Worthless Ambac is now the most actively traded stock in the market. The other 4 stocks the complete the quintfecta of most active stocks: C, FNM, BPOP and BAC. The liquidity rebate collecting computers and momentum algos are just having a field day, toying with daytraders. In case you still haven't figured out how to trade this market, find the most bankrupt companies and load up. You can't go wrong. Obama and Bernanke said so. Plus S&P 1,200 must be taken out at all margin call costs. 25x P/E (50x if you take out the stimulus)? Who cares. Not the computers.
All of the above means of course that Cramer is recommending it:
Give Me Some of That 'Worthless' Ambac
04/13/2010 11:49 AM
I hate Ambac Financial (ABK - commentary - Trade Now). I believe the current stub of equity is worthless. The claims are too big and the cash too small. But so what.
That's painful to write. Especially, when you consider the Columnist Conversation tune of Tim Collins, and the excellent work by Andrew Wessel at JP Morgan backing up that analysis.
But it doesn't matter. You could argue that none of these insurers are technically solvent: Radian (RDN - commentary - Trade Now), PMI (PMI - commentary - Trade Now), MGIC Investment (MTG - commentary - Trade Now), MBIA (MBI - commentary - Trade Now). It hasn't meant a thing.
MGIC has rallied 400% during its extended period of "worthlessness." I want some of that worthlessness. Radian's up 600% during its "worthless" period. I would have liked a piece of that worthlessness. How about grabbing a hunk of the 800% rally in the "worthless" PMI? Wouldn't that have been delicious?
Do you hold your nose and buy ABK because of those rallies? I believe, oddly, yes. Now, there is simply no percentage in admitting you would ever recommend a worthless security. But this is a game of performance, not a game of valuation. There are plenty of genuinely worthless stocks that have gone up huge. There are tons of cases where gigantically worthless stocks -- almost every dotcom circa 1999-2000 -- gave you great returns.
The purists out there have spurned these points. I could care less about purity. I could care less that someone might be able to say Cramer likes worthlessness. But the !@#$% animal spirits have it going, and a worthless stock can be worth something if it moves up that much and starts offering equity or bonds against it.
Again, I hate these situations. But they are real. They are happening. They have happened. And this is one of them that I feel is destined to happen again.