Kraven
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Posts posted by Kraven
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from the article:
A further complication is that much of Sino-Forest’s cash, and most of its assets, are located on the Chinese mainland. Foreign bondholders do not have direct security over the onshore assets, and may therefore have difficulty in recovering much money if the company defaults.This is not like buying bonds in a US based company. Good luck! LOL
Agreed. In addition, the amusing part is not only is there an issue with the ability to realize on any kind of security interest, it is unclear in fact what the "onshore assets" even are. So someone investing in these bonds has an uncertain security interest (or lack thereof) over uncertain assets. Sounds like a fantastic deal. I can see why people might be interested.
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This all makes me chuckle. For some reason the line that keeps popping in my head after reading this is Richard Vernon, the assistant principal in the Breakfast Club: "Don't mess with the bull, young man. You'll get the horns."
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But you are buying hamburgers today and you will buy hamburgers next year, and the year after, etc. Cheers!
This is good advice that people should follow. During volatile times one thing I like to do is take a look around when I am out and about. People are still going out to eat. There are lines at Starbucks. The mall is packed by us and all the restaurants full on the weekend. The roads are jammed during rush hour. Life goes on and isn't dependent on the vicissitudes of the market. As Sanjeev says, this is the prelude to whatever comes next. At the end of the day, if this is the end of the world, or the banking/financial industry is going to tank or what have you, it really doesn't matter what stocks do. We will all be hoarding guns, ammo and canned goods anyway. At various times in his life Ben Graham spoke to the "what next?" issue in the context of volatile times. He often spoke and wrote about it during the cold war and the fear of nuclear attack. I'm paraphrasing, but he essentially said that it is impossible to plan for something like a nuclear attack and the stock market will be the least of our worries, so we might as well assume it won't happen and hope for the best. So you buy cheap and hope Mr. Market takes care of you like he has in the past. That's all you can really do.
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I still get all of their catalogues every year, but I know of hardly anyone else who still does. Either they revamp the model completely...which hasn't worked in several attempts...or they dis-assemble the pieces, reinvest the cash, and keep the core business in a scaled down model. They have to do something, because nothing else is remotely working! Cheers!
Sears still publishes a physical paper catalog? Seriously, I had no idea. I haven't seen one of those since I was a kid in the early to mid 80's probably. I was born in 1972 and wouldn't think to shop at Sears either online or off for anything. One exception is that my wife will go there to look at the Land's End clothes sometimes, but that is about it. I agree that it is a dying brand. To me Kenmore just means some other company's appliances re-badged to say Kenmore. Why not just buy the Whirlpool or whoever really makes it?
--Eric
Yup! I've been getting the old Sears Christmas Catalog every year for the last 20 years! And before that my parents used to get it. I only occasionally order anything from the catalogs, but they probably cost a pretty penny to publish, as they are pretty thick. They also send out smaller 50-60 page seasonal catalogs.
This should really all be eliminated now and moved online. They should just send out a reminder with the weekly flyers that the new catalog is online or something. Stuff like this should have been done a long time ago. I'm sure there are tens of millions in other annual costs savings they could easily find. Cheers!
I can't believe the catalog still comes out either. I remember anxiously awaiting it to see what we kids could ask for at the holidays. They used to have every toy made and all the cool things. It was better than going to Toys R Us in terms of browsing. Now the only time we go to Sears is to look at an appliance or if my wife needs to return something to Lands End.
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I thought Moynihan and crew did a very good job on the call with Berkowitz yesterday. He hit pretty much all the major points and didn't seem to be dodging anything. I think they did themselves a favor by having the call. Even though there was no immediate impact (stock moved up during the call, fell back after), I think that in general it was good for them to get the message out there. My only complaint was that Moynihan was speaking too fast and over the internet connection sometimes some of words were blurred together. Someone in marketing, etc. who no doubt was sitting there in the conference room with him should have slowed him down a little. But all in all, very nice. He's a good man and the right person for the job.
p.s. Good to "see" everyone again. Glad the site is back up. Thanks Sanjeev for working on it.
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I think somebody wrote a song that goes like this (he was complaining about pop songs at the time, but you could just as well apply it to the folks like Bove and MSNBC):
Burn down the disco
Hang the blessed DJ
Because the music that they constantly play
IT SAYS NOTHING TO ME ABOUT MY LIFE
Nice. I loved the Smiths back in the day.
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Did any one see that 400 point swung in the DOW a few minutes ago why do I feel that someone just stole a whole bunch of dough and why do we put up with it.
I always picture Mr. Market as Graham describes him as a scholarly fellow who is a nervous kind of guy. Perhaps small, with glasses, you can picture him in the library reading up on some topic and shushing people. Today's Mr. Market has been transformed like pre-1998 Barry Bonds and post-1998 Barry Bonds into some raging maniac fueled by steroids. But he still likes to read on occasion when he's in his down cycle and not so manic.
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"I suppose contractual rights are worth nothing." -- here is the point, those contractual rights get you NOTHING if the borrower can't pay the bill, which guess what happens A LOT during periods of stress...there is no recourse and consequently, the capital is complete air.
