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Berkshire Hathaway Files 13D/A in USG $$

Berkshire Hathaway (BRK.A) now has 34% of USG (USG)

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From the filing
BH Nebraska is the holder of $160 million aggregate principal amount of the Notes (the “BH Nebraska Notes”), which, to the knowledge of the Reporting Persons, if converted, would constitute approximately 11.2% of USG’s outstanding Common Stock, based on the number of shares of Common Stock disclosed as outstanding on the Issuer’s Form 10-Q filed with the Commission on October 28, 2008. BH Assurance is the holder of $90 million aggregate principal amount of the Notes, which, to the knowledge of the Reporting Persons, if converted, would constitute approximately 6.3% of USG’s outstanding Common Stock (the “BH Assurance Notes,” and together with the BH Nebraska Notes, the “Nebraska/Assurance Notes”), based on the number of shares of Common Stock disclosed as outstanding on the Issuer’s Form 10-Q filed with the Commission on October 28, 2008. General Re Life is the holder of $50 million aggregate principal amount of the Notes, which, to the knowledge of the Reporting Persons, if converted, would constitute approximately 3.5% of USG’s outstanding Common Stock (the “General Re Life Notes”), based on the number of shares of Common Stock disclosed as outstanding on the Issuer’s Form 10-Q filed with the Commission on October 28, 2008. Mr. Buffett may be deemed to control Berkshire, which controls BH Nebraska, BH Assurance and General Re Life. Thus, both Mr. Buffett and Berkshire may be considered to have beneficial ownership of the Nebraska/Assurance Notes and the Gen Re Life Notes. NICO, an indirect subsidiary of Berkshire and the direct parent company of BH Nebraska and BH Assurance, also may be considered to have beneficial ownership of the Nebraska/Assurance Notes. OBH, a direct subsidiary of Berkshire and the direct parent company of NICO, also may be considered to have beneficial ownership of the Nebraska/Assurance Notes. Cologne Re, an indirect subsidiary of Berkshire and the direct parent company of General Re Life, also may be considered to have beneficial ownership of the General Re Life Notes. General Reinsurance, an indirect subsidiary of Berkshire and the direct parent company of Cologne Re, also may be considered to have beneficial ownership of the General Re Life Notes. General Re, a direct subsidiary of Berkshire and the direct parent company of General Reinsurance, also may be considered to have beneficial ownership of the General Re Life Notes.

(b) BH Nebraska has voting and investment power with respect to the BH Nebraska Notes. BH Assurance has voting and investment power with respect to the BH Assurance Notes. However, Mr. Buffett, Chairman of the Board of Directors of Berkshire, who may be deemed to control BH Nebraska and BH Assurance, directs the investment of BH Nebraska and BH Assurance. Thus, Mr. Buffett, Berkshire, NICO and OBH share voting and investment power with respect to the Nebraska/Assurance Notes. General Re Life has voting and investment power with respect to the General Re Life Notes. However, Mr. Buffett, Chairman of the Board of Directors of Berkshire, who may be deemed to control General Re Life, directs the investment of General Re Life. Thus, Mr. Buffett, Berkshire, Cologne Re, General Reinsurance and General Re share voting and investment power with respect to the General Re Life Notes.

Item 6 is hereby amended to add the following:
On November 21, 2008, Berkshire and USG entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), pursuant to which, and subject to the terms and conditions thereof, Berkshire agreed to purchase Notes in an aggregate principal amount of $300 million, and USG agreed to sell Notes in an aggregate principal amount of $300 million dollars, for an aggregate purchase price of $300 million. On November 26, 2008, BH Nebraska purchased $160 million aggregate principal amount of the Notes, BH Assurance purchased $90 million aggregate principal amount of the Notes, and General Re Life purchased $50 million aggregate principal amount of the

Notes.
Following stockholder approval of the issuance of shares of Common Stock upon conversion of the Notes at a special meeting of the USG stockholders held on February 9, 2009, the Notes became convertible into Common Stock at the option of BH Nebraska, BH Assurance and General Re Life at any time prior to the close of business on the business day immediately preceding the final maturity date of the Notes (December 1, 2018), unless the Notes are earlier repurchased or redeemed by USG, subject to the terms and conditions set forth in the indenture and the supplemental indenture governing the Notes (the “Indenture”). The Notes are convertible into Common Stock at an initial conversion price of $11.40 per share, subject to adjustments as set forth in the Indenture.

