Monday, May 12, 2008


The earnings came out from MBIA. No real surprises. Losses were massive but the status quo remains.

These losses, unlike Ambac, were well publicized on the street. This is why the stock is up today. My hope was the stock would open down 5% or more and my plan was to cover 30 to 50% of my short position. After Ambac and AIG I thought no matter what the news was it was going to be sell the rumor buy the news type of reaction from Wall Street. Sure enough that is what happened and unfortunately I didn't even get my 5% drop at the open.

I am once again in awe of how MBIA has managed (manipulated) the street. As much as I can't stand the management and think is borders on illegality, they should be a case study for all Harvard MBAs who may go and be a CEO for a Fortune 500 company.

If you remember they raised $1 billion in the latest fund raising to keep there rating. Well it came out last week that they still held that money at the holdco level instead of passing it down to the insurance level. This infuriated alot of people because the money was raised to keep their rating and then they didn't move it to support those operations that depended on the AAA.

Well what they did was pure genius. They leaked that information out last week before the earnings release. Some people were up in an uproar. Then after this earnings release they announce they will move $900 million of it into the insurance unit. This creates the illusion that they just added capital in response their losses and so shouldn't be required or don't need to raise additional capital. It also quites those individuals who were upset at them not moving the money to the opco level originally. If they would have moved that money when they were supposed to and then announced a large loss those people would be screaming about MBIA needing to raise more capital. Now any such chatter is immediately squelched with a quick response pointing to the fact that"well no, MBIA just moved 900 million to the opco level. They are fine."

The other thing is the CEO Jay Brown keeps pounding on their liquidity situation which diverts the attention completely away from the solvency issue. First they only have an ample liquidity situation because the rating agencies will not (can not) downgrade them and because they are not writing much new business. Once again though this is masterfully spun.

At least from me, no real surprise about the numbers or the stock price reaction today.

Also if management was as good at making money as they are at surviving and managing the street I would load up the boat in whatever stock they were managing. You really have to be impressed.

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