Posts filed under “Really, really bad calls”

AIG Repaying Uncle Sam? Not By a Long Shot

Today’s AIG announcement has generated some surprisingly naive headlines. The company may have announced U.S. bailout exit plan, but that does not make it so. (Citi’s numbers don’t look any better).

Let’s take a closer look at the numbers and separate the facts from fiction:

Total Bailout: $182.3 billion dollars

Amount Still Owed:  $132.1 billion (as of June 30, 2010)

Shares Outstanding: ~700 million

Current price:  $39.10 (+$1.65)

Market Capitalization:  ~$27 billion dollars

Today’s transaction was the converting of Preferred  Stock that had a nominal value of $49.1billion — but this was privately held stock that did not trade. Its true value is actually unknown.

For valuation purposes, let’s imagine a hypothetical company that has myriad valuable parts worth about $30 billion dollars.  But the company also owes over $130 billion dollars to creditors. We would describe that firm as insolvent, and heading towards bankruptcy.

Yet that is not how people think of AIG. The wisdom of crowds seems to think that the government is going to keep a firm bid under the stock price. This same crowd also thinks share dilution is positive, and ran the stock up almost $5 dollars 5% on the news of another 12% dilution.

Management is selling off pieces of the company to repay the government. How they are going to find another $132 billion in value has not been remotely explained.

Converting Preferred to Common stock does reduce the massive AIG obligations any more than converting a 20 into 2 tens makes you any wealthier . . .

This is little more than a shell game

Category: Bailouts, Really, really bad calls

Black Ducks & EMH Origins

Two quick non MSM pieces worth reading this morning: • The Reformed Broker:  Sometimes It’s Just a Black Duck “The trouble with the Recency Effect is that everyone all of a sudden thought they were Nassim Taleb, orinthological experts on the spotting of Black Swans.  Every blip on the screen or blurb in the newspaper…Read More

Category: Contrary Indicators, Psychology, Really, really bad calls

Deregulation, Structural Flaws Caused the Flash Crash

“May 6 was clearly a market failure, and it brought to the fore concerns about our equity market structure.” -Speech by SEC Chairman Mary L. Schapiro > What a surprise! The SEC has acknowledged that the flash crash was a structural issue: As the Securities and Exchange Commission finalizes its report on the May 6…Read More

Category: Bailouts, Quantitative, Really, really bad calls, Regulation, Trading

Hirsch’s WTF Forecast: Dow 38,820

Last week, we noted Robert Prechter’s Dow 2,000 forecast. Today, we are going to the other end of the scale: A wild Dow 38k forecast from the usually sedate Jeff Hirsch of Stock Trader’s Almanac (UPDATE: Full report here) Bloomberg: “The Dow Jones Industrial Average will surge to 38,820 in an eight-year “super boom” beginning…Read More

Category: Really, really bad calls, Trading

Rating Agencies Ignored Proof of Unsafe Loans

As if we need further evidence of the gross and willful malfeasance of Moody’s S&P’s and Fitch: The latest evidence of their criminally irresponsible behavior comes to us via the Financial Crisis Inquiry Commission. This was not, as the narrative has been reconstructed, a case of good loans gone bad. Mere incompetence does not explain…Read More

Category: Bailouts, Credit, Really, really bad calls, Regulation

Volcker: Financial System Still at Risk

“Normal distribution curves — if I would submit to you — do not exist in financial markets. Its not that they are fat tails, they don’t exist. I keep hearing about fat tails, and Jesus, it’s only supposed to occur every 100 years, and it appears every 10 years.” -Former Federal Reserve Chairman Paul Volcker…Read More

Category: Bailouts, Federal Reserve, Really, really bad calls, Regulation

CrowdQuery: After Blockbuster, Whose Bankruptcy is Next?

Some years ago when I was on the sellside, I would occasionally got dragged into these banking meetings to discuss funding new and existing companies. I had a good understanding of Tech, and apparently lent gravitas (ha!). These sorts of meeting request went up after the media exposure increased.

I got into a bit of hot water at some of these for saying what I thought. I recall one of these meetings was with a group that had made a large previous investment into Blockbuster (I don’t recall if they bought via public or private equity).

Curious, I asked what the value was: This wasn’t a turnaround play, it was more of a sell off the whale oil and meat to recoup what was left from the carcass play.

“You describe this as if its a dying industry.”

Well, duh. “Isn’t it? Isn’t Netflix and internet delivery going to make driving to a store and renting plastic discs ancient history? You could no more turnaround a steam engine company once gasoline engines came around.”

The bankers were not happy with me, but I certainly saved them (or their investors) money, as Blockbuster just filed for Chapter 11, wiping out shareholders, and reducing their debt load 90% from nearly a billion dollars to about $100 million or so.

Somewhere between then and now, we rec’d shorting BBI, but it was a tough borrow, and a regular squeeze play.

CrowdQuery: Who is the next major company, business, or sector to go belly up?

Let’s consider 3 categories:

1) who goes down in 2010 or ’11

2) who is in danger between now and 2015.

3) Whose long term prospects are clouding up?

What say ye?

~~~~

video after the jump

Read More

Category: Investing, Legal, Really, really bad calls

The Abysmal Track Record of Moody’s Mark Zandi

The following is from independent banking analyst XXX, who has been accurately forecasting the crisis and its structural underpinnings. He wonders why (generally nice guy) Mark Zandi has become a favorite of public policy makers, despite his rather lackluster track record. ~~~ The Fed, Treasury and the Senate Budget Committee appear to have a favorite…Read More

Category: Real Estate, Really, really bad calls, Think Tank

Man without Mortgage Loses Home in Foreclosure

From today’s WTF file, the Florida Mortgage Mill Machinery, hard at work: “When Jason Grodensky bought his modest Fort Lauderdale home last December, he paid cash. But seven months later, he was surprised to learn that Bank of America had foreclosed on the house, even though Grodensky did not have a mortgage. Grodensky knew nothing…Read More

Category: Foreclosures, Legal, Real Estate, Really, really bad calls

We Should Have Gone Swedish . . .

“What were the alternatives to the bailouts?” In light of the Summer’s resignation, its worth looking at the question I still hear from time to time. This article, Stopping a Financial Crisis, the Swedish Way, published exactly 2 years ago today, provides an answer: “A banking system in crisis after the collapse of a housing…Read More

Category: Bailouts, Really, really bad calls