Thornburg's a Huge Bargain After Monday's Crash 657 comments
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Thornburg Mortgage (TMA) is a major single-family residential mortgage lender (and mortgage REIT) focused principally on prime and super-prime (i.e., high-credit-score) borrowers seeking jumbo and super-jumbo mortgages. Even though TMA has never held a subprime loan (that I know of) in its life, it got taken to the woodshed along with every other lender as a result of the subprime implosion of the last few months. During that time, TMA's stock price cratered from about $30 to about $10.
Things looked up in early Feb, 2008, when TMA reported a profit of 33 cents a share (Wow! A residential lender that's profitable?!) and in reading between the lines, one got the idea that subsequent quarters would be even better. But given the volatility in this space, this good news was not to last.
On Feb. 28, Thornburg said it was facing margin calls because the value of some of its mortgages had fallen amid "a sudden adverse change in mortgage market conditions" that began on Feb. 14. As of Feb. 28, TMA had met margin calls totaling $300 million, which reduced liquidity it might need to meet future margin calls, if any. Thornburg also said, however, that its securities faced a relatively low risk of further downgrades due to their quality.
That sanguine assessment turned out to be incorrect. Monday morning, before market open, TMA announced another $270 million in margin calls—and also stated it did not have the cash to meet the calls. As a result, Standard & Poor's cut its rating on Thornburg to 'SD' - one of the lowest grades possible - from 'B-.' The new rating indicated that Thornburg was in "selective default" because of a default notice it had already received.
Thornburg said the margin calls are "strictly a result of the continued deterioration of prices of mortgage-backed securities precipitated by difficult market conditions." The calls are not reflective of the actual performance of the securities, the company added. Regardless of the reason for the calls, TMA advised that yesterday's margin call could "have a material adverse effect on the company's ability to continue its business in the current manner."
Not surprisingly, shares crashed about 60% yesterday, hitting an intraday low of $3.53 after having closed at $8.90 on Friday, which itself was a big drop from $14 earlier in February. It was while TMA was trading under $4 around mid-day yesterday that I bought 20,000 shares at $3.81/share. These were my reasons for doing so:
1) TMA's business has nothing to do with subprime loans, which have default rates of 10%+. TMA's default rate is less than 0.5%.
2) A couple of months ago, Mr. Thornburg himself bought 1 million shares of TMA at about $10/share. Other insiders own a lot of TMA as well. It is my belief that when insiders own that much stock—much of it acquired at a price more than double the $3.81 I paid—they are going to work very hard to make sure the company does not go belly-up.
3) The underlying business allowed TMA to earn 33 cents per share in the most recent quarter, reported about one month ago. TMA's profit margins have actually substantially expanded in the past few months, suggesting greater profit potential once things settle down. Even if TMA did not grow its profit at all, at 33 cents per quarter, it would make $1.32. At $3.81/share, that's a PE of less than 3.
As long as TMA is not entirely incapacitated by the margin calls (and that is certainly a possibility), there is no reason to believe its earnings going forward should be much less than $1.30, but even if they decrease by 50%, that's only a PE of a bit over 5.
4) To put it a different way, iF TMA keeps making 33 cents per quarter and gets valued at a PE of 10 as market conditions improve and margin calls are done with, its stock value would be about $13. Thus, at $3.81, a very good risk-reward ratio exists. Also, it is worth noting that TMA was valued at $14/share less than one month ago, and unlike many other lenders, TMA's underlying business hasn't imploded.
5) TMA faced billions in margin calls in August 2007 and handled that emergency just fine and even lived to tell the tale.
6) I also figured that such a good business with such good underlying collateral (a default rate of less than one-half of one percent, especially in today's environment, is nothing short of spectacular) would be able to attract capital to meet Monday's margin call. I was hoping that the capital would be in the form of debt (in effect, a refinancing) rather than a bottom-feeder taking significant equity, but either would have been OK. It just seemed to me that a bailout of one kind or another was extremely likely given the good quality of TMA's mortgages.
Well, at 3:23 PM, while TMA was trading at about $3.60 (a bit under my entry price of $3.81 - oops!), TMA made this announcement:
Thornburg Mortgage, Inc., today announced the completion of a collateralized mortgage debt transaction collateralized by $992 million of the company's prime hybrid adjustable-rate mortgage loans in the publicly registered Thornburg Mortgage Securities Trust 2008-1. This transaction was accounted for as a financing and not as a sale and the proceeds were used to reduce the company's borrowings under its ARM loan warehouse financing lines by approximately $920 million.Going forward, Thornburg Mortgage anticipates an increased use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing. At December 31, 2007, 64% of Thornburg Mortgage's mortgage assets were permanently financed by collateralized mortgage debt transactions as compared to 37% at June 30, 2007.
In summary, this transaction enhances Thornburg Mortgage's liquidity position and provides long term financing for the company's originated mortgage loans.
The stock immediately ran up from $3.60 and traded between $4.30 and almost $5.00, closing at $4.32. Although we don't know how much TMA paid (in transaction costs and interest rate) to attract this capital (undoubtedly, TMA paid a premium), I'm glad they got the cash via debt rather than equity.
Because I think we'll hear about further liquidity enhancements going forward, and for the reasons I noted above, I ended up buying another 10,000 shares near the end of the day (at $4.51/share). Assuming a press release describing additional liquidity enhancement and/or upgrades, I expect to see TMA go over $5, and probably closer to $6. If earnings in the 20-30 cent range are reaffirmed in the near future despite the margin calls, I expect to see $7. And if things settle down in the mortgage business—as they will in the next year or so, especially for a company holding only prime and super-prime debt—I see TMA at $15.
Of course, if additional margin calls materialize and are unmet, I see TMA going back to $3/share. Given the billion dollars TMA picked up today, and the excellence of its underlying mortgages, I consider the latter possibility rather small. Therefore, I think that at $4+ (or even $5+), TMA presents a very good risk-reward opportunity, albeit for investors who can tolerate risk.
Disclosure: Long TMA
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This article has 657 comments:
Buying on this dip? I keep thinking that maybe THE HERD is really correct and the uncertainties in the corresponding securitized debt markets is just too unpredictable at the moment to play, but then again, perhaps what happened yesterday is just one of those things that happens when there is volatility, panic, and confusion.
BUT, after TMA FINANCED (NOT SOLD) that $1B yesterday in record time, I’m convinced that they will survive and ultimately prosper. If one must pick financial investments in this market, the only truly valuable capital is management, which in this case is extraordinary. We’re investing a lot on the fundamentals of the TMA business model and the strengths of the straight shooter CEO, Larry Goldstone, and his observably superior team to successfully navigate through this perplexing mess.
These guys aren’t likely to bankrupt and there is clearly BIG money betting on that (Bill Miller @ Legg Mason is historically a genius stock picker and he obviously likes the play.) A quality firm with very high performing AAA mortgage assets, if not the best, will persevere through the dysfunctional aspects this convoluted market presents.
