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Did Kyle Bass Turn Bullish On Housing, And Does It Mean Substantial Upside For Mortgage Insurers?
For some actually relevant news, instead of market kneejerk reaction comments, we turn to the WSJ, whose Nick Timiraos points out an important inflection point, namely that Kyle Bass, one of the best hedge fund managers of his generations, may have turned moderately bullish on housing. To wit "A closely followed hedge fund manager known for correctly betting on the housing market’s collapse four years ago purchased a small stake in the nation’s largest mortgage insurance company in a bet that the housing market has neared bottom. J. Kyle Bass, portfolio manager at Dallas-based Hayman Capital Management LP, bought the 4.9% stake in MGIC Investment Corp, according to federal filings. He said on Monday the bet reflected his view that the housing market’s losses had largely been absorbed. “You can see that the pig has moved through the python in terms of U.S. housing losses,” he said. Shares of MGIC are about 10.2% higher in Monday afternoon trading, to $2.82." The Heyman Capital filing can be found here.
More from WSJ:
Unlike PMI, he said MGIC has a “pretty big positive equity position,” and he said its shares could rise above Monday’s opening price of $2.58 per share even if the firm is forced by regulators to stop writing new policies. “We think they’ll be one of … the last ones standing,” he said. “We’re in it for the long haul.”
Mr. Bass said his fund would have bought a bigger stake if doing so wouldn’t trigger a provision that would have limited a tax benefit for MGIC.
Fannie Mae and Freddie Mac require loans with less than 20% down payments to have some type of credit enhancement, typically mortgage insurance. When homes are sold through foreclosure, the insurer takes the first loss.
Keep in mind that unlike other amateur "hedge fund managers" who run a few million in family money and boast proudly about their holdings only to set the market rip against them and force them to sell and/or cover as soon as their sell stops are hit, Kyle Bass is a wily one, and we wouldn't put it past him to actually think two or three moves past the 13G clone sheep brigade. That said, we have previously noted our own personal appreciation of monolines, such as in this case MBIA, which stands poised to reap substantial windfalls as their litigation against Bank of America and other firms gather steams with each passing day, although granted the comparison is not a simple apples to apples. That said, we believe that if Kyle Bass is loading up on MGIC, he likely is also looking at MBIA, where it would be quite easy, as noted previously, to force a short squeeze due to the already discussed ratio of short interest to institutional ownership, where one major holder could easily force a massive short squeeze if so inclined following pulling of the borrow.
Lastly, there is also the explanation that just like John Paulson, Kyle Bass is simply mortal, and is simply betting on a housing recovery... a little early.
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The demographics of the US do not support higher housing prices unless the dollar goes ballistically lower vs. everything else tangible...But if that's the case, why buy houses?
How can Housing recover when:
1. Banks have no incentive to remove foreclosed houses from their inventory.
2. Jobs and wages down -
3. Property taxes up up and up - hell i've seen 250,000 houses on the market that aren't selling with 4500 a year in property taxes!
And I really haven't seen the bottom entry level house prices dropping that much in the portland oregon area.
Kyle Bass is positioning himself to be the next Warren Buffett. somebody has to.
Housing can recover if there is enough hopium. We have a faith based currency system.
Silver/Gold Bitchez!. Kyle even likes nickles...talk about cred...!
;-)
why dont these guys ever retire and enjoy life.....why do they keep putting the chips back on the table......he is going to get beat
I'll never be a part of this data b/c I'll never be able to afford a home, anyways.
I can't even afford a girlfriend, but Pussy (VAG) prices are soaring as of this afternoon.
Some folks think a Depression is coming. http://thecomingdepression.blogspot.com/
Or a total collapse.
http://theeconomiccollapseblog.com/
Or that the American Dream has ended.
http://endoftheamericandream.com/
And now housing is about to recover? Wow! Somebody's gotta give.
im a little perplexed as to where mr bass sees the u.s. headed. from guns and gold to this?
nowhere?
he threw the dart and this is what it hit?
apparently, the goobermint is gonna subsidize, goose, and juice the re-fi industry for home-"owners". if so, there will be "points, commissions, and fees" for the mortgage writers
maybe they are gonna try my idea---pay people to borrow money! when they pay 3%, i'll take a million $s please, ok?
Crisis is over, apparently.
You must understand when the banks collect their mortgage insurance [default] premium. Is it:
(a) when the borrower technically defaults
(b) when foreclosure is filed
(c) when the lender receives title
(d) when the lender disposes of the home (sale)
If you know the answer, then you know Bass is FOS.
It is d) of course, and yes, he is FOS, the mortgage market is one I know well, and the equity in these companies is worth nothing, at least he won't lose as much as Paulson and Cooperman lost in this sector.
I cannot presume to know what Mr. Bass is thinking. I am fairly certain that the resets have not fully hit. I remember 2012 and 13 are the peak years for the ARM resets, no? that could be his bet.
I can say that housing has NOT hit bottom. There is shadow inventory in my own neighborhood and likely in yours. And the loss has NOT been booked. Homes didn't even get foreclosed upon yet. Banks don't show the loss until then. right now, those homes are ASSEtS on the banks' balance sheets.
