We should resume the downtrend in the markets on Monday. The market rally for the past few weeks were predicated on near term rate cuts by the FED. It appears that hope has all but faded and inflation becomes relevant again. With strong jobs report and unemployment at record low levels, it is highly unlikely the FED will be forced to cut interest rates by 25 basis points.
The markets are never rational and right now, even though we have been harping on recessionary fears, the good news of robust job growth is a negative now that the market has factored in a near term rate cut. It has not factored in the possibility of the FEDS raising interest rate and that may be the likely scenario slowing down the rate of expansion.
As I have said before, the current market rally was in context of broader technical damage sustained on February 27, 2007. The trend for the intermediate is down. The follow through day did not come after the usual 7 to 8 weeks or longer of correction. We can continue to expect volatility.
The other issue with AHM warning is that subprime fungus IS spreading to other areas of mortgage, housing, and probably the economy too. I think that the markets have been too complacent in their bullish stance and now many people are probably going to take a short term loss.
We shall see.
Saturday, April 07, 2007
Friday, April 06, 2007
Fickle Media
Sigh, nothing ever changes. Just last week, you couldn't find anything negative from the media. As I went from bloomberg to CNBC to CNNFN to Marketwatch.com, it was nothing but positive spin about the economy and the market prospects. News items were filled with bullish analysts and commentators extolling the strength of the market and complete dismissal of the subprime crisis as being contained.
In just one day, the market sentiment has changed from chipper to trepidatious. What has changed to cause this 180 degrees of change in tone?
Has the market fundamentals changed? No.
Has the economic conditions changed? No.
Has the housing market issues change materially? In my eyes no.
Has oil prices come down from the Iran hostage crisis resolution? No.
As I am looking around the websites and news outlets, I see the following:
1. Cnbc.Com: http://cnbc.com
"Stocks May Move Lower Monday After Strong Jobs Report"
"Stock Outlook: Where to Find Value in an Uncertain Market"
2. Marketwatch.com: http://marketwatch.com
"Jobs Dash Rate Hopes" http://www.marketwatch.com/news/story/jobs-report-set-weak-tone/story.aspx?guid=%7B5196E765%2D803C%2D4B25%2D9C8F%2DCC7F02E25932%7D
"American Home's Warning-...'suggesting subprime woes spreading...'" http://www.marketwatch.com/news/story/american-home-warns-spreading-subprime-mortgage/story.aspx?guid=%7B2CECF2CE%2DB6E0%2D43CC%2D8D89%2D97C1BF952242%7D
3. Bloomberg.com: http://bloomberg.com
"Treasuries Drop as US Jobs Data Reduces Speculation FED Will Cut Rates"
http://bloomberg.com/apps/news?pid=20601087&sid=ayGvV0U1uDuI&refer=home
4. Thestreet.com: http://thestreet.com
"Financials That Shake OFF Subprime Slime" http://www.thestreet.com/_yahoo/pom/pomrmy/10348601.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
I think that's enough for now.
The point is that the mainstream financial media is misleading and have not grasped the issues surrounding our economy. I don't know what the real deal is. I suppose that you have to stay loyal to the hand that feeds you- that is, you have to stay loyal to Wall Street. I just don't trust the media these days.
The next issue is that now, many media outlets are suggesting that subprime slime is spreading. This is because a "non-subprime" home lender, American Home Mortgage (AHM) announced a drastic cut in their first quarter earnings and also cut dividends. This should be a wake up call for those that have continued to assert their position that subprime meltdown and fears of spreading are over done. Well, they must rethink themselves. Especially Bill Nygren of Oakmark who thinks that people are blowing the subprime issues out of proportion.
How about thestreet.com's article which has the link above that suggest that American Home Mortgage is immune to the subprime mess? Boy was that article wrong.
I think everyone should also pay a visit to: http://market-ticker.denninger.net where he presents a good fundamental issues surrounding our economy and basic issues that should worry even the novice investors regarding our markets and especially the housing market.
And again, nothing would be complete without mention of the God Father itself, Countrywide Financial Corporation (CFC). The subprime issues did not affect American Home Mortgage (AHM), rather, it was the ALT-A Option ARMS and the CDOs. In fact, majority of AHM loans were made to individuals with FICO score greater than 700! I especially enjoyed about the fact that even though they cut the 1st quarter profit forecast and the full years earnings, they estimate that they can earn $3.75 to $4.25 down from their prior forecast of $5.40 to $5.70. They also cut their dividend from $2.80 annualized from $4.48. In that article in Marketwatch.com, it said the following:
"But American Home isn't a subprime lender. In early March, the company issued a statement to clear up any "confusion" about the type of loans it offers. Most are adjustable-rate mortgages and so-called Alt-A loans, which often require less documentation. American Home even offers conventional fixed-rate home loans. Subprime mortgage are less than 1% of its total loan portfolio.
Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added. "
Did anyone see the red bolded line in that excerpt? AHM subprime exoposure was less than 1% of its loan portfolio! CFC has at least 7-10% of its loan portfolio in subprime and when you add the debts that it holds from New Century (NEWC.PK) which revealed in its recent Chapter 11 filings that Countrywide was #10 right behind Lehman Brothers (LEH)! Additionally, AHM did some PR work in February leading investors to feel confident that subprime is not a material issue with them and that they dealt with ALT-A loans. ALT A Loans are considered prime loans that require less documentation. CFC owns at least 45% of their loan portfolio to ALT-A Option ARMS. But what muddles this picture even more is that CFC also owns a subsidiary called Fullspectrumlending.com http://fullspectrumlending.com that deals exclusively with subprime loans and the last time I checked, their 10K was not clear on how they account for this. It is possible that they have effectively separated the loan portfolio of this subsidiary completely away from CFC's.
Never the less, if American Home Mortgage (AHM) is affected in this fashion, don't you feel even a little bit suspicious that Countrywide isn't being forthright with the investors and to the general public? As I have said before, I have lost every confidence in Angelo Mozilo and company. I know a lot of people will disagree with me when I say this, but I think CFC will come out with an earnings warning next week to mitigate the damages. I cannot see how they can cook their books to shield their company away from the meltdown in the mortgage market. But perhaps their $40 billion dollars on off balance will shed some light. Since the shareholder law suit was upheld to go to trial and because CFC tried hard to block that law suit from going public, it has to make you wonder. I think we will find out soon enough when the books and options granting practices are scrutinized, somethings will be far too amiss to ignore.
I am impatiently awaiting for CFC to show some accountability and morality.
In just one day, the market sentiment has changed from chipper to trepidatious. What has changed to cause this 180 degrees of change in tone?
Has the market fundamentals changed? No.
Has the economic conditions changed? No.
Has the housing market issues change materially? In my eyes no.
Has oil prices come down from the Iran hostage crisis resolution? No.
As I am looking around the websites and news outlets, I see the following:
1. Cnbc.Com: http://cnbc.com
"Stocks May Move Lower Monday After Strong Jobs Report"
"Stock Outlook: Where to Find Value in an Uncertain Market"
2. Marketwatch.com: http://marketwatch.com
"Jobs Dash Rate Hopes" http://www.marketwatch.com/news/story/jobs-report-set-weak-tone/story.aspx?guid=%7B5196E765%2D803C%2D4B25%2D9C8F%2DCC7F02E25932%7D
"American Home's Warning-...'suggesting subprime woes spreading...'" http://www.marketwatch.com/news/story/american-home-warns-spreading-subprime-mortgage/story.aspx?guid=%7B2CECF2CE%2DB6E0%2D43CC%2D8D89%2D97C1BF952242%7D
3. Bloomberg.com: http://bloomberg.com
"Treasuries Drop as US Jobs Data Reduces Speculation FED Will Cut Rates"
http://bloomberg.com/apps/news?pid=20601087&sid=ayGvV0U1uDuI&refer=home
4. Thestreet.com: http://thestreet.com
"Financials That Shake OFF Subprime Slime" http://www.thestreet.com/_yahoo/pom/pomrmy/10348601.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA
I think that's enough for now.
The point is that the mainstream financial media is misleading and have not grasped the issues surrounding our economy. I don't know what the real deal is. I suppose that you have to stay loyal to the hand that feeds you- that is, you have to stay loyal to Wall Street. I just don't trust the media these days.
The next issue is that now, many media outlets are suggesting that subprime slime is spreading. This is because a "non-subprime" home lender, American Home Mortgage (AHM) announced a drastic cut in their first quarter earnings and also cut dividends. This should be a wake up call for those that have continued to assert their position that subprime meltdown and fears of spreading are over done. Well, they must rethink themselves. Especially Bill Nygren of Oakmark who thinks that people are blowing the subprime issues out of proportion.
How about thestreet.com's article which has the link above that suggest that American Home Mortgage is immune to the subprime mess? Boy was that article wrong.
I think everyone should also pay a visit to: http://market-ticker.denninger.net where he presents a good fundamental issues surrounding our economy and basic issues that should worry even the novice investors regarding our markets and especially the housing market.
And again, nothing would be complete without mention of the God Father itself, Countrywide Financial Corporation (CFC). The subprime issues did not affect American Home Mortgage (AHM), rather, it was the ALT-A Option ARMS and the CDOs. In fact, majority of AHM loans were made to individuals with FICO score greater than 700! I especially enjoyed about the fact that even though they cut the 1st quarter profit forecast and the full years earnings, they estimate that they can earn $3.75 to $4.25 down from their prior forecast of $5.40 to $5.70. They also cut their dividend from $2.80 annualized from $4.48. In that article in Marketwatch.com, it said the following:
"But American Home isn't a subprime lender. In early March, the company issued a statement to clear up any "confusion" about the type of loans it offers. Most are adjustable-rate mortgages and so-called Alt-A loans, which often require less documentation. American Home even offers conventional fixed-rate home loans. Subprime mortgage are less than 1% of its total loan portfolio.
Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added. "
Did anyone see the red bolded line in that excerpt? AHM subprime exoposure was less than 1% of its loan portfolio! CFC has at least 7-10% of its loan portfolio in subprime and when you add the debts that it holds from New Century (NEWC.PK) which revealed in its recent Chapter 11 filings that Countrywide was #10 right behind Lehman Brothers (LEH)! Additionally, AHM did some PR work in February leading investors to feel confident that subprime is not a material issue with them and that they dealt with ALT-A loans. ALT A Loans are considered prime loans that require less documentation. CFC owns at least 45% of their loan portfolio to ALT-A Option ARMS. But what muddles this picture even more is that CFC also owns a subsidiary called Fullspectrumlending.com http://fullspectrumlending.com that deals exclusively with subprime loans and the last time I checked, their 10K was not clear on how they account for this. It is possible that they have effectively separated the loan portfolio of this subsidiary completely away from CFC's.
Never the less, if American Home Mortgage (AHM) is affected in this fashion, don't you feel even a little bit suspicious that Countrywide isn't being forthright with the investors and to the general public? As I have said before, I have lost every confidence in Angelo Mozilo and company. I know a lot of people will disagree with me when I say this, but I think CFC will come out with an earnings warning next week to mitigate the damages. I cannot see how they can cook their books to shield their company away from the meltdown in the mortgage market. But perhaps their $40 billion dollars on off balance will shed some light. Since the shareholder law suit was upheld to go to trial and because CFC tried hard to block that law suit from going public, it has to make you wonder. I think we will find out soon enough when the books and options granting practices are scrutinized, somethings will be far too amiss to ignore.
I am impatiently awaiting for CFC to show some accountability and morality.
As Expected A "Prime" Lender American Home Mortgage Investments Corp Slashes Earnings
So, in conjuction to my previous article stated "Gloom and Doom for Shorts?", American Home Mortgage Investments Corp comes clean and preannounces their earnings. They now expect first quarter net income of $.40 to $.60 from the prior guidance of $1.02 per share. Analyst consensus was at an average of $1.06. Additionally, they cut their quarterly dividend to $.70 from January's dividend which was raised $.06 to $1.12.
I want to point to some pertinent facts from this pre-announcement from AHM. First, they are a "prime" mortgage lender with low subprime exposure, like Countrywide Financial Corporation (CFC). The reasons cited for this cut is "Mortgage lender American Home Mortgage Investment Corp. said Friday it expects lower first-quarter and full-year earnings due to secondary mortgage and mortgage-backed securities markets conditions."
The issues are compounded by continued degradation of CDO marketablity.
This is a culmination of all the things discussed on this blog for the past month. I believe this "mortgage" related shortfalls will be the common theme for the big lenders. I believe the pain will continue because no one has given much thought to the problems associated with ALT A Option ARMS.
It will be interesting to see if Countrywide will follow suit. I cannot imagine that Countrywide will remain immune to this condition. I know that CFC has been like a teflon to bad news but like all things, the bigger they are the harder they fall. The issues related to CFC is that they have not been very forthright with their situation. They have propped up their share price by smoke and mirrors. They can continue to hide but on the day of reckoning, more gnashing of the teeth will be felt by the insiders.
I am counting down to the day CFC grows a conscience and does the right thing. But even now, Mozilo continues his campaign of greed driven selling. Carma will be a bitch.
I want to point to some pertinent facts from this pre-announcement from AHM. First, they are a "prime" mortgage lender with low subprime exposure, like Countrywide Financial Corporation (CFC). The reasons cited for this cut is "Mortgage lender American Home Mortgage Investment Corp. said Friday it expects lower first-quarter and full-year earnings due to secondary mortgage and mortgage-backed securities markets conditions."
The issues are compounded by continued degradation of CDO marketablity.
This is a culmination of all the things discussed on this blog for the past month. I believe this "mortgage" related shortfalls will be the common theme for the big lenders. I believe the pain will continue because no one has given much thought to the problems associated with ALT A Option ARMS.
It will be interesting to see if Countrywide will follow suit. I cannot imagine that Countrywide will remain immune to this condition. I know that CFC has been like a teflon to bad news but like all things, the bigger they are the harder they fall. The issues related to CFC is that they have not been very forthright with their situation. They have propped up their share price by smoke and mirrors. They can continue to hide but on the day of reckoning, more gnashing of the teeth will be felt by the insiders.
I am counting down to the day CFC grows a conscience and does the right thing. But even now, Mozilo continues his campaign of greed driven selling. Carma will be a bitch.
Gloom and Doom for the Shorts
The current jobs release today showed a robust addition of 180,000 jobs and the unemployment rate dropped to 4.4%. This conflicts with the recent economic data that showed slowing economy and possible recessionary fears. But a closer look at the past jobs data and unemployment rate would reveal that this economic report is a lagging indicator by about 6 months to 1 year.
If you consider 2000 before the tech and dot com implosion, the jobs and unemployment rate preceding the 3 months leading to the downfall, was robust. Yet, the main stream media is on full offensive today, touting the strength of this economy and prediting a broad Wall Street Rally come Monday. Perhaps. I beg to differ.
The current market rally is predicated on Goldilocks mentality of the market. The need for this market to be "just right" is exactly why this market is headed for trouble. I mentioned about complacency of the bulls and the markets that have been rising again. The bulls are now getting comfortable that the rising market conditions are the norm. Any potentially important economic news is neither digested or heeded and is rather dismissed and not considered if the data points to weakening economy. Why is this? It is human nature. We do not want to face the reality sometimes because we don't want the party to end. The party in this case is the unprecedented market run up since last July 2006. In fact, many on Wall Street are dismissing the last February 27 as a minor correction, a blip on the radar, instead of heeding what it was trying to tell the investors: Volatility.
The markets applauded the resolution of the Iranian hostage crisis as a monumental positive for world peace. Yet, in my opinion, this served to place Iran right in the center of world stage. That Iran won the political battle because they dared to take the British soldiers and held the whole world's attention for 2 weeks is something that everyone should worry about. It allowed Iran to test the nerves of the world resolve and opinions. It tested what UN, the British, the US, and its allies would do. They have an answer. They can do what ever they please without much repercusion and more "tests" will probably be on the horizon by the Iranians. If anything, the Iranians are now emboldened. This is because no one has forcefully pressed the issues with the nuclear ambitions, no one has pressed the issues with the legality of the caputre of the 15 British soldiers in "hostile" waters. This in and of itself is a hostile act and intentions by the Iranian regime because it is telling the world that Iranian territory is at war with who ever encroaches on their waters. There is no peaceful message here. Yet the world is happy that the 15 British sailors and marines got home safely. Just as the world continued to appease the Hitler regime in the 1930's, the Iranians will continue to press and see what they can get away with in the coming months and years, until it is too late.
Back to the markets. So, in a nutshell, the market is now finally forced, once again to come to grips with the inflationary fears. UBS has all but reduced the rate of FED interest cut to nothing. The very premise that the market has been rallying for the past two weeks. There is no indication that the inflation will abate. The oil still stands at $64 and change. The Iran crisis resolution did nothing to bring that price down. The jobs and unemployment numbers should be heeded carefully as the jobs created are not the ones that will benefit this economy. It is service related jobs that pay a little bit over minimum wage. If the markets want to cheer any data that seems positive and spin it, they do so at their own peril.
I remain short on Countrywide and bearish on the near, mid, and long term market conditions. I see the recent rally as a dead cat bounce.
As for Countrywide, I see that they will have to at some point, stop spinning their position because with each unraveling of the supbrime issues, we find more and more that they are more heavily leveraged to this arena than they want the markets to realize. They can play this spin game for so long before the rest of the market catches up and criminal indictments start in earnest. The SEC is now looking into the options granting process and CFC is now involved in the options probe. I am not sure if Countrywide will preannounce a dreary earnings, I am betting they will. In the mean time, I will have to continue to test my resolve. As of currently, I am strongly short Countrywide. But for the rest, cash is the best place to be.
If you consider 2000 before the tech and dot com implosion, the jobs and unemployment rate preceding the 3 months leading to the downfall, was robust. Yet, the main stream media is on full offensive today, touting the strength of this economy and prediting a broad Wall Street Rally come Monday. Perhaps. I beg to differ.
The current market rally is predicated on Goldilocks mentality of the market. The need for this market to be "just right" is exactly why this market is headed for trouble. I mentioned about complacency of the bulls and the markets that have been rising again. The bulls are now getting comfortable that the rising market conditions are the norm. Any potentially important economic news is neither digested or heeded and is rather dismissed and not considered if the data points to weakening economy. Why is this? It is human nature. We do not want to face the reality sometimes because we don't want the party to end. The party in this case is the unprecedented market run up since last July 2006. In fact, many on Wall Street are dismissing the last February 27 as a minor correction, a blip on the radar, instead of heeding what it was trying to tell the investors: Volatility.
The markets applauded the resolution of the Iranian hostage crisis as a monumental positive for world peace. Yet, in my opinion, this served to place Iran right in the center of world stage. That Iran won the political battle because they dared to take the British soldiers and held the whole world's attention for 2 weeks is something that everyone should worry about. It allowed Iran to test the nerves of the world resolve and opinions. It tested what UN, the British, the US, and its allies would do. They have an answer. They can do what ever they please without much repercusion and more "tests" will probably be on the horizon by the Iranians. If anything, the Iranians are now emboldened. This is because no one has forcefully pressed the issues with the nuclear ambitions, no one has pressed the issues with the legality of the caputre of the 15 British soldiers in "hostile" waters. This in and of itself is a hostile act and intentions by the Iranian regime because it is telling the world that Iranian territory is at war with who ever encroaches on their waters. There is no peaceful message here. Yet the world is happy that the 15 British sailors and marines got home safely. Just as the world continued to appease the Hitler regime in the 1930's, the Iranians will continue to press and see what they can get away with in the coming months and years, until it is too late.
