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Genesis Posts: 71432 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/1011-T....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-06 07:45:28
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Cawoodruff Posts: 55 Incept: 2008-04-17
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Remember don't waste a good crisis.
2009-05-06 08:16:57
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Snowman Posts: 1040 Incept: 2009-03-09 
avoiding yellow snow
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Obama has thrown legal uncertainty into the gears of the markets, and its a disaster if we now have to second guess. Any distressed industry where the government might come in is off limits now to an investor. Interestingly, a key auto advisor to WH working with Rattner, Ron Bloom, has for years equated and advocated workers and bondholders having the same rights in that labor also "loans" to the company: "They worked a lifetime and deferred a significant amount of current compensation in exchange for the company’s promise that, upon their retirement, they would be paid a fixed stream of cash and provided with help with their medical bills. Then, without their knowledge or consent, the company chose to not set aside enough money to honor that promise. In effect, the company borrowed money from them without even discussing the terms of the loan....So what we have is a bunch of old men and widows being forced to lend the company, for whom they worked a lifetime, some portion of the value of their pension and their health care. This loan was made on terms on which they have no input and they have no ability to liquidate their position." So the game plan is to give "workers" the same ability to liquidate their holdings, or at least get a return/investment just like a secured debt holder. THAT, I believe, is the ideology being pursued. Apart from any personal ideological issues, this type of thinking kills the ability for a company to raise funds over anything more than short term.
2009-05-06 08:37:18
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Mo Posts: 5502 Incept: 2007-06-26 
Florida Online
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I think you have to look at this from a perspective of evaluating the end goals of the politicos in power, unstated, which we can only infer based on their actions and pronouncements when they let things slip. They've already said they want the financial sector to shrink. In an attempt to pay back their union supporters, they are actively undermining the rule of law and creating unpredictability in the debt markets. This is unimportant to them. They believe in the magical 'green manufacturing' that I hear 20-somethings swoon about, subsidized by the federal government. They are rushing to raise taxes (via cap and trade) on energy use by all Americans. They fear a backlash by Americans who don't share their beliefs and goals (see the DHS documents released recently) and are quickly trying to criminalize them. They are spraying money at welfare programs around the country, calling it 'stimulus'. Anecdotally, one of my relatives has a friend who works for Head Start. They're getting huge sums from the Feds via stimulus money. I think if you had to characterize their economic beliefs, it's the opposite of 'trickle down': anyone who consumes energy or has money should be taxed out of their money; dependency should be rewarded; union affiliation should be rewarded; Government subsidy and control of key sectors of the economy is 'good'. Oh, and all opposition should be demonized. The biggest question right now is, why don't they fear a backlash at the ballot box? ---------- "The World has been cancelled. It doesn't even look like the world. There is one island that is maintained and is said to be owned by the Sheikh and the rest looks like a pile of muck."
2009-05-06 08:41:58
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Blankfiend Posts: 1736 Incept: 2009-02-07
MA
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The judge in the Chrysler bankruptcy case has basically given the green light to the government's proposals. Remember Karl's blogtalk radio speech Monday? Well, it looks like the judiciary has caved as well.
---------- My Elliott Wave Blog: http://blankfiendsew.blogspot.com/ Democrats and Republicans are like M&M's - different colors on the outside and full of brown stuff on the inside.
2009-05-06 08:43:28
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Lowbeyond Posts: 6902 Incept: 2008-02-11
CO Online
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You know i used to be in the camp that Paying back the TARP was not enough since they still got the gov't guarantee. So much for that. Now i'm in the camp of pay back the TARP, screw whatever the fed says and tell them to FOAD. As always, as bad as WS is, it dwarfs the abuse in gov't. ---------- Maybe it was a birdy bread-bomber from the future?!
2009-05-06 09:47:02
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Bozonian Posts: 14033 Incept: 2007-09-01
PFT - Pure F'n Tin
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This should be good for the equity market in the short term as bond holders move into equities being pumped by inflation (Fed and Treasury putting money into the equity markets). Also this market exhibits endless denial. "Oh, they might do that to GM and Chrysler but they'd NEVER do it to my investments". ---------- I'm so depressed about outsourcing I called the suicide hotline and got a call center in Pakistan. They got all excited and asked me if I could drive a truck. Everything I write is my opinion and not to be considered proven fact. Nothing I write should be considered financial advice. Last modified:
2009-05-06 10:09:18 by bozonian
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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No Boz, its bad for equities as the bondholders are being forcibly converted and many of them are going to immediately sell. There is no capital flow coming in with these moves; they're conversions. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-06 10:09:48
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Solnow Posts: 829 Incept: 2009-03-02 My Market Model
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We are officially a banana republic.
---------- Adapt. Improvise. Overcome. HOPE is for sissies
2009-05-06 10:13:31
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Bozonian Posts: 14033 Incept: 2007-09-01
PFT - Pure F'n Tin
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We need a new name for the form of government where they kill you with love: Nannyism.
---------- I'm so depressed about outsourcing I called the suicide hotline and got a call center in Pakistan. They got all excited and asked me if I could drive a truck. Everything I write is my opinion and not to be considered proven fact. Nothing I write should be considered financial advice.
