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Mark L Schemper

Friday, January 26, 2007

Subprimes up on Countrywide Rumor

The Financial Times is reporting a potential alliance or acquisition involving Bank of America (BAC) and mega-subprime Countrywide Financial (CFC). Countrywide is currently up about 10%, and other subprimes - including New Century (NEW) and Accredited Home (LEND) - are up about 2%.

Unnecessary Disclosure: I have no positions in the securities mentioned above

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Tuesday, January 23, 2007

Oil up, stabilizing?

Yes, crude oil was up today, and seems to be stabilizing. Yesterday's bearish reversal was unnerving, but didn't break through any support levels. Lent pointed out that the concave pattern that has formed over the last week resembles a pattern in the Dow and S&P that formed in late October 2005. After breaking out of the concave pattern, the general market took off on a bullish run that has just begun to slow. Bullish indicator? Possibly. The question remains: if oil does break north, how high will it run without any serious fundamental (read: geopolitical) inputs?

Tomorrow morning the weekly inventory report comes out. I'm hoping for a surprise on the higher side, resulting in a selloff and perhaps a test of the support. Assuming this happens and the support holds, I'll be doubling down on USO.

Unnecessary Disclosure: I am currenly long USO.

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State of the Union

Tonight's SOTU address was a nice reprieve from what I've come to expect from Bush over the past few years. I was especially pleased that he spared us that hubris-laden smirk we have endured in years past. I suppose some humility is in order when your juggernaut has been dismantled by the democratic process.

Yet his childlike stubbornness persists through his ill conceived plans for Iraq. Only 20% of Americans support his plan to boost troop levels, a figure less than even his paltry approval rating. During the segment of tonight's speech dedicated to the subject, not even his Joint Chiefs of Staff applauded him.

In the spirit of looking forward, please enjoy some snipets from a Bloomberg piece from yesterday (1/21/07). Regardless of how his legacy play out, he will never be a forgotten president.

Bush Iraq Plan May Be Last Chance to Avoid History's 'Dustbin'
2007-01-21 19:01 (New York)

By Catherine Dodge

In a Bloomberg/Los Angeles Times poll conducted Jan. 13-16, 49 percent of respondents said Bush will be remembered as a poor or below-average president, with 28 percent ranking him as average. Only 22 percent said Bush will be judged a success.

In January 1999, when President Bill Clinton was being tried in the U.S. Senate after his impeachment, 35 percent said he would be viewed as a poor or below-average leader, with 23 percent rating him average and 37 percent calling Clinton above average.


[N]othing short of a turnaround in Iraq can rejuvenate his presidency, many analysts say.

"If the Iraq venture fails, so also will he fail in terms of the ranking of his administration," conservative commentator William F. Buckley said in a March interview. "There is nothing conceivable, in my judgment, that could rescue him if we proceed toward disaster in Iraq."


"He'll be remembered for his eloquent speech in the immediate aftermath of Sept. 11," says Sean Wilentz, a Princeton University history professor. "He'll be remembered for rallying the country and the world behind him. He very quickly thereafter blew it."


Erwin Hargrove, a retired political scientist at Vanderbilt University in Nashville, Tennessee ... predicts Bush will probably go down in history as "one of our worst presidents," his reputation dragged down by Iraq in much the same way that Vietnam consumed Lyndon B. Johnson's. But unlike Johnson, who is credited with the Great Society web of social-welfare programs and for advancing civil rights, Bush, Hargrove says, "has nothing to counter-balance Iraq."

While a 2004 poll of 415 presidential scholars conducted by George Mason University in Fairfax, Virginia, found 81 percent deemed Bush's presidency a failure, several scholars say things might have turned out differently but for Iraq.

Wilentz says the invasion squandered an opportunity to unite the nation behind a concerted anti-terror strategy focusing on the pursuit of al-Qaeda. Hargrove says that "if Bush had decided to govern from the center, fight in Afghanistan and not Iraq, and reform Medicare and Social Security, he could have been a highly successful president."

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Thursday, January 18, 2007

On a lighter note...

I had an overwhelming realization at approximately 10:00 am Pacific Standard Time today that there is nowhere I would rather be this weekend than Las Vegas, Nevada. Yes, it's only been three weeks since my last visit, but I am craving it again. The Vegas renditions of cheap blackjack and Harvey Wallbanger breakfasts simply cannot be replicated in second-rate gaming destinations like Reno or South Lake Tahoe. After some swift bank account calculations and some logistical fumblings, it became apparent that Vegas will not be happening this weekend. River Rock may have to suffice; they do have the most liberal blackjack rules in the "region", for what that's worth.

