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!


  1. We are all carnies now. lol

  2. Sad but true...next move will be Obama taking over MGIC to support the housing market.

  3. 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.

  4. 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.

  5. 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.

  6. 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.

  7. 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.