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Monday, September 26, 2022


FHFA Friday – Potential Lawsuit Tanks Banks

$30 Billion – that's bound to get their attention!  

According to the WSJ, the Federal Housing Finance Agency is set to file suits against more than a dozen big banks, accusing them of misrepresenting the quality of mortgage securities they assembled and sold at the height of the housing bubble. The suits, which are expected to be filed in the coming days in federal court, are aimed at Bank of America, JPMorgan Chase, Goldman Sachs and Deutsche Bank, among others, according to three individuals briefed on the matter.

The suits stem from subpoenas the finance agency issued to banks a year ago. If the case is not filed Friday, they said, it will come Tuesday, shortly before a deadline expires for the housing agency to file claims arguing the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under securities law and missed evidence that borrowers’ incomes were inflated or falsified. When many borrowers were unable to pay their mortgages, the securities backed by the mortgages quickly lost value.

Fannie and Freddie lost more than $30 billion, in part as a result of the deals, losses that were borne mostly by taxpayers. In July, the agency filed suit against UBS, another major mortgage securitizer, seeking to recover at least $900 million, and the individuals with knowledge of the case said the new litigation would be similar in scope.  

Tim Rood, who worked at Fannie Mae until 2006 and is now a partner at the Collingwood Group, which advises banks and servicers on housing-related issues, agrees with what I told Members in last night's chat:  

"While I believe that F.H.F.A. is acting responsibly in its role as conservator, I am afraid that we risk pushing these guys off of a cliff and we’re going to have to bail out the banks again.”

In other words – MADNESS!  What was the point of spending Trillions of Dollars bailing out the Banks if you are going to turn around and sue them for $30Bn and drop their stock price another Trillion, causing them to need another bailout?  

Perhaps this is the denouement of a week of scary market rumors that seem to have been designed to stop the markets from breaking too high.  We were speculating on this last night in Member Chat before this latest bit of news even happened.  Clearly this is not really "NEWS" as the UBS suit was filed a month ago (July 27th), sending that bank's stock from $17.50 to $13.50 on Aug 8th (down 23%) along with the rest of the Financials as XLF fell from $15 to $12 (20%) and BAC, whose Countrywide unit is the poster child for fraudulent behavior, fell from $10 to $6.50.  

Since then, UBS came back to $14.50 (up 7.5%), XLF made it to $13.50 (up 12.5%) and BAC hit $8.50 (up 30%) aided by a loan from Warren Buffett.  Unless we assume Buffett and the rest of the investing community were unable to put 2 and 2 together from the UBS suit – I would say that this is very much old news and this dip that incites retail panic will be a good opportunity to buy like Buffett and pick up some of these stocks on the way down.  

8:30 Update:  No jobs were added in the US in August.  Not the figurative "no" but ZERO, the Non-Farm Payroll number was exactly zero.  That has sent our futures off a cliff and we are down 1.5% now, still trailing Europe, who are down over 3% at 8:35.  This will send Treasuries flying and we will short TLT up around $111, hopefully selling the Sept $112 calls for $1.60 and buying the $114/111 bear call spread for $2 for net .40 on the $3 spread.  That's a fun way to sell into the initial excitement on that trade.  

Keep in mind that 45,000 jobs were subtracted due to the Verizon Strike.  Those jobs will be added back next month.  The only other sectors that had significant lay-offs were Government, with 17,000 (the brilliance of austerity!) and Retail, which shed 7,800 jobs.  35,500 Health Care Jobs were added along with 34,000 Temporary Workers and 28,000 Professionals Workers gained jobs – this is exactly the kind of overreaction to a headline number that we like to go long into! 

