Greg Boop

The Vultures Swoop in on Circuit City

Commentary hit the news today about several bidders taking a run at Circuit City.

With Blockbuster coming out with a public bid, it was time to either fish or cut bait for all other potential suitors. Within a month, we can probably expect to see the sale of Circuit City, porbably at a distress price.


Circuit City may have several bidders
biz.yahoo.com/rb/08062...

Regional Banks: Too Small to NOT Fail

A set of articles at HingeFire takes a look at the weakness in local banks. "Local Banks: Time to Short" (hingefire.blogspot.com...) evaluates the possible criteria for shorting small local institutions that trade publicly. "Just how bad is the situation with local banks?" (hingefire.blogspot.com...) provides a list of possible short candidates. "Weak Local Banks Retreating" (hingefire.blogspot.com...) takes a look at the short results after one month. As a set, the articles contains pointers to resources, information, and commentary about the FDIC's expectation of increasing bank failures.

Why Wall St. Needed Credit Default Swaps

The description of how the banks book the next 10 years' profit today on CDO products by using credit default swaps is revealing. The implementation of these transactions are very reminiscent of how Enron used mark-to-market accounting to take profits immediately rather than over the period of a contract.

Excellent article.

Let's Get Real About Bear Stearns

It is interesting to note that the financial press has not touched on one of the more pertinent reasons why the executives at Bear Stearns decided to take the low bid offer rather than to enter reorganization. Under bankruptcy, the executives would most likely be required to pay back the millions in 2007 year-end bonuses that they recieved in the past 120 days.

Things you can buy for two bucks
hingefire.blogspot.com...

The Search For Yield

The QoL website provides some good information on American Royalty Trusts including TELOZ:
www.quantumonline.com/...

American Royalty Trusts are a good possible alternative to the Canadian trusts; however there is a smaller selection of trusts available.

TELOZ is clearly a high yield leader, but may faces challenges if the natural gas yield declines. The gas production decreased at Ship Shoal 182/183; and other fields may be at risk. The pricing trend for natural gas is also not favorable; the average price received for natural gas decreasing to $6.46 per Mcf in the fourth quarter of 2007 compared to $7.78 per Mcf received in the third quarter of 2007.

The yield in oil only increased by 6% between the 3rd and 4th quarters with most of the profit associated with increasing oil prices. This increase in yield may not drive increasing pay outs for the trust.

The 15% may be a peak and the trust may have to reduce the payout level in the future depending on their asset performance.

The Search For Yield

A follow-up article discusses the challenges of Muni-Bonds and REITs in the current market environment:

Generating Yield – Muni Bond and REITs
hingefire.blogspot.com...

Black Swans, Real Estate and Financial Stocks

The quants have recently endured the experience of being run over by reality. Reality showed up as a four ton SUV which crunched their little efficient model.... despite their math showing that this was not possible and the car was statistically safe.

Further commentary can be found at this tibet from October:
Quants meet Reality
hingefire.blogspot.com...

SCO Group Finally Files for Bankruptcy

Today NASDAQ finally took the step of delisting SCO Group. Many in the tech sector cheered as the stock sunk to a mere ten cents while trading on the pink sheets.

hingefire.blogspot.com...

Rate Freezes Won't Solve Foreclosure Problem

Keep in mind that the adminstration's Mortgage Plan is really a bailout of the banks rather than the homeowners. The concept of moral hazard applies to the banks irresponsible behavior more properly than the impacted homeowners. Some further commentary can be found at:

The Mortgage Plan
hingefire.blogspot.com...

The Mortgage Bailout: Moral Hazard
hingefire.blogspot.com...