Analysis of Mortgage Companies

Background

Inspired by the Journal’s podcast on public lending
- Big note: they like revolvers, a special kind of lender who has good credit but make only minimum payments
- In America, the national percentage of population with 70+% revolving utilization is 16.7%. Source.
Reminiscent of 2008, when spending slowed
NYT Coronavirus Timeline Key Events:
- 01/31: Trump restricted travel from China
- 02/02: First death outside China
- 02/29: US first death
- 03/03: US officials approved widespread testing
- 03/11: Trump blocked most visitors from Europe
- 03/13: Trump declared national emergency
- 03/15: CDC recommended no gatherings of 50+
- 03/16: US most confirmed cases
- 03/27: Trump signed stimulus bill
- 03/30: More states isued stay-at-home
- 04/02: Cases 1mil+, millions lost jobs
Unemployment Rate
- April: 14%; my estimate is ~20%
- Soared from 3.5 prior; past stability ~5%
My own predictions (and unsubstantiated claims that I’m hoping to find evidence for):
- Delinquency at least 6x.
- Unemployment will peak months after the coronavirus peaks (as it did with ‘08), causing money stagnation.
- Since the market revolves around liquidity, a significant hit in delinquencies will shake the financial sector, causing benchmarks/bank prices to go down.
Play:
- Protective puts if bank stocks keep increasing. This will not only hedge against bank failures, but should also hedge against the S&P falling as banks will be the first to fall.