March 03, 2007

Dot-com to dot-condo - company flame-outs, criminal investigations, and the disintegration of an industry. Subprime #2 New Century blows up

Damn I wish I had had the guts to short this one. Oh well, at least I pulled the trigger on LEND and CFC puts, two other big sub-prime lenders that are also flaming out. But damn, New Century is doing it IN STYLE!

Not only have they'ed on the stock side, not only have they helped bring the world financial markets to its knees last week, but noooooo, they're hitting the flame-out-trifecta, with the oh-too-predictable criminal investigation now underway.

Frog marches do earn the style points in my books. Bravo New Century! Bravo! Couldn't have scripted it any better. 10.0.

Now come the mass layoffs, the office closings, the shareholder lawsuits, and the "how could this happen" MSM stories. And NEW is just one of many. Here we go.

I think all the REIC insider-selling CEO stock manipulators are feeling more nervous by the day, and are probably thinking of making their get-away to Belize or Angola or somewhere pretty soon.

Right Angelo Mozilo (Countrywide)? Right Bob and Bruce Toll (Toll Brothers)? Right Bruce Karatz (KB Home)? Right Brad Morrice (New Century)? Right James Konrath (Accredited)?

SAN FRANCISCO (MarketWatch) -- New Century Financial Corp. said late Friday that it's facing a federal criminal probe and will likely breach a major lending covenant with its financial backers, bringing into question the survival of the second-largest U.S. subprime-mortgage lender.

The U.S. Attorney's Office for the Central District of California is conducting a federal criminal inquiry into trading in New Century securities as well as accounting errors, the company wrote in a regulatory filing late Friday.

The Securities and Exchange Commission also is looking into the company, as is the regulatory arm of the New York Stock Exchange, New Century disclosed. The company added that it is complying with all three inquiries.

Shares of New Century were down almost 25% in after-hours trading Friday at about $11, after falling more than 7% in the regular session to $14.65.

And this note on New Century's IR website today:

In light of New Century Financial Corporation's February 7, 2007 news release (New Century Financial Corporation to Restate Financial Statements for the quarters Ended March 31, June 30 and September 30, 2006), the financial information related to the quarters ended March 31, June 30 and September 30, 2006 should not be relied upon and is included on this Web site for historical archive purposes only.


bozonian said...

Keith, not only have my puts paid off, I've shorted the same companies over and over and they keep putting out.

I just told myself, "If I truly believe what I've been talking about for the past 2 years, now is the time to profit from it".

I'm buying them again! CFC came down from 45 through the March40 puts and is now knocking on 35's door so I bought the April35s. You might get one more dead cat bounce that cheapens the puts to buy some more.

The Wall Street dolts keep putting money back into CFC, AHM, and LEND only to be smacked down again and again.

If not Monday, then within 2 months we are going to see all the mortgage players, debtors, creditors and insurers taking huge, possibly fatal, losses. The payback from 5 years of fake growth will be compressed into 3 months of crash. Wall Street is finally getting it after being whacked on the head with the sub prime baseball bat. Sub prime and mortgage in general is pure poison.

The only people to have profited from all this were the salesmen and brokers who already took their commish and banked it offshore.

I have lost a lot of respect for "economists" and Cramer for failing to see the lending industry rotting from the inside for the last 2 years. Fortunately, I knew better thanks to your blog and others.

Anonymous said...

Ah, finally the bush built scheitt sandwich commeth, Congrats to all you 59 million that wanted this. It has begun!!!! Here here.

amigauser said...

Thought I was on Fucked company again, instead of Fucked real estate :-)

The real estate industry bubble affects far more people than the bubble ever did, this guarantees that the Fed, the Bush government, the Senate and congress will do whatever is needed to stop the Housing bubble imploding.

They will print money until their is no trees left ( look at M3 from around the world).
They will starts wars to get the economy moving (war with Iran - coming soon)

bozonian said...

