Earlier, I posted a change in my thesis and I got an interesting post (all posts are appreciated) that proclaimed that I am a "contrarian" indicator. That's fair. It may even be fair to accuse me of being a novice. I can accept that. I never professed to be a professional trader. I consider every trade whether it be a loss or a gain, a learning opportunity.
Just a clarification in case some have misunderstood my position. I am net short on Countrywide and continue to be so. However, the current market condition is just too bullish with technicals showing an uptrend. I have to obey my set of rules. However, I know that eventually, the overwhelming bullishness in this market will hit a crescendo and all will revert back to the norm. Since I am a short term trader, I trade on momentum either to the long or short side. My long position in CFC is short term until options expiration and this position has netted me a nice gain today. I plan on holding this through Friday and take whatever gain I can get. I am long on April $37.50 call. So excuse me for being a novice.
I would like to wait and see how the earnings report is received by the market when Countrywide reports on April 26. Based on that I may continue to hold my long term puts and stay on hold or buy more. My research and insights on this blog shall not go in vain. But when the opportunity presents itself, I will also take it.
Google looks to be completing a double bottom base pattern and Yahoo's demise is Google's gain. I believe that Google can regain and break above the $510 resistance and make a run for mid $500's after earnings. So I will go long on that. LHCG is digesting its gains and it should do well when they report earnings.
The market is behaving in a way that is completely irrational. Perhaps it is due to the manipulation by PPT? I don't know. But when the market acts in dislocation to the underlying fundamentals, before long, it needs to revert in concert with the technicals. Either one must give and join the other. Eventually, the market will get overbought and then it will realize the "dream" has been dashed.
But at any rate, for those coming on to my blog either for amusement, information, or just to throw insults, that is fine. At least you are reading and that is validation enough. And, thank you "Mr. Anyonymous" for visiting my blog, I am glad that I can be of service.
Wednesday, April 18, 2007
Trend
The recent market run up has is now testing the old Dow highs established earlier this year. Additionally, S&P 500 is at its highest point since 2000. Negative news in the lending front is like teflon for the major banks that issue home mortgages. Every bit of negative news does not affect any of the subprime lenders and banks. I believe the momentum has shifted towards the upside and now the trend is "up".
This tells me that it is useless to fight the tape and that more attention should be paid to the long side of the trade. It appears that the market has priced in a rate cut in the near future, even though, I continue to think that is impossible, it would be a losing proposition to fight the tape. Remember, the market is always right, and fundamentals do not necessarily reflect the technicals of the market.
In the current time, I do not think continuing to short on the way up on Countrywide is a prudent idea. I think that we should wait for the earnings release and cover our shorts.
I am going long on Google, CSCO, LHCG, CFC (into earnings).
This tells me that it is useless to fight the tape and that more attention should be paid to the long side of the trade. It appears that the market has priced in a rate cut in the near future, even though, I continue to think that is impossible, it would be a losing proposition to fight the tape. Remember, the market is always right, and fundamentals do not necessarily reflect the technicals of the market.
In the current time, I do not think continuing to short on the way up on Countrywide is a prudent idea. I think that we should wait for the earnings release and cover our shorts.
I am going long on Google, CSCO, LHCG, CFC (into earnings).
Monday, April 16, 2007
Countrywide Up on Private Equity Buy Out Possibilities
Today, Sallie Mae announced that it would be bought out by a group including a pair of leveraged buyout firms. http://blogs.wsj.com/deals/2007/04/16/sallie-mae-breaks-the-buyout-barrier-is-countrywide-next/
It raised speculation that Countrywide, CIT Group, and iStar Financial might be fair play in the wake of this mega news.
It continued by speculating on today's share price rise as possible noise regarding the possiblity of a buy out.
My take on this is another blatant attempt by either the hedge fund or the main stream media to pump up the share price of Countrywide Financial Corporation. After today, Countrywide is only down about 16% from its highs and does not carry significantly compelling buy out thesis that Sallie Mae does.
Additionally, if this was in the works, then Angelo Mozilo would not be actively liquidating his shares in the company, unless of course, he plans to retire after he sells all of his shares. This might be a remote possibility. But a leveraged buy out would require share holder approval and there will be some road block to this issue.
Right now, CFC has an open options probe that is ongoing, questionable off balance sheet accounting, and more questions than answers regarding its claim that it is immune to the recent subprime and ALT-A Option ARM fall out.
Just look at today's Wall Street Journal's article which show that Washington Mutual and Countrywide lead in questionable lending to second home buyers and subprime. Notice that subprime, high cost loans consist of 25% of the 2006 loans originated by Countrywide while second home buyer loan was 13%. Not quite what Countrywide said their subprime or "risky" loan portfolio was.
Everytime any piece of information or news is unearthed, Countrywide is at the top of the list. Look at the chart, Countrywide is ranked right behind Washington Mutual as "risky" lending practices.
Yet, the market rewards Countrywide with a 7%+ rise today? Perhaps they WILL be bought out, I do not know the ins and outs of their daily misrepresentation, but, it does remain clear, that even if they are a buy out candidate, I do not think any buy out firm or LBO would touch this company until all questions have been satisfactorily answered.
If I had to be a bit "off the wall", I would say that today's rise was a manipulation to shake out the shorts before the "announcement" of materially damaging news that might be coming for CFC, possibly this week.
Maybe so, maybe not. I still think something fishy is going on. Tomorrow, the CPI and housing starts will be released. If CPI is "hot", that would be a damaging blow to today's irrational market rise. For some reason, the market sees dillusional fantasy of rate cut in the near future. FED has maintained that despite every consideration, inflation must be the priority. Last time I checked, the price of milk is expected to rise 9% in the fall, oil is above $60+ and is one severe storm or hurricane away from $70. Today's consumer spending data was "skewed" from an already low prior month number AND with doctoring of "Easter" data that happened to fall on March.
Yet the march continues towards the Apertoire.
Sunday, April 15, 2007
Milk as Inflationary Gauge
If anyone has any doubts that inflation IS real, then one needs to consider the price action of milk.
Milk? Yes, milk. I know this news might be old for some, but I don't know if anyone seriously considered the implications of milk.
Around the globe, cow milk is a core ingredient in many of the food substances both natural and processed. Milk is in just about everything from chocolate, baby formulas, to cakes. When you consider the ubiquitous nature of milk and the implications it has on world food consumption, which should rise as population continues to grow logarithmically with no end in sight, you can consider that the price of milk, long an after thought, actually has serious implications on inflation.
On May 30, 2007, it was announced that the price of milk is expected to rise 9% based on rising fuel costs and increased feed cost. http://msnbc.msn.com/id/17869458/ This is a rise of over 30 cents per gallon by fall.
Heed this as the warning that should have even the sunny perma bulls of this market shaking in their pants. It has trickled down to the basic food group. The whole sale take home message is that milk's rise in price has to do with inflationary pressure that is currently the major issue with the FEDS. It also is an indication that other aspects of the economy is experiencing significant inflationary pressure. Oil, rising health care cost, wages that are not keeping up with inflation, and global demand for raw materials all contribute to the inflationary problems that are not an isolated event exclusive to USA.
Rising milk price is by far the most confirmatory signal that inflation is worse than even the FEDS who stated that inflation is not contained recently, and thus should be taken seriously.
I do not think that the market is healthy despite the recent market movements. Remember, the current rally comes on suspicious follow through day on the Nasdaq and that the rally lacks significant volume. If anything, this action is reminiscent of the 2000 tech rally that eventually pittered out. Thus, for those of you who are thinking of giving up and joining the "long" camp, consider the LOUD WARNING being issued by of all things, MILK.
Milk? Yes, milk. I know this news might be old for some, but I don't know if anyone seriously considered the implications of milk.
