Posts filed under “Short Selling”

The Single Best Investment EVER

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It is those “Dow 10,000″ hats CNBC got for all the on air anchors way back in 1999. They sure got a whole lot of use out of them.

The Dow is 9,868 as I type this.

GE breaks syndicate price of $22.20 secondary, and its now off by a full 10% — at $19.95.

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Dow Industrials, 10 Years

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Chart courtesy of FusionIQ, Bloomberg

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As to forecasting forward from here, there are simply too many unknowns and moving parts to say anything with a high degree of confidence.  A lot depends upon the govt response to the credit crisis, to the recession, and other elements

We could theoretically find support between 9,500-9800, or we could see the bottom drop out any day now

With the VIX now over 50 — the Dow is now off 30% In one year — I would imagine we are closer to the bottom than to the top.

 

 

Category: Markets, Short Selling, Trading

S&P 500 Review

http://www.businessweek.com/magazine/content/02_50/b3812104.htm

Category: Index/ETFs, Markets, Quantitative, Short Selling, Technical Analysis

Fannie Mae and the Financial Crisis

The Sunday New York Times has a very interesting article on Fannie Mae and the current financial crisis. They do a decent job at delving into the complexities of the GSEs, and the many factors that went into the decision making at the senior level of the company. This includes pressure from clients such as Coutrywide CEO Angelo Mozilo, pressure from Congress, and the demands from investors for the company to be more aggressive. Most of all, it looks at the ongoing competitive demands of the market place that Fanny was in.

The key to understanding the GSE story is grasping their role within the bigger picture of the economy and housing sector. While there are some pundits who prefer talking points over reality (Charlies Gasparino, Lawrence Kudlow, James Pethoukoukis, and Jeff Saut all toed the GOP line) I prefer to keep all of my analyses based on the data and facts. Rather than creating historical revisions for partisan reasons, I prefer to keep it reality based. (I’m an independant, and that’s how I roll).

The current housing and credit crises has many, many underlying sources. Its my opinion there were two primary causes leading to the boom and bust in Housing: A nonfeasant Fed, that ignored lending standards, and ultra-low rates.

This nonfeasance under Greenspan allowed banks, thrifts, and mortgage originators to engage in all manner of lending standard abrogations. We have detailed many times the I/O, 2/28, Piggy back, and Ninja type loans here. These never should have been permitted to proliferate the way they did.

The most significant element were the 2/28 APRs, and their put back provision. Just about all of these gave the securitizer/repackager the right to return the loans within 6 (or 12) months if they went into default. Hence, our proposition that the 2002-07 period was unique in the history of finance. If any of these mortgages went bad within 6 months, the undewriter was on the hook.

HOW DIFFERENT WERE LENDING STANDARDS IF YOU ONLY NEED TO ENSURE THE BORROWER WOULDN’T DEFAULT FOR 6 MONTHS VERSUS FINDING BORROWERS WHO WOULDN’T DEFAULT FOR 30 YEARS.

In a rising price environment, 99% of the mortgages were not returned by the securitizers to the originator. From 2001 to 2005, the mortgage firms thrived. However, once prices peaked and reversed, things changed. From 2006-08, Wal Street began putting back mortgages to originators in greater numbers. This led to nearly 300 mortgage firms imploding.

We can blame the lenders, the securitizers, the borrowers, and Fannie/Freddie, but it doesn’t matter much. By the time Fannie and Freddie began changing their mortgage buying rules, the Housing boom was already in full gear, and the crash was all but inevitable.

Some people (especially the political hacks) are focusing their energies in the wrong places. According to a recent investigation by Barron’s, Fannie’s biggest problem was not the subprime mortgages they bought  — it was the better quality Alt A mortgages that caused their demise:

“As Freddie Mac Chairman and CEO Richard Syron recently put it, the GSEs have been hit by a “100-year storm” in the housing market, accentuated by some higher-risk mortgages that they were forced to buy to meet government affordable-housing targets.

The latter contention is more than disingenuous. A substantial portion of Fannie’s and Freddie’s credit losses comes from $337 billion and $237 billion, respectively, of Alt-A mortgages that the agencies imprudently bought or guaranteed in recent years to boost their market share. These are mortgages for which little or no attempt was made to verify the borrowers’ income or net worth. The principal balances were much higher than those of mortgages typically made to low-income borrowers.

In short, Alt-A mortgages were a hallmark of real-estate speculation in the ex-urbs of Las Vegas or Los Angeles, not predatory lending to low-income folks in the inner cities.

Only pure partisans take as gospel the statements of an embattled CEO whose own words are belied by the firm’s balance sheet and P&L statements.

What about the ultra low rates? Consider that the Greenspan Fed maintained a 1.75% Fed fund for 33 months (December 2001 to September 2004), a 1.25% for 21 months (November 2002 to August 2004), and lastly, a 1% Fed funds rate for 12+ months, (June 2003 to June 2004). That was fuel for the fire, and fed the boom even more, sending prices skyward.

And not just here . . . As the central bank for the largest economy in the world, the Fed’s rate action had repercussions in Housing markets everywhere. Rate cuts here richocheted around the world, sending home prices upwards globally.

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Category: Bailouts, Federal Reserve, Real Estate, Short Selling, Taxes and Policy

GE, IBM on “Do Not Short” list?

Category: Bailouts, Short Selling

House Oversight Committee Seeks AIG, LEH Info

Category: Bailouts, Short Selling, Taxes and Policy

Chart of Day: Short Ban ‘Mother of All Squeezes’

click for ginormous chart   Bloomberg: The CHART OF THE DAY shows the jump in short interest this year in the six worst-performing financial shares in the S&P 500 – American International Group Inc., Washington Mutual Inc., National City Corp., Genworth Financial Inc., XL Capital Ltd. and Wachovia Corp. — along with the percentage of…Read More

Category: Short Selling, Technical Analysis

Short Selling Ban Spreads Around the World

Category: Legal, Markets, Short Selling, Taxes and Policy

October 18, 1930: NYT on Short Selling

Category: Financial Press, Markets, Short Selling

NPR: SEC Bans Short-Selling Stocks

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I did a nice interview with NPR on short selling earlier today, which should be live at 3pm.

NPR:

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Category: Media, Short Selling

SEC Induced Mother-of-All Short Covering Rallies

Back in July, Bill King wrote up something called "SEC Induced Mother-of-All Short Covering Rallies." Its all the more relevant today, and is reprinted with permission after the jump . . .

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Category: Bailouts, Legal, Markets, Psychology, Short Selling