Global Value Investor

Global Value Investor
Contributor since: 2012
Company: Global Value Investor
Thanks maddy. Isn't this already incorporated in security prices?
"undervalue losses as AIG has done for decades"
Clearly unsubstantiated.
@Phil
I have previously posted an article named "AIG - Undervalued and misunderstood" in which I run some basic math showing the accretion in book value coming from share repurchases
@all
The more controversial and shunned, the better the stock. At least I have some more time to grab stock and warrants on the cheap. Mark my words: AIG will be hot and heavy only AFTER shares have been repurchased and the Treasury is out
This is directed at those of you who engage in a barrage of personal attacks directed at someone who dares to question an investment thesis: The market consists of buyers and sellers. I thought this was a forum for mature, professional individuals. If you can't even deal with the challenge of an opposing opinion, why are you investing in the first place?
That is what I am thinking.
money does not know any morale does it?
The majority is always wrong.
I have deducted the BV of those assets in my model. See above. Still yield a substantially higher BV per share.
"It is that uncertainty along with the overhang of the sale of 70% of the government's ownership which values the shares at current pricing"
It is exactly this kind of narrow-minded thinking that makes AIG a super bargain. As long as the mainstream stays away from the stock and waits for the government to get out, stock and warrants will be great buys. Those investors who now wouldnt want to touch the stock will be eagerly jumping in - after the government is divested - at meaningfully higher prices. Mark my words: As soon as the government gets out, investors will again jump at AIG. I rather buy today at $35 than at $70.
Unqualified, superficial and unsubstantiated arguments like this: "Bunch of crooks, I would never put one penny of my money in the stock even if it was going to triple. Same goes for BAC and others"
do not even deserve a special consideration.
Stay away from the herd.
Why would it be illogical to write about a great investment and not have a long position?
@uncommon sense
look who is coming around..."buy when others are fearful". This is my guiding investing principle. Attracts a lot of criticism though.
@frank
" but you're also showing a lack of knowledge when it comes to these types of crises"
I think personal attacks like this are not helping. With my post I made the general point, that this crisis is overblown and a focus on other countries with equally disturbing debt levels might be warranted. And I disagree with the majority of the points you have made.
"They can increase exports and productivity (employment) by adjusting capital flows within its borders". How do they adjust CFs within their borders?
Investors around the world, including central banks, especially the Asians, decide about capital flows to a large degree. Besides, the US has repeated over and over they want a strong dollar. The US, until now, continues to have large current account deficits.
"Japan controls its own currency, therefore controls the ability to print new currency, to dilute existing bond debts, to issue new bonds, and to manipulate interest rates to great advantage during crises of confidence (like massive debt overhangs)."
I assume you mean this point to be a positive. And where did it get Japan with that kind of policy: a decade of no growth and highest debt in world when they could "just dilute existing debt"?
Spain has the backing of the European central bank, which has shown in the past, that it will step in. EU leaders are not going to let Spain or their banks fail. They didnt even let Greece fully fail. Next year we will be talking about another crisis and Spain will be off the table.
I am going to follow-up with an extensive Telefonica analysis over the next week.
@frank
I note your point. Please also note that Greece has higher debt of 165% of GDP and insolvency of banks was not even an issue in their debt agreement with the European Union. The EU will never allow Spanish banks to fail on a broad basis. This is one of the extremely negatively skewed events that will not materialize.
How do you justify talking about the European debt crisis when the US and Japan have significantly higher debt ratios? Shouldnt they be in the headlines just as well? I am contrarian and I do not buy into this pessimism especially when the arguments are as unsubstantiated as they are.
@openoceanstar
I own Goldman Sachs stocks instead. I bought when everyone thought all financial firms are going bust in 2008/2009. This one is no different.
In the post I made a point about emotions-driven investment. A point you apparently missed. So I assume you dont work at Goldman either.
Spain is not Greece.
Technically, they sell of non-core assets to buy back common stock not debt. The "ability to earn money becomes weaker" is an unsubstantiated claim.
How do you know at what price the Treasury is gonna sell?
You gotta offer more than that.
The gordon growth model is a dividend discount model. Large parts of FCF are paid out to TEF shareholders, which makes this model highly applicable. The growth can be either modeled as positive, negative or flat. I have laid out the assumptions regarding capital costs and growth rate.
I believe that political decision making is more efficient in Spain than in Greece. I also believe, that Spain wants to avoid, at any cost, a Greek scenario that was so intensely elicited and presented to all European governments.
I also vividly remember the discussion about Greece government bonds wiping out the equity of european banks. Nothing like that materialized. Everybody is focused on the problem.
Even if TEF goes down, say, another 30% I simply do not care. I buy a great company at a great price with a great dividend and I am in for the long-term. It will recover.
I do not disagree with the economic difficulties which you have presented. But I generally have a problem with your conjunctive-based way of reasoning:
TEF could very well....
Even if TEF....
If Spain were...
The conjunctive usually does not materialize.
"The only route out is issuance of a new currency"
Another extremely negative opinion which indicates to me we are nearing a bottom.
Is it cheaper after transaction costs and incurred taxes?
or simply buy the common stock as a long-term investment
@dana
maybe. the main value-added will come from a massive direct repurchase of common from the treasury. I consider the perspective to be awesome.

Thank you for your positive feedback.
I presume that AIG will retire the Treasury stake in 2013 by committing all sale proceeds and dividends to the repurchase of common stock. After that they might even start paying dividends again.
If you are patient and give AIG the time to work through their capital structure issues, both common stock and warrants should be a nice investment, that will probably trade at premium to book soon enough.
agree with DVL as to the value inherent in ML assets
I like to mention that the $1.3bn paypack to AIG seeminly does not include the residual interest that AIG kept in ML2. I calculated that to be around $450m based on the FRBNY numbers, which will also be applied against the ML3 loan. There will be huge progress toward paying down the loan for the CDO pool this year. And the residual interest in the AIA Alico SPV likely will be even bigger than what the company laid out if you assume that CDO prices only midly recover and they sell ILFC for more than book value.
These stocks were likely sold to meet redemptions and to concentrate the portofolio more on the financials going forward rather than implying a negative view for those companies.
<p> If you had a look at the fundamentals you would have recognized that the most important value metric for an insurance company is the book value. Both stocks exhibit significant discounts from book value. And how businesses with strong franchises and growing revenues should have a PE multiple of 7 in a normalized environment doesn't occur to me. In fact, this mindless unreflective attitude as to the value inherent in these companies is indicative of the mainstream investor opinion.
As deepvaluelover correctly points out, there is a lot of residual value even in the MLs. The ILFC business alone is probably worth around $9bn based on competitor IPO valuations. Not to speak of AIAs valuation. There are billions of tax loss carryforwards. A low interest environment is already priced in, this is not new information.
Always good to remember: The majority is always wrong!</p>
@Matt
Why don´t you point your critics to the fact of massive insider dealings, self-enrichment of management through related-party transactions and overpayment for acquisitions which are accounted for as 70% impaired?
I happen to think that most people invested in FMCN are more guided by wishful thinking rather than critical reasoning. Managements explanations don´t make any sense, they have a track record of lying and levels of self-dealing activity is outrageous.
A massive ponzi scheme is being run here with its only purpose to enrich insiders.