Countrywide CDS spreads aren't horrible, nor are Wells Fargo. They are both pretty strong institutions. Wells has a lot of deposits and cash on hand and while they are somewhat exposed to subprime risk, they aren't in the thick of it. CFC can be burned but they are pretty healthy overall.
That was my prediction for Countrywide to go first. Wells Fargo next year.
Still on target. Thanks
I guess you have a reading problem. Neither of these companies are going anywhere. WF is a massive bank with tons of money. CFC is a smaller bank with a very good amount of money and a smaller subprime exposure than many larger banks.
Frankly Dave, you know as much about this as one of my ass hairs. You're trying to seem like an oracle but in reality you don't even look at financials, you don't know what their exposure is, you don't know how much cash they have, nor the strength of the rest of their businesses. You sit around making predictions but really, they are just broken-clock BS.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
- 136
See... this is where you just continue to be clueless to what I'm telling you and keep pretending that I'm saying something else. If you weren't such an asshat, you just might get it.
Keep smoking that crack, fantazing of buying frenzies and a "return to rationality" while you're sitting in the unemployment line. Remember, you'll be getting exactly what you wanted... believing that you could encourage a nationwide housing crisis and not only be immune from its fallout but profit from it at the same time.
You're really no different than McOwen in this regard. You both of dream of achieving your little ideological agendas through harm and nihilism, and you both pretend to yourselves that you're helping the world by doing so. Sorry no, you're just screwing people over... and yourself too.
Slew Foot
Lifer
- Sep 22, 2005
- 12,379
- 96
- 86
Homebuilders and Mortgage companies taking a beating today. Beazer feigns bankruptcy and its price drops 40% (sold my puts there a while back). CFC, KBH, CTX continue their downward slide.
Edit: this is too easy
I picked up Calls on AHM at the opening bell today, figuring they would bounce back up or be a target of a buyout now that they're dirt cheap. Started the day at 10 cents a contract, and finished at 25 cents. 150% gain in one day
Now Ill probably lose the whole damn thing tomorrow when they go under, but its nice for now.
Edit: this is too easy
I picked up Calls on AHM at the opening bell today, figuring they would bounce back up or be a target of a buyout now that they're dirt cheap. Started the day at 10 cents a contract, and finished at 25 cents. 150% gain in one day
Now Ill probably lose the whole damn thing tomorrow when they go under, but its nice for now.Yeah, I'm the clueless. Yet again, you're tossing names around. Perhaps I'll go whine to the admins.
Look, the bottom is going to occur one way or another, it's inevitable. Regression to the mean will happen, how it happens and who gets caught up in it is the main question. Personally, I am just telling people not to get mixed up in it. My voice doesn't add anything to the situation as a whole. I have no control over Bear Stearns or Merrill and Morgan or Lehman. I am not out there telling people to buy houses and I advocate the opposite to stop them from getting intro troubled positions. I will take the opposite positions on some of these situations because yes, I want to make some money. It's going to happen whether I am involved or not.
I am sure you like the idea that I'll lose my job over this, but that is a very remote possibility. We have no exposure to the problem and I am in a safe area. Our powder is dry, even though though I am sure you'd wish it not be.
See my quote in your own sig.
The country is slowly being saved from your heroes Corporate Thugism even though you can't stand it. :laugh:
Isn't the main difference between prime and sub prime the borrower's credit scrore or does it also consider the properties of the loan. ie High lone to value, ARM, income to loan payment? If it is only based on credit score I just can't see the problems the subprime market having not being echoed in the prime market.
OS
Lifer
- Oct 11, 1999
- 15,581
- 1
- 76
There are many variables, but mostly it's FICO score.
Many Asset Backed Commercial Paper (ABCP) conduits cannot fund more than overnight paper now. Since ABCP is secured and short-term paper it is considered very very safe. As a result it funds at low rates, often lower than LIBOR. In addition to the assets in the conduits which backs the CP, there are usually Liquidity Agreements between the sponsor bank and the conduit, whereby the bank funds the assets through it's own capital and repays the ABCP investors. The riskier the asset, the more LA is required by the rating agencies.
However, now investors are worried about what is in the conduits. Any conduit with RMBS exposure is suspect, even prime, Alt-A and especially subprime. What this means is that credit is fleeing to the most secure assets possible to avoid any remote possibility of loss.
The credit crunch is happening and people are fleeing to safety.
