Yeah, that’s why I haven’t pulled the trigger yet. We enlightened folks here on Piggi’s forum aren’t the only ones who see the writing on the wall. It makes for a crowded trade, but that doesn’t mean we aren’t eventually going to be proven right.
Check it out, LEND has $9B in debt. This is the sub-prime mortgage debt that is going to be most at risk when the housing market turns. What’s really fasicinating, is that they estimate reserves against this bad debt using past performance. Well, in the last 10 years, the default rate has been almost non-existent and the actuaries have run all these monte-carlo simulations saying that in a worse case scenario, only X% of the total debt is at risk. Well, I respect their math skills, but they are forgetting some basic common sense and the fact that this crash isn’t going to be like anything we’ve ever seen before.
So against this $9 Billion dollars in debt, care to guess how much cash LEND has to defend itself in tough times?
$20 million bucks!!!!
If there is a big mortage failure rate, this company is on a one-way ticket to bankruptcy court.
Now, you are right to point out the high short interest and its precisely why I’m not yet short this stock as I think there might be one last gasp up to the upside forcing a small short squeeze. I’m also waiting till Rich here tells us the downside has started for sure. Then I will buy some long-term PUT Leaps and just sit tight and ride the wild ride it is sure to be.
I’m also eagerly waiting the coming trading of the housing futures market on the CME. I’m hopeful there will be some liquidity in that market that could make trading the san diego housing market very profitable.