Around the globe, cow milk is a core ingredient in many of the food substances both natural and processed. Milk is in just about everything from chocolate, baby formulas, to cakes. When you consider the ubiquitous nature of milk and the implications it has on world food consumption, which should rise as population continues to grow logarithmically with no end in sight, you can consider that the price of milk, long an after thought, actually has serious implications on inflation.
On May 30, 2007, it was announced that the price of milk is expected to rise 9% based on rising fuel costs and increased feed cost. http://msnbc.msn.com/id/17869458/ This is a rise of over 30 cents per gallon by fall.
Heed this as the warning that should have even the sunny perma bulls of this market shaking in their pants. It has trickled down to the basic food group. The whole sale take home message is that milk's rise in price has to do with inflationary pressure that is currently the major issue with the FEDS. It also is an indication that other aspects of the economy is experiencing significant inflationary pressure. Oil, rising health care cost, wages that are not keeping up with inflation, and global demand for raw materials all contribute to the inflationary problems that are not an isolated event exclusive to USA.
Rising milk price is by far the most confirmatory signal that inflation is worse than even the FEDS who stated that inflation is not contained recently, and thus should be taken seriously.
I do not think that the market is healthy despite the recent market movements. Remember, the current rally comes on suspicious follow through day on the Nasdaq and that the rally lacks significant volume. If anything, this action is reminiscent of the 2000 tech rally that eventually pittered out. Thus, for those of you who are thinking of giving up and joining the "long" camp, consider the LOUD WARNING being issued by of all things, MILK.
Countrywide 50 EDMA Crossed Over 200 EDMA
It is confirmed. CFC has now crossed the 50 and 200 EDMA where the 50EDMA is now below the 200 EDMA. This is a bearish sign and also, CFC has failed to mount any up days in materially strong volume, instead majority of their up days have finished on the lower end of the price range on lack luster volume. This is not bullish.
I predict that the stock will continue to see "significant" downward pressure and may be ready to test the $32.50 historic support level, which I believe may be breached by April 26, 2007.
Have those shorts and puts handy. For the adventuresome, the April $30 puts still has some value and would be a good "outside" chance bet on some huge gains.
It would be prudent to stay short or buying the July $30 puts or out further.
I predict that the stock will continue to see "significant" downward pressure and may be ready to test the $32.50 historic support level, which I believe may be breached by April 26, 2007.
Have those shorts and puts handy. For the adventuresome, the April $30 puts still has some value and would be a good "outside" chance bet on some huge gains.
It would be prudent to stay short or buying the July $30 puts or out further.
Go Read Karl Denninger's Blog!
I have always read with interest and enthusiasm Karl Denninger's blog. While I incorporate a lot of my own opinionated posts, Karl's site is full of interesting facts and insights. I think it will provide a valuable addition to my blog. But even more strongly so today, please go read his blog on http://market-ticker.denninger.net/index.html
The title is: "The Week Ahead- Market Preview". Please pay attention to the graph on Mortgage Refinance Resulting in 5% or Higher Loan Amount (Cash Out). Notice the parallels of the housing down turns and how refinance activity resulting in cash out is clearly noted. That is a trend and trend must be heeded along with statistically significant projections.
I also would like to point out the following after reading his blog:
The title is: "The Week Ahead- Market Preview". Please pay attention to the graph on Mortgage Refinance Resulting in 5% or Higher Loan Amount (Cash Out). Notice the parallels of the housing down turns and how refinance activity resulting in cash out is clearly noted. That is a trend and trend must be heeded along with statistically significant projections.
I also would like to point out the following after reading his blog:
- NASD margin borrowing is at its record levels
- Refinancing homes led to ATM effect which is now drying up
- Consumer spending is slowing significantly
- Credit card debt levels are at an all time high
Also, please read between the lines when assessing last week's rally. It came on below average volume with no confirmation that the institutions are buying. If anything, they are selling into the weakness.
I have fears for this market.
Market Irrationality
Before, the markets were concerned about rising inflation rate and corresponding FED interest rate increase. For the past month or so, the market has rallied based on the notion that the FED will ease sooner than later. Once the FED made it clear that the possiblity of interest rate hike exists due to unmitigated inflation, the market now prices in a rate hike some time in Autumn, and then rallies. Every new "negative" news is spun and recreated with a "positive". All I can say is that the market is now in a dangerous territory. The market refuses to price in the fact that the economy might in fact be headed straight into a recession and worse, possibly a stagflation. So the market rallies on what? HOPE.
If anyone has ever studied the stock market in any detail, it is essentially a mass conglomeration of human psycholgy. That is greed, fear, and worse of them all, HOPE. "Hope" is a dangerous thing. I think they said that in the movie, "Shawshank Redemption". It is clearly so in this case.
The market refuses to price in the possiblity that the economy needs a period of cooling and reevaluation. That possibly that the market needs a little respite. That market corections of 20% or more is a positive thing for the market. Yet the market plunge that started in February 27 was brushed aside. Call it what you will, I have heard enough nonsense about PPT to market corruption. But do we really need all of that to realize that we are in a dangerous territory?
No matter where I look, the market seems to have the genuine ability to spin things. Or, are we setting up for a precipitous fall? I don't know. But the rate of the market rise in light of rather dim economic news, established notion that the corporate earnings will slow or fall in the coming quarters, consumer spending is slowing, housing bubble continues to weigh on the economy (of which the full consequence won't be known until after the fact, no matter how many people have an opinion on this), and inflationary pressures. The last time I checked, the dollar continues to fall in relation to EURO and people have all but forgotten about the YEN and the possiblity of the higher YEN having material impact on carry trades. I am keeping tabs and I do not see anything positive in the near of far future. Not until we have "reset" the market with at least a 20% correction.
Corrections are not all that bad in and of itself. It is a process that refreshes for the next earnest bull run. It is a necessity of which no new bull market has ever started without one. The next issue about why I am so bearish and think that the market is irrational is that we have had an unprecedented run up since last July without a moderate correction. As it turns out, the February 27th drop was a blip and cannot be considered a major event that would satify the 20% correction requirement. None the less, the follow through day that came after the February 27th correction was too short and I still believe that we are treading on unshaky grounds technically.
I have always traded on the bullish side but the parallel leading up to 2000 tech correction is uncanny here. So instead of heeding the market, I stand a contrarian. It is costing me money but I have to learn from history and that is where I will be, a learned student of history. But boy oh boy, do I wish I stayed in cash. That cannot be taken back. I am in too deep at this point to regret. All I know is that I am short and believe more each day that being short is the right decision, no matter the short term pain.
If anyone has ever studied the stock market in any detail, it is essentially a mass conglomeration of human psycholgy. That is greed, fear, and worse of them all, HOPE. "Hope" is a dangerous thing. I think they said that in the movie, "Shawshank Redemption". It is clearly so in this case.
The market refuses to price in the possiblity that the economy needs a period of cooling and reevaluation. That possibly that the market needs a little respite. That market corections of 20% or more is a positive thing for the market. Yet the market plunge that started in February 27 was brushed aside. Call it what you will, I have heard enough nonsense about PPT to market corruption. But do we really need all of that to realize that we are in a dangerous territory?
No matter where I look, the market seems to have the genuine ability to spin things. Or, are we setting up for a precipitous fall? I don't know. But the rate of the market rise in light of rather dim economic news, established notion that the corporate earnings will slow or fall in the coming quarters, consumer spending is slowing, housing bubble continues to weigh on the economy (of which the full consequence won't be known until after the fact, no matter how many people have an opinion on this), and inflationary pressures. The last time I checked, the dollar continues to fall in relation to EURO and people have all but forgotten about the YEN and the possiblity of the higher YEN having material impact on carry trades. I am keeping tabs and I do not see anything positive in the near of far future. Not until we have "reset" the market with at least a 20% correction.
