This Could Be the Best Buying Opportunity Since the Financial Crisis

Back in the early 2000s, my business partner Glenn Tongue and I had been following the housing and mortgage markets for years... We long believed that a significant bubble had formed. Thus, as it started to burst in 2007 and early 2008, we were skeptical of the calm assurances from President George W. Bush, Fed […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] This Could Be the Best Buying Opportunity Since the Financial Crisis By Whitney Tilson --------------------------------------------------------------- [This could literally save your retirement]( The man CNBC called "The Prophet" says he'd put 50% of his kid's college fund in this stock. [He reveals the name and the ticker symbol here](. --------------------------------------------------------------- Back in the early 2000s, my business partner Glenn Tongue and I had been following the housing and mortgage markets for years... We long believed that a significant bubble had formed. Thus, as it started to burst in 2007 and early 2008, we were skeptical of the calm assurances from President George W. Bush, Fed Chairman Ben Bernanke, Treasury Secretary Hank Paulson, and the CEOs of financial and real estate firms that the bubble had been limited to subprime mortgages. By early 2008, we had significantly lowered our exposure to the housing market. We took profits on some of our favorite stocks, such as USG and Mueller Water Products, and started ramping up our short book, targeting financial stocks like Allied Capital, Ambac Financial, Farmer Mac, Lehman Brothers, and MBIA. Nevertheless, at that time we still didn't fully appreciate how bad things would get, so we were dangerously exposed, with a long portfolio nearly four times the size of our short portfolio (in hedge fund terminology, we were roughly 100% long and 25% short). But then, we got lucky... An acquaintance e-mailed me in February 2008, suggesting that I meet a guy named Sean Dobson, who was the CEO of a firm called Amherst Securities. My friend wrote: Sean is the best mortgage technician I know and has developed a unique database that includes virtually all mortgages originated since 1998, sliced by month of origination, product type, and further stratified by a proprietary coding system that picks up loan-level characteristics with unusual predictive capability. He has monthly delinquency and default statistics, new defaults as a percentage of current outstanding and CPR stats. Loans can be assigned to securitizations and you can see where you can go from there for RMBS tranches and CDOs. He runs a mortgage broker dealer and advises many hedge funds and institutional accounts on their mortgage-related investments including CDSs and the various indexes. He is definitely someone you should get to know. Intrigued, I showed up at a presentation Sean was giving for half a dozen investors at the Peninsula New York Hotel in midtown Manhattan. Slide after slide was filled with colorful charts and squiggly lines, which Sean explained in a strange language I could barely comprehend. But the message was clear: The U.S. housing market had experienced a bubble of enormous proportions, and countless mortgages were now defaulting at unprecedented rates. More important, it showed no signs of letting up. In fact, Sean argued that things were likely to get much, much worse. I started to ask him a lot of questions, trying to understand all the charts he was presenting and acronyms he was using. Fortunately, he was patient with me... And as I began to understand the data he was presenting, I was stunned to realize: "Holy cow, he's right... This bubble is much bigger and more far-reaching than almost anyone realizes, and it's only beginning to burst!" This conclusion was in sharp contrast to the opinion among investors, government regulators, and policymakers, all of whom thought that the worst was behind us. At the time, it wasn't clear to most observers how wrong the supposed experts were, given that almost a year had passed since subprime mortgages had started to default at high rates, yet the economy and stock market were still doing OK. Plus, defaults in other areas weren't yet at alarming levels, and the fallout seemed to be contained to a handful of firms and funds that had blown up such as Novastar and New Century Financial. But Sean's data told a completely different story: Rather than being in roughly the seventh inning, we were only in the second inning of the mortgage meltdown. I went back to the office that day and started digging, seeking to better understand the U.S. housing market and what the future held. Every data point I found confirmed Sean's thesis. As I developed greater conviction, I started sharing my findings, warning anyone who would listen by