Of course there is recourse via a lawsuit. If you're saying that when they can't pay the bill they have nothing, then I guess yeah, a lawsuit is going to be worthless. But assuming that not every unsecured borrower will both default and have nothing to their names, then there is recourse. As Cwericb I think it was mentioned, presumably this was priced into the loan. So if you are modelling the draconian and unrealistic situation where all unsecured loans both default and have a zero percent recovery rate, then I guess I agree with you. But in that situation I suppose we are all gathering up our guns, ammo and canned goods anyway. Do you really think that the banks are going to be in this situation both all other companies are twirling around singing Walking on Sunshine?
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Sorry Munger, it seems that you probably have no experience with unsecured lending and have difficulty in grasping the concept.
While no one said it should be valued at the same rate as secured credit, I can assure you that it is a long way from "complete air". If you actually feel that unsecured credit is essentially unrecoverable I would strongly advise you to keep that opinion to yourself the next time you speak to your banker about a line of credit.
This is absolutely correct. I suppose contractual rights are worth nothing. I guess there isn't any point in documenting anything and those long contracts can just be tossed in the trash! It's all "air" anyway. We can go back to the days where a loan was secured by some pigs or cattle that were brought from the borrower to a pen held by the lender, or just a hand shake even since a man's word is his bond.
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This conversation is going nowhere. Shareholders equity may be in some respects an accounting plug, and it certainly doesn't mean that there is that amount of money sitting in a bank account; however, it does represent the amount that is available once liabilities are paid in full. And that is the amount that would be available to pay creditors, etc. Tier 1 simply means it's capital that can't be taken away if you will - it doesn't need to be paid back. That's why certain amounts of say trust preferred securities can be counted as Tier 1. Because it needs to be paid back in 30 years, but regulators assume that 30 years essentially is such a long time it's "permanent". I am not sure why these concepts are appearing so foreign. How is it any different than looking at an industrial and saying they are selling below book? Or people saying FFH or BRK are right around book at any time? Do any of these companies have a bank account with that amount of money sitting in it? Of course not. If you don't trust the bank's assets, that's fine, don't invest, but shareholders equity is shareholders equity. Munger, if this doesn't answer your question, you are probably too much a genius for me and I will never get it.
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"If BAC issued and sold 100 shares of stock to someone for $6, they would have $600 in capital added to their ratios. It doesn't matter if tomorrow the stock is $5 or $50."
Sure it does -- if their is a claim on that capital, there is NO CASH available related to this "accounting capital" to pay the claim. The only way to access cash related to this capital is to sell stock.
In my example, they did sell the stock. Read it again.
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Political operative???
Are people saying that even if a bank's common went to $0 that it would have no effect on their regulatory capital ratios?
That would presumably mean they were bankrupt, no? You are saying the common has no value at all? Either way, all else being equal the price of the common has no bearing on their capital ratios. If BAC issued and sold 100 shares of stock to someone for $6, they would have $600 in capital added to their ratios. It doesn't matter if tomorrow the stock is $5 or $50.
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In the spirit of continuing the information flow -- Denninger got questioned on his blog in the same manner that some have here...his response is in quotes.
"Rick: The problem is not the equity value "per-se", its the implication that you can raise more capital, and whether the so-called "capital" you have actually exists or has it dissipated?"
"The problem with the paid-in capital is that there's an implicit assumption (since you use this as part of the capital base) that you can go get more if you need to.
Well, you can't in a situation like this, because the price is collapsing. So now what? You get hit for the entire amount of the judgment demanded in the equity valuation when the suit is filed and now if you lose you're utterly ****ed as you can't issue into a market that values your stock in the toilet.
Preventing "recycling" of reserves stops this ****. If you have a "one dollar of capital" requirement then this can't happen, since every dollar of unsecured lending has to be secured with a dollar of capital from either paid-in capital (sale of capital stock), retained earnings or sale of bonds. Since there's no "recycling" of unsecured lending you cannot get into a cascade failure scenario where the depositors lose their funds - worst case is that the investors lose their money (including the bond buyers.)"
If it's possible at all, his response is worse than his original assertion. I won't respond to his points one by one since that would be a waste of time. As Cayale said, he is clearly no authority on banks. This is a "feelings" or emotional argument. Stock markets go down, people are mad at banks, thus banks are bad.
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Let me clarify:
Kraven, I agree with you. I was remarking on the original poster's post. If you look at a Karl Denninger bio, you will see what I mean. It was supporting your argument, not opposing it.
Munger, it is not personal. Karl Denninger is no authority on banks. He appears to be a political operative. I have no quibble with your sentiment toward banks. They make me nervous, too, but not for the reason you stated as your premise to not own banks. Blind faith is often misplaced.
I own a couple of mutual thrift conversions and some USB; small part of the portfolio. Though I know these big banks are scrubbed clean (relatively clean, anyway), I struggle with purchasing them because of the inherent leverage, the loss of earning power given escalating capital requirements and the sense that even if they are asset sensitive, I cannot help but feel rising rates would damage their business (specifically their loan books). WFC is the one of most interest to me.
Sorry. Thought you were talking to me.
