ValuePlays

People have been asking all day what it is called…I’ve got it

The “Securitization & Housing Investment Trust” or SHIT for short

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I am on a history kick after reading “Once in Golconda”. Here are eyewitness accounts to 1929 and the aftermath. As you watch it, you’ll be struck by the similarities..

Here is the book:

Here is a book about Jessie Livermore


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Ambac (ABK) has been placed on review from Moody’s for a possible downgrade

From the SEC filing
On September 18, 2008, Moody’s Investors Service (“Moody’s”) announced that it was placing the ratings of Ambac Financial Group, Inc. (“Ambac”) and its subsidiaries on review for downgrade. Ambac expects to continue to work with Moody’s as the rating agency seeks to apply its most recent mortgage-related assumptions to unique attributes of the individual transactions in Ambac’s portfolio. Moody’s stated that because Ambac is meaningfully exposed to the risk of US subprime mortgages and other residential mortgage products, the revised assumptions are expected to have a significant impact on Ambac’s capital position and multi-notch downgrades are possible.

Now, this would be a legitimate reason to short this stock……but you can’t now.

Disclosure (“none” means no position):none
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Yes, stock will rise but it is a bit like celebrating a touchdown when the other team is not allowed to play defense.

The SEC has banned short sales in 799 institutions from midnight Friday, until Oct. 2nd (unless extended).

Said the order:

As a result of these recent developments, the Commission has concluded that there continues to exist the potential of sudden and excessive fluctuations of securities prices generally and disruption in the functioning of the securities markets that could threaten fair and orderly markets. Based on this conclusion, the Commission is exercising its powers under Section 12(k)(2) of the Act.2 Pursuant to Section 12(k)(2), in appropriate circumstances the Commission may issue summarily an order to alter, supplement, suspend, or impose requirements or restrictions with respect to matters or actions subject to regulation by the Commission if the Commission determines such an order is necessary in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.

In these unusual and extraordinary circumstances, we have concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial firms, which entities are identified in Appendix A (“Included Financial Firms”), is in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.

Also, short sellers will have to now disclose their short positions. This is the same as if they were long a stock or security. This, is as it should be..

Now, the banning of short sales is just ridiculous. Short selling is not illegal, naked shorting is. Had the SEC done ANYTHING about naked shorting in the last few years, this would not be an issue. One could argue we would not be in the predicament we are in had the SEC done ANYTHING about naked shorting, ANYTHING.

Rather than issuing a string of memos and holding hearings about it, perhaps an action or two against those guilty of naked shorting would have actually curbed those guilty of the practice? Had we not had naked shorts in the market the oast 6 months, you could easily make the argument Lehman (LEH) would still be here and Merrill (MER) would not have had to sell.

It isn’t the act of shorting that is wrong, it is the abuse of it that is. SEC Commish Chris Cox and the SEC STILL have not done ANYTHING to actually eliminate the practice. All they have done is out it on hold for a couple weeks.

Disclosure (“none” means no position):
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HOG, Mack, Recession, Dodge ball

– Has held up great during the recent panic and yields 3.3%.

– OK, copying the Dick Fuld has to be the days worst idea

– Finally some sanity

– One of the funniest movies of all time……..

Disclosure (“none” means no position):
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Looks like Wilbur Ross is going for a bigger slice..

Market Watch Reports:
Assured Guarantee (AGO) said late Thursday that it has provided a waiver allowing investment funds managed by WL Ross to purchase up to 5 million additional common shares of Assured Guaranty. The shares purchased by the WL Ross Funds will be from current shareholders and as a result will not result in an increase in shareholders’ equity. If WL Ross buys all 5 million shares, it would beneficially own 17.2 million shares or about 18.9% of Assured’s outstanding common shares as of June 3

Ross built his initial stake following a $250 million private placement with the company back in May.

Disclosure (“none” means no position):none
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Finally, somebody takes the ratings agencies to task publicly.

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Yeah, 1997 was the last time you could have bought shares of GE (GE) at $23. The difference? Now that price comes with a 5.3% yield and shares trade at 10 times earnings, not the 24 times they traded at then.

In the latest quarter, global revenues growth was +24% (emerging markets +20%, developed (ex. U.S.) +26%, U.S. (2)%).

What’s the problem? Fears over GE Financial Services. In Q2, Commercial Finance earnings grew 7%, GE Money fell 9%.

The fears at GE Money are overblown. GE Money encompasses roughly 13% of profits at GE. Let’s assume earnings for the year, about $4 billion are wiped out. It won’t, because GE Money is not structured in the “borrow long, lend short” model that is currently crippling financial institutions. They underwrite to hold. In consumer mortgages (UK), they are self funded and have a mortgage LTV of 70%, meaning mortgage holders on average have 30% equity. In consumer credit, the current delinquency rate is 5%, not bad. But, for arguments sake, let’s say earnings are gone. That would still leave GE with approx. $20 billion in earnings of $1.97 a share. That still leaves GE trading at 11.6 times earnings and yielding 5%.

GE is saying Commercial Finance earnings ought to decline in Q3 10% to 15% and GE Money ought to grow 0% to 5%. Hardly the desperate scenario the markets are currently pricing into the stock price. What is of interest is that revenue growth at both divisions ought to grow 5% to 10%.

GE, during the Q2 results presentation forecast 3Q’08 continuing EPS outlook of $.50-.54, (0-8% growth)and said they were on track for 2008 guidance, $2.20-2.30, (0-5% growth).

