Monday, July 13, 2009

Its All On Goldman

Big move in financials today ahead of Goldmans Quarterly report tomorrow.

If the Goldmam and JP results are good to great, you may see another 10-15% run up in these names. decent results may spark a sell off.

Many investors covering shorts on the basis of fear over:

1-More accounting gimmickry from the financials.
2-Markup up Mortgage toxic paper.
3-Refi business was strong for first two months.
4-Incentives for Loan Modifications.
5-Huge Mark up in Non Agency Mortgage paper.

The game has changed slightly, there are lot of games being played on the accounting side of business. The Obama administration wants the status quo to return like I mentioned before, they will stop at nothing to bring back business as usual.

The financials have been helped with many tricky things the first half of the year while the main stream consumer has not seen any relief at all.

You may well see a furious short over rally here, flat line throughout the summer, then another leg down towards the fall, which coeisides to what I feel the market in general will do.

Loan Modifications

The Obama Administration has made it paramount that Home Owners stay in their homes regardless where unemployment is going. They are over compensating the banks to make this happen to the tune of $75 Billion, 80% of mortgages are securitized, loan mods don't work here, unless the rules suddenly change, which they did. Generally loans that are packaged in trusts that cant be altered, or lawsuits happen. The Obama Administration has made it impossible to sue over this. Its very nice to keep people in their homes...I am praying for them. Fundamentally this is flawed because Loan Mods are designed to keep the unpaid principal balances off the lenders books while re leveraging the home owner. You are only lengthening the terms of your mortgage that is already under water, totally different then a refi where you are shortening the loan terms. So from a lender perspective, its all artificial, one time quick accounting that magically gets unpaid mortgage payments off the books while they receive fees from the government to do so. From a homeowner perspective, it just pushes the wolves out 6 months at most. Its really predatory lending at its worst, much worse then the horrors that mortgage bankers were concocting during the boom.

Loan mods, only turn home owners into underwater over leveraged renters fir life, unable to sell, to buy, re-buy, refi, or save.

But who cares in this grand scheme as they need to keep the credit flowing even when there is no credit to be seen.

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