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Strategies & Market Trends : Value Investing
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To: pcyhuang who wrote (28098)9/17/2007 11:44:53 AM
From: MCsweet  Read Replies (1) of 78748
 
pcyhuang:

Interesting, but that is only a short-term trading opportunity for NFI, not a reason for a value investment IMO.

More relevant would be an in-depth discussion on the (1) prospects for NFI's ability to originate loans in current environment and more importantly (2) the degradation of the collateral on their books in light of continued expected weakness in housing/lending market and large number of ARM resets coming up and (3) ability to stay solvent.

Here is an excerpt from a recent press release:
In view of the impacts to the Company, Deloitte & Touche LLP, NovaStar's independent auditors, advised NovaStar in the last week of August 2007 that it was not willing to issue a consent or otherwise be associated with the rights offering unless the Company reissued its 2006 financial statements to include footnote disclosures regarding these matters. In addition, Deloitte further advised NovaStar that its reissued report on such financial statements would include an explanatory paragraph about the uncertainty of NovaStar's ability to continue as a "going concern".

So we have "going concern" issues. A mortgage-savvy investor might be able to make a lot of money on this, but I don't think my idol Benjamin Graham would touch it with a 10 foot pole. Please let me know where you disagree with my points above.

Best,
MC

PS: Just to point out that I wasn't late to the party, I (along with many others) warned about subprime issuers earlier this year. This warning would have been well heeded Message 23247010
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