Glad I avoided Thornburg Mortgage disaster (TMA)

After its recent margin call woes, I was thinking of going long Thornburg Mortgage (TMA). In particular, I was looking to buy the F series preferred and hedge by an artificial short of the underlying. The Thornburg preferred (TMA-F) is cumulative and convertible to 2.2 common shares.

Today, I watched TMA and TMA-F carefully and almost wanted to chase the stock. I avoided doing so only because of the Ambac offering. I didn't want to get caught in any market volatility.

I am glad I didn't take any position on TMA despite the numerous calls of 'value' and bounce heard around the web.

Today, after hours, news of TMA's failure to meet margin calls of 20 million was released. Apparently JP Morgan is tired of extending the margin deadline and is serious about seizing assets. TMA is down 1.40 to 2.00 in incredibly heavy trading.

20 million seems small to me and the fact that no one wants to give TMA 20 million is a bad sign of the tightness of credit markets. It might just be a raid to grab some marked down assets on the cheap. Leverage + market failure = losses.

I am slightly concerned about the continued downtrend in WB. I am watching the resistance at 28. Maybe the market knows something I don't but as far as I know, the dividend seems reasonably well covered. I am not going to sell my positions but I am preparing to clean up other positions to make sure I don't get margin calls like TMA. I am going to be ready to take assignments as my naked puts at various strikes become in the money.

It's rough out there but there is plenty of opportunity. Defense is the best offense even if you are a perpetual long.