BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise...

BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Countrywide Financial Corp (CFC) shares plummeted as much as 22 percent on Tuesday on speculation the largest U. S. mortgage lender might run short of cash, but recovered most of that loss after the company said it has ample liquidity and will not go bankrupt. In a statement late on Tuesday, Countrywide said it believes it has 'ample liquidity and capital' to ride out the U. S. housing downturn, and will benefit from mortgage market consolidation. 'Nobody's got any faith in anyone telling the truth, or knowing what the truth is,' said Anton Schutz, a portfolio manager at Mendon Capital Advisors in Rochester, New York. Countrywide said it had $35.4 billion of 'highly reliable liquidity' on Oct. 31 and that its bank unit has 'sufficient contingent liquidity' to cope with changing markets. It also said its Countrywide Home Loans unit will not need to sell debt to replace maturing debt until 'beyond 2008.' My Comment: Countrywide gave away options on 1/6 of the company to BAC for $2 Billion in one breath while claiming $35.4 billion of 'highly reliable liquidity' in the next. This picture does not add up. Late Monday, Moody's Investors Service affirmed Countrywide's 'Baa3' debt rating, its lowest investment grade, with a 'negative' outlook. Countrywide had on Nov. 9 said a downgrade to 'junk' status could limit access to credit markets and hurt its business. My Comment: Once again Countrywide's statements do not seem to add up. It claims to have 'ample liquidity' and 'sufficient contingent liquidity' while pointing out a downgrade could limit access to credit markets. Which story are we supposed to believe? Is $34 billion in reliable liquidity contingent on Countrywide maintaining its investment credit rating by any chance? Credit default swaps on Countrywide Home Loans Inc rose 150 basis points to 900 basis points, or $900,000 per year for five years to insure $10 million of debt, according to data from Phoenix Partners Group Arnold Schwarzenegger announced a deal Tuesday with Countrywide Financial Corp (CFC), GMAC (GMA), Litton Loan Servicing LP and HomeEq Servicing Corp that will allow their mortgage borrowers in California to continue paying loans at initial rates if they live in their homes and make payments on time but are unlikely to afford higher payments when their mortgage interest rates reset. Countrywide clearly sees bleeding capital in unprofitable loans as a better option than foreclosures and the resultant REO problem. just as every wage or price fixing control in history has failed. I view this as an act of desperation by Countrywide, GMAC, Litton, and HomeEq. This deal will backfire sooner rather than later, just as Paulson's Citigroup SIV solution did. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.