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I just bought more at $14.24. How low can it go? Stop at $13.90
AMRS is really taking a beating after the financial report Nov 1 and the conference call. As of this writing we have gone from $21+ to $14.35. Will that reduction in market cap effect the ability to go forward? Where is the bottom?
Shouldn't the sellers be getting exhausted and the shorts start covering soon? I've bought a little on the way down but this is getting bizarre. No word from management.
Baird downgraded the company and we are scheduled to go to their conference in early Dec. That should be interesting.
Instead of the debate being farms vs fish it should be farms vs conservation. There are many inefficiencies in water delivery systems, application methods, municipal and industrial uses that should be implemented before we drive our fishery resources to extinction.
Nwsailor
Alex,
In addition to lower US corporate tax rates I have noticed that in Oregon and California state/local property tax rates have shifted significantly from corporations to residential property owners.
I would have expected a little more bounce towards the close today after such a shitty week. We might be in for more down next week. My pockets are already saggin'. Started loading up on juniors at noon.
Dan re: NovaGold
NG has been on a real tear lately. Up another 8% today. Do you have any insights as to why it is outperforming the other miners?
Sitting there in front of your computer complaining doesn't seem that productive to me.
nwsailor
Slow being the key word. Less than 10k shares traded so far today (10am PT).
Zeev used to say the biotecks often lead the parade.
The Fishing Trip
Jim and his buddies were hanging out and planning an upcoming fishing trip. Unfortunately, he had to tell them that he couldn't go this time because his wife wouldn't let him. After a lot of teasing and name calling, Jim headed home frustrated.
The following week when Jim's buddies arrived at the lake to set up camp, they were shocked to see Jim. He was already sitting at the campground with a cold beer, swag rolled out, fishing rod in hand, and a camp fire glowing.
"How did you talk your missus into letting you go Jim?"
"I didn't have to," JIm replied.
Yesterday, when I left work , I went home and slumped down in my chair with a beer to drown my sorrows because I couldn't go fishing. Then the ol' lady snuck up behind me and covered my eyes and said, 'Surprise'."
When I peeled her hands back, she was standing there in a beautiful see through negligee and she said, ' Carry me into the bedroom, tie me to the bed and you can do whatever you want'.....
So, Here I am!"
No, Wait! You Got It Backwards!
Posted: Thu, 26 Feb 2009 16:44:44 +0000
AKA, Convertible Preferred Stock for Beginners.
There is nothing inherently wrong with convertible preferred stock. In Silicon Valley, for example, venture capitalists almost always invest by buying convertible preferred. The idea is that in the case of a bad outcome, the VCs are protected, because their shares have priority over the common shares held by the founders and employees. Say the VCs put in $10 million for 1 million shares, and the founders and employees also have 1 million shares, so the company immediately after the investment is worth $20 million. If the company liquidates for $15 million, the preferred shares have a “preference,” which means they get their $10 million back (often with a mandatory cumuluative dividend as well) first, and the common shareholders take the loss. However, in a good outcome, the VCs can exchange their preferred shares one-for-one for common. So if the company gets sold for $100 million, the VCs convert, and they now own 50% of the common stock, so they get $50 million.
When I heard that the government was going to give future capital as convertible preferred stock, and perhaps change some of the previous capital injections to convertible preferred, I thought this was a good thing. It would give the taxpayer more upside potential, and it would also give the government the option to take over the banks simply by converting its preferred stock to common whenever it wanted.
But the key in the Silicon Valley example is that the VCs have the option to convert or not. The Treasury Department’s new Capital Assistance Program has this precisely backwards.
Under the new Capital Assistance Program (CAP), the government will invest in banks by buying preferred shares with a 9% dividend. This is like the old Capital Purchase Program (used last fall for the first round of recapitalizations), but with one huge twist. Now the bank, AT ITS OPTION, can choose to convert the preferred shares into common, at 90% of the average closing share price during the 20 days ending on February 9 (the day before the new Financial Stability Plan was “announced”).
