These stocks trade a lot on sentiment. Right now is "housing is getting worse, the MIs are exposed to housing, short them into the ground", a year ago it was "housing is improving, the MIs are exposed to housing, let's pile into them."
The reality of RDN's situation is quite different. It's financial situation changes slowly. Borrowers don't default just because the Case Shiller index dropped 2%, nor do delinquent borrowers cure because it rose 2%.
What is clear is that RDN has ample financial flexibility for the next several years. They are not facing any debt maturity until 2/15/2013, and have plenty of holding company cash to pay that debt off when it matures, and service their other debt in the meantime. So any talk of bankruptcy is pure foolishness. Note that even TGIC, an MI that has been in runoff for 3 years, has never declared bankruptcy, because they no longer have any debt. ABK, in a related but different industry, did have debt obligations it could not meet. Neither RDN or any of the other MIs are in that situation for five years at a minimum.
Meanwhile, RDN continues to write new business, and in fact has one of the largest market shares in the business.
The legacy book will take time to work itself out, but it has been, slowly. RDN itself has estimated that over 20% of the existing book will turn into claims, but that still leaves the existing book with $1.5B in excess profits. And that is counting the more recent, well underwritten books of business.
For all the saber rattling in Congress, the politicians will soon learn that extricating the government from the GSEs in any quick and sudden manner will lead us directly into a depression, something no one wants on their hands. More likely, as was indicated by the White House white paper on the GSEs, the MIs will be ask to take on more of the GSEs risk, resulting in even more future business for the industry.
In the meantime the FHA has raised rates, again, so the benefit of that should start to flow through in the next few months. The last FHA rate raise was largely negated due to an increase in g-fees, but that was not repeated this time, so this time it will truly be a net benefit to new insurance writings.
Someone is getting really wealthy manipulating these stocks, while others are going broke. Pre-capital raising, RDN was not worth $18, but neither is it worth only $4 a share today.
I agree with you 100%..if you go back and read my posts, i have said almost the same thing about RDN. The only thing I would slightly disagree with you on is that RDN (since the downturn) has ALWAYS been heavily shorted. I dont recall anyone really ever piling on RDN in the past several years (although I wish they would about now!)
"The reality of RDN's situation is quite different. It's financial situation changes slowly. Borrowers don't default just because the Case Shiller index dropped 2%, nor do delinquent borrowers cure because it rose 2%."
That's a great point. The credit quality of the NIW by the private mi companies has been pristine since the fall of 2008.
What do you think is going to happen with QRM?
Your writing sounds very frofessional. I have no background to judge you analysis, but sense that it is a good buy at ~$4 for a long hold. At this critical moment (Buy or not buy), can you tell me how many shares you've already had? Thanks indeed?