THE COMING MORTGAGE FREEZE
The coming winter months and the freezes which accompany them, are nothing compared to the cold freeze that may come out of the White House and its meetings with major lenders in the next few days. Taking a monumental step between the free market and its destiny, the federal government appears to have the “fix” for our mortgage crisis. The headlines make it quite clear that while lenders are being encouraged to work with distressed homeowners, the reality is that the political pressure to mandate a solution is now fierce. One Money Manager accurately pointed out how such meddling actually prolonged the Great Depression. And we don’t believe anything is really quite that depressing yet. Lest our esteemed Washington elite forget, lenders are incentivized through the free market to work with distressed homeowners when it makes good business sense to do so. To act out of sheer political panic and pre-election propoganda, is just poor pollicy.
We aren’t saying that there isn’t a problem But we are advocating less governmental involvement and more attention to real concerns that continue to plague this economy. Specifically on our list of serious market concerns are the accounting standards that have little to do with reality and the flexibility to make earnings whatever companies and analysts wish them to be. Just ask bankers in London how they feel about our accounting standards and our regulatory reporting requirements. They love them! And our capital formation process continues to suffer domestically because of these continued disparities in standards between the international community and our own.
The market reclaimed all of its losses over the last two trading sessions today, amidst strong economic reports primarily led by non-farm business productivity swelling to a 4-year high. Between this data, and the all-but-CNBC-guaranteed 50 basis point rate cut on the horizon, investors feel we have past more than just the “hump” in our work week.
We were quite pleased by the recent surge in shares of AIG, as it continues to be a very strong recommendation from Ockham. Naturally, we have great concerns about how management will manage through the current crisis. However, it is our belief, that management will do just that… manage.
Continuing Caution With Optimism
Amazing what a few days can do for the market, isn’t it? With a 4.5% increase in the S&P 500 at its heels, the market was poised this morning to open a little lower. The pundits are all now yelling either “Dead Cat” or “rally”. We would say we don’t feel quite that optimistic, but we are more positive than many others yelling recession at this point.
Looking at the overall market, the subprime mess is still at the forefront of discussions. However, as we told our clients, you are beginning to hear the rumors that some of this debt is not as odious as was believed. This is hopefully the case, and may be signaling a more rational look at what is truly lurking inside these debt portfolios. From our perspective, last week’s rally was well timed for our “Buy” rated securities setting a new 12 month high. However, as we warned last week, we expect to see our percentage of “Buy” ratings rise to a much higher level (yes, even higher than last week’s 55% of total ratings portfolio) before we really see the optimal buying opportunity.
So our direction is still cautious optimism. This week our percentage of “buy” ratings dropped to about 37%, which takes into account the run up in some of the names we had just recommended the week prior. For many of those stocks, they are now back to a “hold” rating in our Ockham Reports. To be clear, we aren’t at all market timers nor do we advocate such short holding periods. Generally, Ockham Research attempts to identify undervalued securities which have a high likelihood of successful appreciation. The problem is, in such a volatile market, that appreciation and correction can happen in the blink of an eye.
admin @ December 5, 2007