muscleman

I am interested in this one: 413627BD1 It is a subsidiary of CZR. John Paulson made a bullish talk about CZR stock last year. How do I get started? I don't know if there are SEC filings or equivalent for US corporate bonds.

"That brings me to our newest position, which will no doubt make some question our credentials as value investors: Amazon. Consensus forward earnings for Amazon are a little over a dollar. At the median forward P/E multiple, Amazon would be priced in the low $20s. So, even though the stock fell $124 from its January high of $408 to a May low of $284, its P/E ratio remained in nosebleed territory. But we have never believed the P/E ratio was the be-all and end-all for valuation. Amazon is a retailer – a very efficient retailer. When we compare stocks in the same industry, we often compare their market caps to their sales rather than their earnings. Since 2001, Amazon has generally traded at a cap-to-sales ratio of two to four times that of the average bricks-and-mortar retailer. Having fallen to just under two recently, one might say that, as an advantaged retailer, Amazon looks somewhat attractive. But that metric misses an important change in Amazon’s business. Third-party sales (sales on amazon.com where the seller is not Amazon) have grown more rapidly than Amazon’s direct business. And on those transactions, accounting rules credit only Amazon's commission as revenue. So if you buy a $100 item on amazon.com from a third party, Amazon is only allowed to show about $13 of revenue, nearly all of which is gross profit. For third-party sales, Amazon is effectively functioning as the mall owner, collecting a percentage of sales as rent. Amazon earns less gross profit on that sale than an average retailer would, but it is also a much lower risk endeavor. For that reason, we think a dollar of third-party sales should be worth about the same as a dollar that Amazon sells directly. It gets interesting when we adjust our cap-to-sales ratio comparison to include estimated gross third-party sales. Instead of selling at twice the ratio to sales of the average bricks–and-mortar retailer, Amazon is selling at only 80%. So, relative to gross sales, Amazon's stock would have to increase 25% to be priced consistent with the very companies whose survival Amazon is threatening. On that metric, Amazon has never been cheaper. Should Amazon sell at a discount on sales? The answer largely rests on what Amazon could earn if it wasn’t investing so heavily for future growth. For most asset heavy businesses, growth investment is primarily on the balance sheet, and is slowly expensed on the income statement as depreciation throughout its useful life. In an asset–lite business like Amazon, however, most growth spending gets directly expensed to the income statement, creating a much larger immediate reduction in income. We believe that if Amazon sharply curtailed its growth spending so that it only grew at the rate other retailers grow, it could produce similar operating margins. But we don't want them to do that. We believe that management is maximizing value by investing heavily for super-normal organic growth. So, yes, Amazon is a rapidly growing business. But at this price, we believe it is also a value stock." This is what interests me, not the banking discussion. :D While I don't know if it is true, I am thinking to keep my AMZN stocks instead of selling them, when I receive them as an employee. :D

Thank you! This is even harder than the muni bonds to start analysis. ::) I think I will pass.

I did not know he looked at it. That being said, I mean, do you think Buffett was correct on passing on it? What is your thesis on AMZN? I looked at it but found it hard to understand.

Where did you get the quotes? I haven't looked into it further. It is not worth committing capital if it is trading at 87 right now.

Thank you. How do I do researches for corp bonds such as 413627BD1? David Tepper owns some, but I am not sure if he owns the CDS.

No one interested? Argentina has defaulted. I think those big boys who bought the CDs could try to push it as low as possible and will create a buying opportunity. I have never bought sovereign bonds before so I hope someone could share their experience, such as GReece restructure. I am on vacation right now so I cannot do much until I get back

Oh, got you! Yeah. That is the typical way Fidelity does business. What other brokers do this? I assume most brokers restrict clients when the price drops? :)

Has anyone looked into Argentina debts and could share some thoughts on how to play it and if it is profitable to play this? Both Dan leob and Kyle Bass bought some Argentina debt. However, from the following wiki, I suspect that they also bought a larger amount of CDS. Elliot Management is demanding par on the defaulted bonds, and I guess they may also have a large CDS position. I have a feeling that this will default first before it recovers. Thoughts? :) http://en.wikipedia.org/wiki/Argentine_debt_restructuring "Vulture funds, moreover, own a large quantity of credit default swaps (CDS) against Argentine bonds, creating a further incentive to not only trigger a default against Argentina" "Meeting vulture funds' full face-value demands is problematic for Argentina, because although bonds held by vulture funds are a small share of the total (1.6%), such a settlement would lead to lawsuits from other bondholders demanding to be paid on similar terms and thereby create a liability of USD15 to USD20 billion"

I looked through at it and am afraid I don't have much to add. I probably won't buy it for 2 reasons. 1) I don't have the ability to understand US/Puerto Rico politics. It's just too far out of my circle of competence. 2) As a Canadian I don't benefit from the tax free nature of municipal bonds, which puts me at a cost of capital disadvantage to everyone else in that market. It does seem like the type of thing that is very likely to be inefficient, so I'm sure there are opportunities. I don't trust the legal system in the US for things that are political and unknown, which seems like the biggest risk factor here to me. If they can take away the petroleum tax what else can they take out of the asset coverage? With most of my distressed investments, I felt like the law was pretty clear and what should happen. Thank you for the insights. Please share with us your distressed debt ideas if you come across one. :)

