Financials are once again caught up in the mortgage crisis mess part 2. Mortgage repurchases are increasing, and these toxic assets might damage many of the banks balance sheet. The big banks like Bank of America has officially $11bln in mortgage repurchase requests, and another potential $20bln in private house mortgage repurchase requests.
JPmorgan has already increased its mortgage repurchase provisions.
While the big banks may be able to support themselves, the small banks cant. And this is disturbing.
I have seen how Direxion Daily Finan. Bull 3X Shs behaved wierdly lately. Big banks moves did not shake up FAS that much. This means that the smaller banks have not moved in response to this financial mess.
Direxion Daily Finan. Bull 3X Shs Fundamental – not good.
Now let’s look up its technical charts – DOUBLE TOP and MULTIPLE TOPS!
I have many reasons to believe that FAS will break downwards and fulfill the target projected by the double top. I have set the neckline at $21.25 and the projection of $2.5. My buy price will be $18.75 based on this projection.
Disclosure: I am holding BAC at $12.
5 comments:
Do you place SL for BAC? at what price?
Thanks in advance
hi marcelo, I have no sl for BAC. I am planning to build more positions in BAC. This will be for my longterm portfolio.
While the mortgage repurchase may hurt BAC in the short term, do note that it takes 2 years to settle mortgage repurchase, hence the $20bln impact will be spread over 8 quarters, and that's about 2.5bln per quarter.
And BAC credit improvement will be able to offset such mortgage writedowns.
Currently, BAC mortgage writedowns are $1.3bln per quarter, compared to JPM at $1.2bln, CITI at $0.7bln, and Wells at $1bln.
Thanks for your quick answer,
I've been following your blog for a short time and I really like your analysis. I would like to ask you a few question.
In your last article you said that you expect FAS to cost 18,5, so, why do you buy BAC now if it will fall even more?
Why not wait?
Or you buy just in case FAS doesnt give so you are covered?
How much you do think BAC will fall eventually?
Lastly, In your concept my longterm portfolio, how much time are you talking about? And of what objective price?
Thanks in advance
Keeping BAC long term about 3 years. Waiting for it to go back to normalized earnings of $2.5 in 2013. Has earnings potential of 40bln.
Like I said, the mess wont really affect BAC any further, so long credit cost improves, i see BAC lowest at $10.88. But I doubt it will reach there.
Thanks for your answer!
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