Alt-A

Ever heard of Alt-A loans? Better get familiar, because they're next. Alt-A loans, like as in alternative to A, like as in alternative to good credit or full documentation of income, is a loan written with substandard credit or ability to pay. Not as risky as a total ARM, these loans were typically written for sub-680 credit holders and people with suspect ability to pay. Banks such as Countrywide wrote a ton of these loans and have been hesitant until now to even acknowledge the tremendous backlog on their books because guess what, they're going to take huge losses on the defaults of these as well. UBS came out today and said they had a $26 billion exposure to these things. Do you think they're the only ones?

Jim Jubak of MSN Money also foreshadowed of another set of loans waiting to collapse. As the government slashes rates to "stimulate the economy" with more credit for millions of already credit delinquent Americans, rates on student loans and some auto loans go down. That makes the bonds they're repackaged into less valuable. With rates set to go down further, those bonds will continue to lose appeal, so they may get sold sooner than later at less than they were purchased for, again causing writedowns for the holder.

I'm rooting for MBIA to get scorched on Capital Hill today. They wil testify that short-sellers, Bill Ackman in particular, have "unfairly driven their price down." Well, let's see. You guys left your primary business to back high-risk loans and you got blown up. Now, with your stock price in the pooper and your ratings about to get cut, you want government intervention. Why should anyone help you out? If your loans fail, it will force massive writedowns and reinsurance, but evryone who played the game knew that. Ackman warned about it in a 2002 report, but nobody wanted to listen.

Check back tomorrow for Bernanke's babble.....

Pound to Get Pounded

I wanted to revisit my visit with Fortune Brands about a month ago. As I said then, be on the lookout for their Jan. 25 forecast. A prime example of another good company being hit hard by sub-prime. They are selling booze better than ever, golf clubs are still moving, but their exposure to homebuilding (Moen) has stopped the company's growth and forced them to lower forecasts. They earned $201.5 million, or $1.28 a share, down almost 22% from $257.6 million, or $1.65 a share, a year earlier. They went on to say that, "the home products unit could only "outperform [a] challenging market."

Hey, at least there's some honesty there. There are other companies with no product exposure to housing who will still lose money as a result of sub-prime. The reason? Greed, of course. Looking to boost investment returns, some companies bought into sub-prime securities to increase interest gains. How's that working out? Let's see.....

Mary Thompson of CNBC reports "these firms bought auction-rate securities — bonds created from pools of long-term debt. They don't pay a fixed rate, rather a lower, rolling rate that's reset through a Dutch auction every 28 to 35 days." Companies who lost their bets include Bristol-Myers and US Air, with writedowns up to $275 million dollars. Nice job putting your cash to work.

Next stop, Europe, where higher interest rates will prevent the huge inflation we'll see next year and beyond as Bernanke allows us to relive the Japanese implosion of the 90s, but at the cost of market hatred. By popular demand, I'll post my congressman's email and phone below so anyone living in my hood can berate a sub-prime bailout plan.

Alcee Hastings: Tel: (561) 684-0565, email at website http://www.alceehastings.house.gov/index.php?option=com_content&task=view&id=104&Itemid=

Follow Me to the Liars

Ok, very bad week for stocks, very good week for my picks. Just to prove I follow my own advice, let me reprint an email I received from the investor relations department of MBIA a few days ago:

Me: I'm confused. Didn't your company just spend 4 hours on the conference call last week insisting you had enough cash? Now you need to raise an additional $750 million dollars (I understand, only $250 million of that is new money)? Is it possible you guys were not being honest last week? Please explain.

Response: The prospectus for the offering is available on MBIA's website, under "SEC Filings". While it provides the company with cash, as mentioned on last Thursday's call, we don't have a liquidity concern, but rather need additional capital to satisfy severe stress testing rigors associated with Triple-A ratings requirements.

Me: Horses**t!

No, you don't have a liquidity concern except that your company may be on the hook for a trillion dollars in faulty securities. Talk about a non-answer answer. Oh, by the way, not only was MBIA lying last week, this dude was lying to me as he wrote! Later that day MBIA made it another billion dollars they needed to raise in an offering, not $750 million. As I've said, these guys lie and are going to continue to lie, just like Mozillo of Countrywide, until they are bankrupt. We need big time corporate punishment/penalties, not corporate bailouts.