An example would probably help here. Let’s say that Bank of America (BAC) needs another $25 billion in capital. The government will give BAC $25 billion in cash, which BAC has to pay back in 7 years (that’s the mandatory conversion date). In the meantime, BAC has to pay 9% interest, or $2.25 billion, per year. But, at any time, BAC can convert any amount of that to common shares, at $5.49 per share. (The average closing price over the 20 days was $6.10.) If it converted $5 billion into common, the government would get about 910 million (5 billion divided by 5.49) common shares, but now BAC only owes the government $20 billion and is paying 9% interest on only $20 billion.
In short, BAC has just sold the government 910 million shares for $5.49 each.
This is called a put option. At any time, BAC can sell (”put”) shares to the government for $5.49, but it never has to. (The convertible shares the Silicon Valley VCs get are like call options; at any time, they can buy common shares by trading in preferred shares, but they never have to.) Having an option is always good.
What will BAC do with this option? If its stock price is above $5.49, it can either do nothing, or it can issue new common shares and sell them to private investors, say at $8. Then it can use that $8 to buy back preferred shares from the government, or just hold onto it. If its stock price falls below $5.49, things get interesting. Then BAC can buy up its shares on the market for, say, $3, and then immediately sell them to the government for $5.49. It won’t get $5.49 in new cash, but it will reduce its debt to the government - because preferred shares that have to be bought back and pay interest are basically debt - by $5.49, which is almost as good.
(This would have the side effect of supporting BAC’s stock price, because it means there is a buyer (BAC) who is theoretically always willing to pay $5.48 for the stock. Ricardo Caballero must be smiling)
In practice, it’s not quite this simple, because the bank will require Treasury’s permission to buy back common shares from other investors. But even if BAC doesn’t buy back any shares, it still has the option - whenever its stock price is below $5.49 - of reducing its debt to the government by $5.49 simply by giving the government a share worth less than $5.49.
What’s wrong with this? Well, nothing, if your goal is to give banks money. What you’ve just done is stick the government with the downside risk - we could get paid back in worthless stock - while the bank shareholders get all the upside potential. You’ve done this by giving the bank, for free, an option that has value. Back of the envelope, Peter thinks this option is worth about 65 cents per dollar of money invested. (It’s worth so much because bank stocks are so volatile these days.) Put another way, for every $10 billion of capital we invest this way, we are giving away another $6.5 billion. I think it’s probably a little less, because the option is not as flexible as the holder would like it to be, but you get the point.
As I’ve said many times before, if you think the banks need money, and you want to give it to them (instead of, say, nationalizing them), just give it to them already. Don’t come up with these ridiculously fancy schemes to hide it. Yesterday Krugman gave Simon and me credit for writing this sentence:
This is another sign of the serious brainpower that has been expended on finding ways to avoid or minimise government ownership of banks, and to avoid the slightest possibility of offending shareholders – shareholders whose shares have positive value primarily because of the expectation of a further government bail-out.
But to tell you the truth, at the time we wrote that I didn’t realize just how much brainpower went into this one.
There are some other worrying things in the term sheet I’ll just touch on here:
* Any qualifying financial institution can get anywhere from 1 to 2% of the value of its assets under this program, simply by asking - even if it doesn’t need it. I guess if you’re going to be giving gifts (free put options) to the banks that need to be saved, you need to be fair and give the same gifts to banks that don’t need to be saved. Banks will need regulatory permission to get more than 2% - a clear sign that getting money under this program is a good thing for banks.
* On top of that 2%, any qualifying financial institution can get additional money under this program in order to retire the preferred stock it sold last fall under the Capital Purchase Program. This means they can take back non-convertible preferred stock and give the government convertible preferred stock instead, with no cash changing hands.The dividend rate on the new stuff is higher (9% vs. 5%), so a bank wouldn’t necessarily do this. But if its stock price is lower than its conversion price (the average price on the 20 days ending on February 9), then it should do the swap, and then immediately convert the preferred into common (so the dividend goes away). That way, instead of owing the government, say, $10 billion and paying interest on it, it can give the government $5 billion worth of common stock instead. (For those asking the obvious question: Citigroup’s conversion price is $3.46. Yesterday it closed at $2.52. You might call this one the “Citigroup clause,” not to be confused with Santa Claus.)