If a Thornburg with its GREAT & PERFORMING PORTFOLIO can’t make it, who can or will?
Ed Steedman
Swift Island Capital Partners
QUIT TRYING TO LEAD SHEEPLE TO THE SLAUGHTER.
Good luck, I hope this one works out for you, sounds like you can afford the loss if it doesn't but most people have NO BUSINESS investing in a stock like this, simply too mch risk.
A lack of understanding of these things is what allows cyclical boom and bust fiannce companies continue. In 2001 the company had about $5 billion in assets, at year end it was over $36 billion.
If a person is interested in buying TMA, I don't understand the appeal of the common stock versus the preferreds.
What is the default rate on TMA mortgages TODAY? Less than 0.5%. To me, that is the only metric that really counts. I have done half a dozen loans, all jumbo's, all stated income, and have not missed a payment and certainly haven't defaulted on anything. The point is that one can speculate on the impact of stated income, or the fact that the loan is adjustable (most of mine have been adjustable), or that they are interest-only, but where the rubber meets the road is the default rate.
And TMA's default rate is absolutely incredible.
To HedgeFundManipulator (quite a handle there!):
Please tell me more about your conclusion that the $270 million has now gone down to $180. How did you glean that from the press release?
To PJ168:
I don't understand your comment. I did not comment on TMA being a good deal at $10 two days ago. If you know otherwise, please let me know.
To Mr. Shinnick:
Your thesis is that high FICO scores are not predictive of low default risk going forward. Everything I have read says the opposite. Can you refer me to your source on this point?
I do agree that this is a risky play that one should not play with unless one can afford to lose, although even in bankruptcy, I cannot believe TMA's enterprise value isn't $480 million ($3/share) so I think downside risk does not take us all the way down to zero. For those who can take this risk, I think the reward potential is very substantial.
To Mr. Riesenberg:
I am intrigued by your comments. Tell us all more about (1) How the debt moved from reverse repurchase to collateralized debt--did this not involve an outside party who put up cash? (2) Tell us why you prefer preferreds--pro's and con's. Frankly, I have never invested in them, so maybe my not looking at them is a function of ignorance rather than a feeling that they are inferior.
Jack Yetiv
Maybe at $.50 it would be worth the risk.
I thought TMA may have converted some Reverse Rept to Collaterlized Debt, but the securitization appears to be of originated prime loans, not the purchased Alt-A securities causing the recent margin calls.
The F Preferred, for instance, has a 10% yield on $25 liquidation value. At a market price of $10.50, that is a 24% yield. If the company survives it goes back to $25 per share.
If the debt were all long term, the credit quality would likely be the primary factor. With margin debt, market value matters.
Math is a strong subject for me. But it isn't for a lot of people. They may hear that their home is worth less than what they are in it for in for, but it is STILL THEIR HOME. They are not analysts sitting down every night trying to figure how much their house is worth, they are watching American Idol.
By the way, Erich, do you agree with Fernando's comment or was there a new event that was announced yesterday?
Jack Yetiv
But this isn't the whole story. The main risk TMA investors are isn't whether or not the market is valuing the Alf-A loans correctly. Instead, it's whether the lenders will force TMA to sell these loans at the currently depressed prices due to the company's inability to meet the margin calls. If this happens, the money is lost - even if Alt-A prices do eventually recover.
In rough terms, TMA has $2.0 billion in equity. $825 million is preferred, leaving $1.175 in common equity. If TMA is forced to get out of its $11.5 billion reverse repos at a 10% loss, you're wiped out. This might not happen, but there's a huge risk that it does - even if the prices at which the Alt-A assets are liquidated are "stupid".
So Jack, you might only care about the DEFAULT rate, but the investor who benefits from that low default rate may well be the hedge fund who picks up the asset at a fire-sale price when TMA is forced to sell (as opposed to you).
And to those "if they can't make it" investors: Yes, TMA has a great portfolio of loans. But their huge leverage and asset/liability mismatch make this company effectively the classic "short puts" investment. 10 out of 11 years, shorting puts looks like a great return strategy. In the 11th year you get completely wiped out. This could well be TMA's 11th year.
Another analyst/writer said it was bargain over the weekend as it had dipped under 10.00.
My sentiments are simply this post that I made on yet another TMA article.
Doesn't seem like the time to betting on mortgage co's. Some think there is a lot of quality here while others make mention of their large holdings in CA and FL and that much of their Alt A is stated income. The stock at 4.00 (approx 25% of the year end book value) indicates that when the financial statements catch up with the market value we'll see losses over 1 Billion. And who really knows what the liquidity situation is. TMA could be out of business at any time.
Total leverage runs around 18. Analysts/writers also talk about picking up additional capital as if there is no cost associated with it. You bet, just ask Citi, Mbia and Etfc how much their capital cost. High rates on debt and high rates on convertible bonds tells you a lot about what the true fear factor is. The stock value of these companies is either the same or lower now than what it was when they picked up their additional capital.
Actually I'd like this company to be a survivor but there is no way I'd put any money on it.
Alt-A mortgages are not "subprime," and you are correct to point out that journalists have identified the nation's mortgage problems as only stemming from "subprime." Alas I am afraid that is because distinctions between various kinds of risky mortgages elude our friends in the Fourth Estate.
Alt-A loans should be considered "pre-default" loans as they are a kind of financial vehicle that no one ever thought of before Greenspan cut rates so dramatically in 2003. They will also have incredibly high default rates as homedebtors realize that Alt A mortgages are free puts issued by the shareholders of companies like Thornburg Mortgage. And when you are in a house in CA, NV or FL that is way underwater, a free put back to Thornburg (inter alia) is a real lifesaver- for your retirement, your children's college fund, or anything else you would like to spend $200-$500k on other than your underwater mortage.
It would be a shame, TMA is a high quality lender, but it is very leveraged.
I HOPE they can pull it out. I HOPE that the powers that be will not allow a TMA to fail; that would be a disgrace and harmful to our economy. They are not a junk lender.
TMA's problem is leverage. And you have to blame Goldstone here as well, you would think he learned his lesson last summer in relying on reverse REPO's. TMA is here because Goldstone ignored the many telling him to get off the reverse repo crack.
I hope they are able to work their way out of this; and hopefully the banks will cooperate.
That said, HOPE is not a strategy.
S Hartwell: Well said.
Sly, if you did that w/ your Roth, you are crazy ... and I hope your Roth is very very small.
Fernando, that doesn't sound accurate.
Hedge Fund Manipulator ... [Comment edited for abusive language. Commenter put on notice]
How did you do with TMA today, Tuesday, 3/4/08?? Closed down $.76 cents today at $3.56. You may have taken quite a hit today. Not sure what your average cost is, sounds to be around $4.04 a share. (20,000 at $3.81 & 10,000 at $4.51) At 30,000 shares, average cost $4.04, sounds like you took a $14,700 dollar loss today. (12% ONE DAY HIT) So what is your time line on this stock??? Did you have a stop loss in place, TMA could go down some more. A bargain at $4.00, a bargain at $3.00, I think it will also be a bargain at $2.00. I wish you luck.
