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Sunday, October 2, 2022

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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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faz, sds, tza and skf all seeing above average volume on low volume market day

Buying SPY Sept 120 Call, selling 120 weekly call.  Net debit ~80c.  Will sell on Tuesday or at latest Wednesday.

Rain, should be fixed.  Character was added that IE9 did not like.

Hard not to think bullish today when you have a very controlled drop since morning, narrow ranges since, vix only up a point and a half.  Bought some TNA this morning.  Wouldn’t be surprised if we’re down under 100 today.

JRW
I recall reading a discussion about your 3 day rule somewhere here on PSW     do you have a link to that discussion?

 Anyone else trading futures with TOS? I just tried to execute an order and it got rejected. Support says I have to fund the futures account separately to trade futures (also forex, apparently). "We hope to have the auto sweep feature back in service in the coming weeks." This is supposed to be an improvement how again? In the meantime /cl is up $700 from my buy order. Ugh.

• Average workweek for all employees edged down by 0.1 hour over the month to 34.2 hours. This is a leading indicator, and its discouraging

While the site was down, I got back into TNA at $ 43.29 off the IWM 69.70 line !!

Even better, if I transfer money into my futures account and drop below $100k in my main account, I will lose PM. Nice…. looks like my IB account will be active for the foreseeable future. 

OK, so yesterday I commented back to alik on APRI, today, APRI admits it made misleading statements by citing FDA "approval" for three of its new OTC drugs when it should have said they were "compliant."  BIG difference.

This would seem like a good place to start investing:

A recent study by the Electric Power Research Institute estimates that implementing smart-grid technology nationwide could cost, at the high end, $476 billion over 20 years. (The 2009 stimulus poured $4.5 billion into a handful of smart-grid pilot projects around the country.) Amin, for his part, calculates that doing so would reduce the cost of blackouts by at least $49 billion per year. A smart grid obviously can’t prevent all power outages, especially in a violent hurricane, but it can reduce the damage considerably.

Invest $24 billion a year for 20 years and save $49 billion every year looks like a 2-bagger to me! 

More job number analysis:
http://rortybomb.wordpress.com/2011/09/02/things-im-seeing-in-the-awful-august-job-numbers/
And to add to a previous post:

The government continues to drop jobs, shedding around 600,000 since the beginning of the recession. This has become a major disaster that has increased the ranks of the unemployed and put downward pressure on demand at the worst possible time. 

sampuran7 / 3-day weekend rule

If the last trading day before a 3-day weekend has a dramatic move (usually a trend day) odds are high for follow through on the next trading day !!

This will probably NOT qualify as we will likely close higher but still red !!

Some information for those wanting to dump TOS
I opened an unfunded account with schwab last Friday. Their help is lame except a few, about average for today’s experts. Compared to etrade they answer the phone slower and street smart edge is slower than etrade pro. The good news is they say they will offer trades at $7.99 and JRW says he has no trouble. Second SSEdge is miles more powerful in charting than etrade pro and for day traders they have the tick and a few other tricks. I’m still learning but I am impressed.

china WORST performer of the week!

-3.2%

btu rebounding coal stocks owuld be up big today if not for the market being so crappy..

 "Az der bubbe vot geha"

JR/Bounce
 
IWM bounced off S1 twice.  Do you have any stats on that type of failed bounce?

If the EU closes down 2.5%, I say we will match their woes.

This weekend for SWW weekly (or a post), I am going to be highlighting some of our past picks for a volatile market, and I am going back to one of our old buddies, BMRN.  If they are not going generic (SNY, PFE, MRK), then the industry is going to orphan and higher margin drugs (cancer).  I thought this year would be the year for M&A, and there have been a few in the beginning (CEPH, GXDX, etc), but there are more coming.  UTHR, SGEN & BMRN are a few of my top picks for this exact purpose.  Pharma needs to do something fast, and LLY is in need, and I still have 4 months (summer is over).

GERN giving up all  of yesterdays gains.  Too bad.

exec / Bounce

Third time is a charm (if we get one); if we don’t go up, it’s a long way down:

normally msb (magical sloppy buyer)  doesn’t let us close on lows…we normally close up from here but still down meaningfully…but this US bank suit and what is going on in europe is making me think lows will get tested next couple of weeks….im 25% net long…will likely finish 50%.

earthquakes seem to really be intensifying last few months….6.8 hit alaska this morning…god help portland if that fault goes up there.

Phil, really enjoying the site! To prevent too much exposure i like to buy bull put spreads instead of a naked put.  Currently own AAPL SEP $350/320 and was wondering if there are atractive ways to play this spread other than allowing the to expire worthless which is what i have done normally.  I could buy back the short leg now (not greedy) at a nice profit (which would have been the premise of owning the $350 naked put in the first place).  The question then becomes are there other nice plays for the SEP $320 long leg?  Thanks as always for your insight. 

