Myths of the 2007 Depression
Myth #1: The government is saving the subprime borrower. I have this picture in my head of the government paying money to homeowners, while CDO's are collecting on the other end. This is absolutely crazy. Please do not try to tell how it helps people to keep them up to their ears in debt. That is the most ridiculous thing that I have ever heard. Bankruptcy no matter how unfair is a critical part of our country. Lenders need to take the loss, and this is what the government is stopping. The best winners in bankruptcy are the debtors. It is easy logic. Why is no one understanding this. Also by letting the correction occur, it allows home ownership to be more affordable for everyone.
Myth #2: Fannie and Freddie are solvent and backed by the government. Please let me know what the guaranteed return on Fannie and Freddie equity is. I really want to know. How does anyone price these companies. Obviously the dividend is not guaranteed. Both of the companies are bankrupt. The lambs that bought their paper are about to get led to slaughter.
Myth #3: Radian, MGIC, MBIA, and AMBAC have value. The business does not make sense period. For more color call our analyst or see Bill Ackman.
Myth #4: Markets always come back after 2 years. We are now at the beginning of a global crisis built by the lack of checks and balance on the monetary system. Japan is a case study that the US should be careful to avoid.
Myth #5: Gold does poor in deflationary environments. See 2000-2002.
Myth #2: Fannie and Freddie are solvent and backed by the government. Please let me know what the guaranteed return on Fannie and Freddie equity is. I really want to know. How does anyone price these companies. Obviously the dividend is not guaranteed. Both of the companies are bankrupt. The lambs that bought their paper are about to get led to slaughter.
Myth #3: Radian, MGIC, MBIA, and AMBAC have value. The business does not make sense period. For more color call our analyst or see Bill Ackman.
Myth #4: Markets always come back after 2 years. We are now at the beginning of a global crisis built by the lack of checks and balance on the monetary system. Japan is a case study that the US should be careful to avoid.
Myth #5: Gold does poor in deflationary environments. See 2000-2002.
posted by MattKelly54 at
10:40 AM
8 Comments:
one thing to add to Myth #5: See 1928 to 1934 when gold went up by 5.5x and the equity market lost 85% of its value and long term rates went down to under 1%. GOLD is the only asset to own right now.
For the record, I bought both ABK and MTG on November 13. I just sold MTG today after seeing Warburg Pincus is giving them $1b. My thesis was someone would want their business and apparently someone does. I am out of mtg. Maybe I will give it all back in ABK or maybe the real money is over the next month. For now, I dont care, a trade yielding 40% in one month is fine with me.
Funny, I misread the headline and thought MGIC was getting the cash infusion rather than MBIA. Fuck it. Still made 40%.
Recommendation: Take your money and run. I repeat take your money and run. In their masterpiece "Security Analysis", Graham and Dodd write that every mortgage broker and mortage servicer went bankrupt. I would not be bottom fishing in these waters, might get your calf bit off by a reef shark.
What is funny is that I wonder who is not in this trade?
I cannot tell you how many people call me every day. My neighbor's cousin who is an amateur, "I'm buying WM"
Cid: I am buying MTG.
People from Asap: we are buying WM.
World and Bill Miller: We are buying Countrywide.
PMs that I know: When are we going to buy MBIA.
Fannie and Freddie PFD are oversubscribed.
Who is not in this trade and why are spreads where they are. This is obviously the largest no brainer out there. Everyone I know is doing it. Why are spreads still blowing out. Why is CFC-a term loan at 85? Why is it not coming up?
Why does everyone want me to be bullish on this business?
Why do they call me and try to give me a heart attack.
Why do people hate homebuilders which are hardly levered, but love the banks which are levered 10 to one.
Why do people hate the banks, but love the people who insure their mortgages?
Why do people hate the insurers but hate the federal reserve and our worthless currency?
Cid. You should buy commercial paper at 0.50 on the dollar. That is what it is trading at.
Or better yet the ABX AAA index 06-01 for 0.60.
What is wrong with Tootsie Roll, Hershey, UST, Kraft?
Why is everyone that I know trying to be a hero?
In my opinion I can beat the game by getting safe money in things that I understand, over 100% downside scenario events.
One thing that i do know is that is much cheaper to buy 10 million houses right now, than 1 house.
I have 50% in cash and 3% in gold. I have no financials other than ABK. I have no small cap stocks and, other than 1% split between KSS and JWN which I bought last week, I have no consumer stocks. I never did put on the homebuilder trade. I have a shitload in CL, PG, KO, MSFT, CSCO, SLB, BUD, and PFE. My portfolio is allocated for appropriately for an 80 year old.
Give me just a bit of credit for making a couple of accurate assessments. 1) There would be a mortgage bailout in some form. Maybe I only stated it at work and not here - I forget what I say where. This was too obvious. 2) The potential disruption in the muni market will lead to some effort to protect the bond insurers.
You think Florida is shitting right now because they own some CDO's? Wait til they have to raise taxes because they cant raise funds in the muni market. I guarantee you Paulson has Uncle Warren and Hank Greenberg on his 5 right now. I dont care if you agree with the politics or not, it's a put option on the stocks. Or I am a fool because everyone else is betting on the same thing. You know where I stand.
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