Inflation is an economy killer and it must be realized that it is not relegated to just devaluation of the dollar. Inflation will have the net effect of diluting the American middle class. Middle class has acted as a buffer between the have's and the have nots of our economy. It is not surprising that the American middle class has been on the decline since the early 1990's. If you disagree with me, just look around you, even in some affluent communities, and you will see people in the fringes that are barely squeaking by despite making honest respectable wages. Why is this true and if true, how did it get this way?
Well, I could probably blame most of this issue with three things. One is that we live in an increasingly litigious society. Second is the artificial fiscal stimulus presented by the FED from 2000 to present. The third is the housing bubble. I knew I would somehow wind to the housing issue. Litigious society has the effect of creating the "lottery" mentality by its citizens. It could be suing your doctor, suing the grocery store for a slip and fall accident, or suing anything that exists in the commercial community that has any monetary value for stupidity. Just think about that McDonald's law suit over hot coffee. Need I say more? What has this done? It has had the net effect of raising health costs because health care providers and institutions are too busy protecting themselves from being a litigious target. It has had the net effect of rising disclosures and safeguards to prevent law suits for situations that are common sensical and avoided by anyone with an IQ slightly higher than a Chimpanzee. The ability to sue for just about anything has made the cost of doing business in the american commerce that much more expensive. Just look at any of the message boards for stocks, for example, Countrwide message board at Yahoo, there is more often than not chatter of class action law suits. You don't think that drives up prices? Who benefits? Not the middle class, in fact, the only people that really stand to benefit are the attornies and allied court industries. But it does have the net effect of raising prices for everyone on everything. I believe that this very effect has contributed much to destroying the American middle class. Law stands to protect, not inflate, but that is exactly what has happened.
The cause of inflation then has the net effect of the degradation of the moral fiber of the individual citizens. From the elite all the way to the vagrant on the street. And this is the effect that must be fought. Indirectly, the FED is responsible for containing inflation, and that alone must be the prime modus operandi for the FED. With runaway inflation over the past 10 years, I am sure you can see many scandals that took place in the government, in corporate environment, and even amongst your local communities. Inflation has that effect. It is slow, gradual, and certain. Thus fighting inflation is noble.
Now, Countrywide has benefited from and contributed to the very mechanism of inflation. By pushing increasingly large number of mortgage loans from subprime to prime Alt A loans, they have contributed to the very economic crisis that we face today. Unlike Ben Bernake, who is still on the fence about the effect of subprime crisis on the general economy, I see further expansion into mainstream life and commerce. Countrywide likes to play the guardian of the American dream. But all they have done was to create false hopes, dreams, and INFLATION. They have pushed millions of loans on Americans any way they can. They have partnered with various homebuilders both directly (KB Homes) and indirectly (buying loan packages from lender's gimimicky finance packages). They further fueled this inflation inferno by becoming the second largest subprime originator within the past 3 months. Yet they say that they are not at fault, and that they stopped doing "risky" subprime loans. Mr. Mozilo, I am sorry, but all subprime are risky. If you include the ALT-A option ARMS and negative amortizing loans or 50 year amortizing loans, you have single handedly created yourselves to be the riskiest lenders. Countrywide can hide behind their good name. But there is an old saying that the upstream river must be clean in order for the downstream river to be clean. Countrywide has gone on an impressive PR campaign of trying to distance themselves from the subprime fungus (Doug Kass). Yet, all roads will lead to the biggest mortgage lender in the United States. As I see that every argument of Mr. Mozilo's on why Countrywide will be stronger turn against him, so I am patiently waiting for the very act of inflationary pressure creation eventually back fire against him.
Lest anyone forgot to see that the insiders sold more today even as the stock price continued on a downward spiral, despite continued affirmations by their analyst buddies and Jim Cramer. Yes, one of the main culprit of inflation is Countrywide. They have created this inflation mess and Ben Bernake must find a way to clean it up. One way I see out of this mess is to garner short term extreme pain and raise the interest rate to flush out excess subprime, prime, and mortgage excess and clean the slate blank, so that inflation will deflate, and the good citizens of the United States can once again learn the virtues of hardwork, community, and integrity.
Ben Bernake has won my confidence for now. But he must go further and make tough choices. He is not in this position as a Fed chief to make friends, to become a celebrity (like "Easy Al"), or become a political power house. His job is more important than that. He has the chance to make American economy whole again and bring back the value of American dream and hard work. Inflation is the fungus that kills. And it must be fought.