Obama Asks EPA to Withdraw Proposed Ozone Rule
http://online.wsj.com/article/SB10001424053111904716604576546422160891728.html?mod=djemalertNEWS
Long coal; short solar

Lunch back east?  Where have all the people gone?

AGQ / Phil – No, this is a new batch of AGQ Sept 180 puts.  I loved our AGQ trade in the $25KP so much (had bought the same $180’s for ~$4 and sold them at $8), I pulled the trigger on them again as soon as they dropped to $4.50.  The problem  is that I bought TWENTY (20) of them this time around instead of the 5 we had bought last time.  Hence I’m down about $8K on AGQ right now. 
 
If anything positive can be extracted from my current situation, it’s that I’m learning to not go "big" into a trade, regardless of how much of a "sure thing" it seems.  I’ve lost so much money in the last three years that I have a tendency to throw everything into any trade that looks promising hoping I can make back my losses faster….like a hitter trying to knock every pitch out of the park to make up for his .180 batting average.  But I’m trying to convince myself that the "new me" knows better than the old me [microwave theory, etc] who kept on doubling up on SRS calls over the last two years until EVERYTHING was gone.  It might be a little late to learn that lesson though as I have excessive positions in BNO (40 puts), AGQ and GLD which are down a combined $20K. 

Phil / 58% employed!    It’s fallen from 64% in 2007.  Why does anyone (like that fool Corker) expect private enterprise to fix this when it’s cheaper to move manufacturing to China, eg GE?  We need a return to mercantalism to fix trade.  But, in the meantime, we need a massive infrastructure spend financed by Gov’t to put those millions back to work so that they can pay taxes instead of taking handouts and food stamps.  Phil has outlined numerous obvious initiatives which could quickly put millions back to work.  I’m intellectually baffled at the GOP position espoused again by Corker this morning.  Millions are hurting unecessarily.  Obama increasingly looks like a one term wimp, no Rooseveldt nor Trueman.

jrw, still thinking we close higher?

Hi Phil– AGNC — when do you think a good time to scale in this stock–after sept 20 fed meeting or next week –thx

Breakfast out West !! 

Well done JRW, I needed that laugh

Phil/Debates- It really wasn’t difficult. There are many links that go back several months listing a published debate schedule. Below is the first one that came up in a google search of "2011 republican debate schedule"  (with a date associated to it: of Jun. 24th).: Clearly the fricken President  knew there was a televised debate (yes people do watch them) at exactly the time and date he was requesting to make this important JOBS speech.  From your writings it appears you are concerned he’s not getting the respect he deserves as POTUS. Could it be because he continues to play these sleazeball political games???
BTW, I posted my comments each time before the market opened because I prefer to discuss trading when the market is open but you asked: http://freedomslighthouse.net/2011/06/24/schedule-of-2012-republican-presidential-debates-updated-62411/

lunar / higher

My chart said sell at 12:25 ; we are now on  the major support line (at IWM 68.93), so we go up or down from here !!

That would B .  Just 0.3% or more…

 Is there any correlation between stock prices and the weather?  Nightime temperatures dropped from 60F to 45F in one week up here in the Rockies.  Should my enthusiasm for buying coal increase?

Jakester – Ok, what’s more important?  A debate that only you and three other people watch, or the jobs crisis?  What do you think the president is more concerned about right now?  If I were him, or his staff, I think I could be forgiven for being a bit distracted and not noticing that one of the million Republican debates was happening on that date.

Possible target, 115 (from Cougar):

I love (NOT!) those little spikes that go right to your stops, get you out of puts, and then head back down, look at the trick they just played with IWMJabobeast, another potential rant for you!

Given the time of day, this will be the push to try to get us back close to the open; if it fails we will close even lower and I will hold a partial TZA position over the weekend !! I’m in cash now, waiting !!

 JRW, Where R U eating?

Going to start accumulating GG puts (52.5).  They have hit $55 several times and if they remain there, a shooting star in the the works.  Need to finish in the lower half of the formation, so below 54.40 for me (high was 55.05).

jcaesarr/debate- That makes perfect sense…to you in your single perspective world. However, if the shoe were on the other foot and this was a democratic debate you would be outraged.  I’m just disgusted by the whole thing and ALWAYS question the motives of either of these two perties.  I was simply pointing out the obvious dirty politics continue in Washington and it is not only the sleazy repubs as PSW would like us to believe.

To follow up on an earlier post about global PMI:
http://blogs.wsj.com/economics/2011/09/01/world-wide-factory-activity-by-country-17/tab/interactive/
It’s not looking good at all! Half the countries are contracting and some pretty badly!

 Yeah, Angel, Europe’s balance act may be tipping.  There’s no way the peripherals can live with 1.40+ unless Germany throws its wallet on the table, which is not looking popular among German voters right now.

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