Why is my bond ETF down?

After seeing the offer from Buffet, my bond ETF (LAG) is down .50% today. One would assume that reinsurance assistant from Buffet would cause the bond market to rally likewise to equities.

Comments from Poole… Treasuries selling off…

I think I would like someone to explain to me how Buffett’s offer should do anything to equity markets. It would suck to have insured muni debt default but this is a pretty low probability event regardless of Buffett’s assistance (since about three things need to happen - the issuer can’t pay, the insurer can’t pay, and this happens enough that it matters to other than holders of that particular issue). Has anybody been talking about the stock market being held back by worries in the very high-grade municipal bond sector? I don’t see it…

muni buy is essentially a bailout for MBI, and ABK

My thoughts exactly Joey. Now if he took the bad (CDOs, ABS, MBS) with the good (munis) from the bond insurers, then an equity rally would make more sense. In that case, he might be saving the large financial institutions from ruin.

skiloa, how do you figure? If the bond insurers agree to his offer it frees up a little capital for them but they are still stuck with the bad exposures on their books. In addition, they have eliminated their source of potential future profits. They need someone to reinsure the CDOs, not the munis.

Yeah, and…? And BTW, this insurance/reinsurance system is stupid anyway and would be better off dead. This is risk transference applied to all owners of the bond. What if someone wants to own the bond and assume the risk themselves? Seems to me that the credit derivatives market needs to get rid of that system and replace it by a system in which people who want to assume risk, can assume risk.

tobias Wrote: ------------------------------------------------------- > skiloa, how do you figure? If the bond insurers > agree to his offer it frees up a little capital > for them but they are still stuck with the bad > exposures on their books. In addition, they have > eliminated their source of potential future > profits. They need someone to reinsure the CDOs, > not the munis. Right (except not me). The “Yeah, and…” was in reference to skiloa’s post. Even if it is a “bailout” (which I don’t think it is because Warren doesn’t give away much money in his business dealings), I don’t see how that should affect the equity market in general. Is there a worry out there that the US govt would bail them out?

Did anyone else notice that one of the monolines already rejected his offer? I would imagine that the others will as well. Insurance premiums are paid up front so the monolines have already received payment for any munis they have insured. Like others have stated, the muni market is not the source of the insurers problems; The other crap they insured is the source of their problems. The issues in the muni market are a consequence of the crap CDOs, MBSs, etc that were guaranteed. To solve the problem, you have to fix the source of the problem. The monolines have less incentive to share the muni business because it is extremely profitable and they’re not really worried about these defaults. With that said, borrowers would want these monolines to accept the offer because their floating/auction rate insured issues may trade better. The borrower already paid for the insurance and now they are p!ssed because it is worthless. Now the monolines will have mud on their face for rejecting the proposal but they have bigger things to worry about right now.

tobias Wrote: ------------------------------------------------------- > My thoughts exactly Joey. Now if he took the bad > (CDOs, ABS, MBS) with the good (munis) from the > bond insurers, then an equity rally would make > more sense. In that case, he might be saving the > large financial institutions from ruin. Totally agree.

tobias Wrote: ------------------------------------------------------- > skiloa, how do you figure? If the bond insurers > agree to his offer it frees up a little capital > for them but they are still stuck with the bad > exposures on their books. In addition, they have > eliminated their source of potential future > profits. They need someone to reinsure the CDOs, > not the munis. They need $$$; regardless of how they get it. They need their AAA rating back in order to write new biz. If they aren’t AAA, they’re stuck in stasis…If it takes them selling off their muni biz to get a AAA rating, then that’s what they have to do…

I think Joey is getting his answer. Markets puking the rally up going into the close.

skiloa Wrote: ------------------------------------------------------- > tobias Wrote: > -------------------------------------------------- > ----- > > skiloa, how do you figure? If the bond insurers > > agree to his offer it frees up a little capital > > for them but they are still stuck with the bad > > exposures on their books. In addition, they > have > > eliminated their source of potential future > > profits. They need someone to reinsure the > CDOs, > > not the munis. > > They need $$$; regardless of how they get it. > They need their AAA rating back in order to write > new biz. If they aren’t AAA, they’re stuck in > stasis…If it takes them selling off their muni > biz to get a AAA rating, then that’s what they > have to do… This wouldn’t be selling off their muni business. This would be them buying reinsurance on it.

The monolines kind of piss me off in what they let happen. I compare them to a guy (monolones) who is married to a beautiful women (munis). Things are going good, but he’s getting a little bored. He decides to have an affair with a lady with a dragon tattoo (CDOs). He starts seeing more often and taking more risk. Eventually he discovers that the dragon lady has herpes (subprime losses) and in a little while he discovers that he has herpes too. Now the neighbors (industry) hear about the guy’s affair and talk openly about the man’s distress. The wife decides she doesn’t want a man with herpes… and after pondering of whether to go on living alone…she decides to get another man. (Buffett)

I want to hear more about this dragon lady.

I’m still awaiting a Billy Madison, nothing in your rambling…award you no points…have mercy on your soul comment.

Funny story pinkman, though I have to think it through a little more to get the full gist. Personally, I think a lot of that securitised stuff is a good value if you plan to hold it to maturity, and what kind of investor is Buffet? 1) Value oriented, and 2) Long holding periods. So it makes sense, especially if he has proper diligence on which stuff is really radioactive and which is “just a little risky, but cheap.” Why this means equity markets should rally is beyond me, other than that financials might not have quite as much bad news, but it was definitely a bad day for my bearish personal portfolio.