Pink Sheets

I've been waiting for the current sub-prime meltdown for years. So have a lot of other people. There are various flavors of what people have been expecting, but it's essentially all about too much liquidity, too much credit, risk and reward failing to fall in the same place. We've heard the stories about horrible lending practices. At one point I bought some put options on Fannie Mae. They expired worthless.

If I had "stayed out of the pool" until this all unfolded, I'd have a lot less money today.

I had owned Nicholas Financial (NICK) years ago and made very good money on it. In this post in March of this year, I noted that...

And NICK (sec) is doing fine: after the subprime panic clears up, they'll look very good, in my opinion.

NICK is down right now because of sub-prime issues (it is, after all, a sub-prime lender). I suspect that it's probably a very good investment right now. If I had to pick another investment, that's the first place I'd look.

Back in April 2006, I noted here that...

Fears of NICK as a sub-prime lender will continue until there's a major downturn in sub-prime lenders and that will hold the price down, no doubt.

I was explaining to someone my casual theory that during bull markets, stock prices drop fast and go up slowly. In bear markets the prices rise fast and drop slowly. This is just based on casual observation; it's probably wrong. I think it's somehow connected to the saying that the bull market ends when the last bear is gored while a bear market ends when the last bull is mauled. Or the more common saying that in a bull market, stock prices climb a wall of worry.

In a bull market, the money is not yet fully invested. In a bear market the money is not yet fully on the sidelines.

In a big long secular bull market, the money hasn't yet all been created. And I believe that's the case today.

Getting back to the whole sub-prime meltdown thing, a lot of people have been expecting this. And I wonder if a lot of money has been parked outside the markets waiting for it to happen. Jim Cramer, my favorite contra-indicator on macro stuff, claimed in no uncertain terms that it's armageddon. I don't automatically assume that Cramer is wrong, but I think in this case he is. It may look like armageddon from inside Wall Street, but I don't see this causing Great Depression II. From what I understand about Great Depression I, it was caused by what today would be considered monumental stupidity: of course that's going to be the result. The causes of the sub-prime mess today will seem like monumental stupidity to the general financial community decades from now (today is just looks like garden variety stupidity).

So I'm wondering if the impact of the sub-prime mess happening is that it finally resolves the issue and stocks like NICK will get recognized for the cash they generate instead of the fear that was overhanging them. And I'm wondering if this will prove true for a lot of other stocks as well. Will this clear the air finally?

If we don't get armageddon and this turns out to be just another ordinary crisis, then perhaps a lot of bears are going to be gored.

UPDATE next day:
CXTI found a new CFO. That was fast, it was an internal promotion. That explains the 15% gain in the stock, I suppose.

Qiyou Li (Jeff) was appointed as CFO of the Registrant on August 15, 2007. From September 2005, to the present, Mr.Li has been the financial controller of Expert Network (Shenzhen) Co. Ltd., the Registrant’s wholly owned subsidiary, and was responsible for all financial, accounting and internal auditing. From October 1999 through September 2005, Mr. Li was the financial manager of ZhongQi Power Technology Company, where he was responsible for the establishing and maintaining the budget for the headquarters and for seven subsidiaries. Mr. Li holds a Bachelor degree from University of Jiangxi Finance and Economics.

Hopefully by now Jeff is aware of his new position in the company. Seems like it might have been a bit rushed in order to avoid a continued stock meltdown.