HSBC, Mortgage REITs, New Century and Novastar

Roger Nusbaum submits: So HSBC (HBC) is getting a lot of attention because of problems in the sub-prime lending area. Someone correct me, but didn't HSBC buy Household a while back?

I wrote negatively about HSBC a couple of years ago because I did not see how a zillion very small accounts in China could be very profitable.

I have never been a fan of sub-prime lenders because of the blowups that come along every now and then.

While I would not call HSBC's stock a blow up, the action in New Century (NEW) is a blow up. Novastar (NFI) is another one capable of blowing up now and then and was down 10% Thursday.

I wrote about the mortgage REITs here in 2004; never been a fan.

Full disclosure: one client asked me to buy NEW a while back. I could not talk him out of it, but I sold it Thursday at the opening print.

Comments

[David Jackson:]

I love the way you "join the dots", Roger. And you were right! Look at this article today:

Rise in Sub-Prime Defaults Leave Investors Asking Who's Next

2007 Feb 09 08:33 AM

[Roger Nusbaum:]

thank you David

2007 Feb 09 11:11 AM

[Malkiel:]

It should be understood about NEW that their blowup was caused by a sudden announcement of mismanaged accounting leading to postponed reporting that would have sunk the stock price even in a booming mortgage market. Those of us who bought it for the dividend had no warning of the company's specific accounting issue and, in fact, they are not in bad shape in spite of it (in regard to their operations and cash position, not the stock). It doesn't work to add them into the thesis and make them sound like part of a bursting bubble because of the stock price drop, their problem is company-specific...

2007 Feb 09 11:15 AM

[Roger Nusbaum:]

you might be right, I don't know but companies in the business of selling complex financial instruments to individuals seem to have this problem more than most other sectors.

2007 Feb 09 02:36 PM