Corrections are not all that bad in and of itself. It is a process that refreshes for the next earnest bull run. It is a necessity of which no new bull market has ever started without one. The next issue about why I am so bearish and think that the market is irrational is that we have had an unprecedented run up since last July without a moderate correction. As it turns out, the February 27th drop was a blip and cannot be considered a major event that would satify the 20% correction requirement. None the less, the follow through day that came after the February 27th correction was too short and I still believe that we are treading on unshaky grounds technically.
I have always traded on the bullish side but the parallel leading up to 2000 tech correction is uncanny here. So instead of heeding the market, I stand a contrarian. It is costing me money but I have to learn from history and that is where I will be, a learned student of history. But boy oh boy, do I wish I stayed in cash. That cannot be taken back. I am in too deep at this point to regret. All I know is that I am short and believe more each day that being short is the right decision, no matter the short term pain.
Thursday, April 12, 2007
Mr. Mozilo, Tear Down Your Lies.
Mr. Mozilo,
I have to admit, I have become quite a fan of you and your company, Countrywide Financial Corporation. You have built yourself quite a company. You have been instrumental in bringing home ownership to many, regardless of race, creed, social status, or financial means. I believe you when you say that your entire life's goal was to bring home ownership to everyone that wants one. I think you have succeeded in your quest, sir.
Countrywide has become the darling of the wall street and I commend you for your deft direction and leadership in this matter. Through your guidance, you have transformed the company which you founded from a humble home loan provider to the conglomerate giant it is today. I know that along the way, you have gained many admirers, like myself, and strong influential connections in the financial institutions and in the government. You are to be commended.
With the burst of the dot com bubble, you have played a key role in propping up the American economy by averting disasterous economic down turn by bringing home ownership to the masses by taking advantage of Mr. Greenspan's proactive interest rate cuts to help stimulate the economy. You have definitely taken advantage of the situation sir and have contributed to the robust housing boom rivaling that of the dot com era just 10 years prior. During that time, many people have become rich by home ownership. You have helped create excess speculation in the housing boom that made instant millionaires and weekend home investors. Many have given up their primary jobs to partake in this new bonanza and you were much happy to oblige and continue to facilitate the greatest housing boom in history. You certainly have done your part to help an average or even below average Americans to reach their goals in the real estate boom.
Mr. Mozilo, I am quite curious lately regarding the future of the housing market. Just one month ago, you said that the subprime companies were making risky loas and that some would not survive. You were right sir, many have folded and some might even go to jail. It is interesting that you yourself said that Countrywide stands to benefit from the fallout of the housing market and mortgage lending industry purge. You have said that Countrywide realized the dangers of subprime and even alluded that you no longer partake in that field anymore, yet your earnings statement today said that subprime loans dropped 29% for prior year, which means that you are still making these risky loans. How do you account also for the fact that your company has a subsidiary called Fullspectrumlending.com? This is a subprime division is it not? If true, then are you not actively seeking these so called "risky" loan groups?
You have also said that you stand to benefit from the fall out of mortgage crisis and housing crisis. You have personally said that Countrywide stands to benefit and become stronger when the smoke clears. Yet, all I have seen so far is a lot of PR campaign by you and your lieutenants. How can you explain in honest truth your excessive selling of your options and that not one of your insiders have bought a single share of your company within the past 2 years? If your company is so sound, and if your company has taken such a dramatic hair cut in terms of share price, shouldn't you stand by your share holders and roll up your sleeves and be buying this stock, since it is so fairly valued? Since that is what your loyal share holders believe, shouldn't you lead by actions not by mouth? You sir have sold more than $25 million last March? You have sold even more just yesterday. How will you explain that other than saying that you need to "bring balance to your life?".
More importantly, if your company is fully hedged in terms of financial risks associated with mortgage defaults via insurance, did the insurance company that provides this coverage know that majority of your loans are fradulent because of your so called stated income loans? Are your prime loan portfolion consist of at least 45% in ALT-A option ARMS? How is your company so much superior to M&T, AHM, or WFM? All of those companies are as well run or better than your company yet they have had the decency to be SQUARE with the share holders and honorably took their lumps. Why are you not?
I am growing tired of the smoke and mirrors of your company. You yourself have said that the only thing that will save your industry is a rate cut in the near term. Sir that is not happening, so, what are you going to say next to prop up your share prices so that you can continue to dump your shares? I especially believe what you are telling the public that you don't think your company is worth $33 and change, otherwise, if it were you'd be buying wouldn't you? And please, what is up with your 8K? Is that the best you can do? I think you'd better look at that 5% increase mumbo jumbo that you have there because somehow the breakdown of the 5% increase in your loan doesn't jive. What? You surprised? Didn't think I could read 8K? Believe me there are plenty of people scrutinizing your every document and your actions right now. I think SEC is closely waching this issue as well.
I think the judgement day is coming. You can at least restore some dignity by telling the truth and coming clean. Your avenues of deception fades with each day and believe it or not, people are not as dumb as you think. They are catching on and you sir, are headed the same path as Kenneth Lay. Please don't disgrace your life's work and for once this year, tell the truth. I know there is some good in you. Tear down your lies.
Sincerely,
your nagging friend.
I have to admit, I have become quite a fan of you and your company, Countrywide Financial Corporation. You have built yourself quite a company. You have been instrumental in bringing home ownership to many, regardless of race, creed, social status, or financial means. I believe you when you say that your entire life's goal was to bring home ownership to everyone that wants one. I think you have succeeded in your quest, sir.
Countrywide has become the darling of the wall street and I commend you for your deft direction and leadership in this matter. Through your guidance, you have transformed the company which you founded from a humble home loan provider to the conglomerate giant it is today. I know that along the way, you have gained many admirers, like myself, and strong influential connections in the financial institutions and in the government. You are to be commended.
With the burst of the dot com bubble, you have played a key role in propping up the American economy by averting disasterous economic down turn by bringing home ownership to the masses by taking advantage of Mr. Greenspan's proactive interest rate cuts to help stimulate the economy. You have definitely taken advantage of the situation sir and have contributed to the robust housing boom rivaling that of the dot com era just 10 years prior. During that time, many people have become rich by home ownership. You have helped create excess speculation in the housing boom that made instant millionaires and weekend home investors. Many have given up their primary jobs to partake in this new bonanza and you were much happy to oblige and continue to facilitate the greatest housing boom in history. You certainly have done your part to help an average or even below average Americans to reach their goals in the real estate boom.
Mr. Mozilo, I am quite curious lately regarding the future of the housing market. Just one month ago, you said that the subprime companies were making risky loas and that some would not survive. You were right sir, many have folded and some might even go to jail. It is interesting that you yourself said that Countrywide stands to benefit from the fallout of the housing market and mortgage lending industry purge. You have said that Countrywide realized the dangers of subprime and even alluded that you no longer partake in that field anymore, yet your earnings statement today said that subprime loans dropped 29% for prior year, which means that you are still making these risky loans. How do you account also for the fact that your company has a subsidiary called Fullspectrumlending.com? This is a subprime division is it not? If true, then are you not actively seeking these so called "risky" loan groups?
You have also said that you stand to benefit from the fall out of mortgage crisis and housing crisis. You have personally said that Countrywide stands to benefit and become stronger when the smoke clears. Yet, all I have seen so far is a lot of PR campaign by you and your lieutenants. How can you explain in honest truth your excessive selling of your options and that not one of your insiders have bought a single share of your company within the past 2 years? If your company is so sound, and if your company has taken such a dramatic hair cut in terms of share price, shouldn't you stand by your share holders and roll up your sleeves and be buying this stock, since it is so fairly valued? Since that is what your loyal share holders believe, shouldn't you lead by actions not by mouth? You sir have sold more than $25 million last March? You have sold even more just yesterday. How will you explain that other than saying that you need to "bring balance to your life?".
