Mbia/ambac
So if they go away and all the long bonds sold throughout become junk … then what, class action suits? Some of these were sold “as safe as CD’s”. Thoughts… GO.
I think it will be like the 80’s when the government had to step in on the S&L’s. Then someone like Buffett will pick up some of these companies for pennies on the dollar.
I don’t think there will be any rescue of these bonds, once they’re declared “junk”, by reason of AMBAC/MBIA’s (A/M) rating downgrade. If anyone does buy (A/M) for pennies on the dollar, it will be sans those bonds. Bondholders will then have to rely on the underlying entity to pay the interest and principal or dump the bonds for a loss.
There are some interesting cases in Ohio regarding repossession of some of the houses in question. Apparently the Judge in question has determined that only the loan holder, not the servicer can repossess a house. As such, tracking down who actually holds the mortgage is a very difficult process as you can imagine. Who actually is the loan holder is apparently up for discussion as well. If the loan can’t be foreclosed upon how exactly are the CMO’s securitized? If they are unsecured loans, then what exactly will the credit rating end up being? It will be interesting to see how those cases end up and what the repercussions will be.
will this have a ripple effect thru the insurance and institutional investors…or tidal wave? If the institutions have to cut loose of their re-rated bonds…at a loss…they will all be showing losses on what have been their foundation investments. Not trying to be the alarmist…just never have thought of this as a possibility. Thought?..Comments?
I read an article about a law professor who tracked the progress of numerous foreclosure proceedings. For those that went through the judicial process, nearly 40% of the plaintiffs could not locate the original loan documents and, thus, their case was dismissed. Apparently, the mortgages had been securitized so many different times, so many different ways, the paperwork had been lost in the shuffle.There are some interesting cases in Ohio regarding repossession of some of the houses in question. Apparently the Judge in question has determined that only the loan holder, not the servicer can repossess a house. As such, tracking down who actually holds the mortgage is a very difficult process as you can imagine. Who actually is the loan holder is apparently up for discussion as well. If the loan can’t be foreclosed upon how exactly are the CMO’s securitized? If they are unsecured loans, then what exactly will the credit rating end up being? It will be interesting to see how those cases end up and what the repercussions will be.
A tidal wave…scares the crap out of me.
i think someone(the gov or buffett or a bank) will come in and back the muni bonds. this is the most stunning thing i have ever seen in my 21 years the business.
Someone, perhaps Bond Guy, remind us all again what muni-bond insurance DOES cover. I sell very few muni bonds and frankly, as I recall, bond insurance does NOT cover the entire issue…more like a couple of missed payments. It’s been awhile since I’ve read an insurance coverage policy, but I remember being surprised that it was NOTHING like FDIC insurance.
Here’s a head scratcher question: If the muni issuer defaults and the insurer steps-in to make the monthly interest payments, are those payments also tax-exempt?
Do you guys think this is an economic crisis(2000 - 2002) or a crisis of confidence(1991, 1994, 1998)?
Some of the former, more of the latter.
economic crisis 2000-2002 times 20
[quote=Broker7]economic crisis 2000-2002 times 20[/quote] Not nearly!!! If that’s the case, what are you advising your clients?
The default rate on muni's is historically extremely low. Because these bonds are either private activity bonds backed by the revenue generated or G.O. bonds backed by the direct taxing power of the entity, the default rate is rediculously low. Only the upper tranches of some of these CDO's really are going to be problematic for AMBAC, FGIC, and MBIA in particular. I don't think muni's are going to be affected much, and thus it is my prediction that muni's will be the best performing fixed income asset class this year.
[quote=OldLady][quote=Broker7]economic crisis 2000-2002 times 20[/quote] Not nearly!!! If that’s the case, what are you advising your clients?[/quote]
I don’t know and I don’t make predictions, but why would Bernanke (with full WH/Paulson pressure I’m sure) have announced a historic rate cut just eight days before the Fed’s Open Market meeting. That kind of desperation is just a little unnerving.
Not nearly? You are entitled to your own opinion. There are Huge cracks in the global economic foundations. inflation adjusted, bank write offs have already exceeded 1929! And we are not even close to being done. I'm sure my clients that are heavy cash (short cd), short positions and commodities have faired much better than people that have been long equities.[quote=Broker7]economic crisis 2000-2002 times 20[/quote] Not nearly!!! If that’s the case, what are you advising your clients?
