I repeat--read it and think!!!

How to escape the liquidity trap Samuel Brittan: Financial Times 28/03/03 

The lead headline on Bloomberg this morning is "Bernake Vindicated!"

I can't wait to see the morning circle jerk on CNBC.

Re: On Thursday night, the bond offering was delayed until Monday, a sign that the underwriters may be having trouble rounding up buyers.

In the panic they probably forgot the bond mkt is closed today.

It's like a real live version of Weekend at Bernie's. (pun intended)

Cheers,

Is the FBI/SEC involved again in twisting this little coke whore's ARMs?

FBI probe grows to 17 lenders
Hundreds of agents looking for possible fraud

National Post Story

The FBI's criminal probe of the mortgage-lending industry has grown to 17 firms, involves large companies and could take years to conclude, bureau officials said yesterday in an interview.

"The corporate fraud cases are pretty large entities," said Neil Power, economic crimes unit chief of the Federal Bureau of Investigation's financial crimes section. "The majority, I would think, we're looking at years."

Mr. Power declined to comment when asked whether the FBI was looking into the collapse of Bear Stearns, which led to an emergency sale to JP-Morgan Chase last weekend. However, he said, "common sense would indicate that we would look at something that big."

The hundreds of FBI agents taking part in the probe are looking at issues including all phases of the process of securitizing loans, insider trading and whether firms properly disclosed the value of their assets.

I am beginning to think that these financial hotshot guys can be divided into two groups:

those who think that there is still some ingenious way they can paper over the bad paper problem

those whose fiduciary responsibility keeps them from saying "Just shoot us now, please"

I guess we should play the rolling stones "time is on my side", because a lot of money is being bet on time. I just wanted to say also that the FED has now started the super SIV that Paulson couldn't get off the ground.

Am I the only one scared that the FED and BOE had both pledge over 50% of the Balance Sheets for TP (Toilet paper). I am saving my dirty laundry because that should be the next collateral class acceptable and maybe they will wash it for me

"ho stole the strawberries?"

"hat do you mean head in to the wind? Halsey said......."

On Thursday night, the bond offering was delayed until Monday, a sign that the underwriters may be having trouble rounding up buyers.

Break me off a piece of that. I'll get my brothas to sling that on the street, 100 shares with every bag of crack.

I think bacon dreamz will give you a rainbow sticker for that.

oh, sorry, i had to run down to the grocery store, i ran out of celery, so i had nothing to put my peanut butter and raisins on. yes, rainbow sticker for scotty.

1 hit in a google search for james glassman - who is the ceo of thornburg mortgage

national review - james glassman - may 13 - 2004

"Pulling a Thornburg"

"Five or six years ago, a friend I have known since high school — let's call him R. — rhapsodized about a money manager who lived in, of all places, Santa Fe, New Mexico. "Find Garrett Thornburg," said R. "This guy has the best financial mind in America, and who knows about him? Hardly anybody. You should write the story."

Better late than never, Garrett Thornburg himself walked into my office last week — a big, hearty, outdoorsy-looking fellow who laughs a lot, talks fast, and rarely pays visits to Washington. Why should he? He lives in the best place in the country (next to Santa Barbara, Calif., and Litchfield County, Conn.) after escaping New York in 1982, when his employer at the time, Bear Stearns, turned down one of his more interesting financial-engineering ideas, a bit of alchemy involving tax-exempt industrial revenue bonds.

The reason that R. was so enthusiastic is that Thornburg has brought a fresh eye to the money game. He is probably best known for starting a series of bond funds whose holdings are "laddered," that is, the bonds in each portfolio come due in sequence, thus protecting the investor against rising interest rates.

As a bond matures, the cash from its sale is used to buy a new bond that matures at the end of the ladder, meaning further in the future. As a result, if interest rates rise (as they are doing now), the overall rate of interest paid by the bond fund will rise as well because the fund keeps buying bonds at higher interest rates.