On November 26, 2008, Berkshire and USG entered into an Amended and Restated Registration Rights Agreement (“Registration Rights Agreement”), pursuant to which USG has granted BH Nebraska, BH Assurance and General Re Life certain registration rights with respect to its shares of Common Stock and the Notes. The Registration Rights Agreement amended and restated in its entirety that certain Registration Rights Agreement, dated as of January 30, 2006, between USG and Berkshire.
The preceding discussion of the Securities Purchase Agreement, Assignment and Assumption Agreement, Indenture and Registration Rights Agreement does not contain a complete description of such agreements and is qualified in its entirety by reference to such agreements, which are filed as exhibits hereto and incorporated herein by reference.

Here are the details of the convertible transaction
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Thoughts on Knowledge and Opportunity (Stocktwits) $$

The internet is enabling us as investors unprecedented access to other investors and has created unbelievable opportunities….if you’ll do some work and accept the knowledge they offer.

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Here is a little story:

A priest offered a Nun a lift.
She got in and crossed her legs, forcing her gown to reveal a leg.
The priest nearly had an accident.
After controlling the car, he stealthily slid his hand up her leg.
The nun said, ‘Fathe r, remember Psalm 129?’
The priest removed his hand. But, changing gears, he let his hand slide up her leg again. The nun once again said, ‘Father, remember Psalm 129?’
The priest apologized ‘Sorry sister but the flesh is weak.’
Arriving at the convent, the nun sighed heavily and went on her way.
Upon his arrival at the church, the priest rushed to look up Psalm 129. It said, ‘Go forth and seek, further up, you will find glory.’

Moral of the story:
If you are not well informed in your job, you might miss a great opportunity.

The same goes for investing. Do yourself a favor. Follow the those on StockTwits for a day or so. There is a mix of traders and investors there. The beauty of it is that it is a stream of conscious thought and a back and forth (respectful, unlike message boards).

You can follow the whole community, the traders, the investors or just a symbol in a portfolio. Essentially it enables you to make it what you want it to be. There is one thing you will notice if you follow it. Those who are successful, work at it. They are not blindly buying and selling. The action is thought out and has a definite rhyme and reason to it.  The conversation and sharing both starts well before the market does and continues after it closes.

At the end of the day,  they are going through data to find new ideas. They are constantly testing their thesis, sharing ideas and considering feedback from the community. Everyone who invests occasionally hits a spell of blind luck (good or bad), at times we make or lose money due to events that were unpredicatable. But, those who are successful over the long term are so because they work at it.

As investors we benefit today because social networking allows us to both gleem their knowledge and share our ideas with them. If you follow the right ones, their generosity in giving feedback is invaluable.  If you are shy, the medium allow you to sit back and just listen and learn, nothing wrong with that.

Learn from those who are successful…don’t be like the priest and miss an opportunity..

Disclosure (“none” means no position):None

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A Message for the Bank Execs Today…

Here is a sweet little story that I things bank executives in front of Congress today ought to take to heart.

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A little bird was flying south for the winter. It was so cold the bird froze and fell to the ground into a large field.
While he was lying there, a cow came by and dropped some dung on him.
As the frozen bird lay there in the pile of cow dung, he began to realize how warm he was.
The dung was actually thawing him out!
He lay there all warm and happy, and soon began to sing for joy.
A passing cat heard the bird singing and came to investigate.
Following the sound, the cat discovered the bird under the pile of cow dung, and promptly dug him out and ate him.

Moral of the story:
(1) Not everyone who shits on you is your enemy.

(2) Not everyone who gets you out of shit is your friend.

