Topic: Growth Stocks

The Wall Street Stock Forecaster Hotline – Friday, November 9, 2007

Article Excerpt

WASHINGTON MUTUAL INC. $20.51, New York symbol WM, fell $5 after it said its credit losses for 2007 would be roughly double its earlier prediction. An investigation into the mortgage industry by New York State’s Attorney General also weighed on the stock. The probe is looking for evidence that Washington Mutual pressured an insurance company to inflate home values in appraisals, making it possible for borrowers to obtain mortgages they couldn’t otherwise afford. When it appears a company has acted criminally, we always consider whether we should apply the cockroach theory – one criminal act, like one cockroach, may be a sign that the place is full of them. However, it’s far from clear that Washington Mutual acted unethically, much less criminally. Real estate appraisal involves a lot of judgment and appraisers tend to be conservative. Even if the allegations turn out to be true, they may only appear improper in hindsight, because home values later dropped. Washington Mutual has scaled back…