jonathan's Comments

Washington Post on the Quiet Windfall for U.S. Banks - For Shame!

Fri, 14 Nov 2008 11:05:53 -0500

This article does not make sense.

First, just because the tax law last permitted X instead of Y does not make Y wrong. In this case I would think that this reversal of the tax code makes a lot of sense. If one company buys another that has a lot of losses then the combined company has to absorb those losses...the resulting net for the combined company is what the tax should be based on. Trying to treat the single new company as though it were two separate entities is an artificial mechanism to maximize tax revenue; it is not a fair and straightforward evaluation.

Second, this artificial requirement to maximize payment of taxes when purchasing a loss-making company would prevent companies from merging for survival in this economic downturn. No bank could reasonably buy up a failing competitor since the extra tax would make it too expensive. That would make government bailout virtually the only option for a failing company.

The government has no money of its own.

That means that this outdated tax provision, designed to maximize tax revenue during boom times, would prevent a natural free-market solution (strong companies buying out distressed companies) leaving a bad solution (taxpayer bailout) as the only real option.

Based on the above, I would have to say that the Treasury decision was the right one.

Options Trader: Friday Outlook

Fri, 11 Jul 2008 10:35:39 -0400

I agree with Phil. Unless I have it wrong (could be), my understanding is that Fannie and Freddie do not have much in the way of REAL losses. They are a reporting an enormous amount of Mark-to-Market losses...i.e. if they sold their loan portfolio today no-one would want to buy it...but their business is not in selling loans it is in buying. Their whole purpose is to buy and hold mortgages. So it seems to me that the best (only?) way to fairly value them is on the credit risk. I.e. if they don't sell the loans the mark-to-market is an accounting-ism and as long as the loans are being paid back (or not) the value of the company is entirely a result of the cash flow of mortage payments. Yes, that payment flow will be missing some payments from defaulting owners but that is measurable in their default and foreclosure numbers.

I don't own any as of this second but if I very well may by the end of the day. Obviously the speculative part of the portfolio :)

American Capital Strategies Illustrates Private Equity Risks in Merisel Pull Out

Fri, 11 Jul 2008 09:58:02 -0400

Guys you may want to ease up a bit. The author did not accuse ACAS of anything, nor did he state or imply that they were acting in a crooked or unfair manner. All he did is lay out a pretty well-structured view of the deal and some of the risks on both sides.
If I were making the decisions at ACAS I might have done the same thing (pulled out looking to take advantage of Merisel's situation). That's just doing business. ACAS has a duty to it's own shareholders, not to Merisel's. I am sure they weighed/are weighing the potential damage to reputation as part of that.

I appreciate Thomas' analysis but I would come to a different end. I doubt that ACAS' tactic will be seen as scorched earth. Everyone knows the market is rough right now so I doubt this return-maximizing is considered anything more than hard-core business.

I also doubt Merisel will have an easy time finding another buyer. There are not many out there at the moment. That will probably change end of the year but for now ACAS is probably their only easy option.

Banking Sector: 'Buy When There's Blood in the Streets'?

Fri, 30 May 2008 10:01:37 -0400

I think you guys are confusing currency and value. Currency is worth nothing, it is just a medium for exchange of value. You can price in Dollars, Oreos, Napkins or whatever you want. The real effect of inflation only occurs for the length of time it takes to turn the currency into something else of value.

So, if you are worried about inflation, don't hold currency. Simple. You shouldn't be holding currency anyway since it is valueless.

Buy companies, commodities, or land; or lend your currency to the bank at a rate equal to inflation (aka short term CD); or spend it. Money is just a convenience gents.

Crude Oil Dances the Contango

Fri, 30 May 2008 09:38:10 -0400

For Due Diligence...
No, you are not understanding it correctly. The difference just reflects time value of money. Something delivered in the future has less value than something delivered today. With a future you are paying now for something that you will not receive for a month...so the price would be a little lower than what you would pay for an immediate delivery (the spot).

Said another way...the product supplier is asking to be paid a month in advance. He will have use of your money for an extra month before he has to deliver the goods. So he would expect to discount his price a little bit (by something close to the risk-free rate).

Contango might mean that there is enough demand for futures that the supplier can get his money without having to discount the price. A little of that is probably ok but if that diverges much from the "get it today" spot price for the commodity then you can bet that a speculator is going to lose money.

