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  • Keeping Up With The Contrarians [View article]
    "Betting on Ocwen now is extremely risky, not to mention immoral."

    Classic! And yet you did it anyway, LOL!!! Tsk-tsk-tsk, for shame ;)

    When somebody finds an opportunity to invest in puppies (humanely bred, of course!), orphan children, and smiley unicorns that offers 3-4 times upside and a margin of safety in a runoff, give me a call. I won't be holding my breath waiting...

    Long OCN (and much worse)
    Feb 18, 2015. 06:29 PM | 2 Likes Like |Link to Comment
  • Strong bounce for nonbank servicers continues [View news story]
    I think they continue creeping upward into the very low teens, then the stock plateaus for a while until there's a material development. Once the shorts clear out of the name, there's a ceiling unless/until they can get off the regulatory s-list and start acquiring new MSRs. It's going to take some time to clean up the regulatory and legal issues and get them back into a growth mode.

    Also long OCN.
    Feb 18, 2015. 10:33 AM | Likes Like |Link to Comment
  • Pacific Coast Oil Trust: 6.5% Yield With Income Upside [View article]
    Actually, not really. For some general ideas, feel free to scan through my comments ca. Dec 2014 on stress-testing the energy space, especially the independent oil service names, but I'm not going to post a bunch of illiquid CUSIPS it took me months of labor to spread and stress. As an asset class, you might also start by considering the better-hedged and less indebted MLPs, who've been taken to the woodshed and are highly leveraged to a recovery in oil prices.
    Feb 17, 2015. 11:39 AM | 2 Likes Like |Link to Comment
  • Pacific Coast Oil Trust: 6.5% Yield With Income Upside [View article]
    Once again, I'm not disputing that Casey is a good writer or that he's a valuable contributor to SA. Mad props to the man for all he does.

    But where I consistently disagree (and have done so from $15 or so on downward, for the record) is the notion that ROYT is a good investment. If it were a great property with a bright future, they would have kept it for themselves, no?

    The more general point of my post above (and something that I personally struggle with as an investor) is that you have to be constantly aware of the opportunity cost of capital allocations and be open to switching horses, even when it means cutting ties with a loser. When things are toppy, it makes sense to gravitate to low beta names, and, conversely, when things have tanked at the bottom of the cycle (assuming we are indeed at the bottom), that's the time to move into higher beta names. Odds are that Casey is right: ROYT is close to a bottom, and does indeed have a margin of safety in the $5 range. But if you buy Casey's background thesis that we've hit a bottom, there are so many other opportunities out there with margins of safety whose upsides are multiples of ROYT. Other than sunk costs, why stay in this name?

    Do as you like--I'm not selling anything--but there's a broader lesson in behavioral investing to be gleaned here for those who are willing to look.
    Feb 17, 2015. 08:29 AM | 2 Likes Like |Link to Comment
  • Pacific Coast Oil Trust: 6.5% Yield With Income Upside [View article]
    I'll defer to you as to the legal niceties and issues of bankruptcy remoteness, whether PCEC remains a guarantor subsidiary of any of BBEP's outstanding debt after the spin-off, etc., but you're aware that PCEC is a related entity to BBEP, right? Washburn and Breitenbach are CEO and Chairman, respectively.

    "Pacific Coast Energy Company LP offers oil and gas exploration, development, and production services. The company was formerly known as BreitBurn Energy Company L.P. and changed its name to Pacific Coast Energy Company LP in December 2011."

    The original spin of the trust was a top-of-the market garbage dump from Breitburn.
    Feb 17, 2015. 08:10 AM | 1 Like Like |Link to Comment
  • Seeking Baupost: The Pangs Of Value Investing - Part 1 [View article]
    General points well-taken: don't blindly follow legendary value investors, and 13F-HRs are necessarily retrospective.

    Still, not sure about the broader point of the article. We're talking about what, a four month sample size? And one that happened to be plagued by a multiple sigma drop in oil prices that few anticipated, as well as the epic meltdown of the OCN complex. Either one of those would qualify as a rough patch.

    Longer term, I'm pretty confident that Klarman and his LPs will end up doing just fine, thank you very much, especially if they exploit the volatility to double down, wherever the original thesis is still compelling. Like you say, this is why in an overheated market the best move is sometimes to just hold cash.
    Feb 16, 2015. 12:10 PM | 4 Likes Like |Link to Comment
  • Pacific Coast Oil Trust: 6.5% Yield With Income Upside [View article]
    Still don't understand the morbid fascination with ROYT--it's like returning to the scene of a car crash. Don't mean to bust on you, as you're a good writer and obviously a smart guy, but I have to wonder if there isn't some anchoring/ sunk cost bias at work here?

    Let's assume for a moment that you're correct and that we've seen the true bottom in crude. Putting aside the matter of where ROYT used to trade, or whatever sunk losses someone might hypothetically have in this pup, there are so many *other* damaged instruments out there whose upside to rising oil is much higher and whose margin of safety is arguably no lower. Now in addition to the lingering political risks, you've got a potential (though unlikely) scenario of a mandatory trust liquidation on the table, financial questions about the operator BBEP, and all this for an upside of what, 2-2.5 times? I just don't see this going to more than $10-12 in the new energy normal.

    Thought experiment: imagine that you had never heard of ROYT before and had no information about previous prices and that you wanted to play the thesis that oil had hit its cyclical lows. Would ROYT really make it into the top quintile of investable risk/reward opportunities for a bounce back in WTI to the $70 range over the next 2-3 years? Color me dubious.

