Jim Cramer's Stop Trading!, 2/28/08: iPods, iPhones and Ivan 9 comments
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Recap of Jim Cramer’s comments on Stop Trading! Thursday February 28. Click on a stock ticker for more analysis:
AT &T (T), Sprint (S), Verizon (VZ), Apple (AAPL): Cramer thinks the $600 rebate will go to buying ipods as well as iphones, and sees an upside for AAPL. “After Sprint implodes, it’s iPhone and Ivan (Seidenberg, CEO of Verizon).” Cramer also likes AT &T.
Thornburg (TMA): Cramer is bullish on Thornburg preferred (TMA-PF) and praised CEO Larry Goldstone who is a responsible lender and who could explain to Ben Bernanke the ins and outs of the market; “He's been dead right every time he's come on your show. That's who congress should listen to! The market's not taking care of itself... I love (Sam) Zell, but Larry's closer to the situation.’
Fluor (FLR), Citrix (CTXS), Apple (AAPL): Cramer commented on FLR’s “blowout quarter” and said stocks like CTXS and Apple,up $8 aren’t doing that badly.
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This article has 9 comments:
A hyper inflated price tag in a weak dollar economy with increasing inflation.
I would guess that AAPL is going to much more worthless than it already is in 20 years.
Do you remember the SONY Walkman? The ones that paid cassettes? Now that was one cool thing when they first came out. I would sooner have one of the old metal cased ones than an iPod, or an iPhone. Probably be worth more in 20 years too.
Apple is a much more innovative company and are certainly not tied exclusively to the iPod or even the iPhone. Their business model has a much longer range in terms of its scope as it includes a hardware and software component across different classes of products including business and consumer. Furthermore, their new and unique (not to mention very usable products) are an exciting preview of what is to come while also at the same time continuing to demonstrate the ingenuity of this company.
The iPod business, I think, is maturing for the company. However, it has apparently played a part in winning people over to the much more meaningful mac computers, where the real magic of Apple's products lie. I myself have talked to a host of people who, after buying the iPod, have purchased either a mac notebook or desktop computer because they were so impressed by how simple and easy to use their iPod was. Furthermore, I believe the iPhone is part of the aforementioned business plan of Apple to transition the iPod devices to higher-end mini-computers/interne... browsers.
Clearly, then, I do not think that the iPod or iPhone are the sole long-term components of Apple. Because the company is far more diverse in their offerings, their business plan is far more stable than one that relies mainly on one individual product.
THORNBURG - THE MARKET HAS GOT IT WRONG...AGAIN!
General consensus is that Thornburg Mortgage is the Gold Standard in mortgage lending and carries very little credit risk. Being in the mortgage industry for 20-years, I can tell you without a shadow of a doubt, that assumption is false
First off, we know that Thornburg primarily holds Interest Only Hybrid Intermediate-term ARMs with the majority in CA and FL. That should be enough to prove risk. However, below I have listed items from their recent 10q, page 39, which proves the point.
Banks and lenders love looking at 'averages' or 'median', because things look better of course. However, when you break their portfolio down line by line it is evident they own Billions in high-risk ALT-A loans that cannot be sold for any amount of money. Even if there was a functioning mortgage secondary market, old vintage hybrid interest only ARMs, much if it stated income, would not carry much value.
The facts are TMA is sitting on a portfolio of $36 Billion, that has a street value of much less. While these loans are spinning off payments currently, it does not change the fact that one decent margin call from one warehouser renders them insolvent. In an interview a couple of months back, Larry Goldstone mentioned they had relationships with 13 warehousers.
TMA has set aside the lowest loan loss reserves in the industry. To raise the amount of money to cover a margin call of any substance, the damage to shareholder equity would be tremendous, as they cannot sell loan assets to raise money. In my opinion, the only reason TMA has not experienced a mortal margin call is because the warehousers do not want this paper back on their books due to the mark to market consequences.
