John, you do realize MER sold their jumk paper for 5-cents on the dollar, right? If they get paid for the entire loan it's 22-cents. If they don't get paid, it's 5-cents and they have to write off the rest.
There are also ratchets in the recent fund raising for MER that amount to a death spiral convertible offering.
I remember when MSTR did a death-spiral convertible in summer 2000 at a reverse-split adjusted $300 range. It didn't stop the stock from tanking to $4.20 by 2002.
I have been looking for a low this fall, so we are in agreement in that respect.
However, after a 6-9 month respite in 2009, we should slide into a test of the 2008 lows and ideally make a slightly lower low in 2010. We should trade in a very narrow range in 2011 and 2012, with the bear not left behind for good until fall 2012 according to my long term models, which have largely been unchanged for the past 18-months.
While the nominal market low may come in 2010, the inflation adjusted real low may be in fall 2012 according to my models.
Check out the Option ARM re-sets coming in 2010 and it may help you see why this is not going to be the low, IMO. 2009 has very few mortgage re-sets compared with 2007, 2008, and 2010, so the environment will be more friendly to the financials.
That comes crashing back to earth in 2010.
Furthermore, while the mortgage situation is in the 4th inning most likely, the commercial real estate problems are in the early stages, and the late inning LBO's are also beginning to blow up. |