I will continue to see Countrywide unravel. I think this may end up being the most sensational story of our generation, yes, possibly beating out Enron.
Tuesday, March 27, 2007
Mad Mad Day at the Market
Wow! What a hectic day! The day started out negative and stayed that way, seemingly gaining more and more bad news as the day wore on. It is no surprise that consumer confidence has dropped so dramatically. While this is not the most foreward looking or accurate indicator, when taken as a whole can provide some direction into where the economy stands. I usually do not put much credence to this report unless I was involved with retail stocks but as such it has an important undertone for the current market.
The hype and hope of the rate cut continues. I must warn those that are thinking of going long (I contemplated that yesterday on my blog), you must think about what this recent market rally is predicated on. It is mostly built on hope of a Fed cut sooner than later. It is built on hype from the mainstream media who continues to ignore the danger signs of the economy and geopolitical events and continues to mislead the investment community. There is not one bit of objective reporting save a few groups of people. I think Herb Greenberg's articles and blogs are excellent and "Rev Shark" on thestreet.com to be objective and usually point on. Besides those, you can count on IBD to provide some insight into the technical aspects of the major index action. I usually resort to blogs for my information and there are a lot of good blogs to find good alternative view points in the market. I won't go into those but I think I have highlighted some that I like in my prior blogs and responses.
Now all of a sudden, the market does not look so rosy in one day! That is how quickly the market sentiment can turn while you're in a bear market. I don't care if others characterize this as a new rally (IBD says it is in confirmed rally phase). I know that this mini-rally is within a bear market context which began back in 2/27/2007 and the technical damage to the market is irreversible and some heavy lifting must be done to build up the legitimate support level. I do not think we are there yet. I really think that a strong discipline and strong adherence to the market behavior is needed to survive. Or better yet, staying in cash and earning 5% in money market isn't the worst thing right now. I usually like to trade when the market is in a confirmed uptrend. But the fundamentals of this market is in such shambles, I am going short mostly on my trades.
On Mad Money, Jim Cramer was at his old self. I hate to harp on him so much but he makes my blood boil with his mindless rants and nonsensical projections that has a lot of people losing money right now. I admit it. I used to watch his shows. I even bought some of his books way back when. But lately, he has really become dangerous. He ceased to be entertaining. Today, he continues to extol the virtues of his interview with Angelo Mozilo of Countrywide. He points out that Mozilo made a good call about fraud within the home building and mortgage industry. Of course, he was referring to the Beazer Homes (BZH) investigation by FBI for broad fraudulent mortgage activities. One thing he fails to realize is that the company that he puts in such high pedistal is also probably not the cleanest company around. Here is why:
On their recent 10K Annual Report, Countrywide states:
"As our portfolio of investment loans has grown, our portfolio credit risk has also grown. Our allowance for credit losses was $269.2 million at December 31, 2006, an increase of 36% from December 31, 2005. The increase in our allowance for loan losses reflects prevailing real estate market and economic conditions and the seasoning of the Bank's investment loan portfolio. We expect the allowance for loan losses to increase, both in absolute terms and as a percentage of our loan portfolio as our loan portfolio continues to season and as current market conditions develop. However, we believe that our investment criteria have provided us with a high quality investment portfolio and that our credit losses should stay within acceptable levels. We also believe our allowances and provisions for credit losses are adequate pursuant to generally accepted accounting principles."
- I interprete this as saying that they have increased 36% the allowances for credit losses but anticipate that to continue to rise. But they then go on and say that they believe that the investment criteria for their loan investment portfolio is within acceptable levels. What? I don't know what that means but it certainly looks like they are saying that their loan investment portfolio may change based on changes in losses that they anticipate going forward.
- I would relate this issue with the fact that recent exposure of CDO's that are bundled with prime and non prime loans actually consists of 46% of subprime lower grade securitized loans that are sold in Wall Street. Also, we know the number of CDO's currently in Countrywide's portfolio as well.
-We know that Moodys is now pushing for re-rating of these securitized mortgage investments and we can expect lower grading from them at any time.
-thus we know that their position on the allowance for credit loss is misrepresented in the 10K.
Then there is the phantom buy backs, from 10K:
"As part of our ongoing capital optimization plan, our Board of Directors authorized a share repurchase program of up to $2.5 billion. In connection with this program, we repurchased $1.5 billion of our common stock in November 2006 and financed this activity through the issuance of junior subordinated debentures. The transaction is subject to a market price adjustment payment based on the actual volume-weighted average price of our common stock during the repurchase period. The price adjustment payment will be settled, at our election, in our common stock or cash. The final settlement is expected to occur in the second quarter of 2007."
