Miracle: Bush To Part The Bankrupt Sea

If the today’s economic story can be related to bible story, it would have to be the one where Moses parted the Red Sea. Back then, Pharohs’s soldiers were chasing the Jews towards a dead end represented by the Red Sea. Then, after much hoping and praying, a miracle occurred. The Sea was parted and the Jews passed safely. Then, the soldiers were swallowed up and drowned as the sea closed around them.

Bush is now helping individuals who were moving towards a dead end by aiding financial companies that are closing in on the Bankrupt Sea. In this circumstance, the soldiers that will drown this time are investors and hedge funds that went short on the homebuilders, banks and markets.

The flood that will kill them will be in the form of a short-covering rally initiated by several key economic results as well as the realization that there will be a governmental bailout if necessary.

According to news sources:

The President on Friday is to talk about several initiatives and reforms to help homeowners with risky mortgages keep their homes, a senior administration official said Thursday. Bush also is to discuss efforts to prevent these kinds of problems from arising in the future.

Bush also planned to:

—Urge Congress to pass Federal Housing Administration overhaul legislation that would give the FHA more flexibility in assisting mortgage holders with subprime mortgages.

—Pledge to work with Congress to reform the tax code to help troubled borrowers rework their loans.

Companies such as Countrywide (CFC), Bank of America (BAC), Toll Brothers (TOL), Beazer Homes (BZH), Bear Stearns (BSC), Lehman (LEH), Goldman Sachs (GSC) and the entire financial sector will surely get a huge lift from this move and short-covering.

What will get hurt? Nothing that we can think of. This is a good move by our government - unless Bush does something really odd during his speech later today or Bernanke usurps President Moses Bush with comments that are at less than positive and supportive.

President Bush will speak at 11am and Fed Chief Bernanke will speak at 10am today.

Disclosure: Horowitz & Company clients hold positions in some of the stocks mentioned in this article.

Comments

[Al Rob:]

Thanks for the summarizing the news but your article adds no value. I hope for your investors sake that your thesis for holding CFC BAC BSC TOL and BZH is based on more than some vague prediction of short covering rally.

2007 Aug 31 11:33 AM

[dapurcell:]

so its "No Flipper Left Behind" now? that would be the only piece of policy to make it through a truculent congress in what is left of GWB's term..

2007 Aug 31 11:45 AM

[Joe Mobile:]

How is this going to save us from a substantial economic slowdown? The consumer is 2/3 of the economy and without any asset bubble to tap, spending will grind to a halt. You think the FHA will turn the housing market around on a dime? I'm shorting more today...

2007 Aug 31 01:53 PM

[ari5000:]

"What will get hurt? Nothing that we can think of. "

Other than honest taxpayers, the U.S. dollar, the continuation of a bubble, oh, and the green light for people with big payments to stop paying and wait for a handout, yes -- nobody gets hurt.

Who do you work for, Countrywide?

2007 Aug 31 01:56 PM

[Uncle Bill:]

Good comment, Al Rob. How could the editors let this bit of nothing on the site? Tuesday would have been a good day to establish buy/writes on those stocks you mentioned. Where were you then? Check me at impliedrisk.blogspot.c... for timely, useful commentary. Plus, you were wrong. Countrywide (CFC) barely budged. Too late too sell any high-cost premium. Thanks.

2007 Aug 31 02:16 PM

[BillCust:]

So assuming 150k loan balance, about 80k people will be 12 Billion US$ of new mortgages per annum. The troubled portion of the subprime (with high LTV and at least 50% payment increase) within a year is 500 Billion US$.

Plus the usual finelining like no 95LTV for this and that borrower, definitely only owner occ- and primary home, etc will be enough to just guarantee that less than the meager $12 B "bailout" will be deployable. Plus the other filter that they're likely to use: geography , loan limit, and income, which will cut out the FL, CA, NV, MA, and AZ loans making up 90+% of the blowups right now.

This Horowitz guy isn't looking out for his investors.