We'll see what else looks oversold at the open so expect some trade ideas in the Morning Alert to Members (we already hedged for this drop earlier in the week).  Yesterday's alert had the SDS weekly $22 calls at .70 and they finished the day at $1.06 (up 51%) after a wild ride at the 10 am ISM report.  Unfortunately, our other trade idea of the morning was GLD Oct $160 puts at $1.50 and those finished the day at $1.33 (down 11%) but our plan was to roll those to a higher strike and DD if gold took off towards $2,000 (we already had a long spread from last week for that) and this morning gold is up another $50 at $1,877 as EVERYONE is panicking into gold.  

We're not going to catch any falling knives into the weekend but we do look forward to being able to fill out some of the September's Dozen picks that got away from us.  Obviously, with the economy stalling and jobs at ZERO, this should push our expectations of QE3 from "probably" to "how much."  Unless the Fed is going to blow off their mandate, we are in danger of both deflation and 10% unemployment (U-6 Unemployment is already 16.1%) if they fail to act quickly and decisively.  

All in all, it's going to be a good morning for some bottom fishing – they certainly look like they'll be biting!  

Have a great weekend, 

– Phil



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JRW – cheers and good sailing too you. weather is set for a good weekend! enjoy that saturday market at Ganges!

Flips / New site

Why would I go to all that hassle when I can teach right here AND contribute to Phil’s retirement !!  😎

too busy/ yiddish good thing your not trading diamonds!..i should have made the comment a cut on liberals and you would been kerfuffled

its beautiful there jrw…just dreamy

UBS believes that the Portuguese government has decided to auction off 20% EDP, the Portuguese utility.  Since EDP is heavily indebted and pays 8%, whereas other large Euro utilities finance at lower rates — E.ON pays 2% on a similar maturity — the EDP stake should sell at a premium from recent market.
This is interesting from the broader perspective of how Euro goverments handle their fiscal problems.  I wrote recently about "the selling of Europe and the U.S." through currency depreciation which can amortize public and private debts through asset and share sales.  I would expect the "government selloff of assets" to become a trend in Europe going forward.

The Italy sovereign cds is making a new closing record high today. The Eurozone Financial Sector CDS Index is back near its all-time high. The Citi Eurozone Economic Surprise Index has plunged -108.4 points in about 3 weeks to -102.30. The UBS-Bloomberg Ag Spot Index is still near its recent record high, gaining today despite equity losses. The ongoing breakdown in the yield curve, to March 09 levels, is also a large negative.

And for those who have far less than the 30k wage earner this week truly sucked: Rice is making another new multi-year high today, gaining 1.45%, and has risen +36.0% in about 8 weeks.

the worlds poor are crying tonight and we should shed a teat for them..its an unconcionable plight brought to the world by men who couldnt give a rat’s ass…SHAME!

 Who says money doesn’t buy happiness?  All surveys placed U.S. average income  between 4th and 6th, after such powerhouses as Luxembourg, Bermuda, Norway, Equatorial Guinea and Qatar.  No wonder Americans are so cheerful and optimistic about the future compared with other, poorer countries.  I suppose its the comfort of knowing you can live off your fat reserves for a few years if the world economy goes Pete Tong.

THURSDAY, Sept. 1 (HealthDay News) — About half of Americans will experience some form of mental health problem at some point in their life, a new government report warns, and more must be done to help them.
Mental health issues run the gamut from depression to post-traumatic stress disorder to suicide, and many of those suffering presently do not get help, experts say.
The new report, from the U.S. Centers for Disease Control and Prevention, tallied the national burden of mental illness based on country-wide surveys.
There are "unacceptably high levels of mental illness in the United States," said Ileana Arias, principal deputy director of the CDC. "Essentially, about 25 percent of adult Americans reported having a mental illness in the previous year. In addition to the high level, we were surprised by the cost associated with that — we estimated about $300 billion in 2002."
The high cost includes care for the illness and lost productivity, Arias said.
It isn’t clear why so many Americans suffer from mental illness, Arias added. "This is an issue that needs to be addressed," she said."

Today’s levels.

 I just posted a graphic I came up with showing our current asset allocation, wanted to see what everyone thinks of it. There’s a whole series of gauges and indicators that could be done.