Your math is correct. As of yesterday, I held 30,000 shares at avg of $4.04. Today I bought another 10,000 at $3.61, so I now hold 40,000 shares at a bit under $4/sh. So, yes, my one-day return is negative 12% (-$14,000). Of course, I also hold a large position in HTE and CSIQ, so actually, my account overall today was hit for almost $50,000. But I really did not buy TMA (or CSIQ or HTE) with the thought of selling any of them overnight. So my one-day return is not relevant. And if you want to know something even crazier, I bought all 40,000 shares on margin.
So, I do thank you, Mr. Dkhkch for wishing me "good luck." But I stand by my prediction that TMA may well run to $5 in the near future (well before the end of March).
Everbody and his uncle came out today to downgrade TMA--all of them, way too late, of course (especially late for TMA owners who bought in at $10 or higher). Given that, I am happy (and surprised) TMA didn't ever trade below $3.50 today.
Let me summarize my thoughts based on reading the above. First, to all who have commented--I really appreciate everyone's thoughts, whether they are critical or complimentary of my point of view. This exchange has been very useful to me--especially the civility of it--and I hope others agree.
One thing I learned is that the preferreds might have been the better play, but I need to learn more. Why do people ever buy common if preferreds are available? In other words, what is the downside of the preferreds?
Of note, nobody commented on the fact that TMA's borrowers are largely prime-superprime (low percentage Alt-A, which is what everyone seems to be worrying about).
To Mr. Haskell: FICO scores do NOT represent driving using the rear-view mirror. Credit scores have been developed primarily for their PREDICTIVE value, and that predictive value applies both in good times and bad and is considered very reliable.
As to Fernando's point--I'm not convinced that yesterday's $1 billion announcement was simply a restatement of what TMA did in February. In fact, I am pretty convinced it was not.
Nobody commented on insider purchases in the very recent past.
Mr. Hatrwell makes a good point I completely agree with--TMA can get killed even if their underlying collateral is made of gold (or even platinum). My point was not that I don't care about forced selling (after all, that is what presented us all with either an opportunity or a disaster-in-the-making... but that when you have an underlying business that is making MONEY even in this environment, that should count for something, and that the "something" is worth more than $4.
Nobody commented on what they think the enterprise value of TMA is. Is this company's value chain re: obtaining and processing prime and superprime borrowers/loans really worth NOTHING--even assuming (which I don't think is likely) that ALL of TMA's cash equity is eaten up meeting margin calls via forced selling? In other words, will nobody be willing to pay money to acquire TMA's value chain? I think that asset must be taken into account in this analysis.
I think amount of leverage is critical to evaluating the present risk-reward opportunity here. One poster says leverage is 18, another says 5. I think the real question is not overall leverage, but rather, leveraged loans/reverse repo's subject to margin call. I'll bet that amount of leverage is even less than 5-fold, meaning that the likelihood of bankruptcy is rather small.
Can someone enlighten us as to what the REAL leverage is that is subject to margin call inasmuch we all seem to agree that it is the forced selling that is a problem--not the underlying business?
In summary, although many of the posts have been instructive and interesting, I am not sure they have convinced me using verifiable data that TMA at $4 does not offer a good risk-reward ratio. Obviously, it is NOT a slam dunk (or else it would not be trading at $4), but it is not an insanity play, either.
Reasonable minds can, of course, differ, and they seem to have done exactly that here. Kudos to all posters.
Jack Yetiv
It was the announcement but it probably took them jan and feb to find the investors and setup the security. I believe is extremely unlikely CMOs will bail them out, if that were the case TMA would have already done all the cmos in the world.
The current margin calls are apparently related to the purchased assets. As of Dec-07 purchased loans totaled $10.7 billion. Now I guess it is $11 - $12 billion, because they bought nearly a billion in January, per the 10K.
There were $11.5 billion in reverse repos at Dec-07. TMA has stated it has $2.9 billion in purchased ARMs that are "super senior ALT-A" which have caused the $570 million in margin calls, $270 million unmet per the March 3 report.
That means about 1/3 of these purchased assets are the so-called Alt-A. The margin call since mid-Feb has been nearly $600 million or 20% of the $2.9 billion.
The recent securitization is likely originated assets, because that is how TMA has operated and it would be odd to securitize assets which TMA already bought as securitized assets. This securitization might free up some assets to help meet margin calls, but it probably is not directly related to those assets.
The preferred is interesting here because it is so far below liquidation value, and the high stated yield. It is curious the F is priced well above the others, and had high volume today. All the outstanding preferreds rank equally, per the September offering document for the F preferred.
As for the leverage, at Dec-07 TMA had about $15 billion in non-securitized loans, and $13 billion in various debt other than securitizations. The market value of the non-securitized loans has apparently fallen more than a half billion dollars in the past couple weeks.
in a bankruptcy/liquidation scenario, the conversion right and higher coupon don't mean much but if the company recovers the F series has upside above par; it was at $29 a few weeks ago when the common was $13; good discussion here; eventually the danger of leverage will be impressed on all; I am long the preferred so I hope TMA makes it; maybe Rainwater will buy some more preferred albeit at an even larger discount than in Jan.;
but I also fault management in not using all the new capital they raised to give them a better cushion on margin calls; bottom line is they have raised some $800 million since September and yet they are right back where they were in August; given the environment, it would have been a better choice to limit new mortgage originations and use the new capital to reduce short term financing; they also have to replace the $300 million(I think that is correct) in commercial paper that is due in April
"The recent securitization is likely originated assets, because that is how TMA has operated and it would be odd to securitize assets which TMA already bought as securitized assets. This securitization might free up some assets to help meet margin calls, but it probably is not directly related to those assets."
Securitizations (to the extent I, as a novice, understands them) should yield cash to TMA. If TMA's announcement yesterday was a securitization of recently originated mortgages (which is what I clumsily called a "refinance"), then in fact TMA received cash, didn't they, in an amount somehwhat equal to the aggregate face value of the loans they securitized?
Am I right?
Jack Yetiv
"The Santa Fe, N.M., mortgage lender said proceeds were used to reduce the company's debt under its ARM loan warehouse financing lines by about $920 million.
Thornburg said it anticipates more use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing going forward."
It should have reduced their warehouse line of credit (which is funding companies use to "warehouse" originated loans while awaiting securitization), replacing it on the balance sheet with collateralized mortgage debt. And they are saying they plan to use securitizations rather than reverse repos going forward, which should have been an obvious decision for them last year, or well before. So it replaces short term debt with long term debt, but doesn't impact the cause of their margin calls, at least not much, is my guess.
So, no net cash, but more capacity available in the warehouse facility, although not likely they can use that to meet margin calls.