Back to the markets. So, in a nutshell, the market is now finally forced, once again to come to grips with the inflationary fears. UBS has all but reduced the rate of FED interest cut to nothing. The very premise that the market has been rallying for the past two weeks. There is no indication that the inflation will abate. The oil still stands at $64 and change. The Iran crisis resolution did nothing to bring that price down. The jobs and unemployment numbers should be heeded carefully as the jobs created are not the ones that will benefit this economy. It is service related jobs that pay a little bit over minimum wage. If the markets want to cheer any data that seems positive and spin it, they do so at their own peril.
I remain short on Countrywide and bearish on the near, mid, and long term market conditions. I see the recent rally as a dead cat bounce.
As for Countrywide, I see that they will have to at some point, stop spinning their position because with each unraveling of the supbrime issues, we find more and more that they are more heavily leveraged to this arena than they want the markets to realize. They can play this spin game for so long before the rest of the market catches up and criminal indictments start in earnest. The SEC is now looking into the options granting process and CFC is now involved in the options probe. I am not sure if Countrywide will preannounce a dreary earnings, I am betting they will. In the mean time, I will have to continue to test my resolve. As of currently, I am strongly short Countrywide. But for the rest, cash is the best place to be.
Good Friday Reflections
For those of you who celebrate Easter, Happy Good Friday! It is a time to reflect and focus on what is important for those of the Christian faith. That this day is the day, a new salvation was granted where Jesus died on the cross so that we may have eternal life and our sins forgiven. That this act of love and self sacrifice is beyond any comprehension of mere mortal minds is something that, even for those not belonging to Christian faith, deserves reflection.
Let us stop for a moment in our busy and hectic lives and reflect on the things that are good and pure, if just for this one day. Let us give the prospects of love and forgiveness a chance. Let us rejoyce together in one collective voice, and give thanks and realize the beauty that resides within our hearts and our world.
I do not want to sound like a preacher or pressing my faith on line. After all, this blog is dedicated to stocks and the economy. But this difficult venture that we have all delved into sometimes takes us away from the things that are close and dear to us. The markets have a tendency to blind and raise innate primitive emotions. It causes us, myself included, resort to thoughts, words, and actions that are contrary to what I strive to be each day: a decent human being. I am thankful that today, the markets are closed, so that everyone, longs and shorts included, can rest and heal. Let us gain perspectives and reevaluate our personal lives so that we may become decent human beings.
At the end of the day, we know that there is a battle brewing. Each day is a constant struggle for survival. But for this one day, let us reflect, heal, and love. For that is what Good Friday means to me.
Let us stop for a moment in our busy and hectic lives and reflect on the things that are good and pure, if just for this one day. Let us give the prospects of love and forgiveness a chance. Let us rejoyce together in one collective voice, and give thanks and realize the beauty that resides within our hearts and our world.
I do not want to sound like a preacher or pressing my faith on line. After all, this blog is dedicated to stocks and the economy. But this difficult venture that we have all delved into sometimes takes us away from the things that are close and dear to us. The markets have a tendency to blind and raise innate primitive emotions. It causes us, myself included, resort to thoughts, words, and actions that are contrary to what I strive to be each day: a decent human being. I am thankful that today, the markets are closed, so that everyone, longs and shorts included, can rest and heal. Let us gain perspectives and reevaluate our personal lives so that we may become decent human beings.
At the end of the day, we know that there is a battle brewing. Each day is a constant struggle for survival. But for this one day, let us reflect, heal, and love. For that is what Good Friday means to me.
Wednesday, April 04, 2007
On Parick Byrne and Angelo Mozilo
I am really into finding parallels these days. Today's topic relates to parallel comparisons of Patrick Byrne, CEO of Overstock.Com and Angelo Mozilo, CEO of Countrywide Financial Corporation.
An introduction. Dr.Patrick Byrne is a Chief Executive Officer of Overstock.com, an online retailer selling discount goods at closeout prices. Overstock.com made some serious headlines over the past 2 years over Patrick Byrne's assertion that the "naked" short sellers were negatively impacting his company's shares and that several hedge funds were colluding to bring down his company. Never mind that this company has never made a dime and continues its astronomical burn rate of cash. Patrick Byrne will tell you that their revenue has been growing and that profit was not too far away. He will tell you parallelisms to Amazon.com and he fancies the same grandiose plans. Yet, when looking at this business, it is a model set to fail. Check out the 33.8% short ratio on this stock. Had it not been Dr.Byrne's relentless efforts at bringing on frivolous law suits against any that would speak negatively against this stock, and if the short sellers of this particular stock had more gumption, the short ratio in relation to the float would be much higher. The company sports a respectable ROE of -125.08% YOY, a sexy profit margin of -12.91% and an operating cash flow of enviable -$25.73 million dollars. Looking closely, this company has $126.96 million in cash and a debt of $84.34 million dollars. Total Debt to Equity ratio is a respectable 1.361!
Patrick Byrne has made many public relations campaign over the past 2 years. Appearing on countless CNBC segments to pump his stock, to speak out against the "naked" short selling that supposedly plagues his company. Instead of working on the company's fundamentals and business plans, the CEO of this company was seen spending much of his efforts on bringing about frivolous law suits and TV appearances on CNBC. To further that feat, there was also a comical moment few years ago when Dr.Byrne publicly alluded to possibly looking for another position, when at that time, he was working over time to bring light onto the problem of "naked shorts" and his company's woes as a result of shorting his stock. Dr. Byrne became an activist against "naked shorts" while his company continued to deteriorate. To show his support and faith in his company's business model, Dr.Byrne has lost quite a bit of money by publicly buying his company's shares on the open market, though this action was noble, nothing could stop the deterioration of the share prices from its peak on December 6, 2004 of $77.18 to its current price of $16.55. Fundamentals of the business speak louder than words and no matter how much Dr.Byrne believed in the company, the slow degradation of share price was inevitable. The more Dr.Byrne appeared on TV or on news pumping and supporting his stock either by action, threats, or childish banter, the stock continued to descend. Now, over the past three months, the shares of Overstock.com is trying to make a come back, on the heels of stock buy back program that is supported by even more debt.
Mr. Angelo Mozilo was the founding member of Countrywide Financial Corporation. He commands the respect of the Street and the company is an American icon. A symbol of "goodness" that represents the best that American culture has to offer- home ownership. Mr.Mozilo has been in the business and has built this company to where it is today, a S&P 500 index member, and the pride and joy of Wall Street. The recent housing boom that began in 2002 is now unraveling in 2007. Mr. Mozilo appeared on countless CNBC interviews calling for a rate cut, appeasing the panic that is setting in due to subprime meltdown, and pumping his company in the process. In fact, over the past two and one half weeks, Mr. Mozilo found the time to appear on three CNBC interviews and the last appearance on April 2, 2007 lasted 2 full hours!
During the Congressional hearings on the state of subprime lenders, Mr.Mozilo, the figure head of his beloved company, was conveniently absent when it mattered the most, instead, sending his lieutenant Mr. Sandor Samuels, a Managing Director and Chief Legal Officer for Countrywide to do the dirty work of defending Countrywide's position under oath. Instead, that same day, Mr. Mozilo was seen on Mad Money, the bastian of credibility on the street, hosted by the ego maniac, Jim Cramer. In it, Mr. Mozilo tried to soothe the markets by stating his case that subprime represents a very small 7% of the entire loan portfolio of Countrywide and proceeded to pump his company. He assured the TV viewers that Countrywide will withstand the malestrom of subprime meltdown and will emerge stronger. Jim Cramer promptly gave his famous "buy". Mr. Mozilo then appeared on April 2, 2007, practically begging for a FED rate cut and speaking in less than optimistic tone this time around regarding Countrywide's prospects. One day later, two board members abruptly quit. Countrywide promptly released press release at 8:00PM EST well after market closed. One full day later, a contrived PR news wire was released that stressed the fact that the board members had no ill feelings for the operation of the company.
Fundamentally, Countrywide is sporting a value added PE ratio 7.76 TTM, a PEG of 0.74, and Price/Book value of 1.37. The company sports $52.54 billion dollars and total debt of $113.60 billion. The total debt to equity ratio is a cool 7.934! Wow that is great! Many analysts are busy upgrading this stock and Morningstar gave this stock a 5 star rating, based on the PE, PEG, and Price to Book value. I do not think Morningstar took into consideration of the burgeoning 7.934 Debt/Equity! Return on Equity is a respectable 19.72% and the profit margin is 23.74%. The short percentage as reflected as total float is 5.90%. The insiders are dumping the shares of this company faster than you can say "holy cow" with Mozilo leading the selling frenzy. Yet he continues to pump the stock and then turning around and selling this stock. Mr. Mozilo continues to blame the subprime meltdown and incessantly calls for a FED rate cut to halt the bleeding of his industry and his company. He solely blames companies like New Century (NEWC.PK) and Fremont General (FMT) as the "bad" guys of the industry and Countrywide as a company that has distanced itself from those lenders. Yet, Countrywide has a separate subprime unit called Fullsprectrumlending.com which caters to the subprime market. He never admits or alludes to the ALT-A Option ARM loans as a problem even now, as more evidence comes out every day of this dubious "prime" loan as being WORSE than the subprime loans itself. Then there was the Wall Street Journal listing of the New Century Chapter 11 bankruptcy filing which lists the top 50 creditors of New Century. Guess what? Wouldn't you know it? Countrywide was listed as #10 right behind Lehman Brothers. It is rumored that Countrywide owns the subprime CDO's or loans in excess of $1 billion. So it seems very improbable that Countrywide's subprime exposure is limited to only 7%, does it? That's not even counting the ticking time bomb ALT-A Option ARM loans which accounts for over 45% of Countrywide's loan portfolio. By the way, when looking at the bankruptcy petition by New Century, the #1 creditor on the list is Goldman Sachs (GS) which currently is the only investment banking institution with a "sell" rating other than S&P 500. Yet Mozilo continues to mislead his investors and the market. How long will the market believe this guy?