I'm not sure what that means for the market direction. If it lasts for a while it might mean a market top, since actual oil consumers (companies buying oil to use, not for speculation) would just buy at spot and pay the storage cost (when that becomes cheaper than the future) leaving the futures market to speculators with no buyers. Certainly indicates some frothy demand at least, IMHO.

Next To Fall: The Publicly-Traded Government-Sponsored Mortgage Lenders

Wed, 25 Jul 2007 13:55:15 -0400

Is it the PPT now? I thought the Illuminati still controlled the world.

The Grand Nigerian Oil Scam

Thu, 05 Jul 2007 13:40:18 -0400

Great idea! Let's make it *really really* hard to make money in the energy business because that's probably the best way to encourage those mean old energy companies
Oh wait, no they aren't!

It must be a conspiracy. I blame Bush.

Tony Soprano Meets Subprime Lending

Tue, 22 May 2007 10:58:59 -0400
Not intending to "pile on" Thomas, but you should consider that ALL of the industries you mentioned are already regulated.

The mortgage market is regulated but unless government starts making the decision *for* potential homebuyers, which would be a horrific affront to independance (can you imagine standing in line at some "Department of Homebuying" for permission to purchase a house from some bureaucrat that cares less about your personal success than does the DMV?) people will take chances. That's a good thing in general; no risk no reward. In this case the homebuyer doesn't even really get burned. Sure their credit takes a big ding...which prevents them from racking up new loans for a while...but the lender is left holding the bag. The guy that loses the money learns the lesson for sure.

Food safety regulations cannot stop infection (e.g. e.coli) from happening...bacteria don't read law. The companies whose product was impacted lost huge amounts of money due to customers sudden fear of spinach...that is the world's best incentive for improvement. This happens periodically everywhere around the world, less here than in most places, and will only get worse with "organic" foods that (by regulation) will not be able to take many of the protective actions that non-organic food producers can use. Yay!

Student loan scandals are still unfolding but the regulation itself is most likely to turn out to be the culprit. How did it turn out that the schools that make the decision to accept or reject student applications are also the ones approving loans? Hmm, couldn't have to do with the Federal Education Department could it? Interestingly the regulations *already* require college financial aid officers to use impartial judgement...but they did not. So much for regulation fixing things.

Lack of desire to control automotive emissions? I can only assume that you mean the government's lack of desire. Implying that the government should control *citizens* desire for emission control woul dbe Orwellian. The government is not an entity unto itself, it is a reflection of the will of the people...or at least a properly functioning government is...so when the American people desire cleaner emissions rest assured that the government will turn that into some new action. Of course, long before the government does anything that desire will be reflected in the products that people buy and the market will already be adapting. Witness sales of hybrid vehicles.

If you mean to say that you cannot understand why everyone else does not share YOUR particular desires, and you wish that the government would bend people to your way of thinking by force (regulation) then perhaps you should just say that.

BTW, to answer you last question (serious answer): Government is not formed to rule people, it is formed to undertake tasks collectively that; a) everyone agrees on and that b) are too big for individuals to take on by themselves. Part a) is very important. If a task cannot be agreed on nationally then it should be handled at the state level...so different states can agree on different courses...if no agreement is reached at the state level then it should be done at the local level, etc. The only exceptions are those problems that have both a "Critical" component (mortal or other no-solution problems) AND a "Free-Rider" component. E.g. national defense is both life or death and even if you conscientiously object or disagree the nation still protects you so you are forced (via taxes) to share the burden.

I could go on all day.

Riddle: What Currency Is Warren Buffett Buying?

Thu, 17 May 2007 16:05:04 -0400
Don't confuse "expecting an event to occur" with "making an event occur". The US government has no plan for what happens to the Yuan and is not a monolithic entity anyway. Factions that represent labor interests in the US would like to the the Yuan rise since (their theory) that would slow imports and mean more US jobs. I would prefer to see the Yuan float just since that is the norm for the international system...wherever the Yuan ends up. The US is not China, it has no central authority like the Communist Party, and has no 'plan' to manipulate China's currency. Frankly, most of our bureaucrats can barely put on their pants without help.

That said; there are a lot of very smart and wealthy investors who may see an opportunity in the artificial price that the Yuan currently has and who will seek to place bets accordingly. Many would bet on the Yuan rising if it were floated...thus the expectation. That is not the same as somehow making that change actually happen.