(3) And when you’re in deep shit, it’s best to keep your mouth shut!

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Alan Blinder: "Origins of The Financial Mess"

From Nov. 2008

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Shiller on Behavioral Finance

Given current events, rather appropriate…no?

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Wednesday’s Links- 2 Vids, A Lesson, Black Gold

Greed, Wall St. Media, Learning, DXO

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– Gekko had it rights, only greed will fix this problem

– Thank for the mention

– “Learning from Losses” a great piece

– A way to play it

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Government Spending vs Unemployment: The Relationship

This ought to illicit some conversation….

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Here is the link to Westbury’s original piece:
Unemployment and Stimulus II

Publish at Scribd or explore others: Academic Work brian westbury first trust

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Wilbur Ross Eyes Another Florida Bank

Ross has been talking about buying banks for a while. After his recent purchase, he is back in the Florida market

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Billionaire investor Wilbur Ross and the Carlyle private equity group are considering a joint bid for BankUnited Financial Corp (BKUNA.O), the Financial Times said, citing people familiar with the matter.

The two investors were conducting due diligence as Tim Geithner, U.S. Treasury secretary, prepared a financial sector rescue plan that would seek to induce private capital to pursue deals for distressed financial institutions and assets, the newspaper said.

Bank deals could have a growing appeal for private equity groups, which are facing big obstacles in securing the financing they need to make big leveraged buyouts, the paper said. Florida-based BankUnited Financial is a troubled bank with $14 billion in assets, the newspaper said.

Carlyle has been among the more cautious private equity investors in making investments in financial companies, the FT said. By contrast, Ross said he is looking at more than 100 banks after buying several mortgage servicing operations, the newspaper added.

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More Thoughts on the AutoDealer Decimation

Folks keep asking me about US auto dealers and how much the market is shrinking. Some numbers..

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From USA Today:

Auto sales last year were a paltry 13.2 million, the worst since 1992 and down 18% from 2007. This year, forecasts are 10 million to 10.5 million. The reality: Too many dealers; too few sales.

“The whole goal is to be here a year from now,” says Mike Jackson, CEO of AutoNation, (AN) the country’s largest dealer chain.

The industry will see a net loss of 900 new car dealers this year, the biggest thinning of the ranks in nearly three decades, predicts the National Automobile Dealers Association. That’s on top of a net loss of 760 dealers last year.

The numbers alone “don’t describe the pain,” said the NADA’s immediate past president, Annette Sykora, who has Ford and Chrysler dealerships in the small West Texas towns of Slaton and Levelland. Speaking to dealers at the group’s convention in New Orleans last month, she added, “Some dealers mortgaged their own homes to try to stay in business and still had to close.”

Counting all brands, foreign and domestic, there are about 20,000 new car dealerships in the USA. Consultant Grant Thornton recently estimated the optimal number at about 16,000. At that level, dealers on average should be able to sell as many cars this year as they did 10 years ago — about 750 each.

GM, Ford and Chrysler dealers will bear the brunt of the closings because of the Detroit 3’s market share losses. From a high of 8 out of 10 new cars sold in 1984, their market share today hovers around 50%. Weak dealers aren’t profitable, aren’t able to keep their facilities as clean and modern as competitors’ and generally hurt the image of the brands they sell.

State franchise laws generally make it difficult and expensive for an automaker to close or buy out a dealer. So automakers have been letting the recession do the dirty work.

What are the dealer losses looking like?

•General Motors. GM had 6,375 dealers at the start of 2009, down 401 in a year. The goal: 4,700 by the end of 2012. As one of the conditions for its loan, GM promised the government it would drastically slim its business. Hummer and Saab brands are for sale. Saturn could go, too, and Pontiac is to shrink. GM may decide what to do with them this month, said Mark LaNeve, a GM vice president.

•Chrysler. The weakest of the Detroit 3 managed to shed 287 dealers last year to leave it with 3,287 at the start of 2009. It was using a program called Project Genesis, aimed at eliminating overlapping vehicles in Chrysler’s lineup and pressuring Chrysler, Dodge and Jeep dealers to consolidate the brands under one roof. This year the program was iced because Chrysler had a bigger need: survival.

