Tuesday, April 1, 2008

New Quarter, Same Results

With Yogi Berra like clarity, Lehman explained their issuance of $3 billion in preferred shares at unbelievable returns by saying that they wanted to clear up any liquidity concerns by raising more capital. Uhhhh, errrr....doesn't raising more capital give the appearance of diminished liquidity? Maybe so, but possibly just following recent market reaction, they knew that this move would be rewarded under the umbrella of "the worst must be over."

New quarter brings new bullish optimism as analysts and bulls hope that most dirty laundry wasn't cleansed but burned in a bonfire last quarter. UBS answered that quickly by doubling their writedowns to $19 billion and asking for a mere $15 billion to stay afloat. Predictably, they are up with Lehman in premarket trading. Huh? Can anyone have confidence in these companies?

Worse yet may be the implementation or some form of the Paulson plan. Bill Gross, chief investment officer for PIMCO and generally accepted bond wizard, wrote an article yesterday discussing the potential profit hit for "shadow banks." This is synonymous with investment banks, who, under the new plan will have to deleverage and raise capital requirements. This will kill profits along with the potential for new Dem corporate taxes. This would be in an effort to prevent a BSC like bailout in the future.

Lost in the Paulson speech is the possible growing support for a Frank-like FHA homeowner bailout, detailed well by Diana Olick, one of the few reporters at CNBC apparently not forced into a bull stance. Given my diatribes on the incompetence of homebuilders, what I write next may be viewed as heresy. If such a plan becomes imminent, foreclosures or the threat of foreclosure will be stalled, reducing the housing glut. This will allow greater margins from homebuilders in the short-term, even if not allowing for a true bottoming of home prices. This perception would be all homebuilders would need for a big bounce. Thus, we'll follow the progress as XHB calls out to 2010 are cheap right now, and may be a good play even if I hate the whole sector.



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