Genuine Sector Crash

[haha]

The mortgage industry- subprime especially, but note that todays biggest loser American home Mortgage is an Alt-A lender, not true subprime.

Here is a list of today's biggest NYSE losers with price degradation and % loss:

BIGGEST DECLINERS CLOSING SNAPSHOT
4:39 pm ET 07/31/2007

__________________________________


NYSE:

Issue (symbol)
Price Chg % Chg Volume
---------------------------------

AmHmMrtg (AHM)
$1.04 -9.43 -90.07 30,918,569

AmHmMrtg pfB (AHMB)
3.35 -13.60 -80.24 184,600

Homebanc pfA (HMBA)
7.00 -3.89 -35.73 72,400

RAIT FnclTr (RAS)
10.36 -5.72 -35.57 21,360,953

RAIT FnclTr pfB (RASB)
11.65 -5.27 -31.15 71,700

RAIT FnclTr pfA (RASA)
11.17 -3.97 -26.22 68,700

NovstrFnl (NFI)
9.64 -3.29 -25.44 4,898,000

HlthMgt A (HMA)
8.06 -2.59 -24.32 31,568,267

RedwdTr (RWT)
28.80 -6.68 -18.83 3,228,100

RAIT FnclTr pfC (RASC)
17.50 -4.00 -18.60 47,200

RadianGrp (RDN)
33.71 -6.49 -16.14 14,067,008

NewcastleInv pfD (NCTD)
17.45 -3.30 -15.90 37,100

ImpacMtg pfB (IMHB)
11.97 -2.23 -15.70 106,200

MGIC Inv (MTG)
38.66 -6.78 -14.92 15,927,198

ImpacMtg pfC (IMHC)
12.40 -2.00 -13.89 154,400

NostrRltyFin pfA (NRFA)
18.95 -3.05 -13.86 13,300

ImpacMtg (IMH)
2.56 -0.39 -13.22 3,028,100

QuadraRlty (QRR)
8.87 -1.34 -13.12 769,100

AlcatelLucent (ALU)
11.60 -1.66 -12.52 57,102,400

Nelnet A (NNI)
17.30 -2.42 -12.27 677,700

NovstrFnl pfC (NFIC)
10.15 -1.35 -11.74 98,800

Newcastle pfC (NCTC)
17.40 -2.22 -11.31 26,100

Vonage (VG)
2.13 -0.27 -11.25 2,737,400

FremontGen (FMT)
5.77 -0.71 -10.96 5,307,500

ResourceCap (RSO)
9.47 -1.16 -10.91 841,800




Normally I look at lists like this to get ideas. My only idea here is that this is one falling knife I am not tempted to catch. Some will certainly make spectacular recoveries, but plenty others will disappear leaving equity holders with little or more likely nothing.

Overall, I think it is often a good safety rule to stay away from speculating on distressed financials other than the biggest banks.

Ha

[brewer12345]

I think that the REITs are being thrown out the window more-or-less indiscriminately. Some more will dry up and blow away, but the ones with sufficient contingent liquidity will make it and will be very high return propositions. Hard to tell which is which, though. Since the banks (which do not and likely never will have REIT liquidity issues) have also been thrown out teh window, I think they offer a better risk-reward trade-off.

[wildcat]

My HFF - ticker HF - is being thrown out the window along with the REITs.

[Hamlet]

I'm amazed at how much my REITs have gone down. The ones I own are not dabbling in mortgages or anything. They simply own properties and pay dividends out of their cash flows. They have mostly fixed interest debt as well. It seems to me that the market is wrong about these.

You're right though. The banks may be an even better deal.

Originally Posted by brewer12345

I think that the REITs are being thrown out the window more-or-less indiscriminately. Some more will dry up and blow away, but the ones with sufficient contingent liquidity will make it and will be very high return propositions. Hard to tell which is which, though. Since the banks (which do not and likely never will have REIT liquidity issues) have also been thrown out teh window, I think they offer a better risk-reward trade-off.

[JohnEyles]

Originally Posted by Hamlet

I'm amazed at how much my REITs have gone down.

Oddly (probably only because I don't understand them) the TIAA
Real Estate (in their retirement accounts) is doing just fine, up
almost 9% on the year. Because it's the kind that owns property
directly ? Wonder if it makes sense to seek the
elusive RE allocation there ?

