Wednesday, December 22, 2010 1:34:54 PM
AGO might make for a good short here...
Gerard Torres, Fool contributor
Bermuda-based Assured Guaranty (NYSE: AGO) will one day go the way of the woolly mammoth, or in financial parlance, the way of Lehman Brothers. Why? Because its services are no longer required.
Assured Guaranty is one of the only municipal bond insurers standing after the destruction of its competition during the financial crisis, but that won't be enough to save it. The business of insuring municipal bonds is quickly dying, as shown by the decreasing number of new municipal bond issues that have insurance. With only a little more than $18 billion in total assets, Assured Guaranty doesn't seem like much of an insurance policy compared to projections of a combined budget deficit of $140 billion for all 50 states in 2012.
If that wasn't enough, Assured Guaranty recently had its credit rating lowered because of expected losses from toxic mortgages, which is exactly what led to the obliteration of Assured's competitors. In other words, if you're a C student, then working with an A student will average you out to a B. There isn't much incentive to work with a B student, since you wouldn't get much of a bump. Well, Assured Guaranty, formerly an A student, just got demoted to a B student. So there won't be many suitors for its services in the future.
Gerard Torres, Fool contributor
Bermuda-based Assured Guaranty (NYSE: AGO) will one day go the way of the woolly mammoth, or in financial parlance, the way of Lehman Brothers. Why? Because its services are no longer required.
Assured Guaranty is one of the only municipal bond insurers standing after the destruction of its competition during the financial crisis, but that won't be enough to save it. The business of insuring municipal bonds is quickly dying, as shown by the decreasing number of new municipal bond issues that have insurance. With only a little more than $18 billion in total assets, Assured Guaranty doesn't seem like much of an insurance policy compared to projections of a combined budget deficit of $140 billion for all 50 states in 2012.
If that wasn't enough, Assured Guaranty recently had its credit rating lowered because of expected losses from toxic mortgages, which is exactly what led to the obliteration of Assured's competitors. In other words, if you're a C student, then working with an A student will average you out to a B. There isn't much incentive to work with a B student, since you wouldn't get much of a bump. Well, Assured Guaranty, formerly an A student, just got demoted to a B student. So there won't be many suitors for its services in the future.
These are my Courts, there may be many like them but these are mine!
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