These laddered-bond funds — Thornburg Limited-Term U.S. Government (LTUCX), for intermediate-term Treasury notes; Limited-Term Municipal National (LTMCX), for intermediate-term munis; and so on — have proved enormously successful, and if you're looking for a way to protect yourself against the higher interest rates that seem practically guaranteed, they're just what you need.

You can, of course, construct your own ladder and avoid Thornburg's fees. For example, if you have $25,000 to invest, put $5,000 in each of five T-notes: one maturing in 2005, the next in 2006, on out to 2009. As the 2005 note matures, buy a new note maturing in 2010. If you want tax-exempt income from municipal bonds, however, it's probably better to choose a Thornburg fund because it's hard for a small investor to get good prices in the illiquid muni markets.

After establishing the bond funds, Thornburg, between 1995 and 2000, launched a series of stock funds. Recently, all three have won important honors: Bill Fries, manager of Thornburg International Value (TGVAX), was named Manager of the Year by Morningstar in his category for his 2003 performance; Fries was also selected by Business Week as one of the "best mutual fund managers" for 2004 for his stewardship of Thornburg Value (TVAFX); and Thornburg Core Growth (TCGCX), managed by Alexander Motola, won the 2004 Lipper Fund Award in the multi-cap growth category.

Last year, International Value returned 40 percent, beating its benchmark by 6 percentage points; Value returned 35 percent, beating the Standard & Poor's 500 stock index by 8 points; and Core Growth returned 55 percent, whipping the S&P by 27 points. All three funds have also beaten their benchmarks over the past three years.

In my view, the best of the funds is International Value, which receives five stars (tops) from Morningstar and ranks in the top 1 percent of its category over the past five years. It was started because Thornburg said he found so many great companies abroad that foreign stocks were accounting for more than one-fourth of the original Value fund's holdings."
..........

But I have saved the best of the Thornburg companies for last. It's a real-estate investment trust, or REIT, called Thornburg Mortgage Inc. (TMA). What makes it attractive is its whopping dividend yield, now 10.1 percent. What makes it Thornburgesque is its way of doing business, which is both unusual and elegant.

The firm started out as a conventional mortgage REIT, buying up groups or "pools" of home-mortgage loans that had been turned into securities — that is, bonds, typically with adjustable interest rates. These collateralized mortgage obligations (CMOs) are the basic assets of REITs such as Annaly Mortgage Management Inc. (NLY), but Thornburg decided to move into a more profitable realm. While retaining a chunk of CMOs, he branched out into originating mortgages himself.

"We decided to create a new kind of mortgage company," he told me. He lends mainly to wealthy individuals who have the best credit. "We make only adjustable-rate mortgages, and we keep every mortgage we make." In other words, Thornburg Mortgage owns the loans and collects interest on them, rather than selling them to a large financial institution or slicing and dicing them into CMOs for investors.

Thornburg offers its mortgages over the Internet and in print advertising and direct mail, and it farms out the underwriting and the servicing. The firm has no branches, no expensive overhead. So far it has made about $8 billion in loans, averaging about $500,000 each, with a low loan-to-value ratio of about 67 percent — which means that the borrowers retain a lot of equity in their homes, reducing Thornburg's risk.

How good are the loans? "Our cumulative credit losses since we began acquiring loans in 1997 total just $174,000, and we have not realized a loan loss in the past eight quarters," says the firm's annual report. Thornburg himself adds, "Our delinquent loans are two basis points," or 0.02 percent of the portfolio. That's a flabbergastingly low number in the lending business.

So why don't other lenders use the Thornburg model? "Banks have a legacy system," he says. They have networks of branches; they're trying to sell customers stocks and certificates of deposit and car loans. "We can do this one thing better than anyone else." In fact, the service is so good that nearly one-fourth of the mortgages come from referrals from current customers, shareholders, and employees. One of the features: You can change the terms of your loan (say, from a mortgage that adjusts every month to one that locks in a higher rate for three years and adjusts annually thereafter) by paying a $1,000 fee.

Thornburg Mortgage builds its portfolio so that its borrowing matches its lending. In other words, when it sells an adjustable-rate mortgage that guarantees a rate for three years, it funds that mortgage by borrowing money at a fixed rate for three years.

