Subprime Lenders Up on Hope Fed's Done

This column was originally published on RealMoney on Sept. 1 at 3:06 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Financial speculators are beating their tom-toms with special enthusiasm today over the possibility that the unexpectedly harsh effects of Hurricane Katrina will lead the Federal Reserve to pause its campaign of hiking interest rates.

In an interview on CNBC, portfolio manager Paul McCulley, who helps Bill Gross steer tens of billions of dollars worth of bond bets at Pimco, called Fed action "finished."

Traders took that cue and dived right in to one of the sectors of the market most badly burned by the prospect of higher rates -- the subprime and nonconforming mortgage lenders -- and started driving up shares. Aames Investment(AIC Quote), a subprime home lender based in Los Angeles that saw its stock cut by a third in August, is rebounding as much as 3% today. Likewise, shares of subprime or nonconforming loan issuers Accredited Home Lending(LEND Quote) of San Diego and NovaStar Financial(NFI Quote) of Kansas City are each up better than 3%. ...