Merrill Hits the Nail on the Head

February 17, 2012

I’ve made no secret of my admiration for Merrill Ross’ coverage of the mREIT sector.  Today, she sent around a note to investors that could have been one of mine.  I say this because she points out the nature of portfolio managers’ choices in a way that doesn’t simply measure price/book, leverage, or spread to see relative value.  Far too much of the analysis Wall Street provides is mechanical that way (not that there’s anything wrong with analyzing the numbers — I did choose math as my major in college).  But after you’ve looked at the numbers, a very important part of managing investments in the mREITs is understanding how the companies are making their decisions over time, and how they choose which risks to take and which to eschew.

For disclosure purposes, you can read the full legal text at the Wunderlich Securities web site, but what matters is that Merrill currently owns no MFA stock personally, and her firm does not have a current investment banking (capital raising) relationship. Read the rest of this entry »

“Plain Vanilla” Trouble

February 16, 2012

I’ve been going on for years about the Credit Default Swap (CDS) business, and the way it can and does push the real economy and markets around.

Today, though, a secondary effect of that market’s lack of transparency may be a real problem for all the major players in the world financial system.

“But, but, but” you say.  The financials are up in the stock market today.  The Dow Jones is roaring.  New claims for unemployment are lower than they’ve been since 2008.  The S&P is higher than it’s been in over three years.  Multi-family housing and the Philly Fed survey both surprised to the upside.  Even the Greek mess looks like it might be pushed past the looming March 20 due date.

So why am I writing about trouble, and why do I call it “plain vanilla?” Read the rest of this entry »

Brilliant Comment

February 13, 2012

I felt I had to draw attention to the comment by “Conscience of a Conservative.”

He’s a long-time participant in the market who has one of the remaining jobs, in spite of being there when we were creating CMO structures for half million dollar profits while risking hundreds of millions in capital.

That contrasts sharply with the five and ten million dollar fees Wall Street ginned up in its CDO business in the new millenium, all while pushing 100% of the risk onto investors and borrowers (and eventually, taxpayers).

The reason I liked his comment was that it had a realist’s view of the compromised principles of both the “left” and the “right,” since neither group is doing much at all to advance their claimed goals, and both are proving themselves to be lackeys of the corporate overlords.

After the break, I’ll repeat his cogent comment, and make a few of my own…. Read the rest of this entry »

Fed Sells Subprime MBS

February 10, 2012

With a shout-out to Jill, and a big “thank you” to Zach and Jody, I’ve been asked to opine on the latest round of Fed liquidation of Maiden Lane II.  For those who wonder what the innocent-sounding Maiden Lane series might be, those are the taxpayer funded “financings” of the AIG mess and the Bear Stearns subsidized takeover.

I’ve been wondering, along with the rest of the market, what Goldman paid for the bonds.  Jody Shenn at Bloomberg is on the case, and so far he’s only been able to determine that most of the bonds are still at Goldman.  A day later, I’m happy to report that Jody is now up on Bloomberg with his article about it.  Sometimes letting a blog post “age” overnight before publishing has its benefits.

The good news, if you want to call it that, is that the Fed figures this sale will complete paying off Maiden Lane II.

There is that open question:  At what price? Read the rest of this entry »