ChaulmoograOil's Comments

Thornburg's a Huge Bargain After Monday's Crash

Fri, 11 Apr 2008 02:23:07 -0400

I put in my market buy order for Thornburg common when it was trading at around $0.75/share when I (like Jack Yetiv) believed that Thornburg had a 60% or more chance of going bankrupt within a day or two. That didn't bother me, and Thornburg didn't go bankrupt then. I had originally surmised that the (very rich) dominant owners of the common stock would devise some scheme that would protect their prior investment. I still suspect that they have done so and are doing so. Abstract formulation of the supposed "correct" book-value-based share value may turn out to be rather irrelevant to the actual future course of the stock price (as it seemingly has been irrelevant so far).

If any sudden ("irrational") price recovery does occur, I'd expect panic short-covering to make it dramatic.

Of course I may be all wrong and I would not suggest that anyone else (without my particular risk-reward priorities and readiness to absorb losses) buy Thornburg for the reasons that I did. Even Jack Yetiv has a different risk-reward prioritization than I do do, given his sales of the options and then later the stock. In investments, few people are really "similarly situated" to oneself.

Let Thornburg's Demise Be a Lesson to You

Fri, 11 Apr 2008 01:46:24 -0400

The many earnest, "helpful", thoughtful and articulate negative postings on this and other Thornburg threads (urging us to sell all our Thornburg shares NOW for our own salvation) suggest to me that some short-sellers are not looking forward to the pleasure of covering their shorts if Thornburg holds its approximate current value for now and then increases "irrationally".

If the irrational stock price increase occurs, the massive short-covering would accelerate it, pushing TMA prices up, and make things even more "irrational" -- except that the price will really have been going up and will thereby have rendered the irrational highly rational, retroactively. Such is "reflexivity" in securities prices (George Soros' theory).

Thornburg's a Huge Bargain After Monday's Crash

Thu, 03 Apr 2008 23:42:18 -0400

What I wonder now is whether two different, opposing "important" factions are buying now at low prices, instead of just one (if any). That is, is there a second group (or single person) who wants to prevent accepting the tender offer and issuance of the new stock, by buying voting control (or enough at least to block the other, bondholder faction's voting control).

Thornburg's a Huge Bargain After Monday's Crash

Tue, 01 Apr 2008 20:52:24 -0400

Jack Yetiv wrote: "... For the record, I have recommended (as have others here) selling calls against the common one holds, and I have so far collected about 40 cents per share in premiums.
Jack"

Everyone has his or her own individual risk-reward approach, and money now versus money later approach. I won't even consider selling calls now, because I want every advantage if TMA becomes an X-bagger. I myself am not interested in picking up a few bucks from selling calls now if it will diminish the glorious benefits of having bought an X-bagger near (alas, in my case it should have be AT) the all-time low. I wanted high risk (OK with me if it had gone to zero) high reward (X-bagger where X is certainly over 4). Thornbug seems saved, the saviors took their pound (or 95 pounds?) of flesh, and now the complicated deal, and my ignorance of the counterparties' real interests and intentions, make Thornburg common stock somewhat diminished risk (now it won't go to or near zero soon), but still potentially high reward. Maybe.

Thornburg's a Huge Bargain After Monday's Crash

Tue, 01 Apr 2008 20:20:36 -0400

An intriguing question now is this: How many of the formal counterparties in the new deal already (directly or indirectly) own large amounts of Thornburg common stock? I agree with Jack Yetiv that this might make a big difference for the future of this deal. I have no way of knowing the answer.

Thornburg's a Huge Bargain After Monday's Crash

Tue, 01 Apr 2008 02:44:20 -0400

Frozen Tundra wrote "Welcome back Jack; skiing is certainly better than watching this saga play out. Welcome back Jack; skiing is certainly better than watching this saga play out."

I imagine that the slopes were not as steep.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 31 Mar 2008 22:02:40 -0400

Voila. Done.

Wow. It's complicated. Near-term price targets for TMA common stock, anyone?

