To me the customers made out this time, the dealers didn't.

When I look at the losses the dealers are taking, I keep wondering how the heck they all got caught. Think of it like this -- if this merchandise were equities, you would ask: How did Merrill (NYSE: MER) (Cramer's Take) and Citigroup (NYSE: C) (Cramer's Take) get caught owning so much stock?

That's why we have to be shocked at the losses at Citigroup and Merrill. It was like they were making a big bet on housing and just masking themselves as dealers.

Now it is true that they were merchandizing and got caught. Prince was such an idiot. I hectored this guy and the board for a year, but all they did was stand by and applaud him. He probably had no inventory controls because he never understood the instruments anyway. That's OK, they were hard to understand. But he was the CEO, for heaven's sake.

Continue reading Cramer on BloggingStocks: This time the customers won

Cramer on BloggingStocks: This time the customers won originally appeared on BloggingStocks on Tue, 15 Jan 2008 09:04:00 EST. Please see our terms for use of feeds.

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

About 13 months ago, I suggested selling short shares of NovaStar Financial (NYSE: NFI) when it traded at a split-adjusted $116 a share. If you had followed that advice, you would have made a tidy profit -- it now trades at $1.79. If you covered your position today, you'd have a return -- before adjusting for the cost of margin escrow -- of 64x your investment.

According to The Associated Press, NovaStar laid off 85% of its people last week and its stock will be delisted on Thursday. Prior to the delisting, NovaStar had claimed that Wachovia Corp. (NYSE: WB), its lender, had given it a break by lowering NovaStar's minimum required liquidity from $30 million to $22 million.

Continue reading Short Stories: NovaStar burns out

Short Stories: NovaStar burns out originally appeared on BloggingStocks on Mon, 14 Jan 2008 12:55:00 EST. Please see our terms for use of feeds.

In what could be a a key ruling for those of us hoping to learn more about shady subprime lending practices, a bankruptcy judge has given New Century Financial until February 6 to turn over a report of an investigation into the firm's cash handling practices to bankruptcy monitors.

Michael Missal was appointed by judge Kevin Carey to look into the accounting mistakes and/or fraud that led the firm to file false financial statement with the SEC in 2005 and 2006. According to the AP, "That report has yet to be filed. Missal said that continued foot-dragging by the defunct lender, former leaders and accounting firm KPMG will hold it up until March."

However, he has filed the report on possible cash mishandling, but it has not been made public at the request of New Century.

Continue reading New Century Financial's dirty laundry may expose sleazy subprime practices

New Century Financial's dirty laundry may expose sleazy subprime practices originally appeared on BloggingStocks on Thu, 10 Jan 2008 12:22:00 EST. Please see our terms for use of feeds.

You would think that with its stock in the toilet, lawsuits alleging securities fraud pending, and a history of SEC inquiries, Novastar Financial (NYSE: NFI) would find it wise to start being honest with investors.

You would think. But on December 20, I wrote about the departure of Novastar's CEO, CFO, and general counsel. In the press release dated December 19 announcing their "retirements," Novastar wrote that Chairman and CEO Scott Hartman would "leave the Company and retire from its Board of Directors."

In the 8-K announcing the moves, filed with the SEC on the 21, Novastar said that "On December 18, 2007, Scott Hartman was terminated as the Chief Executive . . . On December 18, 2007, Gregory Metz was terminated as the Chief Financial Officer of the Company, effective as of January 3, 2008."

Why did Novastar change its language so dramatically? "Leaving the company" became "terminated" in a wonderful case of differential disclosure: 'Let's put out a broadly disseminated PR saying one thing and then file an 8-K with the SEC a few days before a holiday saying something completely different and hope no one will notice'.

Given that Novastar has already handed its shareholders massive losses, the least they could do is be honest and forthcoming in their press releases. But apparently, that's too much to ask.

NovaStar still can't be honest with its investors originally appeared on BloggingStocks on Mon, 31 Dec 2007 12:45:00 EST. Please see our terms for use of feeds.

Novastar Financial's top executives finally leave originally appeared on BloggingStocks on Thu, 20 Dec 2007 17:14:00 EST. Please see our terms for use of feeds.

Purchased HELOC.

Get that term into your head. Home equity loans that were purchased from other originators are the scourge of the system. Any piece of paper backed by these second liens that were issued by pure mortgage originators is just a goner.

This is the paper that was generated by Fremont General (NYSE: FMT) (Cramer's Take) and NovaStar (NYSE: NFI) (Cramer's Take) and New Century Financial and American Home Mortgage and so many of the other bankrupt and walking-dead companies. It was mostly no-documentation loans paper and served as another way to tap money that was meant to be paid back when you flipped a home. It was predicated on the continued increase in value of your home.