-so we know that the buy backs are on further debt.
-prices are settled on CFC election. This is alarming because there is room for adjustment based on their view of what is the appropriate stock price for purchase. This means that they give themselves room to fudge their stock prices. This is dangerous because they can affect share prices based on their "repurchase" levels. Perhaps to prop up the share prices while the insiders sell?
Back to today's futher exposure of mortgage and housing ailments. Since Countrywide was a predominant mortgage lender associated with New Home Builders, their business was highly levered to the home builders. When new homes were built, Countrywide made strategic alliances to either buy the home builder's special financing loans or to provide financing on their behalf. In fact, the 10K shows that such alliance has increased their market dominance. So now, as the home builders are coming clean that the bottom is not yet here and that substantial slowing and losses are to follow. Additionally, Lennar today stated that subprime has affected their business adversely and significantly, quite a different tune from what the main stream media was saying. So why isn't Countrywide coming out clean and continue to point fingers and deny that they have any wrong doing in this process and that they are the only "good guys" in this business? I find that fishy.
The problems with the housing and mortgage industry is not yet done. It is just beginning. I think that there will be continued scrutiny by SEC and FBI for fraud.
With rumors running high today regarding increasing tension in Iran and Britain, the oil showed just how volatile this market can get by rising $5 on nonsubstantiated rumors. The oil is headed higher continuing to stoke higher inflation issues and slowing US growth. I don't know how this will play out but if the US and Britain resort to military options in this region, it will devastate already weak diplomatic relations in this area and continue to destabiliz the Middle East in the form of even higher oil prices.
For the cutting of interest folks, perhaps Ben Bernake will soothe the market. But remember that Bernake's job isn't to soothe the investors who are too overly bullish and complacent. Instead, he needs to act in accord with the fiduciary obligations of a FED Chief and that is to garner a safe and sound US economy and fiscal policies. If he cuts interest rates to save the housing market and to avert a recession, there is a high chance that we will be mired in a Staglfation that plagued the US economy in the 1970's. Bernake has the choice of mortgaging our future (no pun intended) or stay vigilant and continue fighting inflation. Higher interest rate is far better than stagflation and some greedy mortgage lending companies and greedy home owners from being saved. Frankly, I don't think even interest rate cuts will save that.
The hype and hope of the rate cut continues. I must warn those that are thinking of going long (I contemplated that yesterday on my blog), you must think about what this recent market rally is predicated on. It is mostly built on hope of a Fed cut sooner than later. It is built on hype from the mainstream media who continues to ignore the danger signs of the economy and geopolitical events and continues to mislead the investment community. There is not one bit of objective reporting save a few groups of people. I think Herb Greenberg's articles and blogs are excellent and "Rev Shark" on thestreet.com to be objective and usually point on. Besides those, you can count on IBD to provide some insight into the technical aspects of the major index action. I usually resort to blogs for my information and there are a lot of good blogs to find good alternative view points in the market. I won't go into those but I think I have highlighted some that I like in my prior blogs and responses.
Now all of a sudden, the market does not look so rosy in one day! That is how quickly the market sentiment can turn while you're in a bear market. I don't care if others characterize this as a new rally (IBD says it is in confirmed rally phase). I know that this mini-rally is within a bear market context which began back in 2/27/2007 and the technical damage to the market is irreversible and some heavy lifting must be done to build up the legitimate support level. I do not think we are there yet. I really think that a strong discipline and strong adherence to the market behavior is needed to survive. Or better yet, staying in cash and earning 5% in money market isn't the worst thing right now. I usually like to trade when the market is in a confirmed uptrend. But the fundamentals of this market is in such shambles, I am going short mostly on my trades.
On Mad Money, Jim Cramer was at his old self. I hate to harp on him so much but he makes my blood boil with his mindless rants and nonsensical projections that has a lot of people losing money right now. I admit it. I used to watch his shows. I even bought some of his books way back when. But lately, he has really become dangerous. He ceased to be entertaining. Today, he continues to extol the virtues of his interview with Angelo Mozilo of Countrywide. He points out that Mozilo made a good call about fraud within the home building and mortgage industry. Of course, he was referring to the Beazer Homes (BZH) investigation by FBI for broad fraudulent mortgage activities. One thing he fails to realize is that the company that he puts in such high pedistal is also probably not the cleanest company around. Here is why:
On their recent 10K Annual Report, Countrywide states:
"As our portfolio of investment loans has grown, our portfolio credit risk has also grown. Our allowance for credit losses was $269.2 million at December 31, 2006, an increase of 36% from December 31, 2005. The increase in our allowance for loan losses reflects prevailing real estate market and economic conditions and the seasoning of the Bank's investment loan portfolio. We expect the allowance for loan losses to increase, both in absolute terms and as a percentage of our loan portfolio as our loan portfolio continues to season and as current market conditions develop. However, we believe that our investment criteria have provided us with a high quality investment portfolio and that our credit losses should stay within acceptable levels. We also believe our allowances and provisions for credit losses are adequate pursuant to generally accepted accounting principles."
