The Golden Truth: Anyone Invested in MGIC Is A Moron

Tuesday, April 20, 2010

Anyone Invested in MGIC Is A Moron

MGIC is the largest U.S. mortgage insurer - outside of the U.S. Government, of course. They released horrible results, forecast massive future losses, and will issue $700 million of new stock on top of $300 million in junk bonds. Perhaps - with much emphasis on that modifier - there might be asset coverage for the bonds. The stock is worthless. Hey but fear not - Goldman Sachs is managing BOTH offerings - "c'mon in guys, the water is perfect!" Here's the link: In Goldman We Trust. The underwriting syndicate will probably make about $50 million in fees.

Einstein said the definition of "insanity" is making the same mistake over and over again - and expecting a different result. Do you really want to take the other side of something Goldman Sachs is selling?

I heard from a associate yesterday who told me one his client's called him to inform that is house in Florida, formerly worth $1.4 million, now might be worth $450k. His neighbor's house, formerly worth $1.5 million, was appraised for $500k. 66% decline in value for non-distressed homes. This type of real estate revaluation will spread to the whole country.

I'm sure that if I went thru MGIC's financials with a fine-tooth comb, I could demonstrat that even the debt on MGIC worth, at best 50 cents on the dollar, assuming today's real estate prices. It will only get worse...

Laissez les bon temps rouler - Let the good times roll!

7 comments:

JesseTuesday, 20 April, 2010
We are all carnies now. lol
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Dave in DenverTuesday, 20 April, 2010
Sad but true...next move will be Obama taking over MGIC to support the housing market.
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AnonymousTuesday, 20 April, 2010
Dave, gold-related but as you say, nothing is really OT here: what is your opinion about small denomination gold foreign gold coins, such as French or Swiss francs or British sovereigns? I like them myself because of small premiums but I sometimes wonder how widely accepted they are.
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Dave in DenverTuesday, 20 April, 2010
good question. those coins are usually fractionals and not 100% (.999/.9999) gold. Doesn't matter. They have value anywhere in the world as gold. In fact, the U.S. military packs paratroopers' survival packs with sovereigns when the go on jumps in hostile areas because the sov is recognized anywhere and is fungible.
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AnonymousTuesday, 20 April, 2010
I have gone through MTG's financials with a fine-toothed comb, and you are correct, their debt is only worth 50 cents on the dollar. Unless of course they rob the policy holders or equity holders to pay off debt, which they have been known to do.

But the equity is worth exactly nothing.
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Dave in DenverTuesday, 20 April, 2010
Thanks Anonymous! My guess is that they'll bleed the shareholders and use the funds to pay management and keep interest payments going until the shareholders say "no mas." At which point the Treasury will step in and transfer the insurance obligations to the Taxpayers.
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AnonymousTuesday, 20 April, 2010
NP, the math is pretty simple, there is at least 15B in embedded losses in their current book of business, just projecting forward losses using industry models. Add in another 1B for expenses. This could be much worse if housing takes another downturn.

In contrast, there is just over 15B to pay claims.

With the new money, they might have enough to pay claims, but debt holders will come up short.

of course, again, it depends on which debt holders. The old ones are going to get bailed out by the new ones. So they have some 2011 debt that is probably money-good, but the new converts that pay off in 7 years are going to be lucky to get paid at par.

Pure ponzi financing.
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.