Category Archives: stocks

Morgans Hotel: A Zombie Company Defaulting on Debt and Burning Through Cash

I wrote another cheery article on Seeking Alpha, this time about Morgans Hotel Group (ticker:MHGC).


Mild and qualified optimism from Calculated Risk on housing

Calculated Risk for years has provided better economic forecasts and data collection than the expensive paid services with their relentless bubble boosterism.

I also owe him personally for helping to expose the ticking time bomb of subprime and option-ARM mortgages way back in 2006. That was a very good year for my personal portfolio! Nonetheless I have to disagree with his mild optimism on housing expressed here:

He argues that residential investment may have reached bottom earlier this year, and their recovery in Q3 and Q4 will boost the rest of the economy, and also points to possible recoveries in autos and business inventories.

I think, more likely, these “green shoots” will soon be overwhelmed by the continuing collapse of much of the rest of the economy.

Even if autos and residential RE construction recover somewhat, what about the following:

Banks without cheap federal financing?

State and local government spending?

Commercial real estate?

Unemployment and income declines?

Decreasing velocity of money due to high marginal propensity to save?

Rolling waves of defaults as cheap bubble debt matures, from Option ARMs to leveraged loans to credit cards to commercial lines of credit?

The hundreds of thousands of small and medium-size businesses affected by the impending CIT Group bankruptcy and the massive closing of unsecured credit lines by Amex and Adventa earlier this year?

Each of these are contributing to deflationary headwinds that, in my opinion, will smother any spark of recovery in real estate or autos for at least the next three quarters.

Ponzi-Scheme Whistleblower Ordered By Corrupt Arbitration Panel to Pay a Criminal Organization $107,782

Just how corrupt and pervasively dysfunctional is private arbitration in America right now?

Via Felix Salmon, the Financial Times reports that more than five years ago a lady by the name of Leyla Basagoitia who worked at the Ponzi scheme known as Stanford Financial quit her job and alerted the SEC and the NASD (now called FINRA) her suspicions about the criminal fraud going on.
Rather than having her day in court, instead Ms. Basagoitia was forced into a kangaroo arbitration and forced by the arbitrators to pay the criminal organization she tried to blow the  whistle on $107,782.

So in part because of NASD’s arbitrators, the fraud was allowed to continue for years longer until it finally collapsed on its own weight last month.

As the article notes:

Ms Basagoitia told an arbitration panel at the National Association of Securities Dealers in October 2003 that she suspected Stanford Group Company, one of Sir Allen’s key businesses, was “engaged in a Ponzi scheme to defraud its clients”, according to case documents. In 2007, the NASD became the Financial Industry Regulatory Authority.
In a nine-point critique, Ms Basagoitia pointed to many concerns cited last week by the SEC in its charges against Sir Allen’s businesses, including allegations about the lack of a credible auditor, mis-selling of products and the promise of consistently high returns that did not “correspond to the reality of the markets”.
Ms. Basagoitia’s allegations were denied by Stanford Group Company and dismissed by the dispute resolution panel. She was ordered to pay Stanford $107,782 in damages, in repayment of a loan advanced to her while an employee of the company.

Great work again by the Financial Times, in particular to reporters Robert Cookson and Michael Peel in London and Joanna Chung in New York.
PS: I had my moment in the famous pink pages of the Financial Times last year. Have a look at the end of this article.

Big New Article on Seeking Alpha

In retrospect perhaps I should have broken this long article up into several new ones. In it I comment on the prospects for solar stocks, gold, Goldman Sachs, Lorillard, Ambic, and GM senior debt. In particular, I comment on what the election of Barack Obama and a larger Democratic majority in Congress means for several investments.

One theme in this article touches on that I hope to explore further is that I believe equity markets are systematically underestimating inflation volatility.

Yet Another Seeking Alpha Article about Troubled Banks

We all have our own strange hobbies, one of mine is pouring through financial statements of troubled financial institutions, and writing about the chaos I see in their numbers.

In this article, I once again predict the demise of three medium-small banks that were completely reckless with their lending practices, and which stand out as particularly bad actors in an era when most banks were at least somewhat reckless.

If you have uninsured deposits in any of these three banks–Downey Savings (CA, AZ), FirstFed Financial (CA), or Bank United (FL)–by all means take them out as soon as possible. There is a substantial chance that you will face losses on the scale of IndyMac’s uninsured depositors.

Lest I seem to be a complete bear, at the same time I think now may be a good time to invest in conservative utility stocks like DPL, clean energy funds like PBW,  and clean energy stocks like TSL. I am still very impressed with the growth story of Starbucks (SBUX), Google (GOOG), and China Mobil (CHL), which are down substantially from their highs. More adventurous investors might consider investing in some GM bonds now yielding 17% (XGM).

New Seeking Alpha Articles

I have recently written two more articles for financial portal Seeking Alpha. First, I question the valuation of Maguire Properties‘ common stock given the problems with the Southern California commercial office market and the near-collapse of commercial real estate funding.

Second, I wrote a shorter article with updates on Redwood Trust, Crystal River Capital, FirstFed Financial, and Maguire Properties.

I am not the only one warning investors against putting money into bank and financial stocks. Money Manager and blogger Michael “Mish” Shedlock sounds warning about 10 Financial Entities On the Brink.

Two New Articles on Seeking Alpha

Here are links to my latest articles on Seeking Alpha:

First, a discussion on why I think tech stock is undervalued.

Second, a more abstract analysis of what automakers might to increase their chances of a federal bailout.