Similarities of Dr. Byrne and Mr. Mozilo is similar and yet so different. Mr. Mozilo has a respectable company on the surface but the more you dig, the better Overstock.com's fundamentals look. At least for Overstock.com, what you see is what you get. Dr. Byrne's crusade has some benefits to the masses because "naked shorts" are engaging in an illegal activity. At least Patrick Byrne puts his money where his mouth is, and his company continues to show net buying by insiders. Mr. Mozilo is the complete opposite. He pumps his stock and spreads non truths with plausible deniability in court. Then he and his insiders continue to dump stocks while the share prices are propped up by debt financed buy back of stocks. This is where the disimilarities end. Both companies ultimately are terrible and will head towards demise. But given the two competing CEO's who will always be remembered for one thing or another: Dr.Byrne for his hysterical insecurity and undying devotion to his company Overstock.com and Mr. Mozilo for his half truths and his wonderful bonzen tan. The similarities are that both are heavily pumping their stock and love the media attention as their company's shares tank.
When will the general public and the smart people finanlly wake up smell the fraud in both of these companies? If pressed, I would choose Overstock.com to survive over Countrywide but that is nothing to rejoyce about. Memo to Mozilo, come clean, and stop destroying dreams on two fronts: real estate and in stock market where many people have vested hard earned money in their retirement accounts.
An introduction. Dr.Patrick Byrne is a Chief Executive Officer of Overstock.com, an online retailer selling discount goods at closeout prices. Overstock.com made some serious headlines over the past 2 years over Patrick Byrne's assertion that the "naked" short sellers were negatively impacting his company's shares and that several hedge funds were colluding to bring down his company. Never mind that this company has never made a dime and continues its astronomical burn rate of cash. Patrick Byrne will tell you that their revenue has been growing and that profit was not too far away. He will tell you parallelisms to Amazon.com and he fancies the same grandiose plans. Yet, when looking at this business, it is a model set to fail. Check out the 33.8% short ratio on this stock. Had it not been Dr.Byrne's relentless efforts at bringing on frivolous law suits against any that would speak negatively against this stock, and if the short sellers of this particular stock had more gumption, the short ratio in relation to the float would be much higher. The company sports a respectable ROE of -125.08% YOY, a sexy profit margin of -12.91% and an operating cash flow of enviable -$25.73 million dollars. Looking closely, this company has $126.96 million in cash and a debt of $84.34 million dollars. Total Debt to Equity ratio is a respectable 1.361!
Patrick Byrne has made many public relations campaign over the past 2 years. Appearing on countless CNBC segments to pump his stock, to speak out against the "naked" short selling that supposedly plagues his company. Instead of working on the company's fundamentals and business plans, the CEO of this company was seen spending much of his efforts on bringing about frivolous law suits and TV appearances on CNBC. To further that feat, there was also a comical moment few years ago when Dr.Byrne publicly alluded to possibly looking for another position, when at that time, he was working over time to bring light onto the problem of "naked shorts" and his company's woes as a result of shorting his stock. Dr. Byrne became an activist against "naked shorts" while his company continued to deteriorate. To show his support and faith in his company's business model, Dr.Byrne has lost quite a bit of money by publicly buying his company's shares on the open market, though this action was noble, nothing could stop the deterioration of the share prices from its peak on December 6, 2004 of $77.18 to its current price of $16.55. Fundamentals of the business speak louder than words and no matter how much Dr.Byrne believed in the company, the slow degradation of share price was inevitable. The more Dr.Byrne appeared on TV or on news pumping and supporting his stock either by action, threats, or childish banter, the stock continued to descend. Now, over the past three months, the shares of Overstock.com is trying to make a come back, on the heels of stock buy back program that is supported by even more debt.
Mr. Angelo Mozilo was the founding member of Countrywide Financial Corporation. He commands the respect of the Street and the company is an American icon. A symbol of "goodness" that represents the best that American culture has to offer- home ownership. Mr.Mozilo has been in the business and has built this company to where it is today, a S&P 500 index member, and the pride and joy of Wall Street. The recent housing boom that began in 2002 is now unraveling in 2007. Mr. Mozilo appeared on countless CNBC interviews calling for a rate cut, appeasing the panic that is setting in due to subprime meltdown, and pumping his company in the process. In fact, over the past two and one half weeks, Mr. Mozilo found the time to appear on three CNBC interviews and the last appearance on April 2, 2007 lasted 2 full hours!
During the Congressional hearings on the state of subprime lenders, Mr.Mozilo, the figure head of his beloved company, was conveniently absent when it mattered the most, instead, sending his lieutenant Mr. Sandor Samuels, a Managing Director and Chief Legal Officer for Countrywide to do the dirty work of defending Countrywide's position under oath. Instead, that same day, Mr. Mozilo was seen on Mad Money, the bastian of credibility on the street, hosted by the ego maniac, Jim Cramer. In it, Mr. Mozilo tried to soothe the markets by stating his case that subprime represents a very small 7% of the entire loan portfolio of Countrywide and proceeded to pump his company. He assured the TV viewers that Countrywide will withstand the malestrom of subprime meltdown and will emerge stronger. Jim Cramer promptly gave his famous "buy". Mr. Mozilo then appeared on April 2, 2007, practically begging for a FED rate cut and speaking in less than optimistic tone this time around regarding Countrywide's prospects. One day later, two board members abruptly quit. Countrywide promptly released press release at 8:00PM EST well after market closed. One full day later, a contrived PR news wire was released that stressed the fact that the board members had no ill feelings for the operation of the company.
Fundamentally, Countrywide is sporting a value added PE ratio 7.76 TTM, a PEG of 0.74, and Price/Book value of 1.37. The company sports $52.54 billion dollars and total debt of $113.60 billion. The total debt to equity ratio is a cool 7.934! Wow that is great! Many analysts are busy upgrading this stock and Morningstar gave this stock a 5 star rating, based on the PE, PEG, and Price to Book value. I do not think Morningstar took into consideration of the burgeoning 7.934 Debt/Equity! Return on Equity is a respectable 19.72% and the profit margin is 23.74%. The short percentage as reflected as total float is 5.90%. The insiders are dumping the shares of this company faster than you can say "holy cow" with Mozilo leading the selling frenzy. Yet he continues to pump the stock and then turning around and selling this stock. Mr. Mozilo continues to blame the subprime meltdown and incessantly calls for a FED rate cut to halt the bleeding of his industry and his company. He solely blames companies like New Century (NEWC.PK) and Fremont General (FMT) as the "bad" guys of the industry and Countrywide as a company that has distanced itself from those lenders. Yet, Countrywide has a separate subprime unit called Fullsprectrumlending.com which caters to the subprime market. He never admits or alludes to the ALT-A Option ARM loans as a problem even now, as more evidence comes out every day of this dubious "prime" loan as being WORSE than the subprime loans itself. Then there was the Wall Street Journal listing of the New Century Chapter 11 bankruptcy filing which lists the top 50 creditors of New Century. Guess what? Wouldn't you know it? Countrywide was listed as #10 right behind Lehman Brothers. It is rumored that Countrywide owns the subprime CDO's or loans in excess of $1 billion. So it seems very improbable that Countrywide's subprime exposure is limited to only 7%, does it? That's not even counting the ticking time bomb ALT-A Option ARM loans which accounts for over 45% of Countrywide's loan portfolio. By the way, when looking at the bankruptcy petition by New Century, the #1 creditor on the list is Goldman Sachs (GS) which currently is the only investment banking institution with a "sell" rating other than S&P 500. Yet Mozilo continues to mislead his investors and the market. How long will the market believe this guy?
Similarities of Dr. Byrne and Mr. Mozilo is similar and yet so different. Mr. Mozilo has a respectable company on the surface but the more you dig, the better Overstock.com's fundamentals look. At least for Overstock.com, what you see is what you get. Dr. Byrne's crusade has some benefits to the masses because "naked shorts" are engaging in an illegal activity. At least Patrick Byrne puts his money where his mouth is, and his company continues to show net buying by insiders. Mr. Mozilo is the complete opposite. He pumps his stock and spreads non truths with plausible deniability in court. Then he and his insiders continue to dump stocks while the share prices are propped up by debt financed buy back of stocks. This is where the disimilarities end. Both companies ultimately are terrible and will head towards demise. But given the two competing CEO's who will always be remembered for one thing or another: Dr.Byrne for his hysterical insecurity and undying devotion to his company Overstock.com and Mr. Mozilo for his half truths and his wonderful bonzen tan. The similarities are that both are heavily pumping their stock and love the media attention as their company's shares tank.
When will the general public and the smart people finanlly wake up smell the fraud in both of these companies? If pressed, I would choose Overstock.com to survive over Countrywide but that is nothing to rejoyce about. Memo to Mozilo, come clean, and stop destroying dreams on two fronts: real estate and in stock market where many people have vested hard earned money in their retirement accounts.
Off the Topic- On Nancy Pelosi, The Lurking Darkness
Nancy Pelosi is dangerous and at times moronic. Her recent visit to Syria was probably done to spite George Bush and nothing more. She is driven by hate and anger. She knows nothing of fiduciary duties as an elected official to protect and preserve the democracy and our "inalienable" rights. She is a socialist at heart with a sinister ulterior motive. She represents all that is wrong with the left wing liberal cult. They strive to destroy the very fabric of freedom. They will institutionalize and enslave the populus.