Continue reading Cramer on BloggingStocks: Banks can't shoulder home equity burden

Cramer on BloggingStocks: Banks can't shoulder home equity burden originally appeared on BloggingStocks on Wed, 28 Nov 2007 09:09:00 EST. Please see our terms for use of feeds.

The New York Times provides some useful clues on how Goldman Sachs Group (NYSE: GS) was able to profit while its peers took enormous write-downs on holdings of Mortgage Backed Securities (MBS). Its culture encourages a healthy paranoia, which gives unusual power and pay to Goldman's risk managers -- and a willingness to act in conflict with clients' interests if it helps Goldman make more money.

The critical moment came late last year -- coincidentally around the time of my NovaStar Financial (NYSE: NFI) short call -- when Goldman's CFO called a "mortgage risk" meeting which concluded that Goldman should reduce its MBS holdings and buy expensive insurance as protection against further losses. Despite this strategy shift, Goldman continued to package risky mortgages to sell to investors. Many of these clients took losses while Goldman made money. (I think if it was truly concerned about its clients' well-being, it would have warned them of the dangers it saw.)

Goldman has a relatively flat management hierarchy which allows people closest to the markets to get their views heard. And one of the keys to adapting to risk at Goldman is the unusual power and pay of its risk managers. Its controller's office, the group responsible for valuing Goldman's huge positions, has 1,100 people, including 20 PhDs. If there is a dispute, the controller is always deemed right unless the trading desk can make a convincing case for an alternate valuation.

Continue reading How Goldman's risk managers mined mortgage gold

How Goldman's risk managers mined mortgage gold originally appeared on BloggingStocks on Mon, 19 Nov 2007 13:18:00 EST. Please see our terms for use of feeds.

The housing index just can't rally for a minute. The thing's amazing. The stress of the system is so clearly manifested by this that I have to wonder if the Fed wants this index lower.

The fact that the Fed's speakers never mention things like this index and the homebuilders makes me wonder if this group is actually what the Fed wants to put out of business. I wonder if the Fed thinks that Pulte (NYSE: PHM) (Cramer's Take) and Horton (NYSE: DHI) (Cramer's Take) and Lennar (NYSE: LEN) (Cramer's Take) and Standard Pacific (NYSE: SPF) (Cramer's Take) and Centex (NYSE: CTX) (Cramer's Take) need to go bankrupt before the Fed can ease any more.

Many of these firms lent money recklessly. Are the Fed heads thinking these companies need to pay like the New Centurys and the NovaStars (NYSE: NFI) (Cramer's Take) did? (Are the feds, by the way, thinking that this GMAC company has to go because that was a huge provider of crummy mortgages?)

Continue reading Cramer on BloggingStocks: Belly-up builder would tip the scales

Cramer on BloggingStocks: Belly-up builder would tip the scales originally appeared on BloggingStocks on Mon, 19 Nov 2007 08:44:00 EST. Please see our terms for use of feeds.

JC Penney (NYSE: JCP) is trading off almost 4% after cutting its holiday sales outlook.

InfoSpace (NASDAQ: INSP) is up 7% after announcing a special dividend.

Telestone Technologies (NASDAQ: TSTC) is trading up 26% on strong earnings.

Advanced Life Sciences (NASDAQ: ADLS) is up on news of a successful trial of one of its drugs.

Sina (NASDAQ: SINA) is down 10% on weak earnings.

NovaStar Financial (NYSE: NFI) is down 39% on poor earnings and the possibility that its shares could be de-listed.

Stocks trading in the pre-market may open at different prices in the regular session.

Douglas A. McIntyre is an editor at 247wallst.com

Big pre-market movers originally appeared on BloggingStocks on Thu, 15 Nov 2007 08:33:00 EST. Please see our terms for use of feeds.

Continue reading Lululemon underscores the strength of short sellers' research

Lululemon underscores the strength of short sellers' research originally appeared on BloggingStocks on Wed, 14 Nov 2007 16:15:00 EST. Please see our terms for use of feeds.

What a fantastic time to own oil, gold, or any currency other than the dollar! And what a wonderful world it must be for foreclosure lawyers! How can you profit? Buy non-dollar currencies, lock in your heating oil price, and consider shorting mortgage insurers.

The statistics are mind-numbingly awful. The price of oil hit a record $96 a barrel, up 300% from $24 in January 2001. Gold is near a record high at $800, the dollar is at record lows -- for instance it takes $2.08 to buy a British pound. Housing, which has been tumbling from its peak in August 2006, is hurting too -- with foreclosures up 100% in the last year. And the mortgage meltdown has led to big layoffs -- my firm counts 70,087 finance layoffs by 42 companies so far this year.

There are three ways you can profit from this trend. First, you can buy currencies -- like the pound and the Euro -- which are getting stronger as the dollar weakens. Second, if you heat your house with oil, you can consider locking in a fixed price -- because oil is clearly going to keep going up.

