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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: marginnayan who wrote (70551)	10/27/2007 11:28:09 AM
From: marginnayan	Read Replies (2) \| Respond to of 116555

Oh Yeah Baby, keep pumping CFC real hard ! Housing already bottomed with CFC mind bogglng write down. Top that with 50 basis points rate cut in both discount and FED funds rate coming early next week. Clear skies ahead from now on for finanical sector. Load up time. Not enough of a writedown, paying too much for short term money... how do they return to profitability in Q4 again????? LOL at white collar criminals. Skepticism Scarce in Countrywide's Rally By RANDALL W. FORSYTH IN A TOUCHING DISPLAY OF FAITH-BASED investing, Countrywide Financial's debt and equity securities soared Friday despite dramatic evidence of mortgage- credit deterioration severe enough to induce the Federal Reserve to cut short-term interest rates again. Even though the company reported a $1.2 billion loss for the third quarter as a result of $3 billion of credit-related losses, its securities exploded higher. In the debt markets, the cost of insuring against default by the nation's largest mortgage lender plunged an astounding 100 basis points, or one percentage point, to 377.5 basis points for its credit-default swaps. Yields on Countrywide's bonds plunged as much as 40 basis points on the earnings news. Among equity securities, the common (ticker: CFC) soared 32% while Countrywide Capital preferred's (CFCpfdA and CFCpfdB) jumped 22%. And the Calabas, Calif., company also declared its regular 15-cent dividend on the common, which might have been in jeopardy given its scramble to raise cash during the quarter. That, of course, featured the placement of $2 billion of convertible preferred with Bank of America (BAC) during August's dire days Still, the rebound in all these securities and derivatives was not spurred by the dismal results but by Countrywide's declaration that the third quarter marked the trough and profitability would return in the current quarter. But given the many premature calls in the past year that the bottom of the housing and mortgage markets had been reached, Countrywide's declaration that the worst is over might be worthy of more skepticism, not least because of Chief Executive Anthony Mozilo's huge sales of stock, which the Securities and Exchange Commission is investigating. More likely, the recovery in all of Countrywide's securities Friday reflected a monster short-covering rally. But the green-eyeshade types in the credit market took a more jaundiced view of Countrywide's results. Standard & Poor's lowered its credit rating to triple-B-plus, the third investment grade from the bottom, from single-A-minus. Egan-Jones carries a triple-B-minus rating, a notch above junk. This independent rating company noted "a disconnect" in the Countrywide report. "CFC has $209 billion of assets and took charges of $1 billion; a 5% charge equates to $11 billion compared to equity of $15 billion." Even a 5% haircut would be modest, based on the plunge in prices in the ABX index of credit-default swaps on asset-backed securities. The price of the ABX triple-B-minus tranche (backed mainly by subprime mortgages), originated in the first half of 2007, hit a record low of 18.57% of par, extending its headlong plunge of the past two weeks. At the start of the year it was in the high 90s, which shows how much the low end of the mortgage market has sunk. Egan-Jones further observes: "A core issue is whether BAC will continue to support CFC. The $2 billion preferred share investment helps, but unless conditions improve, more will be needed." On that score, Bank of America so far is likely showing a loss on that preferred. Even with the rebound in Countrywide common, to 17.30, it ended below the $18 conversion price on the converts -- which, it might be recalled, was a discount to the market at the time, a highly unusual concession for an issuer of such securities. "On the liquidity side, the high cost (over 5%) for short-term paper is unsustainable," Egan-Jones adds. "[Countrywide's] business is built on short-term rates below 3%." Link: online.barrons.com