Thornburg's a Huge Bargain After Monday's Crash

Mon, 31 Mar 2008 01:08:00 -0400

P.S. If TMA does go bankrupt soon from all this, it would be interesting to analyze whether all those mark-to-market-value collateral and margin calls, and mutual default triggers, which were intended to PROTECT the lenders, actually has had the opposite effect of losing them a bunch of money. They might get less from foreclosing on the collateral than if they'd never pestered Thornburg in the first place. That would be ironic. Anybody know whether this is so?

Thornburg's a Huge Bargain After Monday's Crash

Mon, 31 Mar 2008 00:55:37 -0400

"Market value", philosophically, is not an exact notion. It's based (at best) on a hypothetical need to sell at the present moment. appraisers have multiple measures of it. It's easy to approximate for stocks and bonds when trade volumes are huge -- but even then it may be a pseudo-objective notion.

I have some bonds. Have I "lost money" because of downward fluctuations in the bond market? Not really, because I hold bonds to maturity, so I don't CARE about supposed mark-to-market-value. It's subjective. (I'm more bothered by the evaporation of the U. S. dollars in which they are denominated.)

And then there's the "Compared with what?" factor. Do I, with some U. S. dollars, "lose money" if we mark-to-market the dollar against the Euro? How about when the dollar declines against the Ghanaian cedi? Have I "lost money"? Only if I have plans to buy things soon in Ghana. Again, "market value" can be pretty subjective and artificial.

What happened with Thornburg was, this artificial mark-to-market notion became infused with "reality" because of the mark-to-market clauses in the repurchase agreements. Imaginary or artificial "market" changes caused real events. In hindsight, of course, had Thornburg and others like them been wiser, they would have negotiated funding without such clauses and built in vulnerabilities.

Thornburg's a Huge Bargain After Monday's Crash

Sun, 30 Mar 2008 04:19:13 -0400

crazee_trader wrote:
...
"Obviously the mortgage portfolio is no longer good or they could sell it as a reasonable price to raise money at this point instead of having this massive dilution."
...

I can't quarrel with the rest of the posting, but this quoted sentence may not be true. Even the excellent mortgage loans and loan-backed securities plummeted along with the bad, during the crunch, so the so-called "value" was down and the mark-to-market problem arose nastily, so I doubt that Thornburg necessarily "could sell at a reasonable price" its assets while everything is still in dramatic suspense and confusion. It may take a while before Thornburg's high-quality loans are again "fairly priced", assuming it survives.

A lot of this "mark to market value" nonsense has to do with the fact that "market price is set at the margin" -- only those assets actually traded determine the "price" of a security, however small a fraction is actually traded or on bid/offer. (That's how 100-share transactions can lower the stock price of IBM, despite the fact that less than one millionth of the capitalization is involved; the effect is more pronounced in lightly-traded securities.)

Thornburg's a Huge Bargain After Monday's Crash

Sun, 30 Mar 2008 03:49:24 -0400

Thornburg's creditor deadline was extended again, to next Monday afternoon, according to a news report on MarketWatch.

Thornburg's a Huge Bargain After Monday's Crash

Thu, 27 Mar 2008 12:47:32 -0400

I consider "stock dividends" to be meaningless, like stock splits. Except that some people really are fooled, and influenced, by them, which influences real prices, so I guess they're not really so meaningless after all, so those people really weren't "fooled" after all, so I was, so .... Ah the joy of "reflexivity" (George Soros's and Family Feud's concept of what other people think, and its effects).

If Thornburg Gets Its Funding, I'll Take Preferred Over Equity

Thu, 27 Mar 2008 12:14:09 -0400

I don't see the merit of the preferred as opposed to the common stock. I'm looking for high risk and high reward here. If Thornburg goes bankrupt, neither kind of Thornburg stock will be worth much. But if not, the upside of the common stock (in long-term potential percentage increase if all goes well) seems better than that of the preferred, even after flood-like dilution. I don't see how to quadruple an investment in the preferred stock. I don't see Thornburg going "almost bankrupt" such that the seniority of the preferred stock gives it survival while the common stock becomes worthless.

