Wednesday, December 10, 2008

Senate Valuation

Somebody beat me to it.
http://www.clubforgrowth.org/2008/12/how_much_does_a_senate_seat_co.php

Workers of the World Unite!

If you didn't know, workers at the Republic Window & Door factory have occupied company property for several days. The news coverage and the facebook groups paint the workers as oppressed by their bosses, banks, or whatever. I have not seen a full financial statement, but it is pretty clear that sales have fallen. The bosses are being blamed, but it looks like that's not the case.

Referring the the person who bought the company in 2006,

“Despite inheriting a company bloated with overhead and lacking any type of manufacturing discipline and/or productivity, the company made significant improvements only to encounter an unprecedented decline in new-home construction." Bloomberg

"Republic’s sales tumbled to $40.3 million this year from $52.3 million in 2007 as orders from homebuilders dropped to $6.3 million from $17.9 million, the company said in a statement." --Bloomberg

I wonder if the workers have really looked over all their options. If they really think the company can work, have they tried making an offer to buy the company? Financing through banks would be difficult for sure, but they clearly have many supporters giving them donations and volunteering. What if these supporters made a loan package available for them to do a leveraged buyout of the company? The Union probably has some money as well to inject in a buyout. Since I haven't seen a financial statement, I can't give you an estimate for the valuation, but if I see any I will post a valuation.

Tuesday, December 09, 2008

Credit Defaults Swaps on Treasuries, McDonalds, and Britain

"Last week, the cost of insuring against a US default via credit derivatives hit record levels. Yesterday, London dealers were quoting between 23 and 28 basis points meaning it costs €23,000 ($33,600) to €28,000 a year to insure €10m in bonds. But the quotes for McDonalds were about 25bp-26bp."
Financial Times 9/27/08

A more recent story from IHT.
"The cost of insuring U.S. government debt against default over a 10-year span is a record $55,000 a year for $10 million worth of U.S. Treasury securities, or 55 basis points, as the cost is commonly expressed. That is a fraction of the 4,000 basis points for an emerging market country like Argentina, where some investors fear a default could happen as early as next year."

"in Britain, the swaps rose to a record 104 basis points for 10-year debt."..."The implied risk of holding debt issued by McDonald's was 67 basis points for 10-year securities on Tuesday"

Even with a perceived increasing risk of default, the prices for Treasuries and the rates are still falling. Right now the 10 year Treasury is just above 2.50% and the 3 month has a yield very close to zero. Since an active market in credit default swaps is relatively new, we don't have any much experience with seeing a situation where credit default swap prices are rising and yields on the underlying are falling. But seriously is Britain more likely to default on its Sterling obligations than McDonalds?

A US Senate Seat, Priceless

In exchange for the Senate appointment, Blagojevich allegedly discussed obtaining:

• A substantial salary for himself at a either a non-profit foundation or an organization affiliated with labor unions.

• Placing his wife on paid corporate boards where he speculated she might garner as much as $150,000 a year.

• Promises of campaign funds — including cash up front.

• A cabinet post or ambassadorship for himself.

--Chicago Sun Times

"I've got this thing and it's f***ing golden, and, uh, uh, I'm just not giving it up for f***in' nothing. I'm not gonna do it. And I can always use it. I can parachute me there."

--Rod Blagojevich

What does it usually cost?





Blagojevich was offering a bargain on something he didn't own in the first place.

When I have time, a valuation for a US Senate seat sounds like a fun project.



Monday, December 08, 2008

Made sense at the time

Tribune is in talks to prepare a potential bankruptcy filing. All the newspaper publishers are in trouble. After Sam Zell's acquisition of the paper and the piling on of $12 billion in debt, the company has been on shaky ground. The most immediate issue is the breach of a covenant keeping debt to 9x adjusted earnings. Typically, concessions can be granted. In Tribune's case the covenants are already very loose.

I guess now is the time to ask what were they thinking. Levering up a company that much to begin with is shaky. When it is in an industry that is in decline, even more so. Few newspapers have shown that they can make substantial revenue online, and paper sales have been falling. So many of these deals seem like they would only work in the best of circumstances, and really we should have seen this coming.

http://online.wsj.com/article/SB122868944355686385.html?mod=rss_whats_news_us_business

Wednesday, December 03, 2008

An Option to Buy Insurance

An option to buy insurance

An interesting concept. Most of the time you don't need insurance. Most of the time it is easier just to pay the doctor in cash and not worry about claim forms. Other than the tax advantage, why should you fill out forms and have a third party payer for routine medical care. We do not fill out forms, show a food insurance card, and have a third party write the check at the grocery store. Insurance should protect against low probability, catastrophic risks in the tail of the distribution. When you really need insurance with this concept, you can acquire it.

Monday, December 01, 2008

The Great Wall

"President Barack Obama will soon have to make a judgment to reform the nation's "wall" if he is, as he so often says, to build a more perfect union. The wall I refer to is the U. S. Constitution."

http://www.huffingtonpost.com/rep-jesse-jackson-jr/building-a-new-wall-the-f_b_146606.html

In a way, Jesse Jackson is correct in calling the U.S. Constitution a "wall." The purpose of the Constitution was and still is to prevent tyranny. The Bill of Rights contains the phrases "shall not" several times when referring to actions of the State and several other clauses restrain the State's actions by requiring due process. It is clear the Constitution and the Bill of Rights is intended to be a limitation on government, which is a wise decision.

We should not throw out this idea that government should have limitations. Even if a particular initiative is very popular, we must still consider whether the majority has a right to enforce the particular mandate on the minority. Too often people are wrapped up in whether a law helps a certain group of people or feels good and not whether it conforms to the principles of a free society, however interpreted.