I am a bit confused about this part. Why would stop letting customers buy help the situation? Are you saying this would help the brokers buy at 70 so they can later sell to customers at 85? Recently I made a call to Fidelity bond desk and they said they did not allow customers to buy the PRHTA bonds "because they are too speculative". I suspect if this is what aligns with your story here. ;D

wow! How did you make a market yourself without using a broker? :o

I think you made a typo here. The senior bond is 38 and subordinated is 44, so if you could somehow buy senior at 38 and short subordinated at 44, you will lock in a profit even if both go to zero. But with the low liquidity, I am not sure if you can do this arbitrage.

Good question about pricing. Probably my favorite part of municipal bond investing with distressed issuers. It goes something like this: Customer: Hey can you sell my bond? I read bad things in Barrons. Broker 1: Sure, we got a bid back at 70. This thing can go to 10 bucks so you should take it. Customer: Okay Meanwhile across another muni trading desk.... Trader: Holy crap these bonds just traded at 70 after being sold at 85 yesterday. If anyone is offering thse bonds, pull down your bids to the low 70's. We're also going to stop letting customer buy the bonds now that they're trading at 70 so that should help the situation (sarcasm). The next day the index drops 5%, customers who havn't sold see the drop in the index and start panic selling. This is where you get good pricing. You follow bonds you know are being sold in a poor fashion and try to take advantage of it. Unfortunately you can't do this through IB or Schwab. You need accounts at firms where these bonds are being sold or you need a trader to contact these firms for purchase. To get good pricing on the sale is a different story. I've purchased bad bids at 82, waited 15 minutes and sold it to another desk at 93. You have to be careful when selling any muni bond if you have never done it before. Which broker do you use? I use IB and all I can do is to just put in a limit order and wait. IB will manually execute the trade for me.

Nice trade!

You will have to put in a bid and be patient. Bond trades are still manual in the 21st century. :) I asked the same question in this thread. http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/does-anyone-buy-muni-bonds-the-liquidity-is-so-low

Wow. What was your entry price for these insured bonds? I thought these insured bonds always trade around 100 cents on the dollar.

By the way, you may know this, but BHAC != Berkshire. BHAC could go under (I'm not saying it will or is even remotely likely, and I have bought BHAC issues before)... Berkshire won't. Good point, sorry if I made it sound equivalent. Here are the CUSIP's on different BHAC PR issues. Only a few trade such as the zero coupon COFINA and the 2024 PREPA I mentioned. 74529JEZ PR 07/31/2007 08/01/2041 PR S/TAX-CABS-A-BHAC 74529JFA PR 07/31/2007 08/01/2047 PR S/TAX-CABS-A-BHAC 74529JFB PR 07/31/2007 08/01/2054 PR S/TAX-CABS-BHAC-CR 745220LH PR 5.500 06/16/2005 07/01/2020 PR INFRA-A-BHAC-CR 745220LD PR 5.500 06/16/2005 07/01/2019 PR INFRA-REF-C-BHAC 745220LE PR 5.500 06/16/2005 07/01/2020 PR INFRA-REF-C-BHAC 745220LJ PR 5.500 06/16/2005 07/01/2022 PR INFRA-A-BHAC-CR 745220LF PR 5.500 06/16/2005 07/01/2021 PR INFRA-REF-C-BHAC 745220LG PR 5.500 06/16/2005 07/01/2022 PR INFRA-RF-C-BHAC-CR 745190W6 PR 5.250 10/04/2005 07/01/2021 PR HWY REF-SER L-BHAC 74526QVT PR 5.000 05/03/2007 07/01/2023 PR ELEC-SER UU-BHAC 74526QVU PR 5.000 05/03/2007 07/01/2024 PR ELEC-SER UU BHAC 74526QVV PR 5.250 05/30/2007 07/01/2024 REF-SER V V-BHAC-CR 74529JGA PR 07/31/2007 08/01/2054 PR S/TAX CAB-A-BHAC 74526QVW PR 5.250 05/30/2007 07/01/2025 PR ELEC-REF-SER-BHAC One side note: Please verify that it is indeed insured by BHAC from http://emma.msrb.org/ In IB, some data is wrong. One PRHTA bond that I bought has a PR INFRA-RF-C-MBIA title, but in http://emma.msrb.org/ it says it is uninsured. Otherwise if it is insured by MBIA and trades at 36, I would put 50% of my portfolio in. :D

4.25% yield would not be interesting to me. Pabrai is my role model and I have a 26% return goal like he does. I would not invest in securites that I believe has a lower return than that. :) If you talk about arbitrage, there are abundant oppurtunities around the PR bonds. For example, the PRHTA 2018 senior bond traded at a lower price than the subordinated bond, the last time I checked. This is a sign that the market is quite irrational about these bonds right now.

