Profit opportunities for Silas: oil and GM

Back to the two most frequently discussed topics on this blog.

First, let's talk about oil. Though by the end of the day, this may change, the spot price temporarily went below $120. Time to strike when the iron is hot? If I bought the double-oil-return ETF discussed last week (DXO), and it were to return to its previous high, that would be a nice 46% return. (Btw, y'all oil options traders are accurately factoring oil's massive volatility into the implied volatility term in your options pricing, right? Okay, just checking.)

Second, let's talk about GM. I have been claiming, since studying GM's history back in '05, that a bankruptcy was near, and so my brother and I have been discussing an even odds bet that would pay off if bankruptcy happened, or some other even of equivalent lameness, such as: defaulting on any bond, PBGC takeover of legacy obligations, refusal to pay legacy obligations, or government bailout. I'm not sure if we ever agreed to a bet value and a time frame, but a few weeks ago I emailed my brother some news about GM, and he reiterated his position that there would be no bankruptcy, so if we haven't agreed to something, I could still get an even odds bet in.

While I did post some news about GM's lameness last Friday, I have some more. Here's a Reuter's article detailing GM's rising defaulting insurance premiums and falling bond prices. Right now, you must pay 47% of the amount insured, so $47 to insure $100 of debt. And you know what? Most people, facing that much to insure something, just don't buy it, and bear the risk themselves. Heck, that's what hospitals do for their liability insurance, which can get that high.

It also lists the prices of GM bonds, but strangely, Reuters prefers to list the cents on the dollar (click on "first vlog post") price, and never the yields, neither the current yield, nor the yield to maturiy. But my own calculations give about 12% current yields for short term bonds and 18% for long term bonds based on the numbers there

But strangely, the prices of GM bonds that I found on my Scottrade account gave a different story. (I can't seem to find a free no-hassle source for bond prices I can link.) I don't remember the current yield, but it listed GM bonds maturing in December of this year as trading with 9.3% yield-to-maturity, and bonds maturing in 2011 -- 3 years from now! -- as paying, and make sure you're sitting down, 29% YtM. Twenty-nine percent!!! There are banana republics right now that pay lower interest on their debt! There are reckless shoppers right now with lower credit card interest rates!

Setting myself straight: The FDIC can't get you the principal either

Yesterday I casually dismissed concern that the FDIC wouldn't get you bank account money insured by law. Worry about inflation, not the principal, I said. But it looks like there's bad news in the IndyMac run, and some people might not even get that. Long lines formed, the kind we haven't seen in a long time (sue me if I don't know if this happened in the 80s. It sure happened in the 30s!)

Some choice quotes to get you quaking:

Noelle Gabay of Northridge, a budget analyst for the state of California, said FDIC officials acknowledged that she was owed $213,500 but provided her access only to $99,000.

"My trust in the FDIC is gone," said Gabay, 49. "The question is now, where do we put our money? Do we buy a bigger mattress?"

Yikes!

Todd Bash, ...had two certificates of deposit, a savings account and a checking account, totaling more than $180,000 ... when he finally talked to a teller, she showed him that more than $80,000 was missing from one account. Why? The teller didn't know. She referred him to an FDIC official in the branch, who also couldn't tell him what happened, he said.

"One person finally suggested that maybe there was a hold on my account, but when I asked if it was a hold, why wouldn't they just say there was a hold? . . . Nobody could give me any answers," he said.

Well, I certainly know the horrors of having to navigate a bureaucracy, and throwing all your trust into something that's been pretty reliable, only to have it blow up in your face. Luckily, it's never been about money in these amounts!

This really needs to be getting more attention: for the FDIC not to honor these insured values, means everyone's FDIC-insured account is at risk. To steal from MLK: insurer nonpayment anywhere, is a threat to its insureds everywhere. My Google-fu isn't that great, but have a look for yourself. Where are the bloggers on this one?

These folks may still actually get their money, since these incidents may just be delays, as happened in the S&L crisis. We can only hope at this point.