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Subject:  Re: MBIA Bonds? Date:  12/20/2012  11:15 AM
Author:  globalist2013 Number:  34562 of 35877

you think there is any upside to get in now?


I'll echo what Howard said about MBIA's prospects. I really have no idea if MBIA will survive in the long run. But I’m guessing the odds are on their side now.

Where he and I do differ is in how we manage our risks. I wouldn't let a questionable situation --which MBIA certainly is-- become 2% of AUM without doing a whole lot more digging into their financials than I'm willing to do. In other words, I never bet big, and I define 'big' as a 2% exposure, never mind the fact that 'exposure' becomes 'risk' only when recovery becomes zero. Let me illustrate those concepts with a story I've told before.

Years ago, I was reading a value shop's quarterly report to shareholders, and they mentioned buying ShopKo's stock. What they found attractive -- and seemed to reduce their risks-- was that ShopKo typically onwed the land on which their stores were cited. Per GAAP rules, that asset was carried at 'book value', not 'present market value'. Hence, it was probably undervalued. Hence, were a Chapter 11 filing to occur, creditors --aka, unsecured bondholders-- might have a bigger margin of safety than a typical guesstimate about workouts. In other words, my thinking was this. "If I'm getting into the bonds at 60, but a workout could be 40, then my upside/downside ratio could be a favorable 2:1". Obviously, likelihood becomes part of the calculation, not just magnitude. But I saw in the situation enough of an edge and bought nearly everyone of their b