More importantly, if your company is fully hedged in terms of financial risks associated with mortgage defaults via insurance, did the insurance company that provides this coverage know that majority of your loans are fradulent because of your so called stated income loans? Are your prime loan portfolion consist of at least 45% in ALT-A option ARMS? How is your company so much superior to M&T, AHM, or WFM? All of those companies are as well run or better than your company yet they have had the decency to be SQUARE with the share holders and honorably took their lumps. Why are you not?
I am growing tired of the smoke and mirrors of your company. You yourself have said that the only thing that will save your industry is a rate cut in the near term. Sir that is not happening, so, what are you going to say next to prop up your share prices so that you can continue to dump your shares? I especially believe what you are telling the public that you don't think your company is worth $33 and change, otherwise, if it were you'd be buying wouldn't you? And please, what is up with your 8K? Is that the best you can do? I think you'd better look at that 5% increase mumbo jumbo that you have there because somehow the breakdown of the 5% increase in your loan doesn't jive. What? You surprised? Didn't think I could read 8K? Believe me there are plenty of people scrutinizing your every document and your actions right now. I think SEC is closely waching this issue as well.
I think the judgement day is coming. You can at least restore some dignity by telling the truth and coming clean. Your avenues of deception fades with each day and believe it or not, people are not as dumb as you think. They are catching on and you sir, are headed the same path as Kenneth Lay. Please don't disgrace your life's work and for once this year, tell the truth. I know there is some good in you. Tear down your lies.
Sincerely,
your nagging friend.
On Incredible Complacency of the Markets
So I hear people blaming things on the PPT or Plunge Protection Team when the market continues to go up despite the barrage of ominous economic news. Do I know that it exists? Well sort of. It is defined on Ask.com and just about anywhere in the web. So we know that PPT was created to avert another plunge experienced in 1987. Does it exist today? I don't know and I won't take a position on it or give this entity credibility until there is ample credible evidence.
But on days like today, when the market ignores all the warning signs thrown at them and still manages to shrug off the bad news and continue to go up, I have to at least wonder about PPT. I am only human. PPT is convenient and easily accessible. But what really is driving this insane market move?
I know that the markets are foreward looking. So by the movements of the markets recently, it is factoring in robust economic growth, tame inflation, near term FED cut, no fall out from mortgage and housing meltdown, improving dollar valuation against the Euro and Yen, prudent Chinese global economic policy, low oil prices, and solid national security.
So, I think about this. Am I a fool for being too negative on the market and the health of the economy? Am I wrong for not buying that the current economic climate is the worst it will get and that improvement is just around the corner? Perhaps. But I don't buy it.
Why?
Because of the complacency in the markets and the financial pundits who continue to hold out hope that it won't get worse and that this time it is different. People dig up words like PPT to explain the unexplainable. No one said the markets would be rational. But historically, complacency in the market place has been rewarded with pain. In 1929, a close parallel to today's market could be made. Despite ongoing concerns regarding excess liquidity, growing negative economic indicators, and rising speculation in the stock markets, the markets continued to climb until, well we know how that ended. Am I saying that it would be that bad? No, but, actions in the market place currently is a harbinger that just around the corner might be a disaster waiting to happen.
Right now we have the ticking time bomb called mortgage lending crisis that is within minutes of exploding. Despite recent on going concerns about inflation, devaluation of the dollar, rising mortgage delinquencies and foreclosures, and weakening US economy, we are seeing the market that stubbornly marches on ignoring all signs of danger. How long will this continue? I do not know, but I know that the danger is out there and waiting. I have said recently that I expect some form of a blow up in Countrywide sometime this week, and I must admit, I am running out of time. But at least I have my money right where my mouth is. I will continue to remain bearish until the bearish factors resolve themselves. But the currnet indication shows that we are just beginning the bear phase and not at the end. Perhaps I am wrong, but it sure would be one hell of a way for me to go broke when the economy is slowly crumbling around us.
But on days like today, when the market ignores all the warning signs thrown at them and still manages to shrug off the bad news and continue to go up, I have to at least wonder about PPT. I am only human. PPT is convenient and easily accessible. But what really is driving this insane market move?
I know that the markets are foreward looking. So by the movements of the markets recently, it is factoring in robust economic growth, tame inflation, near term FED cut, no fall out from mortgage and housing meltdown, improving dollar valuation against the Euro and Yen, prudent Chinese global economic policy, low oil prices, and solid national security.
So, I think about this. Am I a fool for being too negative on the market and the health of the economy? Am I wrong for not buying that the current economic climate is the worst it will get and that improvement is just around the corner? Perhaps. But I don't buy it.
Why?
Because of the complacency in the markets and the financial pundits who continue to hold out hope that it won't get worse and that this time it is different. People dig up words like PPT to explain the unexplainable. No one said the markets would be rational. But historically, complacency in the market place has been rewarded with pain. In 1929, a close parallel to today's market could be made. Despite ongoing concerns regarding excess liquidity, growing negative economic indicators, and rising speculation in the stock markets, the markets continued to climb until, well we know how that ended. Am I saying that it would be that bad? No, but, actions in the market place currently is a harbinger that just around the corner might be a disaster waiting to happen.
Right now we have the ticking time bomb called mortgage lending crisis that is within minutes of exploding. Despite recent on going concerns about inflation, devaluation of the dollar, rising mortgage delinquencies and foreclosures, and weakening US economy, we are seeing the market that stubbornly marches on ignoring all signs of danger. How long will this continue? I do not know, but I know that the danger is out there and waiting. I have said recently that I expect some form of a blow up in Countrywide sometime this week, and I must admit, I am running out of time. But at least I have my money right where my mouth is. I will continue to remain bearish until the bearish factors resolve themselves. But the currnet indication shows that we are just beginning the bear phase and not at the end. Perhaps I am wrong, but it sure would be one hell of a way for me to go broke when the economy is slowly crumbling around us.
My Thoughts on CFC's Operating Results for March 07
So Countrywide is up to its game again. This time their lies won't work. They report that their loan funding percentage was up 5% over last year. This was due to increasing volume of refinances and fixed rate loans. They claim that their subprime loans declined by 29 percent to $2.4 billion.
They also claim that on consolidated basis, it funded $3.5 billion in pay-option loans during the month as compard to $8.8 billion in March 2006. They tried to stress that their pay option loans have a fixed rate for 5 years which totaled $1.3 billion. What about the remainder of the $2 billion? I thought they thought ALT-A was not exposed to subprime risk, if so, why are they going out of their way to seem as if their ALT-A loans were declining AND that the rates are fixed for 5 years on 33% of their pay option ARMS? What about the 67% that are not?
Read between the lines of mortgage loan servicing portfolio growth to $1.4 trillion. More loans for them to be exposed to in their ever increasing foreclosures and loan defaults. What about a comment here on that? On the surface that might sound good but no one seems to be buying that. That their foreclosure rate is increasing 100% is not a good thing.
The smoke and mirrors continues. In a fashion eerily similar to AHM before releasing their earnings warning, CFC is trying to do damage control at this point and true to form, they are not exactly forthcoming. Meanwhile, Mozilo continues his selling true to form.
They also claim that on consolidated basis, it funded $3.5 billion in pay-option loans during the month as compard to $8.8 billion in March 2006. They tried to stress that their pay option loans have a fixed rate for 5 years which totaled $1.3 billion. What about the remainder of the $2 billion? I thought they thought ALT-A was not exposed to subprime risk, if so, why are they going out of their way to seem as if their ALT-A loans were declining AND that the rates are fixed for 5 years on 33% of their pay option ARMS? What about the 67% that are not?
