MBIA

Many studies have shown that fading Cramer the day after his comments and covering 3 days later will give you a decent net.

Good blog.

Jeff

Anything with “insurance” and “mortgage” needs to avoided. Not to mention, when we have mortgage crisises like today, the insurance companies don’t cover anything. Wizetrade hasn’t found a good mortgage stock since I’ve gotten it.

Stay far away from these mortgage stocks. They are too unstable. I’d take Andrew’s wizetrade advice above.

The stock is currently trading at $8/share. I think this exemplifies how nutty the markets have become - you don’t know what tomorrow brings. The gyrations defy normal rationale and conventional wisdom.

MBIA traded at $70+/share in May ‘07. Was that realistic? No, I think It was overpriced. However, assuming half that value was a by-product of CDO/subprime originations, the stock was worth $35/share. And assuming there was a 15% premium imputed in last year’s value as a result of the unrealistic run-up in price, that would knock off another $10 from the per-share value, thus implying a net value of $25/share. I think this is realistic! After all, their primary book of business is NOT the CDO/subprime garbage, but rather the municipal and corporate issues booked year after year well in advance of the 2001/02 kick-off of the subprime frenzy.

MBIA is going to take some real cash losses on its CDO/subprime book of business; that’s a given, but it still holds a huge chunk of business in municipal/corp issues. Is $8/share a fair representation of this net value; the underlying chunk of the portfolio? I don’t think so - its undervalued and oversold. The market is acting on emotion; borderline hysteria, rather than underlying fundamentals. The credit market turmoil is breaking new grounds, defying conventional wisdom and traditional models, so folks are panicked..they don’t know what to expect, so they sell!

I’m not worried about MBIA, but I do find highly disconcerting the seemingly uncontrolled reactionary mentality of investors.

Also, I don’t believe the investement risk associated with MBIA is represented in the liklihood of bankruptcy; that probably is minimal, but rather the distinct possibility that a foreign entity will take advantage of a weak dollar and make a cash tender offer to acquire MBIA, thus leaving investors who purchased at higher values on the proverbial short end of the stick.

On a side note, the “shorts” are making a killing on this!

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Regards,
Des.