Thornburg's a Huge Bargain After Monday's Crash

Thu, 27 Mar 2008 03:25:58 -0400

The mechanical calculations of Thornburg common stock's "theoretical value" post-rescue are beyond my ability (or maybe inclination) to evaluate, but there seems to be no basic adjustment for a "going concern" factor. The prices of the loan assets, the preferred stock, the common stock, etc. had been drastically discounted during the crisis at least partly for fear that Thornburg was unlikely to remain a "going concern". The fear factor. Which ever rescue occurs, with however much dilution is entailed, it seems possible that, as of the next morning, the _business_ of Thornburg could be essentially "as before". That is, as though "nothing had happened" except for portfolio diminutions such as the sales to Bill Gross or Pimco. The ownership will have been diluted, but that is not a matter of the business, just the investors' ownership. It could be mostly the same people working there, same prudent loan criteria, same style of business (but maybe scaled back with less leverage and less funds-source interdependence and fragility).

If some large owners of pre-crisis Thornburg common shares were in fact behind the "rescue", they'd have a pretty big incentive to restore the price of the common shares to high levels.

Once the thing has simmered down and dividends are restored based on realized cash flow, how high will the yield on the common shares be?

This all assumes that the rescue really occurs and things really do simmer down.

Disclosure: I'm still long Thornburg common; twice this week I passed up chances to sell doubling my investment of last week. (Yes, I know, a fool and his money are soon parted...) I can lose it all tomorrow if need be, otherwise if it quadruples I'll probably sell half then and keep the rest for a long time. That's my favorite investment buy/sell pattern in the absence of insights, prescience or any better uses for the money.

Thornburg's a Huge Bargain After Monday's Crash

Tue, 25 Mar 2008 03:09:54 -0400

Looks as though somebody big is stepping in now:
======================...
Filed at 2:27 a.m. ET March 25, 2008
Reuters

NEW YORK (Reuters) - Thornburg Mortgage Inc , which is scrambling to raise nearly $1 billion this week to avoid bankruptcy, said it has changed its by-laws to allow a single investor to buy up to $300 million of stock.

In a filing late Monday with the U.S. Securities and Exchange Commission, Thornburg said its board of directors last week approved a change to allow such an investment, so long as it would not jeopardize the company's tax-friendly real estate investment trust (REIT) status.

Previously, shareholders were generally limited to a 10 percent ownership stake, Thornburg said.

On March 19, Thornburg announced plans to sell at least $1 billion of subordinated notes paying a 12 percent interest rate and convertible into stock at 75 cents per share.

It said the financing was necessary to ensure that its own lenders would not issue additional margin calls, or demands for cash or collateral, for a year. The Santa Fe, New Mexico-based company said if it did not raise $948 million within seven business days, it might have to seek bankruptcy protection.

Thornburg specializes in "jumbo" adjustable-rate mortgages, which come in amounts of more than $417,000 and typically go to buyers of more expensive homes.

Though such buyers are often good credit risks, many investors stopped buying these mortgages as capital markets tightened. Thornburg earlier this month said it had failed to meet more than $600 million of margin calls.

A REIT may deduct dividends paid to shareholders from its corporate taxable income if it distributes at least 90 percent of the taxable income to shareholders as dividends.

Thornburg shares closed Monday up 14 cents at $1.27, according to New York Stock Exchange data.

(Reporting by Jonathan Stempel; Editing by Quentin Bryar)
======================...

Thornburg's a Huge Bargain After Monday's Crash

Mon, 24 Mar 2008 14:52:39 -0400

Distressed -- hope you have some good rhymes ready for the world's coming Chapter 3: "Credit Default Swap Counterparty Failures".

Thornburg's a Huge Bargain After Monday's Crash

Sat, 22 Mar 2008 00:28:42 -0400

Frozen Tundra wrote:

"...Further, as a businessman, I can't see why the lenders could not and will not provide more reasonable forebearance. ...
And this is where TMA management should have drawn their line in the sand, fighting it out in court if necessary. ..."

OK, but if the lenders were truly predatory, or enemies of Thornburg, I think that they would already have destroyed it and grabbed the high-performing assets that collateralize the loans.

If I can believe what people are writing, then there is not much wrong, or drastically changed, in Thornburg's high-quality, "performing", loan portfolio. This whole crisis was arguably artificial, as a consequence of mark-to-market-value margin-triggers and automatic default cross-references in the repos. Furthermore, that "market value" was tainted by guilt-by-association with unrelated, non-comparable and genuinely bad loan portfolios, subprimes, etc. of others, causing the "unfair" Thornburg mini-credit-crunch.

