Short Stories: NovaStar's 14% three-week return

Do you always make up lies about companies so that people will short the stock or sell their holdings in fear?

Take NFI for example in your above blog.

You said:

"Insider selling. Ed Mehrer, a director, sold over 84,000 shares on December 29. This is the latest in a three month pattern of insider selling -- during which time there was no insider buying;"



The fact is that Mehrer sold only 8000 shares per his 10b5-1 plan on December 29th, not even close to the 84,000 shares as you stated.

http://www.sec.gov/Archives/edgar/data/1025953/000102595307000004/xslF345X02/form4_ex.xml

Do you even know what a 10b5-1 plan is? Perhaps you should actually do some homework by visiting the SEC website here http://www.sec.gov/answers/insider.htm so you can better inform yourself and not mislead others so blatantly.


Also you said that no insiders were buying. I suppose you missed this little SEC filed nugget where the Chairman and CEO, who holds 1,135,239 shares bought some shares on the open market for his children recently? He has never sold any shares.

http://www.sec.gov/Archives/edgar/data/1025953/000102595306000168/xslF345X02/form4_ex.xml


Now that you've been shown to being either untruthful, lazy or both why should anyone believe a word about your bashing a company that you obvioulsly know nothing about?

People wishing to view the truth about NFI and the stock manipulation that is going on can go to the investor website created by investors who have thorough knowledge about the company and the way they do business at www.nfi-info.net and the company website at http://ir.novastarmortgage.com/phoenix.zhtml?c=84748&p=irol-irhome. You can also find relevant information at www.thesanitycheck.com to explain some of the market manipulation going on in the NFI stock. Also those looking for more information about the company can visit www.investorvillage.com and participate in a meaningful conservation about NFI. If you're looking to short and don't want the see the truth then you can visit the abandoned Yahoo message board which has been taken over by a group of bashers who spend their days and nights clogging the board and posting lies and half truths about the company.

Peter,

14% in 3 weeks isn't too bad, but as a risk/reward play it seems to be bucking the odds.

At 29 NFI had a 19.3% annual yield. It takes major stones to take that cost and the borrow cost on (guessing another 10-15% for the borrow).

At 24.95 NFI had a 22.4% annual yield. Pretty attractive to income investors who snapped up 2.1 million cheap shares today (far more than 5% of the company's total issued share count).

Successful shorts do some pretty complete due diligience before they place a bet against a company.

Somehow, I don't think you've done much DD here, so it's a good thing you don't plan to trade on your stories. You might lose your shorts.

Regards,
Rick

Peter:

Since, Herb Greenberg received his subpeona I guess he asked you to take over his bashing of NFI.

I'm not surprised you didn't list the source of that "Bleak Outlook" report. i beleive if you'll check it was paid for by an anti subprime group. And, I have one question for your poorly thought
out premise. What happens to those houses that are foreclosed on? They get resold and guess what the purchasers take out mortgages. What a surprise.

And, while you mention the odds of a rate cut may have been diminished you failed to mention that the unemployment rate remains at 4.5%. Seems people still working will try to save their house from foreclosure. Also, no rate cut will keep people from refinancing their adjustables after two year interest reset. So NFI may garner more interest in their portfolio. Oh yeah you forgot to mention the growing portfolio that is almost $20 billion.

I hope your more thorough at your hedge fund, I mean teaching job. And by the way, why did you pick NFI when their dividend for 2007 has been earned already because they will be paying out 2006 earnings. NFI production has been steadily increasing.
Wouldn't NEW have been a better target? Production has been dropping, dividend probably will be cut. I guess your just following orders.

Since NFI has been on the Reg.SHO list for 161 days as of today, how was a "normal" investor able to follow your advice to short NFI?

Don't you think that legally selling short 1/3 of a company's issued stock, and selling an additional several million shares through the Reg.SHO "market maker exemption" without ever delivering any of them might account for the price drop?