She is after all from that looney bin area called San Francisco. I know how things are there. I spent 4 years there in medical school. I know the thinking and the motives of those people. They are anti-government, anarchy motivated, hate mongers. They destroy opposition view points and oppress freedom of expression and speech. All the things that they purportedly stand for.
Mark my words. There is a secret revolution that is gaining speed in this country. It is a revolution that is funded by an ideology that is as screwd up as Hugo Chavez's. We live in a world in the US where we are afraid of frivolous law suits due to user stupidity, our rights are diminished for the very few who cry murder (think IMAMS and US AIR), and common sense is thrown out the window.
It is truly a scary world. A world of no accountability, laziness, and no resolve. I truly fear for our future. Nancy Pelosi is the tip of the ice berg.
She is after all from that looney bin area called San Francisco. I know how things are there. I spent 4 years there in medical school. I know the thinking and the motives of those people. They are anti-government, anarchy motivated, hate mongers. They destroy opposition view points and oppress freedom of expression and speech. All the things that they purportedly stand for.
Mark my words. There is a secret revolution that is gaining speed in this country. It is a revolution that is funded by an ideology that is as screwd up as Hugo Chavez's. We live in a world in the US where we are afraid of frivolous law suits due to user stupidity, our rights are diminished for the very few who cry murder (think IMAMS and US AIR), and common sense is thrown out the window.
It is truly a scary world. A world of no accountability, laziness, and no resolve. I truly fear for our future. Nancy Pelosi is the tip of the ice berg.
Market Complacency Rising
We are not out of the woods yet. This market continues to remain volatile. I was wrong about Iranians not having any incentive to release the 15 British sailors and marines. Apparently they did. Although they are scheduled to be released tomorrow, April 5, 2007 Thursday, I will truly believe it once it actually becomes reality. This is a regime that is notorious for deception and propaganda. It is said that Syria had a role in the release of the 15 British captors but again, I will believe it when I see it.
One must really admire the way Countrywide has held its ground in light of the subprime melt down and ALT-A Option ARM crisis. The noise surrounding the ALT-A Option ARM and CDO (Collateralized Debt Obligations) is getting louder, yet the market continues to shrug off this warning. Right now, the market seems to have priced in subprime and mortgage issue as a non issue. Yet, the ISM numbers and Factory order numbers continue to weaken, oil still hovers above$64 despite the news that the British captors will be released on Thursday. This inflationary pressure may have to do with supply side issues more so than the news surrounding the Iran hostage issues. Nevertheless, this summer will continue to put upward price pressure on oil.
Did anyone also see the hurrican forecast for this year? The national weather services is forecasting at least 17 hurricanes this season. I wonder what that will do to the already high oil prices?
Judging by the way everyone is claiming victory for the bulls, is a reason for me to believe that another leg down is not far ahead. The discounted impact of ALT-A Option ARM loan crisis and CDOs will resonate hard and furious once its significance is realized. Additional fallout from New Century (NEWC.PK) continues to resonate for Countrywide and other lenders. It is apparent that Countrywide ranks at the top of the food chain in terms of those lenders who hold New Century's debts. I will venture to guess that it is a lot more than anyone imagines. Already, this issue should blow some holes in Countrywide's assertion that its subprime exposure is 7% or less. My guess is that it will be upwards of 25%.
This market is fickle and punishes thos that are complacent. Keep your eyes on the ball and do not trust this market or what the analysts tell you. As always, stay safe.
One must really admire the way Countrywide has held its ground in light of the subprime melt down and ALT-A Option ARM crisis. The noise surrounding the ALT-A Option ARM and CDO (Collateralized Debt Obligations) is getting louder, yet the market continues to shrug off this warning. Right now, the market seems to have priced in subprime and mortgage issue as a non issue. Yet, the ISM numbers and Factory order numbers continue to weaken, oil still hovers above$64 despite the news that the British captors will be released on Thursday. This inflationary pressure may have to do with supply side issues more so than the news surrounding the Iran hostage issues. Nevertheless, this summer will continue to put upward price pressure on oil.
Did anyone also see the hurrican forecast for this year? The national weather services is forecasting at least 17 hurricanes this season. I wonder what that will do to the already high oil prices?
Judging by the way everyone is claiming victory for the bulls, is a reason for me to believe that another leg down is not far ahead. The discounted impact of ALT-A Option ARM loan crisis and CDOs will resonate hard and furious once its significance is realized. Additional fallout from New Century (NEWC.PK) continues to resonate for Countrywide and other lenders. It is apparent that Countrywide ranks at the top of the food chain in terms of those lenders who hold New Century's debts. I will venture to guess that it is a lot more than anyone imagines. Already, this issue should blow some holes in Countrywide's assertion that its subprime exposure is 7% or less. My guess is that it will be upwards of 25%.
This market is fickle and punishes thos that are complacent. Keep your eyes on the ball and do not trust this market or what the analysts tell you. As always, stay safe.
Tuesday, April 03, 2007
Desperate Markets, Despearte Hopes
There was no doubt about it today. The markets rallied and rallied hard but on below average volume. While the volume increased from yesterday's action, it is still below the average volume. According to IBD on Market Pulse, the closely followed IBD 100 index which represents the market leading stocks according to the CAN SLIM methods, lagged the S&P 500, NASDAQ, and the DOW today. To IBD this is a market divergence and continued caution regarding this rally was advised as the market has thrown one or two "curveballs" to the investors as of late. I still believe that the recent follow through day was too premature and the macro economic issues still is bearish.
What is interesting is the way the market rallied today. Presumably, the market rallied based on "Easing" tensions with Great Britain and Iran, falling oil prices, and "Promising" Pre-sales number from National Association of Realtors (NAR). I would like to break down this analysis by the main stream media who was pumping and pumping hard. On just one day's data! The other more realistic data was just thrown out the window today.
#1) "Easing" Tensions Between Great Britain and Iran: I don't know how the tension is easing when a country illegally captures 15 soldiers from Great Britain under the false pretense of violating Iranian water space. How can tensions ease when Iran has perpetrated such a blatantly callous act? I don't see anywhere in the news today where the two sides made any progress toward resolution of their differences. Iran has promised to not show the captured sailors and marines on TV or any media, yet they were paraded on Iranian News Paper not 12 hours after such promise was made. Is this progress? All it has shown was blatant disrespect by the hardline Iranian government who has no real intention of resolving this. Iran has NO INCENTIVE to resolve this situation as the price of oil has skyrocketed since this crisis. Britain is now demanding that they negotiate directly and this whole issue is getting rather silly. Britain knows that their global prestiege is at stake and I do not think that this will resolve as easily as the media thinks it will. No one can trust the Iranian regime whose intention is crystal clear: to dominate the Middle East and to continue to erode Western culture by terrorism. You cannot negotiate with terrorists and you certainly cannot negotiate with the ring leader. I would like to see the news headlines in 24 hours from now, which might go from easing to "grave". I think despite George Bush's many blunders, he is right about calling this a hostage crisis. I also believe that the tensions along the Iran-Iraqi border and this whole charade is Iran's attempt to draw US into the conflict. Iran wants a fight to show case their new found leverage and power on the world stage. They know all too well, that US has dissenting congress and the House, and a president that is not popular due to the Iraqi war. They would like to see nothing more than to have US engaged in a two front war. That will legitimize Iran's quest for Nuclear weapons. No one is buying their crap about "peaceful energy" uses. This is a brutal regime intent on blood. Media is wrong on this front. It is a wishful thinking. The crisis will esclate not "ease".
#2) Falling OIL prices: There was a market wide cheer today as oil dropped more than $1.30 and settled at $64.64. Great! Oil is so cheap now at $64.64, the inflationary pressures are all but mitigated in only one day! Oil rose from $58 per barrel just when the Iranian "hostage" crisis started to now at $64.64. It is more likely that our oil supplies, summer fuel blends, and continued confrontation with the British "hostage" crisis will lead to higher oil prices. It sure feels better though to see the oil prices at least for one day to go down, doesn't it?
#3) National Association of Realtors (NAR) reported 0.7% rise in "pending home sales" for the month of February: Yay! Housing has reached bottom! Let's rejoice in this often ridiculed indicator which is fraught with biases and inaccuracies. NAR has consistently been bullish throughout the current housing market crisis, only to mislead. In fact, the only group they serve are the realtors, after all, they are the group that stands to lose the most from this housing down turn, next to the mortgage lenders and home builders. What exactly does pending home sales mean? Wouldn't homes sold data indicate more factual representation of the health of the market? Also, did they disclose that this is a revised number and that home sales have slid 8.5% yer over year. How can this number be promising for the month of April and March sales figures? Especially when the homebuilders are basically crying out that their business has eroded to crisis point. Are people more apt to buy exisiting houses than new houses when credit crisis is ongoing and default rates are rising? One needs to only consider that the deliquency rate has doubled for ALT-A loans! http://market-ticker.denninger.net. This is an excellent site that is factual and is rather well written. Do not trust the NAR! They are self serving and doesn't have the right intentions.
And, so, my blog would never be complete without my daily take of Countrywide and Angelo Mozilo. Think about any one time in recent memory, with exception of yesterday, when a CEO appears on any national media and spends 2 hours trying to defend the industry and mainly, his company? None. That is why I grow even more suspicious and deeply sickened by the constant appearance of Mr. Mozilo on CNBC. Yet, he had the audacity to continue to sell 70,000 more shares today. Add that to the dubious "dear sir" letter by the two outgoing board members who seemed to be forced into writing this confessional. It is so transparent, again it sickens me. Anyway you slice it or dice it, abrupt departure of board members and other insiders (Mr. Kurland) is a bit suspicious. With ALT-A Option ARM loans getting bigger attention, it will continue to erode the smoke and mirrors of Countrywide. So, as Countrywide rises in price, I will continue to add to my put positions. I cannot believe that anyone would buy the BS spewed by Countrywide.
