Ever been Whitewater Rafting?

The start is all "ooohs" and "ahhhhhs". Pretty scenery, everyone loves 'ya, its all beautiful and serene.......

You know what's next, right?

Or maybe "Whitewater" is a good description for another reason. You know, the Whitewater land deal? Yeah, that one.

Let's get to the news.....

Beazer Homes is trying to prevent their debt from being declared in default

"Beazer yesterday filed a complaint in U.S. District Court in Atlanta against U.S. Bank National Association, the trustee for bondholders, saying they are "seizing upon" the company's delay of its quarterly Securities and Exchange Commission filing to threaten Beazer with a "declaration of default." Beazer said none of its bondholders have yet made such a declaration."

Uh huh. They will, and here's reality - those conditions are there for a reason. If you can't meet them, that's your problem Beazer.

Mortgage applications fell precipitously, down 5.5% in the last week. Anyone remember my prediction on this a while back? That as credit tightened into a full-on crunch, we would first see applications spike as people got rejected in place after place, but ultimately that they would fold and application volume would collapse? Well, we're not quite to "collapse" yet, but we're getting there.

"Applications, however, may have climbed earlier in August as a major lender hurt by turmoil in mortgage bond and other financial markets closed its doors, forcing borrowers to reapply elsewhere, said Jay Brinkmann, a vice president of research at the MBA."

Oook!

Then we have one of my favorite whipping boys, Countrywide Financial. Anyone notice that they're paying a full half-point more than anyone else on CDs? How come? Can you spell "moral hazard"? I can, and here you have it - Mr. FDIC will bail out the depositor (of up to $100,000) if we die, but in the mean time, come get a better return. A raw attempt to forestall a liquidity implosion? Looks like it to me, and I bet it doesn't work. Beware, especially if you have more than $100,000 over there.

Oh, and if you think the Discount Window is a great thing, how'd you like to find out that they took boat loans there? For anyone who's never owned a boat, here's a fact for you - they depreciate about at the rate you can burn $100 bills in your ashtray. And would the Fed do that?

"Lacker told risk managers yesterday that the Fed's district banks would even accept boat loans as collateral. It's up to the banks to establish a value for the assets as they make the loan, he said."

Yeah, so "mark to myth" (or is that "mark to a bunch of ****ing lies"?) survives, with formal federal reserve approval. So much for honest dealing.

Oh, by the way, this doesn't end well. I know you've heard me say it before, but its still true.

Toll Brothers announced crap results. Their stock is marked up a few percent premarket. Let's see how the conference call goes; why do I think that premarket pop will be short-lived? Remember that Mr. Toll is one of the few who actually uses rational language (you know, like "suck") when describing the homebuilding industry. Oh, they withdrew their forward guidance too. That's good, right?

First Magnus Financial (privately held) filed bankruptcy and MGIC formally sued Radian, apparently trying to back out of its merger agreement. The former was one of the largest privately held mortgage issuers, and the latter is an interesting case that bears watching.

Radian has a very solid reason to attempt to avoid full discovery if MGIC is intending to walk off! Why? Because there's a proprietary interest issue here, in that their data becomes competitively useful to MGIC. So now they have an interesting quandry - one that I've personally dealt with, but on far more friendly terms. When I was negotiating the sale of MCSNet, my ISP, one of the concerns I had with "opening the Kimono" was that much of how we made money like bandits had to do with the bare-knuckles style of negotiating that I was known for in the industry; letting someone see our cost figures at a detail level means that they could figure out where to apply pressure to try to duplicate our results! Needless to say a failed acquisition could have been ruinously bad.

This will be a battle that I watch with more than a bit of bemusement.

Accredited Home (LEND) appears to be swirling around the bowl and headed for the drain:

"Accredited Home Lenders Holding Co., the subprime lender whose sale to Lone Star Funds collapsed, will close almost all of its retail lending business, shut half of the 10 divisions serving brokers and halt U.S. mortgage applications."

That looks like a zero to me.

And now, finally, we have the media picking up on the fact that even banks are marking gains out of total fabrication:

"There's the kind of earnings investors can take to the bank. And then there's the kind the bank can show to investors.

Word to Wells Fargo & Co. investors: Beware the second kind."

Its about ******n time someone other than a few bloggers scream about this sort of bull****. Its also about time that the regulators step in and put a stop to it, especially the regulators that pay attention to these minor things like, oh, Basel requirements and Tier Capital requirements. You know, those minor details about whether or not a bank is solvent?

Yeah, that.

Oh, now let's think a bit more about Wells Fargo (WFC). They had a major "computer problem", which allegedly was fixed yesterday. Yet I am still seeing anecdotal reports of trouble with people not being able to get to their accounts and accounts not updating. Hmmmm.... I think that smells like "short" to me, on the premise that their "computer problem" might actually be something having to do with that "mark to make-believe" and a big fat number in parenthesis somewhere that its not supposed to be? Yeah, I think it might. Now let's add that they're in California and where did that emergency request come from on the Discount Window again? It all smelled like CountryFried, but perhaps it was Wells? Double-hmmmm.....

