Over the past three months a number of high profile company stock prices have seen substantial declines. If you have been reading Ponder This… over the past three years, this should come as no surprise. The enormous credit bubble of the past half-decade-plus witnessed some of the most imprudent financial behaviors of all time. When such activity persists, inevitably there is a significant shake out. We have reached a point where many are getting spanked within the marketplace. Do your homework and do not be one of the investors in this group! Due diligence is key.

Without further adieu, I would like to present some charts of some very well known corporations whose equity values have crashed recently.

First is the monster banking behemoth Citigroup (ticker: C). Everyone knows of some Citigroup branch in their local community. The banking giant partook in quite a bit of activity related to poorly conceived mortgages as well as other derivatives and levered investments. The stock has taken a body blow and CEO Chuck Prince was recently canned (rightfully so). Notice the 37% decline since May.

Second up is Citigroup’s younger cousin, Washington Mutual (WM). WM made its moolah during the housing boom by selling mortgages to as many average consumers as possible and then packaging those mortgages up and selling them to firms who turned them into fixed income securities (CDOs). These are the investments that are currently laying waste to balance sheets at financial entities across the globe. Check out the WM chart. The equity value has been sliced by more than half since June of 2007. Not good.

Third, is the infamous Countrywide Financial (CFC), whose CEO Angelo Mozilo pocketed around $1 billion in equity compensation as the stock price fell in the tank. Talk about making out clean! The guy ran the business into the ground and at the same time came out with enough loot for about 8 generations down the line. Scrub. Just a lesson not to trust overly-fake-tanned individuals with your hard-earned investment wealth. This company, which provided the most mortgage lending in the U.S. in 2006, has a solid chance of going bankrupt. Watch out people. The stock has cratered roughly 70% since the start of the year.

Fourth, is the large U.S. homebuilder Pulte Homes (PHM). This stock chart provides a great example of the huge boom/bust cycle overly expansive monetary policy has put us through over the past half-decade. Sad thing is, we’re still in the early phases of the bust. Thanks central bankers! Your below-market interest rates really did a lot of good! ((Intense sarcasm)) Since mid-2006 PHM has seen nearly 75% of its equity value vanish from the ledgers.

The fifth entry in our list is financial behemoth Merrill Lynch. The Big Bull obviously had a lot of BULL on its balance sheet as the company recently took a greater than $8 BILLION charge for write downs on its assets in the third quarter alone. What scrubs! How do you lose $8 billion in fixed income asset values in one quarter? I would have to say that CEO Stan O’Neil who recently was axed, deserved the axing. Sorry bud, you blew it. Even us amateurs at www.ponderthis.net could see the mortgage fallout clearly on the horizon. You get paid hundreds of millions to guide a well-respected company and you can’t see? All I can say is “wow.” The stock price is off by about 40% since mid-2007.

Finally, as the mortgage and housing-related issues have become more deeply embedded in investors’ scope of awareness, light is beginning to be shed on the elevated level of risk associated with mortgage guarantee insurance. To put it simply, if the number of mortgages that are anticipated to blow up actually do, and it is likely more will, there will be mortgage insurers that go out of business. As an example of the realization of this in the market, I point you to mortgage insurance specialist MBIA (MBI). Their equity value has been sliced in half in the past month!

Now is not the time to be complacent with your investments. Please perform due diligence. I do not own any investments associated with the above companies at the time of this writing. This writing is not intended to be advice in relation to any specific investment moves. Do your research and perform your due diligence and you will be more likely to survive and prosper through any difficult circumstance that come about. Best to you and yours.

Kemp

Filed under: Social Mood, Economics