So, I sit disgusted but nevertheless convinced and more motivated to continue to hold firm and stand and watch this house of cards fall.
What is interesting is the way the market rallied today. Presumably, the market rallied based on "Easing" tensions with Great Britain and Iran, falling oil prices, and "Promising" Pre-sales number from National Association of Realtors (NAR). I would like to break down this analysis by the main stream media who was pumping and pumping hard. On just one day's data! The other more realistic data was just thrown out the window today.
#1) "Easing" Tensions Between Great Britain and Iran: I don't know how the tension is easing when a country illegally captures 15 soldiers from Great Britain under the false pretense of violating Iranian water space. How can tensions ease when Iran has perpetrated such a blatantly callous act? I don't see anywhere in the news today where the two sides made any progress toward resolution of their differences. Iran has promised to not show the captured sailors and marines on TV or any media, yet they were paraded on Iranian News Paper not 12 hours after such promise was made. Is this progress? All it has shown was blatant disrespect by the hardline Iranian government who has no real intention of resolving this. Iran has NO INCENTIVE to resolve this situation as the price of oil has skyrocketed since this crisis. Britain is now demanding that they negotiate directly and this whole issue is getting rather silly. Britain knows that their global prestiege is at stake and I do not think that this will resolve as easily as the media thinks it will. No one can trust the Iranian regime whose intention is crystal clear: to dominate the Middle East and to continue to erode Western culture by terrorism. You cannot negotiate with terrorists and you certainly cannot negotiate with the ring leader. I would like to see the news headlines in 24 hours from now, which might go from easing to "grave". I think despite George Bush's many blunders, he is right about calling this a hostage crisis. I also believe that the tensions along the Iran-Iraqi border and this whole charade is Iran's attempt to draw US into the conflict. Iran wants a fight to show case their new found leverage and power on the world stage. They know all too well, that US has dissenting congress and the House, and a president that is not popular due to the Iraqi war. They would like to see nothing more than to have US engaged in a two front war. That will legitimize Iran's quest for Nuclear weapons. No one is buying their crap about "peaceful energy" uses. This is a brutal regime intent on blood. Media is wrong on this front. It is a wishful thinking. The crisis will esclate not "ease".
#2) Falling OIL prices: There was a market wide cheer today as oil dropped more than $1.30 and settled at $64.64. Great! Oil is so cheap now at $64.64, the inflationary pressures are all but mitigated in only one day! Oil rose from $58 per barrel just when the Iranian "hostage" crisis started to now at $64.64. It is more likely that our oil supplies, summer fuel blends, and continued confrontation with the British "hostage" crisis will lead to higher oil prices. It sure feels better though to see the oil prices at least for one day to go down, doesn't it?
#3) National Association of Realtors (NAR) reported 0.7% rise in "pending home sales" for the month of February: Yay! Housing has reached bottom! Let's rejoice in this often ridiculed indicator which is fraught with biases and inaccuracies. NAR has consistently been bullish throughout the current housing market crisis, only to mislead. In fact, the only group they serve are the realtors, after all, they are the group that stands to lose the most from this housing down turn, next to the mortgage lenders and home builders. What exactly does pending home sales mean? Wouldn't homes sold data indicate more factual representation of the health of the market? Also, did they disclose that this is a revised number and that home sales have slid 8.5% yer over year. How can this number be promising for the month of April and March sales figures? Especially when the homebuilders are basically crying out that their business has eroded to crisis point. Are people more apt to buy exisiting houses than new houses when credit crisis is ongoing and default rates are rising? One needs to only consider that the deliquency rate has doubled for ALT-A loans! http://market-ticker.denninger.net. This is an excellent site that is factual and is rather well written. Do not trust the NAR! They are self serving and doesn't have the right intentions.
And, so, my blog would never be complete without my daily take of Countrywide and Angelo Mozilo. Think about any one time in recent memory, with exception of yesterday, when a CEO appears on any national media and spends 2 hours trying to defend the industry and mainly, his company? None. That is why I grow even more suspicious and deeply sickened by the constant appearance of Mr. Mozilo on CNBC. Yet, he had the audacity to continue to sell 70,000 more shares today. Add that to the dubious "dear sir" letter by the two outgoing board members who seemed to be forced into writing this confessional. It is so transparent, again it sickens me. Anyway you slice it or dice it, abrupt departure of board members and other insiders (Mr. Kurland) is a bit suspicious. With ALT-A Option ARM loans getting bigger attention, it will continue to erode the smoke and mirrors of Countrywide. So, as Countrywide rises in price, I will continue to add to my put positions. I cannot believe that anyone would buy the BS spewed by Countrywide.
So, I sit disgusted but nevertheless convinced and more motivated to continue to hold firm and stand and watch this house of cards fall.
Monday, April 02, 2007
BIDU again testing 200 EDMA, LHCG continues to uptrend
As I said before, BIDU is a shell of a company and should not be in the same league as Google or even Yahoo. Technically speaking, It is again testing the 200 EDMA. A break below $93 would represent a good short entry with tight stops at $95. I think this stock can continue down and test $82 to $75 range in relatively quick order.
LHCG continues its uptrend and I don't think it is done. It is having trouble breaking above $34 level but it is a matter of time. It represents a good short term trading opportunity.
LHCG continues its uptrend and I don't think it is done. It is having trouble breaking above $34 level but it is a matter of time. It represents a good short term trading opportunity.
Countrywide's Investments Need More Scrutiny
I was looking over the recent 10K. Something struck me as odd. Countrywide currently has about $600 billion in Alt-A loans, though that number might be higher when you consider the months of January through March 2007. I feel that $600 billion is a low ball number because of the way Angelo Mozilo defended ALT-A Option ARMS as being "necessary" in this real estate market when interviewed by CNBC.
Back to the books. I know that Countrywide has significant usage of "Off Balance accounting". I do not know how much of their expenses and losses are hidden there but I wonder if we will ever know. I do know that $2.8 billion dollars share repurchase debt is hidden there. Enron did similar things with "off balance partnerships" which led to their downfall. The point is we really don't know, and this company hasn't been too easy to figure out in terms of how they "cook" their books.
Additionally, the $144 billion in "long term investments" need further clarification, especially in light of the fact that Countrywide among other major banks were named as "investors" in New Century's subprime loans, most likely in the form of CDO's. So the real question is, how much of the $144 billion in "long term investments" are worth nothing to less than face value at which it was purchased? Again, this is accounting trickery. By hiding the CDO's and other debts purchased from subprime, Counrywide can say that their subprime loan portfolio is less than 7% (though today, that number went up to 10%...hmmm). But if I can be a fly on the wall at Countrywide's accounting meetings, I would bet that a significant portion of the $144 billion isn't actually investments but liabilities. It is widely thought that Countrywide has about $50 billion in cash, but if the "investments" aren't exactly what it is, then the "debt" of roughly $113.68 billion might be much higher. Also, given that if the credit tightening happens (and it will) it will be more difficult to sell the CDO's. This will have the net effect of reducing the book value which currently stands at approximately $24.44. In fact, it may be possible that the company may be burdened with writeoffs that may exceed twice the market cap. That is scary.
Just a thought, but I am willing to bet that is why Ms. Brown abruptly quit and has never sold any of her shares in Countrywide. More fall outs are possible but the story gets more interesting!
Back to the books. I know that Countrywide has significant usage of "Off Balance accounting". I do not know how much of their expenses and losses are hidden there but I wonder if we will ever know. I do know that $2.8 billion dollars share repurchase debt is hidden there. Enron did similar things with "off balance partnerships" which led to their downfall. The point is we really don't know, and this company hasn't been too easy to figure out in terms of how they "cook" their books.
Additionally, the $144 billion in "long term investments" need further clarification, especially in light of the fact that Countrywide among other major banks were named as "investors" in New Century's subprime loans, most likely in the form of CDO's. So the real question is, how much of the $144 billion in "long term investments" are worth nothing to less than face value at which it was purchased? Again, this is accounting trickery. By hiding the CDO's and other debts purchased from subprime, Counrywide can say that their subprime loan portfolio is less than 7% (though today, that number went up to 10%...hmmm). But if I can be a fly on the wall at Countrywide's accounting meetings, I would bet that a significant portion of the $144 billion isn't actually investments but liabilities. It is widely thought that Countrywide has about $50 billion in cash, but if the "investments" aren't exactly what it is, then the "debt" of roughly $113.68 billion might be much higher. Also, given that if the credit tightening happens (and it will) it will be more difficult to sell the CDO's. This will have the net effect of reducing the book value which currently stands at approximately $24.44. In fact, it may be possible that the company may be burdened with writeoffs that may exceed twice the market cap. That is scary.
Just a thought, but I am willing to bet that is why Ms. Brown abruptly quit and has never sold any of her shares in Countrywide. More fall outs are possible but the story gets more interesting!
Anatomy of a Countrywide Meltdown- literally!
The sounds of fury is getting louder. Here is how I see Countrywide (CFC) uJim nravel.
1. Mozilo was hoping for a FED cut along with his friend Jim Cramer. Now that appears to be a nothing but a fleeting hope. He appears again today April 2, 2007 to basically plead for three things: an interest rate cut, tax payer sponsored bail out plan for sub-prime, and investors to throw away common sense.
2. There appears to be small buy transaction of 2400 shares by three board members, one of whom is Ms. Brown, who abruptly resigned. This appears to be the ploy by the board members to shield themselves for possible SEC inquiry about insider selling.
3. Mozilo continues to sell his shares, especially on days that he appears on TV! Even as he tried to sell "snake oil" to the masses today on CNBC, he sold 46,000 more shares. But he states that he has every faith in Countrywide!
4. ALT-A was a whisper in the past few weeks. It is now growing louder with M&T bank signaling the first warning shot regarding this dangerous loan, which Mozilo tried to defend as "necessary" on CNBC.
