jdwco (75.59)

Just keep it up

August 04, 2008 – Comments (0) | RELATED TICKERS: NLY , ORI , WB

Besides the sub prime borrowers, who really couldn’t afford their mortgages anyway and have been defaulting in huge numbers, there is the “good credit” borrowers who were playing the very risky (you might want to read ‘not smart’ here ) refinancing game using the steadily increasing value of their houses to obtain extra disposable income.  They refinanced taking all the equity they could from their houses and spent it!  These folks cannot do that now and they cannot make the coming balloon payment or stepped up interest payments, many of them are going to default.  If we assume a uniform temporal distribution of these loans and that most of them are going to try and stay in the house as long as possible, then we will be/are seeing a steady stream of them defaulting, perhaps well into next year.  That means that the mortgage mess will continue for some time though possibly at a slower pace and that some of the institutions that were spared the full brunt of the sub prime mess, either by luck or good practices, are going to get caught in this one.

That said, I am not going to close my picks on NLY, WB, or ORI.  I have both ORI and NLY in my real portfolio and plan on keeping them.  Their dividends are nice and though ORI will likely be hit again, it will recover as will NLY.  Even though Caps is biased for growth stocks and against income stocks, I treat my Caps portfolio like it was a real portfolio, well almost.  I dumped IKN from my real portfolio when it was above 16 and never did buy WB, but would have dumped it long before now if I had. Right now I think that the market is much too uncertain to even think about timing.  Too many items are having a disproportionate effect, the price of oil shifts a couple of bucks and prices way over react, a stock tries to rally and jittery traders decide they better take profits, or a stock price hiccups for some benign reason and the traders react creating large price shifts.  Look for quality companies selling cheap, buy and wait it out.