As I've mentioned, I decided to maintain my short position in AHM through Monday at least, which contradicts some of my earlier posts. Allow me to explain. Obviously, I remain bearish on the sector as a whole and I am convinced that these stocks will lose more ground in the coming weeks. In this regard, AHM is not an exception. AHM is an exception, however, where volatility is concerned. In other words, the very lack of volatility I complained about earlier is one of the reasons I'm holding on to this position. In the past week, I've held short positions in LEND on more than one occasion. While the profits were good, the uncertainty was a killer. Every morning I had to worry about the real possibility of a monster spike in price. With AHM, that fear is mitigated. While a spike is possible for AHM, a devastating spike is unlikely. I'm hoping for a few more downgrades Monday morning as well as continued bankruptcy talk surrounding NEW. Better yet, should NEW announce its plans to file for bankruptcy protection, it will be a bloody Monday for all these companies, including AHM. As of now, I don't have a set target for AHM. I opened the position at 25.12 and initially set a stop at 25.25. The stop has been canceled and I plan to set a new one Monday morning. Not sure at what price, but I'll let you know. Good Luck!
Talk like this helps too: Sub-prime defaults are "beginning of wave." http://www.bloomberg.com/apps/news?pid=20601087&sid=ae6vaLjTNitA&refer=home According to U.S. Federal Reserve Governor Susan Bies, "What's happening is the front end of this wave of teaser- rate loans that are coming into full pricing. So what we're seeing in this narrow segment is the beginning of the wave. This is not the end, this is the beginning.'' (Emphasis added.) Sounds dire, wouldn't you say?
Yes Cal, You are correct. Things look very dire for the sub-prime mortgage lenders. This is eeerily familiar to how things were for the airline stocks in 03. Were you old enough to be trading then or was that about the time you were graduating high school? Anyways, good luck with your shorts. You stand to make a buck here or there in the 'short' time frame. (I wonder if that is why they call it 'shorting'. Does anyone short for a 'long' time? lol.) I actually love these kind of situations, investment wise. I am going to be buying LEND, CFC, and maybe 1 or 2 other sub-prime lenders on Monday. These will be smaller positions and if they continue down, I will add to my positions. The fact that the recent concern over rising default rates is hitting industry wide is a good thing, just like the airline stocks in 03. As with the airline stocks, the strong will survive (AMR, LUV, JBLU), and the weak will fold (US Airways etc.) I remember in the heat of the battle in 03, the talk on Wall Street was how AMR was burning through cash at the rate of $5,000,000 per day! You'd have thought they should ground all planes and save some money right! What I am always amazed at is how the shorts seem to always get it wrong. I thought the idea of the game was to short high priced stocks and buy low right? Well when AMR hit its low of 1.25/share in 03, it had the HIGHEST short ratio it ever had, which means that a ton of folks were jumping on much too late on the short wagon, and of course had to scramble to cover as AMR came back which further boosted the stock price! So, I hope you short CAL, and short even more as these stocks drop. For your sake, you best have a plan to cover at some point. I actually don't mind you shorting at all. I want all of these shares for as cheap as possible. I am hoping to get as many shares for under $2 as possible. Can you short IMH, NFI, and LEND more for me? It's funny how if you look back last year at these stocks, If I was sitting here saying 'hey you should short these stocks, they are very high in price and have much downside potential" you'd have said "what are you nuts, these stocks are booming, I am not shorting them now". You know you have hit rock bottom when 9/10 folks are shorting a stock! When MXT hit rock bottom price of 1.25, I was buying 5000 share blocks. The short % of the float was 72%!! Talk about being greedy and trying to get ever last dollar of a short! Of course the only thing the shorts got was a headache after that. peace.