But even if no new cash, the securitization announced yesterday eliminated a billion dollars' worth of margin-callable debt, which is, to me, quite significant.
By the way, I believe that what TMA securitized was loans they originated in Nov, Dec, Jan and Feb--see following quote from the 2/4/08 release:
"In October 2007, Thornburg Mortgage successfully completed an $832.9 million collateralized mortgage debt transaction with loans that had expected yields averaging 6.80%. The financing cost of the AAA-rated classes, which were sold to third-party investors and are now permanently financed as a result, was approximately 5.98% which generated a yield spread of 82 basis points. Since October 2007, the company has not completed a securitization transaction as it has been accumulating loans for securitization. However, the company expects to be able to finance these loans through securitization at comparable spreads in the first quarter of 2008."
By the way, we had not mentioned the following change in conforming loan limits, which should be a great help to TMA's business model (although the release describes this as a "potential," this has indeed come to pass):
"With the potential for expanded agency guidelines raising the conforming loan limit, the company would expect to benefit from this market change as a notable percentage of its pipeline and existing unsecuritized loan portfolio would qualify under the increased loan limit. The company would then be able to create agency securities as well as the private label securities in order to further diversify its portfolio financing strategies."
Jack Yetiv
"As a result of the increase in common equity and the limited asset growth of $228 million, the company's leverage was further reduced in the fourth quarter. Mr. Simmons continued, "We had an adjusted equity to adjusted asset ratio of 17.12% at the end of the fourth quarter, up 16.71% at September 30, 2007. Our current equity position would allow us to invest in additional ARM assets of up to $6 billion and remain above our adjusted equity to adjusted asset ratio policy limit of 8.00%. Further our unencumbered asset position of $941 million and readily available liquidity of approximately $569 million at December 31, 2007 is adequate in the near term to continue to grow loan originations and to acquire an additional high quality assets so long as financing is available for those assets."
This suggests to me that some of the loans that TMA originated that went into the 3-3-08 $1 billion securitization might have come from equity funds. If I am correct, then some equity funds might have come back via proceeds from the securitization. How much of the $1 billion came back would be sheer speculation, which I try to avoid.
I will bet that this issue will be clarified by a press release from TMA, probably sometime this week or maybe early next week, and I will further bet that the clarification or additional information will goose this stock into the $4's by removing some of the doubt that has been reflected by the comments in this space.
Jack Yetiv
IMO, and this comes from someone that has worked in the distressed/defualted securities business since 1991, the most important factor to consider right now is what some posters keyed on above:
It matters not one iota how well TMA is run, how shrewd they are, how low their default rate is, etc, etc....AT THIS TIME IT JUST DOESN'T MATTER. They DO NOT CONTROL THEIR OWN DESTINY RIGHT NOW as they are at the mercy of two factors--
1)The "pricing" of their portfolio(s), and
2)The reaction of their lenders when those lenders see the pricing (ie-margin call or no margin call)
So...you must ask yourself....if you are a lender and you see continued deterioration in TMA portfolio "pricing" what would you do?
In this environment, AS A LENDER, you are not being paid to take risks...you are being paid to MANAGE RISK. Everyone in the credit markets has pulled in their reins, cutting off credit, etc. What kinds of "marching orders" do you think decision makers at these lenders are getting from above??? Go out and take some risk, make some loans.....or maybe.......Go out that make sure WE GET PAID and if you can't get paid YOU BETTER GRAB EVERYTHING THAT'S NOT TIED DOWN!!!
Thus....the lenders have no patience, don't care that much about "portfolio quality". They are on heightened alert and will react much more swiftly and with much less consideration right now.
They control TMA, regardless of what TMA claims. This is "round two" of the credit crunch for TMA and others...there has been a palpable change in attitudes over the last few weeks as things don't really seem to be getting better, or even stabilizing. I don't expect them to as defaults are ON THE RISE (remember we are just now getting into the "meat" of the resets here in '08) and every writeoff by a big bank is being laughed at as they seem to be just a drop in the bucket of what people expect to ultimately come.
Don't label me as a doomsayer....I am just posting MY PERCEPTION of this particular situation and to me TMA is completely at the mercy of some VERY NERVOUS LENDERS. I am long TMA at higher levels...when it looked like things had "stabilized". I am really starting to also question the veracity of Goldstone after the way he talked on the recent conference call and what actually followed in the weeks following that call.
There is a tremendous irony to the Thornburg situation and that is this: than banks seem poised to lead a run on the THORNBURG bank.
Contrast this with the approach to the monolines. The banks KNOW they can't have MBIA and AMBAC endure credit rating downgrades, and with such downgrades, cocomitant asset value markdowns. And what's the argument there? Well, the PV of exposure is a lot less than the notional amount insured. In other words, the argument goes, the assets are a lot better than they look.
In the case of Thornburg, though, the assets ARE in fact better than their putativie "mark to market" price. Everyone knows it. Yet, nothing can be done to stop the accountants from ruling the day and forcing the margin calls.
I was an English major before I went to business school, but to me, accrual accounting struck me as more fictional than many novels.
Shakespeare had it wrong when he said, "Let's kill all the lawyers." He should have said,"Let's kill all the accrual accountants."
>What is going to happen to their collateral in the near future and how are the lenders going to react?
Not:
>What is the long term quality/performance of this company and its underlying assets?
Margin---it's a hideous and pesky thing and sort of like a land mine--it sits their and does nothing until one day someone steps on it and then all h#ll breaks loose. You can't back away and somehow "deactivate" it. The question is...is their another landmine as TMA takes another step? The overall market and the pricing the market assigns to TMA's assets on any given day in the future makes up these "steps". Step down (price the portfolio) on the wrong day and we know what happens. The way the credit markets and its participants have been acting lately, there's a good chance of some bad days ahead.
Again, I'm not trying to spread gloom and doom like a lot of poster on some of these sites that are just trying to reiforce their short positions. I am merely trying to give my view of what reality is in the current environment.
1. THORNBURG'S MASSIVE LEVERAGE
2. TMA NEEDS MONEY FROM BANKS WHO DON'T HAVE ENOUGH CASH AND ALREADY CARRY TOO MUCH RISK.
... that is the issue here it's not credit quality it's liquidity, liquidity, liquidity... the big issue is that TMA is levered up like 20x on it's own capital... while they were conservative with their loan practices they were very greedy and wild with their leverage.
I slow breeze could & has blown their house of cards now.
NOW HEY - CAN YOU TRADE THIS BY GETTING LONG CALLS - SURE... but who knows if TMA can convince it's cash constrained lenders
To Distressbuyer:
First, seems to me from your handle that this craziness is what you live for and it's when you are buying (LOL).
On a more serious note, although we all realize that this debacle was brought on by events outside TMA's (and Goldstone's) control, I think you have substantially overstated the case.
