Thursday, August 28, 2008 0 comments ++[ CLICK TO COMMENT ]++

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...

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