Americans can take comfort in the likelihood that the showdown between mortgage lenders and homeowners will not resemble Greece’s battle-to-the-death with its creditors. In the U.S., the banks are slowly losing ground to a populist, election-year tide that eventually will force lenders to accept a moratorium on mortgage debt for tens of millions of homeowners. In the rapidly escalating legal battle to bring this about, last week’s $25 billion settlement between the banks and the U.S. did not settle much of anything, since the banks in theory can still be sued into oblivion by aggrieved homeowners. The plaintiffs will be claiming in effect and with a straight face that they got in over their heads because lenders forced them to borrow more than they could repay. Who would have imagined just a decade ago that an army of reckless borrowers would seek the protection of the courts under the remorseless deadbeat’s battle flag “Kick me, beat me, make me write bad checks”? That’s what it’s come down to, evidently, and woe to any bank that asks the court for help in turning a family out onto the street. The five big banks that signed onto the deal are undoubtedly running scared, since the legal latitude afforded those who could conceivably claim “questionable lending practices” has been widened to include just about anyone who lives in a home – including, presumably, tens of millions more homeowners who are not yet underwater but eventually will be. Keep in mind that the costs of the yet-to-be-unveiled Homeowner Bailout Act of 2014 have already been socialized, since the GSEs have been originating 90% of all new mortgage loans. » Read the full article
With Athens streets engulfed in flames, there is no doubting the sincerity of Greece’s austerity pledge. Nor can we underestimate how dire the country’s financial crisis will become if the bailout money does not arrive soon. We know this is so because even socialists in Greece’s parliament are supporting the deal with Europe’s bankers. Try a free trial to Rick’s Picks by clicking here.
Come tomorrow, the 1353.00 pivot will have held for a week, hinting that the short-covering that has been driving stocks from one plateau to the next is not of the rampaging variety; rather, it is of the quietly psychotic variety, premeditating each new leap on the basis of whatever the latest, fabricated GDP/payroll numbers and “good” news from Europe will allow. Absent any truly horrifying geopolitical news — and I’m not sure that even that would restrain buyers — we should expect the futures to break out shortly and head for the 1362.50 Hidden Pivot noted here earlier. Traders can test the water near that price with a tightly managed short, but camouflage is advised because of the rally pattern’s less-than-stellar pedigree. Want to learn how to nail price reversals like a pro? You can learn to do it in as little as six weeks. Click here for information about the upcoming Hidden Pivot Webinar and receive a $50 discount.
Subscribers are working two bullish calendar spreads (x16), but I would suggest increasing the size of the position if TLT corrects down to the 115.18 target shown. For now , we are long September 20 118 calls against short August 19 118 calls that we will roll into August 29 calls this Thursday and Friday. We’ve already done the roll twice, reducing the cost basis of the spread to 0.04. This week’s roll will entail covering (buying back) the short calls and shorting a like number of August 29 calls, effectively selling the August 22 118/August 29 118 calendar spread.
It was marked on Tuesday at 0.17, off a 0.26 offer, but any price higher than 0.04 will effectively turn the position we’ll have – long the Sept 20 118/August 29 118 calendar — into a credit spread. This means we can’t lose – will make a profit no matter what TLT does. Ideally, come September 20 , TLT will be sitting at 118, our spread will be trading for around 0.50, and we’ll be carrying it for a credit of perhaps 0.50. The imputed profit would be $1600 — not bad, considering our risk is already close to zero.
My long-term outlook for T-Bonds is very bullish, a view that goes sharply against a consensus which clings to the belief that interest rates – and the stock market — can only go up. That is a bet we should be eager to fade. We may have a chance to do so at still better odds if T-Bonds continue to sell off on the manufactured idea that the Jackson Hole conference will open the floodgates for more stimulus and inflation. _______ UPDATE (10:38 a.m.): The Sep 20/Aug xx calendar spread is recommended at this point only for those who did the original spread, since there’s not enough time left on it to roll its cost basis down to zero or less (i.e., a credit). If you are new to the spread, try buying the Nov 20/August 29 calendar for 0.90 with TLT trading around 115.80. The spread has a delta value of 0.20, implying that being long one spread is equivalent to being long 20 shares of stock. This means that, using a spread price of 0.90 as a benchmark, you should adjust the price you pay for it by one penny, up or down, for each 5 cents that TLT moves away from 115.80.