Apparently, Thornburg's real underlying business has hardly changed.

As for now, dilution seems better than extirpation.

Disclosure: I'm long TMA common (at double the purchase price that I thought I was buying at, so now I've lost a little as a consequence).

Thornburg's a Huge Bargain After Monday's Crash

Fri, 21 Mar 2008 06:48:43 -0400

I repeat my earlier simplistic view, when Thornburg was on the edge of the abyss on Monday, March 12:

This is like a lightswitch, ON or OFF with no intermediate position. Either Thornburg was being saved (behind the scenes, by someone) or it was not, and was going to declare bankruptcy. Thornburg did not declare bankruptcy that Monday, and was in fact "saved", but, as I predicted, the saviors really took their pound of flesh. The stock should go to zero or near zero on the Pink Sheets if it goes bankrupt. If not, it will be restored to health and after months of struggle and recovery be worth over $5/share, I imagine, in a while.

For Thornburg to languish in the doldrums for a long time (say, between 50 cents and $2.00/share for the rest of the year) would be to refute my "light-switch" theory. I don't expect it.

Bear Gets Butchered

Mon, 17 Mar 2008 05:15:41 -0400

The headline was: "J.P. Morgan on Verge of Buying Bear for $20/Share".

Bear Gets Butchered

Mon, 17 Mar 2008 05:12:08 -0400

There may have been a typo in your previous article on Bear Stearns, where you wrote that it was possibly to be sold for $20/share. The zero...

Bear Gets Butchered

Mon, 17 Mar 2008 05:12:08 -0400

There may have been a typo in your previous article on Bear Stearns, where you wrote that it was possibly to be sold for $20/share. The zero...

Bear Stearns Sold for an Embarrassing $236m

Mon, 17 Mar 2008 05:01:38 -0400

"The credit markets can unfreeze once these counterparty risks are unwound. The unwinding has begun, and we can only hope that JPM knows BSC's book to the point that they can unwind BSC and liquidate it quickly. We can only hope."

Counterparty risks don't get "unwound", only the pyramid of derivatives gets unwound. During this process, counterparty risks either fizzle out (any failures and losses are absorbed by the solvent counterparties) or else they spread like wildfire from party to party, possibly worldwide.

"It is a firm that has been riddled with criminality...
They have gotten their just deserves."

I doubt it, unless you mean multimillion dollar severance packages and bonuses and salaries deserved for their splendid leadership.

Bear Stearns Sold for an Embarrassing $236m

Mon, 17 Mar 2008 03:32:20 -0400

The Bear Stearns buyout may have the effect of valuing other, similar mortgage-related enterprises at the "$2 equivalent" fraction of their capitalization as of week ago, as another thread points out. A real downdraft, if so.

This may be only a minor prelude to a much more serious and panicky credit crunch, which will happen if there are simultaneous, correlated attempts to unwind a substantial portion of the "credit default swaps" market. The swaps market (a kind of derivatives) has nominal size in the trillions. When Berkshire Hathaway bought General Re a few years ago, and tried to unwind its portfolio of derivatives -- i.e., to back out and sell them -- it had to take enormous losses, partly from counterparty failures and their side-effects, I believe. Swaps have been considered great risk-spreaders because any counterparty failures would be uncorrelated. But when the mood changes worldwide to fear and investing conservatism, things once-uncorrelated can get correlated fast.

I don't know what percent of the General Re derivatives assets had to be written off.

If this credit crunch keeps spreading, watch out for a coming "swaps crisis".

Thornburg's a Huge Bargain After Monday's Crash

Thu, 13 Mar 2008 03:28:52 -0400

ANECDOTE. Folks, I'm in with you on the current Thornburg rise, BUT I can't tell you how perturbed I felt to learn that my market buy order (within a few minutes of the absolute lowest price ever Monday afternoon) had not been executed until some time the next day at more than double the price. I gave my buy order to the Custodial department of a very large and famous American bank (which I won't name here unless it gets worse) near the close and I said to use an after-hours trade if needed; today they have told me on the telephone: A. We don't use the after-hours market. and B. We're not really a broker-dealer, we just do buying and selling to accommodate our customers. The broker-dealer that they use is really part of the same bank. I would be surprised to learn that it is incapable of executing orders in the after-hours market.