[CuppaJoe]

I hate REITs because that is the way my new scumball landlord is increasing his fortune. He's buying every available apt. building in the city at well over market prices.... and then aggressively pushes tenants out to increase profits by doubling the rent for new tenants (who BTW are also vulnerable to being pushed out). I don't believe in curses but my neighbor has one in effect against dear landlord.

[haha]

Well, it's 2 weeks since I posted this heads up, and oh how things have proceeded in those 2 weeks!

This is extremely interesting because the stuff going down-and I mean quite possibly going down for the count- is not any longer limited to sub-prime or alt A or anything else. Many of these mortgage and asset related credits are very likely money good.

This is a liquidity crash, and not the first one I have observed. They are always fun because the pundits and brokers make such fools of themselves trying to draw meaningless lines in the sand. But when the big wind blows, what is a line in the sand?

A few short days ago Merrill said "Buy Countrywide!" Today they said "Sell Countrywide!" What has happened in the interim? Have Countrywide’s loans suddenly gone toxic? Nope, what has happened is that they can't get their banks to lend enough against these loans for them to stay on the books, and they can't get enough decent bids to get them off the books and still have a positive net worth.

Like Brewer said above in this thread, the REIT outfits with enough contingent liquidity will survive and be high profit specs. If there are any that is!

Some banks look good- BAC closed up today, in a big down day for the market and financials. Mortgage Banker Countrywide is down 13%. As for the REITs, many are still plunging. Thornburg lost a huge amount over the last few days, but came back big today. NLY is near the low end of its year, but also closed up slightly.

BAC looks like a solid long term play for yield and growth of that yield. To me the REITs look like fun for an insider, but hazardous for anyone else.

Ha

[hayekcapitalist]

Warren Buffets' buying of BAC probably gave it a short term bounce. But it was a good buy before the wealthiest hypocrite in the
barack Obama-bin Laden fund raising room bought, and still is now. Thornburg has a high quality portfolio of Jumbo mortgages (averageloan amount of approx $650k and , less than one perecent delinquency rate. This a buy opportunity for investgors. Speculators heads are being handed to us and traders are being whip sawed so fast they look like deer in ther headlights. Buy: the blood is ialready n the street! IMO if you wait for everyone to acknowledge that this is as much a media driven event as it is financial you will miss a 7-10% upmove.

[al_bundy]

don't forget the i banks

looked at BAC a while ago and i don't think they have that much mortgage exposure, but don't really remember. TMA is circling the drain

[NotSoonEnough]

Originally Posted by haha

Well, it's 2 weeks since I posted this heads up, and oh how things have proceeded in those 2 weeks!

For the last few months I have been in the process of transforming my investment port into something resembling a "Rational Investing" distribution. The REIT portion has recently been put off for at least a year if not further. Obviously there will be a bottom one of these days, no one can pick it, but I will happily wait another year to see where things shake out with all the mortgage resets, foreclosures, and the resulting devaluation across the board...

[Nords]

I guess if the Dow has dropped below 13,000 then we can give partial credit for a correction. Impressive!

We sold our last mutual fund last week. We threw away the last Tweedy, Browne Global Value shares (taxable account, held for over 10 years) and put the proceeds into the Dow Dividend ETF (DVY).

Our ER portfolio is now down to:
30% Berkshire Hathaway
21% PowerShares International Dividend ETF (PID)
17% DVY
13% S&P600 Small-cap Value ETF (IJS)
8% individual stocks (Intel, Superior Industrial, Tate & Lyle, Regional Bank ETF KRE)
2% Thrift Savings Plan "S" fund (similar to IJS)
9% cash & CDs (10-29 months).

Our weighted annual expense ratio is down to 0.23%. Of course that's still nearly 6% of our SWR but I don't see it going much lower.

I'd be happier with more small-cap value, but it's been falling like a bat outta hel (or at least one heading that way). We'll have to see how it recovers over the next year or two before I'd mess with the asset allocation.

I think we're fully invested, so the only way to take advantage of any continued decline would be reinvesting the dividends. Otherwise we'd have to sell stocks that really don't need selling or break into the CDs, and we may end up doing a little of that anyway to pay the cap gains taxes on the TBGVX sale...

[Running_Man]

I am actually a big believer in the Graham method of investing and prescribed to his theory of keeping investments of 25-75% investing depending on your outlook for the relative value in the stock market.