Persons who cover their short first might indeed make a profit, but those who delay could end up with huge losses, especially if they hold the position long enough to owe the $ 5.60 per share in annual dividends.

from the 10-q

In the ordinary course of business, the Company sells whole pools of loans with recourse for borrower defaults. When whole pools are sold as opposed to securitized, the third party has recourse against the Company for certain borrower defaults. Because the loans are no longer on the Company’s balance sheet, the recourse component is considered a guarantee. During the nine months ended September 30, 2006, the Company sold $1.5 billion of loans with recourse for borrower defaults. The Company maintained a $4.7 million reserve related to these guarantees as of September 30, 2006. During the nine months ended September 30, 2006 the Company paid $15.9 million in cash to repurchase loans sold to third parties.

how many of the loans with recorse will come back to them?

Thanks for all the comments. My post indicates that Mehrer sold 34,000 shares in the last two months and the graph I linked to indicates that the last 10 insider transactions have been sales -- with no purchases. For those who might be holding shares due to the dividend, I think a 22.3% dividend yield is extremely attractive -- but it also could be difficult to sustain. For those who are long NFI, it might be worth figuring out why JMP Securities downgraded the stock this morning. And why has NFI dropped 4.94% so far today? With 32.8% of the stock sold short as of December 12, why didn't JMP Securities conclude that NFI was a bargain at last Friday's price?

Steve, Hank, Rick & Marion have really made

Ms. Peter Cohan, President of Peter S. Cohan & Associates, a management consulting and venture capital firm, and a Professor of Management at Babson College.
LOOK LIKE A TOTAL LIAR & FOOL.
Wonder who is paying him to write such bogus bs
I AM SO GLAD TO SEE BLOGS LIKE THIS, PERHAPS DICK aka Peter will get to joing Herb in court ?

JMP Securities didn't conclude NFI was a bargain because usually analyst pick the bottom or near the bottom when downgrading a stock. It would have been great if they would have said NFI has made a nice run from $25 up to $37 and then downgraded because a pullback was necessary or inevitable. But to come out and downgrade it after about a 30% drop takes absolutely no skill whatsoever. I have been a holder of NFI for a while and will enjoy buying some more cheap shares. there is some support at the $23-$24 level, if it breaks they next stop would be about $18. and FYI- Peter is right about the selling:

12/29/06 MEHRER EDWARD W JR D Sold 8,000 $26.85 $214,800
12/22/06 MEHRER EDWARD W JR D Sold 8,000 $26.51 $212,080
11/28/06 MEHRER EDWARD W JR D Sold 10,000 $29.86 $298,576
11/24/06 MEHRER EDWARD W JR D Sold 8,000 $30.02 $240,160

You concern over NFI stock is warrunted but I am amazed that no one is paying attention to Pay Option Arms in states like California, Florida, Jersey, etc.

My question is this. Many people have been getting payoption arms with the full intention of only making the minimum payment. SO WHAT HAPPENS WHEN THEIR BALANCE ON THEIR MTG IS GREATER THAN THE HIGH CREDIT LIMIT. THIS DISTROYS YOU SCORES IF IT WAS A CREDIT CARD. I would imagine the bureaus would hit your scores even harder if it was a mtg.

HERE IS THE PROBLEM I FORSEE. LOTS OF PEOPLE BUYING HOMES IN FAST APPRECIATING STATES LIKE CALIFORNIA. THESE BUYERS CAN ONLY AFFORD TO MAKE THE MINIMUM PAYMENT BUT THEY DONT CARE BECAUSE THIER HOME IS APPRECIATING FASTER. Not any more. these people are upside down, scores are tanking, and they cant afford to refi out and the value of their property is droping.
Califoria foreclosures have doubled since last yr. Just waite.
WATCH LENDERS LIKE INDYMAC BANK, CHEVY CHASE, WELLS FARGO. BANKS THAT HAVE DONE OR PURCHASED LARGE AMOUNTS OF PAYOPTION ARMS IN CALIFORIA. I BELIEVE PAYOPTION ARMS AND INTEREST ONLY LOANS ARE A LARGE MAJORITY OF INDYMACS PARTFOLIO. Dont know where i read it but it would be great to find out.

Oh by the way most brokers I know use nova star subprime because they will average all the scores of all the borrowers on the loan. even if they dont have income. Industry standard is to use the mid score of the wage earner.

Another words brokers send nova star the deals that got turned down at other subprime lenders.