2009-05-06 10:13:55
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Lowbeyond Posts: 6902 Incept: 2008-02-11
CO Online
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We already have that name. Its called ---------- Maybe it was a birdy bread-bomber from the future?! Last modified:
2009-05-06 11:06:53 by lowbeyond
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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Isn't this somewhat like this. John has a $100,000 home and a $90,000 mortgage. He has $30,000 in credit card debt and needs a new driveway, new windows, new roof, new kitchen, and new bathroom. So John now spends $50,000 on repairs and is due to pay good ole Joe for doing the work. Joe isn't smart enough to make him pay as he goes so the job is done and John can't pay. Well now the mortgage holder is in great position cause the house is worth say $140,000 but they are owed $90,000. But he can't pay so Joe forces them into bankruptcy. At this point the gov steps in and says that we're gonna sell the house and pay off the credit card holders first and then Joe(he has a contractors lien - 2nd position) and then whatever is left over we'll use to pay the bank. When you walk down this path who the **** will ever make a mortgage loan again. Same with this situation - Sr Debt is f'n dead. ---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-05-06 11:09:07
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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Right TMD. So-called "senior" debt has just been rendered subordinate to unsecured! ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-06 11:10:10
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Solnow Posts: 829 Incept: 2009-03-02 My Market Model
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Bilge
---------- Adapt. Improvise. Overcome. HOPE is for sissies Last modified:
2009-05-06 11:31:35 by solnow
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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Just had to put it in my world to make sure I was seeing it right. Now the question is do we need to have Sr debt to operate in the world. If not maybe this isn't so bad - if Sr debt is needed then this is catastrophic. But another way of looking at it is Sr debt doesn't matter so much as that when you are a nation of laws and the free market is dependent upon them - well if you can't trust that they will be enforced don't you just take your ball home. Thus this could not only kill Sr debt but also jr debt and equities and venture capital and everything. At this point I'm not only going to take my ball home but I'm going to sell you short and use that money to invest somewhere else that will have proper capital markets. ---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-05-06 11:16:25
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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You don't need it but it jacks the borrowing cost to the moon. To put this in perspective senior debt might sell for 100 bips over reference or even less, because the risk is allegedly very small. If you remove that the spread will likely double - or more. This in turn puts the squeeze on what is a "reasonable" P/E for the market since the "E" will be going down. A lot. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2009-05-06 11:20:44 by genesis
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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Where do you invest in something that shorts Sr Debt?
---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-05-06 11:21:27
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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As an individual I don't think you can. Credit spreads would be the place (e.g. CDS) ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-06 11:23:12
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Themortgagedude Posts: 3930 Incept: 2007-12-17
saint louis
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But is there an investment vehicle other than hedge funds that would be investable to do this? I can't think of any. I guess you could invest in a company that does it, but I once again can't think of any.
---------- "These are interesting times. We don't trust the government, we don't trust the legal system, we don't trust the media, and we don't trust each other! We've undermined all authority, and with it, the basis for replacing it! It's like a six-year-old's dream come true!"
2009-05-06 11:28:25
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Thrustvectoring Posts: 149 Incept: 2008-09-17
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Quote:So the game plan is to give "workers" the same ability to liquidate their holdings, or at least get a return/investment just like a secured debt holder. Its not all that bad of an idea going forward, although it really sucks to change the rules in the middle of the game. Pension plans are deeply flawed as it is - they are better off underfunded in the view of shareholders, get reamed in bankruptcy proceedings, and don't have contractual rights on the assets that the going concern takes on debt in order to accumulate. Correct me if I'm wrong, but wouldn't underfunding a pension go directly into the pockets of the equity holders (more profits to go towards assets + cash on hand) and management (more profits -> more bonuses)? The biggest problem is that management and equity can't really take more of a hit than they have now. Now that I think about it, debt holders would also have gotten some benefit out of underfunding pensions if it meant that the company's bankruptcy was hidden for longer - they held debt during the period of time between bankruptcy @ full pension funding and bankruptcy @ underfunded pension.
2009-05-06 11:30:21
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Thrustvectoring Posts: 149 Incept: 2008-09-17
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Quote:But is there an investment vehicle other than hedge funds that would be investable to do this? I can't think of any. I guess you could invest in a company that does it, but I once again can't think of any. You could short the common of a company that holds a lot of senior debt of the companies you are concerned about. It'd be like shorting PIMCO as a proxy for shorting Agencies, since PIMCO holds so much Agencies
2009-05-06 11:33:14
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1lumpsum Posts: 1733 Incept: 2008-02-01
Nashville Online
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As Gm goes, so goes the nation. Chains you can believe in!
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2009-05-06 11:35:22 by 1lumpsum
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Dashingdwl Posts: 4564 Incept: 2007-06-26
los angeles
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Might be easier to short bonds or other junior debt. You still gotta have a big account.
---------- Think Green Tip. Last modified:
2009-05-06 11:36:05 by dashingdwl
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Thrustvectoring Posts: 149 Incept: 2008-09-17
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Quote:Might be easier to short bonds or other junior debt. Junior debt is already toast if they're considering carving out a pound of flesh from senior debt for the pension plan to eat.
2009-05-06 11:40:33
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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Actually doing that could get you really ****ed. The destruction of priority means you can no longer do something like go long senior and short sub. It also means that if you're short sub the recovery could be HIGHER on the sub than the senior and **** you straight to Mars. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2009-05-06 11:47:51
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