Read between the lines of mortgage loan servicing portfolio growth to $1.4 trillion. More loans for them to be exposed to in their ever increasing foreclosures and loan defaults. What about a comment here on that? On the surface that might sound good but no one seems to be buying that. That their foreclosure rate is increasing 100% is not a good thing.
The smoke and mirrors continues. In a fashion eerily similar to AHM before releasing their earnings warning, CFC is trying to do damage control at this point and true to form, they are not exactly forthcoming. Meanwhile, Mozilo continues his selling true to form.
Wednesday, April 11, 2007
My Reply to CNBC's Question "Should the Government Bail Out Subprime Borrowers?"
Home ownership is not a right. It is part of the American dream to own a house. In order to own a house, one must put in diligent efforts at work, savings, and discipline. The benefits of home ownership is achieved by proper planning and sacrifice. That is what home ownership means to me.
Sadly, the recent meteoric rise in home values was fueled by easy financing, low interest rates, and greed. The environment was ripe for "unfit" individuals to obtain home ownership. For example, contrary to what Angelo Mozilo (CEO of Countrywide) says, not everyone is fit or should be home owners. This is being proven right every day in light of the worsening subprime crisis that seems to be now infiltrating into "prime" loans as well.
Excess easy money available and probable mortgage lender corruption has led to this debacle. It would be a travesty to consider bailing out those subprime borrowers, who should have known better, for whatever reason that their quest for home ownership may be, because it would derail the very system that was set forth within our Darwinian economic system. I do not think spending billions of dollars to bail out these individuals because they are labeled as victims would be doing justice or service to those who worked hard to save and finally had enough life style discipline to become home owners.
Bailing out subprime borrowers would continue to send the wrong message to a society that is already lacking in the value of hard work, discipline, moral fortitude. Especially, it would be heinous to think that my tax dollars will go towards bailing out someone who was using subprime loans to speculate in the housing market in hopes of striking it rich.
Call me heartless or whatever. But I think the responsibility of bailing out the subprime borrowers should rest solely on the shoulders of multibillion dollar mortgage lending industries and wall street firms, who obviously can afford lucrative multi million dollar bonuses and pay packages. Why not use that excess that so few can enjoy to bail out the subprime borrowers? Because in the end, wasn't wall street greed that fueled such frenzied subprime industry in the first place?
But overall, people should not be bailed out. The lending institutions and wall street firms that facilitated this crisis should be on the hook for the losses and foreclosures. It will be painful but nothing worth doing comes without some effort.
Sadly, the recent meteoric rise in home values was fueled by easy financing, low interest rates, and greed. The environment was ripe for "unfit" individuals to obtain home ownership. For example, contrary to what Angelo Mozilo (CEO of Countrywide) says, not everyone is fit or should be home owners. This is being proven right every day in light of the worsening subprime crisis that seems to be now infiltrating into "prime" loans as well.
Excess easy money available and probable mortgage lender corruption has led to this debacle. It would be a travesty to consider bailing out those subprime borrowers, who should have known better, for whatever reason that their quest for home ownership may be, because it would derail the very system that was set forth within our Darwinian economic system. I do not think spending billions of dollars to bail out these individuals because they are labeled as victims would be doing justice or service to those who worked hard to save and finally had enough life style discipline to become home owners.
Bailing out subprime borrowers would continue to send the wrong message to a society that is already lacking in the value of hard work, discipline, moral fortitude. Especially, it would be heinous to think that my tax dollars will go towards bailing out someone who was using subprime loans to speculate in the housing market in hopes of striking it rich.
Call me heartless or whatever. But I think the responsibility of bailing out the subprime borrowers should rest solely on the shoulders of multibillion dollar mortgage lending industries and wall street firms, who obviously can afford lucrative multi million dollar bonuses and pay packages. Why not use that excess that so few can enjoy to bail out the subprime borrowers? Because in the end, wasn't wall street greed that fueled such frenzied subprime industry in the first place?
But overall, people should not be bailed out. The lending institutions and wall street firms that facilitated this crisis should be on the hook for the losses and foreclosures. It will be painful but nothing worth doing comes without some effort.
MGIC (MTG) Posts 43.4% Fall in Profits!
MGIC (MTG) is a mortgage insurer who reported 43.4 percent first quarter profit short fall as losses and expenses cut into its business. I would like to direct your attention to an article released by Reuters earlier today titled "US Credit-Mortgage Insurers' Subprime Risks Seen Overdone". I am including some excerpts but anyone can view the article at:
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070411:MTFH23776_2007-04-11_20-07-57_N11578333&type=comktNews&rpc=44
"Just earlier, BarclaysCredit spreads of U.S. mortgage insurers have been battered by worries about risky subprime mortgages, but are likely to improve in the near term as the companies turn in robust first-quarter results."
"There's no doubt to our minds that there's potentially value in the mortgage insurers, and certainly near-term value," Credit Suisse analyst Leslie Mapondera said on Wednesday."
"The largest U.S. mortgage insurer, Mortgage Guaranty Insurance Corp. (MTG.N: Quote, Profile , Research), which reports its results on Thursday, is likely to perform better than expected in the near term, making it a good time to sell credit protection on the insurer's bonds, Barclays Capital said in a note on Tuesday."
So, this once again shows the spin placed by the crooked wall street analysts who up to the earnings release day, got the retail investors into this stock, which pinned false hopes of turn around, and minimizing the impact of subprime, did a near criminal service to the investment community. It affirms that the main stream financial community and the media does not have the grips on how severe the subprime and housing related issue is to the economy. I think everyone needs to wake up and smell the coffee and trust no one. It is as bad as you think it is and perhaps worse.
Do not trust wall street analysts. Subprime issues are real and its effects will now begin to snow ball into other previously safe havens in mortgage lending and housing related stocks.
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070411:MTFH23776_2007-04-11_20-07-57_N11578333&type=comktNews&rpc=44
"Just earlier, BarclaysCredit spreads of U.S. mortgage insurers have been battered by worries about risky subprime mortgages, but are likely to improve in the near term as the companies turn in robust first-quarter results."
"There's no doubt to our minds that there's potentially value in the mortgage insurers, and certainly near-term value," Credit Suisse analyst Leslie Mapondera said on Wednesday."
"The largest U.S. mortgage insurer, Mortgage Guaranty Insurance Corp. (MTG.N: Quote, Profile , Research), which reports its results on Thursday, is likely to perform better than expected in the near term, making it a good time to sell credit protection on the insurer's bonds, Barclays Capital said in a note on Tuesday."
So, this once again shows the spin placed by the crooked wall street analysts who up to the earnings release day, got the retail investors into this stock, which pinned false hopes of turn around, and minimizing the impact of subprime, did a near criminal service to the investment community. It affirms that the main stream financial community and the media does not have the grips on how severe the subprime and housing related issue is to the economy. I think everyone needs to wake up and smell the coffee and trust no one. It is as bad as you think it is and perhaps worse.
Do not trust wall street analysts. Subprime issues are real and its effects will now begin to snow ball into other previously safe havens in mortgage lending and housing related stocks.
The Sounds of Inevitability
All I can do is roll my eyes and throw my arms up in the air in disgust. Not because the market tanked today but because it took so long for the markets to finally gain some rationality. What has changed today that the past few months haven't been telling us traders? Nothing.
Now that euphoric stupor is behind us, let us objectively analyze where we are headed. It doesn't take a rocket scientist to figure out that major economic signs all point to inflation and slowing growth. Yet what I have a problem trying to figure out is how in the world did we get this complacent? What was so good about the economy and the markets for that matter? The past few weeks have been an exercise in futility in terms of trying to find any rational reason for the rally in the markets.
