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Sunday, October 2, 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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A friend of mine is a VP at BA and has been complaining the last couple of years that they can’t get any traction because every month the Feds is suing them for one thing or another.
As for you comment about what’s the point of bailing them out for trillions if you are going to turn around and sue them.
Perhaps it’s just politics and they know something we don’t.  Like for example that there is another bank meltdown on the horizon and what better way to protect their political asses than to get out in front of this thing before it happens.

Phil—anything to be done on the tlt trade from yesterday? Sept 107 puts .25?

Looking forward to your advice to modify (or sit tight!) the following which will probably nose-dive early today: GLD Oct 160 Puts, TLT Sept 107 Puts (in view of your above play to short TLT at 111) and QQQ Sept next weekly 56 Calls. Thanks for your guidance!

what no comments on th ejobs disaster?

Good Morning Everyone!
Phil — I am with champ87.  I’m curious about the: QQQ Next week $56 calls at .35 and are you sticking with the Oct 17.00 calls.  I assume there will be a psycho flush down this morning……stick with them or flush, as well.

Oil Lines – Wheeeeeeee edition!
R3 – 91.34
R2 – 90.62
R1 – 89.65
PP – 88.93
S1 – 87.96
S2 – 87.24
S3 – 86.27 (we are here now!)
Yesterday’s high and low – 89.90 / 88.21
Breakout lines – 92.63 / 83.78 

Phil- If you are going to have any political credibility with your readers you should be honest  provide them with all the facts. Yesterday you stated many times how terrible it was the republicans would not accept Obama’s request for his speech on Spet. 7th and how this shows great disrespect for Obummer. Not one time did you mention it was Obama (knowing there was a Republican pres debate scheduled for that evening) that was playing politics to take the spotlight away from the Repubs. You claimed to me I was misinformed  (Typical behavior of libs when backed into a corner) because the repubs had changed the date three times already So I checked. The date of the debate was scheduled on May 3rd, 2011 and has been fixed for 8:00pm EST since that time. This is the exact time that Obama requested his speech!  My point is that he has know this all along and again is playing petty politics. He could have easily requested the 8th (the first full day congress was back in session).  This guy is all about political maneuvering. His speech will be a bunch of smoke and mirrors instituting programs that seemingly help Americans while doing nothing but funneling more money to his banker bud’s. So before you and your t "Phil Fanatics fan club" start attacking,  I am not a republican. Just someone that listens to both sides of the bickering rather then just one and I am disgusted by what I see.

Phil — I am sorry about leaving out one important detail in my prior post:
GLL Oct 17.00 calls
Are you staying with this trade or dropping it?

Phil – Trying to understand the fundamental reasons why you chose the TLT plays yesterday and today for an allocation of assets.  What is it that you expect will drive interest rates up in the near future? Thanks.

PP for today!


SPY Chart shows some support at 118.25, but after that it is about 117.50.

Another good chart to think about from Cobra.

FAS Money Recap
Long Strangle –Jan 12 Puts (3.01 average now 2.60) and 15 Calls (2.75 average cost now 2.42). 
Weekly –1/2 September 15 Puts (1.14 now 2.18)
Monthly – 1/2 September 15 Puts (1.14 now 2.18) 

phil do you have a fan club?..if jake is right about the name its not a good one…meanwhile rome is on fiwah!

phil do you have a fan club?..if jake is right about the name its not a good one…meanwhile rome is on fiwah!