I suspect Mr. Bass is thinking the resets will power his flyer pick, at least short term. I also suspect that he has no dellusions that the housing market has bottomed.
You are all over thinking the problem. He's actually quite brilliant in the simplicity if you look at it this way, there are some holes in the argument though, big ones.
The housing has bottomed because inflation has caught/catching up with the over inflated bubble pricing the banks are stuck in holding the properties. He's betting every government on the planet is going to print their way out of trouble.
Aside the eighty current problems right now involving human dynamics and the will to kill one another, it's a reasonably sound play.
If people don't kill each other en masse, you end up with some choice real estate.
If they do, you wouldn't be around to see it anyways.
Hail mary pass with a 50/50 play.
From the WSJ - "Mr. Bass said that while the housing market was still around two to three years from firmly “bottoming out,” he said any future price declines would be quite modest. “I don’t anticipate a huge decline,” he said.
In an earnings conference call last month, MGIC’s chief executive, Curt Culver, said the company’s home state regulator in Wisconsin had consulted with independent experts who determined that even in a "stress scenario” the company would have enough capital to pay its claims."
So let's see...how are those "stress scenarios” holding up percentage wise. It seems like they are a great way to formalize misjudgements so entities can cover their ass at a later date when reality rears its' ugly head and things go south.
"It's not my fault, I consulted with independent experts..."
No way in hell MTG has enough to pay claims in any kind of stress scenario, mild or otherwise.
Location location location, ....LOCATION
they buy out the blue states to swing the election;
political analysis, if there is QE 3-4 for 2012 then FED monetizes
fanny freddie loans at 100% from banks; Thats 15% Foreclosed or same as foreclosed of the 50 million supply;
thats 7 million homes including
shadow; ie; foreclosed, 90 days behind and massive REFI of 25% homes underwater, 7 million homes ....
can kicked down road past election, like the Super committee,
The pig through the python analogy is cute, but I do think that he's early with his flip to the bullish side, like other recent bears turned bulls.
Jeez not one person puts it together. Most people here are all Gold Golg the Shit will it the fan any day etc etc. Kyle is kind of like that in repect to currency and people loosing money, not so much mad max. When everything re-sets dollar wise what is left? Ok your gold and othe HARD ASSETS. PROPERTY BITCHEZ!! - Stuff, and, things will be worth money. I would say housing rentals will be a great investment and apartments too. No one ever gets the bottome but this is not a bad time to shop. Real Estate is a great Gold hedge you know in case the re-value all your gold down. :(
10 million shares of a $2.50 stock isn't much skin to this guy. He knows his filings are followed. I wouldn't be surprised if he's pumping up longs, while shorting the crap out of it leveraged in some offshore account. Never trust the public disclosure.
I'd place money that Kyle Bass got wind of higher mortgage insurance requirements and mandates coming down the pike; not to mention some kind of government bailout or QE for the whole sad industry.
If European and U.S. banks are levered to the hilt with MBS and CDS, much of it still knee-deep in U.S. housing, than backdoor bailouts of housing industry for some kind of Locutus QE3 from that Borg Bernanke is likely.
Just another knife catcher whose clients are about to go broke.
His YouTube talk posted here was terrible.
I can see how real estate prices could rise dramatically during a hyperinflationary period. During such an event, when dollars are growing worthless, it shouldn't be hard for the average Joe to make his house payment, so delinquencies will fall, and those needing to sell will grow much smaller. People will seek someplace to put their savings, investments, and retirement funds... all the money that now sits in stocks, savings accounts, cds, and bonds. Sure some of it will go to gold and silver, but there is not enough PM to handle the wave. Real estate has been historically a sound investment with the exception of the past few years. And new construction, with regard to materials and labor, will increase in cost, so new homes will be more expensive, making existing real estate a bargain. I believe, under a hyperinflationary event, that we could see real estate make a quick turn around... priced in dollars of course. And, I believe their will be plenty of bargains to be had in exchange for gold, silver... or nickels.
What about an environment with increasing costs of living and stagnant/declining wages?
I'll posit that in our hyperinflationary event, the morts won't see any of the newly printed money... and that real estate will not follow the money supply upward.
PS, food > housing
Have any of you looked at the balance sheet of the company? That was retorical; enough said.
I bought a small (very) stake after I looked the financials over on the latest 10-Q. The company could liquidate today and you would double your money. That is why he bought I am sure.
BTW, the bottom in the median housing price and insurance companies will not be on the same day or in the same year in my opinion. I agree 100% that housing prices have further to go down.
Well, he have to go green now. In over half of states, you can add a "green insurance" rider to homeowners' plans. These riders pay out additional cash to help make eco-friendly upgrades to a house, in the case of damage to the house. Doing the math on green insurance to save you money on green updates to your home in the case of damage. Green insurance policies that have been made to pay for the replacement price of cars or houses which are eco-friendly are started to be offered in the past few years. It is simply an add-on or rider added to an existing home insurance policy.