Earth to Tom Brown…..
The financial stocks maven and head of hedge fund Second Curve Capital LLC is hanging on to names the market is pummeling. We’re talking such train wrecks as First Marblehead and CompuCredit. And in recent months, Second Curve has picked up bond insurers including Ambac Financial Group and MBIA Inc that have done nothing but fall.
Brown, who regularly appears on CNBC (including Monday night) to talk about the coming turnaround in financial stocks, has seen the value of his holdings fall from $852.7 million as of Dec. 31, 2006, to $139.3 million as of March 31, 2008, according to regulatory filings.
Now Wall Street admires investors who stick to their convictions, particularly if they turn out to be right. But how much do you have to lose of your investors’ and your own money before you decide that the financial stocks rout of the last year might — just might — be more than just a temporary blip?
Yet Brown, the high-profile commentator who operates the Web site Bankstocks.com, sticks to his guns. The market, he says, is wrong. The mortgage credit crisis that brutalized financial stocks seems close to being resolved, says Brown.
“We’ll keep saying it until we’re blue in the face,” said Brown in a June 4 post on Bankstocks.com. “Subprime mortgage loss estimates are too high…. The reason why they’re too high is simple, too. They assume that last year’s credit performance will persist far into the future. Only it won’t.”
Let’s see: the economy is slipping, energy prices are skyrocketing, U.S. government and trade deficits are ballooning, inflation and unemployment is rising, housing prices are falling, consumers are spending less, residential and corporate credit defaults are rising. And Brown is saying that the mortgage credit markets are poised for a turnaround? Defaults have washed through the system?
I don’t know, but if I were a Second Curve investor, I’d vote with my feet.
Brown did not return requests for comment.