I do not, unless the Fed goes against 20+ years of economic policy. Ever since the teachings of the Wiemar Republic and other situations, people have (or should have) learned that utilizing government fiscal policy to prop up the economy leads to nothing but rampant inflation. This, for the past 20 years, has been the exact opposite policy the Fed has persued. That policy has been one of monetary defensiveness by fighting inflation. You fight inflation by raising rates when inflation goes up, dropping rates when inflation risks lower and *then* you can spur the economy.
Despite the good Q2 numbers, inflationary pressures are still there. Core CPI is still not that low and the inflationary pressures felt by the average Americans are much higher.
I really do not think the Fed will drop rates at this point. The dollar is still very low, if they drop rates it will go much lower. We cannot just grow our inflate our way out of this problem.
WhipperSnapper
Lifer
- Oct 30, 2004
- 11,442
- 32
- 91
But if the interest rates aren't lowered and another housing boom doesn't occur...then...
...Americans might be forced to confront the reality of the state of the nation's economy.
The Lie That Will Kill Hedge Funds
By Jim Cramer
RealMoney.com Columnist
8/3/2007 9:37 AM EDT
URL: http://www.thestreet.com/marke...erupdate/10372191.html
It's all in the marks. Unless you have run a hedge fund, you have no idea what that means.
So I will explain it to the uninitiated.
When you run a hedge fund, you are always seeking capital. You can seek money directly from institutions or individuals, or you can do the easiest thing and seek money from those who are offering it: "fund of funds" managers who, specifically, look for managers to place other people's monies.
This cohort of investors had just gotten started in about my seventh year as a hedge fund manager, and they were always plying me with capital. I tried it for a while, but the ones I had, and they were substantial, demanded too much of my time and, I thought, forced me to make shorter-term decisions than I liked. I valued my independence too much. So I sent their money back.
Lots of people thought that was foolish. Lots wanted to grow their funds gigantically because they figured that was the way to get rich, quick. I was an idealist, and I wanted it to be a like a club where someone had to nominate you to get in. I wanted it that way because I didn't want any heat from them, and as long as I didn't seek them out, I didn't have to worry about pleasing them beyond the numbers.
Anyway, few people run money as I did. Maybe none. Most take the fund of funds' money.
Fund of funds managers interview and bracket managers into different groups: high-growth stocks, even-oriented managers, arbitrage, market-neutral, short, long, etc. They put them in buckets and measure them against others and then they go back to their real clients and say "here is the menu," or "here is what we recommend."
When I was in the game, by far the most popular were the "market-neutral" and "arbitrage" funds because they could absorb any amount of money and play all around the world without being hostage to "the market." They make money no matter what, which is the definition of what you are supposed to want if you are a client.
These managers can take advantage of the vast discrepancies that exist in the markets worldwide and borrow a lot of money to exploit them. That's hard if you are a pure stock guy. It is true that Pepsi (PEP) is cheaper than Coke (KO) on a price-to-growth metric. (Coke grows slower than Pepsi but has a higher multiple.) But does that mean you can go long Pepsi and short Coke and the twain meets? I wouldn't bet that way.
But how about this? American Home Mortgage (AHM) issues $1 billion in mortgages that Citigroup (C) packages. American Home isn't a "deposit" institution with a broad range of businesses to fall back on. It just issues mortgages, 2 and 28, teaser, little documentation, etc., etc.
Citigroup pools all of those mortgages and offers them into a bond that yields 7%, say, as a blend of the payments. A market-neutral and an arbitrage fund manager might say, "OK, I have $1 billion under management. I will go to Citigroup and borrow 10 billion and invest in these kinds of bonds."
They yield 7%, I am borrowing at 5%, I get 2% on all I lever up, which can produce, risk-free, a lot of return. It sure seems risk-free; the bonds are "highly rated" by S&P and Moody's, which gives me ample protection. I am not doing anything reckless. I am doing what every other manager in my class, the biggest and most profitable class, is doing.
But the strategy isn't risk-free. Only Treasuries are risk-free.
Now I am showing a really consistent rate of return because of that trade and dozens like them -- regardless of the stock market. So funds of funds drool and throw money at me and I keep buying more mortgage-backed securities and borrowing Treasuries. I can handle trillions!
Houses go up in value, mortgages get paid, employment's strong; that's all that matters. The bonds pay.
But housing stops going up in 2006. I keep buying the bonds, but I keep reading there are defaults. I don't see it. My traders don't see it. Everything's seems very ethereal.
