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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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Yes, austerity!

FAS Money – That spiked down triggered our 2.32 stop on the 15 Puts! We sold them for 1.14 and bought them back for 2.32!

Long Strangle –Jan 12 Puts (3.01 average now 2.76) and 15 Calls (2.75 average cost now 2.40). 
Weekly –1/2 September 13 Puts (1.03 now 1.21)
Monthly – 1/2 September 13 Puts (1.03 now 1.21)

CNBC just cleared up why so many people are unemployed: gov unemployment benefits are just too extravagant  leaving the unemployed wallowing in excess wealth when they could get a job at McD’s for min wage.  Lucky Duckies!

OK, with that spike down, the other 1/2 of my SPY play for the weekend is in.  SPY 116 Ps buy, sell 116 weeklies for 1.15 debit or better.

Phil/All: I finally got out of the last of my TBT junk today. Yes I finally capitulated… and I have to say, I’ve never worked so hard, rolling, rolling, strangling…. for the past 18 months to lose 100K. If I had just been a "sucker" and bought a few puts I would have been whole.  I’m relieved to be out of it… but I am pissed I ever got involved

What is your opinion on the Ags? MON and MOS have really come down and I would like to open a position on MON with selling the Sep 62.50

Jbur – I feel your pain, and will never, ever buy TBT, or an option on it.  We are Japan, we just need to look ourselves in the mirror and realize it.


FAS Money – OK, selling next week’s $13 puts for 0.80. 
Long Strangle –Jan 12 Puts (3.01 average now 2.81) and 15 Calls (2.75 average cost now 2.40). 
Weekly –1/2 September 13 Puts (1.03 now 1.22) and 1/2 weekly 13 Puts (0.80)
Monthly – 1/2 September 13 Puts (1.03 now 1.22) and 1/2 weekly 13 Puts (0.80)

I have 15 Sept 108.75 puts that are down about 50%. Any help would be appreciated. Thanks for past help in saving my can.

 GLD / Phil,
Discussion from yesterday: GLD/Sank – The ones from the $25KP? We rolled those on the 26th and on Monday they popped to $5 so back to down to just 10 open then and if you didn’t stop out the rest on the way back down to $1.83, at this point I’d spend $1.10 to roll up to the $176 puts (now $2.94) and hold them for the weekend as there’s still 2 weeks left.  The next move would be selling a call and rolling to a spread.
Carried out this roll yesterday. The Sep 176 Puts are now at $1.35. Any thoughts on the action to be taken?

Last support for today !! (SPX 1171)

Phil—just closed my short /HG trade for a decent profit—every dime helps

Phil / Gold   Mkt (unemployment is assuming Ddip.  Operation twist is being assumed by Treasuries.  I don’t see inflation accelerating with 22% unemployment, so why is gold exploding?  If Europe tips over it’s extremely deflationary?

right that was my point…along with urging poeple to stay the hell out of short bonds for three friggin months…you didn’t like my yiddish earlier?

(and don’t mention anything about my cmg short and your admonition)

B’c gold is it’s own currency, tusca, and the rich, er, mainstreet wants something they can put their money in.  Which will be wiped out eventually as well.  Silver is the poor mans gold, and look at it!  Up 4.X% vs golds 3!

Watch for the EMA cross (now at IWM 68.23) on the bounce from support !! In other words, we may have a reversal here !!

Have a nice weekend all!  I am DONE!

 im not sure if it is bad or good that volume light today

jrw are you in colorado or wyoming..those napkins look familiar….

JRW, should be a nice stick for you now, I’m loaded up with protective puts for the weekend!

Hi, Phil,
I sold GS Sep $120 puts to finance some disaster hedges.  At the time GS was $135-ish.  The hedges worked out, and I cashed them out.  And then, I was out of town for a few days.  Just came back today.  And now find GS down that much.
What do you think?  Can you suggest any adjustments?

mrmocha you say stick more than anyone in th esites history…;)

"FHFA lawsuits against big banks mitigates against any mortgage settlement from happening, Felix Salmon writes. The banks won’t agree to anything unless they get immunity from securitization-related suits, and the government – a plaintiff in many of those suits – likely won’t give it to them. So "expect this saga to drag on indefinitely."
You mean only the attorneys are going to cash in? 
I’m whelmed. 

Out of TZA at $ 48.09 for $ 1.29 !! As I said, "reversal" !!  😎

i can’t wait for someone to show up at our farm and want to buy potatoes or berries for a gold bar….

Are you going trading FXE? Next resistance for $DXY 75.4, could go all the way to 80

 Tusca:  In answer to your question on gold, I noticed this today, fwiw, from insidefutures.com.  I’d be interested in anyone’s take on this.
"This year’s historic price advance for gold futures is providing a very clear signal that there will not be a double dip recession this year or over the next few years. In the 2008 recession, the price of gold fell approximately 35% on the belief that the world’s major central banks would not be able to re-inflate their economies anytime soon and there would be a deflation problem. This, in fact, proved to be the case. However, in the current period of economic weakness, the price of gold is making all time highs, which at first glance, appears illogical. Our analysis is telling us these historic gains in the gold market, that we are seeing now, is because the world’s major central banks will be successful in their efforts to re-inflate and that there will not be a prolonged downturn in the global economy."

Phil / Europe   So is today all about Europe?  We decided at the beginning of the week that all the data points w/be crap this week, so ensuring QE3 (and maybe some fiscal push re-enforcement).   Are you suggesting disaster hedges into the weekend on Europe risk, or wait until Tuesday for more fix news and bounce?

JRW–what is your position going into the 3 day weekend? TZA or TNA
Thanks very much

angelcur / napkin

I‘m in the San Juans !!


Mr. M ? Stick

Savi / Weekend

See my 13:39 post !!

JRW–thanks—was not sure if you got out of all your TZA

JRW-Classic photo of Mr. Stick!  LOL!

Target IWM 68.80 or better; that strong trend line is now RESISTANCE !!

 My BTU calls are moving up.

Gold/zxz – inflating currencies is happening and seen going on all around. this is big part of move to gold. even the swiss were saying they are going to do some monetary easing.   separately, "re-inflating" prices is not any kind of causal link indicating success at fighting an economic downturn.   sounds to me like insidefutures.com is giving air time to economorons. imho.

JRW – i live in the san juans. heading to friday harbor yacht club for dinner tonight. ping me at scottmi @ gmail.com  if care to join for a drink

FXE – no, must play them at 145 or up from 139ish.  So, wait and see if they break resistance or stay in the zone. I only have SPY puts covered and the ones I mentioned earlier today on SPY, kinda like the FAS play, but more mellow.  OK, now I am outta here.  JR, have fun, in So. Cal the weekend is supposed to be spectacular.  1020 can 2nd that!

A great list of impediments to trading success:

Not following my system
No System
Too tight Stops
Too emotional
Not Paying Attention
No goal
Lack of Plan
No analysis of Mistakes
Preconceived Ideas

Lastly, the GG trade is OFF.  Not going to hold in the lower band of the star.

JRW – San Juans eh? AWESOME. Im from Mount Vernon, Wa….Wishing I was in the San Juans right now!

@jrw III
Have you considered (you must have) offering an on line training seminar separate from this site to teach your system in exquisite detail?

scottmi / drink

Damn, I was anchored at Sucia yesterday; we’re at Salt Spring Island now !!

Good list JRW, but the Too tight stop is debatable!
In any case, have a good weekend everybody! 

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