Mixed Trading as Citi Plans To Restructure Loans

housing bailoutWell, well, another interesting day of trading while the world sits and waits for our dreaded employment numbers to be announced. Some are expecting the numbers to be the worst since World War 2. However, it probably won't matter, because our market has become so interested in "projected numbers" than what the actual number dictates. For example, Target announces earnings with a 4.1% drop in sales, but the stock goes up almost 3%, having the announcement better than market expectations. On the flip side, Wal-Mart announced an increase in sales of 1.7%, but because this was below market expectations, there stock goes down 7.5%. The market is becoming more concerned about the numbers relationship to expectations instead of the actual performance of the number itself. It can be very, very frustrating.

So even if we do see a horrific number for employment, unless it's the worst since World War 2, I'm sure the media will spin it off to be a positive sign, and somehow millions of people out there will buy into it. Not me, I expect the number to be very bad and as a result it reminds me of just how big of a mess we're in.

After the close, Chevron warned of probable lower earnings due to the large drop in gasoline prices. I'm sure they're doing just fine as they made mounds of cash the past two years off our $4.50+ gas prices. Still, this news could bring some more negative sentiment for energy sectors during trading tomorrow.

lender bailoutA big announcement today, was that Citi has agreed to participate in mortgage adjustments for distressed housing loans. Are you serious? I don't mean to sound unsympathetic as I am aware there are many people suffering. However, this move will support the 90 10 rule. Probably, only about 10% of the people receiving this help have actually a legitimate case to argue of their current position, while the other 90% will be bailing out people who bought out of greed and poor choices. One of the great principals this nation was founded on was a free economy. It is also known as the American dream. You can do whatever you want to do with enough work. Another element of the American dream is failure. Without failure, we have no successes. Call it survival of the fittest, yin and yang, or whatever. The point is not every business is meant to succeed, just as every choice isn't suppose to be the right one. If we don't learn from our mistakes, how will we change the future?

I could go on for hours about this, I just feel that this move (and whatever else is to come) undermines the people that were patient and worked hard for what they have. I mean, heck, if I knew the Government was going to bail me out, I would have bought three houses, knowing eventually, the Government would bail me out. If you take away accountability, you take away that spirit of free economy that originally made this country what it is. So, I'll get off my soapbox, that's just my feeling on the situation.

So to summarize this move, bankruptcy courts can alter the loans based on certain conditions. These being:

1) Only mortgages entered into prior to the date of enactment of the bill would be eligible for the treatment. All loans, and not just subprime, are eligible.

2) Borrowers have to show they made a “good faith”(What does "good faith" entail? Who knows.) attempt to work with the lender before considering this bankruptcy provision. Bankruptcy cannot be the first option, and borrowers have to prove it wasn’t.

3) Bankruptcy judges can strip away a lender’s credit or rights if they violated the Truth in Lending Act or other state and federal laws.

Many are still against such moves, but it will be interesting to see who else joins the wonderful bailout club. I would expect this to probably cause some optimistic trading tomorrow, especially in home builders and maybe some REITS. I don't know what this will do for financials, considering in the end, this will be reducing their investment. I see it as bad news, but you never know how the media will spin it.

As I have received many emails with questions about Lending Club, I was able to talk to one of the Directing managers of the site today, who answered several of mine and your questions about the program and their success. I plan on writing a post about it this weekend, sharing some of the numbers he gave me, but all in all, it was a great call and really increased my confidence in the company. I realize the risks of consumer lending, but after the call, I am a lot more comfortable with the underwriting and screening process and now believe I have a really good chance of receiving close to my 10.5% targeted returns. Definitely worth looking into.

Well, the end of the week rally could be in session tomorrow, very much depending on employment numbers. I really do think this number is going to be very, very bad and only getting worse. I would expect the market to react negatively to the number, but with the help of the Citi announcement and market manipulation, who knows, maybe somehow we'll end in the green. Happy Trading and we'll see you tomorrow.


  1. Anonymous Says:

    Hi FF,
    From your blog I came to know that you recommended STP for alternative energy. I would like to know, what is your take on LDK for alternative energy?


    The Citi is in trouble.

  3. Unknown Says:

    Thanks for sharing!