And then in June, Bear Stearns (BSC) , doing this strategy at its funds, gets told the bonds are moving down in value and it must put up more collateral. But it doesn't have much cash and all of it is deployed. So it sells some bonds to meet the call. But nobody wants the bonds; everyone reads the papers and knows that defaults are mounting. So by the time it finishes selling the bonds, which now have no natural buyers, the collateral is gone. The funds close.
That happens in June. In July, the funds of funds get their reports and they see that, let's say, one of the funds is down 10%. They immediately put two and two together and they figure, "Wow, we could have a Bear on our hands." They go to the manager with redemptions.
But things are much worse than they seem. The "marks" -- meaning what the bonds in their portfolio are marked or priced at -- is some last sale price, presumably around par because they don't trade.
A redemption notice forces the trade. There are no buyers. That's how a Sowood could be down 10% at the end of June and 50% a few weeks later.
The marks are all lies.
Nobody is getting anywhere near the price of the bonds, which has become subjective anyway because of the number of defaults within the bonds.
All over the Street, these redemptions are happening. All over the Street, those doing these strategies are being wiped up. There are not enough people who were short this stuff to buy it at what might turn out to be pretty good prices unless all the mortgages within the security are going to be wiped out.
I would bet that half of these funds are gone this year. They represent trillions of dollars.
You will hear a lot of chatter about "the resetting of risk premium" right now. And it is true. But what's really going on is lying prices. These strategies didn't take into account the risk of default. The agencies didn't take it into account. The packagers didn't. The homebuilders that relied on it didn't.
Because these same hedge funds were also the buyers of high-yield bonds for private equity -- same trade: borrow money against Treasuries to capture the differential -- they don't have the capital to buy the corporates. Again, discussed as "repricing of risk," when what it really is is defrocking of marks. But that would reveal the whole industry as glib and unthought-out and complacent, which is what it really was.
This process is playing out everywhere, and the government isn't going to bail out these hedge funds. The good news is that it will happen fast. The money will come out, the losses will be big, but these hedge funds will all be closed by year-end. Trillions will vanish. But then we will start all over again.
Once this whole process is understood, the casualties, including some banks and some homebuilders and almost all mortgage companies except Countrywide (CFC) because it has a bank and lots of other businesses and is not a pure broker, will be taken. By November, this will be over.
The stock market will rally before it is finished and the Fed will act to save a Washington Mutual (WM) and we will rally huge.
Let it play out. It's happening with Mach 5 velocity, so you won't have to wait too long. Some days stocks will rally because the pressure will look like it's over. Other days it will return. No one who did this strategy will survive.
But then we will thrive.
Sooner rather than later.
By Jim Cramer
RealMoney.com Columnist
8/3/2007 9:37 AM EDT
URL: http://www.thestreet.com/marke...erupdate/10372191.html
It's all in the marks. Unless you have run a hedge fund, you have no idea what that means.
So I will explain it to the uninitiated.
When you run a hedge fund, you are always seeking capital. You can seek money directly from institutions or individuals, or you can do the easiest thing and seek money from those who are offering it: "fund of funds" managers who, specifically, look for managers to place other people's monies.
This cohort of investors had just gotten started in about my seventh year as a hedge fund manager, and they were always plying me with capital. I tried it for a while, but the ones I had, and they were substantial, demanded too much of my time and, I thought, forced me to make shorter-term decisions than I liked. I valued my independence too much. So I sent their money back.
Lots of people thought that was foolish. Lots wanted to grow their funds gigantically because they figured that was the way to get rich, quick. I was an idealist, and I wanted it to be a like a club where someone had to nominate you to get in. I wanted it that way because I didn't want any heat from them, and as long as I didn't seek them out, I didn't have to worry about pleasing them beyond the numbers.
Anyway, few people run money as I did. Maybe none. Most take the fund of funds' money.
Fund of funds managers interview and bracket managers into different groups: high-growth stocks, even-oriented managers, arbitrage, market-neutral, short, long, etc. They put them in buckets and measure them against others and then they go back to their real clients and say "here is the menu," or "here is what we recommend."
When I was in the game, by far the most popular were the "market-neutral" and "arbitrage" funds because they could absorb any amount of money and play all around the world without being hostage to "the market." They make money no matter what, which is the definition of what you are supposed to want if you are a client.
