m22au's journal

Update on FBC:

Market cap at share price of $2.12 is about $325 million (about 153 million shares outstanding).

Looking to raise $600 million in yet another equity offering.

http://www.bloomberg.com/news/2010-...00-million-in-share-sale-as-losses-mount.html

"Flagstar Bancorp Weighs Raising $600 Million in Share Sale as Losses Mount"

snippet:

"Flagstar Bancorp Inc., the Michigan bank rescued by MatlinPatterson Global Advisors last year, is weighing a plan to raise $600 million in a share sale to boost capital as losses mount, said people familiar with the matter. "

"The bank, based in Troy, 25 miles north of Detroit, is also seeking buyers for a $1 billion pool of loans, they said. The lender isn’t close to a deal and may opt not to pursue either option, one of the people said. "



Quote from m22au:

Another update regarding some potential shorts. I have positions in some of these, and others are just 'on the radar'.

Keep in mind that we're getting closer and closer to the point where Bernanke / Geithner / Obama pull the trigger and introduce some additional fiscal and/or monetary stimulus. If this happens, fundamental analysis on the stocks below could be a waste of time if the stockmarket melts up, like it did in the 12 months after March 2009.

************************************************

non-TBTF banks in US, particularly those with bad earnings reports for Q2 of 2010:
FBC WIBC WTNY SBIB PNFP HBHC SNV BXS BPOP FHN WL

banks in PIIGS countries:
NBG, STD, BBVA, AIB
More...
 
Update on FBC, part two:

http://www.fool.com/investing/general/2010/09/15/why-did-my-stock-just-die.aspx

"The bank is controlled by private equity firm MatlinPatterson, and its owners want to dip into the well of share sales again, possibly selling off a $600 million stake of the firm to other private equity companies. In February, MatlinPatterson sold $300 million worth of the company to shareholders -- far less than the $500 million executives were hoping for.

*********

It was interesting to note that in today's press release, FBC did not address the "issue" of a possible capital raising.

http://finance.yahoo.com/news/Flagstar-Responds-to-Unusual-prnews-1801888063.html?x=0&.v=1

It only provided information about metrics such as balance sheet size, net interest margin and provision expense.

So I think it's reasonable to assume that they are looking to raise capital, and in light of the $200 million "shortfall" in February, there's little to reason to think that the $600 million figure reported in Bloomberg yesterday is inaccurate.

There was some momentary strength in the FBC share price after the press release, going from the $1.90 region to as high as $2.21. I used this strength to add to my short position. Given that the stock traded back down to $1.90 by the end of the day (in an otherwise strong market), it looks like plenty of other participants agree with my assessment. That is - the information in the press release does not reduce the likelihood of a dilutive capital raising.
 
Bookmarking a link to an ongoing thread about Japan's debt problem:

http://www.elitetrader.com/vb/showthread.php?s=&postid=2954569#post2954569

http://www.elitetrader.com/vb/showthread.php?s=&threadid=181522

What's the point at which I start to place trades based on the problem? Probably a 10-year yield above 2.00%

http://www.bloomberg.com/apps/quote?ticker=GJGBBNCH:IND
http://www.bloomberg.com/apps/cbuilder?ticker1=GJGBBNCH:IND

Link to posts about Bloomberg govt bond charts:

http://www.elitetrader.com/vb/showt...875792&highlight=Kyle+Bass+thesis#post2875792

http://www.elitetrader.com/vb/showt...862257&highlight=Kyle+Bass+thesis#post2862257

Just keeping this on the radar.

tags: Japan, Kyle Bass, David Einhorn,
 
Bingo!

http://finance.yahoo.com/news/Flagstar-Bancorp-Inc-prnews-2675688922.html?x=0&.v=1

FBC selling a bucket load of stock and convertibles at $1.00 per share:

"FBC announced today the pricing of its previously announced underwritten public offerings, raising aggregate gross proceeds of $367.3 million. The offerings consisted of 110 million shares of common stock at a purchase price of $1.00 per share and 13.5 million shares of convertible preferred stock at a purchase price and liquidation preference of $20.00 per share. "

FBC down by over 40% to $1.30

Sometimes it pays to pay attention to capital raising news and rumours, because, like Allied Irish Bank, outsized gains can be made in a matter of weeks and months.

***

Current shares outstanding = 153.36M

Will increase to (pro-forma) 533.36 million


Quote from m22au:

Update on FBC, part two:

http://www.fool.com/investing/general/2010/09/15/why-did-my-stock-just-die.aspx

"The bank is controlled by private equity firm MatlinPatterson, and its owners want to dip into the well of share sales again, possibly selling off a $600 million stake of the firm to other private equity companies. In February, MatlinPatterson sold $300 million worth of the company to shareholders -- far less than the $500 million executives were hoping for.

*********

It was interesting to note that in today's press release, FBC did not address the "issue" of a possible capital raising.

http://finance.yahoo.com/news/Flagstar-Responds-to-Unusual-prnews-1801888063.html?x=0&.v=1

It only provided information about metrics such as balance sheet size, net interest margin and provision expense.

So I think it's reasonable to assume that they are looking to raise capital, and in light of the $200 million "shortfall" in February, there's little to reason to think that the $600 million figure reported in Bloomberg yesterday is inaccurate.

