CNBC's Schacknow: Subprime Mystery; 20-20 Hindsight
What Does It All Mean?
We get asked that question quite a bit here at the Breaking News Desk. Sometimes, the most honest answer is: "I have no idea."
There’s little doubt that for right now, the subprime loan market is one of Wall Street's primary worries, and that the fate of New Century Financial , the second largest subprime lender, is of great concern.
That’s why we KNEW we were looking at news when about a half dozen headlines on New Century crossed early this morning. The trouble was -- they suffered from a syndrome I like to call “sufficient nebulosity.”
The first headlines merely told us that New Century had received letters from a number of its lenders -- without saying what those letters said.
A few more headlines moved, saying New Century was in default of certain provisions of some debt obligations.
Now, I don’t pretend to be the world’s smartest financial journalist, but I can usually decipher the lead in a given set of headlines. I’m also surrounded by a number of very smart people I can call upon for help. Was this new? What did it mean for New Century's future?
I could tell this story was confusing everyone -- because even the wire stories were nebulous. Here’s one example: “New Century Financial says it’s received letters from several lenders, seeking remedies for its financial obligations.”
Little by little, more information came out, and later the story was more obvious -- New Century’s lenders were pulling all their funding, and it didn’t expect to meet repayment demands. That fueled more speculation on Wall Street that New Century was on the verge of bankruptcy.
The actual elapsed time until proper interpretation wasn’t all that long, but I can tell you it was mighty frustrating.
Brace For Impact
I love a good takeover deal. I love it even more when it has a significant impact on a stock. That’s because I know investors like to engage in a game called “what if I’d bought that stock last week?”
This morning we had two takeover deals that resulted in huge impacts on the target stocks: KKR’s purchase of Dollar General and UnitedHealth Group’s takeover of insurer Sierra Health.
Prior to the market’s open, we assess that potential impact by use of a “bid-ask” chart. If both the bid and the ask are significantly above (or below, for that matter) the prior close, you know you’ve got a mover.
These were movers. My altruistic hope is that our viewers will be a) jumping for joy over the smart investment they did, indeed, make prior to the takeover deal, or b) play the what-if game, or c) learn something that will help them spot the NEXT takeover deal.
I’m sure there are a few out there that may have considered these stocks -- and then not pulled the trigger. We’ve all been there. Live and learn. Yes, we follow the Dow, the S&P, and the Nasdaq, but we all know the most important index is the “MyStock Index.” May yours do well!