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Redwood Trust, Inc. Message Board

  • OptsyEagle OptsyEagle Jan 11, 2008 10:54 AM Flag

    At the Risk of Sounding Optimistic

    I wouldn't want to appear optimistic here but wouldn't one think that if a company like Bank of America was buying a company like Countywide Financial for $4 Billion and taking on all of their liabilities, that perhaps the visibility in the credit markets is starting to improve. Currently you see 3rd Avenue Investments (and many others) taking big stakes in MBIA, you have Berkshire Hathaway disclosing that they are starting to kick the tires on MBIA and ABK.

    I am not saying that big write offs are not coming. What I am saying is that it would appear that at least to the players that understand this market, the capital markets have overdone it on the downside, once again, in pricing the assets that represent the financial sector and of course they are buying.

    With this in mind, should we really be selling? That is my question.

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    • First Citi, then Merrill, and the whole market tanked and tanked again while RWT closed essentially unchanged. Tomorrow BAC reports. If RWT survives any BAC unpleasantness, then we may actually have a bottom of sorts. Of course, RWT has their own earnings to announce.

    • Bill Miller was buying homebuilders in masse beginning in the middle of '06. They continued to fall another 50%.

      It was the biggest credit bubble in history. It seems naive to think the banks/investment banks will have the mess cleaned up in 2 quarters. Every other industry that has created too much capacity goes through a cleansing period where they take impairments/writedowns every quarter over 2-3 years. Tech/telecom in the late 90s; housing from 2004-07. Now credit with the banks/investment banks.

      I think the banks/investment banks will still be taking writeoffs a year from now. And given the size of the writeoffs, I'd expect them to be EXTREMELY cautious and risk averse in any new assets they put on the books, which is going to hurt economic activity.

      Hate to sound so bearish, but I'm just applying lessons I've learned over the past few years.

    • I agree. So do several sovereign wealth funds, who speak a lot louder. Like in $billions!

      The day CNBC broke the BAC/Countrywide story, Jim Cramer devoted the first segment of his show to financials, concluding with the statement "The bottom is in." Whether you like him or not, Cramer knows the market.

      Next week, we'll see the beginning of earnings season. If stocks like Citigroup actually go up after they announce another $20B plus in write-offs and cut their dividend, maybe that will be a sign that Cramer is correct.

 
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