Not nearly? You are entitled to your own opinion. There are Huge cracks in the global economic foundations. inflation adjusted, bank write offs have already exceeded 1929! And we are not even close to being done. I'm sure my clients that are heavy cash (short cd), short positions and commodities have faired much better than people that have been long equities. [/quote] For the last few months, perhaps. Is that a long term winning position? Doubtful. Our job is, among other things, to not be as prone to emotional swings as our clients. It's not always easy, but it is always what we're paid for.[quote=OldLady][quote=Broker7]economic crisis 2000-2002 times 20[/quote] Not nearly!!! If that’s the case, what are you advising your clients?
I gotta agree with Broker7 on this one. It is not a long term winning position, but buy and holders in this market will take a very long time to recover back to par. Being in Cash and going back in when things settle down is a solid strategy. You won’t be able to “pick the bottom” of course, because market timing won’t work. But principal preservation needs to be a primary objective in bear markets. I don’t short markets, unless I am hedging current positions, but I do believe heavily in staying flat or very modest gains for now.
Better to get back in late than to get out late! Our job is to make money when possible, and to PRESERVE money when it is not. We all know something isnt quite right with the market and economy…don’t we? If not…please research.
All of you buy and hold mutual fund brokers (you know who you are..this is not the time to hold equities), please look at the option of within fund family exchanges to treasuries or money markets. Not all of it (you and your client can determine that....enough to ballast portfolios during these rocky times. This is no cost to your client, and it shows you have their best interest at heart.Not nearly? You are entitled to your own opinion. There are Huge cracks in the global economic foundations. inflation adjusted, bank write offs have already exceeded 1929! And we are not even close to being done. I'm sure my clients that are heavy cash (short cd), short positions and commodities have faired much better than people that have been long equities. [/quote] For the last few months, perhaps. Is that a long term winning position? Doubtful. Our job is, among other things, to not be as prone to emotional swings as our clients. It's not always easy, but it is always what we're paid for.[/quote] Amen. The real measure of success is can you predict market cycles with any degree of accuracy and get your clients back into the market in time to take advantage of the inevitable upswing. If not, all the good work you did calling the downside (assuming you did it in a very timely manner) is wasted as you're left in the dust on the up cycle and your overall returns revert to the mean (or less). Be careful about making huge bets to the downside....you are fighting a very very long-term trend of market appreciation that has survived much larger crises than we have today. I had a boss that got fired for making such a bet in 1995 and costing our clients a lot of money. ...and if you're not talking to your clients in times like this, you are setting yourself up for defections...get on the phone!!![quote=Broker7][quote=OldLady][quote=Broker7]economic crisis 2000-2002 times 20[/quote] Not nearly!!! If that’s the case, what are you advising your clients?
I had 3 appointments yesterday (all referral) with one portfolio losing 37% since october! Buy and Hold…Buy and Hold… and the third is a long stock portfolio. The buy and hiolds have lost about 10-15%…were talking american funds good growth and growth and income funds.
My clients that made the referrals are the ones that listened and are actually break even or on the plus side since october. I acated 2 on the spot and will have the 3rd one coming in next monday. Thanks for your concern indy one. I read your discussion on your boss in 1995. Too bad for him. Luckily, I am my own boss..only my clients can fire me. I feel my decisions are very sound given the current status. As long as you feel like you are doing your clients right..there is nothing more to be done. You are right on the deflections..these new clients havent heard from their borker in months.[quote=Broker7]Better to get back in late than to get out late! Our job is to make money when possible, and to PRESERVE money when it is not. [/quote] <?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />
"Get out late"? If you have a plan, when does "late" come into the math? When you first spoke with the client about this account, did you mention the market sells off 20% every 4-5 years and unexpectedly? Did you tell him you knew in advance when that would happen? If not, where does "late" come from? Don't get me wrong, I'm not saying "buy and fall asleep", but wholesale changes of a plan because the market does the usual correction thing that you should have accounted for out at the beginning of the process doesn't make sense to me.
BTW, you can easily lose more money getting back in late than in failing to "get out early". Ask Elaine Garzarelli. She famously got her clients out (or at least made the call) the week before the decline of 1987. However, she didn't get back in until the market was above where she'd got out (kept thinking the market recovery was just a head fake). Her clients would have been better off staying put. You have to make the market call right twice, and I’ve yet to see anyone do it so well that it’s an investable strategy. Now I’m using clients in my book, people mostly interested in income and preserving wealth, so ymmv.
