Greg Weston

Redwood Trust: From $30 to $4 by Year-End?

SR9: I was never able to get shares of CRZ to borrow for very long, so I shorted via options, all of which expired last year.

The one time I have ever been long an mREIT was snapping up some NCT when it fell below 30 cents. I sold it a couple days later for a nice profit.

I made a profit on RWT, though not as much as I would have liked, nor as much as if I had just went short SPY the same period.

In the end they were able to find secure financing with their $12 equity offering, and around that point I gave up and covered my position. The company is still somewhat overvalued, but they are in no danger of falling to $4, as they were before the offering.

I lack the time right now to do the DD needed to short individual names, and right now am only short CS and one smaller financial that I investigated may write about soon, but will not mention publicly.

Redwood Trust: From $30 to $4 by Year-End?

SR9: I recently increased my position when my broker let me know that more shares were available to short.

Redwood Trust: From $30 to $4 by Year-End?

JCNP7: While Patrick's bullish calls on mortgage finance turned out to be quite wrong, to his great credit he has written many informative articles here and elsewhere online about the industry, and I appreciated his comments here on my RWT article.

When we one day purge the corruption that has long afflicted the mortgage finance sector, I think he will have a good record in identifying the best companies. Until then I will continue my profitable hobby of looking for the worst.

A Short Update on My Four Short Ideas

Bogey: thanks for the update from NY

Matt: Bear market rallies are to be expected.

As for the reason why, I am no good at explaining short term market movements, which is why all of my articles deal with fundimentals.

That said, FED is one of the most heavily shorted stocks on the market, so short squeezes can always happen. I think current prices are a great opportunity to short FED.

A Short Update on My Four Short Ideas

Thank you Groty for the response. I typically give up responding to someone after more than one post that seems to show either gross or willful ignorance of a topic, or that asks me to do research for others.

A Short Update on My Four Short Ideas

tquill: I am a lawyer, not a financial adviser, so I can't talk to you via e-mail about investments (unless you have a real estate investment issue or financial fraud case).

Probably the best thing you can do to learn about options is open up a "practice account" using Yahoo or Google's "portfolio" option (other sites have this too) and see how you do.

Or perhaps open an options account with just a few thousand of real money.

A Short Update on My Four Short Ideas

Tquill: If you've got the stomach for FED's volatility, yes I do think today's run-up presents a good time to short FED calls.

Steve: My financial short calls have fallen a lot more than the average financial stock. You are wrong, my number is correct, and comes right from the mouth of the company:

"This loss includes $60 million (negative $1.84 per share) of net negative market valuation adjustments."

A Short Update on My Four Short Ideas

SRS asks:

Isn't it more accurate to say that CRZ "breached loan covenants" rather than saying that CRZ [was] "in default"?
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No, it would not. *In default* is more precise, because a breach may be minor or immaterial. There is no such thing as a *immaterial default.*

You don't have to be a lawyer to know this, I would expect these terms to be familier to anyone in finance.

A Short Update on My Four Short Ideas

Matt C: DSL/FED/BKUNA/CRZ/RWT puts are expensive for a reason of course, and I have not done much of this lately.

Shorting the calls on the stocks when they have their random bear market rallies, however, has worked quite well for me.

A Short Update on My Four Short Ideas

Portfolio Manager: By paying a premium as you did, or else in the options market.

Or you can short some of the larger financials, But profits may be lower since they are pretty well covered by independent sources, and there is always the hard to value premium they may have from potential too big to fail bailouts.

The smaller near-dead financials are a great way, however, to make a large profit just if current trends continue, and even bigger if they get worse.

A Short Update on My Four Short Ideas

Value Dope: predicting a trend in the PPS of a stock will continue is no more or less valuable than predicting the trend will reverse.

Shorting a stock that goes down is no more or less profitable whether the stock had been going up or down before you made your trade. So I don't understand what point you are trying to make. My articles are not attempts at expose, they are attempts to analytically value companies and make informed near-term and long-term estimates of their future value using the best available data.

A Short Update on My Four Short Ideas

General Update: CRZ was able to get its loan covenants reduced to a minimum equity of $40 million.

It will probably violate this new covenant by the end of the current quarter. CMBX junior tranches have fallen to new record lows lately, and suffer from much higher spreads than in the close of Q2.

SBG: I made a variety of estimates based on different accounting assumptions. This estimate you reference was of -reported book value ex income from continuing operations-. And this makes sense, because I did not attempt to estimate earnings from operations.


User: Some of these stocks it is mostly too late for anyone to ever go short because of transaction costs. So some of my article was intended for those in my situation of considering when to cover.

For current shorts with higher entry points (like me), there is no reason to cover, because the stock will almost certainly go lower.

Redwood Trust: From $30 to $4 by Year-End?

To expand a bit on my response to unclelonghair:

When financial institutions try to stick investors with gigantic losses on investments that were marketed as "investment grade", they are often sorely disappointed. Look at the recent auction rate settlements for a timely example. And to think this can happen without any fight is even harder to believe.

If you invest in RWT, remember that it sold lots "AAA" and "AA" securities that are now worth much less than at the time of sale. You can bet some lawyers are reading the sales documents right now looking for material misrepresentations.

Again, this is a peripheral point, but given the scale of the billions of securities that RWT sold, could blow up in the company's face. Nevermind the poor state of the company if this doesn't happen.

Redwood Trust: From $30 to $4 by Year-End?

Craigla1, My estimate for Q2 writedowns was $82 million, and the actual write-down was $60 million. I think I did pretty well with this, especially considering I wrote the article before Q2 was even over, and because management has a huge amount of discretion in valuing its assets.

The stock dropped quite a bit after earnings came out, so the market, after it got RWT's report, seemed to agree with me that this company is doing very poorly.

Tquill: I still own puts and have no short-term intention to sell. My August puts will expire soon for a good profit, and I own some longer puts as well. I previously was short the stock, but was forced to cover when my broker was no longer able to find shares to short. Clearly demand is huge for betting against this company.

I have never seen a case where a company was very difficult to short because of a huge demand for shares to short, and the company actually did well. Go read Herb Greenburg's old columns and then check out the current quotes of those companies.

Packer:the CMBX-1 series is largely based on 2005 securitizations, and therefore likely mostly a mix of 2004 and early 2005 loans. Click on the constituents tab on the quote screen for the first CMBX to see this.

UncleLongHair: I am not saying that I completely disagree with marking down liabilities. I start to have a problem mainly when a company marks down its general obligations.

I did not rest my case against RWT based on supposedly non-recourse debt becoming recourse, but I do think that investors should be always be cautious with claims about debt being non-recourse. When a going concern defaults on a debt, the creditors will look at all of their options. As a lawyer I have seen this first hand. But this is a somewhat tangential point. Even if the debt is non-recourse, RWT is still a sell.

Sorry, do not know have time to respond to other comments at the moment, (and abusive ones will be ignored.)

Redwood Trust: From $30 to $4 by Year-End?

Thank you for the nice thoughts wez.

First time I've ever had someone try to censor me, though to their great credit the Seeking Alpha editors let me know about the complaint right away, and were quick to put the article back up after I e-mailed a response showing just how nonsensical the davidfoulger/smoothjaz... screeds were.