The inevitable demise of the subprime mortgage market leaves the entire housing market -- and with it the economy -- on the verge of collapse.
By Bill Fleckenstein -- MSN Money
March 19, 2007 -- Bubbles have a way of masking what would otherwise be self-evident truths. And, as the credit bubble in real estate dies a dramatic, not-pretty death, a very simple truth has resurfaced: It's not a viable business when you lend money to people you know can't pay it back. If the late, "great" subprime sector had a tombstone, that would be a fitting epitaph for New Century Financial and others.
It's a fact that also eluded those folks who are paid to analyze company fundamentals, i.e., the dead-fish community. Regular readers are aware of my long-standing rant on this topic. Primarily, I focus on the species that follows tech stocks. However, those who follow the financial-stock industry are no less clueless. In particular, they appear not to realize that what they're trying to analyze is the unanalyzable, i.e., a black box.
Case in point: New Century Financial (NEWC, news, msgs). I have spilled plenty of ink on the subprime industry, including this one-time poster boy for lower-tier lending. But as New Century collapsed, most "analysts" continued to like it until the bitter end. Recently, with the stock poised to go under, Piper Jaffray finally decided to cut it to "underperform," on the heels of a UBS downgrade. Not long before that, Bear Stearns had upgraded its opinion of New Century.
Apparently, dead fish are constantly seduced into buying companies whose fundamentals are clearly deteriorating by two false reference points, both of which revolve around the notion of cheapness.
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