Tuesday, July 29, 2008

WaMu sub debt

As regular readers know I now am the proud owner of a (scary) position in WaMu subordinated debt. The reasons were explained here.

It is clear that the market disagrees with me. Here is a chart of the credit default swap. Its right up in Ford Motor territory...

I have had one reader disagreeing with my analysis and suggesting that WaMu losses could be $60 billion. They have not explained their estimate - so it doesn't help me much. The market is inherently estimating that 60 billion is possible.

60B strikes me as inherently implausible - but this blog exists so that the diaspora can point out my mistakes. I like being told why I am wrong.

So please - suggestions and quantifications devoutly desired.

Minor update and correction: The Series K is floating rate - but the floating rate is based on the $25 base. The series K is trading at a very small proportion of face. My calculations as to running yield are slightly (but only slightly) wrong. Thanks to a reader for this correction. I also own the series R which is a 7.75% fixed and I confused the coupons. I was more interested in the K (which is cheaper) essentially betting on solvency rather than current coupons... The R is convertible - but I am not that much interested in the conversion. Par is all I hope for...


Anonymous said...



Jim said...

Accrued Interest took a cursory look at WaMu recently. It's here:


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The content contained in this blog represents the opinions of Mr. Hempton. Mr. Hempton may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Hempton's recommendations. The commentary in this blog in no way constitutes a solicitation of business or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author.  In particular this blog is not directed for investment purposes at US Persons.