Northern Rock - Example of Panic Selling?

[TheBramble]

Never one to miss the opportunity of a cheap shot , this rather adds to the list of those things to which fundamentals don’t apply.

Just kidding…(sort of) and no disrespect to that branch of analytical investment and economic science known as Fundamental Analysis or those solid individuals who put in the effort – so that I don’t have to.

I’m sure if I wanted to spend my life trawling through the minutiae of annual accounts, pick up whispers as and where I can, attempt to get in with those who do press the flesh of the good and the great and get their views on others’ views, look at breaking news from every conceivable (subjective) angle, assuming I’m getting the news because it’s either true, or someone wants me to believe it’s true, or someone wants me to believe they want me to believe it’s true, and take a massively subjective view on what the figures may or may not mean and what they may or may not mean for the future, all things (known now) considered and providing nothing at all anywhere changes in the short to medium to long term….I’d also be able to kid myself it actually means something useful to my investment goals.

Mind you, I imagine I can see Support and Resistance so I’m hardly one to talk.

Haven’t been following the continuing saga of NR, but assume Branson’s offer was a 2-for-1 split? Not sure why he’s want to do that, the current price isn’t quite GOOG levels…perhaps he fancies the idea of a penny share stock?

In any event, the remaining holders of shares (both of them) would not end up losing half their paper value – not through that avenue anyway.

They’re pulling up quite nicely. 300 is obviously gong to be an area of some Resistance, but looking at the volume and price action, it’ll go through soon enough.

Not that I’m loading up….

 

[*JDR*]

I'm not sure about a 300p target in the near term...

The old resistance of 200 seems to have become support and a bounce off 200 (195 or so actually) has happened in the past half hour or so.

Having said that, I don't "think" it will hold for too long..

Would be nice to hear some analysis from someone who knows more than me.....

Oh and just to answer your question... I believe Branson is proposing a totally new issue of shares, enough to give him control

 

[Jack o'Clubs]

Could be an interesting test of FA vs TA !

Not that I want to derail the thread as there are a couple of others on this subject, but if The Bramble is proposing onwards and upwards on the basis of TA, then I'm very happy to take the opposite FA induced position: short.

Insufficient time to go into all the detail and numbers, but my view is that the buyers will not put a value on the equity, knowing that the govt have a ticking clock running against the provision of the g'tee and will drive a hard bargain with the govt, for which shareholders will pay the price. I believe the final price will be somewhere south of a quid, which given the position of the asset base wouldn't be a bad price.

 

[jacinto]

Could be an interesting test of FA vs TA !

Not that I want to derail the thread as there are a couple of others on this subject, but if The Bramble is proposing onwards and upwards on the basis of TA, then I'm very happy to take the opposite FA induced position: short.

Insufficient time to go into all the detail and numbers, but my view is that the buyers will not put a value on the equity, knowing that the govt have a ticking clock running against the provision of the g'tee and will drive a hard bargain with the govt, for which shareholders will pay the price. I believe the final price will be somewhere south of a quid, which given the position of the asset base wouldn't be a bad price.

it definitely would be a good test, thats for sure.

 

[*JDR*]

Could be an interesting test of FA vs TA !

Not that I want to derail the thread as there are a couple of others on this subject, but if The Bramble is proposing onwards and upwards on the basis of TA, then I'm very happy to take the opposite FA induced position: short.

Insufficient time to go into all the detail and numbers, but my view is that the buyers will not put a value on the equity, knowing that the govt have a ticking clock running against the provision of the g'tee and will drive a hard bargain with the govt, for which shareholders will pay the price. I believe the final price will be somewhere south of a quid, which given the position of the asset base wouldn't be a bad price.

The problem with the "fire sale" argument is that there are now a few big banks/fund managers that have enough shares to block anything they don't like... as long as they work for the common interest.

With so much emotion about, I can't see fundamentals doing the job ..... then again, is TA doing the job either ?

 

[chump]

The absence of any valid TA is what keeps you out of crap like this and that is money still in your bank and not in others (Branson's included) ...not being in is a position !

 

[Jack o'Clubs]

With so much emotion about, I can't see fundamentals doing the job ..... then again, is TA doing the job either ?

As I said, I don't want to get into a FA v TA argument, but I completely disagree!

It is precisely some objective, clear-headed thought that is needed and will be being applied by i) current shareholders; ii) prospective shareholders, including those who have bought heavily in the last few days; iii) bidding syndicates who will need a business plan on what they will do when they win - not least to give them a value to bid at.

The future value of NR equity will precisely come about from the three groups above arriving at an equilibrium, ie fundamental factors, and not through a bunch of guys looking at charts.

 

[*JDR*]

The future value of NR equity will precisely come about from the three groups above arriving at an equilibrium, ie fundamental factors, and not through a bunch of guys looking at charts.

I completely agree about the future value..... I was referring to the near term value...

 

[Jack o'Clubs]

I completely agree about the future value..... I was referring to the near term value...

near-term, I'd be in Chump's camp!

 

[Jack o'Clubs]

Could be an interesting test of FA vs TA !

Not that I want to derail the thread as there are a couple of others on this subject, but if The Bramble is proposing onwards and upwards on the basis of TA, then I'm very happy to take the opposite FA induced position: short.

Insufficient time to go into all the detail and numbers, but my view is that the buyers will not put a value on the equity, knowing that the govt have a ticking clock running against the provision of the g'tee and will drive a hard bargain with the govt, for which shareholders will pay the price. I believe the final price will be somewhere south of a quid, which given the position of the asset base wouldn't be a bad price.

1-0 to FA

I'd be taking my short off now...

