BetterInvestor

The Long Case for Redwood Trust

What incredibly bad advice this article has! The article makes a "long case" for RWT, but the author is the SINGLE LARGEST OWNER of the company, which has dropped by more than 50% from its early 2007 high. Ouch!

While the author of this article has been buying RWT, insiders are selling. In the past 3 months insiders have bought 11,758 shares and sold 121,394 shares, a more than 10 to 1 ratio of selling to buying. This data from the Nasdaq web site, go check yourself.

Also disturbing is both the company president and one of the VP's have announced their retirements in the past few months.

One thing I will give RWT is that is has an incredible PR machine. "Yes we have a portfolio of toxic waste mortgage assets," they say, "but the losses will be bourne by the buyers of our CDOs, not us."

But what about lawsuits? What about provisions that let the CDO owners force RWT to buy back some of the mortgages? RWT on its website says it provides "credit enhancement" to 10% of outstanding jumbo mortgages. The majority of jumbo mortgages are in California and Florida. I wonder how long it will be before RWT will have to start "enchancing" those mortgages as foreclosures soar to record highs in those states and our economy enters a recession.

As for the track record of "Value Investor Newsletter", on this very site the newsletter featured suggested going long Indymac Back when it was around $33, and now it is at $5, and FBR at 6.33, which is now at 3.

Sorry, I am not impressed. I am, by the way, an owner of RWT puts, so I am just as biased as Mr Weitz. But unlike him, I have made a lot of money on this stock, because I am short the stock via owning several classes of RWT puts.