nsp re: ["Will mortgage issues outshine homebuilders?"]
...there is a substantial difference between the mortgage lenders/title insurers and the homebuilders.
1. Mortgage LENDING - primarially due to the unprecedented Refinance Boom is a BUBBLE. I guarantee you this fact; look in your local yellow pages under Mortgage Lenders/Brokers and count how many listings there are.... in 2 years, I guarantee you that there will be 1/2 the number of listings.
Revenue and earnings for the Mortgage Lenders and Title Insures can not and will not be sustained. This was a once in a generation windfall.
2. Home Builders enjoyed record growth as a derivative of the historic rate cut environment, but the Homebuilders do have some positive underlying fundamentals... an aging National Inventory of Homes, strong market share growth - ie: The Large National Builders displacing the Mom & Pop Independant in major markets and to some degree positive demographics as the Boomer's acquire 2nd Homes, empty the Nest and buy new retirement homes etc...and actually a move out of Paper Assets (stocks) and into Hard Assets (Homes/Nesting) will soften the landing for the HomeBuilders imho.
The Home Builders were/are a "trading" short imho... in & out on the technicals - as they were the recepient of the inflows from the momenteum players time to time and their cyclical PE Multiple expansion got a little heady at times.
Trade the Home Builders - but, do your DD and LT Short- CRUSH the subprime and over-aggressive Mortgage Lenders... you can still picks some "go to zero" candidates... ala Conseco of late.
There are numerous Mortgage Lenders that will simply go out of business... ala the aftermath of 1998's LTCM funding/liqudity crisis that saw former high-flyers like Cityscape Financial (BK), The Money Store (crushed acquirer First Union), Green Tree (eventually took acquirer Conseco under) & UC Lending (BK) et al... get acquired & negatively impacting the acquirer, or go Bankrupt.
A dramatic shift in Interest Rates and/or a continued slowing economy (ramping deliquencies/foreclosures) will wreak havoc on the performance/pre-payment assumptions made on these Mortgage backed assets and we will see an eventual implosion.
Another fundamental - is a complete and utter breakdown in credit/underwriting quality.
This is where Fannie & Freddie's unprecedented growth becomes a Ponzi scheme... keep growing assets fast enough to minimize ramping deliquencies/foreclosures and mountains of bad paper.
...and when the SOPRANO's utilize phony HUD Flip schemes as the theme for one of their episodes... the lid is obviously off the story...when, not if ? - Too Big to Fail, but Too Big to Bail ? - who knows... imho, however - it's perhaps too late to clean it up without substantial ramifications for the market.
It was obviously impossible for the sector to cram this amount of business through the pipeline in such a short period of time and maintain adequate underwriting, appraisal and credit quality controls....ie: more "$hit Paper" was written in the last 2 years than anyone anticipates, or realizes...
Timeframe ?
...impossible to predict. It will be "event driven" versus purely a function of time...but, imho; it will be when & not if... that an "event" does occur.
If we see something go wrong with the War in Iraq ie: $60 Oil, if Interest rates move up rapidly, if we see a derivatives crisis/JPM failure, if Bolivia wipes the debt-slate clean etc...
And per Sinclair's recent commentary; the Gold Dinar from Islamic countries I think will be a MAJOR geopolitical issue. Regardless of their successful adoption and utilization of an actual gold/backed currency... it's a given that they will fight America via the US Dollar and utilizing the repatriation of their funds from US stocks & bonds/treasuries and buying gold, demanding payment for Oil in Gold etc.
I think the 2nd Wild Card issue will be the looming Pension Plan Implosion... if we don't get a rapid and immediate economic recovery; these companies will need to fund these Pension shortfalls and earnings will be decimated for years to come... PE's MUST - SOON contract to take this into consideration... and what will be the #'s involved in the Pension Shortfall if/when we see DOW 5,000/S&P 500 ? ... we are not far away from causing unprecedented stress fractures in the Insurance/Annuity, Pension and Derivatives world, that will not be able to be repaired...as DOW 5,000 will trigger a series of chain reactions throug out the Financial System to a degree that is unprecedented.
I've finally begun to realize that it is futile and niave' to think that we are going to emerge unscathed from the present geopolitical & economic environment...as I truly think we are witnessing a historic systemic failure in it's initial stages.
We've seen model after model fail when these yet to be tested leveraged financial instruments become stressed in market volatility extremes and we are now in the midst of unprecedented geopolitical and economic risk for volatility and event driven crisis.
...perhaps 100 years from now, our great-great grandchildren will look back on US History concerning Fiat Currency and the Federal Reserve Bank and wonder ?... why we ever thought we'd be able to just perpetually keep all the balls in the air and just print our way out of every crisis with only our "promise" backing the infamous King Fiat Dollar ?
FIAT - will truly become a historic 4-letter word before this is all over... we are entering a period of history where the "have-not's" will attack the "have's" on many fronts and the debt and derivative instruments of the "have's" will become stressed beyond repair and will will reach a time and place, to where worthless Fiat will no longer be accepted by either the "have's", or the "have-nots" to bail out the debt-bloated International Financial System.
We may indeed see "systemic risk" become "Systemic Failure" in this decade... |