Even given the "irrational lack of exuberance" that the market is showing these days, it DOES matter--and even more than one iota--how well-run and profitable TMA's business is, and the fact that its protfolio has a very low credit risk because that quality opens up possibilities that simply would not exist for a lender with terrible collateral. Here is why:
1) First of all, TMA does have the option of liquidating part of the collateral to meet margin calls. My guess is that the delay in doing so this time (as opposed to TMA's rush to liquidate collateral to the tune of $20 billion in August) is that TMA thinks that this time, it can escape the need to take an undeserved haircut on its top-quality collateral. I suspect we'll know whether my guess is right in the very near future.
Please note that if TMA does liquidate part of its portfolio, it will get better bids for its goldplated collateral than a subprime lender would get for its collateral. So quality does make a difference.
2) The lenders who are calling in the reverse repo's face a different situation with TMA than they did with, say, New Century Financial (which went belly-up a few months back). These lenders don't HAVE to declare a default, and even if they do, they don't HAVE to force the sale of the collateral. In fact, the sole lender that did declare a default on $28 million against TMA has NOT forced the sale of the collateral.
Ask yourself why that could be. There are various plausible possibilities. First, if the lender thinks that the mark-to-market is artificially depressing the value of the securities, and if the lender is getting paid, and thinks it will continue getting paid, it may choose to neither declare a default nor force the sale of the collateral. This is an option the lender would have with TMA that it would not have likely had with NFI.
Second, the lender may use the leverage of threatening to declare a default to "persuade" TMA to enhance the payments it makes to the lender in a sort of a "loan work-out." Although this is not great for TMA, it is not a disaster, either. Again, the lender's shakedown is limited because TMA does have options as a function of the quality of the collateral.
I can tell you I have been a lender on many parcels of land where I could have simply foreclosed but, for various reasons, decided not to. Although I was dealing with tens of thousands of dollars, and TMA's lenders are dealing with millions, the principle is exactly the same.
There are other scenarios we can paint, but the point is that because of the quality of TMA's collateral, it has options, and for the same reasons, it is not ENTIRELY at the mercy of its lenders.
I think we'll know one way or the other whether I'm right in the very near future, which may give new meaning to the admonition to "Beware The Ides Of March."
Jack Yetiv
I agree with the points made about the quality of TMA's assets, their attractiveness from a default perspective, etc. But as mentioned, at this point the company's greatest risk is that its leverage means it is as the mercy of it lenders, and that common shareholders may be left holding the back. In reviewing the 10K, I am troubled by the fact that as of 31 December they had a mere $941m in "unencumbered" assets - ie assets not already committed to secure one or the other of their financings. This tells me their ability to sell off assets to meet margin calls is severely limited, even if there were a market for such assets (which is doubtful). So although I am long the C Prefs, and have every interest in TMA doing well, I think absent a major equity infusion they could be facing continued defaults on one or more of their 13 repo lines, which could trigger cross defaults in their other lines if uncured (I haven't reviewed their lending documents - not sure they're public - but this is how these things often work) and result in insolvency / liquidation.
This is of course only the worst case scenario, but the worst case is what we have to keep in mind in assessing risk v. return.
My bet---TMA will survive---just like Chrysler at $3 20 years ago, DYN at under $1 and MCD at $12 and AAPL at $9 ---all just a few years ago.
1) Some have pointed out the opreferred F shares. They are far superior because they get the dividend paid before any cent will be paid out on the common. and since they have a fixed 2,50$ dividend they are much less exposed to any further dilution of the common which might occur any time.
2) Due to the ultra-high volatility of the stock the options premiums are sky-high. Besides the preferreds that I own, I bought some common @ 3.75 yesterday and sold against them the $5 Jan 2010 calls @ 2.10$ per contract. net investment: about 1.70$ per share. If the stock gets cut in half I still do not lose a dime (except opportunity lost elswhere). If the stock stays where it is now by Jan 2010 I will have made 100% in less than 2 years. if the stock gets back to $5 or above I stand to make almost 200%. bottom line: it is not a 3:1 or 4:1 risk-reward anymore with selling the $5 calls , but imho it's vastly improved odds. one could substitue the $5 calls by the $7.5 calls - that way, you pay abou 2-2.1$ a share and can make about 250% if the stock goes to 7.5 or above. I like the risk-reward with the $5 call better, though
you seem like a reasonable guy, but with little experience in distressed financial markets, and untutored in the financial sector. Didn't have time to read most posts, and read fewer and fewer because the quality is, to be honest, somewhat lacking. So I'll be brief and to the point to try to save you some money. I've covered financial stocks for over ten years 1)All traditional ideas surrounding value can be thrown out the door in the short term. So, sell part of your position so you don't get margin calls in the event of a downswing (unless you are fantastically wealthy). 2) There are a lot of moving parts in the credit markets that you are just too unaware of (as are many big institutional investors) that make raising capital (debt and equity) very complicated. So meeting margin calls for them could be major problem (think of what would happen to you in the event of margin calls; why did you have to use margin in the first place?). 3) This could go on longer than anyone believes. (Read Dennis Gartman's ten rules about trading. i,e,one rule is not to add to losing trades; the markets can stay illogical a lot longer than you can stay solvent. 4) Don't feel like a hero if the stock goes to 4.75, it could go right back down. That would have been good trade, but few traders, and I mean few traders, are buying here. If you assume you are a genius, one could attribute a lucky day in Vegas to skill. That does not make your "thinking" right; There is a better chance of that going to zero, than going back to $12 in the next five years, unless you really do know more than the market ( I doubt it, despite your impressive intellectual credentials). Just my thoughts, keep them in mind
Anyone who takes positions using huge leverage is a speculator, not an investor. Even sophisticated speculators can go to zero. Consider Victor Niederhoffer who has busted twice: once in 1997 and again last year. Unless you are prepared to go bust and have other assets that you can hock in order to get back into the game, I'd suggest cutting your losses while you still have capital to preserve.
The only caveat I would attach to this advice is that if you have a diversified portfolio with a small percentage allocated to "speculative" positions and your position in Thornburg falls within this speculative allocation, such a position may be reasonable from a portfolio management perspective (although there may be other speculative opportunities with a better risk/reward ratio).
Also as to FICO scores (which I did not directly address earlier) you will no doubt be aware that Fair Isaac recently announced substantial changes to their scoring algorithm because of its perceived failure to predict risk of default.
"We don't think FICO scores have caused or contributed to the subprime mortgage problem," says CEO Mark N. Greene, a 12-year IBM veteran who took the helm at Fair Isaac last February as its problems were becoming apparent. Lenders that followed traditional underwriting standards, he says, "steered clear of subprime issues."
Of course, Thornburg Mortgage's entire reason for being was to help borrowers avoid "traditional underwriting standards" by lending them money that they could not demonstrate an ability to service.
And this is all before we get into the question of how a company can miss a $270 million margin call and still be a buy, which I suppose has been exhaustively examined by other posters.