Phil, is there a downside target for oil?  Those USO puts from a couple days ago are looking good…

IWM   68.69,  68.97,  69.40,  69.70,  70.14,  70.66,  70.98,  71.33,  71.87,  72.09,  72.69,  and  73.14

Also there is a strong descending support trend line at 69.16

I am in TNA for the rebound as "they" will be trying to keep us from falling out of this box:

Good Morning!
Labor Sec. Solis on CNBS:  "I believe we have done everything we can" 

FAS Money – We sold the September 13 Puts for 1.03. We now have a stop on the 15 Puts at 2.33.
Long Strangle –Jan 12 Puts (3.01 average now 2.60) and 15 Calls (2.75 average cost now 2.62). 
Weekly –1/2 September 15 Puts (1.14 now 2.11) and 1/2 September 13 Puts (1.03)

Monthly – 1/2 September 15 Puts (1.14 now 2.11) and 1/2 September 13 Puts (1.03)

phil, your help please on rolling some underwater sept options to oct.  what strikes do you recommend ?
FAS 17 calls (purchased $2.0)
GLD 173 puts (purchased $2.5)

Trade idea/Phil – what about USO?

Phil- they moved my pre-deployment training from Wyoming to Fort Dix, how far are you from Trenton? Do you have an office or just work from home? Was thinking of making a pilgrimage and visiting the Mecca of PSW if time allowed.

 Phil, Great trade idea with the TNA BCS and selling the $37 put for protection. Can this concept be used w/ the IWM options that have more liquidity?  Thanks

Thanks Phil. That makes sense. Would you roll BNO today or wait until next week? Even though it is up it has to be up alot more to make up for the initial entry and the fact that it’s very difficult to get the price you want on a sale because it is so thinly traded. Thanks.

speaking of cannibalism…i ownder how teh chinese will make that a profit center..especially with there stockyards…lets not diss this

Phil – RE: "within 3 days of the ATM machines going dark, this country will descend into cannibalism."
Dilbert comic strip

Phil / Bruce Krasting    Everyone should read his article on your site http://www.philstockworld.com/2011/09/01/the-feds-plan-rumors-of-news-2/
This is almost certainly going to be the stealth QE3, announced by Obama next week.  If I understand correctly 10mm mortgages will have their rates reduced to 4%?  Still don’t understand how they can get away with only doing this for mortgages held by F/F.  Is this equiv to $600B stimulus?
Gold and bonds say QE3 now certain.
This unemployment # is going to make it hard for the GOP to block Bama’s proposals next week.  Corker was squirming under attack from Hobbs this morning.  His do nothing solution sounded as pathetic as it is and I think GOP congressmen will have trouble spouting this pathetic strategy on TV.
From a mkt perspective I kind of think ‘help is on the way’?

Phil, i have GLD sep16 175Put bought at $2.38 now $1.12. shall i roll? thanks,

They better pop it soon.  I can’t imagine there’s a lot of traders that are going to want to be long going into the holiday weekend.

This looks promising for a crisis resolution in Italy:
It’s bad in the US, but Europe is a big basket case now! Greece’s GDP growth was revised down again, the deficit prediction for the year have been matched by 90% after 1 quarter already! The solution to resolve this problem, hike taxes on food and restaurants by 10%. Which businesses already said they won’t enforce! The death spiral is continuing… 

Very telling graphic on HP
HP Stock Secret

Big government numbers…

According to the Census, local and state governments had 203,321 fewer full-time equivalent employees in 2010 than in 2009 and 27,567 fewer part-time employees. 

That cannot be helpful!

exec / long

If "they" can get us over IWM 70.98, I may buy some calls for Tuesday !! (my 3 day weekend rule)

We’ll have to see how the day goes; things should pick up after 11:30.

Out of TNA with $ 1.05 on the 8EMA crossover !!

BANK OF AMERICA: If Things Really Get Bad, We’ll Sort Of Spin Off Some Of Merrill Lynch
In a very unusual move, the Fed asked Bank of America to provide a plan of what it will do if its stock continues to tank.
Bank of America said it would consider issuing a Merrill Lynch tracking stock, among other options.
This Fed request came at the end of July, before the latest crisis in Bank of America’s stock. Since then, the stock has plummeted further, and the bank has finally begun to take steps to address the situation, selling preferred stock and options on about 7% of itself to Warren Buffett.

