Reggie Middleton

Ambac Does It Again

FXtrader, you are being contradictory. Either its proven or its a decade long. It can't be both, particularly in insurance where some risk and loss tails can actually be ten years or more. Buffet's own president of BHAC says the bond insurance industry's future looks shaky. Bond insurance is based on taking advantage of an incongruity of rating corporate and muni debt, and incongruity that is now being corrected.

Buffet who now owns a bond insurer even stated that you can get into a lot of trouble charging 50 points (usig leverage) that the market charges 100 points for. That is actually common sense.

Since my job is an investor and not a reporter, academic or professional blogger, the only thing that really does my credibility disfavor is negative or minimum alpha over an extended period. I thank the powers that be -thus far I seem rather credible.

Assured Guaranty: Vulnerable to Continued Bond Market Troubles

You guys on Seeking Alpha sure happen to be a negative, criticizing bunch. The AGO analysis was very objective in my opinion.

@NOYBIZNIZ
"Last time I checked (just a moment ago), MBIA has retained it's AAA rating from all three agencies. "
I suggest you check again. MBIA and Ambac are on negative watch - or it's equivalent, if I am not mistaken and Fitch has withdrew the AAA moniker from Ambac and most likely will do so for MBIA. Research the back and forth between Fitch and MBIA CEOs. AGO, at this point in time, has no such issues. Take a chill pill and practice positive reflection. It is quite possible to be critical of one's work without such a negative overtone.

@ Mr. Mortgage
I agree with you 100%. The amount of analytical rhetoric put into that comment does make you wonder... You are also correct about the premise of the monoline business model. What these companies are trying to do is sell protection for less than what the market charges. In order for that to work, the market must be consistently wrong in its risk pricing, which is highly unlikely. Any profitable arbitrage situation is, by definition, transient in nature for market participants adjust their view to compensate for the over/under compensation of the risks and rewards inherent in the arbitrage. So, even if X monoline insurer has found that the market is overcharging for said Y risks, the market will adjust once it realizes that X monoline is profiting from said mismatch. This is why arbitrage strategies must be changed regularly in order to be successful. Fool me once, shame on you, fool me twice, shame on me.

@User 169224
I don't have the time to address your rather lengthy, but apparently well thought out post. I do invite you over to the blog boombustblog.com where we have a few P/C, reinsurance, and risk management experts, and my analysts who will be happy to engage in fruitful discourse, not to mention yours truly. Let me address what I have time to quickly though:
- The title was given by seekingalpha staff, not me. I titled the piece, ”My AGO Update”.
- I declared AGO to have some of the most astute management in the business. This is a positive thing, no?
- AGO itself has approximately (I can't remember the exact number) 100% of the value of its equity under watch as being at significant risk for default. It is not as if everything is rosy in wonderland.

- Insured muni risks have a plethora of funding sources. Please reread the report more carefully. I believe that many of these risks will have higher than historical mean losses, but they are also more diverse than you assert. In any event, many munis would be rated at a level that allows them to forego insurance if they were rated at the same keel as corporate and the ratings agencies are succumbing to those pressures. Moody’s has agreed to do so going forward, which eliminates a large swath of monoline business.
- You stated "Muni Credit- Can't have it both ways, on one hand you say there are losses in this sector on the other hand say that all these issuers can go direct and still get AAA". This statement shows that you have been drinking the ratings agency “Kool Aid”. Does triple A automatically mean that no losses will be coming down the pike. I strongly suggest that you peruse the news from the last few months or simply Google Triple A and losses. Try this interesting article on for size:
"None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank in May 2006 is AAA at both companies even though 43% of the underlying mortgages are delinquent.
Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in write-downs for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.
“The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, CEO of Hayman Capital Partners, a hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.”
from financialweek.com: www.financialweek.com/...
Basically, ratings and losses, at least for the last two years do not bear the correlation that many of the monoline bulls would like them to – and this applies to more than just mortgage fixed income securities as well. If you have been following closely, the municipal sector is already showing chinks in the armor, and we have are just getting started.
- I don't want to toot my own horn, but I have a fairly decent track record at this analyzing company investment prospects stuff. Why don't you come by the blog or even "objectively" browse through the research that I put on seekingalpha (that is far from complete, which is why I suggest the blog) and judge me based more on my macro accomplishments rather than your opinion on one particular company? I would like to believe that I have built some credibility, or is that just pie in the sky wishful thinking?
- The number of viable competitors has decreased significantly in the monoline space, but the actual competition itself has not decreased as much as the landscape of opportunity has shrunk. Many municipalities have gone the direct route, and many more are going with insurers that have no structured product taint, ex. B. Hathaway companies. Buffet, et. al. has taint, no pressing need to raise "small" amounts of capital, ex. a billion or two, and tons of undisputed credibility. For the risk averse public official, this is a no brainer. Despite this, even the president of BHAC has stated that he is pessimistic on the future of the monoline industry. If anybody has a reason to be optimistic, it would be him.

- The pdf report for download is very detailed with all assumptions fleshed out and is the most comprehensive work on the company that I know of. Unfortunately, I have not the time nor the inclination to rehash the researh contained within on a micro level here. If you wish to discuss it more detail, come over as I suggested earlier and we can have a pow wow. I think that’s enough for now, and look forward to seeing you on the blog.

Moody's Affirms Ambac, MBIA Ratings - Losing Any Last Shred of Credibilty

I seldom post on seekingalpha, so it took me awhile to get around to this, but the comments regarding the comparison of claims paying ability to actual bonds are correct. I made a boo-boo/typo.

The leading sentence should read "Ambac is just as safe as Berkshire Hathaway...". The lead in sentence was to illustrate the absurdity of rating these companies who may have to suspend dividends, b forced to access additional capital, rely on AAA ratings to survice and who insure toxic products, AAA. I thought I got my message across. I will be more careful with my comparions in the future.