As an aside, current market conditions have pointed out a deep flaw in the REIT structure, the need to pay so much of their income as dividends. They can't really accumulate any retained earnings (reserves) for when times turn bad.
When times are good, the model works. When times are bad, they are forced to sell new stock, but when times are bad, the stock price is low.
To JJason--we are now at 60 comments!
To all concerned about margin calls for me, I appreciate the concern biut assure you that if I lost the whole $160K I've played on TMA (avg cost now $3.93 for 40K shares), I would be just fine. I agree with the implication of the advice, though, which is that this is a high-risk play--as I stated in the article I wrote.
As to the preferreds, I agree that had I thought of it, I probably would have deployed part of my money on the F's, but at this point I don't plan to put more into TMA.
As to selling covered calls, there are clearly a risk-reduction or return-enhancing mechanism, and one that I have employed frequently in the past. Indeed, I plan to employ it here, but not yet. I believe it is possible, if not likely, that TMA will run to $5 on a good note of one sort or another, at which time may well sell $7.50 calls on part or all of my holdings. I like to sell calls after a nice run in the underlying stock because it either gives me a better premium or allows a higher strike price and therefore gives me a better return at takeout.
The possibilities are endless, and all depend on what happens going forward. What kind of "good notes" are possible? Quite a few:
1) Announcement of an equity infusion.
2) Sale of collateral at not too terrible a discount and clearing of margin call and reduction of reverse repo's and leverage subject to further margin call.
3) Clearer explanation of where we are, what the risks are, etc. The street hates uncertainty. Clearing uncertainty, even if the news isn't stellar, often is a positive, especially when the company is being priced well under book value.
To FigTrader:
I appreciate your erudite comments, and offer this response. Although there are many more sophisticated posters than I here, I will tell you that I have averaged a compounded annual return of approx. 30% in the past 18 years in my real estate and stock investments. So I don't feel too bad about that.
Also, I am fully aware that there are a lot of moving parts, most of them not visible to us (black boxes) and obviously, meeting a margin call IS difficult or else we could not be talking about buying this company for under $4/share. The question isn't whether there are risks (they abound), but rather whether the reward ptential exceeds the risk.
Imagine this game:
You pay me $100,000 to open one of 5 boxes. Four boxes are empty, the fifth has a million dollars in it. You keep what you find in the box. Who wants to play that game?
I would. Would I do it because it's low risk? Heck no. There is an 80% chance of losing the $100K. But there is a 20% chance of picking up a million. Expected outcome is a 100% return. High-risk, high reward.
I think TMA offers a better risk-reward ratio than the game above.
Jack
Thanks for the discussion. Unfortunately you sound like me after I buy into a position and realize that it isn't a good one. This is why I use stops every trade now. I do widen them out if I know its volatile, but this keeps me focused and on target for a real trading strategy - not an emotional investment or gambling trip to Vegas (I think your premise sounded reasonable and convincing, but I believe that this market isn't reasonable.)
As a former trader that used repos, my worst case scenario is that your collateral is devalued and you have to continue to pony up to continue. The problem with this market is that folks that believe their collateral is good still have to mark to market..... and when the mark continues to go down, the banks continue to require you to pay up. Ultimately you must sell and if the position is big enough you are only going to be able to sell to folks that will punish you because they are the only ones that understand what they are buying and have the dollars to do it.
To echo what some othe poster said, Bill Gross and Warren Buffett and a few other hedge fund guys are salivating at the deals they are going to get. VERY SMART HEDGE FUND GUYS ARE GETTING BLOWN UP AND WILL CONTINUE TO DO SO. Remember Long Term Capital - they were some of the best and brightest.
I believe you when you say you have deep pockets, but you didn't get to that position by making emotional decsions, you executed a plan that you laid out. I am hoping for the best for all the longs. I think there are better risk-adjusted returns out there.
Good Trading.
the problem with prefereds is that in bankruptcy they go to zero also,
but they don't have the upside that common does.
As for selling covered calls, thats the biggest sucker bet a person can make, you keep your losers and let others have your big winners for a small premium.
Years ago I bot chrysler preferred at $10, it went to $30, nice,
except the common went from $3 to $30 at the same time,
I could have had 10x instead of 3x and the risk was the same.
What's the ROI on that law degree- wouldn't it have been a lot more cost effective to just hire an atty for your apt buildings? Ah, but then you wouldn't have had the pleasure of reading thousands of pages of case law in the law library..
I made a similar bet a few months ago on DFC. Mostly fixed rate subprime loans, huge insider ownership, 20 yr history. That didn't work out so well for me due to margin calls and lack of liquidity. We'll see if the increased quality of TMA collateral will give them some more options.
For a reframing of the 5-box game you described, see this quote below from Monish Pabrai, who lost slightly more money on DFC than I did-
"In summary, my conclusion on Delta is to learn, but not learn too much. We made a favorable bet that did not go in our favor. Investing is a game of probabilities. There are no absolutes. One can make a favorable bet and come out a loser. That’s perfectly fine. The key is to seek out highly favorable bets and bet a meaningful amount when those appear on the horizon. Over time the aggregate odds will likely play out heavily in favor – as they have over the last 8+ years."
1. Kudos to Jack for putting his money where his mouth is.
2. It seems like if the other banks are going to make a "run" on Thornburg, or are in the process of doing so, now might be a good time to not buy. Being in the loan servicing business for the time being, every day more cash comes in. At the same time TMA's upper management *should* know exactly what they are up against. They need to raise cash, or their quality leveraged assets may be called in. So my guess is they will be driven under OR raise enough capital to survive within the next 45 days. At the moment buying this stock appears little better than a coinflip, but that's the tradeoff for trying to pick it up at absolute rock bottom.
I have never bought at the bottom and never sold at the top. I'm willing to wait for a trend. Today TMA closed down 4.49% to $3.40. My guess is that it will go down a bit more then level out until there is a clearer picture of the future for this company. The trend is your friend. Start going long at $4.05. I would not start buying till the downward trend reverses.
What a shame is this! Great business has a possibility of BK because of new accounting rules!
Great discussion here. Lots of varied and very reasonable viewpoints.
I admire your courage, Jack. You put a lot of money in a very risky situation. I used to work for a major money center bank, 12 years ago. I know a lot about the financial services industry. I ran a hedge fund for a while. Now, I just invest for myself. When you invest in a bank or a financial institution, you have to remember that they are the most highly leveraged of all "companies." Furthermore, you can never get enough information about the quality of loans on their books. Once, the value of their loans starts deteriorating, the value of the equity can vanish in a flash. I have learnt from experience and observations that it does not make sense to try and pick a bottom in these stocks. It is better to wait for the situation to stabilize.
For TMA to survive, the mortgage market needs to stabilize. There are no indications at the moment that the mortgage market has hit bottom. From everything that I have read about TMA, I think that there is a very good chance that it will not survive. In fact, I think it is very possible that one of the big ones like Washington Mutual will fail. We are in the early stages of the housing debacle.