- I interprete this as saying that they have increased 36% the allowances for credit losses but anticipate that to continue to rise. But they then go on and say that they believe that the investment criteria for their loan investment portfolio is within acceptable levels. What? I don't know what that means but it certainly looks like they are saying that their loan investment portfolio may change based on changes in losses that they anticipate going forward.
- I would relate this issue with the fact that recent exposure of CDO's that are bundled with prime and non prime loans actually consists of 46% of subprime lower grade securitized loans that are sold in Wall Street. Also, we know the number of CDO's currently in Countrywide's portfolio as well.
-We know that Moodys is now pushing for re-rating of these securitized mortgage investments and we can expect lower grading from them at any time.
-thus we know that their position on the allowance for credit loss is misrepresented in the 10K.
Then there is the phantom buy backs, from 10K:
"As part of our ongoing capital optimization plan, our Board of Directors authorized a share repurchase program of up to $2.5 billion. In connection with this program, we repurchased $1.5 billion of our common stock in November 2006 and financed this activity through the issuance of junior subordinated debentures. The transaction is subject to a market price adjustment payment based on the actual volume-weighted average price of our common stock during the repurchase period. The price adjustment payment will be settled, at our election, in our common stock or cash. The final settlement is expected to occur in the second quarter of 2007."
-so we know that the buy backs are on further debt.
-prices are settled on CFC election. This is alarming because there is room for adjustment based on their view of what is the appropriate stock price for purchase. This means that they give themselves room to fudge their stock prices. This is dangerous because they can affect share prices based on their "repurchase" levels. Perhaps to prop up the share prices while the insiders sell?
Back to today's futher exposure of mortgage and housing ailments. Since Countrywide was a predominant mortgage lender associated with New Home Builders, their business was highly levered to the home builders. When new homes were built, Countrywide made strategic alliances to either buy the home builder's special financing loans or to provide financing on their behalf. In fact, the 10K shows that such alliance has increased their market dominance. So now, as the home builders are coming clean that the bottom is not yet here and that substantial slowing and losses are to follow. Additionally, Lennar today stated that subprime has affected their business adversely and significantly, quite a different tune from what the main stream media was saying. So why isn't Countrywide coming out clean and continue to point fingers and deny that they have any wrong doing in this process and that they are the only "good guys" in this business? I find that fishy.
The problems with the housing and mortgage industry is not yet done. It is just beginning. I think that there will be continued scrutiny by SEC and FBI for fraud.
With rumors running high today regarding increasing tension in Iran and Britain, the oil showed just how volatile this market can get by rising $5 on nonsubstantiated rumors. The oil is headed higher continuing to stoke higher inflation issues and slowing US growth. I don't know how this will play out but if the US and Britain resort to military options in this region, it will devastate already weak diplomatic relations in this area and continue to destabiliz the Middle East in the form of even higher oil prices.
For the cutting of interest folks, perhaps Ben Bernake will soothe the market. But remember that Bernake's job isn't to soothe the investors who are too overly bullish and complacent. Instead, he needs to act in accord with the fiduciary obligations of a FED Chief and that is to garner a safe and sound US economy and fiscal policies. If he cuts interest rates to save the housing market and to avert a recession, there is a high chance that we will be mired in a Staglfation that plagued the US economy in the 1970's. Bernake has the choice of mortgaging our future (no pun intended) or stay vigilant and continue fighting inflation. Higher interest rate is far better than stagflation and some greedy mortgage lending companies and greedy home owners from being saved. Frankly, I don't think even interest rate cuts will save that.
Why Did Countrywide Get Hammered Today?
