NovaStar: Not Exactly Pennies From Heaven

NovaStar Noise: With Novastar (NFI) falling 28% yesterday to $5.16, you could argue that it is officially a penny stock -- at least it is if the stock stays where it is and if the company pays its dividend for last year. Stocks fall by the amount of their dividends; a $5 dividend, which is about what the company would now pay based on numbers it has presented, would result in a stock that trades for pennies.

Speaking of NovaStar: I'm getting multiple comments on these boards wondering why I only focused on NovaStar, and not New Century. The bigger question should be why I only focused on Novastar and not New Century (NEW), IndyMac (NDE), Fremont General (FMT) and a few others. The reason is because at the time, NovaStar appeared to have its own set of circumstances that were worthy of reporting, with subprime as the connecting overlay with the rest. I cover specific companies and their issues, not industries. One mortgage company is enough!

Private Equity Enquiry: Will be interesting to see how any spread of the subprime malady to prime impacts the ability for some of these private equity deals to get done. Sure they have plenty of cash, but the mantra is to boost the leverage, which requires borrowing from others. Not good if we were to enter a credit crunch, or if credit sources merely become more hesitant.

Recession Reality: As always, Irwin Kellner puts things in perspective, this time with his latest his latest missive on the economy. "One thing seems certain," he writes, "The next recession will arrive when it's least expected. Always has, always will."

NFI 1-yr chart: