Comments on Gary Kramer's articles RSS Syndication from SeekingAlpha.com http://seekingalpha.com/author/gary-kramer/articles http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-157121 157121 Sat, 26 Apr 2008 11:43:11 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-150167 150167 Mon, 14 Apr 2008 02:01:11 -0400
I use point & figure charts to make price movement projections, and I think that I am pretty good at make these assessments (modest, aren't I :).

For the record, the Dow, the S&P 500 and NASDAQ all project to that level. Of course, this assessment may be wrong, but to invalidate this projection, one has to argue for a roughly 4500 point Dow up move.

The one thing regarding point and figure charts is that you lack a time scale as to when the forecast will occur.

My fundamental, seat-of-pants, assessment is that the next down move will start in the May - June time period. The rational for this time forecast is that most of the financing of business related loans will be up at that time, based on most financing is a 12 to 18 month workout. Many of the lenders are not comfortable with facing law suits if they do not honor their agreements. The number of new business loans, at higher interest rates, will not be enough to keep the economy going at its present pace.

This will show up as a significant increase in unemployment numbers at that time.

I am long 4 of the different short etfs, for example PSQ, (small position) - no stock shorts.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-150145 150145 Mon, 14 Apr 2008 01:02:06 -0400 I agree with most of what you said, particularly that the premium is coming off GS. I have friends who work for GS, and they are very worried.

Here is another analogy: You bought a house for 670,000 but two years later it is appraised for 1 Million Dollars. (spoken like Mike Myers).

But then you find you have termites, and you call out the inspector/pest control guy--but they cant look at the foundation--they can only look at the upper floors.

And you ask him--well what will it take to kill the termites? And he cant tell you, he's not allowed to look at the foundation. And you get the hosue appraised again, and you ask the appraiser--what is my house worth? And he says between $50,000 and $900,000, depending on what it costs to fix the foundation. We may have to destroy the whole house ($2 buyout).

Its toxic waste, but I prefer "termites in the foundation" metaphor and no one knows (except perhaps the banks) how bad they are.

Unlike in real estate, however, that have full disclosure laws when you buy a house, when you buy a bank stock, you have no idea whats in the foundation, or on the balance sheet. (or off the balance sheet).

We may see GS hit 125. I also believe that DOW 9000 is more likely in next 24 months, than DOW 15,000.
Disclosure: I have now position in GS, short or long.

My question: What do regulators do for a living? ]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-150089 150089 Sun, 13 Apr 2008 21:56:40 -0400
1) I have no position) long or short) in GS or any other financial stocks. SeekingAlpha requires a disclosure when you post here, and my disclosure for this post said "None".

2) According to the Fed website at:
www.newyorkfed.org/mar...
What collateral is eligible for pledging?
Eligible collateral will be determined by the Federal Reserve and presently includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (“Schedule 1”) and AAA/Aaa-rated private-label residential mortgage-based securities (MBS) and commercial MBS, as well as agency collateralized mortgage obligations (CMO) that are not on review for downgrade (“Schedule 2”). Schedule 2 also includes everything in Schedule 1.

I may be wrong on this, but it looks to me like they're taking almost anything as collateral.

3) I have zero inside knowledge of the terms of any Fed transaction.

4) General clarification to some comments:
Let's say you have $1 million equity in your house, and you take it out in a HELOC. You take that $1 million and put 10% down on 10 other $1 million properties - and you depend on the renters to make your payments. You with me so far?

What happens when just one renter doesn't pay?
You suddenly can't make the payments on $9 million worth of debt. That's called leverage, and that's what the banks and investment houses are facing.

At this point the assets are worth what someone will pay for them at auction. How much is that? Who knows - they have some value, but (as you said) know one knows how much they are worth. I wouldn't pay 50 cents on the dollar for them. And since NO ONE will buy them AT ANY PRICE right now - they're worthless as assets.

That's the problem these banks have today. And some big names will not be around 1 year from now. If I knew which names would be gone, I'd be on an island somewhere in the Carribean.

5) User 129099: See #2 above. Level 3 assets can be rated AAA - they're level 3 because no one cares about the rating, they're toxic piles of paper that no one will buy. So they're "mark to model".

6) Other than 20% of a 401k being in a S&P 500 index fund right now, and about $3k long in Novagold (NG) I have no position in the US stock market. The rest of my money is long in money market accounts, bond funds, and international growth stock funds.

See my blog at:
www.effor.com/blog/ for more of how I view things.

Gary Kramer
]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-150066 150066 Sun, 13 Apr 2008 20:49:43 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149955 149955 Sun, 13 Apr 2008 16:24:16 -0400
However, the Fed IS taking steps to prevent GS and the other banks it's lending to from going under. drmalaka is correct that the Fed is buying time for these banks to write down the loans gradually against future profits and also to raise new capital.