JRW, nice choice, I’m a Seattleite and looking at the weather chart (and the window) it looks like sunny sailing this weekend.  I’ll be on the Sound as well, I’ll wave going by…

angelcur / ‘stick’ – Doesn’t seem likely that I get top honors, I only post a few times a week.  But years ago Phil told me that I have a knack for calling the turns, because usually when I buy or sell something it immediately turns the other way, so I post when I feel that I’ve made just such a call.  Just trying to help.

 Thank you, Phil! I’d like to see what ideas our members might have for gauges they’d like to see. I started with this one since it rarely changes, so it was a good beginning project. I’m thinking it might be fun to make a series of gauges that are visually tied in to the industries they represent (old-timey oil pressure gauges for energy markets, high-tech digital gauges for tech stocks, auto speedometer style gauges for transports, etc.) Any and all input is welcome.

AGQ / Phil – Thanks for the advice.  I went ahead and doubled my position in AGQ $180 puts per your initial suggestion….at about a dollar per contract.  As for the time premium difference, I had sold the AGQ puts we bought for our $25KP for $8 on 08/24 and bought these on 08/26 when they went back down to the $4’s, thinking it would only be a couple of days before they hit $8 again.   The difference in time-to-expiration about the prior trade and this one SEEMED minimal
I agree I should have put a stop loss for 20% but whenever I use those, it seems I get burned because the price comes down enough to trigger my stop and then goes back up like bonkers.  The QQQ calls last week were a good example.  I sold at $.20 (after buying at $.30) and they went back to $.80 in the next hour or so.
I’m trying to break the bad habits.  With your advice, hopefully I can become a better (than now) trader.  On a positive note, I do have some long positions (SNGX, ZLCS, AMRN) so I’m not 100% short on oil, gold and silver….only about 60% lol.
Have a great weekend.

MrMocha-  In the words of the great Michael Jackson, you are not alone.  I’ve single-handedly destroyed many trade ideas by going into them.  One of my friends once half-joked that he’d pay me to sell a certain stock because he was also holding it and he was sure it wouldn’t go up until I sold.

Phil or anyone else – Have you guys ever experienced a buyer (caller/putter?) exercising a call or put YOU had sold BEFORE expiration day?  It seems every time I cover a position by selling something against it (i.e. selling Sept $45 TZA calls yesterday against some October $45 TZA calls I own), the "cover" takes off and goes In-the-money.  In the case of those Sept $45 TZA calls I had sold, they were up to $3 in the money today so I rushed and bought them back, then sold Sept $48 TZA calls instead….fearing that the caller/buyer might exercise them and wipe out my October TZA calls.
Should/could I have waited until expiration day? 

What a week.

Zero jobs ? 0 ? Exactly zippo ? Now c’mon what are the odds of a goose egg ?

I made some decent trades upping my short exposure, but boy did I make some bad moves the past 1 1/2 days.

Was short SpY call spreads and covered yesterday ! Winners but should have left alone.

SPY – shorted the 10 am spike at 123 + and covered for small gain only to have SPY trade off 60 points into today.

Went long SPY call spread at close yesterday thinking maybe we get a pump. wrong. Close out trade today For loss. Dumb.

Pass on buying 120 spy puts late yesterday for 50 cent lotto ticket. Wrong move. Could have closed for 2.00

Was short PCLN 540 call for 6.70. Closed yesterday for 2.10 instead of riding to 0 today.

Just dumb moves and a little overgrazing in what otherwise was a good – but could have been great week.

I hate this about iPad. It changes words on you !

Overgrazing ?? I said Overtrading dammit !

How do I turn this off ?

Anyone ?

It looks like whitehouse.gov is setting an e-petition site.
"We The People" will work like this: anyone 13 or older can set up a petition — but before it’s visible on the site they need to get 150 grass-roots signatures. If an entreaty receives 5,000 or more signatures within 30 days, it is guaranteed to receive an official response from a White House staffer." [via engadget]

In ‘Settings’ go to ‘General -> Keyboard’ and turn ‘Auto-Correction’ off.  That should do it.  Enjoy your weekend!

