Erich Riesenberg

18 Comments

    • How Safe Are Your Investments? [view article]
      Wish this issue would get more attention.

      From the Lehman press release: "In addition, fully paid securities of customers of Neuberger Berman are segregated from the assets of Lehman Brothers and are not subject to the claims of Lehman Brothers Holdings’ creditors."       Sep 15 07:57 AM
    • Comparing Income Taxes: Clinton vs. Bush [view article]
      There is such a gulf in the conversation. Regan2008 talks about millionaires as if they are the elite rich who are evading taxes. Ignorant. Someone with a net worth of a million dollars is likely paying a fair amount of taxes and is being cheated by the same elite rich who are profiting from so many lower income people.

      The elite rich include the investment managers who make hundreds of millions of dollars in a year and pay a 15% rate because they claim it is capital gain, rather than earned income. They pay a lower tax rate than their administrative stafff.

      The elite rich includes the pretense that social security tax does not flow into the general fund, which allows anyone who earns above that income limit to pay a lower tax rate than the poor saps paying it.

      Until people start talking with each other honestly instead of trying to obfuscate issues, there can be no honest discussion about our broken government.       May 13 09:09 AM
    • Hardball in Vallejo, California [view article]
      User191239 is a fine example of what is wrong with America. There was a time when paying for things was considered a conservative concept, now it is referred to as part of the radical liberal agenda. May 09 10:20 AM
    • The Case Against Ethanol [view article]
      It is pitiful that your political bias is so strong that you label ethanol a liberal program. It is simply crony capitalism, and dollar for dollar the majority flows to large corporations. If people would stick to the facts instead of name calling and political rhetoric the country would be better for it. I live in Iowa and when I have spoken with small family farmers, they generally recongize it as a wasteful form of corporate welfare. Mar 27 11:03 AM
    • How Safe Are Your Investments? [view article]
      This is an interesting potential problem. I found this Treasury document which seems to state the same risk regarding street name assets. www.occ.treas.gov/ftp/... Search for the text SIPC to find a relevant paragraph. Great, another potential systemic shortfall to keep an eye on. Mar 18 06:54 AM
    • Comparing Income Taxes: Clinton vs. Bush [view article]
      It is truly sad that someone, author Mark Perry for instance, considers a married couple making a total of $125,000 to be super rich. Dishonest and shameful.

      Fortunately, Warren Buffett provided a more coherent analysis during a recent appearance on CNBC.

      "QUESTION: EMAIL TEXT: You have stated that people, including you, aren't paying enough taxes. OK. So why don't you send some of your billions to the government? Douglas Smith, Alexandria, VA

      BUFFETT: Well, I don't--I don't say generally people. I think the lower class, the middle class, even the upper middle class are paying more than they should be paying. I think that the super rich, like myself, you know, my tax rate was 17 and a fraction percent in 2006, and everybody else in the office was paying way more. I'm not advocating tax increases across the board at all. I'm advocating a redistribution to the super rich. In the last 20 years, the total wealth of the Forbes 400 has gone from 220,000,000,000 to a 1,540,000,000, seven for one. The average wage has gone no place in real terms, it's up about 80, 85 percent and that's exactly what inflation is. So the world has gotten tilted to the super rich, and I think that the middle class and even the upper middle class, I think they've been getting a very raw deal. So I would change their taxes and move them over to people like me. "

      And, for these individuals to voluntarily pay extra tax does not, of course, solve the problem. It is a glib, unintelligent response to a serious question: why are the super rich entitled to lower tax rates than working people?       Mar 07 11:46 AM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      Last year LUM was in much the same position. Hailed as having great management and high quality assets, while many of its loans were CA no or limited documentation. Margin calls quickly took down the company.

      The last industry wide margin wreckage I recall which was much the same as it is now was during the Russian crisis. Some borrowers did sue lenders who had made margin calls, and a few, at least, won.

      I haven't owned TMA and wouldn't buy it now, because it is just a guess on the value of the oustanding mortgages. However, the chap who compared it to Chrysler, with TMA, once the value of the mortgages has fallen, there is little chance they will recover. The market is flooded. Dow Jones reported the calls were due to UBS writedowns. Unlike Chrysler, there is little chance the market will soon push up the value of TMA's assets. If there is value in any equity, it will be in the preferreds, up to multiples of its stock price, yesterday or today. With Rainwater as an investor, at least there will be some oversight in court.

      I still wouldn't buy any myself, knowing where these assets will end up being valued is not possible and likely to continue falling. The only way I considered taking a position here was going long the preferred and short the common, but never did. Generally, the first thing I would look for in a lender is its susceptibility to short term destruction.       Mar 06 12:29 PM
    • Ambac's Announcement is a Joke; Disagreeing with Whitman on Monolines [view article]
      This is quite a contrast, with Whitman recently buying into Ambac, MBIA, home builders and mortgage insurers. Investors disagree all the time, but it is interesting to see successful, fundamental value investors disagree so starkly.

      One thing I am curious about is why those short MBIA and Ambac don't cover and sit it out, with the stocks down 70 - 90%. I realize if they go to zero it is still theoretically a 100% gain from here, but with so much desire to prop them up and holding and opportunity costs it seems like so much has already been made. If any financial companies are "too important" to fail, these seem to fit the bill.

