Housing Back On The Front Burner

by Larry Levin

Today's bad news couldn't stop the left-over enthusiasm of yesterday's rally. Regardless of the Freddie Mac (FRE) results, the low volume rally continued.

You all know how I feel about Wall Street analysts - right? Well, they did it again. Freddie Mac posted a second-quarter loss that was so MASSIVE it was actually more than three-times larger than what Wall Street expected. Apparently Wall Street thinks a few bad quarters and all the monsters go back in their closets. Umm, no. A huge number of FRE borrowers, even those with good credit, fell behind on their exotic and risky mortgages.

Shareholders were crushed - again - when the news of the $821,000,000.00 2nd-quarter loss hit the tape, sending shares down 19.3%.

Remember when the so-called experts said the potential housing dilemma was no big deal because sub-prime was such a small piece of the pie? I sure do. Do you remember when all the so-called experts said there was little chance the disease would spread to Alt-A loans, and said there was no way it would spread to prime loans? I sure do. However, knowing that these Frankenstein-Investments were used as collateral for more and more loans for more and more speculation - on HOUSING - I knew the disease was terminal.

The fact of the matter is that these Alt-A loans make up a small 10% of Freddie's portfolio, but accounted for more than half of the company's credit losses in the quarter! If it is spreading in FREs balance sheet, you can bet the same is happening at Citigroup and the Alchemists of easy-money. Moreover, it is spreading slowly to PRIME borrowers as well.

But Wall Street can't see it - not yet anyway. It still does its full analysis of FRE, comes in with a low-ball easy-to-beat earnings expectation number, and still gets it wrong by an embarrassingly large margin.

If Wall Street was a doctor and you had terminal brain cancer, its treatment would be a little topical cream on your scalp, and then declare you cured.

Real Time Trading Signals*for

Trade Date: 8/6/08

E-Mini S&P Trades*
(before fees and commissions):

1) VA sell @ 9:30am at 1279.00 = +1.50 & +3.00

2) OTF buy @ 12:00pm at 1282.50 = +.50 (1 lot)

3) Algorithm trades (2)...combined total...+6.75


E-Mini Russell Trades*
(before fees and commissions):

1) No ER trades today.


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