Monday morning is looking like it might register in the history books guys.

The reason is not just the tanking of NEW and FMT. It will be the confirmation to investors that housing is going to crater, and crater hard and take everything else with it.

I'm putting everything on the table. All my cash will be going into shorting anything having to do with mortgage lending, not just subprime.

hurin said...

I knew this would happen eventually, but not that it is I'm amazed at the spead at which things are unraveling.

There isn't really anything the powers can do at this point, the only thing that could breate new life into the housing market is to lower interest rates, but that would cause the dollar to drop furter and completely collapse the yen carry trade.

Anonymous said...

Yes, Monday is beginning to look ugly, Friday was to be the bloodbath - but no "MathMagic" will stop this forvever.

kilgore said...

Check out the Yahoo finance message board on this one. Funny as hell. It would be even funnier if so many of these poor souls weren't obvious retirees with too much time on their hands, learning the hard way that trading stocks shouldn't be a hobby.

Guy Daley said...

The interesting thing, the bulk of the ARMS haven't begun to adjust yet. Its like a big anaconda that ate a pgymy hippo. We haven't reached the bulge yet. That's supposed to happen later this year? 2008. Dr. Housing Bubble has a nice chart on it. Not only subprimes but the jumbos too. So if its gotten this bad before most of the ARMs being to adjust, what happens when it does?

Even more importantly, when does the UK start to implode? There bubble dwarfs ours. Maybe our implosions will feed off of each other?

Who started this any zombie can buy a $500K house anyway and it wasn't Greenspan that figured up these "creative" loans. Its fun to fingerpoint, who was it?

Anonymous said...

Thanks Bush! aauugghh!

Anonymous said...

Now come the mass layoffs, the office closings, the shareholder lawsuits, and the "how could this happen" MSM stories. And NEW is just one of many. Here we go.

Ya how could this happen when there is nothing wrong with the housing market??

Anonymous said...

"It's not an event that has any scientific value, but it's something everybody can enjoy,"

-George Bush when asked about [turn in]the housing market.

Anonymous said...

"I was quite taken aback by the magnitude of the numbers reeling off – it was almost as if somebody was spinning an odometer illegally,"


Jim Zarroli of National Public Radio reported one of the most colorful quotes of the day on the topic. He interviewed the chief investment strategist of Standard & Poor's about the Dow dropping 200 points in a matter of minutes around 3 p.m. "I was quite taken aback by the magnitude of the numbers reeling off – it was almost as if somebody was spinning an odometer illegally," Sam Stovall said.

Trading stocks, options and futures could be extremely problematic during a stock market panic. Trading systems tend to break down when volume surges and the system’s operators become emotional.

Anonymous said...


Think of all the F'ed people who just bought this POS.

Bear Stearns analysts upgraded New Century (NEW) one day before the company announced it was breaching covenants with its warehouse lenders, which was also the same day it came to light that NYSE and state criminal probes had been opened against the company for trading irregularities. Bear Stearns is itself heavily involved in mortgage lending at almost all levels. How credible does all this make Bear Stearns, I wonder?

Aaron Krowne said...


I think many of us will be treated to a rare historical spectacle en masse: riding stocks of worthless companies down to zero, where we automatically win and don't have to worry about a short squeeze.

chris g said...

Keith, you still have time to get into an Alt-A, no-doc lender like FED. They were mentioned in a Business Week article a few weeks ago. You may have posted an article about it. Personally, I think it's ironic that the company has the ticker symbol FED since the Federal Reserve, aided by Greenspunk himself, helped cause all this mess in the first place.

Anonymous said...

Well, I gotta hand it to you, Keith. 10.0 for style on this one! Nice.

Anonymous said...

I hope you folks will keep in mind what John M. Keynes learned back about 1920. Markets can remain irrational longer than you can remain solvent.

Mark in San Diego said...

