February 13, 2008

Bond Insurer battle

The bond insurer is shaping up to be a good one. You have the following parties duking it out:
  1. Buffett, the opportunist, and his newly formed muni insurance unit that is looking to shore up market share in the muni bond insurance.
  2. Wilbur Ross, the turn around specialist, who is eying a deal with one of the re insurers.
  3. Bill Ackman, the relentless hedge fund manager who is short the bond insurers for 5 years.
  4. The rating agencies who are in tough bind. If they downgrade they will set in motion a chain reaction of write downs and possible defaults for banks and hedge funds.
  5. The regulators who are scrambling to find a solution to the monoline entities.
Today Wilbur Ross has called Buffett bluff, see video here. He also dangled a carrot in front the insurers to come to him as he is preparing for a plan that benefit both parties rather than one way stream. However I think Buffett has made the proposal knowingly that he will not earn any business from his proposal. I think he made the proposal to promote his new insurance unit and moreover he did it to force the hand of the regulators to do something about the situation.

In the meantime Bill Ackman is doing all he can to force the issue of downgrade on the insurers. He may have liked the action of Buffett as it plays to his hand. The Buffett move publicized the weakness of the insurers business even more that he was able to do.

The saga continues, however this is no place for individual investors to profit from any of the actions. You are simply out from the information loop that goes behind closed doors with the regulators and the rating agencies. I will continue watching but I will stay away from any investment opportunities.

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