Oh, we got the FDIC report today, and it wasn't all that great. Unprofitable banks are way up, and losses are up as well. And they're "closely monitoring" individual institutions (cough-WFC-cough-CFC-cough-whoelseisoutoftheSanFranFedthatIshouldshort-cough!)

Now here's something wild.

In the "someone knows something and its fuuuuucking ugly" department, look at this..


What you're looking at is a snapshot of the trades today on September SPY CALLs. There were one hundred and twenty thousand of them traded on these strikes. These are DEEP in the money; SPY is trading in the mid 140s!

Now assuming - just assuming - this was not a mistake - someone hit a "sell" button then bought 'em back immediately, or the reverse - this is someone who owns $1.7 BILLION worth of SPY and they are very sure that the price today is the best deal they're going to get.

They will for sure get called, even if the market crashes tomorrow. Nobody in their right mind would buy calls this far in the money if they were speculating on a market moon-shot - your leverage here sucks (probably something like 1.2:1 even with a huge move upward) so these had to be sold.

So those who think these were purchased outright - FORGET IT.

That's absolute unadulterated bull****.

You'd be out of your high-footing mind to sell these naked - the damage this could do to you would be quite impressive, not to mention the margin requirements - I don't even want to think about that. So those who think this was a naked sale - forget it. It wasn't.

This has to be an institutional holder of Spyders who doesn't want to drop 12,000,000 shares of SPY on the market (lest they exhaust the bid and drive the price WAY down), so instead they sold the calls. THEY WILL GET CALLED with absolute certainty, but they have also locked the price of those Spyders - the S&P 500 - at today's price.

Let's think about this one guys.

Someone holding $1.7 billion dollars worth of SPY is very sure that the price is going down - or at least sure enough that they'll take today's price over whatever it might be tomorrow. In fact, they're SO sure that they sold the OBLIGATION to deliver those shares on the third Friday of September.

You think someone - some big someone with a big institutional holding - knows something's up?

I do. In fact I think its quite fair to say that said person is essentially 100% certain of their position, because there are other ways to hedge this trade that are far better unless you're sure.
But if you're sure, this is the best way out there to get your price. In fact, its pretty much the only way to get your price.

Now how do we know? Let's see if those contracts "stick" in the morning. Take a peek and see. If they do, then the trade is real. If not, someone made a huge and very expensive mistake and backed it off immediately.

You'll know in the morning.

BTW, someone on the forum says they called the OCC and that these are coded as "spreads" and are legitimate, meaning they will stick. Uh, if those are bear call spreads (there'd be no reason to do them as bullish spreads at this differential) that's even worse. Think about the mechanics on this one for a bit - I bet they're miscoded and actually are covered calls...... but either way.....

Technicals? S&P over the 200, but just inside the downtrend channel (barely.) Dow Jones still in the down channels. Still "sideways" on the technicals. You want to play Elliott Waves and Fib retracement levels we are sitting on the 61.8% retracement level on the 30 minute chart right now:



It doesn't get any more perfect than that.

If we don't reject here, you have to consider stepping aside on the short side - at least for a while. Not to say we won't roll over and roach - I believe we will - but this is where it either happens or doesn't, and you can't look at the daily charts on this - you have to look at the price action from top to bottom; here it is. (I'm also about to lose my maximum resolution on this, which is a 20 day chart - damn! Good thing tomorrow's decision day eh?)

I'm off my short positions other than a few builders if we don't reject here until I have something that gives me a new signal one way or another. Gotta go with what the market tells you, not what you'd like.

If you're watching the ES7UG (S&P 500 futures E-Mini September) the critical level is 1473; for cash its what's in the above chart.

See 'ya in the morning.

Late update: CountryFried financial late this afternoon disclosed that Bank America is buying $2 billion in preferred stock (new issue at that.)

"Bank of America will purchase $2 billion worth of preferred Countrywide stock yielding 7.25%, and that can be converted into common stock at $18 a share, those people said."

The fools in the aftermarket instantly bid the stock up big, $4.00. You have to be absolutely insane to think this is good news! Let's review this one guys:

1. It has a Guido-style interest rate. 7.25%?! LIBOR is under 6! Gee, you think that's good? Uh, no, its a junky rate that basically assumes that the company is going to roach!
2. Convertible at $18, nearly 25% below the closing price on the day?! Hahahahaha! How do you spell "DILUTION"?
3. Oh, and let's not forget that preferred stock has dibs on assets in a liquidation scenario.
4. Finally, why did they borrow at 7.25% if they could go to the discount window at 5.75%? BECAUSE THEY COULDN'T GO TO THE DISCOUNT WINDOW!

Oh, and let's remember that AHM did the same thing not long ago, and where did they end up? You know why? Because when companies do this they're desperate, that's why!

DO NOT BUY INTO THIS - you will get KILLED. What's worse, professional shorts will be all over this like a cheap suit playing the arbitrage game - maybe even BAC themselves!