Earlier in the year I went from 25 percent invested to zero despite that because I was convinced the credit situation was much worse than the market was giving credit for and stated in several posts as the year went on the impact would become more and more obvious and it would roll through the economy. My forecast for a 37% decline when predictions were asked for earlier in the year in the major averages was assuming that a severe recession will be the inevitable result. To this point it is only now becoming more apparent the credit situation is affecting more than the subprime crowd. I read yesterday the global value of over-the-counter contracts (paper) derived from price changes of bonds, currencies, commodities, stocks, interest rates or the weather is around $415 trillion. (Bloomberg). The unwinding of this paper leads to interconnections that are of unknown impact.

I continue to be stunned by how many people feel that know that we have the correction why the market should turn up what should I buy? Right now we are barely below where we were at the start of the year but in a huge liquidity squeeze as too many hedge funds were doing the same things and cannot get out at a reasonable price. Where Bear Sterns invested 2 billion in a hedge fund with 6 times leverage - which means that a 15% decline will wipe out the fund. There is no rule that says one should always be invested in stocks even if all you require is a 3.7 withdrawl rate that is payable by dividends.

We are not yet coming out of a recession, we have not even entered a recession yet why would the market reverse? Seems extrordinarily unlikely to me as fundamentals are weaking yet the economy has yet to reverse. Home prices are likely to continue to slow as will sales as these bad loans are unwound.

That being said my strategy is to increase my % of stock holdings by 1% each month for the next 2 years minimum. I see no other way to give myself the impetus to buy in the midst of what I anticipate to be a bloodbath over the coming month. I have employed this for the last 2 months despite my belief of the market being overvalued and sit at 2% stock holdings. For now I am settling for the Vanguard S&P500.

[haha]

While "the market " may continue down, there are quality stocks that if I didn't buy them here I feel I would likely regret it later.

I keep some powder dry, but also deploy some. Also, I have successful put positions that I can liquidate to provide buying power.

Ha

[haha]

washingtonpost.com - nation, world, technology and Washington area news and headlines

"The announcement came one day after a Merrill Lynch report raised the possibility that Countrywide could file for bankruptcy. Speculation about the company's chances of survival continued yesterday, with a report from Friedman, Billings, Ramsey Group commenting that the California lender's demise would be "ugly, but it can happen" if the liquidity crunch drags on for another three months.

Many say such an event would be catastrophic given Countrywide's size. In the first half of this year, Countrywide funded 17.4 percent of loans in this country, nearly one in five, said Guy Cecala, publisher of the trade publication Inside Mortgage Finance. It serviced, or collected payments from borrowers on, 14 percent of all outstanding mortgages.
"My view is they are too big to fail," Cecala said. "They are the public face of the U.S. mortgage market. The potential collapse of someone like Countrywide would be devastating to the economy."

Wow. Thanks to the socialization of the economy at least big businesses can rest assured that they have a safety net.

Hard on bears though.

Ha

[laurence]

Too big to fail = moral hazard. Ugh. Oh well, maybe they are right.

NPR had an interesting story about what's going on with mortgages. It profiled a couple of websites that would give you "proof of employment" - pay stubs, etc. - for a fee, stating whatever income you want. It went on to talk about the fact that over half of "stated income" loans (as opposed to verified income) were to people who overstated their income by 60% or more. So the stated income loans are really a red blinking hazard sign, and the verified loans may have some huge percentage of overstaters as well due to web sites like the one above. Heck, they even had an option where they could give you a number for the lender to call and have someone say, "oh, bob has been here x years and is a great employee!". Then all these "high grade" loans get divied up into funds that people buy in bundles....scary.

[twaddle]

LA TImes today reported that Countrywide had a genuine old-fashioned run on the bank.

Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

[yakers]

I would not hae one penny past FDIC coverage in any Countrywide account. Better to avoid them altogether but probably OK to the FDIC limit.

[unclemick]

Let's hope it doesn't get too ugly - my 30 yr mortgage(5.78%) is with Countrywide.

Bad memeories - in the S&L crisis - I had to retain a lawyer to chase down and payoff(last 10-20% of balance) my duplex - went thru 8-9 companies like the runs and they were trying to tack on extra fees while in the process of going under.

That was a lot ot fun - not!

heh heh heh - add that one to the list of why I'm retired with stocks and not a landlord anymore.