Why Maguire Properties is Going Down

When evaluating short plays of financials with falling asset values, a very profitable strategy for me the past two years, I look for three things: ownership of the declining assets, short-term or callable financing, and a high degree of leverage.

In 2007 such companies were easy to find. I shorted Thornburg Mortgage (TMA), where all three of these factors were present to a high degree, in August 2007 when it traded at 23.75. Now the stock is down about 99%, trading at 27 cents.  There are still plenty of companies like this with declining assets and high leverage, and at least a modest degree of short-term or callable debt. These companies can still suffer dramatic declines as their leverage means declines in asset values are multiplied several times over. I’ve already written about three of them here on Seeking Alpha, and those who shorted the companies I wrote about have made handsome profits: RWT is down 30%, CRZ is down 29%, and FED is down 40% from the time I submitted my articles. (By the way, I think these stocks will continue their dramatic declines over the next 3-12 months).