These managers can take advantage of the vast discrepancies that exist in the markets worldwide and borrow a lot of money to exploit them. That's hard if you are a pure stock guy. It is true that Pepsi (PEP) is cheaper than Coke (KO) on a price-to-growth metric. (Coke grows slower than Pepsi but has a higher multiple.) But does that mean you can go long Pepsi and short Coke and the twain meets? I wouldn't bet that way.
But how about this? American Home Mortgage (AHM) issues $1 billion in mortgages that Citigroup (C) packages. American Home isn't a "deposit" institution with a broad range of businesses to fall back on. It just issues mortgages, 2 and 28, teaser, little documentation, etc., etc.
Citigroup pools all of those mortgages and offers them into a bond that yields 7%, say, as a blend of the payments. A market-neutral and an arbitrage fund manager might say, "OK, I have $1 billion under management. I will go to Citigroup and borrow 10 billion and invest in these kinds of bonds."
They yield 7%, I am borrowing at 5%, I get 2% on all I lever up, which can produce, risk-free, a lot of return. It sure seems risk-free; the bonds are "highly rated" by S&P and Moody's, which gives me ample protection. I am not doing anything reckless. I am doing what every other manager in my class, the biggest and most profitable class, is doing.
But the strategy isn't risk-free. Only Treasuries are risk-free.
Now I am showing a really consistent rate of return because of that trade and dozens like them -- regardless of the stock market. So funds of funds drool and throw money at me and I keep buying more mortgage-backed securities and borrowing Treasuries. I can handle trillions!
Houses go up in value, mortgages get paid, employment's strong; that's all that matters. The bonds pay.
But housing stops going up in 2006. I keep buying the bonds, but I keep reading there are defaults. I don't see it. My traders don't see it. Everything's seems very ethereal.
And then in June, Bear Stearns (BSC) , doing this strategy at its funds, gets told the bonds are moving down in value and it must put up more collateral. But it doesn't have much cash and all of it is deployed. So it sells some bonds to meet the call. But nobody wants the bonds; everyone reads the papers and knows that defaults are mounting. So by the time it finishes selling the bonds, which now have no natural buyers, the collateral is gone. The funds close.
That happens in June. In July, the funds of funds get their reports and they see that, let's say, one of the funds is down 10%. They immediately put two and two together and they figure, "Wow, we could have a Bear on our hands." They go to the manager with redemptions.
But things are much worse than they seem. The "marks" -- meaning what the bonds in their portfolio are marked or priced at -- is some last sale price, presumably around par because they don't trade.
A redemption notice forces the trade. There are no buyers. That's how a Sowood could be down 10% at the end of June and 50% a few weeks later.
The marks are all lies.
Nobody is getting anywhere near the price of the bonds, which has become subjective anyway because of the number of defaults within the bonds.
All over the Street, these redemptions are happening. All over the Street, those doing these strategies are being wiped up. There are not enough people who were short this stuff to buy it at what might turn out to be pretty good prices unless all the mortgages within the security are going to be wiped out.
I would bet that half of these funds are gone this year. They represent trillions of dollars.
You will hear a lot of chatter about "the resetting of risk premium" right now. And it is true. But what's really going on is lying prices. These strategies didn't take into account the risk of default. The agencies didn't take it into account. The packagers didn't. The homebuilders that relied on it didn't.
Because these same hedge funds were also the buyers of high-yield bonds for private equity -- same trade: borrow money against Treasuries to capture the differential -- they don't have the capital to buy the corporates. Again, discussed as "repricing of risk," when what it really is is defrocking of marks. But that would reveal the whole industry as glib and unthought-out and complacent, which is what it really was.
This process is playing out everywhere, and the government isn't going to bail out these hedge funds. The good news is that it will happen fast. The money will come out, the losses will be big, but these hedge funds will all be closed by year-end. Trillions will vanish. But then we will start all over again.
Once this whole process is understood, the casualties, including some banks and some homebuilders and almost all mortgage companies except Countrywide (CFC) because it has a bank and lots of other businesses and is not a pure broker, will be taken. By November, this will be over.
The stock market will rally before it is finished and the Fed will act to save a Washington Mutual (WM) and we will rally huge.
Let it play out. It's happening with Mach 5 velocity, so you won't have to wait too long. Some days stocks will rally because the pressure will look like it's over. Other days it will return. No one who did this strategy will survive.
But then we will thrive.
Sooner rather than later.
It's nice that he only considers hedge funds. Marks will affect them, pensions funds, banks and pretty much everybody in between. Not to mention that credit spreads will get worse and the cost of borrowing will go up significantly. If inflation pressures do not decline enough for the Fed to drop rates you'll see a curbing of growth.