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Oil Update - School is in Session

This oil trade - for all its losses - is becoming a hell of an educational experience. Who knew that different Bloomberg terminals would display different values for the Generic Crude Oil (CL1) 200 Week Moving Average? My terminal says 51.38, which crude is now below. On the contrary, my friend's is reading 49.70, and an analyst at Real Money is reporting 49.88. Despite the fact that my figure is looking like the incorrect one (we have a one-day delay on commodity prices, which may or may not affect a weekly MA), it is really negligible since the 200 Week MA is roughly coinciding with the psychological support at 50. Translation: if crude is going to dump any further, it needs to break through two technical barriers.

Today's lesson came from that same friend mentioned above. When the inventory report came out this morning, crude dropped to a new local low, erasing yesterday's gains in the process. As it hit 50.50, I was ready to pull the trigger and get out. That's when said friend - who has more trading experience and probably a hell of a lot more money riding on long oil right now - offered this piece of advice:

if the fundamental news didn't take out the recent lows immediately, then it was already baked into the price action (chart/TA) and unless the recent low gets taken out, then stick with the trade.

I took it as a rule and stuck with it. Sure enough, it held and closed at around 50.50. The 50 mark was tested briefly during the latter part of today's session, with a few prints in the 49.90 neighborhood. But the bulls held and brought it back to the 50.50 range almost immediately.

Can't wait to see how tomorrow pans out. I start every day these days by getting my Sell USO trade authorize, but have yet needed to execute. With the House passing a rollback on oil subsidies, we could see some fundamentally driven action in the Refiners and Oil Services companies. Keep in mind that the Senate has yet to pass this bill, and there is no guarantee they will pass it.

By the way, subprimes are on a losing streak again, and are back near their recent lows.

Unnecessary Disclosure: I am (still) currently long USO.

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Friday, January 12, 2007

The Fear is Gone

The current fallout in the energy markets - namely, crude oil - is beginning to look less like a bounce play and more akin to {insert your favorite tech name here} circa 2001. The long position I took in USO during the first week of December 06 is now a 17% loser. The set-up looked great then, and with so much geopolitical tension and continued demand from emerging markets (read: China), it seemed a likely winner.

But sentiments change, quite fast, even. Last night, OPEC announced an emergency meeting to shore up oil prices. A rocket was fired into the US Embassy in Greece. Today, an American Eagle commuter jet was held on the runway in Toledo, OH, due to a bomb threat. And crude is up for the first time in days, a whole... Two Percent? Not bad, but eighteen months ago we would have seen a frightening spike in oil prices on a day like today; those days are over. All it takes, it might seem, is some unusually warm winter weather in the vicinity of the NYMEX. But warm weather doesn't erode fear, and the fear is clearly gone.

The last time I rode a dog all the way down was during the tech crash; it is now quite out of character for me to hold this big of a loser this long. One of crude oil's last lines of technical support exists at the 200 Week Moving Average, which is currently around $50. If crude crashes through this, I will take my loss, and make note of my lesson. And, of course, re-buy oil the instant the cannons begin to fire upon Iran.

Unnecessary Disclosure: I am currently long USO.

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Thursday, January 11, 2007

Subprimes are Up

After trending generally lower since my last mention of them, subprime lenders New Century Financial (NEW) and Accredited Home Lenders (LEND) are up sharply today - roughly 5% at the time of publishing. NEW started its ascent on Tuesday, while LEND had been down until today.

No news on the major wires, but I did find this Piper Jaffray release dated January 10, 2007. From "Mortgage Outlook: Only Strong Survive; Environment Should Improve by End '07" by Robert P. Napoli:

"Although industry wide subprime credit statistics will deteriorate, credit trends tend to vary greatly from company to company in the subprime space. The charts below display the static pool delinquency data on securitizations of Accredited Home Lenders (LEND: Market Perform), New Century (NEW: Market Perform), and NovaStar Financial (NFI). Historically, LEND's delinquencies have run significantly lower than the subprime industry average. NEW's delinquency data has been improving with the more recent vintages. We believe that NEW has become a more rationale player over the past year and 'got religion' after a scare in August/September of '05 on narrow spreads on aggressive loan types. Very recently, NEW has also adopted even tighter underwriting standards in response to weakening credit trends and the interagency lending guidelines. We believe that both LEND and NEW will be survivors of the subprime shake-out, for several reasons including the lowest cost to originate, larger capital bases, longer corporate history, better underwriting and collections capabilities and, in part, because they have adjusted their underwriting in response to weakening subprime credit."

The report also mentions that Piper Jaffray is lowering it price targets on both securities, but maintaining coverage due to their survivor instincts.

Not sure if a Kind Word from an under-read analyst was enough to set these in motion. Regardless, their both still incredibly cheap, with Forward P/E Ratio's under 7.

Unnecessary Disclosure: I currently have no positions in the securities mentioned above.

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