I heard Bear could be in trouble. don't know, but it's a good source. SFK has them all at 2:1. It's so illiquid though. That could change. And you see this unwind like t his; you know it's not going to end well, except for nimble traders, and they fight any HF regulation tooth and nail. Like, there are no parallels to making big money by stretching the rules. It will never end. five years from now, it'll be something else.
yea i think long subprime will be a great opportunity, just not yet. buy a basket of the stronger ones (and some weak ones that manage to tick away) once you don't hear about subprime in the news anymore. Thats when the sharp decent at least decelerates. I think it'll take at least a few months. And forget about em and see what you have in about 5 years, no stop loss.
I agree that the bottom is not here, but I cannot say where the absolute bottom is. Just as in 03, I am wading into the water right now with expectations to add on if and when the defaults hit the earnings reports in the next 1-2, or 3 quarters. It is interesting that it is almost 4 years to the exact day that I was going thru all of this with the airline stocks and some other sub-prime lenders. ACF hit rock bottom 3/11/03 and AMR on 3/12/03. I don't see much difference from having bought AMR, CAL, NWAC, LUV, DAL, JBLU in March 03 and holding tight for a couple years. You can see some went bust but the others did fine. I think the same will hold for these sub-prime lenders. The good ones will come out of this fine as they change their thinking on loans and eliminate the zero down loans. Seems obvious to me that the default rates on zero down loans will be huge because if I didn't have any of my money on a property and the rates went up, I'd just walk away from it too. Overall, I think the corrections that will happen in the housing market are long overdue and will strenghten it long term. The folks that foreclose will be blacklisted from any future loans for at least 7 years so the market of buyers will be better and the prices of houses will have dropped to realistic valuations and the banks will require 5% or more down payment which will mean many will not walk away from a property and if they do, the banks will have a cushion to run the house thru foreclosure and resell it. I have gone to several foreclosures lately and the banks always have gotten the property. They bid far more than what us scavengers are willing to pay for the properties. I also think that once the bozo gets out of office and we get a Democrat back in there, we will have better days ahead as far as the overall economy goes. The 12 years that the Republicans (Reagan and Bush I) ran the country from 1980-1992 saw massive increases in our debt and interest rates. During the 8 years Clinton was in office, our country saw record low interest rates, and the first time black ink for the country. Then we all go porked when Al Gore missed getting in and we ended up with the biggest moron this country has ever seen running our country down. Billions spent to oust Saddam because Bush was pissed that Saddam tried to have his dad assasinated! Nice sales job on saying Saddam had weapons of mass destruction. Yea, look at all those nuclear weapons we found!
I don't disagree that when the dust settles, there will be opportunities on the long side of this sector. But for now the market favors shorts. Some of these companies will go under as a matter of course, but I have no intention of taking them down to zero. Basically, I'm just jumping in and jumping out, locking in profits before they're taken away. Still, there are several obstacles that this sector must overcome prior to recovery and key among them will be the stabilization of the housing market. While some of these companies can make a profit despite declining home values, the typical US investor doesn't see it that way. Instead, they see such declines as detrimental to the bottom lines of these companies. Moreover, with banks/lenders clamping down, new customers must meet increasingly stringent requirements in order to borrow money. This may be a positive change in the long-term, but only for select companies. The majority of these companies, however, shaped their business around the lax policies that were in place and the booming housing market was evidence of this fact. Loans to high-risk borrowers are the most profitable for all involved, except the borrower itself. Take these loans away and all of a sudden earnings for these companies across the board must be revised to the downside. The parallels between the present sub-prime crisis and the tech bust of a few years back are hard to ignore. Now, only the best of tech companies are trading at or slightly above their highs in 1999/2000. Many are trading at mere fractions of those levels and many more have simply vanished. While betting on the sub-prime losers may prove to be a profitable strategy, IMO the better strategy is betting on the winners who are losing due to unjustified association.
Sounds like you'd say stick all my money into a company like CFC and screw the rest of them. Not entirely a bad idea except I like to gamble and get paid off long odds if I am right. I don't see the risk with CFC, but also don't see making 5-10x my investment with CFC. However, NEW and NFI stand to make me 5-10x my money especially if they drop below $2/share. Peace.