I see that recurrent post on Yahoo message board. The simplest way to explain this event today, which declined more than 3% on heavy volume, is to put into light that Countrywide is heavily dependent on home builders for many of their subprime and prime Alt-A loans. The Lennar earnings today, and the honest assessment by their CEO shows that subprime IS spreading to other parts of the economy. While spring is considered a "buying" season for new and used homes, it is clear that demand for housing has dried up and will only get worse. Countrywide's leverage to the new home market will also mean that they will have to come clean about their prospects. The CEO has been on a major campaign to prop up this stock while pointing fingers at other subprime lenders. The efforts by Mr. Mozilo to separate Countrywide from subprime was one big propaganda to prop up his company's shares while he is selling hand over fist.
I say, please Mr.Mozilo, before it gets really out of hand, come clean. I sense a scandle brewing here.
I say, please Mr.Mozilo, before it gets really out of hand, come clean. I sense a scandle brewing here.
Monday, March 26, 2007
Bullish Reversal Today
All indices today reversed on higher volume from its lows and erased most of the losses. Technically, this would continue to show strength in the markets as buyers are stepping up to buy the lows. Continued strength of this kind cannot be ignored and bears watching. It is always prudent to not argue with the markets as trend is "your friend".
As posted yesterday, LHCG has made a nice move today and has broken through the resistance. It offers a good buying opportunity right now. The other stock that bears watching on the long side is Under Armor (UA) and Crocs (CROX).
I am being cautious about my short positions in CFC. If the market continues to rally and show strength, I will take my shorts off the table and continue to watch for a better entry point. There is no sense in taking more losses than necessary. Remember, trader's biggest asset is his capital and it is the most important part of any trader.
Having said that, CFC continues to stand up strong despite deluge of news showing that subprime markets are unraveling. The new home sales numbers were as what I expected and continues to show weakness. I do not know what the next leg's catalyst will be, but if this strength continues, I will have to rethink maintaining a position in CFC. I do believe that CFC will go down. However, I will need to watch this closely.
As posted yesterday, LHCG has made a nice move today and has broken through the resistance. It offers a good buying opportunity right now. The other stock that bears watching on the long side is Under Armor (UA) and Crocs (CROX).
I am being cautious about my short positions in CFC. If the market continues to rally and show strength, I will take my shorts off the table and continue to watch for a better entry point. There is no sense in taking more losses than necessary. Remember, trader's biggest asset is his capital and it is the most important part of any trader.
Having said that, CFC continues to stand up strong despite deluge of news showing that subprime markets are unraveling. The new home sales numbers were as what I expected and continues to show weakness. I do not know what the next leg's catalyst will be, but if this strength continues, I will have to rethink maintaining a position in CFC. I do believe that CFC will go down. However, I will need to watch this closely.
Tip of the Ice Berg for Housing and Lenders
Today's numbers on New Housing affirms that the existing housing probably borrowed the New Housing figures to pad up the numbers. In addition, I do not believe that Association of Realtors are reporting accurate facts and are painting a rosier picture of the state of the mortgage and housing industry. Why would they? The Association of Realtors do not have a vested interest in reporting the accurate truth. So now the media is jumping on the band wagon stating that the New Housing numbers are bleak. What needs to also be considered is that the commercial lending to builders will also start seeing deliquencies. WSJ article today states that there has been a rise of late payments from 30 to 90 days and the dillinquent figures have gone up dramatically. I do not think anyone is really paying attention to this fact. But facts are facts and this can only add to the continued woes that these industry now face.
Oh by the way, did you see that Angelo Mozilo sold another 46,000 shares on 3/23/2007?
Oh by the way, did you see that Angelo Mozilo sold another 46,000 shares on 3/23/2007?
Sunday, March 25, 2007
Update on My Stock Picks
I haven't had much time to devote on my stock picks and how they are faring. I have been so consumed by Countrywide (CFC) and the current economic issues, that I might as well rename my blog (just kidding). I also want to clear up my blog name. No it is not a spelling mistake. I combined "irreversible" and "rant" together to arrive at IrreveRant Stock List. So I hope that clears up some confusion.
As far as my positions go, I covered my BIDU short at $94 due to increasing strength. As soon as BIDU breaks $100 again, it would be a good short and if it tests the 200 EDMA again, that would be a good indication that the stock wants to trend lower. If this market is just a "dead cat bounce", which I think it is, then that should take place in the near future. My thinking is that the new resistance will be at $105. If it fails to break above that level, I would look into shorting or buying longer term puts (3months or more).
Apple (AAPL) has tremendous momentum and has actually held up well during the down trend. I would look to continue to avoid short positions on Apple until further issues on SEC investigation is more clear. I would ride to the long side and then plan on getting out at $97 level, which should be the resistance level.
