Another Financial Crisis?

[rockysan99]

BSC, CFC I considered both

But CFC (Countrywide Finance) has been in a sideways range for a very long time and to me is too obvious here. Still, if one were to play it on the downside I could certainly make a case for it. Bear Stearns looks like it is ripe for a major whacking although it has already dropped from $165 to $150 it certainly has more room to fall. I’ll tell you one that I really like that no one has considered. Over the last 3 years it has skyrocketed ($40 to $106) on the back of the housing explosion and while most housing related stocks have taken the obvious hit, this one is like a guillotine being raised. Check out Landamerica Financial Group (LFG). You want to short (or buy puts) at the high and this one is there. What do they do? Title insurance. Home sales are plunging so that means title insurance earning are going to be taking a hit. For the savvy, ballsy investor willing to go against the crowd, this one is a beauty. Oh it has all the earmarks of a fat money maker. If you buy yourself a put on this one, make sure to give yourself plenty of time. It has puts that go out to Jan 2009. Check it out. Another title insurer that is also ripe and sells in the $50s after a run up is First American (FAF)

[rockysan99]

BSC, CFC I considered both

But CFC (Countrywide Finance) has been in a sideways range for a very long time and to me is too obvious here. Still, if one were to play it on the downside I could certainly make a case for it. Bear Stearns looks like it is ripe for a major whacking although it has already dropped from $165 to $150 it certainly has more room to fall. I’ll tell you one that I really like that no one has considered. Over the last 3 years it has skyrocketed ($40 to $106) on the back of the housing explosion and while most housing related stocks have taken the obvious hit, this one is like a guillotine being raised. Check out Landamerica Financial Group (LFG). You want to short (or buy puts) at the high and this one is there. What do they do? Title insurance. Home sales are plunging so that means title insurance earning are going to be taking a hit. For the savvy, ballsy investor willing to go against the crowd, this one is a beauty. Oh it has all the earmarks of a fat money maker. If you buy yourself a put on this one, make sure to give yourself plenty of time. It has puts that go out to Jan 2009. Check it out. Another title insurer that is also ripe and sells in the $50s after a run up is First American (FAF)

[rockysan99]

Auto Parts Makers

Earlier I mentioned Auto Parts makers but neglected to name them. Check out Johnson Controls (JCI) and Genuine Parts (GPC). Both are at or near their highs and as you know or should know, GM got massacred via the housing crunch in their last earnings released (see also GMAC). Quite ugly. Well, if the automakers are being squeezed, these guys are sure to follow

[rockysan99]

Auto Parts Makers

Earlier I mentioned Auto Parts makers but neglected to name them. Check out Johnson Controls (JCI) and Genuine Parts (GPC). Both are at or near their highs and as you know or should know, GM got massacred via the housing crunch in their last earnings released (see also GMAC). Quite ugly. Well, if the automakers are being squeezed, these guys are sure to follow

[LookoutBelow]

Any idea how this will affect hedgies that specialize trading in the CDS (credit default swap) ?

 

I have seen a number of articles on these types of hedge funds that are NOT even based in the USA…I believe they are out of the purview of the SEC in that case, am I correct in assuming this ? ……anybody know any different ?

[LookoutBelow]

Any idea how this will affect hedgies that specialize trading in the CDS (credit default swap) ?

 

I have seen a number of articles on these types of hedge funds that are NOT even based in the USA…I believe they are out of the purview of the SEC in that case, am I correct in assuming this ? ……anybody know any different ?

[davelj]

A slice of Bill Fleckenstein’s commentary from today on this situation:
(go to http://www.fleckensteincapital.com – subscription required – for the full story)

“Among the handful of news items worth covering, I think the most important one is Wall Street’s drive to bail out that mouthful of a Bear Stearns vehicle, the High-Grade Structured Credit Strategies Enhanced Leverage Fund. According to one report, Citigroup plans to infuse it with $500 million, with another $1.5 billion coming from Bear Stearns itself. (Yet another story today said that Blackstone was interested in bailing the fund out.)

“I have to wonder why Wall Street is working overtime to rescue a $600 million fund. On the other hand, I think we all know the answer: In a liquidation scenario, lots of people fear what would happen to leveraged portfolios across Wall Street and the world if sales of some of the fund’s paper were marked to market. And, if that were to occur, maybe even the mighty Blackstone might not get to go public.