2007 Aug 31 02:52 PM

[Rocktex:]

Please read in the between.
What will get hurt? HA, HA, HA......
What GWB or Ben said? Remind me what Bradley said when LA riot broke out. Back then, Mayor Tom Bradley said: "Give all the tenant a 3 month rent-free break! all the landlords, please." But who gave the landlords 3 month mortage-free? I don't know. Well, It seems no body get hurt and we put it behind, Really.

2007 Aug 31 03:52 PM

[HARM:]

<i>What will get hurt? Nothing that we can think of.</i>

Riiight. Just savers, taxpayers and people who DIDN'T participate in this enormous Ponzi scheme of a housing bubble. Other than that, it's totally cool.

Here's a nice thought to ponder:

<i>“Democracy is an upside-down homeowner, a mortgage investor, and a tax-paying renter, voting on what’s for dinner.”</i>

2007 Aug 31 04:51 PM

[Malkiel:]

Every public promise or commitment ever made by this president has turned out to be rhetoric for effect with no follow-through. Expect the White House to take no concrete administrative or legislative action to actually effect the proposals. We will probably not be able to trace the inaction until the first ARMS rollover foreclosure waves begin in a couple of months, by which time people will have forgotten that Bush even said anything. This president is the most relentlessly incompetent chief executive imaginable and Wall Streeters should know that by now...

2007 Aug 31 06:17 PM

[Bob K.:]

Malkiel, you don't really want the government to intervene do you? Your suggestion is what exactly? BTW, All of the Washington banter is designed to stymie the shorts and buy time until they determine if we walk away from the credit implosion edge.

2007 Aug 31 06:30 PM

[SouthPaw:]

The road to Hell is paved with good intentions. There are a million reasons why those who gambled on the housing bubble and lost should suffer the consequences.

2007 Aug 31 06:50 PM

[ZekeY:]

Don't you mean save the big banks and wall street? All this does is ensure that a bunch of middle class people are stuck with a whopping loan that is more than the house they bought with it (which is going to continue to drop in value). Nothing has been solved... all that has happened is that the banks are ensured a payment. This just delays the inevitable.

2007 Aug 31 07:16 PM

[ZekeY:]

Don't you mean save the big banks and wall street? All this does is ensure that a bunch of middle class people are stuck with a whopping loan that is more than the house they bought with it (which is going to continue to drop in value). Nothing has been solved... all that has happened is that the banks are ensured a payment. This just delays the inevitable.

2007 Aug 31 07:16 PM

[Kilo:]

These companies deserve the losses. And when they realize them, my only hope is that there will be less mortgage advertisements on the web asking me to select my state from the thorax of a caterpillar and promising $500/mo. for a $300K mortgage.

2007 Aug 31 09:18 PM

[al-shaf:]

Your basic thesis is correct. The sub-prime mess will NOT be allowed to derail the economy. I don't see how shorts will get any sleep when they know they could wake up to a 50 basis point cut in the morning...

2007 Sep 01 11:57 AM

[gordon:]

I'm waiting to see if they allow refis/cash out loans, those rich non-primary residence loans who sucked all the cash out,to use the system and avoid all IRS income on that money! Meanwhile, here's info you can use, unlike this drivel.
www.financialsense.com...

2007 Sep 01 12:31 PM

[Andrew Hor...:]

The line "What will get hurt", was written to mean at the time the speech was made, not long term. It was a comment about the day and the trading around the speech. Also it was WHAT, N O T WHO! We all know that the average JOE is going to get hurt here as SH*T flows down, as usual. If you have been following anything that I have been writing, I have been calling for a major economic problem since mid JULY. SEARCH for SINKHOLE and you will see how much I think can go wrong.

Comment are brutal these days, but it was the same when I was suggesting shorting at the top of my lungs in July and AUG. Comments were telling me that I was an idiot and the market was set to take off. It was a SWEET cover I can tell you that.

Be careful not to be investing and think with the herd.

One more thing.... I wrote the original VERY early Friday morning and posted on my site... before the speeches. S/A picked it up much later, so ease up on it gang..It was timely when written..Glad to have stirred it up though, good for some good provocative thought.. Well, at least some thought.

2007 Sep 01 02:40 PM