* The convertible preferred stock will have no voting rights. This is hardly surprising, given that the whole point of the exercise is to avoid government control. But it’s by no means necessary. For example, VC firms always get voting rights for their convertible preferred shares.
There are some very clever people in Treasury these days.
Update: Oh, I forgot the most important point. This still does nothing for the asset side of the balance sheet, which is where the big monsters are hiding.
From the Baseline Scenario
Citigroup Arithmetic Explained
Posted: Fri, 27 Feb 2009 17:42:11 +0000
Since I’ve been writing about preferred and common stock so much this week, I thought I would just try to explain the arithmetic of the Citigroup deal announced today. (By the way, it isn’t a done deal: all it says is that Citi is offering a preferred-for-common conversion to its outside investors, and the government will match them dollar-for-dollar, although the WSJ says that several investors have agreed to participate.)
Right now, according to Google Finance, Citi has 5.45 billion common shares outstanding. It is offering to convert up to $27.5 billion of preferred shares held by “private” investors other than the U.S. government (like the government of Singapore and Prince Alwaleed) into common shares, at a conversion price of $3.25. That would create another 8.46 billion shares. For every dollar that is converted, the U.S. government will also convert one dollar of its preferred stock, up to $25 billion; that is the $25 billion from the first round of recapitalization back in October, which is paying a 5% dividend. (Fortunately someone realized we should convert that before converting the second chunk, which pays 8%.) That would create another 7.69 billion shares. So if everyone converts as much as possible, there will be 21.60 billion shares outstanding, of which the U.S. government will own 7.69, for an ownership stake of 36%, the number you read in the papers. (Actually, if the private investors convert exactly $25 billion and not $27.5 billion, the government would own 37%, but that’s a detail.) The other private investors would own 39%, and current shareholders would own 25%.
The government got some warrants on common shares in connection with the earlier recapitalizations. I assume the warrants it got for the first investment will no longer exist (because that first investment is being “paid back”), but the warrants on the second investment, if exercised, would presumably push the government up a couple percentage points.
Where did the $3.25 price come from? Who knows. Yesterday’s closing price was $2.46. If that price had been used, the government’s target ownership percentage would have been 38% instead of 36%, which seems immaterial. Presumably it was the product of a negotiation, since it’s hard to see how the investors involved - especially the ones that are not the U.S. government - would have wanted to pay more than the current stock price for a company that is clearly in trouble. At least they didn’t use $3.46, which is the price that any future Citigroup convertible preferred stock can be converted at.
And why did the stock plummet (now $1.57), despite the fact that the preferred shareholders are “paying” $3.25 per share? Probably because the common shareholders realize this is largely an accounting game, and the preferred stock wasn’t worth its face value to begin with. The current shareholders’ ownership stake could fall from 100% to 25%, but the stock is only down 36%. This implies that the market thinks that the total common shareholders’ stake will more than double in value, but won’t quadruple in value (the amount required to offset the dilution). Their stake increased in value because (a) Citigroup can avoid paying dividends on all the preferred stock that gets converted and (b) that much less money will have to get paid back to preferred shareholders in case of liquidation. But there’s still a large cloud hanging over Citi, and it’s on the asset side of the balance sheet.
From The Baseline Scenario
Dan,
What's up with Novagold?
They are the Beavers and they may be going to the Rpose Bowl for the first time since 1965 if they can beat the Ducks this Saturday in the Civil War game.
Jim,
I had a nice trade on the QID, just now getting out. Thanks for the cycle info, it was one factor in my making the trade.
Nice call!
The watch
An Australian is sitting at a bar in New York City and looks at his watch Several times in the space of a few minutes.
The woman sitting nearby notices this and asks, "Is your date running late?"
"No," he replies, "I have this state-of-the-art watch. I was just testing it."
The intrigued woman says, "A state-of-the-art watch? What's so special about it?