Yeah, I was under the impression that there is so much fear in the worldwide markets is because this toxic waste (leveraged on cheap borrowed money?) is tucked away in hedge funds, banks, brokers, insurance companies, etc. all around the world. ??
It's not just the toxic waste that's the problem, it's anything remotely connected to anything but solid prime RMBS right now. This is a larger problem moving up the credit spectrum because a multitude of factors. That credit spectrum isn't just the bonds, but also the collateral.
The bonds are a large problem, since those hit the bottom line of the companies who purchased them. As the lower tranches become more likely to face losses they are downgraded by the rating agencies. If they do face losses the credit enhancement for the higher tranches declines and the senior tranches will likewise be downgraded. Thus, the entire credit spectrum of the trust is degraded.
Additionally, subprime, while a smaller part of the market, creates feedback into the next higher portion of the market, causing more Alt-A borrowers to default. As a result this creates additional bleed up to the lower levels of prime. Naturally these problems keep going into higher credit spectrums, with each higher spectrum feeling less effects. Nonetheless, all spectrums will feel the effect.
Many say that higher priced homes will not decline in price. The fallacy of this belief is that somebody who is a discerning consumer will take a look at the relative values of houses. If the value of a house that's 10% less house, but 30% less costs comes onto the market, they'll rate the relative utility of two houses, a discerning consumer will naturally go for the better deal. That means that the price pressures on the marginally better but significantly more expensive house will be great and in most cases that house will decline in price.
Thus, you are seeing a degredation of the economy from three perspectives. Homeowners are sliding down the credit spectrum through defaults, funds (pension, hedge, bank, mutual) will slide down the spectrum through mortgage defaults. Prices will slide down the spectrum as a function of the prior two.
This cycle continues until the prices of houses match the credit available to consumers and houses become more affordable to those who should have only afforded them in the first place at a rational price.
- May 21, 2001
- 26,066
- 4,712
- 126
Related article to this recent discussion. To add to LK's economy degredation, think about these corporations too.
Ok, that link I gave is disappointingly light in details, but the idea is there. If struggling corporations can't borrow money to get out of their tough times, they will be signficantly affected. Think lost jobs. Think how lost jobs affect homeowners already struggling with making payments.
I don't think we are any where near a doom and gloom scenario. But the symptoms are there, if we ignore them we may have a full blown problem on our hands. The next 12 months are crucial.
Bloomberg is showing JPMorgan and Deutsche as having to hold KKR's Alliance Boot's deal with no secondary offering. That's a lot of highly leveraged paper to hold on balance sheet. There are several other deals in the works like this, in addition to another 200bn+ that needs to be offloaded in the next few months.
In other news, Merrill, Morgan Stanley, Citigroup, and Lehman have found some way to move a lot of subprime asets which were being warehoused for CDO managers, off balance sheet whereby the mark to market didn't touch their earnings as they should have. This is very alarming since it's something that could involve a lot of accounting trickery and abuse of accounting standards (not saying it does or that there is fraud, they may have found a completely legal way of doing this). Nonetheless, they have somehow avoided the mark to market from hitting their income statements in a massive way.
How? Nobody seems to know right now. Those losses have to flow out somewhere.
Vic
Elite Member
- Jun 12, 2001
- 50,422
- 14,337
- 136
A little clarification on some of the usual media misinformation. AHM was not a player in the subprime markets (IIRC they didn't even have subprime offerings on their wholesale channels), and not even so much in the Alt-A market. What they were a big player in was the Jumbo markets, i.e. an otherwise Fannie Mae "conforming" loan but with a loan amount that exceeded the conforming limit of (currently) $417,000 (for 1 unit properties in the lower 48).
Jumbo just basically collapsed right into the dust, so if you happen to live in a market where the median value is near or above the $417k limit, well... it ain't gonna be pretty.
I have said here many times that those hyper-inflated markets are the ones that were going to see the greatest amount of suffering. OTOH, those markets with medians well below the Fannie limit, and particularly those below the FHA limits will see the least (and some not at all).
Jumbo just basically collapsed right into the dust, so if you happen to live in a market where the median value is near or above the $417k limit, well... it ain't gonna be pretty.
I have said here many times that those hyper-inflated markets are the ones that were going to see the greatest amount of suffering. OTOH, those markets with medians well below the Fannie limit, and particularly those below the FHA limits will see the least (and some not at all).
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