On Parick Byrne and Angelo Mozilo

I am really into finding parallels these days. Today's topic relates to parallel comparisons of Patrick Byrne, CEO of Overstock.Com and Angelo Mozilo, CEO of Countrywide Financial Corporation.

An introduction. Dr.Patrick Byrne is a Chief Executive Officer of Overstock.com, an online retailer selling discount goods at closeout prices. Overstock.com made some serious headlines over the past 2 years over Patrick Byrne's assertion that the "naked" short sellers were negatively impacting his company's shares and that several hedge funds were colluding to bring down his company. Never mind that this company has never made a dime and continues its astronomical burn rate of cash. Patrick Byrne will tell you that their revenue has been growing and that profit was not too far away. He will tell you parallelisms to Amazon.com and he fancies the same grandiose plans. Yet, when looking at this business, it is a model set to fail. Check out the 33.8% short ratio on this stock. Had it not been Dr.Byrne's relentless efforts at bringing on frivolous law suits against any that would speak negatively against this stock, and if the short sellers of this particular stock had more gumption, the short ratio in relation to the float would be much higher. The company sports a respectable ROE of -125.08% YOY, a sexy profit margin of -12.91% and an operating cash flow of enviable -$25.73 million dollars. Looking closely, this company has $126.96 million in cash and a debt of $84.34 million dollars. Total Debt to Equity ratio is a respectable 1.361!

Patrick Byrne has made many public relations campaign over the past 2 years. Appearing on countless CNBC segments to pump his stock, to speak out against the "naked" short selling that supposedly plagues his company. Instead of working on the company's fundamentals and business plans, the CEO of this company was seen spending much of his efforts on bringing about frivolous law suits and TV appearances on CNBC. To further that feat, there was also a comical moment few years ago when Dr.Byrne publicly alluded to possibly looking for another position, when at that time, he was working over time to bring light onto the problem of "naked shorts" and his company's woes as a result of shorting his stock. Dr. Byrne became an activist against "naked shorts" while his company continued to deteriorate. To show his support and faith in his company's business model, Dr.Byrne has lost quite a bit of money by publicly buying his company's shares on the open market, though this action was noble, nothing could stop the deterioration of the share prices from its peak on December 6, 2004 of $77.18 to its current price of $16.55. Fundamentals of the business speak louder than words and no matter how much Dr.Byrne believed in the company, the slow degradation of share price was inevitable. The more Dr.Byrne appeared on TV or on news pumping and supporting his stock either by action, threats, or childish banter, the stock continued to descend. Now, over the past three months, the shares of Overstock.com is trying to make a come back, on the heels of stock buy back program that is supported by even more debt.

Mr. Angelo Mozilo was the founding member of Countrywide Financial Corporation. He commands the respect of the Street and the company is an American icon. A symbol of "goodness" that represents the best that American culture has to offer- home ownership. Mr.Mozilo has been in the business and has built this company to where it is today, a S&P 500 index member, and the pride and joy of Wall Street. The recent housing boom that began in 2002 is now unraveling in 2007. Mr. Mozilo appeared on countless CNBC interviews calling for a rate cut, appeasing the panic that is setting in due to subprime meltdown, and pumping his company in the process. In fact, over the past two and one half weeks, Mr. Mozilo found the time to appear on three CNBC interviews and the last appearance on April 2, 2007 lasted 2 full hours!

During the Congressional hearings on the state of subprime lenders, Mr.Mozilo, the figure head of his beloved company, was conveniently absent when it mattered the most, instead, sending his lieutenant Mr. Sandor Samuels, a Managing Director and Chief Legal Officer for Countrywide to do the dirty work of defending Countrywide's position under oath. Instead, that same day, Mr. Mozilo was seen on Mad Money, the bastian of credibility on the street, hosted by the ego maniac, Jim Cramer. In it, Mr. Mozilo tried to soothe the markets by stating his case that subprime represents a very small 7% of the entire loan portfolio of Countrywide and proceeded to pump his company. He assured the TV viewers that Countrywide will withstand the malestrom of subprime meltdown and will emerge stronger. Jim Cramer promptly gave his famous "buy". Mr. Mozilo then appeared on April 2, 2007, practically begging for a FED rate cut and speaking in less than optimistic tone this time around regarding Countrywide's prospects. One day later, two board members abruptly quit. Countrywide promptly released press release at 8:00PM EST well after market closed. One full day later, a contrived PR news wire was released that stressed the fact that the board members had no ill feelings for the operation of the company.

