Quaker

Bank of America: Countrywide’s White Knight

What would Buffets return have been if you took out his 700% gain in PetroChina?

The CFC investment is being misinterpreted by the same yahoo's who've been talking up mortgage banks for a year now. CFC is a $5 stock waiting to happen.

Explain to me how CFC makes money borrowing at a 21% premium and a 7.5% rate and lending at 6.8%, the current rate for a 30 year mortgage? This is an effective 9.4% rate. Are they making subprime snowmobile loans?

CFC's investment was for one reason. This quarters losses will probably put them in technical default on their loan covenants.

CFC has $464 million in amortized interest. Amortized interest DOUBLED year over year. That means it has 7 billion in ARMS that aren't making principle OR INTEREST payments in an environment of rapidly falling home prices, an illiquid housing markets. All this and ARMS have JUST STARTES resetting!

Between 2005 and 2006, CFC amortized 464 million in interest and dropped depreciation 2 billion and STILL only earned 145 million more than the prior year.

Next year, CFC won't have loans that are bad, they'll have reposessed homes they can't sell. People today still think collateral is a good thing. That idea won't last.

Rate Cut Brightens Outlook for Financial Shares -- Barron's

The problem with economists is that they are incapable of the kind of three dimensional thinking that's, frankly, quite common in natural sciences. This is largely due to the spread sheet nature of their analysis.

That being said, I get a real kick out of this fed rate cut fantasia that sent trend traders into the stratosphere last week. For the record, the fed could take rates to zero and it wouldn't help the housing market long term. CFC's "growth" these last three years has been comical. Collosal increases in assets and liabilities and a paltry increase in equity, most of which is pissed away in dividends and share buybacks are hardly going to be fixed by minor cuts in rates.

The biggest problem America faces is that we're headed for "regime change". The old paradigm of steadily increasing debt fueled expansion is over. The credit, oil, currency and commodity markets simply cannot support any more deficit/debt spending. The American consumer, the great garbage disposal of world production, that has led to ridiculous expansion of Asian manufacturing capacity HAS to become a saver. Mortgages amortizations have to fit the LIFE OF THE AMORTIZEE. I have a client that 65 and has
THREE mortgages all over 10 years.

Look at the Japanese model for guidance. Asset inflation is not a substitute for real earnings long term. A 65 year old with $500,000 in his IRA and three mortgages is in a race against time. Like Japan, America will have to undergo YEARS of negative gdp to right the ship. Assets HAVE to drop as the economy deleavers.

Cash is king.