So the FED minutes were released today and the market literally wigged out on the news. This was NEW news? Last time I checked, the FOMC meeting clearly stated that inflation was still the primary issue. Today's FED minutes not only killed the "goldilocks" stupor but it also brought a lot of wishful thinkers in the market down to reality. The fact is there isn't going to be a rate cut. Sorry Jimmy, no rate cut for you in May, so can you please do all of us a favor and stop calling for a rate cut or predicting bottoms? Sorry Angelo, no rate cut for you to continue to hide behind and lie to the public that somehow Countrywide is immune to all of these economic slow down and inflationary issues. I have news for all of those goldilocks well wishers: The FED will raise interest rates before they cut them. They will not risk forming an economic environment of negative growth and rising inflation.
Here are the exact quote from FOMC meeting minutes: "....Further policy firming might prove necessary to foster lower inflation...but in light of the increased uncertainty about the outlook for both growth and inflation, the committee also agreed that the statement should no longer cite only the possibility of further firming.''
What that says is that the FED doesn't know what to do anymore. They are genuinely worried that the economy is slowing more than they are comfortable AND that inflation is beyond their "comfort" zone. All of these means that they are afraid of STAGFLATION. You don't think this could happen? Well, it is happening right now. Inflation is not under control and is getting worse. US is losing manufacturing and monetary leadership in the world. Our government and its citizens are addicted to debt and we are at the lowest savings rate per person in this country of all time. Did anyone check the price of oil and today's announcement that gasoline price is rising with no end in sight? How about the 9% price increase in milk and other dairy products that might not seem like much but upon closer inspection it dawns on you that everything is costing much much more these days. Never let anyone else tell you that economy is fine. Not the FED, not the Media, not anyone. They do not hold your best interest at hand. Remember, the reason why everyone is so bullish on the stock market right now is that those exact people are engaged in making money off of robust equity market.
Then there's the trade wars that have started between US and China, in what should become an escalating tension between these two superpowers. Yes, I said it, China is a superpower and we need to accept that. The sooner the better. And the sooner Paulson recongnizes this fact, the better for our economy. Dollar sank to its lowest level recently on this tension. Lest anyone should forget, China is one of the biggest buyers of our government debt. I am not even going to comment further.
Then there's the acceptance of the woeful housing market and the impact of subprime, which now appears is nothing compared to the issues surrounding ALT-A and the fallouts of failed subprime lenders and class action law suits by the holders of these worthless bonds. This will cast a dark shadow on this segment of the economy for years to come. For those engaged in the mortgage or housing industry that hasn't admitted to the problems and its impact on their respective companies are delusional and liars. Countrywide anyone?
Fact is no one will be spared. For those who have become complacent, today was the first warning sign. Go to cash or go short.
Now that euphoric stupor is behind us, let us objectively analyze where we are headed. It doesn't take a rocket scientist to figure out that major economic signs all point to inflation and slowing growth. Yet what I have a problem trying to figure out is how in the world did we get this complacent? What was so good about the economy and the markets for that matter? The past few weeks have been an exercise in futility in terms of trying to find any rational reason for the rally in the markets.
So the FED minutes were released today and the market literally wigged out on the news. This was NEW news? Last time I checked, the FOMC meeting clearly stated that inflation was still the primary issue. Today's FED minutes not only killed the "goldilocks" stupor but it also brought a lot of wishful thinkers in the market down to reality. The fact is there isn't going to be a rate cut. Sorry Jimmy, no rate cut for you in May, so can you please do all of us a favor and stop calling for a rate cut or predicting bottoms? Sorry Angelo, no rate cut for you to continue to hide behind and lie to the public that somehow Countrywide is immune to all of these economic slow down and inflationary issues. I have news for all of those goldilocks well wishers: The FED will raise interest rates before they cut them. They will not risk forming an economic environment of negative growth and rising inflation.
Here are the exact quote from FOMC meeting minutes: "....Further policy firming might prove necessary to foster lower inflation...but in light of the increased uncertainty about the outlook for both growth and inflation, the committee also agreed that the statement should no longer cite only the possibility of further firming.''
What that says is that the FED doesn't know what to do anymore. They are genuinely worried that the economy is slowing more than they are comfortable AND that inflation is beyond their "comfort" zone. All of these means that they are afraid of STAGFLATION. You don't think this could happen? Well, it is happening right now. Inflation is not under control and is getting worse. US is losing manufacturing and monetary leadership in the world. Our government and its citizens are addicted to debt and we are at the lowest savings rate per person in this country of all time. Did anyone check the price of oil and today's announcement that gasoline price is rising with no end in sight? How about the 9% price increase in milk and other dairy products that might not seem like much but upon closer inspection it dawns on you that everything is costing much much more these days. Never let anyone else tell you that economy is fine. Not the FED, not the Media, not anyone. They do not hold your best interest at hand. Remember, the reason why everyone is so bullish on the stock market right now is that those exact people are engaged in making money off of robust equity market.
Then there's the trade wars that have started between US and China, in what should become an escalating tension between these two superpowers. Yes, I said it, China is a superpower and we need to accept that. The sooner the better. And the sooner Paulson recongnizes this fact, the better for our economy. Dollar sank to its lowest level recently on this tension. Lest anyone should forget, China is one of the biggest buyers of our government debt. I am not even going to comment further.
Then there's the acceptance of the woeful housing market and the impact of subprime, which now appears is nothing compared to the issues surrounding ALT-A and the fallouts of failed subprime lenders and class action law suits by the holders of these worthless bonds. This will cast a dark shadow on this segment of the economy for years to come. For those engaged in the mortgage or housing industry that hasn't admitted to the problems and its impact on their respective companies are delusional and liars. Countrywide anyone?
Fact is no one will be spared. For those who have become complacent, today was the first warning sign. Go to cash or go short.
Tuesday, April 10, 2007
Law Suits Over Subprime Lender's Bonds
An Interesting article on Bloomberg.com titled "Subprime Losers Blame Bear, Credit Suisse, JPM, Morgan Stanley" which continue to show that the fall out from subprime is not just isolated to bankrupt subprime lenders or the major banks that supported them. It is also not a isolated issue to the CDO's and whether or not Moody's will down grade these debt packages that are snapped up by Institutions, pension funds, insurance companies, and other banks. But the most sobering aspect is that everyday hardworking individuals who sought better return than what the treasury notes were yielding with the promise of a solid mortgage company who issued them.
It turns out that there was much more deception than meets the eye. The subprime mortgage lender's bonds were brought to investable packages by the big mortgage banks mentioned in the article. The lure of a solid backing by the reputable investmnt bank and the high flying subprime mortgage lender's pledge of stability lured many average investors in to these "safe" and "lucrative" investment vehicles.
Buck Meyer, mentioned in the article, invested $300,000 and lost every penny of it when the American Business Financial Services Inc's notes were defaulted. There are more sad stories such as these, which were misled by the major investment banks such as Bear Stearns and Morgan Stanley, all of whom are also implicated as major debt holders to the New Century's Chapter 11 bankruptcy filings, show that they have not acted in the best interest in disclosing the risks associated with these bonds.
It is aptly called a Ponzi scheme, a word which has been utilized in many other articles and complaints regarding the subprime mortgage lending practices, bond issuances, as well as the industry practices.
There are currently 26,534 claims filled for $750 million from the bankers and former officers and directors of defunct subprime mortgage companies in the Philadelphia Court of Commons. This class action law suits will continue and will begin to affect the upper echelon Wall Street investment banks and others such as Countrywide Financial as investors who lost all of their life savings will look for compensation for the "ponzi" scheme and deception.
