February 24, 2007
All Fusion Abruptly Stops: NovaStar Implodes
Following my recent post about NEW and last December’s post about LEND, let’s look at the latest catastrophe: NFI. (Kudos to Herbie who has been critical of NFI for years — A for persistence, F for timing.)
Aside to Herb Greenberg: Please stop underlining text in your blog posts that isn’t a link - this is horrible netiquette - and quit using bold and italics so much while you’re at it, thanks.
You can see from the chart below that NFI blew up back in 2004, did the textbook Fibonacci retracement bounce, muddled along for a couple of years, and then imploded. Clearly, like the other subprime lender victims of late, the market has been signalling trouble for a long time… no smart money (trend follower) was hurt here, that’s for sure.
Here’s a look at the intraday chart, all sessions, since the blow up — lots of spots to get short (assuming there are shares to borrow).
February 25th, 2007 at 5:17 am
I couldn’t help but notice that the stock, after “imploding,” is basically back where it was when Herb first started harping on it — after having run up about 490% the first year after he dissed it. So, all in all, it’s a breakeven after 4 years. In spite of the fact that he may have been “right” after all, I wouldn’t think he’d want to use this one as an example of his “expertise.”
February 25th, 2007 at 12:34 pm
indeed
February 25th, 2007 at 10:35 pm
Is there a list out there of all the publicly traded subprime lenders? My searches are leading me primarily to privately held firms…
February 26th, 2007 at 2:38 am
It’s hell to be ahead of your time. I never invest in stuff like NFI, but it can cost you a fortune. Energy partnership stocks will eventually bite a lot of people, but until then, enjoy the party!
February 26th, 2007 at 7:27 am
Prospec: Here are the mortgage companies (sorted by market cap) listed at Yahoo, including LEND, NEW, and NFI, but you’re right, I think most of the strictly subprime guys (like ACC Capital and Long Beach Mortgage) are private.
February 26th, 2007 at 7:35 am
I entirely agree that the energy partnerships are a big minefield. If you hand over 50% of incremental revenue to the General Partner, your future is pretty bleak. But people are so starved for dividends, and dividend investors tend to be the least informed, that they’ve driven up the prices for the last few years, regardless of the facts. KMP in particular is vulnerable. But it could take years.
February 26th, 2007 at 9:57 am
Actually it’s 50% of incremental cash flow, which is about 150% of free cash flow. If you were wondering.
February 26th, 2007 at 10:35 am
bjk: I wasn’t and haven’t looked at the FS myself, but I’ll take your word for it. ;-) (How are they paying themselves 150% of FCF?)
February 26th, 2007 at 7:04 pm
What’s the FS? They’re called MLPs, and they pay out 150% of FCF by selling additional shares every year. It’s a scheme where the company sells shares, raises the dividend, drives up the share price, sells more shares, etc. It’s a ponzi scheme, and dozens of these have come public the last few years. Retirees love them for the high dividends and the very minimal tax advantages, but the high dividends are dependent on continued high share prices. The scam never changes, they just change the ticker symbols.
February 26th, 2007 at 9:26 pm
bjk: FS = financial statements (sorry for the shorthand).
February 28th, 2007 at 8:19 am
[…] A lot of my data is messed up (this rout obviously strained the system), but it looks like the worst intraday “tone” since July 2002. I don’t have much time to blog this morning, but here are a bunch of “notable” intraday (15-minute) charts. This plunge had a lot more to do with the psychology of the market post-NovaStar than with China, in my humble opinion. […]
March 6th, 2007 at 9:05 am
[…] All Fusion Abruptly Stops: NovaStar Implodes (Feb. 24, 2007) […]