    Good luck with this one, though, as I'm also hoping that we've made a bottom and mean reversion is setting in... Maybe in 12-18 months we can high-five a return to $75-80 WTI.
    Feb 16, 2015. 11:57 AM | 3 Likes Like |Link to Comment
  • Genworth now up 16% after earnings, LTC review [View news story]
    Dirt cheap and completely misunderstood. We'll see where it settles when all the short covering stops. Bonds also up nicely today on the numbers.
    Feb 11, 2015. 10:10 AM | 1 Like Like |Link to Comment
  • Western Asset Mortgage: Are You Ready For The 20% Dividend Yield? [View article]
    My "accounting" is admittedly spit-ball compared to your work on the hedges, but yes, my thoughts on the divvy take this migration into account.

    Even retrospectively, you can already see the spread contraction, or shrinking NIM, in the last Q as they made this move. They only covered the .70 (barely) with TBA drop income, and the attractiveness of that strategy rests on how the market was pricing "specialness." Assuming what you conjecture is correct, and the game plan is to move even further into credit-sensitive MBS, the difficulty for maintaining the divvy is twofold. (a) it costs more to finance these credit-sensitive mbs via repo than to finance agency mbs; (b) you can't leverage credit-sensitive mbs as many turns as you can agencies. So assuming the earlier trajectory continues, the NIM is likely to contract modestly as the cost of funds increases slightly and the leverage naturally comes down. On the plus side, insofar as some of the credit-sensitive instruments have negative duration, they may save a little money on the hedges going forward.

    Bottom line--in order to generate >20% net returns with a yield curve this flat, you'd need to run a big duration gap (scrimp on hedges) and use an irresponsible amount of leverage. "Earning" .70 this Q is going to require some capital gains.

    Given that's where we are right now, for better or worse, I'd personally prefer that they dialed it back a bit, cut the divvy by .5 to .10 cents, and content themselves with still sporting one of the highest divvies in the mreit space.
    Feb 5, 2015. 04:03 PM | 2 Likes Like |Link to Comment
  • Western Asset Mortgage: Are You Ready For The 20% Dividend Yield? [View article]
    Tend to agree, willytrd.

    These guys (though WMC was no worse an offender than AGNC et. al.) were running big duration gaps at exactly the wrong moment going into early 2013, backed up the truck on hedges at the top of the market (in terms of implied vol of IR) in late 2013 and early 2014, and thus captured too little of the rebound in TSY/MBS prices. Once bitten, twice shy.

    Good point also about basis risk. The neg convexity of mbs (and prepay fears at these ridiculously low rates) has kept agency mbs from participating to the same degree in the rally. That being said, the non-agency and cmbs markets (where WMC now also plays) have been strong.

    I still think they book some modest gains to NAV.
    Feb 5, 2015. 01:03 PM | 1 Like Like |Link to Comment
  • Western Asset Mortgage: Are You Ready For The 20% Dividend Yield? [View article]
    This analysis is great, but you're only looking at 1 side of the equation. Let's assume you're correct that their fixed pay swaps in the short and long buckets will have declined in value as of end of Q. Granted. But the flip-side of this is, obviously, that the book value of their MBS portfolio (which the swaps are hedging, at least in part) will have risen commensurately.

    The only way to reach any conclusions about the NET effects of their swaps on book value is to have some sense of the duration gap they were running during the Q. That is, how much of the market value of the mbs portfolio did leave leave unhedged? In the previous qtr, they were running a slightly negative duration (i.e. overhedged)--which prevented them from picking up much in the way of gains to book. I would guess (though have no way of knowing) that they added some duration during the course of the last qtr, in which case there's the potential for some book value appreciation that's not yet baked into the price in the $13 range.

    And parenthetically, as much as I love WMC, I really don't see how they're going to be able to keep the .70 divvy UNLESS they open up a significant duration gap and supplement the spread income with some cap gains. Loading up on the risk-sharing, CMBS, and whole loans is great, but not only are financing costs higher, but you just can't responsibly leverage this stuff 8 times over.

    Added a bit in the low $13s yesterday.
    Feb 5, 2015. 09:07 AM | 1 Like Like |Link to Comment
  • Fishing In The Oil Patch [View instapost]
    Exactly what I was thinking re. this being a pure derivative of crude oil, where I've got too much distressed exposure already. We've had a nice run, and while I don't fault others for sticking around, I'll bank a 75% profit for a 1-2 month investment any day of the week.

    Good luck to you guys who are sticking it out. I'm on to Atlantic City--the impending Ch. 9 filing, not the casinos ;)
    Feb 4, 2015. 10:20 AM | 1 Like Like |Link to Comment
  • Fishing In The Oil Patch [View instapost]
    Out at 16 today on the C's. Probably got some more room left to run, but I'll happily take that low hanging fruit and move on down the road. Good luck to you guys, and nice find!
    Feb 3, 2015. 03:22 PM | 1 Like Like |Link to Comment
  • Miller Energy Resources - Another Distressed Preferred With 176% Upside Potential [View article]
    No prob. In addition to the usual earnings announcements, most comps will typically file copies of major agreements with lenders, prospectuses (including covenants) for publicly traded debt, etc. Especially if you're getting involved with preferreds, you've gotta be aware of what's happening above you in the capital structure.

    This is one of the reasons I typically shy away from prefs, FWIW. Their upside is capped in most instances, and they're subordinated to all the debt with very little in the way of security for divvy or recoveries in a BK. Even so-called "cumulative" prefs are vulnerable. Miller is an unusual capital structure, though, with all these prefs rather than bonds, but I still consider these extremely speculative...
    Feb 3, 2015. 10:10 AM | 1 Like Like |Link to Comment
  • Miller Energy Resources - Another Distressed Preferred With 176% Upside Potential [View article]
    Try WWW.SEC.GOV, which should be double-bookmarked on your browser and your first stop for shopping. I think the amendments were reported as an 8-K.
    Feb 2, 2015. 10:36 AM | Likes Like |Link to Comment