Bruce Berkowitz’s Fairholme Fund (FAIRX) just released their annual numbers.
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This is cool….
From Flowing Data
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Sorry, did not read close enough last night. AutoNation (AN) shares are up 10% – 15% today and foks have been emailing me asking why. This little nuggett in Bill Gates 13D filed last night gives a clue.
From time to time the Reporting Persons have engaged and expect in the future to engage in discussions with management of the Issuer concerning the Reporting Persons’ investments in the Issuer and the business and strategic direction of the Issuer. The Reporting Persons may also engage in discussions with other shareholders of the Issuer to discuss matters of mutual interest, which may include discussions regarding the strategic direction of the Issuer and opportunities to enhance shareholder value.
The Reporting Persons intend to continuously review their investment in the Issuer and reserve the right to change their plans and intentions at any time, as they deem appropriate, and to take any and all actions that they may deem appropriate to maximize the value of their investment. The Reporting Persons may at any time and from time to time, in privately negotiated transactions or otherwise, acquire additional securities of the Issuer and/or dispose of all or a portion of the securities of the Issuer that the Reporting Persons now own or may hereafter acquire. The Reporting Persons may formulate other plans or proposals regarding the Issuer or its securities to the extent deemed advisable by the Reporting Persons in light of their general investment policies, market conditions, subsequent developments affecting the Issuer (including but not limited to the attitude of the Issuer’s board of directors, management and other shareholders) and the general business and future prospects of the Issuer.
Except as set forth herein, the Reporting Persons have no current intention, plan or proposal with respect to: (a) the acquisition by any person of additional securities of the Issuer, or the disposition of securities of the Issuer; (b) an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Issuer or any of its subsidiaries; (c) a sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or term of directors or to fill any existing vacancies on the board; (e) any material change in the present capitalization or dividend policy of the Issuer; (f) any other material change in the Issuer’s business or corporate structure, including but not limited to, if the Issuer is a registered closed-end investment company, any plans or proposals to make any changes in its investment policy for which a vote is required by section 13 of the Investment Company Act of 1940; (g) changes in the Issuer’s charter, bylaws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Issuer by any person; (h) causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) a class of equity securities of the Issuer becoming eligible for termination of registration pursuant to section 12(g)(4) of the Securities Exchange Act of 1934; or (j) any action similar to any of those enumerated above.
So now we have both Gates and Sears Holdings (SHLD) Eddie Lampert in discussions with management………hmmmmmmm
Disclosure (“none” means no position):Long AN, SHLD
Not that anyone has notice but Archer Daniels Midland (ADM) has been adding assets at quit the rate lately.
First:
Archer Daniels Midland Co (ADM.N) was expected to buy ownership interest in three grain elevators from its bankrupt partner, Pilgrim’s Pride Corp (PGPDQ.PK), U.S. Midwest grain traders said on Monday.
Pilgrim’s Pride is seeking court approval of the sale, which it expects to generate $5 million, according to papers filed Jan. 16 in U.S. Bankruptcy Court in Fort Worth, Texas.
Two elevators are in Brookston and Parr in northwest Indiana, according to news releases issued when the joint venture was created in 2006. The third elevator is in Hoopeston, Illinois, just across the Indiana border.
ADM, based in Decatur, Illinois, declined to provide additional details. ADM operates more than 350 grain elevators and earned $1.8 billion last year for storing, transporting and processing grain and oilseeds.
ADM has the right of first refusal in the deal.
Second:
Food processor Archer Daniels Midland Co. said Friday it agreed to acquire Schokinag-Schokolade-Industrie Herrmann GmbH & Co., a German chocolate and cocoa powder producer.
Financial terms were undisclosed.
ADM said the acquisition will allow it to strengthen its cocoa and chocolate supplier business in Europe.
Schokinag, based in Mannheim, Germany, makes chocolate and other cocoa products in Mannheim and in Manage, Belgium.
Third:
Archer Daniels Midland Co. (ADM) is close to taking control of a Brazilian agricultural cooperative Cooagri, reported local financial newspaper Valor Economico Friday. ADM is expected initially to lease Cooagri’s 18 units in Mato Grosso do Sul state, the newspaper reported. The deal is expected to be signed on Feb. 13, said Valor.
ADM sees the potential to hike Cooagri’s corn and soy storage capacity by 50% from its current one million tons, a person close to the deal told Dow Jones Newswires.Brazil is the world’s No.2 soy producer after the U.S.
Now:
VeraSun Energy Corporation (NYSE:VSE) (Brookings, South Dakota), the nation’s second largest ethanol producer, will auction off seven fuel-ethanol plants representing 640 million gallons of annual company that the company acquired when it merged with U.S. BioEnergy. According to court filings, the auction will take place between March 16 and March 31.
For details, view the entire article by subscribing to Industrial Info’s Premium Industry News at http://www.industrialinfo.com/showNews.jsp?newsitemID=142998, or browse other breaking industrial news stories at www.industrialinfo.com.
Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services. For more information send inquiries to alternativefuelsgroup@industrialinfo.com or visit us at www.industrialinfo.com.
