Have you ever had a mouse or other rodent die somewhere in your office or home? And you become aware of it by the smell? Well, that is what is happening in the financial sector. Something has died and the odor is spreading throughout the market. The market may not be able to put it’s finger on who or what has died and is rotting away, but it is reacting by getting out of the way before the carcass shows up.
Numerous financial stocks sold down significantly today, Lehman (LEH), Ambac (ABK), Merrill (MER), Citigroup (C), Wachovia (WB), Bank of America (BAC), and so on. Something is smelling up the joint and people are still trying to get away from it. While the broad indices remain oversold on a technical level, it has not stopped the selling.
Today was another episode in the never ending saga of the bond insurers. MBIA (MBI) has sold some of its municipal bond portfolio into the market to raise capital, although they claim they really don’t need it and they have enough cash to cover any claims. But the key thing is will they have enough to cover ‘future’ claims? There in lies the big question. My guess is no, they along with Ambac (ABK) are in for a lot more problems down the road and we may be witness to one (or both) of these companies becoming insolvent. What is worse is if they become dependent on the US Government to bail them out. Then you and I just took on another dependent as us tax payers will ultimately be footing the bill for one more disaster in the financial community.
Florida has joined the list of states who have now filed suit against CountryWide Financial (CFC). This bring the list of states suing the company to four. And more are very likely to follow. Bank of America (BAC) says they are still proceeding with their purchase of the company. Why? Bank of America has enough evidence with these suits being filed to easily get out of the deal on a ‘material change’ clause. Once Bank of America takes Countrywide on its books they are ultimately responsible for all the lawsuits now being filed. If I was was the CEO of Bank of America I would be running away from CountryWide Financial faster than Angelo Mozilo gets a tan each day. And it would appear that all of the cases being filed against Countrywide will be easily won by the plaintiffs for the evidence of what Countrywide had been doing for years is widely being disseminated into the media. And it most likely will not stop at CountryWide either, other lenders will be next.
So we have reached the end of the 2nd quarter and it did not improve as so many analysts had claimed it would. Suddenly the Government has been quiet, no more "the fundamentals of the economy are strong", even that claim is too wild to be passed on to the average person for they know it is not true.
Where are we going? Well you know our long term view remains bearish, but the short term is really up in the air with the indices oversold and the financial’s acting as if a big shoe is about to drop. I think we are in a wait and see mode right now, waiting for the carcass to float to the surface.
Completely off topic here…
If anyone out there is a computer and technology nut like I am then you are probably aware that today is the last day that Windows XP will be sold. Microsoft has taken XP off the market for good. And the only option people have now is Windows Vista (other than Mac). And if you are also a computer nut then you know that Vista ’sucks’. Well, in memory of Windows XP I bring to you this video made by someone else who thinks Vista is bad..
Good night Rebels.. see you in the morning.
2 Comments
July 1st, 2008 at 7:31 am
Love your blog! Just wanted to say thanks for all the great information!
July 1st, 2008 at 8:30 am
Chuck and Lisa, you have been ‘right on’ with this market. Better than all Wall street pros!