•Ford Motor. Ford continues to reduce dealers in metro areas but doesn’t have to be as aggressive about it because it didn’t accept a government loan. If it had, Ford would have to stick with a formal plan to show that it will become viable, which could include slashing the dealer count. Ford started the year with 3,787 dealers, down 269. CEO Alan Mulally is pinning his hopes on a second-half rally. Ford just tapped its remaining credit line from private sources. If that’s not enough, it will have to turn to the government.

•Foreign brands. Most import brands have proportionally fewer dealers and aren’t in the same shape as Detroit. Toyota (TM), for instance, has about 1,400 dealers, fewer than half as many as Chrysler or Ford, but it outsold both of those automakers last year. On average, a Ford Motor dealer sold roughly 500 vehicles last year, while each of Toyota’s averaged more than 1,600.

For a while now I have been saying what is happening in the economy while painful now for shareholders of AutoNation, is setting the company up for dramatic gains down the road. Domestic brands currently make up less that 30% of AutoNation’s sales and Jackson has stated his desire to move that to 20%. The business model at AutoNation has them owning the property their dealerships are on. That simply means they can convert a Ford (F) or GM (GM) dealership to a Toyota (TM) or Honda (HMC) easily without any landlord or property owner considerations.

It also means that Jackson is easily able to alter his product mix to capture trends in the markets place. While AutoNation may be part of the national reduction in GM dealerships for example, that dealership is not sitting idle, it is being converted to a more useful and profitable purpose (different brand). Here is a “did you know”, AutoNation sells 10% of the Mercedes Benz sold in the US (I do not have specifics but I believe their BMW percentage approaches 15%). This is the reason despite “depression conditions” in the auto industry currently, Jackson’s company is both cash flow positive and profitable.

When I aksed Mr. Jackson last summer if he would attmept to grow his market share through picking up cheap distressed properties or simply let is grow through attrition, his reply was instant….”through attrition”.

The above numbers are showing that those gains are going to be substantial to say the least.

Disclosure (“none” means no position):Long AN, none

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"Davidson" on Blankfein vs Westbury

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Seeing the Blankfein piece in the FT against Mark-to-Market vs. Wesbury is the dichotomy of the market place. Those who believe in Efficient Market Hypothesis believe that price trend represent all the information available for a particular security. Mark-to-Market is valid in all environments for traders, technical and momentum investors. Efficient Market players have investment horizons from minutes to months. If they hold longer than a year, it is only due to a series of short term technical signals that reinforced holding.

The “Value Investors” on the other hand look for mispricing vs. fundamentals, i.e. discount to Book Value, Cash Flow or some other value parameter that is measurable and quantifiable. Warren Buffett is the prime example of Value Investing, the best known, but there are numerous others. However, the number of true “Value Investors” is far less than all other investors. Value investors investigate, analyze and parse a target company’s business till they are comfortable with the decision to commit funds at a level at which they feel an anticipated rate of return is likely to be had over a multi year period. It is not unknown for Value investors to hire investigators and analysts to look at each business site of a company’s operation, individual tax filings, competitors and vendor information in an effort to sleuth the locations of all values within a company. Value investors have an investment horizon that is typically greater than 5yrs.

Mark-to-Market accounting during down markets provides opportunities for Value investors. Their records are well known. There are no traders famous for their investment judgment over the same period of any well known value player.

Importantly, mixing Value investors and Efficient Market players (calling them investors is an abomination of the word) in the same room is like watching two vastly different cultures trying to communicate. They can’t. They are so culturally different that the terms, “value”, “return”, “analysis” which stand for defining action and criteria for one have no equal meaning in the other. What is even more bazaar is that in most instances they do not understand why they don’t understand each other as they each believe they are perfectly correct in their views of assessing investment opportunities.

I am a Value investor. There are truly very few of us vs. other investors. My guess is less than 2%.