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The more I think about the fact that Denninger, whoever he is, posted this (the original argument, not the post I am quoting which I agree with), the angrier it makes me. Isn't this what this board is always getting pissed at the shorts for? That is, bad info put out there to cause a drop in a stock's price? Well, let's see the same outrage here. This is not only bad info, it's stupid info. It couldn't be more wrong and the fact that people are acting on it is worse. Then to say that even if true it doesn't make any difference? Nice way of thinking.
Well, looks like my last personal bastion of Fox News-free zones (this board) has been breached. Weeeee.
Huh? I agreed with you. And I don't give a shit about Fox News.
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Karl Denninger- bank stock analyst? I don't think he has done any "homework" on this one. You might consider investigating the issue yourself.
Kind of a red herring to premise the argument as anti-bank stock based on faulty information and then conclude you would not want to own them even if that information is false.
There are good banks and bad banks, just like any other public company sector, with the difference being the inherent leverage that the banking industry carries.
The more I think about the fact that Denninger, whoever he is, posted this (the original argument, not the post I am quoting which I agree with), the angrier it makes me. Isn't this what this board is always getting pissed at the shorts for? That is, bad info put out there to cause a drop in a stock's price? Well, let's see the same outrage here. This is not only bad info, it's stupid info. It couldn't be more wrong and the fact that people are acting on it is worse. Then to say that even if true it doesn't make any difference? Nice way of thinking.
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This is why Citigroup was liquidated after it's stock dropped below $1 in 2009. Don't you remember?
Yeah, I remember this. That was a bad day.
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This isn't right at all. A bank's core capital consists of, among other things, it's shareholders' equity (i.e. book value) LESS intangibles, etc. So basically tangible book value (I'm simplifying of course). This is the amount from the balance sheet. Has nothing to do with stock market value. This is got to be one of the stupidest things I've read. So a bank's capital ratios change on a second to second basis with the changes in the stock market?
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Interesting piece. I've often thought of it in a similar, but a bit different way. I have thought it isn't quite a single moment that is required, but something transformational in the economy which is required to get us out of the "malaise" (said with a Jimmy Carter accent). Something like the internet in the mid to late 90s or real estate in the early to mid Aughts. Before that we had big business/M&A in the 1980s, big business/technology in the 1960s, etc. Of course most of these things lead to bubbles, but that's a secondary question.
But in all these times something took over the psyche of the population and caused them to feel better about life and it's possibilities. People dreamed again and felt that those dreams could be reached. If only someone could figure out how to do that and not have it be built on a house of cards . . . .
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That's the pubic for you.
I guess that's why they call you "Harry"
:P
Ok, tasteless joke time is over.
I just about spit out some coffee on that one. Well done.
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He is a total crackpot though:
This is absolutely right. He vacillates between telling people to run for the hills and to jump in with both feet. I've learned not to pay much attention to him. He does have a "name" in the area though and he can move things both positively and negatively. Used to be that his words could cause major moves, but now they seem to be smaller and more temporary, if at all.
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it depends.. as 2 out of the 3 rating agencies still rated it triple-A and with one notch down.. this maybe not big..
In the corporate world, when there is a split rating typically one would look to the lower rating. Unless the lower rating is from Fitch in which case you can just go with the higher one from S&P and/or Moody's. But as this is uncharted waters, who knows. I suspect that people will fudge it somehow. I do wonder what will happen to those who are required to hold AAA debt. Hopefully their governing instruments were drafted properly and say something to the effect of "AAA debt AND the debt of the US".
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I don't know what people are worried about. The jobs report just came out and it was fantastic! Looks like a few extra people got jobs at fast food joints or something. The futures have shot up so all is well with the world. This was just what people were looking for to turn those frowns upside down.
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it was announced on CNBC that Bank of NY Mellon is going to start charging a fee for holding onto large amounts of cash.
Not only will they not pay much interest but they will charge you for having cash in your account.
I never thought that could happen. Then again, that is like having a monthly fee on your bank account.
Looks like we should either get our mattresses ready to hold cash or invest the cash.
While at first blush it seems strange, it makes sense when you think about it. They are charged 0.10% of deposits for the FDIC guarantee and they have been flooded with cash which they can't put to use. At least as of now, it is only on those with the largest deposits, this isn't something that the average joe is paying although of course that could change. While we all tend to think that the bank should be thrilled with extra cash, there are administrative headaches as well. As of now, this doesn't bother me in the least. If it starts spreading to smaller accounts, etc. that would be a different story. The big boys who are paying this now are certainly capable of moving their funds around with a click of the mouse if they don't like it. They can invest in LinkedIn or Pandora or something instead.
Any value in Sino-Forest Bonds?
in General Discussion
Posted
The primary difference, at least with respect to Worldcom, Tyco and Global Crossing, is that those were US companies where US laws applied. Their primary assets were also in the US and there was (presumably) a valid and perfected security interest in certain assets. So one could simply count up the liabilities, value the assets and voila. In the Sino case, you aren't sure what rights you have at all as it related to a security interest and you aren't sure exactly what the assets are even if you did know what your rights were. Completely different animals.