Nervousness just won't let up.... I transcribed the entire thread in the Club NFI site:
For non-joiners, you can begin the thread here:
<<What good is loaning your stock to someone for a fee, if their goal is to tank it?>>
One is making 8% of the value plus 18% on the dividend that is increasing. The institution has no intention of selling a stock like this any time soon.
If the short keeps the stock too low, then the institution will call the shorts and they must scramble to find new shares. Then, the price goes up, and the institution can sell.
The short game can only last if the short can make more than 30 or 40% per year with a stock like NFI. They have yet to do it, so the end has to be near for the shorts.
<< How does the lender recoup the loss? Does that imply they are not concerned about Rocker's attempt to get the price low enough to get out? >>
If they have no intention of selling, it does increase income by at least a few percentage points per year. If they want to add to the position, they would like to see lower prices, not higher. If they want to sell, what better set-up than to let a major short release the loaned shares into the market, and then call the shares back (or refuse to roll over the lending arrangement). In the latter situation, probably Rocker can be convinced to buy back the shorts from institution itself, so the institution doesn't have to sell a big chunk on the open market....
I'm off to Asia for a couple weeks and am not sure where and when I'll be able to post (although I've always managed in the past when I was overeas). In any event, I wanted to repeat one simple sentence from hhill's post and then comment on it.
<Almost all of NFI's retained assets are IO's, the only mortgage asset that rises in value when mortgage origination volume drops due to mortgage interest rates rising.>
I wish I could put the above in bold type. OK Bashers and Nervous Nellies. Anyone think long term rates are going DOWN?
<<Seems like they may be shares lent to that short account by an institution that wants to enhance its income, but not have the shares voted against the long institution's interests.>>
I recognize the shorts have a big incentive to hold/lower the price, but I don't understand this transaction from a long's perspective. Could you explain that transaction?
Besides the obvious increase to income from "renting" their shares, what is the incentive of an institution to do that? Assuming the conspiracy theory is correct, don't they know Rocker's intention? What good is loaning your stock to someone for a fee, if their goal is to tank it? How does the lender recoup the loss? Does that imply they are not concerned about Rocker's attempt to get the price low enough to get out?
<scratching my head>
It will be a fact that these games will one day come to an end. And when that day arrives, someone is going to lose a lot of money.
Since the longs are being paid to watch the game and shorts are paying to watch the game, I find it difficult to see how the shorts will win.
One more thought.
Why has drty and others created a site to visit for new posters and for those that wish to share information?
You will find the reason by looking at the post on this site. Start by quickly reviewing post from Jan 02 through June 02. Then, look at the post after June 02.
At the point of the short attack, July 02, the number of bashers and those that were less than interest in posting facts went wild. The solution was to quit answering the same questions over and over and create a place where one could point.
Since then, the bashers have moved to a new strategy. This strategy is to create many names and post useless information on the site. The attemp is to shut the site down as a ligitmate form of communication for NFI stock holders and those interested in learning more about the stock.
An additional strategy is to be ligitimate, but negative at just the right time. This creates additional ligitimacy for the short and allows them to try and drive the price down.
As a long term holder of the stock, I do not care. My dividends exceed my initial investment. I still take my dividends and plow all of them back into NFI. I understand the business model, but I am always interested in hearing what a new set of eyes has discoved.
Can not wait to here what your DD finds.
<< Why does NFI trade at such a huge discount to its peer goup when NFI is growing dividends faster, has more conservative accounting, and has a mangement team that has proven itself in up markets and down markets? >>
The glib answer, more sellers than buyers begs the more pertinent question -- who's selling and who's buying? Daily trading patterns suggest that, during the day, trades are often executed away from the NYSE at "ask" levels below NYSE Specialist bid -- even for small size. Also, Market On Close sell orders in large size (5% or more of whole day volume) come in to the NYSE with amazing regularity, far too often to be explained away as day-traders closing positions, or smallish institutions liquidating because of attractive after-hours buying opportunities....
The simplest theory that explains the evidence is likely to be true, even if it is a conspiracy theory. It is a fact that the person thought to have the largest short position had 244,000 shares long on June 30, and most of those shares had no voting rights. Seems like they may be shares lent to that short account by an institution that wants to enhance its income, but not have the shares voted against the long institution's interests. It is a fact that two other completely unregulated hedge funds controlled by the same individual and domiciled in the British Virgin Islands took up a fair amount of the earnings conference call with critical comments on July 30th for the Q2 2003 results. It is a fact that David Rocker took up considerable time with critical comments in several quarterly conference calls preceeding the call where both Helmsman and Compass were "represented". It is a fact that the press outlet in which David Rocker owns a very large holding has repeated exactly his "concerns" from the conference calls in a series of articles critical of the company. It is a fact that multiple accounts at several unregulated hedge funds can trade among themselves via third markets using limit prices at any level they want to. It is a fact that long shares, such as the 244,000 shares held by Rocker Partners are not subject to any short sale "uptick rule" restrictions. It is a fact that, if Rocker Partners is willing to sell stock $1 below the NYSE market, and another Rocker-controlled entity has the only bid available on that market at that moment, the shares will trade at the lower price.
Draw your own conclusions.
<<about a month now and can find zero negatives>>
Would love to hear any negatives you can identify.
I am local to NFI. No direct connections to the company. Owned the stock since $9 per share. Been from $9 to $35 to $18 to $75 to $48 to current level. My strategy has been and continues to be accumulate, accumulate, accumulate.
I also can find no negatives. I also can not understand why NFI trades at such a huge discount to its peers other than a lot of short shares that require the short to pay a lot to retain the position.
Hope you join the board and share your findings.
<<we get "down" to 500,000 shares short, that's still $50 million or more on the line with a 10% or higher negative cost of carry. They will cover, and their covering will drive the price higher, even if it's already stratospheric compared to today's price.>>
I see owning NFI as a no brainer until the shorts find a way to cover. The float is too small for them to drive the price below $40. The shorts tried and failed.
Creating a false bubble, what we just went through has also failed. The stock is in a very over sold situation, and is going to climb between here and the dividend. If the shorts buy back in any quantity, then the price will rocket.
So, I sit and
Watch my cows and NFI dividends,