Mark-to-Market accounting is an abomination of reasoning during periods of market disruption such as we just experienced when the SEC banned short selling. Unfortunately, there are more of them than us, but fortunately the market will and is currently righting itself even with the mistakes we have made and continue to make. Philosophically we need the majority of investors to not get it right so that us few can take advantage of the deep discounts not produced in any other way.

All will be well even if the current stimulus package is passed. It may just take longer.

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Tuesday’s Links

Blackberry, “Fairness”, Stimulus, Inventory, Spinal Tap

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– Which one is best?

– So, would this be censorship?

– Sad state when China is the one doing it right

– Are they really at all-time highs?

– A new interview……hilarious
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Kuwait Desperately Tries to Save Reputation

This is about as transparent as it gets…But, it could lead to something..

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From the FT

The Kuwait Investment Authority would consider increasing its support for Dow Chemical’s (DOW) disputed takeover of Rohm and Haas (ROH) if the terms of the deal were changed to account for the downturn, a person familiar with the matter says.

Dow failed to complete the $15bn (€11.5bn) deal after the collapse of a joint venture between Dow and PIC – an arm of the Kuwaiti Petroleum Corporation – that was supposed to contribute $7.5bn to help pay for the acquisition. Warren Buffett has agreed to contribute $3bn and the KIA was to have added $1bn. According to a person with direct knowledge of the matter, the KIA would consider putting up more money if there were new terms.

“Today, it is very difficult to complete this deal on the old terms,” this person added. “There would have to be a new price and new terms. The environment has changed so much and chemical companies are losing so much money.”

Rohm and Haas underlined the brutal conditions faced by the sector, reporting an 81 per cent fall in fourth quarter earnings from continuing operations.

The figures make it harder for Dow to justify paying its original price for the company. Rohm shares fell more than 1 per cent to $55.70 at midday in New York, well below the $78 per share Dow agreed to pay last year.

The KIA had not approached Dow to discuss increasing its investment in the deal, Dow said. It is also highly unlikely that KIA on its own would put in anything like the $7bn to $8bn Dow would need to close the Rohm deal.

However, an increased investment by the KIA strikes many analysts as an elegant solution to the break-up of the Dow-PIC joint venture.

“There is a concern as to Kuwait’s reputation for direct foreign investment,” says Ahmed Barakat, managing partner with Al-Sarraf & Al-Ruwayeh in Kuwait City who is not directly involved in the matter. “KIA could salvage that reputation.”

Initial talks between the Kuwaitis and Dow began in 2007. In November 2008, the deal was renegotiated to reduce the Kuwaiti contribution to $7.5bn from $9bn in recognition of the deterioration in the economy.

Even the revised terms, however, met with criticism in the Kuwaiti parliament, where questions were raised about the price tag and a $2.5bn break-up fee.

Dow has until July to take advantage of its one-year bridge loan for the deal. It reported a $1.55bn fourth quarter loss.

What do we really have? Kuwait has finally realized the obvious to everyone else. They have done irreparable harm to their reputation as a business partner. At all cost, they want to avoid the coming legal confrontation with Dow. Why? Discovery will lead to disclosure on internal communication with Dow and their deception will be laid bare for the world to see.

Recent accusation from Kuwait of bribery from Dow officials and “reviewing” other upcoming ventures only served to further cast doubt on the country as a business partner in the international community.

This “offer to help” is an olive branch to Dow. What will happen is Kuwait will commit more funding for the Rohm deal and in return, Dow will drop its seeking $2.5 billion in damages. Despite what Kuwait has done, they are still a valuable partner for Dow although Kuwait must now see that Dow does have options as it has been confirmed they are talking to Sabic (Saudi Basic Industies) to purchase to commodity businesses Kuwait had been scheduled to buy. One must come to the conclusion the Kuwaiti’s thought they were the only dance partner Dow had.

Dow dropping the lawsuit lets Kuwait off the hook and clears the way for future collaborations, a positive for both parties.