The "beaten down" jobs figures are bad enough, says Tom Porcelli, chief U.S. economist at RBC Capital Markets. But average earnings growth has also "collapsed," which means "we’ve effectively removed one of the key drivers of job growth."

10:32 AM Shares of Staples (STPLS -4.4%) and Officemax (OMX -5.1%) are steep decliners on the negative outlook for employment. In particular, investors may be absorbing the terrible private-sector job number as a bad omen for office supply spending.
From Phil’s Dozen:
SPLS ($14.48) is back around their 2008 lows ($12.99) and they actually pay a .40 dividend (2.8%) so a nice little stock to own.  They are not in trouble – in fact, they have $1.4Bn in cash against a $10.27Bn market cap and they have earned about $800M a year.  International growth has been strong but the US is where they make the margins and we have been lagging – even without stimulus I’d look for the US to pick up and margins to improve in Europe and Asia.  

Since you can just sell the 2013 $15 puts for $3.20 and establish a $11.80 entry – I do like that idea!  That would make the .40 dividend 3.4%.  
The Jan $15 calls are $1.15 and the Oct $14 puts can be sold for .80, which is net .35 on the set.  
The Jan $12.50/15 bull call spread is $1.45 and 2x can be paired with the sale of the 2013 $15 puts for a net .30 credit so you make $5 at $15 (up 3.6%) in Jan and lower the potential entry to net $9.70 or the worst case is a 1x entry at net $14.70 if they are still under $15 in Jan 2013 (rollable, of course). 

If you liked it then you will like it more now.
Staples stock now at: $13.77

average earnings down, consumer spending up – i guess you have a bit of free cash when you quit paying your mortgage (strategic defaults up).
next week will certainly be interesting with Obama’s proposal and I see the situation getting desperate enough (‘the people’ are getting tired of everything in washington) so hopefully we won’t have to endure another circus to get a proper solution

Phil, Tuscadog
It seems there would be significant technical ldifficulties reducing the rate on those mortgages to 4%.  All the associated MBS securities would be repaid and new ones reissued at lower rates (or the money driven into treasuries).   There are other obvious challenges as well including a significant fiscally prudent percentage of the population that would scream (even though they didn’t scream about banker bailouts).  How do they get this through without significant political damage?  What are the odds these people are going to go out and spend the mortgage savings on goods and services rather than pay down other debt?  How big of a boost to jobs would you get from this versus just spending the money on infrastructure?  Wouldn’t surpirse me if it happened, but it seems there are more effective and certain ways to create jobs.

FTR – 2013 $7.5 buy/writes today are giving entry below $5 (i got $4.91) turning the .75 dividend into a 15% yield

Phil / ZSL   I guess QE3 now certain will send gold and silver to the moon, so no point holding shorts?

 bunds new record low 2.0% dax -4%

AZN doesn’t get what it needed….and now Zocor and Lipitor can be generic and reap the rewards.

Was pitting Crestor against Lipitor worth the risk for AstraZeneca? Ahead of the full results from the Saturn study it is hard to say, but the top line data suggest probably not.

The miss on the primary endpoint and hit on the important but secondary endpoint mean the study is likely to be benign at best in terms of shifting physicians’ impressions of the drug, which is already widely viewed as the most potent statin on the market. However in terms of establishing a clear difference between the two products, to help Astra justify Crestor’s premium price versus cheap generic Lipitor, the study does not appear particularly helpful. With a full presentation of the study slated for the American Heart Association meeting, the details needs to dazzle.

Pharmboy — your post at 11:05 broke IE9.

If anyone took that SIX short…we are done with it this morning.

FWIW, I rolled QQQ Sept weekly 56 Calls down to Sept Quarterly 55 Calls for .95. May have thrown good money after bad, but I have some time to learn the lesson.

Phll – I have AGQ Sept $180 puts that I bought for $4.40 and they’re down to $1 now.  Would you suggest rolling them to October puts, rolling them to a higher Sept value (i.e. Sept $190’s) or DD?  Thanks in advance.

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