The good news is that many investors don't seem to have a clue about Thornburg's mortgage business. As Robert Mitkowski Jr. of Value Line wrote recently, "Investors sold off the . . . shares this month when better-than-expected job market figures suggested the Federal Reserve might soon begin raising interest rates." In fact, higher short-term rates won't hurt the company at all, says Thornburg. "We're better off with interest rates higher rather than lower," he says, since his interest income will rise, too, increasing the firm's return on its fixed equity.

Over the past five years, since Thornburg began revising his REIT's business, the dividend has risen annually, from 91 cents a share to $2.49. An estimate of $2.60 appears about right for 2004, and the stock last week was trading at $25.30. That's more than 10 cents on the dollar — and, if history is a guide, the return will rise in the future.

There are drawbacks. Thornburg funds are sold through financial advisers and brokers, and the expenses can be relatively high. Also, the dividend from Thornburg Mortgage, as a REIT, is fully taxable at the ordinary income rate. It does not qualify for the current 15 percent rate cap of conventional corporate dividends. As a result, Thornburg Mortgage is best held in a tax-deferred account such as an IRA.

Also, 10 percent dividend yields don't come risk-free. If the economy heads south or if interest rates soar, borrowers could become strapped for cash, and loan losses could rise. Hedging interest-rate exposure — that is, balancing assets and liabilities — can be tricky. And Thornburg is expanding like crazy, which isn't easy for a REIT, since it has to pass at least 90 percent of its profits through to shareholders each year.

What the hell about delisting for Thorburg...huh, huh??

Under NYSE rules, at the end of the six month period following receipt of the original notification, the Company must have brought its ordinary shares price and average share price for a consecutive thirty trading-day period back above $1.00, or be subject to suspension and delisting procedures. In the interim, the NYSE will add the indicator ".BC" to the ticker symbol for the Company's ordinary and perpetual preferred shares to signify that the Company remains "below criteria" required by the NYSE for continued listings.

OTOH, maybe we can't afford to stop being ripped-off.

energycon:

• Goldman, Lehman Rating Outlook Cut to Negative by S&P
• U.S. Stocks Rally Most in 7 Weeks on Fed Cuts, Broker Earnings

This is why we need the stanch the flow of money now. The liquidity that should be used to manage the unwinding is, instead, only making it as far as the pockets of the culpable.

__

Allen C

• "Nobody ever got rich taking no credit risk."

OTOH, plenty o' people have gotten poor taking credit risk. It's called gambling. Restated: The Lotto: You gotta play to win!

rich

Your wasting your time with Seb, skip his post and move on that's what I do.

Yah yah, OT: At a purchase cost of $21,600 per bed, this property was purchased well below replacement cost and has significant operational upside. Pirate's Place was acquired at initial fully loaded economic cap rate of 5.25% and a nominal cap rate of 6.5%.

ariable rate debt represented approximately 12% of our total indebtedness at the end of the year. The company's outstanding debt is at weighted average interest rate of 6.37% and has an average remaining term to maturity of 4.5 years. As of the end of 2007, the company's debt-to-total market capitalization was 36.6%.

Our total interest expense for 2007, excluding the on-campus participating properties, was $21.6 million compared to $19.3 million in 2006, a relatively small increase despite our significant growth.

hristeen Kim - Deutsche Bank

In terms of the 2008 same-store guidance, could you break that out in terms of what you expect on the revenue and expense side?

Brian Nickel

We have only done it Christeen, it's a level of NOI at this point.

Christeen Kim - Deutsche Bank

Okay. So you are not going to do it then?

Bill Bayless

Just give us just a second.

Christeen Kim - Deutsche Bank

Okay.

Christeen Kim - Deutsche Bank

Great. And my last question is just on the sequential drop in the same-store owned occupancy. Was that kind of within your expectation range, you just seemed a little bit bigger than what we've seen historically?