I am extremely bullish on LHCG which is provider of home health care for wound care, nursing care, and other necessary home health related issues. Being involved in the medical field myself, I know that just about the only favorable reimbursement rate that exists in the field of medicine is home health care. This is a lucrative business as many of my colleagues have delved into this venture with much success. LHCG will continue to grow via acquisitions and taking out smaller players in the Southern states and possibly planning expansion into other regions. Growth by acquisition in this space makes sense because they can dictate pricing terms with medicare and secondary insurance providers on favorable reimubrsement schedules. Why? Because institutionalized long term health care costs more than having home health care visits and demographically, more people in the future will opt for this type of care in the future. Until more players jump into this arena for this rather untapped market, more growth will continue. I project 12 month price for this company to be $75 or higher. So I am building long term position in this company. I currently have no position but the technicals look promising and this stock has held up rather well for a small cap stock during the last down phase. I would wait until we can confirm with certainty if this uptrend is for real before starting a position. But I do not foresee a price below $25 if we enter the next leg down, at which time, it would be a buy for me. So I am patiently waiting.
Most of my position is centered around the April and July $35 puts. I think once CFC gathers steam and the market finally succumbs to reality, we should see a quick $5 to $15 point drop.
Good luck.
As far as my positions go, I covered my BIDU short at $94 due to increasing strength. As soon as BIDU breaks $100 again, it would be a good short and if it tests the 200 EDMA again, that would be a good indication that the stock wants to trend lower. If this market is just a "dead cat bounce", which I think it is, then that should take place in the near future. My thinking is that the new resistance will be at $105. If it fails to break above that level, I would look into shorting or buying longer term puts (3months or more).
Apple (AAPL) has tremendous momentum and has actually held up well during the down trend. I would look to continue to avoid short positions on Apple until further issues on SEC investigation is more clear. I would ride to the long side and then plan on getting out at $97 level, which should be the resistance level.
I am extremely bullish on LHCG which is provider of home health care for wound care, nursing care, and other necessary home health related issues. Being involved in the medical field myself, I know that just about the only favorable reimbursement rate that exists in the field of medicine is home health care. This is a lucrative business as many of my colleagues have delved into this venture with much success. LHCG will continue to grow via acquisitions and taking out smaller players in the Southern states and possibly planning expansion into other regions. Growth by acquisition in this space makes sense because they can dictate pricing terms with medicare and secondary insurance providers on favorable reimubrsement schedules. Why? Because institutionalized long term health care costs more than having home health care visits and demographically, more people in the future will opt for this type of care in the future. Until more players jump into this arena for this rather untapped market, more growth will continue. I project 12 month price for this company to be $75 or higher. So I am building long term position in this company. I currently have no position but the technicals look promising and this stock has held up rather well for a small cap stock during the last down phase. I would wait until we can confirm with certainty if this uptrend is for real before starting a position. But I do not foresee a price below $25 if we enter the next leg down, at which time, it would be a buy for me. So I am patiently waiting.
Most of my position is centered around the April and July $35 puts. I think once CFC gathers steam and the market finally succumbs to reality, we should see a quick $5 to $15 point drop.
Good luck.
Markets Behavior
I am musing about the market behavior. Truly, it is the market that continues to confound and frustrate traders both long and short alike. If it were as easy as doing good due dilligence, finding good technical set up, and assessing market trend, everyone would be billionaires by now. One point to remember in Wall Street is that it is highly manipulated. In many instances, markets act in direct inverse correlation to mass psychology. It has been repeated over and over throughout the history of Wall Street. The insiders and the investment banking institutions always win while the smaller retail investors are usually left holding the bag. How can this be? Don't we have an efficient market system in place? Well, not really. It is because of this inefficient market theory in the short term, many traders lose their shirts. With the advent of the internet, financial media, and easier access to stocks in the form of lowered commissions and better access to information, volatility has increased but also manipulative issues also have increased. If you doubt me, just read Cramer's confessional on his recent Thestreet.com video where he goes too far and exposes how the hedge funds aim to milk and destroy the general investment community by creating a false facade of what is actually happening. Everyone knows it and everyone including the SEC just shrug their shoulders at this issue. This is not at all a bad thing in a sense that if you realize that this is happening and accept this as truth, then it is much easier to trade on the side of "strength", "setups", and "propaganda".
