Goldman forcing CIT into liquidation?

As analysts are furiously attempting to figure out whether CIT will be allowed further out on the government dole (and Geithner indicates they have authority/ability, but not necessarily the desire to assist CIT).......

It is interesting to note that Goldman Sachs claims no "net exposure" on its CIT secured credit line ($1.5Bln drawn/$3.0Bln commitment).

With Goldman in a secured creditor position and significant short positions (via long unsecured CDS), and a high likelihood that Goldman has "hedged" itself against more than its $3.0Bln secured exposure...... Goldman stands to benefit the most from no government intervention. As a secured creditor, their recoveries will be higher on their loans than the unsecured bonds. Additionally, if they push for immediate liquidations it could result in overly punitive haircuts on unsecured creditors (i.e- overly large gains on unsecured CDS long positions).

Given the fact that the government still has GE on the dole for north of $70Bln, what exactly is the major constraint on lending CIT a few billion (aside from the fact that it does not help Goldman's book?) I for one don't like any of this bailout BS..... but there is clearly something wrong with liquidating a company simply to benefit Goldman's trading book.

PS- If it were to be found out that Goldman had "net negative exposure" to CIT (i.e- $5.0Bln unsecured CDS long against a $1.5Bln secured exposure), would Goldman have committed a violation of securities law/disclosure requirements....since they claimed to have "no material exposure".

Interestingly, Goldman is reported to have "hedged" itself on $20Bln in AIG exposure, in spite of only $10Bln of insurance. One should expect a similar "hedge" on CIT....the real question, why did our corrupt regulators solicit Goldman's opinion when they have a profit-motive to see the company fail? Ironically, its not Goldman (whose stated purpose is to make large profits) that should have people going to jail, but the former Goldman-officials and bureaucrats that are abusing their office in an effort to bankroll Goldman.

Tobin's Q- Why Are We Seeking to Audit the CIA When We Can't Even Audit Our Own Federal Reserve?

Ostensibly, our Congress and government (aka, Goldman Sachs) representatives would have us believe that auditing our Federal Reserve would a) destroy "sanctity" of independent Fed b) compromise monetary policy c)lead to economic collapse/ruin d)lead to politicization/economic favoritization e)etc., etc.

So given these potentially dire outcomes that would be associated with auditing our Fed (which is the only method to ensure it is indeed acting independently, appropriately, without favoritism towards a particular investment bank), it bewilders the imagination why our Congressmen are in such a hurry to audit the CIA and demand public accountability.

Imagine that..."public accountability" for a SPYING ORGANIZATION. We are too scared to even audit our public monetary policy, but believe making our SPIES publicly accountable to elected representatives is more appropriate?

Anyone care to chime in on this genius.

Goldman Sachs Looks Shortable at $146

Short Goldman Sachs@$146, stop-loss around $155

-Goldman Sachs stock is up 200% from the lows six months ago. The stock hasn't taken a breather or shown any real consolidation since it was trading below $100/share. Goldman has torn higher, in spite of consistently lower trading volumes above $100/share. This suggests lack of strong buying interest and potential exhaustion in the move. In the words of Kyle from the Terminator movie: Listen, and understand! That Terminator is out there! It can't be bargained with. It can't be reasoned with. It doesn't feel pity, or remorse, or fear. And it absolutely will not stop, ever, until you are dead. (in spite of this, they do kill the Terminator in the end)

That being said, I believe Goldman Sachs stock is slightly more fallible. The stock was not trading much higher than its current price even in 2006-2007 before the extent of market losses could be quantified. In addition, they will likely show significant losses since the value of their public debt securities has risen in Q2 2009 (due to fair value accounting, major banks are able to report mark-to-market "gains" when the price of their debt securities declines below par). While Goldman may be raking in large gains from the recent surge in debt/equity issuance, even an optimist might view 10x earnings as a rich multiple to pay for an investment banker in the current environment. Essentially Goldman Sachs is arguably overvalued.