[quote=Broker7]We all know something isnt quite right with the market and economy..don't we? If not..please research. [/quote]
I’m trying to think of the last time when you couldn’t say that…..
[quote=Broker7]All of you buy and hold mutual fund brokers (you know who you are..this is not the time to hold equities), please look at the option of within fund family exchanges to treasuries or money markets. Not all of it (you and your client can determine that....enough to ballast portfolios during these rocky times. This is no cost to your client, and it shows you have their best interest at heart.
[/quote]
This is not the time to hold equities? I’d say this is no time to hold funds, what with the inflows and outflows working against you.
You can move into the money market if you like, that’s not a strategy I favor. In fact, at this point I’m buying with the cash we’ve held on to all along. The cash the client would often ask “why do we have that?” about.
No offense intended in anything I’ve said. You do what makes you and your clients comfortable.
mike,
I certainly appreciate your input. You make some solid points. But my studies and research point towards recession, on a global scale. It is what it is, an I have prepped my self and my clients. My point is many brokers do not do research, those brokers that believe in CNBS and main stream media will be beat down or out of business here in the near future. I am comfortable with my positions as are my clients. You know when you lose 50%..that it takes a 100% return to get back to even. I have more leway to get back in :-)[quote=Broker7]mike,
I am comfortable with my positions as are my clients. [/quote]What is your position, in general, 45 year old looking to retire in 20 years. Plenty of cash flow and healthy bank balance?
[quote=Broker7]mike,
I certainly appreciate your input. You make some solid points.[/quote] [quote=Broker7] But my studies and research point towards recession, on a global scale. It is what it is, an I have prepped my self and my clients. [/quote] OK, let's say you're right, so what? Didn't you plan for that when you first spoke with the client? Wasn't that part of their plan? What do you stand to gain if you're 100% right? What could you lose if you're 100% wrong? [quote=Broker7] My point is many brokers do not do research, those brokers that believe in CNBS and main stream media will be beat down or out of business here in the near future. [/quoye] I guess there are brokers like that. I don't know any, but I guess there are. [quote=Broker7] I am comfortable with my positions as are my clients.[/quote] Well, that's what matters. [quote=Broker7] You know when you lose 50%..that it takes a 100% return to get back to even. I have more leway to get back in :-) [/quote] Ask Ms Garzarelli about that one.While I agree about the principal preservation in down times I don’t think this is an economic crisis of epic proportions. So the way that I’ve handled it is:
1 - Used SPIA’s for people needing to take distributions for the 5 yr term. A lot have taken this advice & some wish they had!
2 - Reduced allocations to stocks by 10 - 15% in June/July of last year(for anyone that would listen).
3 - I believe this is fully a crisis of confidence so I’m dollar cost averaging the positions I scaled back into stocks over the next 3 months. So if the client’s benchmark is 70/30, they were at 55/45 until the beginning of last week & we’re moving to 60/40 this week, 65/35 next month & back to 70/30 in March. The studies that I have done indicate that it’s time to start buying back when you believe that you are at least 50% down to the bottom. The reason for this is that A - All markets recover & go to new highs. B - The typical length of decline in a crisis of confidence is about 3 months w/ the last month looking the ugliest - looking like we’re going to 0. C - Since it takes more return to get back to even($1 -> $.5 = -50%; $.5 -> $1 = 100%), clients make more money by being early than by being late.
Backup - From Google Finance Charts…
1987 - High was Aug 21st: 2709. Low was Dec 4th: 1766. % decline: 35%.
1990 - High was July 13th: 2980. Low was Oct 12th: 2398. % decline: 19.5%
1998 - High was July 17th: 9337. Low was Sept 4th: 7640. % decline: 18.2%.
2007 - High was Oct 12th: 14093. Recent low was Jan 18th: 12099. % decline: 14.1%
Don’t you wish that funds allowed for automatic dollar cost averaging? It would make our lives easier…
To a degree, they do…systematic purchases and systematic exchanges (from MMKT funds if you like) accomplish this.
Thanks, Indyone. I’ll use that in the future.
[quote=Ashland] While I agree about the principal preservation in down times I don’t think this is an economic crisis of epic proportions. So the way that I’ve handled it is:
1 - Used SPIA’s for people needing to take distributions for the 5 yr term. A lot have taken this advice & some wish they had!
