The Odd Couple
The stock market took a hit on all fronts today. All three major stock markets were off 2%. The Dow sank a whopping 238 points to 12589, the S&P 500 was down 26 points to 1390 and NASDAQ off 59 points to 2441. The major American stock market averages are now down 5% from the start of the year. Not a good start to 2008, the year of the Rat on the Lunar calendar. Today’s market results lend credibility to the Wall Street adage “Better Standard than Poor”…and there wasn’t much that was standard today.
Among the ten most active stocks traded on the New York Stock Exchange today only Pfizer (PFE: $23; Market Value: $160 B) advanced, and even then, only 24¢. Countrywide Financial (CFC: $5; MV: $3 B) was the leader on the most active list, with 178 million shares traded. There are only 579 million shares issued (see stats http://finance.yahoo.com/q/ks?s=CFC), which means 30% of CFC’s shares issued to the public changed hands today.
At $5, another day like today, and there’d be an entirely new shareholder base at $3. Might be ripe for a bounce. Our inclination is caution — never try to catch a falling knife. The securitization marriage between real estate and Wall Street (marrying residential real estate mortgages and investment pools of capital) was an odd couple marriage in the first place. Real Estate is one of the most fragmented asset classes in the world; the investment pools all gravitated to New York…and from New York, the rest of the world.
On the list of top decliners today, however, Countrywide was #2. In first place was Quebecor World (IQW: $1; MV: $146mm), a Canadian printing company that borrowed a bunch of money in 2001 to repurchase company shares in the market. Those loans are now coming due. Management has run out of time. This speculative play might have legs. The drama is straight out of Falcon Crest.
The reason it may have legs is that the most likely outcome here is for the owner to fork over those shares used for collateral back to the lenders who lent the money in the first place. The bankers install new management, and the company is on its way…!…and at $1 per share, the downside is tolerable. IQW employs almost 30,000 people so it’s not about to disappear…just experience a redistribution of its ownership.
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