One wonders whether someone who "does not use the after hours market" for bank custody customers, knowing of a large unexecuted market buy order waiting overnight, could buy an equal amount after hours, and execute and fulfill the trade with their own shares the next morning, or sell simultaneously, possibly doubling their money overnight at the customer's expense. So far, I have no clear evidence that this happened to me, but it's an intriguing theoretical possibility.

I'm still well ahead now. I confess, I feel a bit like the wicked Clementi Sabourin (George Sanders)'s lament in the great old movie "Death of a Scoundrel": yes I've doubled my money in two days, but I should have quadrupled it. Some eyes might shed no tear over that...

Had I made my Thornburg buy decision an hour earlier, I probably wouldn't have been troubled by this matter.

Thornburg's a Huge Bargain After Monday's Crash

Tue, 11 Mar 2008 12:29:58 -0400

I thought I'd bought TMA yesterday afternoon at around $0.78 (a market order near the end of the trading day). Now I'm told that it executed at $1.56. I.e. I would have doubled my money had my order been executed right away, but it wasn't. Volume was huge yesterday and today.

What's the lesson here? "He who hesitates is lost." or "Find an honest broker." or "Don't give 'at market' orders in volatile markets.", or what?

The difference cost me a lot.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 10 Mar 2008 16:18:27 -0400

Ok, User 162452, you "moved me" with that Thornburg message to brokers. I read it several times. I decided to buy, mostly based on Thornburg's apparent "character" - J. P. Morgan once testified that everything is about character. Also the fact that, despite the halt, and the fact that no salvation has been announced, no bankruptcy or equivalent has been announced either, so the repo creditors are evidently helping somewhat, not hindering. And some people with a lot of money will not want their company tarnished with bankruptcy or fatal fire-sales.

I just bought "at market" and don't know the execution price yet, but possibly 57% cheaper than had I bought this morning.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 10 Mar 2008 14:02:32 -0400

It's past noon, no news of salvation, and Thornburg stock is down to $1.00, down 44.13% since Friday's close.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 10 Mar 2008 01:59:06 -0400

Sorry, Jack Yetiv, my "I just some little datum to make it more than a mere gamble." was a typo. I meant: "I just need some little datum to make it more than a mere gamble." Need. I still haven't quite found it. I just need to discern some hint of a hint that somebody is actually saving Thornburg this weekend. Some pattern in the tea-leaves. At this moment, my buying a lot of TMA would still be as dumb for me as my playing roulette or lottery.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 10 Mar 2008 01:24:48 -0400

abitlater wrote:
"... Having said that I think that the mortgage REIT business model is at least partially impaired do to three factors
1. forced to return 90% of profits to shareholders via dividend leaving very little cushion in times of distress
2. Seen as a conservative income generating investment. Now that fallacy is unwinding
3.Use of high leverage in order to capitalize on small spreads with many using repo lines to capture short end of curve
LTCM all over again in mreits is a real possibility..."

To me, the main problems with Thornburg were "overleverage abuse" and a failure to notice, or at least to avert, "risk correlation". E.g. all those repos with "if any repos default we all do" clauses. No firewalls between creditors. If these two errors were to be avoided, then maybe a Thornburg type of MREIT operation could work even in rough times.

Thornburg's a Huge Bargain After Monday's Crash

Mon, 10 Mar 2008 00:58:06 -0400

User 160702 wrote:
"Jack, considering the obvious pending bankrupty of TMA, why in the world did you add to your position on Friday? Every analysis I have read including yours admitted an 80% chance of bankruptcy, why adding good money to bad money? Your purchase on Friday is beyond me? Can you justify that purchase at $1.20 on Friday?"

I can't speak for Jack, but remember that "acceptable risk", and the value of rewards, and the ratio between the two, are inherently subjective. What deters you need not deter him. Some people can well afford to take a 20-80 risk if the reward would be 90-10. And other things being equal, the richer (more comfortable) you are, the more you may choose to sacrifice beta for alpha.