The one thing that is the dagger in most trader's quest for profit is the "emotions". Psychology can be a dangerous thing. Perception is even more deadly. I can't quote this but some research while back have shown that patients with frontal lobotomies usually do better in the stock markets. This may have some truth behind it. This is because it diminishes the "impulse" nature or "herd mentality" of human beings. Additionally, being able to separate noise from true facts is very difficult for even the seasoned traders. If anyone has reached trader's Nirvana, it would be probably in an evnironment of mental institutions.
Then it came down to me self examining myself. Is my perception of reality in this market the truth? No. I have failed too many times to be able to state that. Am I being stupid by following my due dilligence and going against what the market is telling me? Perhaps I will lose but I have made more money than I can count when I hunkered down and had faith in myself. That brings into question of self esteem. How much do I believe in what I have gathered to be the truth from the market research? Do the "big boys" know more than me with their access to information or do they have a better grasp of what is being "conjured" as the truth so that the retail investors continue to prop up and do their bidding? These are all philosophical questions that always comes up when the markets confound and frustrate me.
But eventually, the equilibrium must be reached as eventually, the truth will be found. Eventually that truth is in the form of share prices of the stocks that are being focused on. I think the battle that is being waged today on whether our economy is sound versus frail in and of itself is a confounding one. In my opinion, and it is just that, the writing is clear as day that the economy is not healthy. That we should be more prudent in cash right now and see how this plays out. But the market has waged a good come back last week. It is ignoring all the negatives that are getting louder and louder. In concert with the global economy, the markets continue to go up despite the growing concerns in Iraq, Iran, US mortgage bubble/real estate bubble (notice how I separated that?) more on that later. But the issues behind how the major institutions continue to beckon the retail investors to go long baffles me. Is this run sustainable or is the sharp precipitous drop not too far ahead? I don't know. What I do know is that the investment community is again complacent. People are now overly bullish and the sentiment is rising on the bullish side once again. The negativity or the wall of worry is completely ignored. Seemingly that appears to be the case. But there is another issue when you dig deep inside this market's behavior.
We have reached another possible inflection point in the market since 3/14/07 follow through day on the Nasdaq. But investors must remain cautious here and look for further signs of upside. This market is propped up on hope. The hope of a rate cut in May (Cramer), The hope of subprime problem being isolated, the hope of prime Alt-A loan not being an issue, the hope that the housing market has bottomed and the consequences of the housing bubble will somehow magically go away, the hope that our government's quagmire in Iraq and the Middle East will magically go away, the hope that some bubble economies in the emerging markets will not be true. All of these are hope and the market seemingly is going on with the hope. But in the realm of the Wall Street, hope is a fading dream, a facade, and "hope" is a dangerous thing. It clouds the judgment and blinds the investor's eyes with rose colored glasses. I am not sure if any of these "hopes" are real or immaterial to our markets. Perhaps our economy is efficient and is able to absorb these major shocks and will continue to rise. But to me, ultimately, all things invented by humans are ultimately imperfect and we are asking for perfection in this environment.
I do know one thing. The celebratory bullish sentiment pervades this market once again. There are numerous noises that the market doesn't want to hear and they are ignored and even considered non existent. This head in the sand approach to the markets also remains a core problem on why I think we are headed for a precipitous fall in the near future. That is because our market system is flawed and we have not been able to take away from the psychology and deep rooted primitive emotions of human beings. We always at the core are optimists. That is what keeps us alive and strive for a better life. Ultimately, if the market meltdown does come to a pass, we will rememeber this event as a hiccup and within a few years, the investment community will trudge on forward, and completely ignore the next warning. But for now, the bullish sentiment prevails and I wonder if another shoe to drop is lurking not too far behind to prove this current mass psychology to be false, and have the retail investors heading for the hills with the tail between their legs while the investment banking community laughs all the way to the Bank.
Black Rock IPO looms large, and to me this is the confirmation that the end is probably nearer than anyone gives it credit for. In the mean time, I will uncomfortably squirm and watch in disgust as the mortgage debacle takes form, and Mr. Mozilo's artful dodging of the problems inherent within the real estate market continues to have me in awe. Mr. Mozilo is indeed a man to be reckoned with. Because he has the entire investment community wrapped on his fingers and propping up the markets while he continues to sell his majority stakes on the open market while pumping up the shares of his company, Countrywide. I believe in Countrywide- Countrywide loss of dreams, poverty, and broken dreams. Aptly named. So Mr. Mozilo, please continue to sell, but remember when it is all said and done, your wealth came at the destruction of the American dream and ultimatley your share holder dreams.
