Michael Terry

Barclays Launches No-Reset Leveraged ETNs (with Confusing Names)

Great article on some of the "devil in the details" nature of ETFs and ETNs. As well, love the disclosure - clean and clear.

Timber! The Best Way to Play a Change in Housing Sentiment

Something to keep in mind is the amount of pension selling going on in the market. These funds bought them as "uncorrelated assets" and are now trying to sell them. Prices at the stump remain depressed and sales are few and far between. The amount of timberland on the market is sizable. One thing working in the favor of timer is that when pensions sell, it typically means the bottom is here or near.

GM Looks to Use U.S. and Canadian Tax Money to Bail Out Opel

The GM situation continues to get more interesting. Fritz announced they were going to start paying back the government loans from an escrow account set up by the government. Yes, they are paying back the government with the government's money. Nice.

On Opel, if GM was serious about introducing small cars to the US, the Opel franchise could do it for them (remember, that is why we gave Chrysler to Fiat). It is a decent car that seems to sell well in Europe. Will GM think of this - probably not, why start thinking strategically now.

The $1.2B loss the company had this quarter was interesting as it came on the heels of the clunkers sub rosa bailout.

One Question for Sheila Bair

Felix, the WaMu move was criminal, pure and simple and shows our regulators have no understanding (or worse, concern) for the fallout or implications of their decisions.

A second question for Ms. Bair might be, how do you force the sale of Wachovia without informing the board or the CEO. I won't even touch the fact she tries to get the deal done with Citi (that shows her understanding of the financial condition of the entities she is charged with overseeing/regulating). Imagine selling Wachovia to Citi - Wachovia was in better shape.

CDS Regulation: Just One Simple Rule

Unfortunately, if a company relies on credit and it is not extended due to implied default rates of CDS, naked CDS can bring down the house - regardless of worth.


On Nov 11 05:49 AM SourcingMan wrote:

> KD is absolutely correct. No naked short seller brought down anyone.
> LEH is a case in point: they brought down themselves. In fact months
> before they went down, they knew their balance sheet was going up
> in smoke. With a leverage of >40:1 and undiversified exposure to
> the mortgage markets (as well as a massive bet on commercial RE)
> they had no chance. It took sometime to the market to realize that,
> but when it did, it brought down LEH with all its force, and large
> because it needed to go down as it was insolvent. Sorry for the good
> guys working there but their bosses ignore risk management.
>
> True naked CDS buying selling is a bet on a house about to burn down,
> and it might increase the bad feelings about it. But the if the house
> is not rotten the market will correct (see Buffet on GE / GS etc),
> likely at a discount. But what really brings down the house is the
> house owner itself.
>
> The rule proposed here are simple and fine. Actually, simple is fine
> by definition: it’s hard to game it and everybody can understand
> it.
>
> The big issue is getting the CDS sellers, the insurers under control.
> Firstly by having themselves collateralizing the obligations they
> write. Not the buyer, the seller should post collateral. This will
> strengthen their balance sheet and inherently limit their ability
> to write ad infinitum CDS. Secondly, and especially if the seller
> is an Insurance firm, by shifting from a two man and a dog regulator
> to a serious one. One that can look into their positions and stop
> the management to take unchecked, unmanaged risks.

CDS Regulation: Just One Simple Rule

KD, You are spot on. I have been involved in situations where firms long CDS stand to profit from the failure of a firm rather than a successful restructuring (one with a chance of actually working). Although a company hedged with CDS is, essentially indifferent to the outcome. Problem is, how is the position size to be monitored?

I also agree with the use of "naked CDS" positions. The only flaw with this argument is that if firms lean on a company through CDS, it can (and does) affect the cost of debt should they need to raise it. It can also constrain the availability of new credit as higher CDS levels (wider spreads) have a higher implied default rate.

Also not addressed are those firms that buy protection without owning bonds, but having senior claims against the company.

Due to length, I wont even address those firms that use the CDS to create synthetic positions (ever try to short an illiquid corporate???) or those that use them to hedge other parts of the cap structure (preferreds - PCDS notwithstanding or sub debt).

CIT: The Fleecing Continues

Shares are not worthless - yet. The company is preparing for the bankruptcy filing - then they will be worthless.


On Oct 30 03:51 PM JRScott wrote:

> So if I currently hold shares of CIT are they now worthless? If
> not, should I just hang on for a year and hope for the best?

GMAC's Deal with Sheila Bair

Add the FDIC article to your article on the GMAC bottomless pit and you can see the depth of our analytical government. And yet CIT qualifies for nothing although it is, potentially, more important (difference is it doesn't directly support USA Motors).

Also, interesting how Ally does not say a GMAC subsidiary. Deceptive? Who is the largest shareholder. Hmmmm.