“I can’t recall a fund of this size ever being bailed out. Liquidation is the usual outcome when a fund is down 25% to 30%, as this one supposedly is. Of course, it might be down a lot more if real prices were used. Considering that (a) the fund was allegedly worth $6 billion, (b) its managers have already sold $3.8 billion of AAA and AA paper, and (c) they’re now putting in $2 billion on top of the original $600 million in capital, it sure smells a lot worse than they have alleged. Apparently, all sorts of games are being played and attempts being made to avoid marking mortgage slices-and-dices to market — in addition to the fact that many funds aren’t required to mark their positions to market until the ratings agencies say so. You don’t have to be too smart to see that this is a ticking time bomb. One of these days, it’s going to detonate and there will be hell to pay. The only question is when.”

[davelj]

A slice of Bill Fleckenstein’s commentary from today on this situation:
(go to http://www.fleckensteincapital.com – subscription required – for the full story)

“Among the handful of news items worth covering, I think the most important one is Wall Street’s drive to bail out that mouthful of a Bear Stearns vehicle, the High-Grade Structured Credit Strategies Enhanced Leverage Fund. According to one report, Citigroup plans to infuse it with $500 million, with another $1.5 billion coming from Bear Stearns itself. (Yet another story today said that Blackstone was interested in bailing the fund out.)

“I have to wonder why Wall Street is working overtime to rescue a $600 million fund. On the other hand, I think we all know the answer: In a liquidation scenario, lots of people fear what would happen to leveraged portfolios across Wall Street and the world if sales of some of the fund’s paper were marked to market. And, if that were to occur, maybe even the mighty Blackstone might not get to go public.

“I can’t recall a fund of this size ever being bailed out. Liquidation is the usual outcome when a fund is down 25% to 30%, as this one supposedly is. Of course, it might be down a lot more if real prices were used. Considering that (a) the fund was allegedly worth $6 billion, (b) its managers have already sold $3.8 billion of AAA and AA paper, and (c) they’re now putting in $2 billion on top of the original $600 million in capital, it sure smells a lot worse than they have alleged. Apparently, all sorts of games are being played and attempts being made to avoid marking mortgage slices-and-dices to market — in addition to the fact that many funds aren’t required to mark their positions to market until the ratings agencies say so. You don’t have to be too smart to see that this is a ticking time bomb. One of these days, it’s going to detonate and there will be hell to pay. The only question is when.”

[lonestar2000]

It’s fair to assume that all areas of discretionary spending will be hurting. Starbucks, movie theaters, and amusement parks are just a few that come to mind.

[lonestar2000]

It’s fair to assume that all areas of discretionary spending will be hurting. Starbucks, movie theaters, and amusement parks are just a few that come to mind.

[Ash Housewares]

You recommend searching beyond the “obvious”, but keep in mind that the further removed you get from the obvious the more dampened the effect will be. For home builders and lenders, the housing market is the primary driver of the stock price. For others like car parts suppliers, it may be a secondary effect. They will feel the pinch less acutely due to all the other factors that affect them.

It’s like a spreading ripple in a pond- it starts violent and fast at the source, and diffuses and arrives later in other areas further away.

[Ash Housewares]

You recommend searching beyond the “obvious”, but keep in mind that the further removed you get from the obvious the more dampened the effect will be. For home builders and lenders, the housing market is the primary driver of the stock price. For others like car parts suppliers, it may be a secondary effect. They will feel the pinch less acutely due to all the other factors that affect them.

It’s like a spreading ripple in a pond- it starts violent and fast at the source, and diffuses and arrives later in other areas further away.

[rockysan99]

You can play the obvious

But keep in mind so is everyone else and no one makes money doing what everyone else does, especially at the top/peak of a market. Anyone who reads this website knows that by know. I maintain that you go second tier company’s behind the homebuilders, behind the automakers. In fact the stocks I recommended last nite all got hit pretty good today. Only the cruise lines were up fractionally. WHR was off about $3, ABK down $2, etc, etc.
This Bear Stearns thing may be the catalyst here.

[rockysan99]

You can play the obvious

But keep in mind so is everyone else and no one makes money doing what everyone else does, especially at the top/peak of a market. Anyone who reads this website knows that by know. I maintain that you go second tier company’s behind the homebuilders, behind the automakers. In fact the stocks I recommended last nite all got hit pretty good today. Only the cruise lines were up fractionally. WHR was off about $3, ABK down $2, etc, etc.
This Bear Stearns thing may be the catalyst here.

[DaCounselor]

“Some hedge funds say they are concerned that banks that both sell the derivatives contracts and handle mortgage payments could be involved in a form of market manipulation.”

This is my favorite quote from the article. I’m still smiling an hour later at this. Hedge funds’ concerns about the banks manipulating the market is akin to a perpetually hungry fat guy being concerned that someone is going to get to the buffet before he does.

If the hedgies bet against subprime paper without investigating and understanding the provisions of pooling/servicing agreements allowing for modifications, then they justifiably may suffer the fate of all those who don’t pay attention to detail.

[Author]

Posts