Assured Guaranty Being Sold Off... But a Potentially Positive Sign

UPDATE: An anonymous reader pointed out that the mark-to-market gains seem to be due to marking down liabilities. So this isn't as positive as it seems (I retract my somewhat-bullish opinion :( ). One of the quirks of fair value accounting is that you can end up with positive results simply because the value of your debt went down, for example. I haven't calculated it but I think companies like Ambac would have negative book value if it weren't for this benefitial result (I mentioned this before.)

Assured Guaranty is off 50% in heavy trading and I'm not sure what it will do now. I guess the likely rating cut of AGO and FSA likely means the Connie Lee idea is off the table for Ambac. Anyway, there was one positive piece of news that Assured Guaranty released in their earnings call. Around $500m of their mark-to-market losses reversed in the last quarter. I don't know the breakdown of Assured's insurance portfolio but this is a positive sign. The monolines, as well as the banks, are not going to get out of the mess until the marks reverse. The Assured reversal is a first sign. Although things may deteriorate further (they may have in the last month,) it is still a good sign...

Comments

  1. AnonymousJuly 22, 2008 at 11:55 AM

    The reason the marks reversed was due to the CDS on AGO widening. From the release:

    "The fair value of its financial guaranty contracts written in CDS form also reflects the change in the Company's own credit cost based on the price to purchase credit protection on Assured Guaranty Corp., the Company's financial guaranty direct subsidiary. Assured's current estimate of after tax unrealized gains on derivatives of $475 million to $525 million includes a gain of approximately $675 million after tax (approximately $958 million before tax) associated with the change in Assured Guaranty Corp.'s CDS spread, which widened substantially during June."


    To me, this shows the silliness of current MTM accounting. In otherwords AGO equity shot up 35% becase the company is now less credit worthy? (Again, see today's release.)

    ReplyDelete
  2. Sivaram VJuly 22, 2008 at 2:36 PM

    Thanks for providing further info...

    I think fair value accounting is dumb (at least for investors) but what is happening makes sense. You need to mark the liabilities side if you are going to apply it to the assets side. Companies like Ambac probably will have negative book value if it weren't for marking down the liabilities because debt costs have gone up...

    ReplyDelete

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>