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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Kenneth Kirk who wrote (27579)	8/3/2007 5:15:00 PM
From: Jurgis Bekepuris	Respond to of 78817

Because, if you look at the balance sheet, it may have no tangible book value if sufficient amount (20%) of its "investments" are bad loans. Which may mean that it might just go "poof" bankrupt. :/ And BTW, even if the company is not technically worthless, it still may go bankrupt if the creditors come calling loud enough. This does not mean though that it HAS to go bankrupt. It may be fine and then, yes, it may be a great investment at this price. The same thing applies to the homebuilders. Most of them are fine if the inventory is only 20% overvalued. But what if it is still overvalued by 30-40%? Same thing. Disclosure: no position in RAS and won't buy one, I don't understand these kind of companies anyway. Position in ITB and MTH which I may or may not increase as prices change.

To: Kenneth Kirk who wrote (27579)	8/3/2007 5:22:39 PM
From: Paul Senior	Respond to of 78817

My limit for panic investing into yields is usually at about 18% max. By then those who want out are gone, and the value players who want in and have studied the situation, will have taken on the bet for the dividend and later stock recovery. At a 35% dividend there's essentially not enough people who believe that either the company can turn itself around or that the dividend is sustainable. I just don't recall any companies with such high dividend yields ever turning around. My memory could be faulty, or RAS could be an exception. I just figure I've lost enough, and nobody - afaik - can say or is saying just how safe or toxic RAS's business is. I note that the d/e ratio of RAS is about 7.6/1. There's a multiplier affect there if some of that debt - like only 15% is toxic. All jmo, and I've been wrong many, many times. Certainly with RAS. I'll try to stick with RSO. That reit also exceeds my 18% limit. Here though you have acknowledged value investor Leon Cooperman as a director and he is buying. And the company has announced a buy-back as well.

To: Kenneth Kirk who wrote (27579)	8/3/2007 5:32:10 PM
From: Dale Baker	Read Replies (2) \| Respond to of 78817

my understanding is that the real estate market is still reasonably solid, so I can't see how this panic, with people running from any investment which has "mortgage" or "real estate" in its name, makes any sense. The real estate market only works when buyers can sell their existing homes and/or get financing for newer homes (or first homes). Right now, the buyers are already drying up due to overbuilding and a price bubble, and the lending side of the operation is choking because the people who buy the loans that make lending possible stopped buying those loans. And when the loan buying stops, the people left holding the loans have no idea what they are worth in the credit markets. Which leads to the panic, chaos and confusion we saw on Wall Street the last few days. It's all very far from reasonably solid until the various securities reprice and find real buyers, allowing the money flow and buying flow to resume. It won't affect all areas but nationally, it has scared the living crap out of the money guys in New York. Already some mortgage companies have raised rates and standards, and cut out the iffy toxic loans. That alone will impact home sales going forward.

To: Kenneth Kirk who wrote (27579)	8/3/2007 9:48:49 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78817

Kenneth Kirk. Not satisfied w/my reply to you. I'll amend. As most adults know, there often are several levels to truth. I gave you some reasons for selling RAS. I believe it's also because of a different truth: I'm selling because of fear. Maybe panic on my part. I'm concerned the worst isn't over for RAS, for banks, for brokers, and also, for the market in general. Because unlike what I believe I saw in Feb. '07 and maybe other downfalls ('03), I don't get the sense that anyone is panicking this time. Everybody's learned to hold through the declines. Especially erstwhile value investors who seem to be holding on to positions. Yes the media gives negative comments on the decline, and the decline affects many. Still, as I read value threads, there's been no sense of panic or exit. I don't see people setting stops such that they are being stopped out of positions (those who use stops), and I don't read of people selling to protect profits or reduce losses on non-financial stocks. This is different from previous recent drops imo. Therefore, because so many people are apparently still in the market and have not sold (yet), for the first time in several years I am worried that there's a sort of complacency, and that this time, this might be the decline that goes further than I expect or would be comfortable with. So I am reducing some of my speculative positions, some of my financial positions, etc. and looking for stocks that seem clearer to me to have a margin-of-safety. Jmo. And I've been wrong many, many times.

To: Kenneth Kirk who wrote (27579)	8/6/2007 5:38:34 PM
From: jhelmers	Read Replies (5) \| Respond to of 78817

Kenneth, RAS is pure trouble. They have repo lines to worry about, toxic tranches on its b/s that they can't leverage, exposure to home builders and REIT's and the CDO market for them is shut. RAS owns the AHM trust preferreds and may have some trust preferreds with small home builders that may go b/k. This could cause problems because they trust preferreds are financed by an on balance sheet CDO. Assets: $13.5 billion Liabilities: $11.9 billion Equity $1.5 billion ($1.3 billion tangible) Debt/Equity: 8:1 $4.7 billion of assets are TruPS & Subordinated debt that is 23% commercial mortgage, 16% home builders, 18% residential mortgage and 16% specialty finance. These assets are 25% AAA, 7% AA, 27% A. 37% BBB and 3% BB or less. Included in this segment is a direct investment in a subprime lender, some subprime MBS and entities that traffic in subprime mortgages. Investors have to be giving this a huge haircut. They put the REIT and real estate development assets into one particular on-b/s CDO, Taberna VIII, with $772 million of investments, to which they hold the bottom $221 million tranches. On their debt, the biggest concern is their $2.0 billion of repo agreements. (That's one of the things that hurt AHM, namely they got a margin call on the private label AAA-rated RMBS that they had repo'ed.) This does NOT include $1.4 billion of OFF balance sheet warehouse lines split evenly between Merrill and Bear Stearns. Merrill and Bear hold the warehouse lines and put investments in them. RAS puts up some collateral and receives the interest spread between the investments and the warehouse line rates. RAS acts as the securitizer (something like FMD or UNCL). However, if they can't launch a CDO by maturity of the warehouse lines, and the investments are sold at a loss, the first loss comes out of their collateral. They don't specify how much collateral is at risk or what happens if the collateral requirement is increased. If these warehouse lines were pulled or not used, they lose additional income. The Bear Stearns warehouse is particularly a concern because Bear held the largest credit facility at AHM. Bear Stearns looks to have been the marginal lender to the marginal mortgage originator who made marginal mortgages to marginal borrowers. Then they securitized said mortgages, with their internal hedge funds buying the marginal (a.k.a. below AAA) tranches of the securitizations. There is a panic in the capital markets and RAS can't securitize anything right now, which makes the purchase of Taberna at peak values look stupid. RAS also has depended upon CDO securitization fees to fund operations and pay the dividend. As Wes Edens said last week, "...truly the number one cause of death in these volatile markets is the lack of liquidity and financing..."