My guess - a complete meltdown, massive layoffs, eventual insider trading arrests, and stars of the 2008 congressional hearings. Note - I'm short Countrywide (CFC). Here's Fleckenstein's take on this heading-south-quickly group:
Neither a borrower nor a lender be Meanwhile on Wednesday, the financing mechanism of the housing ATM food chain saw some holes blown in it. Specifically, Accredited Home Lenders (LEND, news, msgs) was down over 20% on a poor quarter. Accredited Home (like New Century Financial (NEW, news, msgs) a week earlier) was forced to keep the loans that it was unable to sell.
No prisoners were taken last Wednesday -- witness the pummeling not just of Accredited Home but also New Century and Countrywide Financial (CFC, news, msgs). (CFC's monthly comps were horrific.) Adding to the angst: Toll Brothers (TOL, news, msgs) and WCI Communities (WCI, news, msgs) -- "building" blocks in the housing ATM itself -- reported poor results that day, which saw the homebuilders under pressure. Ditto all those members of the financial-dark-matter group that I mentioned in last week's Contrarian.
August 15, 2006
With the housing ATM now out of order, what happens to the companies who installed and serviced the ATMs?
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7 comments:
My neighbor works for a refinancing company. Two months ago they had a "contest" to see how much more money they could get their clients to borrow. My neighbor called people who had refinanced and asked them if they wanted to borrow more money.
The company is now closing the branch that my neighbor works for and she is searching for another job. Also she is very angry with her company for closing a "profitable" branch. I think her company realizes the game is over.
I agree with your take on housing ATM industry -- however, betting against CFC is a bold move. Mr. Mozilo is a pretty resourceful guy.
Props for putting your bets out on this blog for everyone to see.
CNN Money
Home prices in deep freeze
Second quarter numbers are in for more than 150 markets. Overall growth is down; more markets show declines
In Clark County Washington, across the Columbia River from Portland, OR, the local paper reported that home sales were down 26% over the same period as last year. Last Thursday and Friday people received their tax notices. Property values were increased 30% across the board for tax purposes. It's going to be interesting to see how people who are already strapped pay this one. The stupid ones think that this means that they can now get more for their homes that aren't selling anyway. I see a major economic problem brewing here. People won't be able to pay their bills and flippers and equity locusts can't move their crap. No sympathies.
The LEND Sept 45 puts that I bought in June were down 20% until last week, when they gained 300% as the stock gapped down $8. WCI has been one of my biggest positions with about 200 puts. Last week my WCI positions were up about 40 K.
I have also been buying puts in other mortgage related stocks such as FMT (way down over the last few days) TMA, CFC, and several banks, including CORS, BBX, and NYB. CORS has been my favorite housing bubble since May. I am now buying Mar 22.5 puts. Always use a limit order, as the bid ask is sometimes crazy on CORS. My guess that that market makers can't hedge their positions and just make buying and selling impossible (usually only for minutes to hours).
I am now buying Jan and later positions on lenders and banks, but Oct, Nov, Dec and Jan put positions on builders. I like the builders that have not been recently downgraded, such as CTX, LEN and KBH. They have not warned yet, but IMO, they will come in far below Wall Street's expectations. LEN and KBH report in Sept.
I consider today's bounce an opportunity to buy more puts. I usually buy at the money or a few dollars in the money positions.
Bill
Bill...add JOE to your list to buy puts on; 48 today...should move to the mid 30s by next year; LEAPS are available; JOE is experiencing a lot of volatility since announcing poor earnings about a week ago.
also I like PMI, the private mtg insurance company as a short
They sold most of that junk paper to foreigners. They've already seen the value of that paper drop up to 50% with the devaluation of the dollar that will only continue. It is always smart for a country to owe it's debt in it's own currency. Imagine if we had all that debt in Euros? Wow, our debt burden would have risen 50% without any interest rate increase! That is why Bannana republics default.
Of course the day will come when the dollar is no longer the world currency (Can someone say the Yuan?) Then we'll have borrow in foreign currencies. Want to see pain? Until then, the rich will continue to debase the currency and their wealth and pay the piper when they have to.
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