Bruce Krasting

Too Early for the Fed to Stop Purchasing U.S. Treasuries?

Tks for this. We shall see what happens to interest rates over the next six months. I think the absence of the Fed POMO buys will make a difference. Rates will have to rise. There is just too much paper that has to be sold.

Two scenarios I see.
A) The economy recovers. Money would go to higher risk and away from Treasuries. This is the crowding out issue. What would an investor rather have, a AAA corporate or a 3% Treasury?
B) Things go wrong and we resume a decline or have no real growth in 1Q 2010. Then we would have another large stimulus plan. This economic situation would likely keep interest rates low. But the amount of new paper to be issued by the Treasury would go up by another $1T and the deficit would widen to a level where bond buyers balk. More pressure on the bonds in that situation too.

In my opinion if an investor buys 10 year Treasury bonds today at a yield of 3.5% they will absolutely lose money. They have to pay tax of 1% on that income. The remaining 2.5% will be lost to inflation.

The Fed has announced that they will purchase 1.75T of bonds. $200b in Agency debt securities, $1.25T of Agency MBS and $300b of direct Treasury securities. Did you exclude the $200b in agency debt as part of the QE total?

Agency Preferred Stocks: Who's Buying?

FRE

The current receivership structure would allow for some formal restructuring of these entities. So I do not think that a 'bankruptcy' would be required to establish that the common shares have no claim on the companies assets.

The market values these two dogs at $1.1 bil. That is down from a peak of $200b. It is now just a nuisance to have the shares outstanding. It obligates the Agencies to file tons of paper with the NYSE.

These two entities consist of people/mortgages and negative equity.

At some point it will be people/mortgages and positive equity. Along the way the old common shareholders will be diluted to zero.

America needs a mortgage Agency. Just not these two. FNM/FRE are dead. Now we have to bury them. From that there will be a new future.

Agency Preferred Stocks: Who's Buying?

Some form of the Agencies as we now know them will be around for a very long time. They represent 60% of the mortgage market. So they are not going out of business anytime soon.

That does not mean that the old stockholders are gong to get anything from that. My guess is that the losses in the Agencies will continue for another 3-4 years. The total losses will exceed $1/4Trillion. Yes the gvmt will absorb that. There is no other choice. But the cost of that is a wipe out of the old shareholders.

Agency Preferred Stocks: Who's Buying?

FRE: Nice name. Respectfully disagree.

Agencies were not designed to absorb losses as you suggest.
That was never in the cards. It just turned out that way.

I think the losses that will have to be realized over time will leave the current equity with little value. It's okay to disagree with that. That is what the market is for.

Did not say that GS was selling and buying this stuff. I said that someone was. The charts show that no?

GS is the lead in the sub debt buy back. They are one of the 'wired' players in the story. Me, I admit, am doing some guessing. We shall see.

Agency Preferred Stocks: Who's Buying?

448719: I can't tell you how many times I have been 'fooled'. So this could be another of those cases. We shall see.

This is a odd story with no precedent. I look at the assets and liabilities as if this were a bankrupt company vs a receivership. That tells me that the liabilities (when this is over in two yrs) will be far in excess of the remaining assets. In a court the equity would get nothing. Not sure why this case should be different.

The taxpayers will have contributed $250-400 billion by the time this is over. They have to get that back before the old common is worth anything. I can't see that happening.

Good luck on the 'long' side of this story. As of July 16, 2009 no one has ever made money owning Agency common. Traders can make money anywhere. A buy and hold on this is going to result in a loss I think.

Agency Preferred Stocks: Who's Buying?

bawe: If something like this happens those holders you are referring to would love it. I am sure that some of them are pushing for it.

legat: These pref securities are sold in $25 amounts at issue. They have different terms. Some floating interest rates others fixed. Different bells and whistles but the same "class". There will be some type of formula that attempts to value all of this at a similar valuation.

So we understand, this is very speculative. I am not suggesting that people go out and buy this stuff waiting for a back end buy out. There are better things to invest in then that. This is a Pro trade. Guys like GS can make this happen. You have to be wired.

Let CIT Fail: The Business Model Is Broken

This is not an April 2010 event. It is a next week event. They are in covenant default on a number of their bond indentures. This means the holders can accelerate and demand immediate payment.