Does anyone want to place any bets that ADM will be a bidder/buyer of some of these fire-sale assets? Other than privately held Pope and Cargill, there are no other ethanol producers that have the funds to make a bid for these plants and with oil prices at $40, the chances of an oil major bidding to diversify earnings is low..very low…
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This did get me to thinking…….
There were many similarities, 1987 vs. 2008. To understand the dynamics will lead to understanding how a quick recovery is possible this time around.
Both 1987 and 2008 had a period of debt accumulation to enhance investment returns with leverage. Then it was a series of LBO’s. This time the debt was elsewhere but the main point is that part of the market was over-levered.
In 1987 the trigger for the crash was one Dan Rostenkowski, Dem-IL, Chairman of the House Ways and Means Committee, who angered that LBO’s were causing labor reductions to produce gains for the financially privileged introduced a retroactive tax law which would be in effect as of Jan 1 of 1987. This law if enacted would make all the year’s LBO’s uneconomical. It was changing the tax laws after much had occurred. He did the same in 1986 to completely rewrite the tax law as it pertained to tax shelters thus making them no longer as attractive and thus helped kick the S&L’s into a swan dive that resulted in a major bail out because the S&L’s had already closed on deals which now resulted in immediate losses.
The 1987 proposed legislation came out of committee late on Oct 13th, the market began to slide. The slide continued the 14th&15th (Thurs&Fri) but many were as yet unawares of the proposed law. They found out over the weekend as the news spread and a 10 sigma event began in Europe and hit us on Oct 19th with the help of “Portfolio Insurance” which was run by computers, never designed or tested for a massive sell off and in fact multiplied the sell off in the subsequent crash. Only one keen observer, Robert Bartley of the WSJ wrote about this at the time. The rest of the word did not understand what truly happened. A single individual had attempted to change the investment rules over night. Rostenkowski let the legislation die quietly.
The crash of 2008, i.e. what happened in Oct.&Nov., was also the work of one individual changing the playing field in a market already fragile. This was one SEC Chairperson Chris Cox who had eliminated the short sale rule saying he did not have the capacity to monitor the market in June 2007, then decided to ban the only defensive tool HF’s had to limit portfolio volatility w/levered positions of 20:1. He banned short selling. Now the HF’s were forced to sell levered positions outright, banks called margin for fear of losses and the market hit a vacuum. Cox changed the playing field and the participants had to adjust as quickly as possible. Just as in 1987.
Most will not see it this way. Most will point to the build up of debt in HF’s, sub-prime lending, the extraordinary period of Greenspan’s cheap money, the mistakes by certain regulators, the avarice of certain politicians and the mortgage agencies, but this was not an economic collapse. This was an economic slowdown and had begun at the end of 2005 when auto and home sales had peaked.
We were in an economic slow down with financial institutions at risk and we were in an orderly correction when Cox changed the rules and the wild collapse shattered investor confidence.
What we have today is shattered trust. No one knows what the rules are at the moment. It is not that liquidity is not available. It is that liquidity is not moving about the system. People with reasonable credit scores cannot buy cars or houses at the moment because of the fear of the unknown that was inspired by Cox’s single thoughtless decision.
Yes, jobs are being lost not because individuals are over levered, but more because of the fear of lending the copious funds that are available. Ah yes. There is also the issue of the Mark-to-Market rule that was never expected to see an overnight change in value as we have seen. Cox should have suspended this but did not. Mark-to-Market was meant to be a helpful investor tool in an orderly declining market place, something to keep the financial institutions honest. When Mark-to-Market valuations are registering default levels for perfectly healthy securities then you know the rule should be modified.
Much of the value destruction today is the result of accounting rules designed for a functioning market pricing mechanism meeting a frozen market pricing mechanism because one person changed the playing field.
This is not a Depression and does not even have to be a Recession. It is solvable. The rules have to be modified to produce fair valuations and to get pricing mechanisms working again. The head of the SEC can do this. It is quite simple.
Trust is what is missing. We need to revive it.
“Davidson” is the pseudonym for a reader who must remain anonymous…..
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Finally got around to finishing Howard Lindzon’s book, it was good.
I will always read a book from someone who makes me laugh and Howard does just that, whether it be on twitter or on his blog. When you add in the fact he actually knows what the hell he is talking about, well that is just a kicker. For a look at Howards current investments, go here.
Lindzon practices an investment philosophy called “trend following”. The book focuses on, as it says “Tends, find them, ride them, get off”. The beauty of the book is that it is produced with real life examples and failures. This is not one of those academic exercises that looks in the rear view mirror and adopts a philosophy to fit the evidence (or lack thereof). The book is a walk through his varied investments, how he noticed the trend, why and when he bought, and why he sold.
He does not bog the reader down with minutia and chart patters. Rather, he walks you through the process of going through your everyday life but with your eyes open for opportunity. What are your neighbors buying? What are the things at school all the kids must have? What items in your own life are becoming indispensable? Investment ideas abound everyday, people just far too often do not recognize what is become a trend and miss an oportunity.
