|August 27, 2009|
Newsflash… Government makes a profit!
"We're from the government, and we're here to help you." Hear that phrase and my advice is to hold on to your wallet and run in the opposite direction.
Despite the early profits the feds have made in financial stocks, there could be rough sledding ahead due to a new wave of mortgage defaults.
According to an excellent presentation by value investor Whitney Tilson and his associates at T2 Partners, 73% of Option ARM loans, 50% of subprime, 45% of Alt A and 25% of prime mortgages are currently underwater. In terms of sheer numbers, the Wall Street Journal states that 16 million mortgages are upside-down.
Are you buying Government Motors?
Some penny stocks may be worth taking a shot at, but GM isn't one of them. GM's stock is loaded with debt and non-performing assets. The chances of getting paid anything for these shares are less than 0.0000001 percent. But people are still buying it. The stock (MTLQQ.PK) is getting more volume than Procter & Gamble on some days!
Is the S&P headed for a bobsled ride to hell?
That's a question we ask every time we meet in the IDE conference room. And though there are reasons to suppose that the rally could continue for some time, we all agree that investor optimism has run well ahead of economic reality.
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