PennyMac (PFSI) is a mortgage finance company that describes itself as a specialty financial services firm with a comprehensive mortgage platform and integrated business focused on the production and servicing of U.S. mortgage loans and the management of investments related to the U.S. mortgage market. The stock has been getting crushed and insiders have been dumping shares:
The graph above (click on image to enlarge) shows PFSI vs. the BKX banking index. Other mortgage finance stocks have been getting hammered as well. That steep decline that started on Dec 24 in the graph above was not accompanied by any news triggers. In fact, PFSI signed a new “warehouse finance” credit line with Credit Suisse for $100mm at the end of the year. That should be great news if you are a housing and mortgage finance perma-bull.
When stocks decline steeply with no related news events to set-off the price-drop – and when one of the largest individual holders, Leon Cooperman, is unloading shares – it’s the market’s way of signalling problems not yet recognized by the peanut gallery. PFSI reported its Q3 earnings on November 4 and with a cursory glance they looked to be what the market expected. The stock did not do anything unusual.
The action in PFSI’s stock and in some other related mortgage finance and real estate stocks tells me that the “invisible hand” in the market is signalling a significant downturn coming in both home sales volume and mortgage finance volume. Per the invaluable work of John Williams (Shadowstats.com), when you remove the statistical manipulation and annualization of the existing home sales report for December, it turns out that existing home sales evaluated on an unadjusted monthly basis for the fourth quarter was down 20% from the third quarter. That’s not something that you’ll hear about or read in mainstream media or on venues like Seeking Alpha or Realmoney.com or the Motley Fool or Business Insider.
That is what I believe the market is seeing and is why stocks like PFSI are taking a beating outright and relative to the overall banking sector. Anecdotally, I just got a call from a friend who told me house that would have sold for $620k on his block last year was put on the market two weeks ago for $599. The neighbors all thought the price was too low. Two weeks later, today, the price was lowered to $579. I bet that price will be lowered at least once or twice more before it sells. And this is an area that was still seeing bidding wars last summer.
Sometime in the next few weeks I’ll be featuring another mortgage-related stock in my Short Seller’s Journal that still has a LONG way to fall before it gets back to its 2008 great financial crisis, pre-QE price. My picks this week are significantly outperforming the market. SHORT SELLER’S JOURNAL