Thursday, October 29, 2009

AIG CDS Collateral

We are starting to get some clearer coverage on the collateral calls that sunk AIG and, more importantly, made its CDS counterparties whole.  Unfortunately, that coverage is buried inches below the lead.  From today's Wall Street Journal:

"That [Maiden Lane] was a boon to the banks, which were effectively made whole. The banks pocketed $35 billion in collateral AIG already had paid them, and collected another $26.8 billion in cash for selling the investments at roughly their lowered values. Goldman Sachs got to keep billions in collateral and got paid $5.6 billion for the investments.

Whether that was the best strategy for AIG remains a subject of debate.

At the time, the move eliminated the risk that AIG would have to post still more collateral on the canceled swaps if the investments continued to decline. Last November, AIG's then-chief executive, Edward Liddy, told investors that the company was hemorrhaging cash because it had to post collateral on the swaps and problems with other deals. "We need to stop that and that's what this is designed to do," Mr. Liddy said.
The advantage of that approach was illustrated in the first quarter. Markets continued to fall but AIG didn't have to keep handing over more cash on closed-out deals. But AIG also surrendered any chance of getting some of the collateral back on the canceled swaps.

AIG's former longtime CEO, Maurice R. "Hank" Greenberg, argued publicly at the time that the government should have guaranteed the swap contracts, eliminating the need for AIG to post more collateral. Others have contended that AIG's trading partners should have been forced to accept less money for tearing up the contracts."

Tuesday, October 27, 2009

fan with a thermostat

I've been looking but can't find a simple small fan with a thermostat to cool down my media cabinet.  This should be a $20 product but it doesn't seem to exist.  I've found over-priced components to cobble one together but that would be nearly $100.  My cable box keeps shutting off because it overheats.

Monday, October 26, 2009

Verizon and iPhone

I'd bet that this Businessweek article (claiming that Verizon is still serious about selling the iPhone) is 100% wrong.  My guess is that there are a lot of potential iPhone customers who are unwilling to switch to AT&T (and would prefer Verizon's service).  And that Verizon is dangling the idea of the iPhone on Verizon to keep them in limbo and waiting until the iPhone's allure wears off (or technology shifts such that Verizon can sell the iPhone because we are all on 4G).  A statement to the press is nearly free (and a lot cheaper than advertising).

I'm pretty sure I've heard this story

Gold, stocks, etc. have been rising recently.  Isn't most of this simply a function of a declining dollar?  In other words, inflation?  An asset bubble?  Much of the government's stimulus efforts seem to have been translated into increased holdings of financial assets rather than increased spending.  Which isn't great for TIPS (CPI flat, asset prices way up).

Oh well.

reserve currency

To a large extent, isn't a reserve currency simply a function of minimizing transaction costs?  Especially transaction costs relating to acquisition of supply for businesses.  The dollar is useful as the basis of trade because a fair portion of global expenditures are in dollars.  If more is produced in China, at a certain point, people should be comfortable holding Chinese Yuan because they know they will be able to spend it.  I wonder how much of the status of the U.S. is based on its years of being the core manufacturer and agricultural producer of the world.


I don't get it.  What is the basis for an agreement where an investor agrees to limit future share purchases in exchange for representation on the board of directors?  Is it a bad thing for someone to acquire a large block?  Even if it is, isn't there a conflict of interest in the group making the deal (the current board, I assume).  In fact, can a board even strike a binding agreement on who will be on the board of directors?  Perhaps votes are such a fiction that nomination (perhaps this can be agreed) are sufficient?  I'm really very confused by the conflicts and the message.

Wednesday, October 21, 2009

Galleon and relative value

The New York Times writes: "One bad trade, in the shares of the chip maker Advanced Micro Devices, cost his hedge fund, the Galleon Group, $30 million. That loss more than wiped out the profits that prosecutors claim Mr. Rajaratnam and his accomplices reaped with their scheme."  I wonder if this is true.  The loss was mostly due to a decline in shares overall (in the late 2008 meltdown).  If AMD lost less than the market decline and if the fund had puts or similar to hedge out broader market moves, then couldn't they still have made money off the relative value difference?  I don't know whether those trades can work but I thought there were ways to be macro market neutral and still take advantage of price moves.

Thursday, October 15, 2009

Wall Street problems

This is generally right, especially adding in my pet theory of sales guys rising a little further than they ought to.

Friday, October 9, 2009

Not quite sure what had been done by March

From this, it looks like President Obama was shortlisted by March - perhaps less than two months into the presidency.  Wow.  The committee's chair wasn't kidding when he said: "We would hope this will enhance what he is trying to do."  Notwithstanding claims that this was for actions over the past year, I think it clear that this is meant to help direct the foreign policy of the United States.  Wow.

Tuesday, October 6, 2009

New York Times has difficulty with private equity

I don't get it.  The article says that private equity portfolios are being sold at between 29.3 cents on the dollar and 51.58 cents on the dollar, measured at net asset value.  I believe some discount so I would accept these numbers and trust the article. 

Except for the baffling sentence two paragraphs later:  "But what happens if Stanford is able to sell its stake at only 50 cents on the dollar, for example, when K.K.R. is listing it at 80 cents? If other endowments hold similar stakes, what happens to their value?"

Huh?  Isn't KKR's listed stake the net asset value?  Perhaps the article means 29.3 cents on the invested capital?  But who in their right mind is applying a discount off of entry price rather than their judgment of current value?  What is this "dollar" referring to?  In the KKR context, I think it is of invested capital.  In Stanford's case, I think off of KKR's reported value (which is lower than entry value).  But, of course, I have no idea because the article is sloppy.

Notwithstanding private equity's larger mindshare and increased column inches, the press still has a long way to go before it understands even the basics, I think.

Monday, October 5, 2009

1959 Bel Air

Seems a little sad that they totaled the Bel Air for this.

PE in the crosshairs

Clearly, the NYT has decided that driving while texting and private equity are ripe targets.

Although I found the reporting a little one-sided on the private equity story, they did manage to find one of the more awkward series of deals (mattresses).  Of course, the story does not present the basic underlying principle of whom the funds work for and why (their investors and to maximize their returns, respectively) to balance the story and its presentation of the workers and bondholders' situations.  It's not clear that the results would have been different in the hands of any other owners (i.e., regardless of the identity of the owner (except, perhaps for an ESOP or the government), the same thing could very well have happened).

I think the more interesting story (especially if the NYT really wanted to undercut the basic principle part I note above) is that there were a series of fund-to-fund sales with overlapping investor bases.  It would make the story far more forceful (if complicated) and allow the finger to be pointed solely at the sponsors (if unfairly).