However, I continue to be stunned by the market's response to horrific news. MDC, a homebuilder, casually mentioned they lost $6.14/share last quarter. They were rewarded with a 5% gain. MBIA initially got slammed for announcing the need for further cash, but ended Friday up 3%. Ricoculous.

Distressed debt vultures are salivating over the potential for huge losses/bankruptcies this year. Bruce Richards, CEO of distressed specialist Marathon Asset Management, which manages $10 billion, says 162 companies will either default or restructure in the next 12 months.
He hates homebuilders, forecasting home price decline for the next 3 years.

This just in. Bank of America has just for fun (actually, not just for fun, to avoid bankruptcy) decided to double the interest rates on random consumers. I say random b/c some of these customers have good credit, pay their cards on-time, and have even paid down debt over the last year. Welcome to delinquent payment increases BAC, and welcome to phase 2 of the credit cruuuunchh! Read article at right....

Not a Pot to Piss In

Ironically, my wife and I were shopping at Macy's yesterday looking to spend some hard earned gift certificates at the mall in Palm Beach Gardens, Florida. This is a pretty high end mall with Saks and Nordstrom's as 2 anchors. A few observations. The mall in general could only be described as a ghost town. If it weren't for women with strollers and retirees, there wouldn't have been anybody there. Also, my wife commented to me that there were way too many people working there considering the # of shoppers. Macy's didn't disappoint, a mere 3 hours later they layed off 2,500 on a 7.1% decrease in sales. Two salesmen were talking and they asked how sales were going. To that point around noon the had made a combined $9 sale of a t-shirt. They weren't too thrilled as I chuckled.

Even retailers who had a good 4th quarter will get smoked this year. Wal-Mart came out with crappy sales last month and this brought out Cramer. Anytime you see Jim Cramer on CNBC in the morning, you know it's only to "refute" all of the bad news. The fed cut rates, things aren't so bad, some retailers had great 4th quarters, blah blah blah. People are broke. Nobody can get a loan with the new lending standards which were the old standards that should've been maintained.

An analyst from Bank of America actually upgraded the housing sector 2 days ago, upgraded it. He insists that cheaper mortgages and availablity of homes will lead to a resurgence in sales. Hmmm, let's see what Bob Toll and Mr. Eller, CEO of Centex have to say about the bright future of homebuilers. Diana Olick reported from Capital Hill, where Eller and other CEOs were pushing tax relief and sub-prime support, that Eller admitted to her, "this will ultimately be the deepest and longest housing correction since World War II." The CEO of Lennar added, "There really isn’t any visibility as to where the bottom is.” Bob Toll upon giving horrific earnings yesterday said he, "doesn't see much light at the end of the tunnel in the housing malaise." Far from being insulated by the higher end buyer, Toll sold far fewer homes, had huge cancellations, and has been very slow to correct prices.

Again I ask. If homebuilders have negative earnings and no foreseeable earnings this year and maybe next, how do their stocks have any value? Oh, land you say. That's right. Tons of land that they overpaid for in Florida, California, Arizona, and Texas that they are now trying to sell for less than they paid. Also, if they don't own any land, where are they going to build homes? If homebuilders don't build homes, what exactly is it that they're doing to make money. See?

One more thing, I thought MBIA said last week on their 4-hour conference call that they had plenty of cash. So why do they need an additional $750 million all of a sudden? I'm going to write them and find out.

IOD: XLY again, retailers go kablooey.
TOD: If you actually put money down on your house, write your congressman about not bailing out sub-prime losers.

Dead Wrong

We all were. I believe my brother summed it up best when all he could say was "Shocking" over and over again. All of you who bet the second mortage on the Pats moneyline for a 21% return are still feeling ill, and not just from your hangover. Hey, but some of us were right! Let's review my initial and final props, along with my 2 week ago call of the under.