That is why I have long-term puts against them. The Fed will keep them from collapsing which could send the financial markets into a tailspin, but the Fed CANNOT keep their stock from gradually dropping to a price more reflective of their true market value in a changed world...]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149902 149902 Sun, 13 Apr 2008 14:55:51 -0400
I will say it again, when these bankers, home builders or monolines open their mouths only one of two things comes out: bad news or lies.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149900 149900 Sun, 13 Apr 2008 14:53:06 -0400
What you forgot to mention is that the accounting rules were changed last month. Banks may now value these assets at what they believe they are worth, not what they are actually worth. The rule change allowed banks to value these assets based on criteria other than the market if they bank believes that the market price is not correct based on distressed sales of those assets.

So for the housing example in the article. If your neighbor sold his house for $500k if you believe that he sold it becuase it was a distressed sale you can still value your house at $1mil. Hmmm, that seems crazy.

Bottom line. The government has fixed the rules in favor of the banks. The entire banking system is insolvent. If banks were forced to sell their assets at today's price they would all go under. What the government is doing is buying these banks time. Every quarter the banks make money (not abolute of course), these profits the banks make will be marked against losses they will declare on these Level 3 assets. Every quarter that goes by the banks will continue to make money on their ongoing business. This profit will be offset by continued losses for years to come. But that is the plan.

Put more simply. If you owed the bank a million bucks and could not pay it back at the end of the year you would be bankrupt, but if the bank gave you twenty years to pay it back you could do it if you had income. That is where the banks are. They have built in income, and it is being increased by the Fed cuts, and that income will eventually pay off these losses. The question is how long? These write downs are here for years.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149869 149869 Sun, 13 Apr 2008 14:04:45 -0400
Erin Callan appeared on Bloomberg TV Friday and was quite candid; she might eventually earn Lehman a better multiple given her attempts at transparency.

Goldman's valuation relative to the other brokers is the big issue. Perhaps Goldman deserves a premium, but it is likely too generous at the moment.

here is a link to Erin's TV appearnce friday-judge for yourself.

tinyurl.com/54plds

Personally, I think that $140 level in GS will hold, but it might be tested again. Stock might be due for a bounce soon though-last week was horrible for the shares.

]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149842 149842 Sun, 13 Apr 2008 13:08:21 -0400 "Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital."

What happens if GS goes bankrupt? Doesn't that mean that the Fed can't get back the money it loaned to GS? Doesn't the Fed get stuck with whatever collateral it was given for the loans in this scenario? And if the collateral is worthless (a lot of it is) or even just worth 20% of the "model value", doesn't that mean that the Fed, and hence the taxpayer, has exchanged cash (in the form of loans) for worthless junk, and the value of the dollar (and hence the lifesavings of every American) goes down the tubes?

As for the idea of GS going bankrupt - just look at Bear Sterns.

]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149819 149819 Sun, 13 Apr 2008 12:28:07 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149803 149803 Sun, 13 Apr 2008 11:44:50 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149780 149780 Sun, 13 Apr 2008 11:11:51 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149776 149776 Sun, 13 Apr 2008 11:07:41 -0400
Good job, well written.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149765 149765 Sun, 13 Apr 2008 10:58:39 -0400
There is not a ready market for mortgages right now because none of the banks trust each other's valuation. In other words, Goldman's mortgage valuations could be just fine, but the market is "frozen" from mistrust. That doesn't happen in real estate markets.

Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital.

In the interest of full disclosure, I have long-term puts on Goldman and the other investment banks, but it is not a big part of my portfolio. The Fed is buying time for the banks to raise capital and get their affairs in order so I think you'll see a gradual deterioration in their stock prices as they slowly come to grips with the real value of their level 3 assets and with the reality that they'll no longer be allowed to operate at a very profitable - but exceedingly risky - 30 and 40 to 1 leverage ratio going forward.

Combine those 2 factors with a recession their risky loan behavior has helped to create and you have a recipe for future stock declines...]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149761 149761 Sun, 13 Apr 2008 10:46:59 -0400
This is an example of the alarmist hyperbole that 'pelican' talked about. Do you ((prague) have any proof that he (GK) doesn't have any positions directly or indirectly on these stocks. Why doesn't he (GK) say it then.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149759 149759 Sun, 13 Apr 2008 10:46:02 -0400 http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149734 149734 Sun, 13 Apr 2008 10:10:39 -0400
Your vituperation is 'juvenile' and you might want to be somewhat more 'reflective' of what you just wrote.