Like I have said all along, this will all get worked out…in due time…

Disclosure (“none” means no position):Long DOW. none

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Howard Schultz: We’ll Be McDonalds Except More Expensive and Less Convenient $$

I have been all over Starbucks (SBUX) for over 2 years now, someday they’ll listen. After two years of scoffing, dismissing and mocking those who would suggest the notion of discounting, calling it “diluting the brand”, Starbucks is chasing McDonalds (MCD) and Dunkin Donuts down the food chain (pun intended).

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Today’s Memo from Howard Schultz.

To: All Partners
Date: February 9, 2009
Subject: Value and Everyday Affordability – The Starbucks Way

Partners,

During these tough times, customers need to know they’re making a smart choice when they come to Starbucks. That they’re getting the world’s finest coffee, delicious food made with quality ingredients, and an experience they can’t get anywhere else. But they also need to know we’re listening to them, and that we’re helping them by making Starbucks an affordable, everyday value. We have taken some time to understand how Starbucks can deliver more value in a way that is both consistent with who we are, and relevant to the day-to-day realities consumers are facing. It was time well spent. We have tested concepts, conducted research, and most important, listened to our customers. I am very pleased to report that we have arrived at a value strategy that will appeal to customers without compromising our commitment to quality.

On March 3, we will introduce a selection of new pairings at $3.95. They combine our most popular beverages with our most popular breakfast items – and we’ve added a few new ones as well. Our pairings lead with our hand-crafted beverages. They offer our customers more affordability at breakfast time – not a free extra they wouldn’t have ordered anyway. And they come with the Starbucks Experience each and every day.

This move is the right thing to do for our customers. And we can do it while maintaining our high standards in sourcing, buying and roasting the finest coffee in the world. Starbucks success over the years has been in delivering a level of taste, quality and authenticity based on the coffee beans we start with and the experience created by our partners. The majority of our customers are coffee lovers and we need to trust them to find value and quality at Starbucks over and above fast food purveyors and other coffee companies.

At the same time, we will do more to tell our story. I talked to a Partner recently who was frustrated by the persistent misperceptions about our value. He was urging the company to be more aggressive in responding to the mythical claims about the $4 latte. With your help, that is exactly what we are going to do.

Did you know, for example, that ounce for ounce; our brewed coffee is competitively priced vs. others in most markets, and in some cases, is lower priced? And did you know that the average price customers paid for beverages for all of 2008 was under $3? We will be providing you more facts like these over the coming weeks, so you have the ammunition to dispel the myth — with customers and friends, online and in conversation. We’ll also be adding new offers over time that combine everyday affordability with an emphasis on why Starbucks is a smart choice for customers – in tough times and in good times.

I look forward to sharing more with you about the value we bring to customers, and I thank you in advance for playing a critical role in telling the story.

Onward,

Howard

Problem? Yeah, it is now an admission that everyone who has said they were too expensive were right. Had they done this last summer they could have played it as a “helping out the consumer” motive. Now it just smacks of desperation as sales plummet and customers continue the two year exodus to the “competition” Schultz & Crew always denied existed.

How is the competition doing?

Yeah….good thing they aren’t competition for Ole’ Howard. Will the price drop help? NO. Why? Starbucks is in reactionary mode and has no direction and no soul. They no longer know who they are and what they stand for.

Until they figure it out, shareholders will suffer. What really needs to happen is for Schultz to go. Since the firing of Jim Donald last year, the return of Schultz has not lead to any better leadership or decision making.

Schultz returned promising a return to what made the brand great and almost every decision he has made since then has been counter to what Starbucks once stood for. Because of that, the brand is in shambles…

A fresh face is needed….or at least an original idea…

Disclosure (“none” means no position):Loing MCD, none

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Pershing’s Lettter to Shareholders Regarding Target $$

Ackman feels that like Wendy’s (WEN) and McDonalds (MCD) he will eventually prevail in Target (TGT)

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Pershing Square IV Letter to Investors

Publish at Scribd or explore others: Finance & Investing Business & Legal target william ackman

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More on "Mark To Market"

Brian Westbury makes some great points in this video..

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