Option watcher

E*Trade: Primed To Turn Around?

Not to fire everyone up again but, no matter how you slice it the loss was still twice what was anticipated. The stock should have dropped or at best stayed flat. Of course management is going to paint a rosy picture. They have to give some hope with an earnings report like that. They are losing money period. What happens when they run out of corporate assets to sell off? What happens as their mortgage portfolio faces increasing defaults and they are forced to foreclose. What many people don't seem to realize is that ALL the financial firms are hiding much more damage then they are revealing.

The first write down comes when the mortgage becomes non performing because people stop paying. They still get to show the note as an asset even though it is not being paid back. The real pain comes after they foreclose and put the property out to auction. This is not being done yet on any reasonable scale. They are resisting initiating large scale foreclosures because they do not want to book those losses. Problem is the longer they wait the further property values decline and the greater the total loss will be.

That is the pain that is yet to come to ETrade and everyone else. I personally know of several home owners that can no longer afford their mortgages because of rate resets. They can't sell because the value has dropped too much. All have stopped making payments for more than 10 months now. Know what the best part is? They have not even been contacted yet by the lien holders!! This is a more common occurrence than is being let on.

Yes, ETrade might be a long term buy, but not now after this unjustified run up on worse than expected earnings. Investors are scared and desperate right now and even the slightest glimmer of hope has them throwing money in that direction. If the company had not given that glimmer of hope those earnings would have sent the stock back down to $2 or worse.

Here is another rub for you. This was an exceptional week for the DOW. Up over 500 points. I expect a significant reversal next week. I also expect that over the weekend as their excitement wears off the stock will drop back down anyway. Get ready for the analysts to downgrade them again because of their earnings and worse than expected mortgage performance. But, hey don't worry about it. If the stock drops low enough you can either short on the bankruptcy rumors that will fly or buy on the takeover ones.