Sony - required reading, And flexing my muscle on subprime
Yo, subprime continues to blow. Thank you Bear for being idiots. Upgrading NEW right before they bust the covenants on their "liquidity". Funny. FMT gets a cease and desist order and is down another 1.50. Oh boy. Next to fall, Tom Brown. I love how he loads up on BS companies, and then gives his fundamental business outlook with no real security analysis and quotes WEB on LEND. I like you Tom, but you are messing around with the wrong companies. So you were a tiger cub, last time I checked that fund did not exist anymore.
Also there was an article in the Saturday journal on Sony. Howard Stringer is looney tunes, 5150. The company is F'd but dont take my word for it read the journal. I am not sure whether the reported tried to make him sound like an 8th grader, or if he just came across that way, but it is obvious (to me I guess) that Sony is irrelevent, and has no clue that they are irrelevent. The Japanese business model is basically socialism. I am not sure anyone can fix that. Yen strengthening, Nintendo resurging out of no where, MSFT doing better, China making better and cheaper electronics. This spells a looming disaster for Sony. I like the content (film and music, but even that has some considerable issues. I have been wrong on this name so far, I suspect that I will not be in the future.
Peace.
MK
Also there was an article in the Saturday journal on Sony. Howard Stringer is looney tunes, 5150. The company is F'd but dont take my word for it read the journal. I am not sure whether the reported tried to make him sound like an 8th grader, or if he just came across that way, but it is obvious (to me I guess) that Sony is irrelevent, and has no clue that they are irrelevent. The Japanese business model is basically socialism. I am not sure anyone can fix that. Yen strengthening, Nintendo resurging out of no where, MSFT doing better, China making better and cheaper electronics. This spells a looming disaster for Sony. I like the content (film and music, but even that has some considerable issues. I have been wrong on this name so far, I suspect that I will not be in the future.
Peace.
MK
posted by MattKelly54 at
12:32 PM
11 Comments:
I am honestly going to miss BankStocks.com. Brown's hedge fund has to be blowing up you would think.
It is pretty awesome how one trade can pay off student loans. Thank you ASAP. I honestly love you guys. This is a hard business, no doubt. But I love having you guys as a network. Sometimes it is hard during the actual time to slow down and realize what you got, but in hind sight I think our class could go down as the best ever. People ask me if i talk to Cartwright. And I answer "almost every day". I love having a network. I like hearing what you guys are up to and your trades. It is awesome. Keep them coming.
I am sorry. I really have no life. Maybe 4 people read this anyway.
You may think that there is no more room to make money in subprime, because it is talked about every day by the media. I would claim that this view is wrong. I respect Neil Cavuto but he just told me to buy subprime because it is over done. Are you smoking crack. People just say that but they do not give any stats. This is a liquidity event. Period. No one knows what is going to happen. This lax, dont worry every thing will be OK, Alan Greenspan, attitude is really wrong. There are real problems here, that are not going away. No one is there to make loans. The fifth largest guy just busted. Fannie and Freddy are tightening, no one is there to hold the bag. This is far from over. Companies to make sure you are away from right now: LEND, CFC, DSL, FED. If you want to get short, the name is FED. These Alt-A guys are the next shoe. I am buying puts on Monday. I am going big. I already tried to short it, but apparently my firm does not like shorting. So i have to use cash and play the riskier option market. It has worked so far, I like leverage on this. Because people are playing it off. It is a cycle. And it is bad. Dont gloss over it. If housing prices can go up 20%, they can also go down 20%. Like it or not. Housing is not the free lunch that people thought.
I'm out. I promise.
You had me until the Cavutto remark. He is a first rate clown along the same vein as the goofballs on bubblevision.
I like your subprime stuff though. Keep it coming.
Ok Toppe, remember you asked for it. You are about to get the best run down you can get, I have not heard anyone quote this stuff yet in any article.
(numbers in billions)
This is off my head, so the numbers will be close but not exact. Open up CFC's 8-K release. They have about 200 in assets, and I want to say 185 in liabilities.
The assets include (approximates): 80 Billion in loans held for investment, of those 33 Billion are Option Arm, of the option arms, 88% are accumulating negative am. Negative am has come out of no where during the latest 3 quarters, as have real estate owned (REO) and delinquencies. The remainder of loans held for sale are about 15 billion in Home Equity Loans (HEL), and the rest are hybrid first lien mortgages.
My major beef is with the option arms. They were written at Loan to Values of 80 or less. As negative am increases and home values decrease (this is an assumption obviously) collateral coverage will collapse upon itself. It all depends on what your view is and how bad you think it will get. But here is my outlook. There is more inventory than ever in the system and people are still building. They are shutting down a little, but the real pain has just begun. The pain being 30% of the home building machine getting laid off. Lumber is already super cheap. Labor will be cheap, and inventory is cheap. And there is no money. It will be the best and worst time ever to build a house. How far will prices sink? How much did they go up? That is my view.
So back to CFC. Another asset of the 200 Billion, is MSRs. MSRs are the residual that they get for servicing the loans. They have a 200 Billion servicing portfolio. Not all are subprime, but the prime portfolio is most likely negative am Alt A option arms. (It is probably easy to service a negative am portfolio). In one scenario the fed lowers rates to let people refi their horrible 3% + loans. If this happens these risky MSRs are shit. And if the reason that the fed is lowering rates is the real estate market collapsing, then the collateral is shit. This is an unmitigated disaster in this scenario. The other assets, I do not even need to write about.
The major take away is this. Why would people let interest on interest build on their real estate. Is it just a way to get capital since their cash out refis are no longer available and the prices are not going up? I would claim not. They are doing it because it is super hard to pay a mortgage on a 300K+ house with taxes and insurance and etc. included. I claim that the average home owner right now cannot support his above average house. Even if his FICO score is above 720. And once again the mortgage lenders, appraisers, and construction workers who all saw this going up and own houses and are being laid off are probably a lot of the reason that there will soon be a larger problem than anyone realizes. And remember the huge amount of loans that are right now getting reset and need to be refinance from the past vintages. (I have heard 1.5 trillion but not sure I believe that)
CFC's liabilities include $70 Billion in unsecured notes. What would I pay for these. That is a good question. I am not sure. But I am short them, and I really do not know when I am going to cover.
If you want any more info, let me know.
There are some errors in my rant. They have a 1.3 trillion servicing portfolio. I wrote 200 billion.
Also HEL stands for Home Equity Line. I was typing and thinking too fast.
How can Tom Brown quote Buffet and actually sleep alright (i.e. be frearful when others are greedy, and be greedy when others are freaful in terms of the sub-prime mkt.) I read his stuff for enjoyment but seem to always take the other side. That said he probably made some decent money by loading up on FMD when the stock was near $15 and I know he had taken some off the table since then. Anyways I always thought he has been way to much of a cheerleader for the names he likes or dislikes and not really objective
This is great on "liquidity":
"New Century's situation is not unlike the 'Prisoners Dilemma.' If the majority of lenders stand pat, they can mitigate losses. However, if they believe that other lenders will pull their lines, those first to act will be best served," Jefferies analysts told clients.
I am gettigng crushed. Thank you citadel. I actually had zero as my price target. I still think there is a chance for that, but I guess it is looking less and less likely.
Cramer talks about market manipulation
http://www.youtube.com/watch?v=708wDFX28lc
hey, i have two questions for bond guys:
1) what "boomberg" command do you use to get accrued interest?
2) what is the command you use for the treasury curve?
Thanks fellas.
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