Market Report: Countrywide - Don't Worry. Everything's Fine. The Sharks Are Harmless...

I think Death Cross Trader reader Ron E. said it best: “I'm still holding CFC puts from way back in April. I so firmly believe they're going to tank I held on. I've seen gains of up to 90%, and didn't sell, I think CFC is blowing smoke (no pun intended) and they are still doomed. It amazes me that people plow into them and the homebuilders time after time, only to get wiped out 2 weeks later.”

I couldn’t agree more, Ron.

After everything he’s put investors through, Countrywide’s CEO, Angelo Mozilo, would now have investors believe that everything will be peachy in Q4. This was the same guy that was so confident about the future of CFC that he sold his shares.

In August, this was the company that said it was well capitalized with FDIC-insured deposits, and was one of the largest U.S. banks with more than $107 billion.

This was also the company that said, “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.”

That was just priceless.

A week later, the company announced that it faces ‘unprecedented disruptions’ in debt and mortgage markets, which could hurt earnings and its financial condition. This would explain why the company had to draw on an $11.5 billion credit line to easy its liquidity issues, fanning speculation that the company could seek bankruptcy protection. The company will draw on the whole credit line provided by the 40 banks, according to reports.

We’re not insinuating anything here, but can some one teach me how to make millions while running a company into the ground, too?

That was August.

These days, the company can post a $1.2 billion loss, and hope -- no pray, that it’ll return to profitability in Q4 and investors love it. The only problem is that Countrywide’s customer base is out of California. The housing market (without considering the fires) is bad. There’s no improvement until we get into 2009 or 2010.

What makes today’s $2 jump even harder to swallow is COO David Sambol’s comment in the free-falling housing market: "The company has ample and growing liquidity," he said. "Importantly, we no longer have or plan to have any reliance on the commercial paper markets for funding."

Your best bet is to short Countrywide on the bounce. This is a $10 stock masquerading at $15.

Ian