This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Kass: Ain't Seen Nothing Yet on Writedowns

With the analyst report this morning that Citigroup could face as much as $30 billion in additional writedowns and might cut its dividend, we wanted to share Doug Kass' post from Tuesday on the writedown dangers facing financial institutions. The post originally appeared on RealMoney Silver.

On Credit

10/30/2007 7:32 AM EDT

I've been discussing lately the recent dichotomy between the performance of equities and of mortgage credit. That is, stocks have continued their ascent, while various subprime mortgage-based ABX indices have dropped precipitously.

[Monday] that trend continued. While stocks forged ahead, even the highest-rated tranches of subprime debt were decimated after a "ratings agency" suggested that the credit ratings on over $20 billion of the highest-rated collateralized debt obligations might be downgraded.

Specifically, the AAA-rated ABX Index (for home loans made in the second half of last year) dropped under 80.0, down almost 3.50 from Friday's close of 83.4. The lesser-rated AA-rated ABX Index traded under 48.0 after closing at over 52.0 on Friday.

The divergence between the equity and mortgage credit markets remains counterintuitive; what troubles me the most is that the mortgage credit issues will not likely be resolved anytime soon. A cut in interest rates won't turn the mortgage debt market around, and based on the maturing economic cycle (among other factors), the worst is probably yet to come -- and with it will be a broader contagion into other areas of the economy.

Should these trends continue -- and I believe they will -- fourth-quarter writedowns in many financial institutions, including American International Group (AIG - Get Report), Citigroup (C - Get Report), Merrill Lynch (MER) and so on will be much greater than anticipated.
At time of publication, Kass and/or his funds were short XLP and TLT, although holdings can change at any time.

Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AIG $53.37 0.00%
C $39.86 0.00%
XLP $49.63 0.00%
AAPL $94.02 0.00%
FB $104.07 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs