Re: 4/27/05 - NCANS' Bob O'Brien taken to task by "The Naked Short Selling Lie"'s James Brownfield
77. Posted Apr 27, 2005, 12:23 PM ET by Bob O'Brien
James:
Does being provably wrong bother you? I mean, I understand your desire to generalize things into the ground, as specifics aren't your friend in this kind of argument.
Take NFI, a case I am intimately familiar with.
They are one of RP's shorts, and have been on the Reg SHO list since day one.
"Geoff, No, the gist of my logic is that every time you hear someone complain about a company being abused by "naked short sellers", you go to the EDGAR site and download their SEC filings and in instance after instance you will always find a company that has raised capital, then wasted capital, handed off obscene sums of money to their boardroom executives, and then cried after the house was burned down..."
NFI has done none of the things you are describing. Strike one. In science, all you have to do to disprove a theory is prove the exceptions, and the theory has to be modified, or rejected. This isn't a lab, but you get the drift - your little folksy generality is wrong.
Or take INCX - Interchange. On the SHO list, also hasn't done anything you are describing. Strike two.
Or GMAI. Again, none of the things you are describing.
Strike three.
You are wrong, or lying, or dim.
It is now up to you to prove your statements. Start with NFI. Knock yourself out.
Or is it impossible to just admit that your cute little homilies don't apply to all companies on the SHO list, and that in fact it is nothing more than a terribly naive or simplistic worldview, or part of an agenda that ignores reality and simply repeats the lie in the hopes that it eventually is accepted as truth?
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78. Posted Apr 27, 2005, 12:49 PM ET by James Brownfield
(1) NFI is a company with a net worth of $426 million and a market cap in excess of a billion dollars. You may not LIKE where the market values NFI, but NFI is clearly not a victim of "naked short selling" or any other kind of selling for that matter. The central theme to the get after the "naked short sellers" is that naked short selling artificially depresses share prices and prevents companies from raising capital. NFI's share price is not artificially depressed by any stretch of the imagination and no one is stopping them from raising addition capital in the equity markets if they chose to do so. NFI may not fit the typical mold of what we're used to seeing in the arena of wrecked OTCBB and Pink Sheet companies complaining about "naked short selling", but clearly NFI is not a victim of anything.
(2) INCX is a company with a market cap of $61 million against a book value of $34 million. What's more, they even managed to raise nearly $40 million in new equity last year. If you own INCX, you might not like the value being assigned to your shares by the market, but yet again, we find another victim that's not really a victim.
(3) GMAI has a $250 million market cap. Considering their $60 million in tangible net worth, they don't look like much of a victim either.
This is so reminiscent of the scene in Python's Holy Grail where John Cleese accuses the "witch" of turning him into a newt. ("Well, I got better...") You clowns keep telling us that "naked short sellers" are running these companies into the ground. You just named three stocks that sell at hefty premiums to their book values and all three of them have managed to raise tens of millions of new equity over the past year.
If this is your idea of "victimization", I will start a corporation tomorrow and sell you all the shares you want for 150% of book value. Can you turn away a bargain like that? Afterall, the closest you can get with these three is INCX at 179% of book.
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82. Posted Apr 27, 2005, 7:46 PM ET by Bob O'Brien
James:
1) NFI is a financial services company. It is also a REIT, which is required to pay out 90% of its taxable income every year as a dividend to shareholders. REITs are measured by dividend yield. NFI's is about 22% on trailing 2004 actual dividends. Peers trade at approximately 12% or so. They have been on the SHO list since day one. If you can look at a company that is trading at a 60% discount to peers, and say with a straight face that they haven't been impacted by NSS, I would ask what a company that had been impacted by NSS was. That, and I would point out that the question wasn't whether you felt that NFI was fairly valued, but rather whether they fell under your description or not. They don't. So you simply change the discussion to one of valuations. Again, so you don't get confused, here's what you said and what I introduced NFI to counter:
"...the gist of my logic is that every time you hear someone complain about a company being abused by "naked short sellers", you go to the EDGAR site and download their SEC filings and in instance after instance you will always find a company that has raised capital, then wasted capital, handed off obscene sums of money to their boardroom executives, and then cried after the house was burned down..."
Words like always are fun. You use that word here. They "always" have raised capital, etc. etc. Except that NFI hasn't done the things you say always are the case.
So you are wrong, or lying.
2) Same goes for INCX. They were trading at $38 in December, now they are at $7 and change. Nothing changed in their fundamentals. Oh, except for the SHO list thing. So let's see, they've lost 80% of their market cap in 4 months or so on no news...and they are on the SHO list...and they also don't fall into the category of your "always" statements. So they are another example of how your "always" missive is in fact incorrect. That is two companies in a row that are exceptions to "always." You also try to convert that into a valuation discussion, rather than a test of "always." I don't blame you.
3) GMAI also is an exception to your "always" statement, and is another one you try to convert into a valuation discussion. I'm noticing a pattern here. When you are proven to be wrong, or lying, your try to move the target to something else. It's called intellectual and rhetorical dishonesty.
I won't even bother with your idiocy about Compudyne. The NASD has brought charges against a hedge fund that naked shorted 1/3 of the company's shares in 975 separate transactions, none of which the system stopped or caught. But in your lexicon, it's the company's fault.
Given how I have shown you to be either completely wrong or a liar, your observations at this point have all the gravitas of cotton candy. I can say you so far have "always" been wrong, and that would be a true statement.
So why should I waste any more of my time with someone who is "always" wrong, or is a liar?
Why should anyone?
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83. Posted Apr 27, 2005, 10:41 PM ET by James Brownfield
BooBoo, NFI doesn't fall under my description for what takes place with most OTCBB and Pink Sheet trash because it's clearly not a company that hasn't been victimized by anyone. I know you dislike their current market valuation, but their share prices is clearly not depressed, artificially or otherwise. NFI is a REIT for tax purposes only. In a traditional REIT, the company owns property. If the property is leveraged, and most REIT's employ some degree of leverage in their approach to managing a real estate portfolio, then they would have mortgages as a "LIABILITY" on their balance sheet. NFI is more of a reverse REIT. They don't own property, they own mortgages. As an entity that derives the bulk of its income from mortgage interest, they qualify for REIT status. Furthermore, owning mortgages is a great strategy if you're an income investor and your investment approach is geared towards preservation of principal. However, there is no upside potential in owning mortgages. A traditional REIT owns properties thereby providing the potential for future capital gains to investors. If all you own is mortgages, your upside is practically nil. That's why NFI's comps to other REIT's are so pitiful. So, no, NFI doesn't mimic the behavior of all of the OTCBB and Pink Sheet stocks that have raped their investors, but NFI clearly isn't a victim of any sellers, naked short or otherwise. And you have to be a complete financial dunce to compare its ratios to any other traditional REIT.
INCX is merely a company that went from being obscenely overvalued to being modestly overvalued. Even at $7 a share, the stock is trading at a fat premium to book value. I know that's of no comfort to anyone who was stupid enough to pay $38 a share for INCX, but if you are foolish enough to overpay for a company's stock when they're so ridiculously overvalued, you really don't have anyone to blame but yourself when the shares come back down to earth. It doesn't change the fact that, from a fundamental perspective, INCX remains overvalued and, therefore, can't be categorized as a victim of any seller, short or otherwise. It just means that anyone who bought at $38 and still owns the stock should spend some time and energy learning how to read an SEC filing.
If you are going to make assertions that "naked short sellers" are committing destructive acts in the markets, then the discussion must always come back to valuations. How else could you possibly quantify what's been destroyed if the conversation avoids the issue of valuations?
If the market caps continue to be well in excess of what a reasonable group of financial analysts would assign to a company, like we see with GMAI, then you don't have a leg to stand on. You and the rest of the "naked short seller" clowns insist that damage is being done in these markets. The SEC filings clearly demonstrate that this destruction in value is not taking place. One of my favorite sayings, "You don't get Lincoln money if someone wrecks your Ford," almost applies here. I say "almost" because what you've shown me so far is a bunch of Yugo's that used to sell for Lincoln prices but that now trade for Ford prices. You simply can not demonstrate that there has been any harm caused by "naked short sellers" if these companies still have market caps well in excess of what a reasonable person would pay for their shares.
I don't blame you for trying to brush aside the Compudyne mess. Here you find a company that really has trashed its shareholders' equity. But you've got to read the charges being brought against FBR very carefully. (And when you get some practice at "reading carefully", then maybe you should try your hand at an SEC filing or two.) FBR is not being charged with "naked short selling". FBR is on the hook for insider trading. Ignoring the key factor that triggers these regulatory actions is a common tactic for those parties who are hellbent on perpetuating the "naked short selling" lie.
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