 

[lurkerlurker]

I'm thinking this sounds silly before I even post it, but here goes.

Is NRK low enough to buy now? I'm thinking that round about 104 wouldn't be a bad place to start buying. Even if one was to buy a thousand shares or so in the bucket shops. Total risk at this point would be around £1k. From what I can tell, the Rock is sitting somewhere near its book value now, and if private equity buy it up I'm sure the offer price will be somewhere above the current levels. I don't see this firm going to zero, and if it does the risk is only 100 pips.

At the close, CMC were quoting a March 2008 NRK at 107.05 bid. Buying and forgetting until the first quarter of next year when the banking sector has stablised and there is competing interest in the bank wouldn't be a bad idea in my view.

Thoughts?

Jack - excellent exit on the short - where did you sell? Tell me it was somewhere above 500!

 

[Jack o'Clubs]

I'm thinking this sounds silly before I even post it, but here goes.

Is NRK low enough to buy now? I'm thinking that round about 104 wouldn't be a bad place to start buying. Even if one was to buy a thousand shares or so in the bucket shops. Total risk at this point would be around £1k. From what I can tell, the Rock is sitting somewhere near its book value now, and if private equity buy it up I'm sure the offer price will be somewhere above the current levels. I don't see this firm going to zero, and if it does the risk is only 100 pips.

At the close, CMC were quoting a March 2008 NRK at 107.05 bid. Buying and forgetting until the first quarter of next year when the banking sector has stablised and there is competing interest in the bank wouldn't be a bad idea in my view.

Thoughts?

Jack - excellent exit on the short - where did you sell? Tell me it was somewhere above 500!

Sadly not that good - it was during the little flurry of debate about whether TA or FA would be more useful in determining where it went during the crisis. It was 198.

I agree that it is an interesting speculative buy here: the political imperative is likely to prevent the shares going to zero (too many north-east based shareholders for the govt to 'do a Railtrack' - although it is a possibility. It is the only lever that the govt have to prevent bidders taking the Michael), and that you're getting to a fair value for the assets. On the other hand, I would be more interested in playing other names in the sector which have taken an absolute thrashing, but are in fundamentally better shape now than valuations discount. Barclays, for example. Dividend yield 7% is greater than its forward p/e! In fact I've bought a bit over the last few days. Also other bombed out financials: New Star AM looks interesting here.

 

[lurkerlurker]

Speculations

When will the short covering start? When will people start talking about takeover bids, P/E, and all the rest? I must say I was pretty shocked to see the share price gap down this morning. It is now a penny share.

I'm taking a cheeky wee punt on this in the bucket shops. I did some small buying on the way down. This is one punt that leverage won't kill me on! Total downside risk is around 90 pips. I can get the equivalent of 100 shares for £6 margin though, so I'm definitely not being silly with this. I don't have stop orders in place, having totally accepted the risk of it going to zero.

Anyway, I'm in with an average price of 92, and buy orders in at 87 and 85. I'm not too sure how long I will be holding for. With a small total position on the "rolling cash" CMC contract, I'm going to get gouged with paying Interest for the position, but that should be negligible.

I think my target will be either

• Trading in NRK suspended never to resume
• NRK taken private (then I'll just need to be a price taker)
• NRK stays public, shares get to 300 by late 2008
• NRK gets bought over, buyer pays > 150

If the price of this spikes up on (rumour of ) a takeover, people are going to start calling me Jesse Livermore again! However, I have a sad feeling that Grandpa Sixpack is selling me the last Rock shares in the country before it goes to zero.

I'm unhappy with my entry price of 92, but I don't have all morning to wait for a "bottom", however temporary, so at this stage a few pence doesn't matter as much. Some might think I am mad to buy here, but we're all just speculating here. I have a view that NRK is overdone with panic selling.

 

[counter_violent]

Does anyone have any charts to post ?
Lurker Livermore it will be an interesting trade for sure !

cv

 

[timsk]

Does anyone have any charts to post ?

'ere you go CV - daily candle with 50 and 200 SMA's respectively.
Tim.

 

[lurkerlurker]

NRK at 60. Not clever. I'm not buying more, but I'm not covering yet. There is a high enough probability that NRK will trade above 90 in the next year.

 

[counter_violent]

'ere you go CV - daily candle with 50 and 200 SMA's respectively.
Tim.

Thanks Tim.

Blimy ! Not even a whiff of a buy

cv

 

[Jack o'Clubs]

When will the short covering start?

My info is that from about 180p there has been relatively little shorting. The stock has been consolidated in a number of big name investors and they called in stock loans or refused to lend to try and shore up the price. So the fall from 180p has been pure selling pressure by the longs and there is little prospect of short-covering to stop the slide.

 

[counter_violent]

NRK at 60. Not clever. I'm not buying more, but I'm not covering yet. There is a high enough probability that NRK will trade above 90 in the next year.

Was it Grey1 who said something like...when looking to buy a stock, buy the ones that are strongest in a bull sector or index...and probably sell the weakest stocks in a bear sector or index.

That kinda makes a lot of sense when applied to NR

On the purely technical front...I don't see any exhaustion bottom here...let alone a re-trace of an exhaustion bottom...from where a decision might be made.

cv

 

[breadman]

What value do people see in Northern Rock. I think they will be taken over for a £1 just like Barings. Whoever buys Northern Rock needs 20 to 40 billion just to keep it going, why waste a couple of 100 million buying shares that are worthless, if no one bids for the company.Maybe some of the bidders will offer up to 50p if they intend to keep Northern Rock listed on the stockmarket,as the shareholders are going to kick up a fuss if they are not give a chance to get their money back.