Reminiscences of a Stockblogger

Sep 26

Does Radian Guaranty have a liquidity problem?

A couple of weeks ago a Seeking Alpha article was published that highlighted some problems on the horizon for Radian Group (RDN). The article was excellent and it introduced me to the idea of liquidity risk at a mortgage insurance subsidiary. That led me into a much more detailed investigation of the Radian Guaranty insurance subsidiary, which I will discuss below.

The liquidity of an insurance sub

Before getting into the issues specific to Radian, let’s talk a bit about liquidity risk. For some reason liquidity is not at the forefront of discussion during conference calls and in brokerage reports on mortgage insurance companies. Questions and comments focus on risk to capital ratios and loan loss reserve methodologies, which, while providing important clues, do not in themselves allow you to conclude whether a company will have the cash available to pay the claims. The author of the SeekingAlpha article, Darren Oliver, suggested that this was because the mortgage insurance industry is not very well understood. This could be the case, I don’t know. I just find it surprising.

As a mortgage insurer, the bottom line is that you have the cash available to pay claims and that the regulator who watches over you believes that this is the case. Over time, the cash and short term investments on hand plus the premiums paid need to be enough to pay out claims made as well as operating expenses incurred. If there is a concern that the cash and future premiums will not be enough to cover the expected claims, the insurer will either be taken over by the regulator or put into run off.

Sep 22

When the facts change: Getting back into Equal Energy

I have been inching my way back into a position in Equal Energy over the last week and a half. On Thursday, with the stock dropping back to $3.40 (on the Canadian exchange) I increased my position significantly.

Of course I sold Equal at an even lower price. I began selling in May with a third of my position at $3.35, another third at $3.20, and the rest at $2.85.

So why by back now?

Well, some of the facts have changed.

Three key events have occurred that have changed my opinion on Equal Energy

I read the SeekingAlpha posts on Equal by Nawar Alsaadi
Drilling of the Mississippian has begun
Central banks around the world are easing

Sep 16

5 Comments

Week 63: Bending History

Portfolio Performance

More on my Tepper moment

In a response to my post Yesterday’s David Tepper Moment, the comment was made that the original David Tepper moment came after stocks had already moved quite a bit and that, if this was to be another David Tepper moment, it would be because we are far closer to the top than to the bottom. The comment was directly especially at gold stocks.

This made me think twice. As I remembered it the months after the original Tepper moment were some of the best for my portfolio.

Of course it was possible that I was re-imagining history in the most flattering way. Rather than take my memory on its word I decided to go back and check the stats.

2010-2011 Portfolio Holdings

As it turns out, the 5 months following David Tepper’s comments were very good for my portfolio. They were also fairly good months for stocks as a whole. The S&P returned 13% over that period. Read more

Sep 14

11 Comments

Yesterday’s David Tepper Moment

David Tepper is a very successful hedge fund manager who, in the fall of 2010, went on CNBC and explained, with a simplicity that the market loves, why you had to own stocks.

“Either the economy is going to get better by itself in the next three months…What assets are going to do well? Stocks are going to do well, bonds won’t do so well, gold won’t do as well,” he said. “Or the economy is not going to pick up in the next three months and the Fed is going to come in with QE.

“Then what’s going to do well? Everything, in the near term (though) not bonds…So let’s see what I got—I got two different situations: One, the economy gets better by itself, stocks are better, bonds are worse, gold is probably worse. The other situation is the fed comes in with money.”

I am coining the phrase “David Tepper moment” to refer to a time when what appears to be the obvious thing to do is the right thing to do. A moment when the correct action is “just that simple”.

I believe that yesterday was a David Tepper moment for gold stocks.