Fundamentally, Countrywide is sporting a value added PE ratio 7.76 TTM, a PEG of 0.74, and Price/Book value of 1.37. The company sports $52.54 billion dollars and total debt of $113.60 billion. The total debt to equity ratio is a cool 7.934! Wow that is great! Many analysts are busy upgrading this stock and Morningstar gave this stock a 5 star rating, based on the PE, PEG, and Price to Book value. I do not think Morningstar took into consideration of the burgeoning 7.934 Debt/Equity! Return on Equity is a respectable 19.72% and the profit margin is 23.74%. The short percentage as reflected as total float is 5.90%. The insiders are dumping the shares of this company faster than you can say "holy cow" with Mozilo leading the selling frenzy. Yet he continues to pump the stock and then turning around and selling this stock. Mr. Mozilo continues to blame the subprime meltdown and incessantly calls for a FED rate cut to halt the bleeding of his industry and his company. He solely blames companies like New Century (NEWC.PK) and Fremont General (FMT) as the "bad" guys of the industry and Countrywide as a company that has distanced itself from those lenders. Yet, Countrywide has a separate subprime unit called Fullsprectrumlending.com which caters to the subprime market. He never admits or alludes to the ALT-A Option ARM loans as a problem even now, as more evidence comes out every day of this dubious "prime" loan as being WORSE than the subprime loans itself. Then there was the Wall Street Journal listing of the New Century Chapter 11 bankruptcy filing which lists the top 50 creditors of New Century. Guess what? Wouldn't you know it? Countrywide was listed as #10 right behind Lehman Brothers. It is rumored that Countrywide owns the subprime CDO's or loans in excess of $1 billion. So it seems very improbable that Countrywide's subprime exposure is limited to only 7%, does it? That's not even counting the ticking time bomb ALT-A Option ARM loans which accounts for over 45% of Countrywide's loan portfolio. By the way, when looking at the bankruptcy petition by New Century, the #1 creditor on the list is Goldman Sachs (GS) which currently is the only investment banking institution with a "sell" rating other than S&P 500. Yet Mozilo continues to mislead his investors and the market. How long will the market believe this guy?

Similarities of Dr. Byrne and Mr. Mozilo is similar and yet so different. Mr. Mozilo has a respectable company on the surface but the more you dig, the better Overstock.com's fundamentals look. At least for Overstock.com, what you see is what you get. Dr. Byrne's crusade has some benefits to the masses because "naked shorts" are engaging in an illegal activity. At least Patrick Byrne puts his money where his mouth is, and his company continues to show net buying by insiders. Mr. Mozilo is the complete opposite. He pumps his stock and spreads non truths with plausible deniability in court. Then he and his insiders continue to dump stocks while the share prices are propped up by debt financed buy back of stocks. This is where the disimilarities end. Both companies ultimately are terrible and will head towards demise. But given the two competing CEO's who will always be remembered for one thing or another: Dr.Byrne for his hysterical insecurity and undying devotion to his company Overstock.com and Mr. Mozilo for his half truths and his wonderful bonzen tan. The similarities are that both are heavily pumping their stock and love the media attention as their company's shares tank.

When will the general public and the smart people finanlly wake up smell the fraud in both of these companies? If pressed, I would choose Overstock.com to survive over Countrywide but that is nothing to rejoyce about. Memo to Mozilo, come clean, and stop destroying dreams on two fronts: real estate and in stock market where many people have vested hard earned money in their retirement accounts.