Has the current subprime crisis caused these subprime assets to become UNDER-valued?
If so, is now the time to buy companies with heavy exposure to the subprime mess?
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Oldman answered one year ago …
According to a guest on MSNBC, yesterday, the valuation of the subprimes in CDO's and SIV's was estimated at 16 cents on the dollar; and the AAA rated assets were sold for 85 cents on the dollar in the refunding arrangement among Bank America and Countrywide; and also with MorganStanley's assessment of the future money center writedowns. This seems like a reasonable estimate ... but remember, these bundles were used to generate 10 and 20-fold leverage ...which now seems absurd.
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Dragonsbane answered one year ago …
Some specific subprime assets may be undervalued, however retail investors have no way of distinguishing those from the vast majority of subprime assets which are still overvalued. So, speaking broadly, I would say no. Subprime assets in general are nowhere close to being undervalued. (And yes, I think Bank of America will regret buying Countrywide in less than a year - since the problem is not limited to subprime assets)
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CollegeKid answered one year ago …
I would have to say that the market does tend to act drastically when people are fearful. Some companies exposed to subprime lending are probably still overvalued, but the majority are getting heavely discounted right now. Just look at Citigroup, this is a strong company, but because its in the financial sector its getting pounded right now. The company is paying 8% a year just with the dividend right now.
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