The Aussie explains, "It uses alpha waves to talk to me telepathically."
The lady says, "What's it telling you now?"
"Well, it says you're not wearing any panties."
The woman giggles and replies, "Well it must be broken because I am wearing panties!''
The Aussie smirks, taps his watch and says, "Bloody thing's running about an hour fast, can I buy you a drink?"
SNDK making a nice move. News?
You forgot crop subsidies.
Interesting short flick.
http://www.naomiklein.org/shock-doctrine/short-film
" Are global temperatures rising? Surely, they were rising from the late 1970s to 1998, but "there has been no net global warming since 1998." Indeed, the more recent numbers show that there is now evidence of significant cooling."
How do you explain this?
http://data.giss.nasa.gov/gistemp/2005/
Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote.--Ben Franklin
Why stop there? Why not cut ALL taxes? We could not only pass our obligations on to the next generation but to the next several generations. Oops, maybe we have already done that. Let's see who's next in line. Oh yeah, foreigners!
Well as Jim says "we will know in the fullness of time".
If the economy isn't that bad why is the Fed hinting at further rate cuts? Many so called pundits are predicting a 100+ basis pt decrease for 2008. The Administration is suggesting tax cuts. Sounds like they are in panic mode to me.
Why would the dollar strengthen if they are lowering rates?
I'm stunned the hui is up that much while the juniors I'm watching have gone nowhere, for the most part.<<<
Some of the big boys haven't done that well either. I remember when gold first hit $500 (this leg) NEM was trading at $50. Now gold is pushing $900 and NEM is what $54? The best luck I have had is holding juniors when they get bought out.
Joe, CFC preferreds old news but interesting:
Option update: CFC sells preferred shares to BAC, anxiety expected to decrease
Posted Aug 23rd 2007 8:02AM by Paul Foster
Filed under: Before the bell, Bank of America (BAC), Countrywide Financial (CFC), Options
Countrywide Financial Corp (NYSE: CFC) September volatility at 116 prior to BAC preferred stock purchase.
CFC, a U.S. home mortgage lender, is recently trading at $25.85 in pre-open trading, above its close of $21.82 yesterday. Bank of America (NYSE: BAC) purchased $2 billion of preferred stock from CFC. Goldman Sachs says this is "a vote of confidence from BAC, but earnings prospects unchanged." CFC September option implied volatility of 116 is above its 26-week average of 59 according to Track Data, indicating larger price fluctuations.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
More Countrywide Financial news
Peter Cohan: Is Bank of America's (BAC) purchase of Countrwide Financial (CFC) a good bet?
Georges Yared: Bank of America (BAC) makes strategic investment in Countrywide Financial (CFC)
Douglas McIntyre: Will Berkshire Hathaway (BRK) buy parts of Countrywide Financial (CFC)?
A little slow but worth the wait.
http://marriageresourcecenter.org/videogallery/4/med/VideoWidget8.htm
Inflation
OT Inflation
ASTI making a move.
QID Nice call
The Cruelest Form of Eye Test for Old Geezers !
Where the heck did I put my magnifiers?
MMG I was concerned that the $2.40 support was broken. Your thoughts?
NG This is quite a bloodbath. I feel your pain. My biggest gold holding as well.
Dan,
Do you expect Barrick to come in now and swoop up NG at these prices?
NEM has consistently underperformed the PM market. If my recollections are correct, when gold hit 500 per ounce NEM was trading around 50. Today gold is 660 and NEM has just broken into the 40's. Basserdan suggested years ago that the smaller miners would perform much better than the larger ones in an up market. It took me awhile but I now whole heartedly agree. If nothing else, just compare Barrick, GG and NEM to the ETF and I think it will bear out what I am saying. Oviously talking long term here not day trades.
Note: I just sold some NG traders at 15.50
basserdan, NG picked up a few traders @ 14.40. Lots of good news out recently, stock should bounce soon.
Bullwinkle,
I certainly understand your position. My schedule won't allow me to help but I do appreciate all you have done to make this board meaningful.
NG Looks like Barrick was serious about selling off their holdings.