This law suit makes sense in light of the fact that the major investment banks who purchased the debt from the subprime and prime lenders created liquidity by issuing bonds. Thus, the subprime fall out is not just relegated to the lenders who are in trouble. It affects the whole establishment who are working in the shadows peddling these menacing bonds to unsuspecting and misinformed investors.
The unraveling is gaining steam.
It turns out that there was much more deception than meets the eye. The subprime mortgage lender's bonds were brought to investable packages by the big mortgage banks mentioned in the article. The lure of a solid backing by the reputable investmnt bank and the high flying subprime mortgage lender's pledge of stability lured many average investors in to these "safe" and "lucrative" investment vehicles.
Buck Meyer, mentioned in the article, invested $300,000 and lost every penny of it when the American Business Financial Services Inc's notes were defaulted. There are more sad stories such as these, which were misled by the major investment banks such as Bear Stearns and Morgan Stanley, all of whom are also implicated as major debt holders to the New Century's Chapter 11 bankruptcy filings, show that they have not acted in the best interest in disclosing the risks associated with these bonds.
It is aptly called a Ponzi scheme, a word which has been utilized in many other articles and complaints regarding the subprime mortgage lending practices, bond issuances, as well as the industry practices.
There are currently 26,534 claims filled for $750 million from the bankers and former officers and directors of defunct subprime mortgage companies in the Philadelphia Court of Commons. This class action law suits will continue and will begin to affect the upper echelon Wall Street investment banks and others such as Countrywide Financial as investors who lost all of their life savings will look for compensation for the "ponzi" scheme and deception.
This law suit makes sense in light of the fact that the major investment banks who purchased the debt from the subprime and prime lenders created liquidity by issuing bonds. Thus, the subprime fall out is not just relegated to the lenders who are in trouble. It affects the whole establishment who are working in the shadows peddling these menacing bonds to unsuspecting and misinformed investors.
The unraveling is gaining steam.
IT IS GETTING CLOSER FOR COUNTRYWIDE
So now that we have the undivided attention of the main stream media, it begs the question, is the end near? What do I mean by this?
What I mean by that is, is the housing market near bottoming? There certainly is more noise surrounding the doom and gloom of the housing market and mortgage lending inustry. Perhaps we are near the end of the bear cycle for the housing market. But I do not think that it really is the end until the God Father of all things housing and mortgage finally pays the Piper.
No one gets out of this game unscathed. For too long, Countrywide was able to hide behind their perceived good name and a darn good public relation campaign. Their, mantra of "But, we are different from all others" might have worked for a while. But even that tune gets old as insurmountable evidence points towards the age old adage that "if it quaks like a duck, it is a duck".
Today was that pivotal day where everyone even remotely interested in this historical debacle taking form would agree that far more factual evidence came out lending credence that in fact, subprime issue is not just an isolated short lived case. Let's review what has come to light thus far in the world of housing and mortgage lending:
1. IMF acknowledges that subprime issue is not an isolated issue and appears to be spreading.
2. FED is seen publicly discouraging the public from being invested in Financial sector.
3. "Prime" lenders are being hit just as hard if not harder than subprime lenders, giving credence that ALT-A loans are indeed a force that needs to be reckoned with and the contagion is spreading from subprime lenders.
4. Home builders are continuing to come "clean" and asserting that this downfall will not be short lived and that much glut of supply exists confounding those who consistently are calling for a bottom.
5. Mortgage fraud is being defined and uncovered.
6. Unscrupulous broker practices are shown to be rampant and not in the best interest of the borrowers to use them.
What impact will this have on our economy?
1. Inflation continues to be the major concern and does not seem to abate.
2. Questions about stagflation is being tossed around at bloomberg TV.
3. Trade war with China has just started with severe consequences if this should escalate.
4. The tightening credit market IS a reality and everyone just needs to accept it.
5. The FED is more apt to raise rates in the future than cut it.
6. Despite Alcoa's earnings, media spin is once again causing undue optimism. Since when was Alcoa relevant?
7. Foreclosures and home loan defaults will trickle into consumer credit such as auto loans, consumer credit cards, and other financing activities.
I have a feeling that all of these cumulative weight of evience towards mortgage lending collapse will be more evident after the FED minutes tomorrow. Complacency has returned to the markets with false sense of hope based on no significant basis other than media hype has kept this market afloat. But this will have a severe short term consequences.
So we come to Countrywide, where they have been awfully quiet the past few days. Despite rising evidence to the contrary, Countrywide continues to remain a teflon to bad news. But the foundation is crumbling and once it crumbles, I anticipate that it will come down faster than New Century. This is a company that is rather opaque and has a lot of explaining to do. The similarities to Enron is unreal. Thus I can anticipate some form of warning from this company this week. If I am wrong, then I am wrong. But the alternative blood bath that this company faces if they announce a terrible earnings is too hard to fathom. Mozilo knows this. I think that it is this week where the truth will come out. If not, I am out of a lot of money, but undeterred, I will continue to short this stock. But the writing's on the wall for Countrywide.
1. abrupt departures of key insiders within relatively short period of time.
2. Questionable accounting principles.
3. More evidence pointing to CFC as one of the largest ALT-A originators and subprime exposure.
4. Incessant insider selling activity.
5. Damage control is priority for this company, instead of running a forthright company.
6. Lies Lies and More Lies.
So, I feel that this week is especially crucial for CFC shorts. I see ever increasing put volume that appears highly unusual. Hmm. Like say, AHM? When will they do the right thing?
What I mean by that is, is the housing market near bottoming? There certainly is more noise surrounding the doom and gloom of the housing market and mortgage lending inustry. Perhaps we are near the end of the bear cycle for the housing market. But I do not think that it really is the end until the God Father of all things housing and mortgage finally pays the Piper.
No one gets out of this game unscathed. For too long, Countrywide was able to hide behind their perceived good name and a darn good public relation campaign. Their, mantra of "But, we are different from all others" might have worked for a while. But even that tune gets old as insurmountable evidence points towards the age old adage that "if it quaks like a duck, it is a duck".
Today was that pivotal day where everyone even remotely interested in this historical debacle taking form would agree that far more factual evidence came out lending credence that in fact, subprime issue is not just an isolated short lived case. Let's review what has come to light thus far in the world of housing and mortgage lending:
1. IMF acknowledges that subprime issue is not an isolated issue and appears to be spreading.
2. FED is seen publicly discouraging the public from being invested in Financial sector.
3. "Prime" lenders are being hit just as hard if not harder than subprime lenders, giving credence that ALT-A loans are indeed a force that needs to be reckoned with and the contagion is spreading from subprime lenders.
4. Home builders are continuing to come "clean" and asserting that this downfall will not be short lived and that much glut of supply exists confounding those who consistently are calling for a bottom.
5. Mortgage fraud is being defined and uncovered.
6. Unscrupulous broker practices are shown to be rampant and not in the best interest of the borrowers to use them.
What impact will this have on our economy?
1. Inflation continues to be the major concern and does not seem to abate.
2. Questions about stagflation is being tossed around at bloomberg TV.
3. Trade war with China has just started with severe consequences if this should escalate.
4. The tightening credit market IS a reality and everyone just needs to accept it.
5. The FED is more apt to raise rates in the future than cut it.
6. Despite Alcoa's earnings, media spin is once again causing undue optimism. Since when was Alcoa relevant?
7. Foreclosures and home loan defaults will trickle into consumer credit such as auto loans, consumer credit cards, and other financing activities.
I have a feeling that all of these cumulative weight of evience towards mortgage lending collapse will be more evident after the FED minutes tomorrow. Complacency has returned to the markets with false sense of hope based on no significant basis other than media hype has kept this market afloat. But this will have a severe short term consequences.
