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.

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.

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.

In the classic comedy Rush Hour 2, Chris Tucker explains his method of detection to Jackie Chan:

James Carter (Chris Tucker): Lee, let me introduce you to Carter's new theory of criminal investigation: follow the rich white man.
Lee (Jackie Chan): Follow the rich white man?
James Carter: Behind every big crime there's a rich white man waiting for his cut.

And sure enough, according to MarketWatch, most hedge funds made out like bandits in February, as they had correctly forecast the subprime lending crisis that led to the collapse of companies like Novastar Financial.

In the mind-boggling world of credit derivatives (Incidentally, go pick up a copy of Traders, Guns, and Money), even the experts can't quite seem to figure out who was bearing the risk that allowed the funds to succeed. Some suggest pensions funds and overseas investors, but no one really knows.

Continue reading The subprime crisis: Somebody's makin' money!

The subprime crisis: Somebody's makin' money! originally appeared on BloggingStocks on Thu, 05 Apr 2007 13:33:00 EST. Please see our terms for use of feeds.

When I logged onto Amazon.com to check out the new releases in business books, this headline jumped off the page: Real Estate Sale: Save up to 39%.

The headline was followed by this: Whether you're a real estate professional or a first-time home buyer, find all the guides you'll need for becoming a landlord, finding a mortgage, selling properties, and investing in one of the most time-tested and popular strategies for building wealth, all at up to 39% off for a limited time.

Among the deals:

• Flipping Properties: Generate Instant Cash Profits in Real Estate, which is 33% off.
• How to Be a Quick-Turn Real Estate Millionaire, which is 35% off.
• Investing in Duplexes, Triplexes, and Quads, which is 35% off.
• Why We Want You to Be Rich, which is 37% off (this book would be a ripoff at 99% off, in my opinion).

Granted, most books are on sale at Amazon (NASDAQ:AMZN). That's why I love it. But it does seem a bit unusual that they're advertising especially deep discounts on real estate books. One possible conclusion: people aren't buying them. If we go with the theory that the bull market in real estate was in fact a speculative bubble, this makes sense.

Continue reading Amazon.com points to end of real estate bubble?

Amazon.com points to end of real estate bubble? originally appeared on BloggingStocks on Sat, 17 Mar 2007 18:40:00 EST. Please see our terms for use of feeds.

With the recent collapse in the shares of NovaStar, a subprime mortgage lender, many investors learned an invaluable lesson: If you decide to buy a stock with a high short interest ratio, you do so at your own risk. I have always felt that short-sellers, on average, do far better research than longs. Short-sellers are famous for digging deep into financial statements (It was a Boston short-seller who originally uncovered red flags at Enron.), and performing down and dirty due diligence. Many long investors simply take corporate executives at their word, and rely on analyst research.

Herb Greenberg, a famous permabear who has uncovered accounting shenanigans at many companies over the years, was one of the first to raise questions about Novastar. Some investors however, seemed to relish the idea of waging a war with short-sellers. Newsletter writer Alan Newman directly poked fun at the shorts in December of 2004, saying "Given that the shorts have totally misplayed their hand and botched their analysis, the outcome could be disastrous for them." The stock was then at $50. It closed Friday at $8.48.

Greenberg's column also discussed the arrogant message board posts of short-bashing Novastar shareholders, one of the most outspoken of which was a former CAT scan machine salesman. The lesson for investors here is this: Always focus on the fundamentals of the business. Never invest in a stock because of a high short interest ratio (Some studies have shown that heavily-shorted stocks are more likely to under-perform the broader market) and, when in doubt, remember this: The shorts do very good research. If you're going to bet against them, you better have a good reason.

Battle shorts at your own risk originally appeared on BloggingStocks on Tue, 27 Feb 2007 15:50:00 EST. Please see our terms for use of feeds.