Now CEO Jeff Immelt got himself in hot water when in the spring he stated 15% EPS growth for this year was “in the bag”. Because of that there is now a slight cloud of skepticism over him and the company. The only way to erase it is to perform and show it to be an aberration. That, will take time. Coming through the current relatively unscathed would be a huge first step.

Ge is currently being price not as the conglomerate it is, but as a financial service company. That, has created a great buying opportunity….

I think I just may bite soon..

Here is a recent WSJ article on the subject

Disclosure (“none” means no position):
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Some thoughts on the “candy” Wells Fargo (WFC) may be after..

Reuters Reports:

The chairman of the No. 2 U.S. mortgage bank said on Wednesday that his company was “buying with both hands” and, given the distressed state of financial assets, he felt “like a kid in a candy store.”

Wells Fargo (WFC) Chairman Richard Kovacevich declined to comment to Reuters at a conference in Beverly Hills, California, on whether the company is interested in buying Washington Mutual Inc (WM) or Wachovia Corp (WB) but indicated he was interested in buying other banks in distress.

“Wells Fargo often buys fixer uppers,” companies that have had some hard knocks and can be rehabilitated in two or three years, he said in a speech at the Association of Corporate Growth 2008 conference. “Given the financial conditions today I feel like a kid in a candy store. There is a lot out there today.”

“We are buying with both hands right now, as we have done for the past year,” Kovacevich said, describing himself as a “confessed serial acquirer.”

Well, we know they are buying insurance operations around the country. Banking? CEO John Stumpf recently said a “large transformational deal was unlikely”.

Does that rule out WB or WM? I think it it means they pick up branches, rather than the whole thing. Or, it means maybe that as Wells looks at the books of the most mentioned two banks, things are not really as bad there as people currently think vs the price they can be had at.

I would be very surprised at an outright buy…..pieces? Yes.

Disclosure (“none” means no position):Long WB,WFC, none
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SEC Commish Chris cox is getting real good with the memo thing…

Less than 24 hours after yesterday’s note, Cox gives us this.

FOR IMMEDIATE RELEASE
2008-209

Washington, D.C., Sept. 17, 2008 — Securities and Exchange Commission Chairman Christopher Cox and SEC Enforcement Division Director Linda Chatman Thomsen issued the following statements today concerning ongoing and forthcoming Commission actions to investigate fraud and manipulation in the nation’s securities markets:

“Millions of investors entrust their savings to our securities markets because they can be confident that our markets are orderly, liquid, efficient, and rational,” said Chairman Cox. “The turmoil in today’s markets, particularly in the financial sector, is challenging that assumption for ordinary Americans. Markets are the best tool a free society has to price and allocate assets across a complex economy, but as is well known from experience, sometimes the wisdom of crowds is supplanted by crowd behavior. We need well-functioning markets to help us draw the line between reasonable miscalculation and error or something worse involving the failure of due diligence, self-dealing, and conflicts of interest. It is thus vitally important that the market mechanism continue to inspire investor confidence.

“In order to ensure that hidden manipulation, illegal naked short selling, or illegitimate trading tactics do not drive market behavior and undermine confidence, the SEC today took several actions to address short selling abuses,” Chairman Cox continued. “In addition to these initiatives, which will take effect at 12:01 a.m. ET on Thursday, I am asking the Commission to consider on an emergency basis a new disclosure rule that will require hedge funds and other large investors to disclose their short positions. Prepared by the staffs of the Division of Investment Management and the Division of Corporation Finance, the new rule will be designed to ensure transparency in short selling. Managers with more than $100 million invested in securities would be required to promptly begin public reporting of their daily short positions. The managers currently report their long positions to the SEC.”

Chairman Cox continued, “Director Thomsen and the Division of Enforcement will also expand their ongoing investigations by undertaking a series of additional enforcement measures against market manipulation. The Enforcement Division will obtain disclosure from significant hedge funds and other institutional traders of their past trading positions in specific securities. Those institutions will also be required immediately to secure all of their communication records in anticipation of subpoenas for these records.”

SEC Director of Enforcement Linda Chatman Thomsen said, “The Enforcement Division has been investigating and will continue to investigate any suggestion of manipulative trading. We are committed to using every weapon in our arsenal to combat market manipulation that threatens investors and capital markets.”

The Commission is actively considering additional actions as appropriate.

I guess the question has to be…..why haven’t we required short-seller disclosure before? We have been complaining for years about short sellers, why not require disclosure? All I have heard from the SEC is “transparency”, yet, nothing has been done until now, the actually move towards it? Even at that, it is still “just a thought”, not an action.

The SEC needs to actually do something…..save us the memos.

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This video with Charlie Rose was done the eve of the Gov’t AIG (AIG) bailout..

Disclosure (“none” means no position):None
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Rumors, Twitter, Bogle, Gumshoe

– Jeff Mathews makes a good point

– This is a great product

– Can’t wait to read his books

– Is it just me or do these scam seem to proliferate during booms and busts

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WOW. What a couple weeks this will have been..

Goldman Sachs (GS) will be the last investment bank standing if there is any truth to this rumor.

The NY Times is reporting Morgan Stanley(MS) CEO John Mack received a call over the weekend from Wachovia (WB) CEO Bob Steel about a possible merger.

Mack is reported to have said he is considering the idea…

Disclosure (“none” means no position):Long WB, none
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