Seeking Alpha

Charles A. Smith

 
View as an RSS Feed
View Charles A. Smith's Comments BY TICKER:
Latest  |  Highest rated
  • Are We in a Banking Depression Without Knowing It? [View article]
    The cash flow is certainly worth something on the performing loans, but let's look at the 12 percent (your numbers) of the portfolio which is delinquent. Assuming a 50% loss rate (equals a 50% recovery rate, which Reggie would say is way too HIGH), that means a 6 percentage point hit to capital. For an institution with an 8% equity to assets ratio, that's quite a hit to capital. Not quite insolvent, but close. BTW, this is probably a good characterization of the banking system today: running on the fumes of ZIRP with just enough capital to remain solvent. Another 10% down in home prices and we're back in the soup.
    Oct 2, 2010. 10:06 AM | 6 Likes Like |Link to Comment
  • Thoughts on Blockbuster's Store Closure List [View article]
    Death was a foregone conclusion, but that doesn't mean equity shareholders had to lose everything. Five years ago the stock was trading in the $10 range and management had a choice: They could maximize shareholder value by winding up the business, or keep their jobs (and cushy salaries and benefits) in a futile effort to compete with Netflix, etc. Sadly they chose the latter. My estimate at the time was $12 to $14 in realizable value net of debt. Carl Icahn saw the same thing, bought a huge chunk of the company, and fought to throw management out. He failed. Management simply chose to screw the shareholders.
    Oct 1, 2010. 02:59 PM | 1 Like Like |Link to Comment
  • Rogue Foreclosures: The Larger Threat [View article]
    FNF now C R A C K I N G...down 6% on big volume...
    Oct 1, 2010. 10:02 AM | Likes Like |Link to Comment
  • Rogue Foreclosures: The Larger Threat [View article]
    Both problems you mention are inextricably linked. Yes, wages stagnated from the early 1980s on, partly due to overseas competition. But beginning in the early 1990s the RESPONSE on the part of our culture was not to buckle down and compete, but instead to lever our economy (mostly using houses as the collateral) in an attempt to maintain living standards. This went on for 20 years, and now we're stuck with BOTH substandard wages AND a ton of mortgage debt which we can't service.
    Oct 1, 2010. 07:39 AM | 3 Likes Like |Link to Comment
  • Could the Foreclosure Debacle Benefit Banks? [View article]
    JPM/WM ain't got nuthin on WFC/GDW. The losses out of Golden West (which WFC "inherited" via Wachovia) will make the Wamu portfolio look like a JV game...
    Sep 30, 2010. 08:22 AM | 3 Likes Like |Link to Comment
  • Rogue Foreclosures: The Larger Threat [View article]
    Classic case of "damn the torpedos - full speed ahead" thinking in the creation of securitized mortgages. Nobody bothered to create a mechanism for reverse-engineering securitizations if and when the underlying asset defaulted, so we don't have one. Too much money was being made in the securitization process for anybody to bother. One key speed bump in the securitization process was the all-important (especially in retrospect) step of RECORDING all mortgages in the jurisdiction in which they are created, so in many cases it was ELIMINATED. As a result there are literally hundreds of thousands of unrecorded mortgages in existence. As we're all learning, from the point of view of the courts, unrecorded mortgages DON'T EXIST. If I owned a title insurance company, I would be scared out of my mind right now. Bad things are coming down the pike for the likes of FNF.
    Sep 29, 2010. 03:06 PM | 9 Likes Like |Link to Comment
  • Where's the Bottom in Real Estate? [View article]
    No thoughts of subdividing at all. The neighborhood is mostly transient corporate executives (just as many women as men!) and professionals. Many of them might look quite favorably upon renting a basically brand new (never lived-in 4 years after construction) home for 80% of the cost of owning outright. After all, nobody has to know if you're a renter.
    Sep 29, 2010. 01:45 PM | Likes Like |Link to Comment
  • Where's the Bottom in Real Estate? [View article]
    Let's look at the equation from the perspective of an investor with cash. Yields on B/AA corporates are simply not competitive with the rents (net of taxes, depreciation, etc.) that one can get from high end residences bought at the right price. In my neighborhood there are new, 4500 sq ft homes listed at $725K that won't sell for more than $500K, but the $500K number is a decent deal for the all cash investor. Assuming $3.5K per month in rent, this results in a better than 8% yield.
    Sep 29, 2010. 11:34 AM | Likes Like |Link to Comment
  • Foreclosures and 'Structural Unemployment': Cost-Benefit Analysis of Policy Action [View article]
    State and local governments grew spending at double-digit rates between 1990 and 2005, while the underlying national economy grew at 5%. Now they're being forced to shrink when the national economy is growing at 2%. Simple math.
    Sep 28, 2010. 11:32 AM | 1 Like Like |Link to Comment
  • Tepper vs. Rosenberg: Are They Both Right? [View article]
    For the risks present then, the QE might have done its job; if the purpose was to prop up banks and remove balance sheet risk with piles of freshly printed cash, then that goal was accomplished. It isn’t fair to call the first quantitative easing a complete failure.