The one thing that is the dagger in most trader's quest for profit is the "emotions". Psychology can be a dangerous thing. Perception is even more deadly. I can't quote this but some research while back have shown that patients with frontal lobotomies usually do better in the stock markets. This may have some truth behind it. This is because it diminishes the "impulse" nature or "herd mentality" of human beings. Additionally, being able to separate noise from true facts is very difficult for even the seasoned traders. If anyone has reached trader's Nirvana, it would be probably in an evnironment of mental institutions.
Then it came down to me self examining myself. Is my perception of reality in this market the truth? No. I have failed too many times to be able to state that. Am I being stupid by following my due dilligence and going against what the market is telling me? Perhaps I will lose but I have made more money than I can count when I hunkered down and had faith in myself. That brings into question of self esteem. How much do I believe in what I have gathered to be the truth from the market research? Do the "big boys" know more than me with their access to information or do they have a better grasp of what is being "conjured" as the truth so that the retail investors continue to prop up and do their bidding? These are all philosophical questions that always comes up when the markets confound and frustrate me.
But eventually, the equilibrium must be reached as eventually, the truth will be found. Eventually that truth is in the form of share prices of the stocks that are being focused on. I think the battle that is being waged today on whether our economy is sound versus frail in and of itself is a confounding one. In my opinion, and it is just that, the writing is clear as day that the economy is not healthy. That we should be more prudent in cash right now and see how this plays out. But the market has waged a good come back last week. It is ignoring all the negatives that are getting louder and louder. In concert with the global economy, the markets continue to go up despite the growing concerns in Iraq, Iran, US mortgage bubble/real estate bubble (notice how I separated that?) more on that later. But the issues behind how the major institutions continue to beckon the retail investors to go long baffles me. Is this run sustainable or is the sharp precipitous drop not too far ahead? I don't know. What I do know is that the investment community is again complacent. People are now overly bullish and the sentiment is rising on the bullish side once again. The negativity or the wall of worry is completely ignored. Seemingly that appears to be the case. But there is another issue when you dig deep inside this market's behavior.
We have reached another possible inflection point in the market since 3/14/07 follow through day on the Nasdaq. But investors must remain cautious here and look for further signs of upside. This market is propped up on hope. The hope of a rate cut in May (Cramer), The hope of subprime problem being isolated, the hope of prime Alt-A loan not being an issue, the hope that the housing market has bottomed and the consequences of the housing bubble will somehow magically go away, the hope that our government's quagmire in Iraq and the Middle East will magically go away, the hope that some bubble economies in the emerging markets will not be true. All of these are hope and the market seemingly is going on with the hope. But in the realm of the Wall Street, hope is a fading dream, a facade, and "hope" is a dangerous thing. It clouds the judgment and blinds the investor's eyes with rose colored glasses. I am not sure if any of these "hopes" are real or immaterial to our markets. Perhaps our economy is efficient and is able to absorb these major shocks and will continue to rise. But to me, ultimately, all things invented by humans are ultimately imperfect and we are asking for perfection in this environment.
I do know one thing. The celebratory bullish sentiment pervades this market once again. There are numerous noises that the market doesn't want to hear and they are ignored and even considered non existent. This head in the sand approach to the markets also remains a core problem on why I think we are headed for a precipitous fall in the near future. That is because our market system is flawed and we have not been able to take away from the psychology and deep rooted primitive emotions of human beings. We always at the core are optimists. That is what keeps us alive and strive for a better life. Ultimately, if the market meltdown does come to a pass, we will rememeber this event as a hiccup and within a few years, the investment community will trudge on forward, and completely ignore the next warning. But for now, the bullish sentiment prevails and I wonder if another shoe to drop is lurking not too far behind to prove this current mass psychology to be false, and have the retail investors heading for the hills with the tail between their legs while the investment banking community laughs all the way to the Bank.
Black Rock IPO looms large, and to me this is the confirmation that the end is probably nearer than anyone gives it credit for. In the mean time, I will uncomfortably squirm and watch in disgust as the mortgage debacle takes form, and Mr. Mozilo's artful dodging of the problems inherent within the real estate market continues to have me in awe. Mr. Mozilo is indeed a man to be reckoned with. Because he has the entire investment community wrapped on his fingers and propping up the markets while he continues to sell his majority stakes on the open market while pumping up the shares of his company, Countrywide. I believe in Countrywide- Countrywide loss of dreams, poverty, and broken dreams. Aptly named. So Mr. Mozilo, please continue to sell, but remember when it is all said and done, your wealth came at the destruction of the American dream and ultimatley your share holder dreams.
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