Thank you. I am aware but forgot to point out that according to PR constitution, the revenue secured bonds rank below GO bonds, so if GO bonds could not pay, they can divert the revenue to pay GO bonds first, except the toll revenue, which is about 27% of PRHTA revenue. So it is possible that eventually if PR economy goes like Greece, and GO bonds could not pay, then my PRHTA position will be undermined. What do you think about the 2014 budget? I am impressed with the amount of work that the current governor has done. I think an 380 mn annual deficit is sustainable. PR's situation is not as bad as Greece, if you look at it from angle of unemployment rate and debt/GDP ratio.

Which broker are you using? I use IB and 5k is the par value as the minimum lot size. Since it was trading at 36 cents on the dollar last week, 5k bond would only cost you $1900. Anyway, I believe PR related securities like this one and BPOP will be my primary focus this year.

Thank you for the comment and the news about the new 2.2 bn loan. My understanding is that PRHTA currently have 4 bn bonds plus 2 bn GDB loan. To ensure repayment of these loans, in 2013, they moved more revenues including petroleum tax increase to PRHTA so GDB loans could be repaid. Now that they want to take away the increase in petroleum tax increase and use it to back the issuance of 2.2bn bond by PRIFA, it isn't actually as bad as I initially understood. The reason is that now PRHTA only has the 4 bn bonds in debt, not the 2 bn GDB loan anymore. So even though the petroeum tax increase revenue is taken away, there is also less debt to service. So instead of 250 mn revenue increase, it will only be 90 mn. Last year, PRHTA pays 400mn interest expense. Now with this new proposal, it will only pay about 280 mn interest expense. Therefore it is still sustainable. My thesis lies in two parts. First is the GDB part, which has been weakened. The second part is that PRHTA itself is sustainable and the willingness to pay remains strong, which has not be undermined. During last week's PR conference call, It was disclosed that Governor Garcia Padilla had asked the PRHTA for a plan for reforming its operations “without using the Recovery Act,” Read more: http://www.btigresearch.com/2014/07/18/assured-guaranty-ago-mbia-mbi-ambac-financial-group-ambc-takeaways-from-puerto-ricos-fiscal-and-economic-update-webcast/#ixzz38R3oV5PP Essentially, I believe the second part of my thesis is more important than the first part. It is the financial situation of itself that decides whether it could be saved or not. Look at Greece bonds for example, they only haircut the private sector and protected ECB from getting any cut. I have already considered a similar situation here. BTW, this thesis got rejected as the application to VIC. :(

Sounds like they have chosen an automated dividend processing method that is much cheaper (but which makes some errors with foreign withholding tax). This would greatly lowers their processing costs and allows them to provide cheaper service than other brokers. As you yourself said, the best solution may be to hold those shares at another broker. I asked them the same question and pointed them to this thread. Here is their reply. It is a little different from yours. IB basically says that if the withholding occurred at the depository source, then they do not do anything to get it for you, but they don't withhold any dividend tax. But from your replies, it sounds like Fidelity would go to ask the depository source not to withhold tax, right? Dear Zehua, Thank you for your patience during the review of your issue and claim. While the inquiry should have been acknowledged, the issue was being addressed. The current tax treaty between the US and Canada does afford a great benefit to IRA holders. This means that the non-resident tax withholding is exempt. Since IB implemented the change, we do not directly withhold the tax from IRAs. For this reason, a claim of withholding warrants a review. It turns out that in some instances CAD taxes can be withheld by the depository prior to remittance of the distribution to IB and the subsequent credit of the net distribution to the accounts of any U.S. persons. Accordingly, IB has no ability to reverse or reclaim the withholding on behalf of its clients. In addition, as IB did not remit the withholdings to the tax authority, we do not report such withholdings to either the tax authority or clients on their year-end tax forms. Any CAD taxes withheld in your IRA would have been withheld at the source on each payment. This was not applied by IB nor remitted by IB to the Canadian Revenue Agency. I would be happy, however, to review any specific transactions. Non- US tax withholding is applied in two situations. Either IB will withhold taxes or the depository, paying agent. If IB withholds the taxes, then IB can reverse the taxes and/or issue tax reports for non-IRA accounts. If the depository withholds the taxes, then IB cannot reclaim exempt taxes nor issue tax forms on the withholding. This applies to IRA accounts and non-IRA accounts. Why would this type of withholding at the source take place? Many countries may impose a withholding tax on income (dividends) paid to entities domiciled outside of the country. IB is domiciled in the United States. The tax withheld is usually "withheld at the source" when the non-resident entity receives payment. What are your options? You may wish to contact a qualified tax advisor about this situation. Or, refer to the IRS Publication 514, Foreign Tax Credit for Individuals, and the IRS instructions Form 116, Foreign Tax Credit for guidance applicable to your personal situation. How can this be avoided in the future? Positions in such dividend paying stocks should be closed prior to the ex-dividend date or not held in the account. Although no situations have occurred since IB implemented the current treaty exemption, I would prefer to review any specific transaction in your account. If you have any particular payments, please let me know. Regards, Kawone H Retirement Accounts and Tax Reporting

Puerto Rico related securities. (Bpop and some muni bonds) :)

Do you think MBI has completed a A-B-C pattern starting from May 10th 2013?