Continue reading What $96 oil, $800 gold, a 100% foreclosure spike, and a $2.08 British pound mean to you

What $96 oil, $800 gold, a 100% foreclosure spike, and a $2.08 British pound mean to you originally appeared on BloggingStocks on Thu, 01 Nov 2007 10:10:00 EST. Please see our terms for use of feeds.

Novastar suspends dividend; no longer a REIT originally appeared on BloggingStocks on Mon, 17 Sep 2007 19:15:00 EST. Please see our terms for use of feeds.

The New York Times [registration required] reports that American Home Mortgage Investment Corp. (NYSE: AHM) is shutting its doors thanks to the fear of its lenders -- who provide the wholesale money they lend to home buyers -- that they won't get their money back. Doug McIntyre posted about this here. Several of AHM's peers -- IndyMac Bancorp (NYSE: IMB) and Accredited Home Lenders Holding (NASDAQ: LEND) -- are also in rough shape.

Last October, I began looking for ways to profit from the collapse in the housing market. My best idea -- posted in December -- was to short shares of NovaStar Financial (NYSE: NFI) which dropped from $116 to $7.19. This post got the attention of a reporter from NPR's MarketPlace who dropped by my office this week to interview me about where the next opportunities for short profits might lie.

My answer is that I don't know. That's because the hedge funds, endowments, pension funds, and insurance companies that buy the mortgage backed securities (MBS) constructed from the loans that NovaStar and its peers originate are not disclosing the value of their MBS holdings. To identify short selling opportunities, I'd like to know this information because many MBS holders will be wiped out.

Continue reading Credit crunch hitting mortgages: where can you profit next?

Credit crunch hitting mortgages: where can you profit next? originally appeared on BloggingStocks on Fri, 03 Aug 2007 10:00:00 EST. Please see our terms for use of feeds.

Last March, I wrote a post which suggested that the mortgage insurance industry would take a hit as a result of the subprime mortgage meltdown. Today's New York Times [registration required] suggests that prediction was correct -- two leading mortgage insurers are writing down the value of their subprime mortgage subsidiary.

Specifically, the Mortgage Guaranty Insurance Corporation (NYSE: MGIC) said last night that it would write down its $516 million investment in Credit-Based Asset Servicing and Securitization (C-Bass) -- possibly to zero. Radian Group Inc. (NYSE: RDN) which has a $518 million stake in C-Bass, also said it might have to write off its investment completely.

Meanwhile, NovaStar Financial Group (NYSE: NFI) whose subprime mortgages MGIC insures, has fallen 91% to $10.83 from the split-adjusted $116 at which it traded in December when I suggested shorting it.

Continue reading Mortgage insurance's meltdown follows subprime's

Mortgage insurance's meltdown follows subprime's originally appeared on BloggingStocks on Tue, 31 Jul 2007 12:05:00 EST. Please see our terms for use of feeds.

Computer Sciences(NYSE:CSC) call volume and volatility spikes on renewed speculation. CSC is recently up .97 to $61.27 on unconfirmed deal chatter Blackstone(NYSE:BX) or Hewlett Packard (NYSE:HPQ) will make a bid. CSC is frequently chatted as being sold to IBM (NYSE:IBM), Lockheed Martin(NYSE:LMT), United Technologies (NYSE:UTX) or private equity after Apollo Managements' bid for the CSC failed in the spring of 2006. CSC July 62.5 calls have traded 126 times on transaction volume of 3,459 contracts above its open interest of 2,356 contracts. CSC August option implied volatility of 36 is above its 26-week average of 25 according to Track Data, suggesting larger price fluctuations.

Option volume leaders today are: Novastar Financial (NASDAQ:NFI) and Apple Computer (NASDAQ:AAPL).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Option update 7-17-07: Computer Sciences call volume and volatility spikes on renewed speculation originally appeared on BloggingStocks on Tue, 17 Jul 2007 11:45:00 EST. Please see our terms for use of feeds.

Yahoo Inc. (NASDAQ: YHOO) -- July options expensive into July EPS & Speculation. YHOO is recently trading up $0.19 to $27.61. YHOO is expected to report EPS on July 17. YHOO is frequently mentioned as a merger candidate of MSFT and there are rumors of upper level management changes. YHOO July option implied volatility of 40 is above its 26-week average of 40 according to Track Data, suggesting larger risk.

Brinker International (NYSE: EAT) -- volatility Flat as activists investors circle Restaurant concepts. EAT operates restaurant concepts including Chili's, Macaroni Grill, Maggiano's & On the Border. EAT reported a 2.8% decrease in same store sales in May. EAT is expected to report EPS on August 7. SPHN says "sales turnaround could take longer than expected, as changes at both Chili's and On The Border are in preliminary stages." SPHN goes on to say, "EAT is currently trading at 17.1x our FY08 EPS estimate of $1.89, vs. the group at 19.7x." EAT has a market cap of $3.5 billion with long-term debt of $593 million. EAT reported quarterly March 2007 revenue of $1.1 billion. EAT over all option implied volatility of 28 is near its 26-week average according to Track Data, suggesting non-directional risk.

