When generalizing from specifics to overarching themes, especially in business and markets, you have to continually ask yourself if you are trying to force your square peg of an observation into the round hole of a template for action.
The classic examples are the books titled "Business Secrets of Machiavelli" or "Trade like Genghis Khan" or suchlike. The author may (if you are being charitable) have an insight or two but when they try to stretch it out for a couple hundred pages, well, I believe it is called 'padding' in the writing business.
So, in the instant case, here is the template for action which we will attempt to justify with an observation.
Action: Follow insiders. They know more about their industry than you do.
Observation: On May 7, 2006 Herb and Marion Sandler sold their family business, Golden West Financial. At the time they had built Golden West to be the 2nd largest Savings & Loan in the U.S.
It was also the largest originator of sub-prime mortgages in the country.
Sell of Golden West Financial to Wachovia signifies burst of housing bubble
The decision to sell Golden West Financial to Wachovia for about $25 billion in mostly stock and some cash may turn out to be a harbinger of the end of the housing bubble....
That is the single most remarkable bit of inference/analysis I have ever seen.
A year later, in June - July 2007 rumors that two Bear Stearns hedge funds were caught on the wrong side of some highly leveraged Mortgage Backed Securities trades turned out to be true, and Bear Stearns was forced to admit the funds value had declined to almost zero.
During the first two weeks of August 2007 there were massive dislocations in non-MBS markets—it was referred to as the Quant Quake— which MIT's Andrew Lo subsequently traced back to massive liquidations in quantitative strategy funds and which he speculated were caused by a need to raise cash to support MBS packages and derivatives, mainly credit default swaps but also options and forwards and interest rate instruments and the whole damn zoo full of creativity that the Wall Street marketeers had come up with.
The other stuff was getting liquidated because a) there was no real market for MBS's meaning any sales would really hammer prices for the paper that was sold which would b) force mark-to-market valuations for the unsold portions of the MBS portfolios that would signify insolvency.
If interested here's Lo and Khandani (2007) hosted at the New York Fed:
What Happened To The Quants In August 2007?
While all this was going on we posted, on August 10, 2007:
The Day the Music Died--The Mortgage Business
May 7, 2006
Press Release:
WACHOVIA TO ACQUIRE GOLDEN WEST FINANCIAL, NATION'S MOST ADMIRED AND 2ND LARGEST SAVINGS INSTITUTION"...Herbert M. Sandler, Golden West chairman and chief executive officer, commented, "I’ve been a keen observer of the market and the mortgage and banking industries for nearly 40 years...."The San Francisco Chronicle covered it as a human interest story May 9.
Why Sandlers sold their S&L
Wachovia's deal for Golden West called a good fit
While Sandler talked animatedly about her favorite causes, she broke down talking about her feelings about closing a book that's represented more than half of her life."I can't talk about it without crying," she said. "Some part of me certainly is very emotional."
On May 10, 2006 India Daily said:
Sell of Golden West Financial to Wachovia signifies burst of housing bubble
*****
Later, after the Great Financial Crisis of 2008, the Sandler's swore that they didn't know the sub-prime mortgages they originated and that were put in the MBS wrappers, they swore they didn't know the underlying mortgages were garbage, that the average credit-worthiness of the people who were taking out the mortgages had been dropping for years, that the AAA-rated tranches of the MBS's were actually at risk of default that no amount of financial engineering could cure.
What else could they say?
So, with that rather longer than usual introduction we see this brief little note at Reuters, October 17, 2022:
Founder Harold Hamm clinches deal to take shale producer Continental private
Continental Resources Inc (CLR.N) said on Monday it had agreed to a sweetened offer from founder Harold Hamm to take the U.S. shale oil producer private at a valuation of about $27 billion.
Hamm, a legendary oilman who once called the Organization of the Petroleum Exporting Countries a "toothless tiger," said in June that he wanted to take the company private because public markets have not supported the oil and gas industry.....
....MORE
We'll have more on this and what it might mean for oil & gas and for the wider markets but this post is already lengthier than I had intended.
Sorry 'bout that.