5. Herb Greenberg, emboldened by the way the housing bubble is popping, goes on the offensive and CNBC is now getting more bearish.
6. Jim Cramer appears on Stop Trading! on CNBC and advises Mozilo to stop making TV appearances. In his blog, he also states that the stock is being killed faster by Mozilo appearing on CNBC and trying to save it. He is acknowledging that this stock will continue its death spiral. Yet, he continues to recommend this stock as a buy! Is he short? Cramer is the ultimate contrarian indicator. But even Cramer is losing patientce and faith in Mozilo.
7. In New Century (NEWC.PK) filing for Chapter 11 bankruptcy today April 2, 2007, it is revealed that many large national banks, including Countrywide (CFC) has large exposure of unpaid CDO's and loans purchased from New Century (NEWC.PK) which will ultimately continue to erode earnings, especially for Countrywide, which is not as diversified as say, Bank of America (BAC) or Wells Fargo (WFC).
8. Ever hawkish FED comments today continues to show that the FED is committed to fighting inflation, not saving housing market, which has gotten us into this debacle in the first place. Kudos to the FED for steadfast adherence to policy.
All we are waiting for is Countrywide's preannouncement of earnings shortfall, and further revenue guidance shortfall, as well as possible layoffs of tens and thousands of employees in an effort to downsize the company. I do not think a future SEC investigation or FBI investigation is too far fetched.
1. Mozilo was hoping for a FED cut along with his friend Jim Cramer. Now that appears to be a nothing but a fleeting hope. He appears again today April 2, 2007 to basically plead for three things: an interest rate cut, tax payer sponsored bail out plan for sub-prime, and investors to throw away common sense.
2. There appears to be small buy transaction of 2400 shares by three board members, one of whom is Ms. Brown, who abruptly resigned. This appears to be the ploy by the board members to shield themselves for possible SEC inquiry about insider selling.
3. Mozilo continues to sell his shares, especially on days that he appears on TV! Even as he tried to sell "snake oil" to the masses today on CNBC, he sold 46,000 more shares. But he states that he has every faith in Countrywide!
4. ALT-A was a whisper in the past few weeks. It is now growing louder with M&T bank signaling the first warning shot regarding this dangerous loan, which Mozilo tried to defend as "necessary" on CNBC.
5. Herb Greenberg, emboldened by the way the housing bubble is popping, goes on the offensive and CNBC is now getting more bearish.
6. Jim Cramer appears on Stop Trading! on CNBC and advises Mozilo to stop making TV appearances. In his blog, he also states that the stock is being killed faster by Mozilo appearing on CNBC and trying to save it. He is acknowledging that this stock will continue its death spiral. Yet, he continues to recommend this stock as a buy! Is he short? Cramer is the ultimate contrarian indicator. But even Cramer is losing patientce and faith in Mozilo.
7. In New Century (NEWC.PK) filing for Chapter 11 bankruptcy today April 2, 2007, it is revealed that many large national banks, including Countrywide (CFC) has large exposure of unpaid CDO's and loans purchased from New Century (NEWC.PK) which will ultimately continue to erode earnings, especially for Countrywide, which is not as diversified as say, Bank of America (BAC) or Wells Fargo (WFC).
8. Ever hawkish FED comments today continues to show that the FED is committed to fighting inflation, not saving housing market, which has gotten us into this debacle in the first place. Kudos to the FED for steadfast adherence to policy.
All we are waiting for is Countrywide's preannouncement of earnings shortfall, and further revenue guidance shortfall, as well as possible layoffs of tens and thousands of employees in an effort to downsize the company. I do not think a future SEC investigation or FBI investigation is too far fetched.
Do Not Heed Cramer's Mornoic Rants!
ISM numbers came in lowest since August of 2006. So, the economy is slowing down assauging frear of recession. Jim Cramer of Mad Money and The Street dot com, continues to spew nonsensical rants that will ultimately get a lot of people in financial trouble.
In today's blogs, Cramer talks about how the weak ISM number is a positive thing for the markets because he believes that the FEDS will cut interest rates soon. This from a guy who reminds you daily that he went to Harvard and worked at Goldman Sachs. Even a 12 year old will understand the dangers of unmitigated rising inflation. Cramer is so blinded by his perma-bull stance that he cannot see through this fundamental problem that faces our market today.
Take a look at his blog today:
How Weak Data Help the Market
04/02/2007 10:22 AM
Market's wrong here. We want weakness to augment the pressure on the Fed so this ISM manufacturing growth number --the slowest since August -- is a great reminder to the Fed about how precarious the U.S. shooting match is. Remember, we have two economies: the ROW (rest of world) economy, those companies that sell overseas, which is real strong; and the domestic economy, which is not good because it is levered to autos and housing and retail, the latter hobbled by newly high gasoline prices.
We have weakness coming in regional banks -- oh my are they good shorts, just go read the M&T (MTB - commentary - Cramer's Take) statement -- and we have New Century (NEWC - commentary - Cramer's Take) going out. Don't forget, we are going to get more bad news from NovaStar (NFI - commentary - Cramer's Take) and Freemont (FMT - commentary - Cramer's Take), if only writedowns and dividend cancellations.
Housing quarters were awful, far worse than these companies thought, and I suspect things will only get tougher given the homebuilders' insistence that they are all fine. As rates get readjusted -- and the peak to that is next year, not this year -- the supply will only increase.
That's why weakness is a godsend, because it gives the Fed a non-housing-related reason to cut.
People are so wrong about the Fed and inflation. It isn't worried about inflation, it's just trying to manage a crisis.
It won't be able to. Which is why it's going to cut, and we need weak data to make that happen.
Random musings: Memo to Countrywide (CFC - commentary - Cramer's Take) CEO Angelo Mozilo: No need to keep talking about the woes; we know them and you are just killing your own stock faster and harder than the market will kill it.
My position is that the FED will not cut rates in fears of stoking further inflation despite the troubles shown by the housing market and the recent weak ISM data. If anything, it will further prove to the FEDS that they must stand pat but be on guard to raise the interest rates to protect against inflation.
For those of you who have been following my Countrywide postings, Cramer is now doing his own form of damage control by pointing fingers at Mozilo. He advocated this stock as a buy but now he is changing his tune. His form of due diligence is trusting rumors and tips by the insiders and analysts, and we know how right they are at market tops and bottoms. Just as he advocated home builders and proclaimed that they have bottomed back in October 2006 and paraded CEOs from Lennar and Toll Brothers, he did so with Countrywide and Angelo Mozilo.
The desperation by Mozilo was palpable and evident today at 7:00am EST on CNBC today and for once I could see that Joe Kernan kept asking rather moderately difficult questions and if I wasn't mistaken, Mozilo sounded like a broken record with a scratch. He stuttered a few times as well. Why so nervous Angelo? Don't you think that the street has figured out your pump and dump scheme? Nevertheless, it is clear that even Cramer is becoming suspcious or irritated by Mozilo by making his memo: CEO Angelo Mozilo: No need to ikeep talking about the woes; we know them and you are just killing your own stock faster an harder than the market will kill it. Here is the first acknowledgement by Cramer that he is once again wrong and his sentiment to Mozilo is changing. I am giving Cramer just 2 more months before he will bash Countrywide, at which time it might be too late because Cramer is a contrary indicator. As I alluded to last few blogs past, Cramer has always done this, he will recommend a stock that is either a turn around story or a broken story for a recovery, and he likes the CEO, and they pump the company's story on his show, and later screw him and his viewers. Later, Cramer will say something like "feeling used by so and so...".
The writing's on the wall. The desperation of CEO Mozilo is palpable and real. I think that he should let go of his ego and come clean and save the long believing shareholders from maximum pain before it is too late.
In today's blogs, Cramer talks about how the weak ISM number is a positive thing for the markets because he believes that the FEDS will cut interest rates soon. This from a guy who reminds you daily that he went to Harvard and worked at Goldman Sachs. Even a 12 year old will understand the dangers of unmitigated rising inflation. Cramer is so blinded by his perma-bull stance that he cannot see through this fundamental problem that faces our market today.
Take a look at his blog today:
How Weak Data Help the Market
04/02/2007 10:22 AM
Market's wrong here. We want weakness to augment the pressure on the Fed so this ISM manufacturing growth number --the slowest since August -- is a great reminder to the Fed about how precarious the U.S. shooting match is. Remember, we have two economies: the ROW (rest of world) economy, those companies that sell overseas, which is real strong; and the domestic economy, which is not good because it is levered to autos and housing and retail, the latter hobbled by newly high gasoline prices.
We have weakness coming in regional banks -- oh my are they good shorts, just go read the M&T (MTB - commentary - Cramer's Take) statement -- and we have New Century (NEWC - commentary - Cramer's Take) going out. Don't forget, we are going to get more bad news from NovaStar (NFI - commentary - Cramer's Take) and Freemont (FMT - commentary - Cramer's Take), if only writedowns and dividend cancellations.
Housing quarters were awful, far worse than these companies thought, and I suspect things will only get tougher given the homebuilders' insistence that they are all fine. As rates get readjusted -- and the peak to that is next year, not this year -- the supply will only increase.
That's why weakness is a godsend, because it gives the Fed a non-housing-related reason to cut.
People are so wrong about the Fed and inflation. It isn't worried about inflation, it's just trying to manage a crisis.
It won't be able to. Which is why it's going to cut, and we need weak data to make that happen.
Random musings: Memo to Countrywide (CFC - commentary - Cramer's Take) CEO Angelo Mozilo: No need to keep talking about the woes; we know them and you are just killing your own stock faster and harder than the market will kill it.
My position is that the FED will not cut rates in fears of stoking further inflation despite the troubles shown by the housing market and the recent weak ISM data. If anything, it will further prove to the FEDS that they must stand pat but be on guard to raise the interest rates to protect against inflation.