Bill Bayless

Actually, Christeen, what we do, that is the physical occupancy as of December 31 and the students who are moving out, moved out the third week of December before Christmas and the one who are moving in, are moving in typically the first week of January. And so actually as of the January rent roll, we are only eight beds below where we were in Q3 and we're still at 98.3%. Unfortunately that offers (inaudible) at 12/31 is right in between those period and that’s why that's reflected.

Christeen Kim - Deutsche Bank

Okay. Got you.

Ok, I'm gonna walk the pooch, and get back on top of Thornburg.....k?

That Bill Gross article is from February.

What is the latest on ABK and MBIA? Will their insurance subs maintain their AAA rating? I guess the next step is watching Fitch on that one...

"the trust that the financial industry built over the last few decades will evaporate along with financial jobs as people no longer view these people as trustworthy stewards of their savings."

It's a real shame these people were never warned about bankers and brokers being crooks and untrustworthy.

Oh, wait, they WERE warned....about a million times over the last 2000 years.

F'ing morons!

Dog wanted this screen zipped in:

BSC: Basic Chart for ELEMENTS BG SM CP ET - Yahoo! Finance

OT:

FCSX: Basic Chart for FCStone Group, Inc. - Yahoo! Finance

Operating cash = 15.84 Millio

I seriously doubt they'll go all the way to zero asset balance because they need some cushion for a real externality (9/11 part II, major natural disaster etc).

all my serious doubts have been utterly destroyed by perverse action.

"More and more people are starting to realize these people are not professionals, they are scam artists."

They should have learned that in 2000 maybe this round they'll get it.

SV,

I am having a memory lapse and I'm searching around the news... but cannot place everything in the chronology. There was a time when everyone said the monolines have a few days left until ratings are affirmed, or they'll have to be split up into 2 entities.

a) What happened in the days after that?
b) I can't seem to place the buffett offer + rejection, was that before or after this threat?
c) then ABK said they will split within the next 5 years or something, when was that?
d) the ratings got affirmed, and ABK raised more capital. Which of these 2 occurred first?

Basically, I'm trying to remember what it was that stopped the need for them to split up, and what was it that stopped the whole crisis (minus the ARS market).

Sivaram,

You should see the consumerism in Hong Kong, Taiwan and S. Korea. They seem even more materialistic than US Consumers if that is possible. Now multiply their combined population by x10 and you have China.

We are not even talking about India, Russia and Eastern Europe which were not in the consumption race 10 years ago.

IMO the US will become more irrelavant as time passes. Just like the British in the 1900s. It might take some pain to get there but we will....

sk (tovarishch),

Re: Has someone told you you are nuts ? They MUST have but its in the nature of this type of nuttiness that you won't see it unless you take medication..

It's my F---king job to provide colourful comments as I blog, just as it's your job to hand out Rx advice.

Please relax and consume some " icon lamp oil" from Tanta and CR's flask and chill down!

OT,

Re My yield inversion interest: The 2 year Treasury yield Thursday is @ 1.58% while the 3 year is @ 1.46%

Shortly after Katrina, the yield of the 2-year U.S. Treasury note was briefly and temporarily higher than the yield of 3-year Treasury.

Just had this pointed out to me, i.e, the 3 year bill is dis-continued, but the following comments are interesting in terms of recent Fed liquidity concerns; the bills are still floating around, nonetheless.

In order to promote large, liquid sizes in its benchmark securities and in light of potential reduced borrowing needs in the near future, Director Ramanathan noted that one possible option would be to discontinue the 3-year note following the May 2007 auction. Director Ramanathan noted that current issuance sizes across bills and coupons may be approaching their lower limits. Discontinuing the 3-year note would promote liquidity in bills and other benchmark securities and eliminate the need for Treasury to resort to larger cuts across the curve which could impede market efficiency.

One member raised caveats including uncertainty about the Alternative Minimum Tax provisions, war expenditures, and cash outflows starting in 2008 and 2009. This member noted that if the fiscal situation becomes more pessimistic, the discontinuance of the 3-year note may put significant pressures on other instruments. This same member noted, however, that outlays remain below trend, and this might continue into the 2008 elections as Congress potentially remains in gridlock.

