CNBC's Corporate Puppeteering: Time To Cash In

Investors are getting it. . .

In fact, they're figuring out what the bullish talking heads of CNBC can't―or won't.

It's what we're calling the biggest profit opportunity of the next two years.

Of course, CNBC's goons aren't the only ones to miss it. . .

Remember when Richard Fuld told us the worst of the crisis was "behind us"?

Or when FDIC Chairman Sheila Barr said we were in the 7th inning?

Or when Morgan Stanley said we were in the 3rd?

See a pattern developing here?

You see, the worst is far from over. The President is aware of this. Even the director of the president's National Economic Council believes the worst isn't over, saying, "'It's very likely that more jobs will be lost. It would not be surprising if GDP has not yet reached its low."

So, what is it CNBC bulls know that we don't?

Nothing.  They're pandering to the corporate elitists who sign their checks. And what they're not telling brings us to...

The most profitable event of the next 2 years...

As we've been warning for months, the next phase of the real estate disaster is upon us. It's just shifted from subprime to Option ARM.

And with many economists predicting unemployment will rise into the double digits, foreclosures will only accelerate, which will add to bank losses, which will add pressure to the financial system and broader economy.

The Fed is well aware of what's coming. Why do you think they're so desperate to pump up the economy before the next fiasco?

Truth is, the amount of debt wrapped up in these Option ARMs is much worse than that of subprime. And if the government or the banks fail to understand this, the second round we've been warning about will begin and banking instability will wreak havoc yet again.

Option ARM resets will be tougher for the economy to handle than subprime. And we will see greater numbers of bank failures, job losses, foreclosures, delinquencies, and economic hardships.

Honest.

Look at what the Wall Street Journal had to say this weekend:

For the third straight month, option adjustable-rate mortgages are generating proportionally more delinquencies and foreclosures than subprime mortgages, the scourge of the housing crisis.

A further acceleration of troubles among the loans could mean higher-than-expected losses for Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM), as well as the Federal Deposit Insurance Corp.'s own insurance fund.

"The realization of the issues related to option ARMs is just beginning," says Chris Marinac, director of research at Atlanta-based FIG Partners.

The Year of Option ARM Resets. . . and Why There's No Foreseeable Bottom.

Just as 2007 and 2008 were the years of subprime woes, this one will go down as the year of Option ARM resets (or adjustable rate mortgage resets). With billions in Option ARM resets in 2009 and 2010, this crisis is about to unleash a fury no one's prepared for.

It won't be as bad as subprime, of course. It'll be worse.

 

 

That's because lenders created these ARMs with "teaser" features for borrowers, which included making lower minimal payments for the first few years before the loan reset to a higher payment schedule. And if that weren't bad enough, there was another feature called "negative amortization," which meant you weren't paying back any principal.

In fact, with negative amortization loans, your loan balance increased over time. Incredulously, every time you made a payment, you owed the bank even more. These are the loans that allowed consumers to buy houses they couldn't otherwise afford.

As for speculators, they may use negative amortization loans if they believe prices will increase at a fast pace. But with the opposite happening, they're out of luck.

And the banks will be left holding the bag.

What should concern you is that about $750 billion worth of option adjustable mortgages (option ARMs) were issued between 2004 and 2007. . . and will begin resetting shortly. And banks like Bank of America, JP Morgan Chase, and Wells Fargo are in for a rough ride, given their exposure to option ARMs.

Worse, as of December 2008, about 28% of option ARMs were delinquent or in foreclosure, according to reports. Compare that to the 23% default rate in September 2008. And nearly 61% of option ARMs originated in 2007 "will eventually default," according to a Goldman Sachs report.

What will happen is this: many borrowers, if they haven't already, will start throwing in the towel as they realize just how far under water they really are. And the likes of JP Morgan (JPM) could be heavily and negatively impacted.

One thing's for certain. . . we'll be paying for someone else's mistake yet again.