2 - Reduced allocations to stocks by 10 - 15% in June/July of last year(for anyone that would listen).
3 - I believe this is fully a crisis of confidence so I’m dollar cost averaging the positions I scaled back into stocks over the next 3 months. So if the client’s benchmark is 70/30, they were at 55/45 until the beginning of last week & we’re moving to 60/40 this week, 65/35 next month & back to 70/30 in March. The studies that I have done indicate that it’s time to start buying back when you believe that you are at least 50% down to the bottom. The reason for this is that A - All markets recover & go to new highs. B - The typical length of decline in a crisis of confidence is about 3 months w/ the last month looking the ugliest - looking like we’re going to 0. C - Since it takes more return to get back to even($1 -> $.5 = -50%; $.5 -> $1 = 100%), clients make more money by being early than by being late.
Backup - From Google Finance Charts…
1987 - High was Aug 21st: 2709. Low was Dec 4th: 1766. % decline: 35%.
1990 - High was July 13th: 2980. Low was Oct 12th: 2398. % decline: 19.5%
1998 - High was July 17th: 9337. Low was Sept 4th: 7640. % decline: 18.2%.
2007 - High was Oct 12th: 14093. Recent low was Jan 18th: 12099. % decline: 14.1%
Don’t you wish that funds allowed for automatic dollar cost averaging? It would make our lives easier…[/quote]
This is why clients/prospects should avoid Indys and some other firms. You get reps who are in their own little world with their own (usually unproven) investment philosophy. That is very dangerous.
That hurts… I haven’t laughed so hard in a long time.
Now, please, I would love to learn how it’s done right. Please share with us your cookie cutter, wirehouse provided strategy. I’d also appreciate if you’d help me understand how you call the bottom because in the 12 yrs I’ve done this I’ve never been able to get it right.
Joseph, please feel free to tell us about your proven investment strategy that works better than staying invested in the market.This is why clients/prospects should avoid Indys and some other firms. You get reps who are in their own little world with their own (usually unproven) investment philosophy. That is very dangerous.
[quote=josephjones107]This is why clients/prospects should avoid Indys and some other firms. You get reps who are in their own little world with their own (usually unproven) investment philosophy. That is very dangerous.
Joseph, please feel free to tell us about your proven investment strategy that works better than staying invested in the market.[/quote]
Market timing does not work. Asset allocation with the vast majority invested in equities works. rebalancing annualling to get back to portfolios target levels (large cap, mid, small, europe, pacific, emerging, ect ect.)
It’s mind boggling to think their are advisors out there who stay in the business for long time periods because they are good at selling but don’t know jack shtt about managing money
I love how some of my clients “KNOW” that the market is going to get worse. They just “KNOW” it! It kills me. I try and nicely tell them that no one “KNOWS” anything about the future of the market. If someone says they do, they are either:
1. A Liar 2. Crazy I put my 2007 SEP contribution in on Tuesday of this week! I'm not saying it can't go lower in the near term, but who really cares. You can't predict the market, so don't miss the upside! And, if it does go down, my dividends are reinvesting at lower prices.the more people that “just know” the market is going down the better
[quote=now_indy]I love how some of my clients “KNOW” that the market is going to get worse. They just “KNOW” it! It kills me. I try and nicely tell them that no one “KNOWS” anything about the future of the market. If someone says they do, they are either:
1. A Liar 2. Crazy I put my 2007 SEP contribution in on Tuesday of this week! I'm not saying it can't go lower in the near term, but who really cares. You can't predict the market, so don't miss the upside! And, if it does go down, my dividends are reinvesting at lower prices.[/quote] Or 3. Maybe an educated guess... or perhaps well informed. Don't just keep preaching what the company you used to work for preaches. That methodology does not apply to this market. Way too many optimists hear..get real.That sounds a lot like staying invested. For a moment, I thought you’d joined the flat earth society.
josephjones - tactical asset allocation is very different market timing. In June/July the market was clamoring for rate cuts & it was going up in hopes that the Fed would cut dramatically and soon. I felt this juxtaposition A - A ‘need’ to have rates cut with B - a dramatically increasing market to be based on faulty logic. What if the Fed didn’t cut rates or didn’t cut them as fast as the market wanted? Oil & commodity prices were at highs & the dollar was falling. It just didn’t make sense to me.