NEGATIVE EQUITY
We are learning very quickly that 'negative equity' is a leading cause of loan default, even greater than periodic ARM adjustments. This phenomenon cuts across all socio-economic boundaries and FICO scores. As a matter of fact, those with the most to lose may default the fastest. For example a person with a 750 score and $200k in the bank who is able to make a move and spare himself the losses of paying into a massively devaluating assets, may do so faster than the subprime borrower who must fight for the home simply because they need a roof over their head. The subprime borrower may have no other options such as to rent due to lack of money and credit. A recent Boston Fed study confirmed the 'negative equity effect'. www.bos.frb.org/econom...
In CA, we are seeing a very troubling trend of strong 'a' paper borrowers, buying a new home at a great price and letting their present home go into default due to negative equity. If you look at the numbers below, it is obvious that Thornburg is sitting in a great deal of negative equity in their pool of 40k loans.
Thornburg's default rate may be look good now, but chances are great it will begin to grow sharply as housing prices fall. Due to the fact that the Jumbo home loan market has virtually disappeared, stated income loans are all but gone, affordable loans are gone, and values are down, a large percentage of their portfolio cannot refinance. A short pay for a sale transaction is an option, but that results in a loss for TMA. Much of their 40k loans in their portfolio will be with them for a long time, increasing default risk substantially.
The new Fannie/Freddie limits being raised may help slightly for new business but it will not help their existing portfolio because the majority of TMA's loans were funded or acquired prior to July 2007. Only loans funded after July 2007 are eligible for purchase by the Agencies. The 'caps' being raised today that the market took as such good news was procedural and necessary to enable the Agencies to do jumbo loans and to buy closed loans back to July 2007, so this was old news. They had to raise the caps to do jumbo loans.
But aside from what the default rate does in the future, the facts remain that TMA sits on $36 Billion in DEBT on loans worth $18 Billion or less on a great day in the mortgage capital markets, which has not been seen in months. Many of their borrowers cannot refi or sell. They sit on a substantial number of homes in a risky negative equity position. Even if the capital markets improved what will the appetite be for old vintage stated income, interest only ARMs in CA and FL? Not much, if you ask this veteran.
FROM THE MOST RECENT 10Q, PAGE 39
(NOTE - both, hybrid intermediate-term ARMs and Pay Option ARMs are classified as ALT-A in most cases. Especially when they are STATED INCOME, which consists of 42.2% of their portfolio.)
-83.5% ($29 billion) of their portfolio in HYBRID INTERMEDIATE-TERM ARMS, primarily 5/1 and 10/1, which allows a low introductory TEASER RATES, mostly interest only for either 5 or 10 years respectively.
-16.5% ($6 billion) in traditional ARMs. Judging by the indices used of 1 month LIBOR, 6 month LIBOR, MTA and 'OTHER ($1.9 Billion), much of this could be PAY OPTION ARMs, which are worthless and currently not selling for any amount of money on the secondary market.
-42.2% of their portfolio are STATED INCOME . Stated income loans have virtually disappeared for anyone that is not self-employed. In the time that TMA acquired their portfolio, stated income was allowed for w-2 employees.
-43.6% are in CA. 7.2% in FL. 50.8% of their loans are in the worst two states in the nation for price depreciation.
-15.3% are Condos. Condo's are considered a risky property type.
-18.5% are second/vacation homes. 11.1% are Non-owner occupied. (both are very risky compared to owner occupied)
-48.1% have an ORIGINAL effective loan-to-value of between 70-80%. Recent studies show that at least 50% of all ARM holders have added a second mortgage over the past 3-years bring their effective CLTV much higher. Factor in a sharp value fall in CA and FL and much of TMA's portfolio is in a NEGATIVE EQUITY situation. A recent Boston Fed study released says 'negative equity is a leading contributor to loan default, even greater than periodic ARM adjustments.'
Sincerely,
Mr. Mortgage