Market Report: Countrywide Financial: "Fool me once, shame on -- shame on you. Fool me -- you can't get fooled again."
At the TaipanFinancialNews.com site yesterday, I noted that, “On August 1, 2007, the Dow traded comfortably above 13,500. It was also the day I made the call for 12,400 by November 1, 2007. So for me to watch the Dow break its 13,000 neckline two weeks later, as it heads to my 12,400 prediction, I’m not shocked. I called for it.”
Even yesterday, as we trended below 12,700 on our way to my 12,400 prediction, I’m still not shocked. It’s a needed correction that’s accelerating on housing, lending, and credit fiascos. And if you think the Fed’s going to rescue the market, with inflation outside the comfort zone, you’re just fooling yourself.
Here’s where it stood at 12:15 p.m. on Thursday for the week.
Blamed for most of yesterday’s fall was Countrywide Financial (CFC), the lender that said it had a safe $50 billion cushion if it fell apart. Note that this was after the company noted that:
“Our mortgage company has significant short-term funding liquidity cushions and is supplemented by the ample liquidity sources of our bank. In fact, we have almost $50 billion of highly reliable short-term funding liquidity available as a cushion today. It is important to note that the company has experienced no disruption in financing its ongoing daily operations, including placement of commercial paper.”
This would explain why the company had to draw on an $11.5 billion credit line to ease its liquidity issues, fanning speculation that the company could seek bankruptcy protection. Say reports, the company will draw on the whole credit line provided by the 40 banks.
Interestingly, that press release on Aug. 2, 2007 was issued 11 days before CEO Mozilo sold 46,000 shares, and five days before he sold 110,000 shares. We’re not insinuating anything here, but it looks a bit fishy to me.
Technically, Countrywide is toast. It’s done… kaput… over… and is confirmed by the falling knife that’s already pierced multi-year support levels of $25 and $30, as it looks to retest lows not seen since 2003.
Worse for lending and housing, housing starts fell by 6.1% to 1.381 million after rising 2.1% in June, according to the Commerce Department. It was the lowest read for starts since January 1997. Year-to-date, housing starts are just under 21% below the levels seen in July 2006. Oh, and jobless claims inched up for the third straight time to 322,000, suggesting that the labor market is softening.
What does the rest of the world think?
World banks aren’t pumping liquidity into the market over economic contraction, or the fear of going broke. They’re afraid that the U.S. mortgage fiasco will set off failures in the international financials. Countrywide only exacerbates the problems. Last week alone, in fear, Japan pumped in $8.4 billion, followed by Australia’s $4.2 billion, our $24 billion, and the European Central Bank’s whopping $130 billion.
Says Small-Cap Commodity Prospectors’ Andrew Mickey, we need one big bust before we see a turnaround. “For instance, last year we saw the implosion of Ameranth Capital to signify the bottom of the natural gas market. And the implosion of hedge fund Long-term Capital Management signified the bottom of the market following the Asian currency crisis. A big event like that will definitely mark a market bottom.”
He continues, “For instance, the news from Countrywide Financial today was big. Also, Goldman Sachs’ legendary hedge fund, Goldman Global Alpha, almost went belly up last week. But we still haven’t had that one truly massive failure to mark the bottom. Overall, it’s starting to get real bad, and fear is running rampant across the markets. It is good to be a brave buyer when everyone else is a fearful seller, but I’m afraid there’s still some more steam left in this fall.”
Ian
