Discussion in 'Stocks' started by michaelscott, Jul 26, 2007.
At the end of the day, Mozillo will be the last one standing...
I have $30 calls in CFC.
Washington Mutual is a good one too. I was short them for a long time as I watch WM go to $44 since I was short at $40.40. I waited it out, paid a dividend and covered a bit too early. I think its around $38.50 now. Their earnings were actually pretty good this past quarter.
I know the media is saying stay away from Financials but this is a good time to bottom fish.
Absolutely insane if you think this is the bottom. The sell off is just only beginning. It will accelerate and pick up speed.
Just getting worse all the time and the major media coverage has only just begun! Article from USA Today trashing CFC!
Investing: Reaching for Countrywide now may leave a scar
By John Waggoner, USA TODAY
Wall Street has many colorful yet obvious maxims, such as "Buy low, sell high," "Cut your losses short and let your profits run" and "Don't make toast in the bathtub."
Today's proverb is "Don't catch a falling knife." The metaphorical knife in question is Countrywide Financial (CFC), but it applies to any financial object in free fall.
Countrywide is a large real estate lender â the second-largest retail mortgage lender in the country. It is caught in two unfortunate developments. The first is the overall slowdown in real estate. Home prices have fallen sharply in several areas of the country, unsold houses are piling up on brokerage listings, and mortgage delinquencies are rising.
The second is the collapse of the subprime mortgage market. A subprime borrower is typically one with spotty credit who doesn't qualify for a garden-variety mortgage. For such borrowers, the lender might offer a low, fixed rate for two years and an adjustable rate the next 28 years, an arrangement called a 2/28 loan. Usually, the adjustable rate is sharply higher than the initial rate. The lender might also lend the home buyer the down payment, in the form of a second mortgage.
Countrywide was a leader in subprime lending, primarily through its Full Spectrum Lending Division. But subprime borrowers have had a hard time keeping up with payments. That's particularly true as 2/28 loans made during the housing boom have begun to reset to higher rates. In addition, delinquencies on prime home equity loans jumped to 4.6% in June, vs. 1.8% a year earlier.
FIND MORE STORIES IN: Freddie Mac | Fannie Mae | Investing | John Waggoner | Funds
At its conference call Tuesday, Countrywide lowered its earnings guidance for the rest of the year, saying it expected the housing slowdown to last through 2009. The stock price plunged 10% that day. Countrywide was, at least on Tuesday, a falling knife.
Should you have grabbed it? With the serene certainty of hindsight, we can say no. The stock rose just 2 cents Wednesday and was an active participant in Thursday's meltdown. It closed Thursday at $29.25.
In general, the advice against buying a stock in free fall is good. It's better, of course, to buy Countrywide at $29 rather than at its high of $45 this year. But companies often take awhile to work out their troubles. In the case of Countrywide, a rotten real estate market isn't the only problem. Bad loans don't appear all at once. Borrowers don't like to default, and they resist doing so. The process can take years to work out.
Moody's expects overall mortgage delinquencies to soar to a record 3.6% next summer. Adjustable-rate mortgage (ARM) defaults will leap to nearly 10% by mid-2008, Moody's predicts, and subprime ARM defaults could hit 20% by the fall of 2011.
It's always possible for matters to get worse. "This is going on when employment numbers are strong," notes Stuart Plesser, equity research analyst for Standard & Poor's. An uptick in unemployment, Plesser says, could raise mortgage delinquencies much higher.
Wallace Weitz, manager of the Weitz Funds, is a big holder of Countrywide stock; it's about 6% of the Weitz Value fund's portfolio. "We have a lot of scars on our hands," he says. He plans to hold the stock, in large part because he thinks the company will emerge stronger from the current crisis, and with fewer competitors. But even Weitz cautions against trying to grab the stock while it's falling.
"It's a matter of knowing yourself," he says. "There's no sense in dipping into Countrywide if you're going to panic and sell it at $24."
Sentiment : Strong Sell
The gut reaction in today's economic environment would be to immediately sell/short the CFC common stock. However, you have to know the players in the game.
Mozillo has been in the business since the 60s. Mozillo sold mortgages through high interest rate environments and knows how to run his business through the worst of times. Mozillo is not a fighter pilot risk taker, but more like the captain of a huge airliner.
Mike Perry at Indymac, on the other hand, is the fighter pilot of the mortgage industry. In the 90s, Mozillo realized that Perry and Indymac would be a great risk to Countrywide, therefore, he spun it off.
I have great faith that Mozillo will be able to pilot his airliner through this storm. Other mortgage lenders will go out of business and the last one standing will be Mozillo who will scoop up their customers.
Perry, on the other hand, will get shot down. The risks that Perry had taken were great and that of a gambler.
I say to short Indymac and long CFC.
I watched Cramer for the first time in about six months last night. I wanted to see what he had to say about the 311 point decline. As soon as he said to sell CFC I thought "Buy".
It looks like CFC is up on another bad day. This is my buying point.
I don't see any light at the end of the tunnel for CFC or a housing turnaround anytime soon. The worse is yet to come for real estate defaults, the real estate market and CFC. Stay away.
Just got here? Welcome.
Unfortunately, your cause and effect notions are a little sophomoric.
Can you say bundled orginations?
As a trader, IF I don't have losses, I'm probably not making enough trades. By the same token, IF a lender doesn't have any classified (substandard, doubful, loss) loans, they're probably not originatiing enough.
Those not sold off are collateralized by fairly desirable (though location dependent) tangible assets. Even in the deepest, darkest doom and gloom have a......................value.
The stock though correlated, is mutually exclusive from the company. Paper negotiable financial instrument (carried on the balance sheet at par) with a ready liquid market. Very wide, fragmented ownership base.
And................holding up pretty well given the recent carnage. Don't you agree?
But, IF I was an unseasoned realtor, I might be thinking about ............eh................night school.
Thats correct, the worse is not over, however, Mozillo will be the last one standing. Google him and look at his biography. While every mortgage house is going out of business, Mozillo will be the last one standing.
This man was selling mortgages when the interest rates were at 14%.
The key to Countrywide is proven experience and know-how. Mozillo has all that.
The stock is up 3% today so the street believes in Mozillo.
I would say to short Indymac, however....