"All surveys placed U.S. average income  between 4th and 6th, after such powerhouses as Luxembourg, Bermuda, Norway, Equatorial Guinea and Qatar."
These kind of comparisons are meaningless. I lived in Bermuda for many years, and it IS an affluent place, however the figures are massaged by having a small total population and a significant number of multimillionaire residents who reside there partly to avoid income taxes in other countries.
It would be better to compare the earnings of average people like school teachers, cops, and nurses who are the backbone of every community everywhere and to also take into account the cost of living in each place, amount of paid vacation, and so on.

"And for those who have far less than the 30k wage earner this week truly sucked: Rice is making another new multi-year high today, gaining 1.45%, and has risen +36.0% in about 8 weeks."
This is very sad. Bill Clinton’s administration forced Haiti to accept imports of cheaper US rice, which drove all the Haitian rice farmers out of business, and led to a huge increase in the number of people leaving the land and moving to Port au Prince in shanty towns, thus immeasurable increasing the loss of human life in the earthquake last year. Part of the reason why Clinton is now putting a lot of effort into helping Haiti seems to be to expiate the sins of his administration.
On the other hand, you have to blame the Haitian farmers for not paying off the right politicians in Washington. What were they thinking?

elliott – very nice!  Maybe a oblong pill for biotech/pharma.  Just make it 80% for me!

 Zero – Mental illness statistics
By the way, the happiest people in the developed world live in Denmark.  Researchers found that this is because they have lower expectations!  http://news.bbc.co.uk/2/hi/6563639.stm.  Other research indicates that having good health (and health care system) is what really produces higher levels of happiness in a society.   http://news.bbc.co.uk/2/hi/5224306.stm
Since I work with mentally ill people (who doesn’t, I guess, if the stats are right) I am also concerned about the alarming statistics in the United States.  On the one hand we need more mental health services and budget cutbacks are not helping.  However, the country to country comparisons aren’t easy to make.  If you believe statistics, there is little depression or mental illness in Africa, but then there are few therapists, so who is going to make a diagnosis?  Our health insurance system forces mental health providers to make a diagnosis in order to get reimbursed.  Some less ethical therapists will actually discuss with you what diagnosis you are comfortable with being on record.  The insurance companies are forcing a medical model of diagnosis on to the mental health system, complete with so-called "evidence-based" practices, that encourages giving people a diagnosis in order to get therapy.  The real beneficiaries of the system are pharmaceutical companies who sell anti-depressants and so on, since it is far cheaper to give someone Prozac than to get them counseling to get over depression.  
Don’t get me wrong, some people really need medications.  There are amazing drugs for serious mental illnesses like schizophrenia and bipolar disorder that help people function in society.  But drugs cannot cure the sense of anxiety and meaninglessness that is plaguing our society.  A good jobs bill would probably cure many peoples’ depression.  I don’t mean to oversimplify the issue in such a short space, because mental illness is as complex as the number of people in the world.  
By the way, the happiest people in the developed world live in Denmark.  Researchers found that this is because they have lower expectations!  http://news.bbc.co.uk/2/hi/5224306.stm

Cap- I don’t have an iPad but on the iPhone 4 you go to settings>general>keyboard

Then turn off auto-correct

 Hey Everyone,
Does anybody have a good site to track financial news coming out of Europe this weekend? I usually use CNBC europe, but I’m sick of the CNBC site.
Thanks in advance

Speaking of iPad/iPhone, is there a way to change how the comments are ordered on IOS devices? They are ordered oldest to newest as you scroll to the bottom of the page on a PC based browser, but newest to oldest on iPhone/iPad. It’s a nuisance I’d rather turn off if possible.

Do you still have the name and contact info from your man at IB? Thanks

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