Last March I suggested that mortgage insurance companies such as MGIC Investment Corp. (NYSE: MTG) might be in some peril. Since then, MTG stock has lost 76% of its value.
Back then, MGIC had negotiated a merger with Radian Group Inc. (NYSE: RDN) but that deal fell apart in September. Both mortgage insurers were on the hook if mortgagees ended up not making their payments. But mortgage insurers hoped they would be able to argue that they didn't have to pay if they could prove there was mortgage fraud.
Last March I hesitated to recommend shorting MGIC since it was generating cash and had ample capital. But since then its credit rating has been downgraded, which makes it hard for it to position itself as an insurer. This after it restructured a subprime-mortgage joint venture without a bankruptcy filing, amid news that it received a request from the SEC to provide information related to the joint venture.
With its stock down 11% today and a 24.2% short interest, it's clear that investors see blood in MGIC's water.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
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Reader Comments (Page 1 of 1)
1-17-2008 @ 2:54PM
MBS 101 said...
Good call on this one ..although you were not the only one to see this coming.
Bad call on Citigroup (ticker: C)
Peters article regarding Jim Cramer from August ..."This comment prompted an attack from the anchor who informed me that Jim Cramer was negative on the stock. I proposed to the CNBC producer that I would be happy to do a show with Cramer in which I took the opposite position on every stock he discussed. Viewers could then vote on whose position they found most convincing and results could be tracked afterward." -- Peter Cohan
I guess you are judged in the financial world on whether you make MONEY, not by popping off about how you are better than someone else. Cramer the entertainer..is a lot more exciting to watch than your show, Pete.
Cramer was correct - it was all about capital preservation..live to fight another day.
Peter Cohan was wrong on Citi (C) ... sorry Pete ..hit the bid and cut your losses ...or move that into your "long term" hold loss bucket.