writing articles, speaking at conferences, appearing on television, and disseminating a 100-plus slide presentation with data I had collected from Sean and others. --------------------------------------------------------------- Recommended Link: [My new recommendation (for the first time ever)]( I've NEVER talked about this idea before... But with how stocks have been struggling, and the value of cash getting eaten by inflation... [right now is likely the long-term investment opportunity of a lifetime](. --------------------------------------------------------------- At the same time, Glenn and I took action to protect our portfolio... We substantially trimmed our long exposure and increasing our short exposure. In retrospect, of course, I wish we had sold all of our stocks and gone 100% short. But as bearish as we were, we weren't bearish enough. We thought the mortgage meltdown would create a significant economic headwind but failed to foresee the near-Armageddon fallout that occurred after investment bank Lehman Brothers filed for bankruptcy in September 2008. Thus, our portfolio was exposed to many retail and consumer stocks, which got crushed. That said, the steps we took to position our portfolio more defensively enabled us to survive the carnage. We ended 2008 down 18%, which was incredibly painful, but far better than the 37% decline in the S&P 500. Many of the smartest investors we knew lost 50% or more as markets around the world crashed. The market panic continued into early 2009, triggering further losses for our fund, but, again, only about half as much as the market, thanks to our short book. It was a once-in-a-lifetime opportunity to buy insanely cheap stocks, and we were able to take full advantage for two reasons... First, our investors didn't pull their money because of our strong relative outperformance and the way we frequently and openly communicated with them. Second, as the stocks we shorted declined, it freed up cash that we used to buy stocks hand over fist at cheaper and cheaper valuations. Stocks weren't just cheap... they were crazy cheap. In our portfolio, Berkshire Hathaway (BRK-B) got cut in half and was trading at cash and investments, meaning you got Warren Buffett, Charlie Munger, and all of the operating businesses for free. American Express (AXP) fell from $65 per share in mid-2007 to less than $10 per share by March 2009, where it was trading at just 4 times earnings... Shares of mall operator General Growth Properties went from above $40 to pennies per share after it filed for bankruptcy. We shorted it on the way down, then flipped around and went long after seeing Bill Ackman's brilliant presentation on it in May 2009. In great detail over 68 slides, Bill showed that the company's assets were worth far more than its liabilities. Therefore, unlike most bankruptcies, there would likely be a substantial recovery for shareholders. We got in at an average cost of $0.67 per share. By the end of the year, the stock was trading at $11.50 per share and we had made more than 17 times our money. Lastly, I remember the stock of chemical company Huntsman (HUN). Private-equity giant Apollo Management had committed to buying it for $26 per share in July 2007, but before the deal closed, the market started to weaken. Nearly a year later, Apollo walked away. The stock collapsed to around $12 per share as Huntsman sued Apollo and its banks. As the economy and stock market continued to tank, the stock dropped to $8 per share in early November, which is when we started buying. Less than a month and a half later, it had plunged to $3 per share. It ultimately bottomed at less than $2 per share in February 2009. We conservatively estimated that it was worth $15 per share, so we continued to buy it all the way down. A year later, shares hit $14 and we exited for a huge gain. During this incredible period, we not only made a lot of money for our investors, but also made a name for ourselves by going very public with our data and analysis, before and during the crisis. My predictions proved to be so prescient that CNBC (somewhat embarrassingly) nicknamed me "The Prophet." I'm seeing a similar opportunity in today's market... As was the case during the financial crisis, world-class businesses are going "on sale" left and right. While the S&P 500 is down 20% year to date, dozens of blue-chip, world-dominating businesses – like Disney (DIS), Target (TGT), Netflix (NFLX), PayPal (PYPL), and more – are down 30% to 70%. Mark my words: This is an incredible, once-in-a-decade opportunity to buy these companies at fire sale prices. That's why I just put together a brand-new video where I explain everything you need to know. [You can watch it here](. Best regards, Whitney Tilson July 6, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](