I am beginning to feel sorry for the bottom of the food chain - Real Estate Agents - this is all happening way above their heads (and often intelligence). . .many still don't have a clue, and are towing the old line "now is the best time to buy" "Everyone wants to live in SD, PHX, LAS, etc. etc. . .they don't understand - NO LOANS NO SALES. . .only the best of the best credit ratings will get loans. Maybe we should be nice to them, and explain this all in a handout - kind of a public service from HP.

Mark in San Diego said...

The 800 pound gorilla. . .

No one in the MSM has connected the dots from subprime meltdown to massive foreclosures. . .if 30 or so subprimes (and more to come) are writing off billions of loans, hasn't anyone added all those figures up to get the real picture of foreclosures in the USA?? Subprime lenders have talked about late payments, defaults, etc., but all of this will be showing up in millions of empty houses soon. Come on MSM - add those figures up!!

dummycrat said...

The housing bubble (Bush's fault) is aweful but the dotcom bubble (Clinton creation) was wonderful.

It all makes sense in my little world

belchorama said...

Keith, thinking about joining you on the LEND short - went to google finance to look at the company and found the hysterical post below from last year. Guess this guy will be holding for more than a year to get back above water...what a "rational investment" he made!

"Trix - Aug 29, 2006 (1 post)
With the stock trading at Book Value, I decided to buy a bit at $31.17. I will hold my shares for a year or two, and sell at a favorable price. Some good rational for this pick can be found at this page I found:"

borkafatty said...
This comment has been removed by a blog administrator.
Mad Mike said...

Without option ARMs they were nothing. They built a house of straw. The thundering machines sputtered and stopped. Their leaders talked and talked and talked. But nothing could stem the avalanche. Their world crumbled. The cities exploded. A whirlwind of looting, a firestorm of fear. Men began to feed on men.

On the roads it was a white line nightmare. Only those mobile enough to scavenge, brutal enough to pillage would survive. The gangs took over the highways, ready to wage war for a tank of juice. And in this maelstrom of decay, ordinary men were battered and smashed.

Except for one man armed with an AK-47, and a Honda full of silver.

Anonymous said...
This comment has been removed by a blog administrator.
Anonymous said...

Wonderful summation can be found here: Finanacial Fantasy Land - Roger Rafter
"Risk has been imagined away, and the resulting imaginary profits are taken as reality."

Anonymous said...

"New Century Financial Corp. said late Friday..."

Change the name but the game is the same: the worst news comes out Friday after market close in a hope everyone's focused on the weekend and that two days off might temper their reactions come Monday morning. Get ready for a lot more bad news coming out this way...

bozonian said...

"I hope you folks will keep in mind what John M. Keynes learned back about 1920. Markets can remain irrational longer than you can remain solvent."

Exactly. "Longer than" has been the past few years. Now its Harvest Time for the bubble sitters.

I'm all in short.

Anonymous said...

Right now FED looks pretty juicy.

I'm trying to decide for the easy play, with low risk FED, or going straight for the big money, Goldman Sachs.

Golden Sacks is riding near 200 per share. PLENTY of room to fall. As of December they were holding millions of shares of almost all the sub prime lenders we are talking about here.

I'll be researching this all weekend.

goldilocks is dead said...

The market can be irrational to the downside as well as the upside. We've seen the alleged Goldilocks economy pushed by the sleazy CNBC ANAL-cysts since last July. Now we will see the big bad bear feeding on her rotting corpse.

RIP Goldilocks

Shakster said...

Martha Stewart would be appalled!The nerve of these scapegoats.Dog ,and pony show for the sheep?The Broad market will be pummelled,and CBs,SEC,and insiders know it.Time to trot out some actors so the sheep don't accidently get in touch with there inner Piranha.

Anonymous said...

What about all those people who no longer have jobs thanks to these lenders shutting their doors. With a negative savings rate and equity diminishing, how long before they're late on their house payments?