Shrike: GS does not make bad loans? In this case you might be right. One can assume that that GS has collateral against those advances. (or they bought CDS against it). If you are a troubled borrower the last thing you want is to owe money to
GS. They are not nice and will move fast to protect themselves.

This is an interesting case of 'too big to fail'. With $70+ billion of IOUs it is not a small bust up. If CIT goes chapter it will not kill us. This has been in the works for some time. But the absence of CIT as a lender to small business is going to hurt the broad economy.

A decidedly brown shoot....

The High Cost of Carry Trades and Their Impacts on the Markets

Not correct. You have to pay to borrow. In some cases this is next to no cost, I others, as in the Sears case you have to pay a big price to borrow stock.

What's To Be Done About Citigroup?

Nice article.

The Feds did a very nice job of destroying the bond holders in the GM/Chrysler deals. The precedent has been set.

Citi was/is a regulated entity. GM was not. That is the difference. The thinking must be, "We were supposed to regulate the banks so we have a moral obligation to protect the bond holders."

If you cross over on this line of thinking and actually lean on the bond holders it becomes a slippery slope.

If you tank Citi's bond holders what the heck do you do with the
Agencies bond holders? That is a problem that can't be fixed.

High Marks to Bernanke and Fed for 'Managing' Stress Test News

Told you:

www.nytimes.com/reuter...

High Marks to Bernanke and Fed for 'Managing' Stress Test News

Carolina 1954:

This from today's FT on the CCB sale:

"Bank of America will be free to pare a third of its 16.7% stake in China Construction Bank Thursday following the expiration of a lockup period.

The Financial Times reported Tuesday, citing people familiar with the matter, that Bank of America is considering selling an $8 billion stake in China Construction Bank within days, a move that would relieve some of the pressure on its battered balance sheet."


As for the Private Pref, it is trading at 17 or 60% of original par. It is busted pref. The holders want out of this. A significant amount will be converted to common as in the Citi deal.

As for new sales of BoA common, well I doubt it....

Why GM's Wagoner and Not BofA's Lewis?

I am not sure they ar polar opposites but I agree with you that they are different. My point was that Lewis is at risk of getting fired by the White House. That should not happen. The shareholders and the board should do that.

On Apr 01 01:55 PM RickWade wrote:

> Ken Lewis leads a bank that was profitable for 17 straight years
> including 2008! Because of his stellar leadership, BAC was able
> to do our country a favor and take over Merrill and Countrywide in
> the midst of crisis. Meanwhile Wagoner has been driving GM into
> the ground with No innovation. These two men are polar opposites.

Why GM's Wagoner and Not BofA's Lewis?

tks. bk


On Apr 01 02:26 PM mkat33 wrote:

> I read about this in a few places. I do specifically remember a
> Fortune Magazine article as being one of those sources.

Why GM's Wagoner and Not BofA's Lewis?

Sorry bac gave you the boot. If I may ask what was it you were doing? Mortgage related?


On Apr 01 03:11 PM hwood007 wrote:

> You need to explanin what the product was and why it could not be
> sold. Was it a wild product or one sold by non-banks. Was it a
> product I would buy? Give some facts man! You may have done the
> best anyone could. It takes a cruel person to sell an overpriced
> mortgage to some one with limited income, but some one did.

Why GM's Wagoner and Not BofA's Lewis?

I actually come from the planet Orc. I did not defend Wagoner. I was trying to make the point that the White House should not be doing the firing. I did read elcapone...


On Apr 02 05:12 PM hksche2000 wrote:

> Bruce Krasting, what planet are YOU living on?
> Read Elcopone's comment (v.s.). He's got it exactly right!
> Wagoner should have been fired by his Board y-e-a-r-s ago. He
> should/could have imported his own GM-Opel small cars (like the Astra)
> over here or -better!- manufactured it at Detroit, for starters.
> But he had to, but didn't hear his fellow Americans screaming for
> fuel efficient and, yes, smaller cars. The same Americans who bought
> the VW bug, not exactly a luxury limosine, like gang busters back
> then. You must listen to your customers (like VW, TOY et al do),
> or no bailout can ever save you.