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laterre

laterre
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  • Western Asset Mortgage: Are You Ready For The 20% Dividend Yield? [View article]
    Happy to have been wrong on the earnings, but looks (at a very quick glance) like they were over-hedged. NIM and spread income look great. Most importantly, market likes what it sees :)

    Trimmed my position 20% today (trading shares, bought in the high 13s) on the big bounce.
    Feb 27, 2015. 03:27 PM | Likes Like |Link to Comment
  • Buying LQD Is A Waste Of Time [View article]
    Agree with the author's main thesis about LQD, and generally support the notion of buying individual bonds as opposed to an ETF or OEF wrapper. If you're concerned about duration/ IR risk, and are content to "lock-in" a given yield by holding to maturity, this is unquestionably the way to go.

    But Unknown Investor nails the bigger problem spot-on. Even for widely traded and *relatively* liquid issues, unless you're trading in blocks of 100K and with a loyal broker dealer who values your repeat business, you're going to get murdered in terms of bid-ask spreads and forget about liquidity when you need it most. If you *truly* intend to hold a bond to maturity, this isn't a huge deal. You get gigged a quarter or half point or so going in, and by the time you amortize this across the life of the bond, it's no biggie. But woe to you if you need to unload an odd lot of something in the meantime, even if it's IG and generally liquid. One round trip in and out of a single bond can eat up as much as the annual fees for a whole portfolio invested in LQD. Word to the wise: that liquidity will not be there when you need out. The better brokers will allow you to show a solid offer out to the market directly, but many/ most will make you solicit bids even if there's an outstanding bid in the market. I've seen normally benign bid-ask spreads explode so wide you could drive a truck between them on a moment's notice. And this is all for plain vanilla IG corporates. For munis or anything high yield, forget about it. You will be crucified if you need to sell an odd lot.

    Also, part of the reason why it might be advantageous to own multiple issues from a single credit is diversification of maturity (not just issuer).

    Another advantage of actively managed OEFs is that they're going to get a look at a wider range of credits than retail investors will ever see. And once you get down beneath the IG credits, what you as a retail investor "see" on offer or in dealer inventory is generally what the smart money no longer wants. It's adverse selection bias. Whenever you see a big bundle of some new B-ish credit suddenly appear in the market, you can be sure that someone else knows something you don't know, and that they're trying to get out before the deluge.
    Feb 25, 2015. 03:06 PM | 9 Likes Like |Link to Comment
  • Annaly Capital Management's (NLY) CEO Wellington Denahan on Q4 2014 Results - Earnings Call Transcript [View article]
    "[I]n a perfect world we would love it if we could time these things perfectly where we put all of our swap book on when rates are low and then buy all of our assets when rates are high. Unfortunately that is not how it goes."

    LOL, understatement of the day by Welli! Betcha they wish they could have a do-over on Fall 2012 through end of 2013, rather than having gotten it exactly backward. Any consolation...at least they weren't alone.
    Feb 25, 2015. 01:16 PM | Likes Like |Link to Comment
  • Seeking Baupost: 'Feel-Good' Bubble Disturbs Hedge Fund Yeti - Part II [View article]
    "Klarman and Buffett talk about value investing in basically the same way..."

    This is an interesting suggestion, and I'm far from an expert on either one of them (so happy to stand corrected or initiate a discussion here).

    But I've never had this impression. Both purport to "buy things cheap" and take advantage of behavioral disconnects e.g. "fearful when others are greedy, and vice-versa" etc. But Klarman (at least based on my recollection of MOS) seems to be more like the original Buffet, that is, buying things that are deeply out of favor (and sometimes for good reason) but for which there is little or no downside in something approaching the absolute worst case, or, alternatively, where the upside is so great that it massively outweighs the downside (asymmetric risk-rewards where "heads I win a little, or at least don't lose everything, tails I win a whole lot"). I'd imagine that LNG, OCN, and a lot of those mysterious biotech names would fit into that basket.

    By contrast, at least by my reckoning, the later Buffet is more concerned about great franchises, moats, and paying a reasonable price for reliable growth. He's not out there picking up cigar butts or applying the Kelly Rule to place surgical bets on unusual situations and off-the-run instruments where the facts are hard or not widely understood.

    Maybe I'm wrong, but I see their styles as very different, though both broadly focused on finding "value" and avoiding large drawdowns.
    Feb 25, 2015. 10:32 AM | 1 Like Like |Link to Comment
  • Seeking Baupost: 'Feel-Good' Bubble Disturbs Hedge Fund Yeti - Part II [View article]
    Lots of asymmetric risk-rewards, which may be the best you can do in a market where virtually nothing is strictly speaking "cheap." Agree that LNG is a bit speculative in that it's heavily forward-looking, but assuming that things line up the way they're projecting in the next 2-3 years, it has monster potential; it's also a derivative of natural gas that's been historically depressed, and takes advantage of the behavioral distortion that most investors are time sensitive and price insensitive. So I don't see LNG as so far outside his sweet spot.
    Feb 24, 2015. 07:36 PM | Likes Like |Link to Comment
  • Walter Energy's Q4 Results: Pure Disappointment [View article]
    I'll take a look at the terms if I have time, but I'd argue that any buyback of the unsecureds is now a fraudulent conveyance. They won't make it another year, and the only "value" the unsecureds have is the future value of the expected coupons (maybe one or two more coupons at most?). Paying any more than the price of 1 coupon is a a waste of cash, and secured lenders should rightly object.
    Feb 19, 2015. 08:23 AM | Likes Like |Link to Comment
  • Walter Energy's Q4 Results: Pure Disappointment [View article]
    They missed the window for some kind of soft restructuring back when it was a reasonable strategy for survival. Time for a debt to equity swap has long since passed--who'd agree to take their common stock now as anything other than a sweetener alongside cash?

    And as for an outright purchase for $, I think the legal issue at this stage of the game is probably a matter of fraudulent conveyance. If I'm a secured creditor, first thing I argue in BK is that this cash out the door to the unsecureds needs to be rolled back. I'm also assuming that the senior secured lenders would have some say-so in nixing $120M (or 25% of their remaining liquidity) waltzing out the front door. They must surely be operating on covenant waivers by now?

    Ugly situation all round in coal-land, but WLT prob won't be the last.
    Feb 18, 2015. 06:52 PM | Likes Like |Link to Comment
  • 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 | 3 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 | 6 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
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