MBIA Reinsures FGIC; Another Poor Quarter at Sears; US GDP Revised Higher; Fannie Mae Cleans House; Market Manipulation in Pakistan

Some articles that some of you may find interesting...


  • MBIA agrees to reinsure $187 billion of FGIC muni bonds: In a deal cut by Eric Dinallo, FGIC unloading its valuable (and likely safe) muni bonds to MBIA. This should reduce the capital requirements for FGIC while permanently giving up future profits. It also shows that Dinallo cares a great deal about muni bonds (now the muni bonds will have MBIA's A rating whereas FGIC was BB (junk). I suspect that equityholders in FGIC--PMI, GE, Blackstone, Cypress and CVIC--will end up with very little in the end, if anything.
  • Sears misses estimates but expects stronger second half: Sears keeps posting weakening profits... not too surprising given that retail isn't doing well, and a big chunk of Sears sales are in housing appliances.
  • Believe it or not, US GDP is revised higher to 3.3%: I have alluded several times to the possibility that the US economy may not do that badly. A 3%+ growth is amazing for the US (it's very close to non-inflationary potential.) Exports are on fire. Some people are saying this is the peak but people also said the growth in 3Q07 was the peak. Having said that, I still think the equity markets will be under pressure. There is far less correlation between stocks and the economy than many imagine (eg. 2000-2002.)
  • Fannie Mae fires its CFO, CBO (chief business officer, whatever that means), and CRO (chief risk officer): Perhaps a bit too late for Fannie shareholders but anyone presiding over the mess--exagerrated by the press and short sellers in my opinion--needs to be held accountable. It does beg the question, though, how the CEO manages to stick around. The GSEs can grow their way out of the mess if given time (for instance, they are posting record profits due to increasing spreads right now.) But over-reliance on fair value accounting and government pressure (to keep lending, instead of deleveraging) puts them in a tough situation. If I'm not mistaken, Fannie (or maybe it was Freddie or Ginnie) had either negative book value or close to negative book value during the real estate bust in the early 90's. The difference now is that fair value accounting has changed the game; people rely way too much on mark-to-market losses. Having said all that, I'll be the first one to admit that things have to change from a long-term point of view. The GSEs are way too big and I suggest breaking them up in the future--but not now.
  • Karachi Stock Exchange sets price floor for stocks: Yes, someone "smart" in Pakistan has figured out that if you ban stocks from trading below a particular price, they can never decline. There have been riots over falling stock prices in Pakistan so I guess this would fall under the "brilliant" political solution to solve an unsolvable problem. Obviously the exchange, as well as the investors, haven't figured out what a free market is, or what a stock exchange represents. I guess stocks are only supposed to go up...

Comments

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 >>>