Top Execs Bail-Out At Countrywide
The insider selling continues at Countrywide Financial, where the executives have liquidated 72% of their position. A scan of the individual transactions reveals the sell-off has accelerated.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole. ATTENTION: Backup Blog at: http://thehousingbubble2.blogspot.com/
Monday, May 23, 2005
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20 Comments:
Heh, heh, heh.
I used to live in Thousand Oaks, CA where Countrywide is headquartered.
There used to be a decent amount of electronics technology companies in that area.
As the tech boom busted, we would see tech company signs replaced with "countrywide" signs as they annexed building after building for rapidly expanding sales......they must be in more than 20 office buildings in TO now!
Soon the buildings will all be empty.
(The insider selling continues at Countrywide Financial, where the executives have liquidated 72% of their position.)
That's bullish. More juicy stock for you and me!
(they must be in more than 20 office buildings in TO now!)
What a crap industry to have dominate your town! Low-wage paper pushing or telemarketing. They could outsource 90% to India. At least you still have Amgen, a company that actually creates something useful. Look forward to seeing these mortgage snakes circle the bowl. Useless middlemen who take their cut and provide nothing in return.
Is that a 'head-and-shoulders' pattern I see on the Country Wide
stock chart? This pattern usually fore tells a serious drop coming (but sometimes a serious uptick if you're at a low, which isn't the case here).
I've also noticed this pattern on some copper charts. 'Dr Copper' never lies. Copper is used in many places in housing manufacturing (pipes/electrical).
Can any of you tea leave (Elliot Wave) reading dudes
tell me if what I think I see is correct? And can you elaborate on the predicted time to finish the last shoulder of the pattern? It looks to me like 3 more months ... but what do I know, I'm a rookie.
be careful relying on yahoo, as the 72% figure is not really accurate.
according to its 2005 proxy, countrywide's directors & officers held about 4.5 million shares and more than 22 million currently exerciseable options (they also held at least 10 million additional unexercisable options -- the specific amount is not required to be disclosed).
the sales of 3.1 mm shares over the past six months represents about 12% of their total position excluding unexercisable options and less than 8.5% of their overall position including currently unexercisable options.
i agree that these sales are not a bullish sign (one director in particular has liquidated a substantial portion of his holdings), but it is not as scandalous as a 72% sell down. based on the strike price, it also looks like these options were probably granted about 10 years ago and accordingly were about to expire (which explains the decision to exercise the option, though not the decision to sell the shares received).
by my Elliott wave count Countrywide and copper both have at least one more high left in them before 5 waves up are complete. These recent declines are wave 4 pullbacks.
(by my Elliott wave count Countrywide and copper both have at least one more high left)
I agree. Looks like CFC is going higher as are all of the homebubblers, REITS and related companies. Some of the homebubblers and REITs have already made new all-time highs over the past few days. Here we go again. You can't kill them, they only get stronger.
Most of these stocks have huge short interest which propels them like a rocketship when the market turns up.
My best guess all along has been to wait until Sept or late Aug. I think the housing complex has one more good earnings period left (reporting July-Aug) but the comps get tougher in Oct-Nov and the market should begin discounting a housing turndown before fall earnings. But we could see a wicked blowoff in these stocks by the summer. That's how these things usually end, with a bang not a whimper.
Another poster pointed out that the homebuilder stocks could have another good quarter before the comps get tough. He goes on to say these things go out with a bang, not a whimper.
I could not agree more. I was around in 2000 when the tech stocks blew up. Prior to them blowing up, people saw the writing on the wall and shorted them. Then they were forced to cover when the stocks went higher. Then a new group came in and shorted them and they went up exponentially b/c you had companies with $1 bln mkt caps that had the same revs as your local 7-11. This cycle went on until all the shorts got blown out, THEN the bad news hit MSTR and the stock went from around 300 to 80 overnight.
All you folks who think the housing market is going to implode one day in the current environment are barking up the wrong tree. It will take a macro economic event on a large scale or an adverse movement in rates that blows the speculators out. I don't think we're there yet.
5:59:
I would like to add that Dubya has been making some promises to the Housing/RE industry that sounds like his administration has every intent on keeping the Bubble going until the 2006 election. That way if Dubya can keep one of the houses of Congress he is unlikely to get impeached over Iraq.
The question is can they keep it together.
5:59 anon,
What specific promises to homebuilders?
If the current President is driving this global housing market bubble, wow. He sure has massive powers, even over stuff that started before he took office.
Stay a while and read up on what's really causing the housing bubble.
