Tuesday, November 27, 2007

Gold Mist

The new Cadillac is really a fine car: roomy, powerful and very tasteful. So far I'm very pleased. Cadillac seems to be in the groove again. And the quality surveys show they are very strong.

Abu Dhabi to invest $7.5 billion in C - the security is like the old "equity notes" of the early 1980s. Technically it's a mandatory convertible note. The coupon is high - 11% - but the mandatory conversion price being over yesterday's close negated most of that premium in the "all-in" pricing. This is very reminiscent of that Saudi sheik's investment in C at the bottom long ago.

At some point Ms. Market should tire of the bears having their way with her, get off her back and climb onto a vigorous bull ;-))

I also wonder if some powerful groups really want to create a crash. That story in the WSJ yesterday was really odd. The purpose of the Federal Home Loan Bank board is to provide liquidity to saving banks for mortgages. That system was created in the depression around 1932 to do just that. So why is a story put out to complain about it and why does a NY politician complain when a governmental institution performs according to its purpose is ?

A market seer and others on Babblevision say that the Fed is pumping money out like a madman. Here's a fact: the year over year growth in the monetary base is ... 2.15% [source: data in Barron's Online]. That's not excessive growth - it's tight money since year over year GDP growth is more than that !!!

Are they fools or knaves ? I'm leaning to the appellation of "knave" to these bomb throwers. When a simple check of facts contradicts a charge, the knave appellation fits better.

I'm doing nothing. I might re-buy EDU soon, and add to YRCW and CSCO. If they knock the big fins down more into the end of December, I will buy a boatload of call options on them - probably one or two strikes in the money around six months out.

PS: I'm getting really tired of the stupidity of Babblevision commentators. Idiots ! They have no idea what they are talking about. The BAC investment in CFC was a convertible preferred stock with a dividend of 7.5% - that dividend has a low tax rate and optional conversion. The Abu Dhabi investment in C is a mandatory conversion in a few years at a substantial premium. And C has a big dividend [7% as of yesterday] that Abu Dhabi foregoes until conversion. So the 11% is fair, being a net of 4% over the common to compensate for the higher mandatory conversion price. I just wrote CNBC that I knew more than their commentators 25 years ago as a rookie investment banking associate. I would have gotten fired for saying the crap their commentators say in front of a client.

PPS: Here is a fair analysis of the Abu Dhabi investment in C. From the WSJ article, the average conversion price is about 34.53 and the yield is 11%. The average mandatory conversion date is about three years [between 3/2010 and 9/2011 being a mean of about 12/2010]. Taking a stock price of 30, the conversion premium is about 15%. First subtract the dividend from the coupon: 11% - 7% = 4%. So Abu Dhabi gets 4% per year for three years to pay 15% over today's price for the stock. That's a 3.75 year payback. And that's fair. Another way to look at it is to multiply the three years that Abu Dhabi gets 4% more than the dividend they get if they bought the stock today: 4% x 3 = 12%, which is 3% less than they must pay in three years. Why is this bad ? To me, it seems like C is getting that 3% extra premium vs. selling common today. That is a good deal. I suspect there are tax benefits, too.

P^3S: Here is the comment I just sent to the FOMC Board members: "I see the overnight rate for Fed funds is 4.5% while core year over year PCE inflation is 1.8%. So that spread is 2.7%. And I see the year over year growth in the Monetary Base is 2.1% vs. GDP in current dollars grew at 4.9%. And I note that consumer confidence is dropping fast. So why can you not see you have an excessively tight money policy in a weakening economy ? Even if the prospects for the economy was moderate growth in 2008, your policy is still very tight. I don't understand why obvious facts are so cavalierly denied in public statements by Board members?"

20 comments:

Frosty said...

Bunkerman...the mid east steps in where the fed has failed...oh my, ben must be a proud man...sad day to be an american, thanks ben for selling us down the river...Bunkerman my blood boils this morning, while planning my move to canada.

Bunkerman said...

I am quite disappointed in Ben, too.

Forget Canada, frosty. A bunker in the wilderness in the US much better. Canada firearms laws are very oppressive.

Bunkerman said...

At least guys like the Atlanta FHLBB are doing their job.

Frosty said...

Bunkerman...I have been dug in for years, having bunkered up long ago...the issue is one of pride and faith...ben brings great shame upon all americans...today is a sad day indeed...america for sale via the blue light special, attention kmart shoppers.

Bunkerman said...

I just sent the Fed a comment/questions for the FOMC board members. I posted it as "P^3S" aka PPPS.

Bunkerman said...

Fed is giving up leadership to Abu Dhabi, ECB. Very limp. Non-leadership.

Frosty said...

atta boy bunky...the common man is on the brink...you are spot on, those jokers are dead wrong...fire them up like a hard target at the range, another belt and fire for effect.

Bunkerman said...

I can't take Babblevision anymore. These "experts" they bring on are just idiots.

Frosty said...

GOLD MIST RALLY...let's see if mist can close...strong off the line but can she keep the pace at the finish line...as a ford man I will need some proof, say $ndx close over 2035 would get my attention.

Bunkerman said...

ford makes the best pickup trucks. Those old town cars were fine, too.

Frosty said...

Bunkerman...fading the tape while enjoying a cup of soup has been the easy trade...every trader is clicking buy QID TWM or buying puts for the dive into the bell...this is a important close for the bulls, or least from my perspective.

Bunkerman said...

At some time in the future, the faders will get hit with a run of the shooter making his points over & over :-)))

Bunkerman said...

hehe ... unlike craps in private games, in stocks wrong bettors die broke :-)

Frosty said...

Bunkerman, as you well know, I still await my dow 13k helmet...I realize gold mist is in play, but you may want to take out some insurance...this could be your last chance to make peace with the trading gods :)

Frosty said...

taking C at 30.15 to go with the devil known as GS...it is you and I against the world now Bunkerman, the last bull standing indeed.

Bunkerman said...

yes, isn't it remarkable that the Fed is so bullish ? Wierd.

Frosty said...

weird...perhaps not...a bear sucker punch requires them to catch the bear dreaming of huge future darkside profits before sending them realing from a monster upper cut to the chin.

Frosty said...

Bunkerman...the more I think about C's ability to add tier one capital the more impressed I become with the strategy...the regulators have no case to move all that crap back on the balance sheet...none.

Bunkerman said...

agree frosty. They'll just let the assets in the SIVs bleed off and slowly amortize away.

This is stil a "Rich Man's Panic".

Frosty said...

gold mist hhhmmmm...$NDX 2033.85, strong close just short of 2035...you just need to put some miles on it and get the break in period out of the way...she's running well, no complaints.