The Volatility Index for S&P 500 Options (VIX) is up 1.06 to 15.93.

Option volume leaders today are: Yahoo Inc. (NASDAQ: YHOO), Apple Inc. (NASDAQ: AAPL), Google Inc. (NASDAQ: GOOG) and NovaStar Financial (NYSE: NFI).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Option update 6-7-07: Yahoo July options up originally appeared on BloggingStocks on Thu, 07 Jun 2007 13:30:00 EST. Please see our terms for use of feeds.

Jeffries Group (NYSE: JEF) -- implied volatility flat on heavy call volume on renewed chatter. JEF, an investment bank engaged in financial product execution services and asset management, is recently up $.41 to $27.91 on renewed speculative takeover chatter. Merrill Lynch (NYSE: MER) has been frequently mentioned as interested in JEF. Keefe Bruyette says we "maintain our Outperform rating as we believe JEF has done an excellent job diversifying, expanding and growing its existing businesses as well as entering new ones." JEF call option volume of 4,986 contracts compares to put volume of 393 contracts. JEF May option implied volatility of 33 is near its 26-week average according to Track Data, suggesting non-directional price risks.

Google Inc. (NYSE: GOOG) -- April straddle at $21.90 into 4/19 EPS & Outlook; indicates Risk. GOOG will report EPS after the close of trading on 4/19. Piper has a $630 price target on GOOG. GOOG call option volume of 22,964 contracts compares to put volume of 14,716 contracts. GOOG May option implied volatility of 32 is near its 26-week average of 34 according to Track Data, suggesting non-direction risk after EPS.

Option volume leaders today are: Yahoo Inc. (NASDAQ: YHOO), JPMorgan Chase & Co. (NYSE: JPM), NovaStar Financial (NYSE: NFI) and Intel Corp. (NASDAQ: INTC).

Daily Option Update is provided by Stock Options Specialist Paul Foster of theflyonthewall.com.

Option update 4-18-07: Google, Jeffries originally appeared on BloggingStocks on Wed, 18 Apr 2007 12:36:00 EST. Please see our terms for use of feeds.

Government officials have been emitting a lot of gas about how problems in the mortgage market are nothing to worry about because they're limited to the subprime sector. But today's New York Times [registration required] shows that the problems have spread to the higher credit quality Alt-A tier.

I am new to the mortgage market -- particularly all these credit tiers like subprime and Alt-A. But I spent a summer in Washington a few decades ago working with the Federal Deposit Insurance Corporation (FDIC) helping it dig out of an avalanche of bank failures due to the collapse of the real estate market. And the current situation strikes me as much worse because it's much bigger and due to securitization, the contagion is in the hands of pension funds, insurance companies, and hedge funds as well.

Here's the situation. Alt-A loans -- made to borrowers with credit ratings that fall between prime and subprime -- make up 10% of all mortgages outstanding at the end up 2006 and 18% of new loans made last year. And combined, subprime and Alt-A loans account for 21% of loans outstanding and 39% of mortgages made in 2006.

But the government has been issuing statements designed to assure us -- falsely -- that the mortgage problem is limited to subprime.

Continue reading Lost on subprime? Don't be fooled again with Alt-A

Lost on subprime? Don't be fooled again with Alt-A originally appeared on BloggingStocks on Tue, 10 Apr 2007 11:45:00 EST. Please see our terms for use of feeds.

We are beginning to pay the price for an economy that rewards the top 0.01% at the expense of the other 99.99%. Why and how did we get here? How can you profit? The answer to the first question is a long one. As for the second, I think it makes sense to consider global investments.

Why did we get here? In 2001, the government wanted to undo what it perceived as the economic policy mistakes of the previous Bush administration. These included raising taxes to reduce the government deficit and failing to move quickly enough to stop an economic slowdown. The then-new administration was determined to gain reelection by doing the opposite of the first Bush administration.

How this policy was achieved is quite clear -- the administration cut taxes and interest rates. This lowered the cost of borrowing money and lifted the after-tax returns from buying an asset and selling it at a profit. The private sector found many ways to exploit these newly created profit opportunities, including these three:

Continue reading Going global to profit in a winner-take-all society

Going global to profit in a winner-take-all society originally appeared on BloggingStocks on Mon, 02 Apr 2007 12:11:00 EST. Please see our terms for use of feeds.

NovaStar Financial and Ponzi finance originally appeared on BloggingStocks on Mon, 02 Apr 2007 10:57:00 EST. Please see our terms for use of feeds.