Vad's Best Ideas

My fund was 90% invested in sub prime lenders as of yesterday. So one might have expected that with most lenders down in double digits today my fund will quickly move in the bottom 50 again, but guess what it's not going to happen- at least today. After the closing bell yesterday both CFC and NFI reported results that confirmed my thoughts on the sub prime- while all the lenders will struggle in the near term - long term most of them should survive...

NovaStar reported book value is way over $400M with a market cap of $50M and because of the shrewd management moves at least in the short term the liquidity on hand is sufficient to survive the storm. Countrywide is simply too big to fail and while profits might and will evaporate for the next 12 months or so with $49B in available credit CFC is definitely not going out of business.

Now back to the bad news- while CFC, TMA, DFC and IMB all are down in double digits today. But my larger positions with LEND and NFI are providing a hedge with huge gains... LEND is more likely now to get bought and thus the spread between the expected sale price of $15 a share and yesterday's closing price has been closing slowly...I am not sure the transaction will go through but market certainly believes its possible I guess.

Another funny point- now Cramer ( I think he has responded my bashing yesterday :)) is saying that sub prime is the place to be because Fed might cut the rates :) While I am not that that will happen on Monday like Cramer thinks I think that expectation now is that the next move is definitely down not up :)

Even that logic might be false because all the liquidity that Fed is pumping into the system should theoretically increase inflation which does not bode well for the rate outlook.

So long story short- it's a trimming day today- I've sold some NFI this morning to get back to 20% with a limit order of $5.80 and have another limit in for LEND at $6.80... I will reinvest the proceeds in the most beaten up of my picks IMB, TMA and CFC...

Time for coffee and chocolate again,
Cheers

Comments: View Comments |  Friday August 10, 2007