New posters have no credibility.
( no position here)
Ugghh.
Your points in this discussion have been very good. Having worked in the mortgage REIT field in the past, I must say I was very surprised at the lack of understanding demonstrated by many of the posts on this topic. Which leads me to a question I would pose for you or any other financial professionals participating on this site. Is this fairly typical of the material found at Seeking Alpha? I am new to the site having been led here by various references made in some of the more traditional media and 'mainstream' websites. I was under the impression that this was a primarily a forum for professionals but it seems that may not be the case. I would just like to get a feel for this now as I will likely end up reading future posts on topics where I won't have the expertise to determine the validity of the poster's assertions.
(I apologize in advance if I am out of line getting off topic like this. As I said I'm new to this stuff and am not sure of the rules or etiquette)
JPM sent a letter of default on the 28th ?
What else changed ? Nothing IMO, except that the cross defaults and liquidation possibilities are clearly highlighted.
This is not new information.
A link to the author's bio appears under his picture. Reading the bio should give you some insight into the background of the author, but who said that investment "professionals" are necessarily correct in their opinions. There are a great many mutual funds that underperform the market. There are hedge funds that go bust. Ultimately it's your money and your responsibility to make your own decisions.
This website needs to ensure that its articles pass a basic smell test. The mere suggestion of bargain hunting in toxic financials in the midst of what is steadily becoming the worst economic crisis of our time not only enrages me but is doing your readership the worst possible disservice. Thornburg is in deep, deep kimchi long term.
To dkhch: The default notice which just hit the wires is cetainly bad news, and it is certainly contrary to the bet I placed. Having said that, I cannot tell if this is an additional $320 million or inclusive of the $28 million/$270 million we already know about. Obviously, both are bad news, but one is worse than the other.
If the stock trades in the $2 range tomorrow (as afterhours prints suggest, but those prints, based on thousands of shares traded, don't always predict what happens during regular hours with millions of shares trading), which it well might, it will probably be fairly valued given this additional bad news. In other words, I probably won't sell at $2, unless other information changes the risk-reward ratio at tha time.
I know some of you will think this is an emotional decision, but if you knew me, you would know that is not the case.
To Zaur:
I know you don't want to hear this, but no, it does not "hurt." Let me suggest that if someone invests in high-risk, high-reward stocks and options (as I have for about a decade, with very good results) and if that person feels "pain" over a loss or excessive elation over a gain, he or she should probably not be trading those kinds of instruments. It's not good for your health.
I REALLY mean this. I think everyone on this board should really remember that. Your health, your family, your life, are far more important than whether you made or lost money today, or tomorrow, or yesterday. After 25 years of medical practice, most of it in the ER, let me tell you I re-learned that lesson at least every week as patients' lives were inexorably and very meaningfully changed by heart attacks, cancer diagnoses, or even deaths.
Having said that, nobody likes to make a wrong call, and this may yet prove to be a wrong call, but 2 days into the trade, the fat lady hasn't sung. It certainly looks much worse than it did yesterday, and I think upside recovery and targets I provided in my article are much less realistic, but I would STILL bet that a capital infusion is more likely than a bankruptcy, although it is much closer to 50:50 than it was when I made this trade. I think someone with a lot of cash will make a ton of money on TMA, but will want a large piece of the pie to do so.
Let me also remind everyone that over 100 million shares of TMA have traded in the past 3 days, almost all of them between $3 and $4, and each one of those trades involved a buyer, and I would bet some of the buyers were pretty sophisticated in these things. In other words, notwithstanding some of the comments above which betray 100% confidence of a certain outcome, the reality is that a lot of people with a lot of money (nearly half a billion dollars have traded!) took bets similar to mine.
Also to Zaur--not that it makes a humongous bit of difference on a day-to-day basis (see above sentiments), but my account was actually UP today. I hold 25,000 shares of CSIQ and a like amount of HTE. Zaur can do the math, and he will discover that even using a price for TMA of $2 as if it closed there at the end of the trading day today, my account would have actually been substantially UP today.
Figtrader does not believe my statement re: 30% compounded annual returns. I invite him to post $100,000 in an escrow account, I will do the same, and we'll have an accountant calculate my investment returns over the past 18 years. Winner take all.
Ken777 wants to know the ROI on my law degree, and I will address that in my next post. Dinner is calling.
Jack Yetiv
"On Thursday, February 28, 2008, one lender delivered a notice of event of default under a reverse repurchase agreement after we failed to satisfy a margin call in the amount of approximately $28 million. We have been continuing discussions with this lender, and the lender has not yet exercised its right to liquidate pledged collateral. To the extent that any other reverse repurchase agreement contains a cross-default provision, the related lender, which may be an underwriter or its affiliate, could declare an event of default at any time. "
The big banks are the only banks that are safe.
Small banks like Thornburg are SOL.
Google the video "Fiat Empire".
If you want to go long-term in banks at the bottom of this current bear market - go with the big ones, which the FED protects.
"You know it's a doozy when ...
However, with so much turmoil in credit markets these days, reliance on mark-to-market accounting has caused some to question whether new accounting standards should be implemented to assist companies like Thornburg, which thinks it's being unjustifiably victimized by an irrational market.
That's a question even the brightest of the bright seem to be perplexed by. When asked about an alternative to mark-to-market accounting, Fed Chairman Ben Bernanke himself stated, "I don't know how to fix it ... I don't know what to do about it."
(Note to self: When the chairman of the Fed admits defeat and acknowledges he doesn't know what to do, it may be time to stock up on canned food and resume practicing ducking under school desks.)"
This article should be retitled "Thornburg's a Huge Bargain for Multi-millionaire investors After Monday and Thursday's Crash".
How do we proceed from here?
It seems without clarification that this situation is trending untenible as I can barely do anything with the wild and hysteric swings before market opens and after market closed...this stock could go up hundreds of percent just as easy as it could belly up in the next day or so.
Cut bait? My 25% trailing stop was surpassed after hours. Thoughts or insight?
You're a calm, cool guy ... but my balls aren't nearly as big as yours!
I bought TMA as my first REIT for around $24. I sold it in August for $14, thinking "I won't do THAT again!" Well, I DID do it again in January, and I was tickled to death that I actually bought it at the bottom (I bought around $7.65). When word came last week of the $300 million in margin calls and the stock tanked back down to $9, I bought some more. As you all know, the stock enjoyed trading at that price for a whopping two business days before being whacked to $4, at which point I sold.
Missing from these discussions is any discussion of ethics. As I've watched TMA tank, I've read quite a few articles here and there noting how wonderful TMA is and how CEO Goldstone could really teach Bernanke a thing or two. I don't know ... I read the press release last week as "we've had to come up with $300 million to cover margin calls, and if we receive more margin calls (*Wink! Wink!*) then it is POSSIBLE that we may have to sell an asset here or there to cover." In other words, it did not sound all that dire to me. Had Goldstone been more truthful last week as to the actual situation, I may not have been tempted to toss more money into the fire before Monday's explosion.
ouch;)
Some HF types I spoke to, before this week's news, had some very unkind things to say about him and how he is regarded.
