tag:blogger.com,1999:blog-4815867514277794362.post7593022189800551668..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Private equity involvement in the bailout and leverageJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-4815867514277794362.post-50441290152014742592009-02-13T15:40:00.000+11:002009-02-13T15:40:00.000+11:00I am fully aware the arb could go pear shaped.I wa...I am fully aware the arb could go pear shaped.<BR/><BR/>I warned it was a crowded trade.<BR/><BR/>---<BR/><BR/>Also - when I put up my proposal i wanted the funding matched. <BR/><BR/>JJohn Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-40037147512275179782009-02-13T15:22:00.000+11:002009-02-13T15:22:00.000+11:00There are a couple of problems with being long dis...There are a couple of problems with being long distressed debt: 1) you are also long the US dollar 2) you are vulnerable to a burst of high inflation. The dollar has strengthened lately and we're more worried about deflation right now, but you can hardly count on either of those things if, as you mention, some of that distressed debt is long-dated (10 years or more).<BR/><BR/>It's not clear that being short banks fully hedges you against this. Perhaps banks might even benefit from inflation (their own convertible debt either melts away or turns into equity; their Treasury loans become easier to repay).<BR/><BR/>I may be naive, but couldn't this arb go pear-shaped in some altogether plausible scenarios?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-18177770504273464842009-02-13T04:22:00.000+11:002009-02-13T04:22:00.000+11:00Calif median household income 60KMedian Ca home pr...Calif median household income 60K<BR/><BR/>Median Ca home prices:<BR/><BR/>CAR Data:<BR/><BR/>4/070- $597,650<BR/>today-$281,000<BR/><BR/>DQ Data:<BR/>5/07-$484,000.<BR/>today-$249,000.<BR/><BR/>The upper tier housing market in Calif greater then 500K is going to take a huge hit and as it does it will force the bottom tier down again.lineup32https://www.blogger.com/profile/01645284557123359301noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-41885860719508976802009-02-13T03:17:00.000+11:002009-02-13T03:17:00.000+11:00Northern Calif property prices greater then 500K...Northern Calif property prices greater then 500K range today and probably 300K in the future will fall 80% to peak value. Median household income is around 70K it doesn't take much to figure out that RE inflation coupled with selling every 5 to 7 years combined with high refi activity is what keeps people in these higher priced tier houses. <BR/>The pool of buyers for these homes based on 20% down and actual income to support the monthly payments is tiny relative to the number of properties forsale.<BR/>The dot.com bubble along with 30 years of inflated RE values in Northern Calif has created a financial storm that will sweep many into the BK courts.<BR/>Good luck on your investment!!lineup32https://www.blogger.com/profile/01645284557123359301noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-16605768010823709362009-02-12T10:08:00.000+11:002009-02-12T10:08:00.000+11:00John: This is already out there...look at TALF - F...John: This is already out there...look at TALF - FRBNY has set preliminary collateral haircuts for subprime AAA bank card ABS paper at 10% for 5 yr WAL...pricing is not as cheap - L + 100bps, but more leverage is available...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-7439800589811528012009-02-12T02:40:00.000+11:002009-02-12T02:40:00.000+11:00if sufficient money for leverage becomes available...if sufficient money for leverage becomes available that will bring down the returns as it will increase the demand for the assets, right? so you better hurry and buy them now.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-51359062759475488722009-02-11T20:02:00.000+11:002009-02-11T20:02:00.000+11:00At least the plan will be mechanism for valuing th...At least the plan will be mechanism for valuing the assets, which has been the main sticking point up to this point. Once the results of the private sales are in it should be easy to determine which banks are solvent and which are not, so the feds can move in and liquidate the insolvent ones.Elwood Andersonhttps://www.blogger.com/profile/09381075536666844667noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-54501722365025162682009-02-11T17:40:00.000+11:002009-02-11T17:40:00.000+11:00Presumably the fact that these loans are underpric...Presumably the fact that these loans are underpriced in the market is how UBS can reclassify USD 15.8 Bn of them from trading to held to maturity and record an impairment of only USD 1.2 Bn, while telling us that if they'd stayed in the trading book and been marked to market would see their value drop by USD 4.2 Bn?<BR/><BR/>see slide 25 of their results presentation yesterday.<BR/><BR/>Incidentally, when you do start this fund, I'm sure you'll save a little space for your loyal blog following?thirkejhttps://www.blogger.com/profile/11024784180461602812noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-36968941394143724852009-02-11T17:27:00.000+11:002009-02-11T17:27:00.000+11:00The problem is that you will only take the deals p...The problem is that you will only take the deals profitable to you and not take the really toxic stuff from the banks. Hence while you would make a killing you would not solve the real problem. Now try again.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-71465808634579160262009-02-11T16:55:00.000+11:002009-02-11T16:55:00.000+11:00Hi John,I'm a pointy-headed public policy professo...Hi John,<BR/><BR/>I'm a pointy-headed public policy professor in the U.S., and the topics you address are far afield from my area of expertise, but for what it's worth, I find your blog incredibly informative and enlightening. I've been reading it for months. You're not infallible of course, but you really know what you are talking about. I feel like an ethnographer who somehow chanced into recruiting the sharpest and most street-wise informant on the block.<BR/><BR/>Keep up the good work.<BR/><BR/>Thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-67422239834876421582009-02-11T16:04:00.000+11:002009-02-11T16:04:00.000+11:00laymen here, didn't fully get all the msg. (u shou...laymen here, didn't fully get all the msg. (u should consider adding "wonkish" to post, like krugmen. LOL)<BR/><BR/>could u please suggest some book(s) to fully understand what u just posted thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-76995877504046620262009-02-11T15:44:00.000+11:002009-02-11T15:44:00.000+11:00I agree. The only reason to involve the private s...I agree. The only reason to involve the private sector is that maybe I have a better feel for what is a good asset than a public servant.<BR/><BR/>The problem of governments buying or selling things to banks is that banks lie very convincingly.<BR/><BR/>I assure you - I think the Norwegian solution - nationalisation after something that looks like due process - is a good idea.<BR/><BR/>But If Mr Obama wishes to lend me a trillion dollars at treasury rates I am keen.<BR/><BR/>How about you?John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-85454913855461928292009-02-11T15:19:00.000+11:002009-02-11T15:19:00.000+11:00John,If Treasury has to put up 6/7'ths of the cash...John,<BR/><BR/>If Treasury has to put up 6/7'ths of the cash, why involve the private sector at all? Hire a couple of managers, have Treasury put up 7/7'ths of the cash and run the trade for the benefit of the taxpayers. Let the managers make a killing, but run 95% of the profits back into the Treasury to pay for defaults on other debt the Fed is back-stopping.<BR/><BR/>What does John Paulson or any other hedge fund bring to the party?<BR/><BR/>ThanksAnonymousnoreply@blogger.com