Thursday, May 8, 2008

Start adding short again on individual names.

Bernanke invincibility cloak runs out very recently.

BSC put is the one and only Bernanke put and there is no more.

My contact in the Fed (senior economist and aide to someone voting with Ben) has confirmed this and there is no "next one".

Everyone is now allowed to fail, including PMI, MTG, RDN, MBI, ABK, WB, WM, CFC, DSL, FED, BKUNA, CORS, and a few hundred other names that I happened not to short at the moment. The time bought was utilized heavily to raise capital and it's time to start making use of them against previously unrecorded liabilities. As for the GSE I know that a separate agreements have been discussed about what form of handout will be given to them but it is clear that no debt backstopping will be made. A direct equity handout is the most likely way in the form of "third company" to dump credit exposure to the taxpayers lap. This is excellent decision as it will create yet another target to buy puts against.

Of the names I think the final assault on MTG and ABK is the most interesting for me, with very high potential in WB for extracurricular work. But first I need to contact someone who worked there to send me a spreadsheet of their book so I can estimate the forward writedown.

Once I have that I will post a summary here, but indication points to me liking the #s very much, knowing where things trade and what this guy says they have (a PM over there).


Kennie Thompson said...

no no not me... i shall sacrafice myself at the alter of the BOD so as to remain the top dog

Lanty is now god and dont think for a moment that he answers to me.

although we are a ripe target as our tangible book value (if you believe our risk models) is around 18

hopefully that overinflated divi that we finance by new equity issuance will keep that share price up

And im hearing that the fed is opening a new facility called the IAAF

It will save us...see we can take all the goodwill bullshit from buying lenders at the top and get some real shit for it.


MTGSPY said...

Kennie, you may join me shorting yourself.

Remember how the Gen Montgomery fought the Desert Rat?

He hung a picture of Rommel in his trailer to remind him who he's fighting.

Look at Ben's picture man. You sayin u afraid of this kook?

Cheap suit, 180k salary, studying things you learn being a coolie for 15 minutes in Bombay bus terminal.

YOU afraid of that soldier?

MTGSPY said...

and I did a thorough table format of loss estimate for WM. I'll do it for WB as well as soon as I got the tape. Once I have that it's just a matter of what to multiply the book value with to get price target. The problem is actually when you get NEGATIVE # book value, because then you can't say anything given the market has so strongly voted against reality at the time you discovered the truth.

kennie thompson said...

I been short WB for a while...since back in the day of 8%divi...been a crazy ride though

covered 2/3 on the day they cut the divi and willing to admit that i missed re-entry point because i let fear trump the fundi's

I will again wait as I wish I had a larger position in them

Kenny Thompson said...

PS I enjoy your blog

keep up the good work...I wish I had something to add at this point but I just do not

MTGSPY said...

They dont use CS but choose OFHEO index bro. That should be your first clue. It's a mistake to cover once you know.

kenny t. said...

I know about their risk models...However it would have been foolish, from a trading perspective to not lock in a real big profit. Its not a big deal...perhaps from a long term perspective you are correct but I just felt like at the time it was the right thing to do...PPS still has not gone below the level that I covered at (for any long period of time) so im still ahead in that they are looking mighty juicy at this time...

MTGSPY said...

I hear you about the profit. Now is the time to go back to work and review.

The more I see this book the more troubling it looks to me.

480B total loans.

230B (half) is mortgages, but they didnt say how much is 2nd lien. Is it 5 or 10% cuz that makes a ton of difference.

Well maybe not.

Because they are already far behind the curve. You dont reserve 1.37% when non-performing is right now at least 3-4% and will climb to low teens in 2009. WAY behind the curve.

Also, what is the behavior of loans backed by agri purchases? There's $120B of such in the balance sheet.

How do you evaluate default probability in this space because I don't know - or maybe WB DOESN'T EITHER because the Y-O-Y growth is 20% and agri prices is bubbling unseen since 1970s.

How do you decide to default on a farm?

Would you default if the equity is upside down but cash is still flowing? Or would you default ONLY when cash is flowing?

What is WB expertise on forecasting agri prices if cashflow matters?

What will happen at the turn of the agri prices?

How could they ramp up loan production in such a new area given that student loans and real estate loans have all stalled for several quarters? Are they just made in a hurry, lack of DD to get revenue replacement as fast as possible to meet your bonus target, Kennie?

Those are NOT idle question, sir. And it pays to help your buddy Lanty think, because he will answer that question in front of a jury, I suspect, in 3 years.

KT said...

I have some good notes and highlights about WB...they are not in front of me at the moment but i will post tomorrow... Im sure none of it will really come as a suprise to you but these guys have been avoiding write-downs at all costs

At best they will have to raise more capital

D said...

I am surprised you missed the OFHEO stats for portfolio marks...I noticed that on p. 20 of the 08Q1 presentation and knew they were toast without having to look through everything else.

Assumptions of decline Peak -> 08Q1
CA - <7.6%>
FL - <8.7%>
AZ - <8.8%>

Pick-A-Pay LTV Marks using above:
CA - 80
FL - 77
AZ - 80

P-A-P Portfolio Assets ($Billions):
CA - 70.6
FL - 12
AZ - 3.1
It's that smoggy mountain air in North Carolina that's getting to them...


At best this is a $6 stock.