Gary Kramer

Why Yesterday's Optimism Wasn't Warranted

"so your point is don't trust NY Times?"

I used the NY Times as a source because evryone knows who they are, and their stories are normally factually correct. You are welcome to Google other sources for the dates above and pick your favorite source - they all say pretty much the same thing, and they all quote pretty much the same sources.

As I've said over and over - I don't know what prices will be next week or next month - but financial stocks (and the broad market) are not at the bottom yet. My best guess (and it's only a guess) is that we won't see a true bottom until late this year at the earliest.

As long as stocks skyrocket when more losses are taken, we're not at the botton. It'll take one or two quarters of no writedowns before people will trust the statements made by the financial sector.

They've lied for the past 6 months about the extent of the potential and real losses, so they've cried wolf too many times. At some point these lies will be reflected in stock prices. When the "forward looking statements" start to match the actual quarterly results, I'll move back into the market.

Until then, I'm looking at bear market rally's just like 2001 through 2003.

Of course I'm not a pro at this, and I don't know what's going to happen - but my money is 90% in cash at this point. I may be right about the stock market, and I may be wrong - but I'm not going to sit by and watch my portfolio lose 50% like so many people did from 2000 through 2003.

As Will Rogers once said "I'm more interested in the return OF my investment than I am the return ON my investment."

But there are two sides to every trade.... Which side are you betting on?

gk

Why Yesterday's Optimism Wasn't Warranted

"I don't understand all of the worry about resets on the 2005-2007 vintage of hybrid mortgage paper. Most of the teasers are at 150 - 200 b.p. Because of Fed easings, LIBOR has moved down 300 b.p. Most of the resets will be LOWER, not higher in rate yet people keep bringing up resets as a negative. DO YOUR HOMEWORK."

I've done my homework - do yours....

I have a brother who took out a 3/1 Option ARM in 2005 (I told him not to do it) at a 3.785% rate. He put 5% down. His mortgage will be resetting in August, and his payments will almost double when his loan resets - because he's been paying the minimum.

He will not be able to keep the house, and he is NOT alone. The headlines are full of people like him (read a post from last week at
www.effor.com/blog/ind...
who will owe more than their house is worth. He will default on his loan - alond with thousands of others.

Your argurment would be correct if we were talking about people who took out traditional ARM's, but millions didn't. Interest only and Option ARM's made up close to half of all mortgages in 2005 through the first half of 2007. The majority of these home squatters will default when rates reset.

Do your homework.

Any questions?
gk