Well i guess I got ahead of myself as the market popped off the lows to finish up 6.25 (ES). I should be quiet next time lol...
Sweet,then I should open spreads right at that strike and let it ride I think if SEP and OCT are so good as it is shaping up, then there has to be a bad month coming because we are not in any condition for raging bull. If no bearish correction in the next few weeks, then before Turkey day.
Well done TOS. My ballpark calculations on the founders' net gain: If Technology Crossover took a 40% stake for $22.5M, that left 60% -- let's say 35% for employees/management and 25% for 2 founders -- 12.5% each. Assume TCV had participating preferred shares with 1x liquidation preference. With a $340M exit, that gives the two founders around $40M each, probably divied up between cash up front, earnout and acquirer's stock. Very Nice. And none of the expenses and SarBox headaches of an IPO... And with an IPO, Tom would only be able to trickle out his $.... this is far better.
I see a negative GDP and job losses. Massive foreclosures in IO-financed housing. A recession lasting at least a year. Unsure to the timing, however.
One last off-topic post lol I spoke with Joel over at ToS and the founders of ToS are heavily invested in the combined company and did not just cash out. the goal was to add a marketing arm that would drive clients to start nerw accounts and provide more analytical tools and research. The culture of ToS will not change since the originators still have total control. ITools is not looking to run a brokerage put partner with one. The founders did get a huge boost in their pockets, but it was not to jump ship, it was to get rewarded for everything they built and worked for and will continue to oversee. Anything could happen in the future, but I was confident talking with Joel that ToS will only improve but not change the inside corporate culture that made it a unique place to trade through and deal with. I hope so...
I'm in the same boat, for the same reasons. If any of you are familiar with option ARM mortgages, you know what I'm talking about. For those who aren't familiar with them, they have the unique ability of causing negative amortization. In a nutshell: -You get a teaser rate of about 1.25% interest. -You are allowed a minimum payment option based on required monthly payment if the teaser rate were permanent. -A month or so later the teaser rate expires and you are into a normal ARM (6.5% or so right now), but your minimum payment is fixed for a year. -Each payment now doesn't even cover the interest being applied to your loan, and your principal increases with each payment rather than decreasing. (negative amortization) -A year later your loan is recast and a new minimum payment applies that is much higher than your original payment, and one that you likely couldn't have qualified for at your current level of income. (you're over-leveraged) -Your principal is allowed to thus increase with negative amortization until it hits about 125% of the initial purchase price, at which time the minimum payment is void and your loan is immediately recast at whatever payment would be required to pay it off within the existing 30-year term. -Your new ARM caps out at somewhere between 10-19% depending on the borrower. Obviously, most of the buyers using this were expecting real estate prices to continue up, so the negative amortization would be covered by appreciation. But the market is going flat in a hurry, and get this.... THEY CAN"T REFINANCE!!!! Refinancing comes complete with a $10-20,000 prepay penalty. In certain states these option ARMs are the preferred mortgage and make up something like 2/3 of all new mortgages. I believe the national average this year was about 25% option ARMs. Here's the kicker. The lending institutions are using the accrual method of accounting. IOW, they report full revenues even though people are only making partial payments. According to GAAP they can report deferred interest now, knowing full well that there will be a huge number of foreclosures when these loans reset. The delayed result is that lenders are in trouble if there are mass foreclosures and bankruptcies. ANYWAY.... that was a longer explanation than expected, and most of you are familiar with these things already. Why so bearish? Same as riskarb, and also adding a recovery in oil, the beginning of the most bearish season of the year, and a bad earnings month in OCT due to both seasonal factors and decreased consumer sentiment.