So we come to Countrywide, where they have been awfully quiet the past few days. Despite rising evidence to the contrary, Countrywide continues to remain a teflon to bad news. But the foundation is crumbling and once it crumbles, I anticipate that it will come down faster than New Century. This is a company that is rather opaque and has a lot of explaining to do. The similarities to Enron is unreal. Thus I can anticipate some form of warning from this company this week. If I am wrong, then I am wrong. But the alternative blood bath that this company faces if they announce a terrible earnings is too hard to fathom. Mozilo knows this. I think that it is this week where the truth will come out. If not, I am out of a lot of money, but undeterred, I will continue to short this stock. But the writing's on the wall for Countrywide.
1. abrupt departures of key insiders within relatively short period of time.
2. Questionable accounting principles.
3. More evidence pointing to CFC as one of the largest ALT-A originators and subprime exposure.
4. Incessant insider selling activity.
5. Damage control is priority for this company, instead of running a forthright company.
6. Lies Lies and More Lies.
So, I feel that this week is especially crucial for CFC shorts. I see ever increasing put volume that appears highly unusual. Hmm. Like say, AHM? When will they do the right thing?
Commentary on Mortgage Lenders
The news media is now chock full of the "sexy" housing market crisis stories. All of a sudden the main stream media is spewing "doom and gloom" scenarios. Especially interesting is that CNBC has now jumped on the bandwagon of subprime and now ALT-A Option ARM concerns.
I just don't know why it's a surprise to anyone. The writing was on the wall months before this realization by the main stream media. Now, the story is too sexy for anyone to pass up and might I remind you that print media and broadcast media are all in it for the ratings to generate ad revenue. Disgusting!
There are whole slew of news out today regarding the Mortgage Fraud (as if that was even a surprise), Weakening (??) prime markets due to ALT-A exposure, and surprise, Countrywide is mentioned as one of the largest originators of ALT-A loans. But the most poignant read of the day belongs to Dr. Irwin Keller's article on Marketwatch.com. He questions why everyone is so SURPRISED at the weankening housing market and rising default on mortgages.
The whole system is beyond screwed up and like all bubbles, it must be paid in suffering and blood. Many people will have their lives ruined and turned upside down. The economy must pay for their "lax" ways and this time "IT IS NOT DIFFERENT". People never really change. That is why you can trade the stock markets because it is an analysis of the market behavior which is a reflection of human behavior. It is about greed, fear, and deception. Most people are by nature gullible, weak, and prone to panics. This game has been played for centuries as long as the US Equity market was born in the frontier days of early Wall Street, when Wall Street was aptly named because of wooden palisades to partition out the hostile Indians. Corruption is part of the game and you always have to "read between the lines" in this game.
As for lending industry related to housing, I hope that this "bubble" that they helped create will create new reforms in lending, prosecutions of those that perpetuated these Ponzi schemes, and the Wall Street Firms that continually misled the investors. I sincerely hope that the likes of Countrywide and IndyMacs of this world will get their due. These two have been very cagey about spinning their story to the wall street. Yet, as the truth that are coming out cannot be refuted anymore. They cannot be spun any other way. Sadly, I believe it is too late for many of those who invested on "dumb" advice from the Wall Street. No matter, I do not see how the large lenders that tried to "hide" behind that they were "prime" lenders can now adequately justify their position, when they pumped up their share prices by essentially "lying" to the public.
AHM is going down for the count. I believe NDE and CFC is not too far behind. I will have a sneaking suspicion that the only thing that these lenders can do now isn't about saving share holder value. It is about coming clean and doing the "honorable" thing. The spin is over. As Bill O'Reiley would say, this is now a "No Spin Zone".
No one can deny that majority of "prime" loans by these lending institutions, save for the big banks, relied heavily on Option-ARMS to pad their bottom line. When the CDO's and the debt that they carry is no longer worth more than what they paid for, it cannot be spun in any other way. The lenders have a choice of holding onto the depreciating asset and risk future catastrophic losses or liquidate for short term loss. Neither option is appealing and will be good for some form of pain in the near and long term future. Sadly, the only people that will lose in this game are the share holders who have entrusted the insiders on good stewardship. If you question that look at Angelo Mozilo's incessant selling. Perhaps the recent options granting probe will reveal something of value- why else would the company try to "squealch" the law suit before it became public? If they had nothing to hide why would they try so hard to put an end to it?
I see, contrary to popular belief, that some major news regarding NDE and CFC will be out sometime this week, as a form of damage control. I think these companies have gotten away for a while on Market ignorance. But no longer.
I just don't know why it's a surprise to anyone. The writing was on the wall months before this realization by the main stream media. Now, the story is too sexy for anyone to pass up and might I remind you that print media and broadcast media are all in it for the ratings to generate ad revenue. Disgusting!
There are whole slew of news out today regarding the Mortgage Fraud (as if that was even a surprise), Weakening (??) prime markets due to ALT-A exposure, and surprise, Countrywide is mentioned as one of the largest originators of ALT-A loans. But the most poignant read of the day belongs to Dr. Irwin Keller's article on Marketwatch.com. He questions why everyone is so SURPRISED at the weankening housing market and rising default on mortgages.
The whole system is beyond screwed up and like all bubbles, it must be paid in suffering and blood. Many people will have their lives ruined and turned upside down. The economy must pay for their "lax" ways and this time "IT IS NOT DIFFERENT". People never really change. That is why you can trade the stock markets because it is an analysis of the market behavior which is a reflection of human behavior. It is about greed, fear, and deception. Most people are by nature gullible, weak, and prone to panics. This game has been played for centuries as long as the US Equity market was born in the frontier days of early Wall Street, when Wall Street was aptly named because of wooden palisades to partition out the hostile Indians. Corruption is part of the game and you always have to "read between the lines" in this game.
As for lending industry related to housing, I hope that this "bubble" that they helped create will create new reforms in lending, prosecutions of those that perpetuated these Ponzi schemes, and the Wall Street Firms that continually misled the investors. I sincerely hope that the likes of Countrywide and IndyMacs of this world will get their due. These two have been very cagey about spinning their story to the wall street. Yet, as the truth that are coming out cannot be refuted anymore. They cannot be spun any other way. Sadly, I believe it is too late for many of those who invested on "dumb" advice from the Wall Street. No matter, I do not see how the large lenders that tried to "hide" behind that they were "prime" lenders can now adequately justify their position, when they pumped up their share prices by essentially "lying" to the public.
AHM is going down for the count. I believe NDE and CFC is not too far behind. I will have a sneaking suspicion that the only thing that these lenders can do now isn't about saving share holder value. It is about coming clean and doing the "honorable" thing. The spin is over. As Bill O'Reiley would say, this is now a "No Spin Zone".
No one can deny that majority of "prime" loans by these lending institutions, save for the big banks, relied heavily on Option-ARMS to pad their bottom line. When the CDO's and the debt that they carry is no longer worth more than what they paid for, it cannot be spun in any other way. The lenders have a choice of holding onto the depreciating asset and risk future catastrophic losses or liquidate for short term loss. Neither option is appealing and will be good for some form of pain in the near and long term future. Sadly, the only people that will lose in this game are the share holders who have entrusted the insiders on good stewardship. If you question that look at Angelo Mozilo's incessant selling. Perhaps the recent options granting probe will reveal something of value- why else would the company try to "squealch" the law suit before it became public? If they had nothing to hide why would they try so hard to put an end to it?
I see, contrary to popular belief, that some major news regarding NDE and CFC will be out sometime this week, as a form of damage control. I think these companies have gotten away for a while on Market ignorance. But no longer.
Saturday, April 07, 2007
Dead Cat Bounce to Die
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.
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.
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.
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