Re: May 2, 2007
HP-376

Minutes Of The Meeting Of The
Treasury Borrowing Advisory Committee
Of The Securities Industry and Financial Markets Association
May 1, 2007

Hey,
sorry,
But I'm once again amazed at the relationship between Treasury and SIFMA....amazing collusion and fits perfect with antitrust bailout for Bear!

Anon123 & Blackhat,

No doubt the Chinese government shares my views (as yours) and is working hard to expand the growth to the interior. But it all depends on a few things.

First of all, are we looking at this simply as an observer or as an investor? I'm approaching this primarily from an investment point of view. There is a big difference between the two. You can be right with your macro view and take massive losses on your investment or vice versa. A few good examples are...

• airlines: airlines were diastrous for investors and they barely made a profit in total over the last 80 years; yet it significantly improved society and anyone that said airlines were great was right

*certain hi-tech industries like semiconductors: tech, especially semiconductors and internet, has largely been a diaster for investors but it has taken over the world and changed it for the better. If you bet on Amazon, Ebay, or Intel, you would have done ok (depending on purchase price) but the same cannot be said of the countless others.

China may do well but you better be sure, as an investor, that you aren't buying something overvalued. Most investors are already pricing in huge positive growth in China. That's why EM stocks have outperformed, and their bonds are trading as if they won't default. That's also why commodities have run up so much in the last few years (partly it's also due to the US$ decline). So, even if the country does well, the assets may come crashing down.

Some people cite the fact that Chinese are savers or things like that, but that is a minor thing if things fall apart. I mean, the Japanese were the #1 savers on the planet (in terms of amount of money) yet it all meant nothing when their stock and real estate bubbles burst.

THe other thing is that, what has helped China in the last 10 years is also what will hurt it the most in the future. Namely, China has prospered because it is a totalitarian system. The "advantage" about such a system is that there is less paperwork, less delays, and you can force people to do stuff. You can build a road, put up a communications tower, or bulldoze through a forest far quicker than anywhere else. But, when things get dire, the citizens will revolt. What is happening in Tibet right now is a minor version of what can happen.

Right now, investors are NOT pricing in all the political and other miscellaneous risk into their emerging market investments. For instance, I recall reading an year ago that something like 30% of the profits of Chinese companies come from trading on the stock market. A similar chunk of the value of Japanese companies (in the 80's) was due to their commerical real estate on their balance sheet. Accounting systems in China, India, Brazil, etc, are totally questionable.

I actually think China is going to be the next big economic power. The stars are aligning in its favour. But it is going to take MUCH LONGER (75yrs to 100 years) and will go through growing pains. I'm not sold on the investment merit for it (but I admit I have a contrarian, value-oriented, bias so I always underestimate growth-oriented assets). I would have a hard time getting comfortable with China until they switch their political system, or at least offer more liberal/libertarian-type rights.

Remember, if I'm not mistaken, people thought China was going to be one of the big deveoping countries back in 1900. They were so wrong. I'm not saying the same thing will happen again but it is far riskier than most imagine...

(BTW, I'm not trying to pick on China. I have similar views of India and others. In fact, I think some place like Russia is even worse, although I think Russia has very good long-term potential).

RICH: "Sivaram, Thanks for the laughs. I can't tell you how many times I heard this argument during the dot.com blow-up. "Are you kidding me? Can't they see how much our company is worth? How dare they bid 20 cents a share!" "

Rich, the difference between many of the dot-coms and some of these financials is that the dot-com companies generally didn't have any tangible assets of any worth. These financials, mortgage companies, and even homebuilders, actually have some positive value on liquidation. In the case of Thornburg, their mortgage portfolio SEEMS to be of good quality and has low defaults (even if you increase the default rate, it still looks manageable).

However, the financials have a problem that the dot-coms never had: leverage. A lot of the financials, whether it is Thornburg or Bear Stearns or whoever else, are massively leveraged so if the lender asks for their money back, they are kind of screwed.

