Friday and the coming week

Well that was a nice surprise! Nice to be able to say you owned the strongest performing stock on the NYSE -- DFR -- of course still down quite a bit for the year. What effect will the Fed have on DFR and the markets in general?

At the margin, more firms will make it with the fed cutting than if they don't cut so that definitely improves the odds for DFR. That said, the Fed can't do anything to fix the balance sheet problems of so many players in the debt markets. They are overleveraged already -- that is the problem -- so reducing the cost of more leverage can't really help them.

Think back to 2000-2002 when the Fed was cutting rates from 2001 on and at first many tech and telecom stocks rallied hard but over time everyone realized there was no fixing what was broke without a massive decline in value and a large reduction in capacity -- my thought is 40% decline in mortgage origination between peak levels and the trough. think about how many brokers both mortgage and realtor will be unemployed in the shakeout. People like Countrywide or IndyMAC that keep talking about taking market share and growing are missing the big change.

Within that world is there room for a conservatively managed mortgage portfolio that can still allow the firm to operate as a REIT that also owns a management company and some alternative assets? I think so and that's why I still own it -- the biggest issues are with investors owning the wrong securities (credit risk or overly leveraged) and with origination volumes, which don't impact DFR.

Dividend on DFR -- some one on the message boards (yahoo) was making the buy case based on 42 cents for 2 more dividends this year -- its possible I guess but I wouldn't hold my breath. I have no idea what the dividend will be but it seems like a crazy question to ask when faced with survival as the primary goal.

I expect the rally will last a bit longer but I don't know where DFR will end up. longer term, if they survive, this is a big opportunity but that's a big IF right now.