You must feel kinda dumb now.
The reason for the law degree is that it ties into my plans to spend most of my remaining time on this earth working in my non-profit think tank, addressing various societal issues including energy security, global warming, and various medical, legal and ethical issues. In fact, most of the money I make in the stock market (assuming the naysayers in the crowd are incorrect and assuming that I don't myself go bankrupt tomorrow! LOL) will go into the think tank. The law degree relates closely to many of the issues that I plan to deal with in my think tank. I have also unsed my law degree to do primarily pro bono work on various civil rights and constitutional issues. So, the ROI on my law degree would probably be in the 1-2% range at most, and most likely, negative.
To Lexy and the other late-comer elitists (SeekingClarity) et al--I believe the raison d'etre and power of the internet (and additional field-leveling laws that allow all investors to participate in conference calls and get information at the same time as analysts do, at least theoretically) is to allow all to post their thoughts and let readers decide for themselves the value of the post. My credentials (if you perceive them to be such) have always been out there, as has the logic (or lack thereof, as each person sees it). It seems at least a few people learned something from my various articles on this site, and so far, I have been right on HTE and CSIQ, so I have not done terribly in a rather treacherous environment.
Posts like yours really do not add any value to the wonderful discourse we've had here.
Putting on my psychologist hat on for a moment, in my experience, people who need to bash others and who enjoy the fact that others have lost money (if in fact that is how this trade ends) are usually insecure people. I have done nothing to anyone on this thread other than treat them all with great respect, and the fact that you need to attack under these circumstances is regrettable indeed.
And to the elitists, who exactly would "decide" who has "proper" credentials to post on this site or any other? Should I be allowed to post on CSIQ, given that I recommended it about a month ago on this site when it was trading at $18.56 and it closed up 18% today at a bit over $22?
I have done extremely well in my investing career (real estate and equities) but there are no guarantees in life. I have made much larger option plays than this TMA and had my clock cleaned more than once. But, thankfully, my winning bets have far exceeded my losing ones, and each time I lose, I always analyze what I could have seen A PRIORI that would have helped me in the trade. Despite that, I still lose sometimes, and this TMA play may be one of those times.
I have made a ton of money bottom-fishing, both in real estate and in stocks, but bottom-fishing presents both risks and opportunities, and I believe my article was clear on the risky nature of this bet.
One last comment:
I searched the TMA website in vain tonight, looking for any information from TMA relating to the default stories that hit the wires at 5-6PM tonight. Given that, I wonder what the source is of the information that hit the wires tonight.
Everbody be well.
Jack Yetiv
As I stated..the quality of their assets does not matter...it only matters once the lenders realize this company is toast and at some point they force TMA into bankruptcy. At this point, it is probably THE THING TO DO ANYWAY...no more FORCED SELLING OF SECURITIES INTO A TERRIBLE MARKET. A Ch 11 filing will give them breathing room and allow a somewhat more orderly (and hopefully more rationale) sale of assets to meet collateral calls.
They stepped on another land mine today apparently. I'd say they lost both their legs and better seek medical attention (ie CH 11).
Or: You can fool some of the people all of the time, and all of the people some of the time. That's real good odds!
Either Abe Lincoln or Brett Maverick said that, and was right.
One or other quote applies here. It is immaterial which it is, sadly!
Credentials are not a guarantee of success in investing. Anybody who accepts an assertion based solely upon the credentials of the person making that assertion is simply gullible.
All of this one's prowess has gone into his talent for applying DEEP THOUGHTS OF THE AGES.
1) I read your CSIQ article. Good work. I am assuming you have dug deeper into the whole solar industry to get a better understanding of CSIQ's prospects and your decision to invest was based on more than numbers. I am going to do some homework on it myself.
2) I believe you when you say that you have made 30% per year. It's precisely your style of taking big positions in selected situations that can result in 30% per year. I know from experience that it can be done. Of course, some positions may not work out. But, as long as any position is not too big, you can afford to take the hit.
3) For all you know, TMA may still work out for you. At $2, I am tempted. I will wait a few days though.
Good Luck, and I agree with you, in the grand scheme of life this is nothing, I've lost big too before, and family, health are way more important. I just hope people listening to your advice didn't jump into this stock with all their money, essentially getting wiped out.
Watch for margin call selling tomorrow.
Long LEH $62.63 (mid Jan. lo-hi $50's)
Long ACF $11.47 (to $9-$11 and change/hit nr.12cpl.days @mid-mo.)
Long IMB $9.55 ($5 give or take a dime)
Short ZNT $42.03 ($42-43+/dipped under42 by 25-30cent ONE day bfr.MLK day)
Short BER $30.58 (TWO days@mid.mo.went lower bfr.MLK day)
Short MTU $10.10 This one gave you a SOLID 12-13% or so.
----------------------...
Hope you were heavy on the MTU short or you lost out following the FIGTRADER.
As to your point of hoping that people didn't jump into this stock with all their money, I second the notion. But let's be fair to me. I did not sugarcoat the potential for trouble, I accurately represented the events, and in two places in my article, I SPECIFICALLY calledc attention the risk, as follows:
"As long as TMA is not entirely incapacitated by the margin calls (and that is certainly a possibility), there is no reason to believe its earnings going forward should be much less than $1.30, but even if they decrease by 50%, that's only a PE of a bit over 5."
"Of course, if additional margin calls materialize and are unmet, I see TMA going back to $3/share. Given the billion dollars TMA picked up today, and the excellence of its underlying mortgages, I consider the latter possibility rather small. Therefore, I think that at $4+ (or even $5+), TMA presents a very good risk-reward opportunity, albeit for investors who can tolerate risk."
Having misplaced my crystal ball recently, I was unable to know the future (unlike latecomers to this thread who "knew" this was going to happen but did not begin to post until after "it" happened), I evaluated the risks and benefits and concluded that it was more likely than not that TMA would attract either debt or equity capital and that this would goose the stock.
NOBODY, professional or otherwise, can disagree that things could have played out precisely that way. We can all disagree on the probabilities of that outcome, but nobody can dispute that things could have played out that way.
They still might.
G'night everyone.
Jack Yetiv
To Distressbuyer: Your thought is a very interesting one. Bankruptcy may in fact present an opportunity, rather than something to avoid. One of the borrowers who bought some land I subdivided has forestalled my foreclosure of the land for 2 years. If TMA can buy half that amount of time, it just might be a good strategy. It also gives the borrower pretty good negotiating leverage.
This headline: by FIGTRADER on Nov.8,2007
Financials Capitulate; Bottoms Are Being Made; Buy
What was TMA trading at on Nov. 8, 2007?
Jack Yetiv
See comments here.
Amusing case of ROLE-REVERSAL.