For those of you who have been following my Countrywide postings, Cramer is now doing his own form of damage control by pointing fingers at Mozilo. He advocated this stock as a buy but now he is changing his tune. His form of due diligence is trusting rumors and tips by the insiders and analysts, and we know how right they are at market tops and bottoms. Just as he advocated home builders and proclaimed that they have bottomed back in October 2006 and paraded CEOs from Lennar and Toll Brothers, he did so with Countrywide and Angelo Mozilo.
The desperation by Mozilo was palpable and evident today at 7:00am EST on CNBC today and for once I could see that Joe Kernan kept asking rather moderately difficult questions and if I wasn't mistaken, Mozilo sounded like a broken record with a scratch. He stuttered a few times as well. Why so nervous Angelo? Don't you think that the street has figured out your pump and dump scheme? Nevertheless, it is clear that even Cramer is becoming suspcious or irritated by Mozilo by making his memo: CEO Angelo Mozilo: No need to ikeep talking about the woes; we know them and you are just killing your own stock faster an harder than the market will kill it. Here is the first acknowledgement by Cramer that he is once again wrong and his sentiment to Mozilo is changing. I am giving Cramer just 2 more months before he will bash Countrywide, at which time it might be too late because Cramer is a contrary indicator. As I alluded to last few blogs past, Cramer has always done this, he will recommend a stock that is either a turn around story or a broken story for a recovery, and he likes the CEO, and they pump the company's story on his show, and later screw him and his viewers. Later, Cramer will say something like "feeling used by so and so...".
The writing's on the wall. The desperation of CEO Mozilo is palpable and real. I think that he should let go of his ego and come clean and save the long believing shareholders from maximum pain before it is too late.
Sunday, April 01, 2007
Mozilo on CNBC at 7:00AM EST For What I wonder?
Angelo Mozilo, CEO of Countrywide Financial will yet again make an appearnce on CNBC at 7:00am, full two and one half hours before the market opens. The nature of the CNBC interview is unknown but with the recent departure of two long time board members that was announced at 8:00pm EST on Friday March 30, 2007, it appears that he is attempting to do damage control before the market opens. As stated earlier, CNBC has allowed Mozilo to spin his company's situation without much journalistic integrity or hard fact based questions. Mozilo has utilized a host of CNBC personalities including Maria Bartiromo, Erin Burnett, Jim Cramer to assert his company's immunity from the subprime mortgage meltdown. If CNBC has any journalistic integrity left and wants to distance itself for what appears to be a possible SEC investigation in the future, and if they want to regain some credibility in this matter, they will have to ask some hard questions to Mozilo. CNBC has not served its viewers by becoming a platform which "spin" can be disseminated to mislead investors by various CEOs.
My concern resides in the fact that the departure of the two board members were announced after the market close, in blatant attempt to minimize damage. Before the market closed, there had been rumblings around the Yahoo message board that Angelo Mozilo might be scheduled to air on CNBC but no specifics were given or the rumor could not be verifed until the market close. There is some speculation that perhaps Countrywide might be bought out by Bank of America or other larger bank and perhaps that he will announce this before the market opens so that the stock price could potentially jump based on this announcement. I find that highly unlikely especially since the meltdown in the housing sector is just beginning without any evidence of bottoming. There is absolutely no motivation for anyone to touch Countrywide right now as a partnership or a buyout. But, as always, you never know. Additional rumors have been circulating that Mozilo might also announce his retirement or at least let go of some of his duties at Countrywide. We know this might be a possiblity as David Sambol has been named as Chief executive and director of Countrywide Home Loans Inc, a major subsidiary of Countrywide financial. Something is definitely brewing here and it can't all be good.
I will thus list some facts leading up to this rather abrupt interview on Monday:
1. Mozilo has resigned from the Home Depot Board of Directors in March.
2. Mr. Dougherty and Ms. Brown has decided to step down from Countrywide Board of Directors, Ms. Brown immediately and Mr. Dougherty at the end of the quarter. No reasons were supplied.
3. ALT-A loan is now affecting the mainstream banks such as M&T bank.
4. Mr. Mozilo did not testify under oath at the congressional hearings which he should have done.
5. Mr. Mozilo appears on less than credible Mad Money with Jim Cramer instead of Congressional hearings.
6. Beazer homes are being investigated by FBI for fraud for their lending practices as Countrywide also has significant exposure on this end as well, are they next?
7. There is no more information available on Mr. Stanford Kurland, who was supposed to succeed Mr. Mozilo on his 68th birthday on December 06, this did not materialize, and despite all the hoopla, Mr. Mozilo is still the CEO and Chairman, and selling his stakes in Countrywide at an alarming rate.
I anticipate that he will try to put as positive light as possible regarding the recent departures of the two long time board members at Countrywide. I also anticipate that he will use this opportunity to reassure the public about the Countrywide's strength. He may announce possibly that he will step down at least in some capacity at Countrywide or out right announce his retirement. That is a possiblity. As for the merger, selling of the company, or strategic alliance, I don't think anyone would want to touch this company right now.
Let's Revisit Some Sell Rules
I am a firm believer in William O'Neal's tenets as it has allowed me to be successful in the market place. In reference to Countrywide Financial (CFC), there are significant warning signs in relation to the CEO and stock behavior.
In "The Successful Investor" by William O'Neal, a review of some tall tale sell rules revealed the following:
1. Be ready to sell when the media begins to show the CEO on the covers of the magazines, writing glowing stories, or the CEO makes frequent appearances on TV such as CNBC.
"The time to worry is when they do. And when they get around to putting a picture of the CEO on the cover, the time may have come to consider selling. Remember, the market is a contrary animal, and when it is finally obvious to the masses, it seldom contiues to work. Markets move to fool and outwit the majority" Page 93.
How many times have we seen Mr. Mozilo on CNBC with Maria Bartiromo, Jim Cramer? Last week's Barron's Magazine coverage of very best CEO's had Angelo Mozilo as one. Furthermore, Mozilo is now scheduled to re-appear on CNBC a full one week after he appeared on two segments on CNBC!
2. Countrywide has said countless times, during this mortgage/housing meltdown, that they expect to emerge stronger and bigger as a result of other competitors being driven out of business. Their stated goal then is to become the biggest in the mortgage field and has aspirations of transforming into a savings and loan bank.
"A warning light should also go on when a company indicates it wants to be the biggest in its field. What usually follows is a merger and acquisition binge that leads to a hangover from which the original company rarely recovers." Page 94.
We know that Countrywide has made some large scale acquisitions from the home builders including Kaufman and Broad and other strategic alliances that thrust Countrywide into "other" segments of the lending business. They have also formulated Fullspectrumlending.com for subprime mortgages, despite their assertion that their exposure into this arena was limited. This acquisition binge that they went on few years prior, has diluted shareholder value. Their arrogant posture regarding being the biggest in the field of mortgage lending will ultimately hurt them and it is happening right now.
3. Corporate extravagance can be seen in Mozilo's membership to exclusive golf communities and David Sambol's recent pay package includes country club memberships.
"Also keep an eye out for signs of extravagance-the corporate equivalent of conspicuous consumption." Page 93.
I suppose you can add to that the generous stock options granting to its insiders as well as "extravagent" rate at which it is being exercised should be another red flag for this company.
I am especially concerned about the frequency at which the CEO appears on CNBC to do "damage control" or "pump" up the stock. When the overwhelming evidence points to significant issues within the company, the media, financial pundits, investment banks, seem to be complicit in trying to prop this company up. But luckily, truth will become truth no matter how much spin is inherent within this stock.
In "The Successful Investor" by William O'Neal, a review of some tall tale sell rules revealed the following:
1. Be ready to sell when the media begins to show the CEO on the covers of the magazines, writing glowing stories, or the CEO makes frequent appearances on TV such as CNBC.
"The time to worry is when they do. And when they get around to putting a picture of the CEO on the cover, the time may have come to consider selling. Remember, the market is a contrary animal, and when it is finally obvious to the masses, it seldom contiues to work. Markets move to fool and outwit the majority" Page 93.
How many times have we seen Mr. Mozilo on CNBC with Maria Bartiromo, Jim Cramer? Last week's Barron's Magazine coverage of very best CEO's had Angelo Mozilo as one. Furthermore, Mozilo is now scheduled to re-appear on CNBC a full one week after he appeared on two segments on CNBC!
2. Countrywide has said countless times, during this mortgage/housing meltdown, that they expect to emerge stronger and bigger as a result of other competitors being driven out of business. Their stated goal then is to become the biggest in the mortgage field and has aspirations of transforming into a savings and loan bank.
"A warning light should also go on when a company indicates it wants to be the biggest in its field. What usually follows is a merger and acquisition binge that leads to a hangover from which the original company rarely recovers." Page 94.
We know that Countrywide has made some large scale acquisitions from the home builders including Kaufman and Broad and other strategic alliances that thrust Countrywide into "other" segments of the lending business. They have also formulated Fullspectrumlending.com for subprime mortgages, despite their assertion that their exposure into this arena was limited. This acquisition binge that they went on few years prior, has diluted shareholder value. Their arrogant posture regarding being the biggest in the field of mortgage lending will ultimately hurt them and it is happening right now.
3. Corporate extravagance can be seen in Mozilo's membership to exclusive golf communities and David Sambol's recent pay package includes country club memberships.
"Also keep an eye out for signs of extravagance-the corporate equivalent of conspicuous consumption." Page 93.
I suppose you can add to that the generous stock options granting to its insiders as well as "extravagent" rate at which it is being exercised should be another red flag for this company.
I am especially concerned about the frequency at which the CEO appears on CNBC to do "damage control" or "pump" up the stock. When the overwhelming evidence points to significant issues within the company, the media, financial pundits, investment banks, seem to be complicit in trying to prop this company up. But luckily, truth will become truth no matter how much spin is inherent within this stock.
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