So, I told my clients that the market’s continued rise didn’t make sense to me & that I felt it was time to take some profits. I didn’t claim to be calling the top. Just that bad news of that sort & an increasing market don’t usually follow. I also don’t claim to know where the bottom is. I feel, though, that we’re at least halfway there. So, I’m inching my clients back in. They’re very happy that I’m handling it in this way, and so am I. I have gotten not 1, not a single person, call to sell out due to market fluctuations(Although I’ve been calling them to set up beginning of the year reviews). People believe I’m watching their money, and that’s going to be good for them and for me.
Some of the original questions asked were about what bond insurers actually insure. Here is a link from MorningStar that is pretty detailed: http://news.morningstar.com/classroom2/course.asp?docId=5399&page=1&CN=COM
To sum up: Insurance will pay for both interest and principal if the municipality defaults.Only if Insurance exists…
In a 30% Bank run FDIC is defunct.[quote=Broker7]Only if Insurance exists…
In a 30% Bank run FDIC is defunct.[/quote] 50 years ago, that might have been true. But today, I don't think so. Why? The politicians won't let the FDIC go belly-up on their watch. They'll simply order "an emergency bail-out" of FDIC; i.e., print more money and dump it into FDIC. If you think about it, it makes perfect political sense (though not financial sense). Imagine two scenarios: one where everyone loses 30% of the money they had in the bank vs. losing 30% of the value of the money they had in the bank. Under which scenario does a politician stand a better chance of re-election? Inflation is the silent tax that flies under the radar of most people. Looked at another way, the CPI (along with other measurements) has been manipulated by various presidential administrations for the last 20 years. If we used the same measures for the CPI that we used in 1980, inflation would be reported as running over 10% annually. Compare that to bank deposits paying 3%-4% and going lower. So, every year, people are losing 6%+ of their purchasing power (even more if you consider health care). So, at this rate, in approximately 7 years, people will lose about 50% of their purchasing power. (Imagine the outcry, if a tax bill proposed the same thing!)doberman,
You make an excellent point, i'm in agreement with the our loss of purchasing power. At the point of the fed pumping money into the system to save FDIC, economically speaking, such a move would send the dollar to zero, as it would be the last bullet fired by the powers that be. It wouldnt matter who's at watch. Interesting stuff.I think the downgrade on mbia ambac is coming tommorow or friday. FGIC just got downgraded today by Fitch, so probably by Moody and S and P downgrades very shortly. Watch the bond and stock market tommorow.
…Ahhhh…the sky is falling…again…
What do mean by again???..its been falling for a while now. Oblivious one
I just crawled out of my bunker to take a look and despite all the calamity, we're still hanging on by a thread. A few muni bonds have not defaulted/been declared worthless and fortunately, they are all in my client accounts. Likewise, the stocks in my client accounts (those who have been foolish enough to stay in the market) are miraculously holding their grossly inflated values. I consider myself very fortunate. I can't help wondering who is propping up the sham stock market. There must be a massive conspiracy to fleece market investors of their cash, because after all, the sky is falling and it's the end of the world as we know it... ...back to my bunker...I think the downgrade on mbia ambac is coming tommorow or friday. FGIC just got downgraded today by Fitch, so probably by Moody and S and P downgrades very shortly. Watch the bond and stock market tommorow.
Indyone, a voice of reason.
I’m not fishing through this entire thread to see if this has been mentioned so excuse me if i’m repeating a point already made.
There is historical precedent for the fed to come in and bail out FDIC if events should lead us to that. Back in the early nineties the Fed, in the form of Congress and the Senate, bailed out FSLIC. FSLIC was, for those you to young to remember, a quasi government sister company to FDIC. The resulting legislation dissolved FSLIC and gave eventual control to FDIC. Yet, the troubled banking industry was bailed out and the day was saved The event that led to the government's action was the S&L crisis. And yes, it darn near dragged down our entire banking system. Much more grave than anything happening today. In the end the only people who got hurt were stock holders in banks seized by an over zealous FDIC in an effort to make themselves look good. The following website will enlighten and disturb: http://www.meritorpsfs.com/id73.htm Would our government do this again? Why not?I’d stop selling VA’s if I were you. Insurance companies are going to be in a lot of trouble after they payout for all of the reps who jumped out of their 80th floor windows after betting against this market. Did anyone notice that it’s up today?
Source URL:https://www.wealthmanagement.com/forums/whats-firms/mbiaambac