Annaly Capital: Sherlock Holmes And The Mystery Of The Green Shoots

Tyler Durden's picture

From Michael Farrell's openings remarks to Annaly Capital Q2 earnings call.


hat tip Kevin

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Cheeky Bastard's picture

good analysis, one can only hope that the morons from CNBC will read it ...

Anonymous's picture

Even if they did, they've been smoking too many dime bags of green shoots for their brains to comprehend what it says.

Cheeky Bastard's picture

except Kudlow, he takes them through a straw or a rolled c-note

Cheeky Bastard's picture

Tyler, may i have your att3ntion please .... read this ... and work your magic man ... 

deadhead's picture

if my memory serves me correct, I recall how Howard Dean talked about luring insurance companies to Vermont while he was Gov. and I believe Vermont was successful in that regard (in addition to Capco moving there).

Certainly some interesting political connections there, particularly in light of Dean's involvement with the DNC and the Obamas.


ronin's picture

Certified Capital Companies (“CapCos”)

CapCos are state-regulated certified capital companies created in accordance with each state’s legislated CapCo program.  The CapCo programs are created by US states with the goal of making venture capital funds available to new or expanding small businesses.  The state government provides insurance companies with premium tax credits in exchange for insurance companies’ investments in the CapCos in the form of insured notes.  Insurance subsidiaries of AIG insured the notes issued by the Company’s CapCos.  The CapCos then use these funds to invest in qualifying businesses in that state. While not exclusive, most CapCos funded businesses focus on the service sector.  In other words, CapCos were designed by states to stimulate the local economy through entrepreneurs and private investors without capital to “invest” in start-ups, backed by a highly rated reinsurers (AIG and its P&C insurance subsidiaries).

Most CapCos generate non-cash income from tax credits and pay a non-cash interest expense.  CapCos generate cash flow from management fees collected by the Companies owning the CapCos.  State insurance regulations stipulate that once a CapCo has invested 50% of the investment principal, it has met the requirements for continuing participation in the states’ CapCo programs and thus the earned insurance credits are beyond recapture by the state.  As article notes, AIG insurance subsidiaries’ (most notably, National Union Fire Insurance of Pittsburgh ) will make the remaining cash payments associated with the notes of the CapCos. 

However, National Union was the largest participant in this CapCo program and has incurred significant liabilities not shown on its balance sheet but reinsured through other AIG entities.  What the article is really referring to is American Home Assurance, another AIG affiliate, that has irrevocably guaranteed (via reinsurance) 16 other AIG regulated subsidiaries for almost $121 billion in contingent liabilities in addition to $141 billion in its own direct liabilities for a total of $262 billion in liabilities while American Assurance lists only $26 billion in assets. 

So while CapCos may be a significant contingent liability to some of AIG’s regulated subs, it’s really a side show (most CapCos in the US never made any return on its investments are currently winding down through individual states’ decertification processes) to the real issue which are the massive contingent liabilities, within AIG’s US insurance subsidiaries (recently announced to be spun-off as AIU Holdings) that could trigger a more significant insolvency event  (or another multi-hundred billion dollar AIG bailout under this administration) at one or more of the former AIG insurance subsidiaries.  Hope this helps.





Anonymous's picture

I found this amusing:

The Biggest Holders of US Government Debt: That’s right, the biggest holder of US government debt is the United States itself. The Federal Reserve system of banks and other US intragovernmental holdings account for a stunning $4.806 trillion in US Treasury debt. And with recent announcments from the Fed, potentially another $1 trillion may be added to its balance sheet... About a decade ago, the total government holdings were "only" $2.5 trillion.

CHINA is at #3

Anonymous's picture

Talking of Goldman's (sm-art) attorneys: [He will be inducted into Hall of Fame at Goldman for taking the 101 training to be an asshole and destroyer of society (starting destruction with kids).

Goldman Attorney Arrested for Soliciting Undercover Cop-

An attorney for Goldman Sachs was arrested for soliciting an undercover cop he believed to be a 15-year-old girl. The Westchester County District Attorney’s office said that Todd Genger was arraigned Wednesday on one count of attempted disseminating indecent material to a minor, a class E Felony.

In a press release, the Westchester County district attorney’s office said that for over three months, an investigator from its bureau, while undercover, assumed the role of a 15-year-old female and engaged in a series of online chats with the defendant.

Mr. Genger allegedly discussed specific explicit sexual acts in which he would engage the underage girl.

The defendant admitted to having the online conversations and following his arraignment was released on his own recognizance pending an Aug. 11 court date.

Mr. Genger faces a maximum of 1-1/3 to 4 years in prison, if convicted.

Sqworl's picture

Don't worry he will get a pardon from Geithner!

Anonymous's picture

PS: Not a big fan of Fox news but liked this one

Former Goldman Insider: It's Just Business
Demos Senior Fellow Nomi Prins on the Senate committee investigating Goldman Sachs for fraud during the mortgage-market collapse.

Anonymous's picture

I know Rome is burning but Liz Claman is a beautiful distraction. WOW

zeropointfield's picture
zeropointfield (not verified) Aug 1, 2009 2:34 PM

Sherlock Holmes and Moriarty? Isn't the Admistration's search for Green Shoots more akin to Captain Ahab pursuing the White Wale?

. . .'s picture

The administration's search for green shoots is not comparable to either Holmes' or Ahab's quests.  Both searched for something that actually existed.

The administration's financial/economic agenda is run by fools, liars, and incompetents.  Better literary comparisons for the administration's cast are as follows:

Milo Minderbender:  Larry Summers (Milo:cotton; Larry:structured products on bank balance sheets.  Milo ended up selling his cotton to the USG.  Guess what Larry will end up doing...)

Dr. Pangloss:  Bernanke (almost as bad an economic forecaster as Dr Greedspan)

Colonel Cargill:  Geithner (both incompetent and able to run anything into the ground; the kind of government personnel Uncle Miltie was thinking of when he said if you put the government in charge of running a dessert, the sand would disappear).

GetShorty's picture

For you SRS fans - or haters......

NLY and its 15%+ annual dividend has the 3rd highest weight in the DJ U.S. Real Estate Index at a shade under 4.9%.   

Printfaster's picture

SRS is a tool for those that need to prop up the CRE industry.  The average RE investment fund went down about 45% in the last year.

Since CRE wen down 45%, you would expect SRS to go up 100% right.  Not quite.  SRS went down 74% in the last year.

Any CRE bear who would touch SRS is a fool and tool of the CRE industry.


GetShorty's picture

Since DJRLE wen up 58% from the March low, you would have expected SRS to go to zero.  Not quite.  SRS is only down 86% since the March low.  It's actually performing better than fools and tools might expect.

Gilgamesh's picture

You can trade SRS while being long NLY (and/or other aMREITs).  Shocking, but true.

sunbringer's picture

Hey, Sherlock Holmes did not see green shoots; he saw white shoots; all day, every day. 

. . .'s picture

Every day?  Holmes only shot white on days when the game wasn't afoot.

Anonymous's picture

Awesome posting.

Anonymous's picture

lame article....there are much better articles for bashing green shoots.