Tom Armistead

AIG's Speculative CDOs in Perspective

Not really - all three were sitting at the big table with the high rollers.

I have been long based on value I saw when considering various versions of adjusted book value, a nonGAAP metric that looks past mark to market losses and adds the present value of future installments and unearned premium reserves.

My impression right now is that bad bets these companies made in the past keep eating into their pile of chips. Probably the odds favor a profit on any of them from today's prices. If Treasury added capital on terms similar to what it granted the investment banks, a lot of shareholder value could be created.

But there are a host of high quality non-financial companies trading at very steep discounts to any of the standard metrics. Many of them have financial statements that are easy to analyse and demonstrate no "go to zero" type risk. So I am getting out of financial guarantee companies and going to situations where there is equal potential to the upside but far less risk to the downside. I no longer hold AIG in my personal portfolio, ABK I have a small speculative position in options and debentures, and MBI I continue to reduce in favor of other investments.

I haven't done too well kibitzing and placing side bets at the big table so I am moving away from the game.






On Dec 19 10:55 PM Stupid CDS Thingys wrote:

> So if I understand this correctly, AIG by the authors admission has
> the most risk due to their high percentage of synthetic collateral.
> MBIA only had certain CDO's that were synthetic (reducing their risk
> when compared to AIG) and Ambac had limited the percentage of synthetic
> collateral in their CDO (also reducing their risk compared to AIG)
> yet the author is long on the riskiest company and has reduced his
> positions in the two companies that took steps to reduce their risk?
> Am I missing something?