    Tell me then, if depositors would've been made whole ANYWAY, WHY were the bank equity and debt holders bailed out with public money? You call it "removing balance sheet risk". I call it theft of hard-earned tax dollars (newly printed or otherwise). WHY were the failed bankers kept in place by a contrived POLITICAL processs rather than being summarily booted out by a natural ECONOMIC one? Anyone?
    Sep 28, 2010. 11:16 AM | 2 Likes Like |Link to Comment
  • Charles Munger: Beyond the Soundbites [View article]
    So Munger is basically saying that the system was so badly screwed up in 2008 that even the "smart guys" like he and Buffett would've been forced to liquidate sound investments if market forces had been allowed to play out. This would've hurt an even larger number of people than the bailout/"extend and pretend" strategy we ended up with, according to Munger. How does he know? Seems arrogant to me.
    Sep 22, 2010. 03:34 PM | Likes Like |Link to Comment
  • Charles Munger: Beyond the Soundbites [View article]
    Wachovia was an absolute dead duck because of the Golden West deal. The only way to avoid a collapse and a gigantic run was to put it under the wing of WFC and provide a massive infusion of taxpayer money.
    Sep 22, 2010. 03:24 PM | Likes Like |Link to Comment
  • Charles Munger: Beyond the Soundbites [View article]
    "Besides, most of the money has been paid back."

    Yes, most of the short term loans outstanding at the time of the collapse have been repaid, thanks mostly to new money printing by the Fed. BUT (and its a huge one) the hundreds of $ billions in bad mortgages which were the ROOT CAUSE of the run on the system ARE STILL OUT THERE on the books of the banks, Fannie, Freddie and (now) the Fed. As a result, we're in a state of suspended economic animation (aka extend and pretend). It will last until we either write down the loans to a realizable value (unlikely), or the banks are given time to earn their way out from under them (i.e.; pay for the losses through subsidized profit creation). It will take a while, as the yield curve is now flattening, reducing the ability of the banks to earn. Bernanke knows that because of this the strategy of buying longer term bonds works directly COUNTER to the earn-out strategy. But he has no other choices.
    Sep 22, 2010. 03:20 PM | Likes Like |Link to Comment
  • AT&T CEO Not Concerned About iPhone Defections as Customers Are Basically Trapped [View article]
    "The correct answer there would have been to say that AT&T will be doing all it can to improve its network and its customer service to ensure these people stay."

    He's been saying (and AT&T has been doing) that too.
    Sep 22, 2010. 03:00 PM | Likes Like |Link to Comment
  • Myths About 'What's Economically Important' [View article]
    Here's a guy who knows why we did it!

    www.bloomberg.com/news...


    "Suck it in and cope..."
    Sep 20, 2010. 04:18 PM | 1 Like Like |Link to Comment
COMMENTS STATS
1,116 Comments
2,258 Likes