Friday, March 27, 2009

AINV Upgrade, TGB Share Float/Casinos & Debt/Risk Management for a Single Security/AIG Risk Managers

The WSJ reported this morning that many of the senior risk managers at AIG still have their jobs including William Dooley who has authority over the Financial Products   I would certainly agree with anyone who advocates a complete house cleaning of AIG's risk managers.  One comment made by Liddy in his congressional testimony is fascinating to me.  He testified that the risk managers were "generally"  not allowed to go into the financial products unit to examine the risk.  Cordoning off this business from risk controls had to be done with the approval of senior management.   In other words, as with other institutions that failed, there was a deliberate effort at the top to undermine effective risk control that would hinder the Masters of Disaster from earning hundreds of millions for themselves.  Anyone who put their hand in front of the meat they wanted to devour would have their hand bitten off.  A similar problem happened at Merrill Lynch where anyone opposed to Stan's effort to pile on irresponsible risks had to find other work.
Take A Short Term Profit vs. Hold as a Part of an Asset Allocation Plan/ J P Morgan: Extreme Negativity on GE/ Liesman and Lewis/Buys: GRT & GIVN
This is why I would have suggested that firms like Merrill and Citigroup would have been better off with an African Grey parrot at the helm rather than Stan and Chuck.
I do understand why Americans are tired of hearing about the titans of finance receiving hundreds of millions for engineering colossal failures.

An economist at ING Bank, Rob Carnell, does not believe the economy has stabilized.

The casino industries current problems are a good lesson in what happens when a firm expands with excessive leverage that can only be serviced by a continuation of good times almost indefinitely. MarketWatch

Jon Markman makes a case against the consumer staple stocks that I have bought this month in this article.   MSN Money 
He claims there has been a "radical" shift from brands to low cost chic. 

I received an inquiry about why I viewed the sell of 50 shares of LXPPRD to be a risk reduction. When I made initially the decision to buy 50 shares last quarter, the initial risk/reward assessment for that security was to limit my exposure to around $350.  When I decided to transfer the risk to a retirement account, primarily due to the tax implications of a deferred cumulative preferred dividend, I waited for an opportunity to buy the security at a price close to my original purchase price which opportunity came a few days ago at $7.  So, temporarily, I had more than my allocation.  So, risk was reduced in two ways.  First, by selling 50 I went  back to my original maximum exposure level, but I also realized a profit of around $125 with one dividend on the shares sold.  When managing risk for one security, I will reduce my exposure limit by the amount of the monies previously received from trades and dividends, not for tax purposes of course, but simply to determine my net exposure to a particular security in my risk analysis.  So, looking at this way, risk in the existing position in LXPPRD was reduced from $350 to $225 and will soon be reduced further on receipt of additional dividends.  Ultimately, for many securities, risk will be reduced to nothing when examined in this manner. Then,  I revert to saying  playing with the house's money.  The recent smack down in Synta did not hurt as much since my position was financed with the house's money on trades, which is one risk reduction technique to use in a highly speculative security.  I view Synta as a wash even though my last position was a loss. I was still in it  due to a potential payday with the house's money that I viewed as worth the risk which ultimately proved unsuccessful.   SNTA BLOWUP/ Bought WR/Obama Screws Sallie Mae & Health Care Companies/Hyperventilating on Taxes/
I am revisiting Synta to highlight the reason for risk management of a particular position as part of an overall risk management strategy which would include broader categories such as shifts in the asset mixes, such as reducing stock exposure and moving to cash. 

One form of risk that is difficult to manage is short versus long term risk.  At the start of this month, I believed that the long term risk of buying securities when the DJIA was at 6600 was small.  That is, if I could wait and hold a position purchased in a quality company for five to ten years, my risk was negligible.  But, balanced against the assessment of the long term big picture risk is the short term risk of lost opportunity.  Every investor only has so much capital to invest, no matter how much money you have.  If I bought shares in DuPont at $16, a price last seen 20 years ago, then those funds would not be available to buy DD at 12.   RB, the one in charge of the big picture, abandoned the risk controls established by LB due to its big picture assessment of the balance of risks shifting decidedly in favor of the long term when the DJIA was at 6600, which means in effect a perception that the long term reward was high and the short term risk of loss opportunity was low.  The reward/risk of this long/short risk analysis is more in balance now.  I refer to RB as it because that is what it is, my Right Brain, engaged in constant chatter and dialogue with the other it, LB. 

Republicans blame black people for the economic crisis while the President of Brazil blames "white people"   Maybe both sides of that argument need to focus on other factors besides skin and eye color. 

Taseko Mines (TGB), a lottery ticket, floated almost 14 million shares in an offering at $1.45 Canadian.  Yahoo! Finance  I would much prefer companies to raise capital when the stock price is strong, rather than increasing the share base at depressed prices to raise necessary funds.  I assume that TGB needs the 20 million or so to fund expansion.   

BMO Capital Markets upgraded a recent lottery ticket purchase, Apollo Investment Mangement (AINV) to outperform. Buy 50 AINV at $2.35 in IRA/Revisions to top Twelve Causes of the Not So Great Depression AINV: Summary for Apollo Investment Corporation - Yahoo! Finance   The current dividend yield at my purchase was over 40%.  This one just went ex dividend after my purchase at $2.35.  It makes LB feel a bit queasy so there is a hair trigger on the position. 

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