There was some momentary strength in the FBC share price after the press release, going from the $1.90 region to as high as $2.21. I used this strength to add to my short position. Given that the stock traded back down to $1.90 by the end of the day (in an otherwise strong market), it looks like plenty of other participants agree with my assessment. That is - the information in the press release does not reduce the likelihood of a dilutive capital raising.
More...
 
I spent the hours following 2.15pm on 3 November reading and listening to as many opinions as possible regarding QE2.

Even now as I type I am watching an interesting interview on CNBC Asia regarding this issue.

It is now a little more than 8 hours after the QE2 announcement, and I've come to the following conclusions and/or made the following observations:

1a. Interesting to note that (so far), the "sell the news" reaction in equities / gold / oil and the "buy the news" reaction in the USD lasted only for a few minutes, before risk-seeking behaviour resumed.

1b. The ES reached a new multi-month high a few minutes after the 4pm close.

2. Bernanke is quite open about QE2 not targetting employment:

see this article about the maturity range of QE2
http://pragcap.com/bernanke-confirms-qe2-bank-bailout

and see this article about an Washington Post article authored by Bernanke:
http://pragcap.com/ben-bernanke-qe-working

3. Equities / gold have gone up by a lot, and the US Dollar has fallen by a lot since the start of September. There could be some type of risk-aversion pullback in the coming days / weeks.

4a. Despite the possibility of a pullback mentioned in point 3, the most crucial sentence in the FOMC statement was this:


"The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."


That is, although "the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011," it's reasonable to expect that

4b. There will be a QE3 after 30 June 2011 and/or

4c. The size of QE2 could rise if $600 million is deemed to be too small.

therefore

4d. The Bernanke put is stronger than ever, and any risk-aversion pullback will be shallow.

***********

So how to invest?

Long (gold/S&P 500) [gold to outperform S&P 500, currently 1.135, targetting 2.000]

(gold/EUR) also looks attractive in the high 950s or low 960s per ounce. Given the structural problems in Europe, it's difficult to believe that the EUR/USD will rise by as much as gold/USD from now on, and the experience from late April to early June suggests that gold could remain well supported if there is a lot of risk aversion.
 
I'd note that the statement said

"November meeting
The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to support the economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate.
September meeting
The Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.
------
The Fed continues to make clear that it can act as necessary to promote its goals, but after announcing the new moves this month is less forceful about further action." - WSJ

It looks to me that they are not quite there in terms of more stimulus so the 'back out' clause they wrote in my view means that they wanted a way of cutting the program in case the data came in too strong or iexpectations got above their comfort zone
 
http://macro-man.blogspot.com/2010/07/1-800-punters.html

This article from July suggests some correlations.

Chart 1 is EUR/USD versus 10 year Spain/Germany yield spread

Chart 2 is AUD/USD versus S&P 500

Chart 3 is USD/JPY versus US 10 year yield

However in this article on Ibex Salad,
http://ibexsalad.blogspot.com/2010/11/no-news-is-good-news.html

the author points out that the EUR/USD has rallied in recent weeks despite 10 year yields in some PIIGS rising.

Ireland has been a noticeable underperformer, with the 10 year yield rising to a 52-week high of 7.66%
http://www.bloomberg.com/apps/quote?ticker=GIGB10YR:IND

Spain highest since July 2010 at 4.34%
http://www.bloomberg.com/apps/quote?ticker=GSPG10YR:IND

Greece has been volatile, however despite the 10 year being below the 52-week high, the yield is well above 10%
http://www.bloomberg.com/apps/quote?ticker=GGGB10YR:IND

Although Italy has been doing better than Greece, Ireland and Spain, yields have gone up about 10 bps since late October, to 3.96%
http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND

all this when the German 10 year bund yield has declined since late October to 2.40%
http://www.bloomberg.com/apps/quote?ticker=GDBR10:IND

Links to bond yields:
http://blankfiendsew.blogspot.com/p/european-sovereign-bond-yield-links.html

More commentary about Euro debt crisis rumbling beneath the surface

http://macro-man.blogspot.com/2010/11/ipigs-cbs-gses-redux.html

http://blankfiendsew.blogspot.com/2010/11/youre-good.html
http://blankfiendsew.blogspot.com/2010/10/rollin-rollin-rawhide.html
 
Even though QE2 was widely expected, it's important to note the following:

1. "Sell the news" reaction only lasted for a few minutes after 2.15pm ET on Wednesday 3 November. So the market had not priced in the following:

2. "The Committee will regularly review the pace of its securities purchases and the overall size of the asset-purchase program in light of incoming information and will adjust the program as needed to best foster maximum employment and price stability."

ie, QE2 can increase if the Fed wants to. And/or, QE3 will be introduced in June 2011.

3. As many blogs have pointed out, I strongly urge any investor to read Bernanke's op/ed piece in the Washington Post.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews

In one particular paragraph, he refers to the 'wealth effect' of higher stock prices twice.

"This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion. "

**********

So what does this mean? The Bernanke put is bigger than ever, and it's highly unlikely the S&P 500 will ever fall below 1180, highly unlikely gold will ever fall below 1327.

Just go out there and buy risk assets. The US Dollar (versus gold and versus stocks) is junk.
 
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