Greetings, Michael.
In yesterday's Fleckenstein column, he noted a speech given by Doug Noland (www.prudentbear.com/credit.html) that I found quite interesting. I hope you are able to give it a read, because the arguments for a credit bubble seem quite valid. His "flood insurance" analogy is quite good and worth the reading in and of itself. At the heart of the message is that derivatives "create their own demand," that is, until things start going sour. In particular, the author notes that MBIA and Ambac Financial, the largest credit insurers, have a capital base of $2.7 B supporting $402 B in net insurance, for a ratio of 149:1.
I know you are about to buy puts on FNM (would like to know what months you think are best for this), and it strikes me that Ambac might be a good candidate for puts, as well, if even half of what Noland is concerned about comes to be. Ambac split 3:2 today and is near its high in a year of substantial gains. Don't know if MBIA is a listed company. Couldn't find it in initial attempts.
I certainly would like to know what you think of Noland's piece. I hope you are able to give this rather long tome a quick read. Your comments on the value Prudent Bear insights in general would also be appreciated.
Thanks. |
