7.11.2007

ABX continues to plummet; related stocks rebound

Still dropping like a rock:





Notice the scale on the left is two points lower than yesterday's post. Simply amazing.

CFC, meanwhile, actually finished up after trading lower during the day. This latest ABX crash happened too late to affect the soon-to-be-announced Q2 earnings, but it doesn't bode well for CFC longer term. A huge portion of CFC's earnings is gain-on-sale of mortgages to Wall Street. The plummeting ABX indicates that Wall Street's appetite for this stuff is drying up. The loans that CFC holds in its portfolio are obviously turning to merde as well.

The ideal situation for our CFC option spread would be for CFC to hold at 35 through next Friday, then have some really bad news in the earnings release the following week. I wouldn't be surprised, though, if this REO speedwagon gathers steam and punches below 35 too soon.

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