      Another problem for owners of Ambac specifically, Whitman apparently thinks they have value even in case of runoff, but with common stock dilution at these levels that value, if it exists, is being diluted.       Mar 06 09:52 AM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      What's strange to me is why they purchased assets. I can understand if they want to fund loans to maintain a viable business, but buying someone else's securities doesn't seem a core business function, and they spent a billion in January alone. Mar 04 08:10 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      This is basically all the company has reported, from the press release:

      "The Santa Fe, N.M., mortgage lender said proceeds were used to reduce the company's debt under its ARM loan warehouse financing lines by about $920 million.

      Thornburg said it anticipates more use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing going forward."

      It should have reduced their warehouse line of credit (which is funding companies use to "warehouse" originated loans while awaiting securitization), replacing it on the balance sheet with collateralized mortgage debt. And they are saying they plan to use securitizations rather than reverse repos going forward, which should have been an obvious decision for them last year, or well before. So it replaces short term debt with long term debt, but doesn't impact the cause of their margin calls, at least not much, is my guess.       Mar 04 08:03 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      TMA both originates and purchases ARM loans. Currently, the originated loans are funded with collateralized debt, the purchased loans with reverse repos, primarily.

      The current margin calls are apparently related to the purchased assets. As of Dec-07 purchased loans totaled $10.7 billion. Now I guess it is $11 - $12 billion, because they bought nearly a billion in January, per the 10K.

      There were $11.5 billion in reverse repos at Dec-07. TMA has stated it has $2.9 billion in purchased ARMs that are "super senior ALT-A" which have caused the $570 million in margin calls, $270 million unmet per the March 3 report.

      That means about 1/3 of these purchased assets are the so-called Alt-A. The margin call since mid-Feb has been nearly $600 million or 20% of the $2.9 billion.

      The recent securitization is likely originated assets, because that is how TMA has operated and it would be odd to securitize assets which TMA already bought as securitized assets. This securitization might free up some assets to help meet margin calls, but it probably is not directly related to those assets.

      The preferred is interesting here because it is so far below liquidation value, and the high stated yield. It is curious the F is priced well above the others, and had high volume today. All the outstanding preferreds rank equally, per the September offering document for the F preferred.

      As for the leverage, at Dec-07 TMA had about $15 billion in non-securitized loans, and $13 billion in various debt other than securitizations. The market value of the non-securitized loans has apparently fallen more than a half billion dollars in the past couple weeks.       Mar 04 07:02 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      At Dec-07 TMA had $36.5 billion in debt, primarily $11.5 million Reverse Repos and $21.2 in Collateralized Mortgages. With Reverse Repos, if the value of the loans decrease, as they have, the borrower can get a margin call. Collaterlized Mortgages are financings where there are senior and junior layers, the senior layers use the juniors as collateral. This is generally more stable financing, and generally not liable to margin calls.

      I thought TMA may have converted some Reverse Rept to Collaterlized Debt, but the securitization appears to be of originated prime loans, not the purchased Alt-A securities causing the recent margin calls.

      The F Preferred, for instance, has a 10% yield on $25 liquidation value. At a market price of $10.50, that is a 24% yield. If the company survives it goes back to $25 per share.

      If the debt were all long term, the credit quality would likely be the primary factor. With margin debt, market value matters.       Mar 04 12:33 PM
    • Thornburg's a Huge Bargain After Monday's Crash [view article]
      There is not a billion dollar improvement in cash, it is unfortunate the company provided so few details on such an important topic. Check out the Dec-07 balance sheet. What apparently happened is a billion dollars in debt listed as Reverse Repurchase is moved to Collateralized Mortgage Debt. A similar recharacterization of loans on the asset side. This is likely an improvement, reverse repurchase agreements can lead to margin calls, but $1 billion in cash does not get transferred to TMA. A sale at par may have done that.

      A lack of understanding of these things is what allows cyclical boom and bust fiannce companies continue. In 2001 the company had about $5 billion in assets, at year end it was over $36 billion.

      If a person is interested in buying TMA, I don't understand the appeal of the common stock versus the preferreds.       Mar 04 10:40 AM
    • Some Muni Bonds Appear Screaming Buys Here [view article]
      I think the disparity shows Treasuires are too expensive, rather than Munis too cheap.

      Municipalities can not simply raise the mill rate, it can be raised but eventually it won't be simple.

      The standard refrain is muncipals never fail, similar to the quaint old refrain that house prices never fall.

      I think municpal defaults will be low, with the default protection coming from inflation. Look at what is being done to prevent some foreclosures, imagine the effort which will be made to flood with dollars if municpal defaults appear imminent.       Mar 03 07:47 PM
    • 2 Noteworthy Points From Warren Buffett's Annual Shareholder Letter [view article]
      Comparing BRK to PRS is a mistake. BRK has minimal credit default exposure, less than $2 billion in current value and $5 billion in notional value. It is a fraction of BRK's equity. I conclude the opposite, if Buffett saw credit default premiums as a great investment in the second half of 2007, he would have sold more.

      And of course, PRS is making unhedged investments, it is impossible to know precisely why BRK is selling credit default protection.       Mar 03 10:16 AM
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