Shorting a small amount of shares here (may sell more short on a spike), along with implementing a put spread (buy $135 October Put/ Sell $105 put). A break below $140 might cause a severe decline to the $100 area (perhaps over 2 month period into August/September), although its fair to assume the Treasury would interfere if movements became any more severe than a 30-40% decline in Government Sachs' share price.

Trade update- montpelier re (ticker MRH) is a good deal trading at $12.50 a share. Why? MRH is trading 20percent below its tangible book value of $15 per share. I have followed the company for 5 years and their investment portfolio is fairly low risk, which means the company could be liquidated at book value in a fairly short time period. At the very least, this suggests MRH is unlikely to decline much further, barring another hurricane like Katrina. Based on this, I am selling $10/ $12.50 puts for 1 month premiums of .25-1.00 (2-8pct one month returns), or up to a 96 percent annualized return. Alternatively, you could just buy the stock and write covered calls (sell the $12.50 call to generate income. I am ultimately more comfortable betting that MRH will not go down, versus betting that it will go up a lot

Best Buy near long-term resistance... appears to be a good short

Best Buy near long-term resistance... appears to be a good short. $40 has repeatedly been a major resistance point for Best Buy historically, in year 2000, 2002, 2003, and 2004. This price point also served as minor support in 2008. Notice too, that long-term uptrend line around $18/share was never breached. While Best Buy "reported" EPS that "beat estimates" of $1.41/share, this excluded restructuring/layoff charges of more than $100Mln, which would have caused them to miss estimates.

Even with their "earnings beat", earnings still fell 6% YoY and are expected to be flat-to-down 10% over the next year. At a current P/E of 13.2x and earnings in a decline and unemployment continuing to rise, there are few positive catalysts for Best Buy. Best Buy may gain market share from Circuit City's implosion, but in the midst of a major downturn this will be offset by weaker consumer spending and credit contraction.

At the very least, selling near-term $42.50/$45 puts for a 1-2% premium seems like a safe bet.

Federal Reserve Promoting Accountability, Transparency and Safeguards on its Financial Counterparties

(VIDEO) Federal Reserve Promoting Accountability, Transparency and Safeguards on its Financial Counterparties

Couple Points-GE, CCS, and HIG update

GE-A preferred- Over the past week there was an exceptional opportunity in GE baby-bonds, those listed and traded as preferred-stocks on the NYSE (even though they represent senior unsecured notes of GE Capital). The one I honed in on was GE-A Preferreds. This is a 2048 $25 par bond that was trading at $14 (below 60% of par!, for an 11% yield). Currently, this has rallied back up to $80 (8.9% yield). This is in-line with where GE's other long-term debt is trading, so the arbitrage is out of this for now.

CCS (Comcast Senior Note) is trading up to $18, up approximately $2.50 from my recommendation price on this blog (and about $2 from my average-buy in price. It should still claw its way higher, but at the current yield above 9% it still trades too low versus Comcast senior debt.

Finally, Hartford senior holding company debt appears extremely attractive, offered at a yield of 15% ($56 price for the 6.30% 2018 bonds). The holdco of Hartford carries $2Bln cash vs. $6Bln debt, which suggests it could repay 33% of outstanding bonds. Additionally, it controls interests in a property-casualty insurance company and a life insurance company, each of which generate north of $2bln pre-tax profits per year. The life insurance company has been bogged down by variable annuity/investment portfolio problems and may wind up being a writeoff (or only worth a few billion $ in a firesale). The P&C insurance company carries $12Bln statutory capital and is probably worth at least .8x book value, or a multiple of 5x normalized pre-tax profits= $10Bln nominal value. Based on this analysis, HIG's holding company should be worth approximately $10Bln (P&C)+$2Bln (cash)+$2Bln (firesale value of life insurance co.)=$14Bln, which represents 2.25x coverage of the outstanding holding company-debt.

Based on this analysis, Hartford financial service's 6.3% 2018 senior bonds are very attractive at $56, for a 15% yield-to-maturity. While the stock may have additional upside, given the vagaries of the current marketplace, we believe the bonds represent the most attractive risk-reward opportunity.