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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Tom Buttram who wrote (124138)	5/20/2008 12:46:30 PM
From: ChanceIs	Read Replies (1) \| Respond to of 306849

>>>COF is finally showing some weakness.<<< My general thinking about COF is that it is holding the most risky sort of debt -auto and credit card - going into what I believe will be a long and severe recession. Not a good state of existence. I a comparison to Downey Financial is appropriate. Downey held a mountain of option ARMs in California. Everything looked good, but if you scratched the surface, then the danger was obvious. Their revenues were growing but were based in no small part on taking deferred interest as earnings - perfectly acceptable under GAAP. More importantly, nobody was willing to accept the obvious - the underlying security - CA real estate was headed for the gutter. Its called denial. I need to study COF more carefully. I suspect that its revenues are not as distorted as Downey's. Credit card companies are known TO JACT UP RATES ON AND TACK ON LATE FEES ON LESS THAN PROMPT PAYING CUSTOMERS . (Congress is trying to legislate this away. I don't know why. Customers can always read the fine print.) It may be the case that COF is booking the late fees and added interest as revenues. (Shame on me for not knowing for sure). They do become short term assets - accounts receivable - on the balance sheet/income statement. What is the counterbalancing transaction over on the right-hand-side??? Revenues I bet. Perhaps a special revenue account, but revenue. They won't be cash flows. Again if I were a little more energetic, I would be combing through and comparing revenues and cash flows. COF's revenues are peanuts in comparison to the quality of the debt it holds. There is the real killer. Downey levitated forever before it dropped like a stone when the California bubble really started to burst. But it took until last fall - about 3-4 months after the August financial earthquake for people to acknowledge the situation and sell. Lots of institutional investors unwilling to admit that they were figuratively speaking mired in Iraq I bet. Paulson and any number of other clowns are proclaiming the credit crisis in the rear view. So sure. Those with big positions in COF might like to hear that and sleep well at night. I am holding COF with two hands. In my right I am trading - holding short and selling puts. In my left I am holding short for a drop to $10. I am synthetic short by owning long term puts. In another month or so, my shorted near term puts against the equity would have paid for the long term put premium. Free ride from then. I think COF will go like Downey. Float and float and float and then.............KA-BOOM. Wouldn't want to miss the falling off the cliff. Buy some LT puts, throw them in a drawer and forget about them. New rules on ITM options. Your broker will exercise them if they are $0.01 ITM.