GMAC's Deal with Sheila Bair

GMAC bonds are compelling as the exchange is behind it. The government has shown its willingness to abandon business models and give money to some of the least deserving companies in order to support their investments (read GM and Chrysler). The baby bonds ($25 par) are often cheaper than the institutional ($1000 par) equivalent, they are exchange traded and you can throw a stop on for good measure.


On Oct 29 02:07 PM user396040 wrote:

> Anyone have any thoughts on GMAC bonds - they are still selling at
> a big discount and have a huge yield. Is there a case to be made
> that the government will simply not let GMAC go under and that therefore
> the bonds are underpriced? I try to be non-ideological when I have
> my investor's hat on, so I am more interested in whether it is safe
> to rely on the government support of GMAC as opposed to the philosophical
> (and admittedly interesting) question of whether government support
> of GMAC is a good idea from a public policy perspective.

Goldman Sachs: Now a Financial Holding Company

Being long does not mean blindly following. Depending on your mandate and its constraints, you can be long for reasons other than being enamored. As well, I am not badmouthing GS, just laying it out there and calling a spade a spade.


On Aug 20 04:15 PM DonFurio wrote:

> Who cares, GS navigated correctly through the crises, and so now
> they no longer need the classification.
>
> To the author, if you're long the debt and preferreds, why are you
> badmouthing GS? I know you're opinion doesn't matter, but why create
> and even more bad publicity for GS?

BB&T-Colonial Deal Illustrates It's the Big Bank Chiefs Who Win Again

As Colonial Bank was the lions share of assets of BankGroup, Colonial BankGroup will ultimately file for bankruptcy (see WaMu for the playbook). Equity = $0. The loss share is interesting as 80% of the losses are eaten by the FDIC (read the US Taxpayer) up to $5B and 95% of the losses are eaten by the FDIC on the next $10B. BBT's share of the loss is estimated at less than $500MM, this deal will be accretive. The conditions being placed on BB&T for mortgage mods are more interesting. Dance with the devil and so on.

CIT Averts Bankruptcy

Interesting how the bondholders who loaned the company $3B (loan is actually a much friendlier term than might be used, loansharking laws being what they are) has already tendered 58% of the August maturity and couldn't pull their tenders (hence the increase in price). Now if only they could come up with a new reason for the holders of the $300MM 11/1/09 and $500MM 11/3/09 maturity to tender below par.

Are Airlines Going Bankrupt Again?

Utility, phone and water aren't profitable? Perhaps a little investigation/analysis would help your argument. And flag carriers/nationalized airlines? What country exactly has that worked in? Capacity has been/is/will be the determinant of profitability. The States have too many airlines, restructuring will never succeed unless there is liquidation. Another problem is the ability to park the aircraft and have the associated costs flow to the bottom line - encumbered fleets have significant costs in the air or on the ground. The industry model is broken and all the governments horses and government men (even Ratner) can't put the airlines together again.


On Jul 05 11:29 AM HomeGamer wrote:

> Lots of chatter about easily the simplest yet least understood industries
> in America.
> Re-regulate and re-subsidize.
> Network nationwide inexpensive air travel is an essential and indispensable
> public utility, like universal mail service and universal electric
> service.
> However, expecting this public utility to be both inexpensive, universally
> available and PROFITABLE is absurd. We don't expect mail delivery
> to turn a profit--by definition we want all our essential public
> services (electricity, basic phone, drinkable tap water etc) to be
> provided as INEXPENSIVELY as possible. And that's inevitably opposed
> to PROFITABILITY.
>
> Darwinian musical chairs does not work in the public-utility model,
> and can never work. That's been tried since 1979 and failed miserably.
> Government is strangely slow to grasp that, and airline CEOs, never
> best of breed, can articulate the problem but can't seem to take
> the obvious logical step of volunteering to be nationalized.
> Until that happens, there will be much more erosion of air service
> and easy money to be made betting on the next turn of musical chairs.

The Full Aleynikov Transcript

"I believe, Your Honor, that the financial institution, I think the position here is that whatever steps the financial institution can take, the financial institution essentially has no way to effectively protect itself against the loss of this program. Once it is out there, anybody will be able to use this. And fair market share would be adversely affected."

Translation: The program could be used against the "financial institution" the same way they use it against others. Wouldn't want to eat up TARP money now would we?

I Was Wrong About GM Bankruptcy

Okay, GM has not left bankruptcy, nor will it for years. They will soon consumate a 363 sale of assets to NGMCO. This is not exiting bankruptcy - unsecured's, see how long it takes to get your equity. While the 363 sale is a valuable part of bankruptcy law, it is being twisted and contorted beyond recognition by this administration and the court (jesters).

This company will not be EBIT breakeven at 10MM SAAR unless the contribution margin stays at 30% (which even Ratner, with his impressive auto background says it wont be 30%) and they lose no further share.

As far as GM being politicized, look at the share owned by the UAW relative to their claim - is this not a policy driven result? Do you think the UAW will use their share to help further the ends of the company or the union?