]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149713 149713 Sun, 13 Apr 2008 09:23:04 -0400
The increase in Level 3 assets is mostly due to the freeze in the leveraged buyout market. Goldman wrote down the value of those commitments when the debt was moved to Level 3. As the buyout market recovers, the loans may be upgraded to Level 2. A substantial percentage of Goldman's Level 3 holdings are private equity and real estate investments. While those typically fall into the Level 3 category, assets such as leveraged loan commitments shift from one level to another depending on market conditions. Quote from Goldman: ``We take issue with the notion that all assets in Level 3 are hard to value,'' said van Praag. ``Given the disclosure rules, it is inevitable that any firm with a large private equity and real estate portfolio would have significant Level 3 assets.'' All the investment firms have adopted FAS 157 which requires public companies to disclose a breakdown of their asset valuations. Under the rule, Level 1 assets are those for which market prices are readily available. Level 2 holdings are valued based on ``observable inputs,'' or prices of similar assets traded in the market. Assets fall into the Level 3 category when there aren't even any observable inputs, and the firm has to rely on in-house models to calculate potential gains or losses.

While I would be the first to admit that the risks associated with the investment banks are clearly elevated, I found your article to be alarmist, full of hyperbole, and written in a juvenile style that no doubt is reflective of your own investment objectives.]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149687 149687 Sun, 13 Apr 2008 08:26:09 -0400 is expained so simply that everyone can understand.
you should be invited on networks and capitol hill .

keep posting these analysis . ]]> http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-136238 136238 Thu, 03 Apr 2008 19:08:14 -0400 http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-136172 136172 Thu, 03 Apr 2008 16:02:01 -0400 I think the Administration is pulling strings to avoid a crash because they know that a market crash would kill their chances of staying in the White House. Why else would all these crazy things be happening? One problem that most of you seem to be forgetting is the high price of energy. No matter what happens to the banks the high price of gasoline is going to scuttle the consumer's ability to fill up the Tahoe and chug on down to the mall to pick up those Victoria's Secrets, flat screen TVs and Cheese Doodles. Since consumer spending constitutes 70% of the GDP I don't think there is any way we can avoid a serious recession. Have you read about the truckers blocking the Parkway to protest he desiel prices? The price of crude is not going to come down because demand is coming from worldwide sources.]]> http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135842 135842 Thu, 03 Apr 2008 08:17:26 -0400 http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135823 135823 Thu, 03 Apr 2008 07:33:51 -0400 http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135799 135799 Thu, 03 Apr 2008 06:02:55 -0400
I had a great five years of investing but I exited the market in August because it was obvious to me that this market has no credibility whatsoever. And it just gets worse and worse.]]> http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135796 135796 Thu, 03 Apr 2008 05:12:56 -0400 http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135742 135742 Thu, 03 Apr 2008 01:17:53 -0400
I used the NY Times as a source because evryone knows who they are, and their stories are normally factually correct. You are welcome to Google other sources for the dates above and pick your favorite source - they all say pretty much the same thing, and they all quote pretty much the same sources.

As I've said over and over - I don't know what prices will be next week or next month - but financial stocks (and the broad market) are not at the bottom yet. My best guess (and it's only a guess) is that we won't see a true bottom until late this year at the earliest.

As long as stocks skyrocket when more losses are taken, we're not at the botton. It'll take one or two quarters of no writedowns before people will trust the statements made by the financial sector.

They've lied for the past 6 months about the extent of the potential and real losses, so they've cried wolf too many times. At some point these lies will be reflected in stock prices. When the "forward looking statements" start to match the actual quarterly results, I'll move back into the market.

Until then, I'm looking at bear market rally's just like 2001 through 2003.

Of course I'm not a pro at this, and I don't know what's going to happen - but my money is 90% in cash at this point. I may be right about the stock market, and I may be wrong - but I'm not going to sit by and watch my portfolio lose 50% like so many people did from 2000 through 2003.

As Will Rogers once said "I'm more interested in the return OF my investment than I am the return ON my investment."

But there are two sides to every trade.... Which side are you betting on?

gk]]> http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135729 135729 Thu, 03 Apr 2008 00:53:51 -0400
I've done my homework - do yours....

I have a brother who took out a 3/1 Option ARM in 2005 (I told him not to do it) at a 3.785% rate. He put 5% down. His mortgage will be resetting in August, and his payments will almost double when his loan resets - because he's been paying the minimum.

He will not be able to keep the house, and he is NOT alone. The headlines are full of people like him (read a post from last week at
www.effor.com/blog/ind...
who will owe more than their house is worth. He will default on his loan - alond with thousands of others.

Your argurment would be correct if we were talking about people who took out traditional ARM's, but millions didn't. Interest only and Option ARM's made up close to half of all mortgages in 2005 through the first half of 2007. The majority of these home squatters will default when rates reset.

Do your homework.

Any questions?
gk
]]> http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135629 135629 Wed, 02 Apr 2008 21:08:08 -0400 http://seekingalpha.com/article/70911-why-yesterday-s-optimism-wasn-t-warranted?source=feed#comment-135558 135558 Wed, 02 Apr 2008 18:21:52 -0400