Anatomy of a Deal

December 29, 2010

Yet another chapter, which pretty much gives an example of using the operators described in Chapter 12 – Three Tools.

The actual path to a finished structure has an extra fifty or more iterations as each potential major bond buyer asks for “tweaking” and we adjust face amounts, schedules, etc.  Also, when a deal is in the final stages of structuring, it can change because every twist and turn of the yield curve changes the economics.

Remember, we did these deals for a total profit equivalent to only two or three basis points of yield.  When markets sometimes move twice that much in a day, the fine-tuning can be quite maddening.

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As Promised

December 29, 2010

I still have some irons in the fire for the New Year that may cut down or cut off my blog posting, but I did promise to share a favorite chapter from my Mortgage Market Mayhem manuscript.

I will actually share two of them, once I figure out how to import hand-drawn diagrams into this blog editor.  Both chapters deal with the process of structuring deals, one of the most reviled, and least understood, activities in modern finance.

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Chimera Caution

December 16, 2010

This may become a false alarm if S&P reviews their re-REMIC collateral monitoring methodology and finds out the mortgages are just fine.  If they don’t, and there are widespread downgrades because of potential cash shortfalls, it will be especially bad for investors who hold the high-risk unrated or lower rated bonds.  That would be Chimera.

As most of you know, Chimera was the leader in issuing reREMIC deals last year. They (or their Wall Street dealers) sell off the front end cash flows as highly rated bonds, and keep the lower-rated and unrated back end cash flows.

S&P announced yesterday that they may have goofed on their ratings for as many as 1,196 of the rated bonds from 129 residential mortgage deals.

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“Santa” Season is Back

December 15, 2010

After a year of essentially doing nothing, developmental pharma company Synta Pharmaceuticals suddenly took off over the past week.  I mentioned it a year ago when it did the same, as if the symbol SNTA was somehow getting a holiday season boost.

Naturally enough, I took profits too soon, leaving nearly a thousand bucks on the table.  At least I didn’t chase the calls up trying to cover.  I’ll wait for them to trade near their inherent value, since they don’t expire until early next year.

Still, I can’t see why this stock does nothing all year, only to come alive around Christmas time.

 


Back in mREIT Land

December 13, 2010

We’re fully into another round of secondary offerings while we await the bad news of loss of book value this quarter.  I wouldn’t be surprised to see secondaries even at levels approaching or below last quarter’s book values.

That obviously doesn’t apply to AGNC as they continue to sport the highest premium to book and highest dividend yield among the major players in the group.  With the next issue, they’ll be pushing $2 billion in market cap.

This is an interesting time for mREITs.  The back-up in intermediate and long rates has definitely hit the prices of fixed rate MBS pretty hard, and even hybrid ARMs have given up some of their premium.  But repo (financing) rates continue very low, and the universe of paper that gets financing continues to grow.

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Economy Getting Ready To Roll

December 12, 2010

There’s more than one way to skin a cat and there’s more than one way to look at the economy. Some ways are more useful than others. About a week ago I started looking at Final Sales Real GDP per capita. That’s a mouthful. …

So why use this concept rather than more traditional tools?

Final Sales represents a number driven by demand by consumers. It is not affected by inventory build up or pay down. It’s a better estimate of what you can expect in the future.

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Sense and Nonsense

December 8, 2010

I caught the entire “Squawkbox” broadcast last Friday morning in the lead-up to release and immediate reaction to the monthly employment numbers.

For a couple of hours Alan Greenspan was the guest in the studio, and then they had their mosaic collection of professional economist talkers doing their Greek chorus thing as well.

Strangely enough (or maybe not), Alan and the rest of the economists were all talking nonsense and another guest who isn’t a business leader, isn’t a politician and isn’t an economist was the only one making any sense.

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