The last thing I want is the government to try to "fix" the housing market and try to make it work for new buyers. Their usual brilliant solutions involve making dangerous big loans even easier for low-income people, or throwing tax money at them, which just fuels the fire more. Fannie Mae is putting out guidelines for its new 40-year mortgage coming out June 1. I am appalled at the idea of a 40-year mortgage.
Deb
Australias boom has hardly gone "bust"
Australians have a government which believes real estate is productive. There are significant first home owners grants and tax relief for investors.
Softening in the market has been mainly in the apartment area.
A bust wont happen unless economic conditions worsen. This may happen if you guys go bust. If the USA feels less wealthy and cant do more refis less Chinese stuff will be bought so the chinese will want less of our resources so we will go bust and so will our real estate. A dramatic price drop is unlikeley as government will intervene mightily to try and prevent it. It will deflate and go sideways.
One option all governments have is simply to let inflation run out of housing into everything else so those who still have jobs can get a high CPI based payrise with the effect that after 2 or so years when wages have accelerated 30% houses will become affordable. This techniquw has been used before but could be moderated today by globalisation pressures.
??
Closehaul said ...
The 40 year mortgage may give the housing market some time ... but even the 100 year mortgage didn't save Japan.
Ok now I'm downright frightened. I went to my mailbox today and in it was the following... two postcards from local realtors wanting to help me sell my house AND a big pink letter from a mortgage company for a "Freedom Mortgage."
Here's my favorite line
"If interest rates rise and values begin to soften, prior to your reservation or activation, this program will immedietly become null and void."
Im pretty certain that rates will hover at this levels for a long time, but i am also certain that a mild recession is on the way...too bad it will be mild and not sharp enough to pop it!
7:26 Anon, do not overestimate the power of a government. There have been a lot of crashes in the US and abroad and the government could not do a thing to prevent them.
The financial industry has become more sophisticated. But this only increases the connectedness of the financial world, making fiscal/monetary policies less effective.
On the other hand, do not underestimate the behavioral aspect of the problem. When crowd psychology changes, it is beyond control. There are increasing signs of such changes. The bubble theory is becoming the prevaling point of view.
10:18 Anon, it does not take a recession of more rate hikes to pop this bubble. Such events will accelerate the process but the economy is a system of individuals, and individuals are most influenced by greed and fear.
When the expected appreciation does not materialize, greed will turn into disappointment. Disappointment will turn into anxiety. Finally, when fear reigns, the bubble will pop.
The 40 year mortgage may give the housing market some time ... but even the 100 year mortgage didn't save Japan.
It is very interesting to see how little the monthly payment changes between a 30-year and a 40-year mortgage. For example:
$400,000 mortgage
6% interest
30 year mortgage:
$2398.20/month
$863,352 total cost
40 year mortgage:
$2200.85/month
$1,056,410 total cost
Difference in monthly payment: 9%
Difference in total cost: 22%
"after 2 or so years when wages have accelerated 30% houses will become affordable."
The globalisation effect you mentioned will make sure this doesn't happen. Real wages are going DOWN and are now about 1997 levels. And why not? After all, the much-promised high-paying tech jobs never materialized after we sent all of our manufacturing and call center tech jobs to India and China. Now, China and India are doing the R&D as well because there supposedly aren't enough engineers in the US.
The main thing you're missing in your analysis is the amount of cash-out refi that is going on in the US (don't know if Australia is experiecing this as well.) EVERYBODY I know has their next refi planned out and some people have their next three refi's planned!! Even one year of flat house prices spells big trouble for the house-atm machine. This will lead to mass bankruptcies and will shoot a hole in the entire retail sector of the economy. RE is the gas that makes the entire economy go.
Because CA is now showing significant RE sales volume reductions, median price reductions are just around the corner and all of the above will happen soon thereafter.
Looking back on this several years from now, one could make the argument that a severe recession was the trigger that caused the RE bust of 2005-2006, but is that really what is going on? More likely is a changing RE market causing a recession followed by more RE reductions in a self-actualizing downward spiral. RE IS ITS OWN TRIGGER.
"Difference in monthly payment: 9%
Difference in total cost: 22%"
The payment is all that matters, ask any car salesman.
"7:26 Anon, do not overestimate the power of a government. There have been a lot of crashes in the US and abroad and the government could not do a thing to prevent them."
Well, they sure do alot to bring about the problems to begin with. The government's easy money policies, failure to properly oversee the GSE's, and unwillingness to publicly dispute their implicit government backing are the direct cause of the bubble to begin with. What the bozos in DC never realize is that their meddling continually introduces moral hazards into the markets. It's like the "Greenspan Put". Bail-out investors often enough and stand back and watch with amazement at the foolish things that follow. It seems pretty obvious to me, but then I'm not a PhD in Economics from an Ivy League school.
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