From an investment point of view, there should be a floor to most financials based on the value of their holdings. Some will go bankrupt but most seem ok. It's just that no one knows what the value of anything is...

re: Sivaram Velauthapillai's first comment.

I don't think either SV or Floyd Norris adequately explain Thornburg's share price.

SV conflates book value with company value. However, book value is an accounting value of company's assets, and is only loosely related to company value. A better measure of company value is the value of the total value of claims against the company. This is the total market value of debt, preferred shares and common equity.

Ordinarily this makes it very difficult to estimate the underlying value of a company because the market value of company bonds is difficult to obtain and aggregate. When a company is in distress, this becomes even more difficult, since simple rules of thumb and approximations to debt market value become useless when default risk is high.

Floyd Norris is off in his analysis because he does not value the option component of the equity. The shares are trading higher than his "50 cent" abacus valuation. That implies that equity holders think the share price is highly volatile. There is some probability of a huge gain and some probability of a huge loss (100% in this case). People do bet on roulette wheels.

SV

You would have a point if Thornburg's debt was trading at a value of near zero. But you are basing your argument on the market value of the equity. There is nothing non-sensical about Thornburg's equity trading at very low value.

PROBERT,

First of all, as a shareholder in a monoline, I have my views. Obviously they will differ from many others here (who are short the monolines). Anyway...

As far as I'm concerned, a lot of the circus around the monolines were exaggerated claims from those who never understood the industry. In many cases they had vested interest against the interests of the monoline insurers. It was convenient for some, like Jim Cramer, in addition to shorts like William Ackman, Whitney Tilson, et al, to perpetuate the view that the world would have ended if the monolines weren't "saved" (their idea of a save was to bankrupt the holding companies (Ackman) or for the government to nationalize the monolines and give free money to investment banks (Cramer)). Of course, none of that was true back then and it isn't true now. The ARS market is dead with or without the monolines; and the subprime ABS insurance market is dead too. Municipalities will also have to get used to paying more to the monolines if they want insurance. If they don't want to pay, that's not the problem of the monoines. Unfortunately for shareholders like me, we got beaten up badly from dilution.

However, the situation with the monolines is still unfolding. In the best case, we will know if these companies are bankrupt by the end of this year. In the worst case, we'll know in 30 years (the earliest principal payment on some CDOs is in 30 years; but they have to pay interest periodically). The outcome will depend on subprime mortgage default rates and loss recoveries. If the default rates don't stabilize within a few months, most of the monolines (except those that aren't exposed) will be toast.

As for the split, MBIA says it is going to pursue that over the next 5 years. Ambac hasn't said anything but it looks like it is not pursuing a split at this point in time.

The Ambac split idea was dumped after the rating agencies indicated that MORE capital is needed under a split than without one. Speaking as a shareholder, I don't like the split idea very much because structured products are the future.

The resignation of Eliot Spitzer probably cools things down as well. Although the press seems to think otherwise, I personally think it is a good thing for the monolines because Spitzer is a gunho sheriff who seemed to care more about avoiding to pay higher insurance premiums (impossible) than tyring to help the monolines. Eric Dinallo has been helpful in my eyes.

The current front page news in the monoline world is the legal battle between SCA and Merrill Lynch. SCA is attempting to void its insurance of some CDOs it wrote for Merrill Lynch, but Merrill Lynch says it can't do that. I personally think SCA is just trying to weasle its way out and probably won't succeed.

I think you will see the monolines make front page news in a few months. Monolines insure a lot of ABS of credit card loans, ABS of auto loans, and so forth. When default rates increase for these, you will see MBIA, Ambac, et al make front page news...

KICKER: "Smart money says that China will get old before it gets really rich. Doesn't mean that there won't be a lot of money to be made along the way."

Are you talking about their population demographics issue? If yes, don't you think that most of that was due to their 'one child policy'? Wouldn't they avoid the demo issues without that?

Tanta, no worries about "that negative carry trade thingy." They'll make it up on volume....

I now hate haloscan...

Anyway, the chopped-off part of my post was that there's no reason for us lazy Californians to wake up before the sun has had a chance to soften the spring corn snow.