Vad's Best Ideas

After a week of very intense trading I have managed to move from the 1706s place to number 13...Doing so wasn't easy and I took some huge gambles along the way. But I think that after today's TMA blow up I might be catching the other side of my sub prime trade...

The surprising thing is I expected trouble will come from one of my speculative picks like DFC, NFI or IMH but it came from one of the most conservative players in the whole mortgage industry-TMA. Their balance sheet look pristine - high quality AAA rated assets, stable dividend income and earnings but it does not look like banks are behaving very rationally here- all the mortgage lenders are bunched into one big group and credit terms are becoming tougher- more collateral and higher interest is required.

As a result SP downgraded TMA on Friday, but this move, while unpleasant, wasn't really surprising and thus could not explain while such a sharp sell off occurred today. I guess everyone now expects that the dividend will get cut but while I think it's quite possible I am not sure it will go down to zero.

Anyway this position is $42k under water right now and something has to be done about it. I am expecting to collect some very small profits/losses from CFC and/or IMB tomorrow or on Wednesday and will do something I've been told many times not to do- double down on TMA which will take my portfolio out of compliance temporarily and put the position up to 30% of my entire portfolio.

P.S. I guess my fund right now looks like one of those sub prime mortgages taken out with a "teaser" rate that assumes no one goes bankrupt in the next few weeks. The real talent will be getting out before that assumption will be reset and ...

Comments: View Comments |  Monday August 13, 2007