Initial Props:
1. Boss 2 catches over loss by 1 b/c he dropped an easy 3-yarder on the first drive
2. Bradshaw rush 10.5 yards over win
3. Faulk receptions 4 over win
4. Faulk reception 10 yards over win
5. Pats # of rushers 3.5 over loss, couldn't Brady have scrambled once?
6. Brady tds vs Carolina Brady 3 under easy win

Later Props:
1. Maroney 1 catch over win (+155)

Pats/Giants under 54.5 win

6-2, not too bad! I wish I had been that good during the regular season. What a bizarre ending. You just never see the Pats choke like that. They actually got tight. Samuels dropped a pick. Merriweather dropped a pick. They let Manning out of a sack, and when they did, they let him complete his 4th airball of the game that magically landed in his receiver's hands. When have you have ever seen Rodney Harrison not make that play? Not only did he not intercept it, he was unable to knock it away from a much smaller player.

Three more downgrades of credit card lenders yesterday, including the infamous Capital One which had been on fire the last 2 weeks. I'm posting an article in my must reads by Jim Jubak of MSN.com's Money touting that the commercial loan/CDO mess may dwarf our current sub-prime mess by reaching into the $90 trillion range, yeah, that's right, like much more than our GDP. God knows how many more losses these banks are holding off on, but if there's even a fraction of the liability he implies, my previous reco of SRS (inverse real estate ETF) will be an excellent 2-3 year play.

Sallie Mae got downgraded to B---, that's triple minus, 1 step above junk status. Another lender begging to go into bankruptcy, let's see who follows. Don't be fooled by the last 2 weeks, and don't have any faith in our lenders. They make Belichick look like an honest dude.

Game Time

Personally, I hate both of these teams. I think I've already made my feelings on the Mannings pretty clear. When Belichick was in Cleveland going 5-11 every year before he started cheating, he was no "genius." Wouldn't it be great if that video dude said, "yeah, we taped the Rams walk through." The Rams would be awarded the Super Bowl and it might get Kurt Warner into the HOF. Not gonna happen, but would stick it in and break it off our man Bill. Ok, so you can't second guess me tomorrow, here are my prop winners:

1. Kevin Boss 1 1/2 catches over
2. Maroney catches 1 over
3. NE total rushers 3.5 over
4. Brady SB 38 TDs (3) vs SB 42 TDs-SB 38 TDs pickem'

Deductive Reasoning

Writeoffs have been announced. Thereferore, all the bad news has been spelled out. Nice reasoning Sherlock. In a 4 hour conference call yesterday, leaders of MBIA refuted claims that their company with less than a billion dollars can remain solvent when on the hook for over a trillion dollars in bad bonds. HMMM, that makes sense. Pulte announced dismal earnings and a poor outlook. This admission, viewed through all the common sense of the OJ jury, was rewarded with a 20% one day gain.

Yet another downgrade for a bond insurer and MBIA has been put on ratings warning by S&P. Even under the most optimistic circumstances, even if a homebuilder could eek out a small profit (not going to happen, see must read about Pulte), how does that justify $20,$30,$50 stock prices? Home builders traditionally trade around a P/E of 10-13. In the early 2000s, P/Es hit 3 or 4 and that was a good time to buy. Now, P/Es for these stocks are figments of our imagination, but if earnings were to be projected, P/Es would be 40-50! Are these growth stocks given the current housing and lending environment? I didn't think so. Again, a stock like Google who made $4 billion dollars last quarter and has over $14 billion in cash loses 25% and a broke, hopeless company like Pulte gains that much in a single day. Hello Japan circa 1991.

One factor that is being overlooked in how poor these numbers are is the disproportionate downturn in major population/production areas. Everybody knows housing in Cleveland and Detroit has been dead and on the decline for 10 years, but Phoenix? San Francisco? LA? Austin? Miami? These are kind of big neighborhoods with lots of people going broke. When these people can't spend, companies will not do well. So let's keep pouring money in people, that way everyone can officially be debt poor. ARGHHHH! By the way, Microsoft just bailed Yahoo out for a 63% gain, Yahoo owners. Lucky bastards.

Nice call on the jobs report analysts. Instead of 80,000 new jobs, we lost 17,000 workers last month. But that's not a recession....