Unlike some books that simply brag of one success after another and omit mistakes, Lindzon gives the reader some of his errors and uses them as a learning experience to illustrate how moving away from what you know and not doing proper investigation can cost you. Some of the best lessons in the book are the mistakes and what was learned from them.
Lindzon preaches that investors find a style that fits them and that they avoid trying to be something they are not. He does not claim this is the only way to make money in the market. It is for him though. What he does say is that not being yourself and by not picking a style that suits the reader they are surely headed for disappointment.
Chapter 10 bears particularly close readin It is about using social leverage to get ideas and learn. He advises turning off CNBC (read about his recent boycott of it here) and instead read blogs and connect with people. He shows the reader how to find bloggers worth reading, how to connect with other investors via facebook, twitter and now stocktwits and how to use them to become better investor (this chapter ought to be expanded for the next book Howard).
Lindzon claims (and I agree) that by turning off the the TV and saving yourself from the apoplectic 8 hours of benign drivel over the todays economic numbers that will be meaningless tomorrow or next week, connect with those who have ideas, who are leaders in their field and who have been successes doing what they do. Social networking allows you to do that. Besides, you can read the days economic numbers in a minute, you do not need them rehashed all day to understand them. Remember, it is the job of those on TV to keep you near panic so you tune in, it clouds all they do.
Buy the book here:
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Berman, Cockroaches, Kindle, Oil
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– Just now getting this?
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Gates and Lampert are buying up all that is left it seems…
In an SEC filing tonight, Bill Gates through Cascade Investments and the Bill & Melinda Gates Foundation discosed they hold a total of 12.2% of AutoNation.
Sears Holdings (SHLD) Edward Lampert owns 46%.
Disclosure (“none” means no position):Long SHLD, AN
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Am the only one who thinks Paulson just wants his cash? Now, I do not blame him nor do I think he is being “greedy” but let’s not walk through the door under the “I’m here to help” auspice when we all know why you are there.
First the letter:
Dear Mr. Liveris,
Paulson & Co. Inc. on behalf of funds we manage is Rohm & Haas’ second largest shareholder, currently owning 18.9 million shares. We strongly urge you to close the transaction with Rohm & Haas. Financing is available to you through the committed $13 billion bridge loan and the $4 billion convertible preferred stock financing. Subsequently, if you have concerns about retiring the bridge financing, we suggest that Dow pay it off through a combination of (i) cutting its dividend, (ii) raising common equity and (iii) selling bonds.
While we understand that this is a difficult environment for the chemical industry, current conditions do not have any effect on your obligation to purchase Rohm & Haas. We don’t believe that by intentionally refusing to close the transaction that you are benefiting your shareholders. As you know, Dow’s obligation to complete the merger is not conditioned on financing and Dow is required to take all action necessary to obtain financing. Dow currently has financing in place to complete the acquisition and the combined Dow Rohm & Haas will have numerous alternatives to refinance the bridge loan.
Several times we have made suggestions to senior executives at Dow. First, we suggest that Dow can temporarily reduce its dividend to one cent per share. By doing so, Dow would save around $1.6 billion per year. In just 4 1/2 years, the annual $1.6 billion of cash will effectively replace the $7 billion of net proceeds that Dow was to raise from the unresolved Kuwaiti joint venture.
Second, we suggest that Dow can sell, post closing, $4 billion of new common equity. Many companies, both in the U.S. and abroad, are raising common equity to strengthen their balance sheets and include Anheuser Busch InBev ($9.8 billion) and Xstrata (~$5.9 billion). In this regard, in our conversations with Dow, we indicated that depending on the terms we would seriously consider participating in any equity offering you may make.
Third, we suggest that Dow can further reduce the bank financing by issuing bonds. Currently, there is strong market demand for investment grade debt. In January alone, $100 billion was raised, the most ever in a single month. By cutting the dividend and raising common equity, Dow should be able to maintain its investment grade rating and access the credit markets. We suggest that Dow can raise $5 billion in this market.
By cutting the dividend, raising common equity and selling bonds, Dow could repay the bridge financing by $10 billion, easily facilitating the financing for the acquisition. If desired, Dow can also subsequently issue more common stock or hybrid securities such as convertible preferred and convertible debt to completely repay the bridge facility. In short, a combined Dow Rohm & Haas would have numerous opportunities to refinance all or part of the bridge loan in the equity, bond, term bank loan or hybrid security markets. Of course these refinancing alternatives would be in addition to any proceeds you may receive from the aborted Kuwaiti transaction or other joint venture or asset sales you may pursue.
Of particular note in this regard is InBev’s acquisition of Budweiser which closed in 2008 in the midst of the credit crisis. Rather than complain about the status of the market, InBev drew down the bank financing and closed two business days after receiving antitrust clearance on November 18. Shortly thereafter, on December 16, Anheuser Busch InBev raised $9.8 billion in an equity offering (equivalent to 160% of its shares outstanding) and completely repaid the bridge financing. Furthermore, in January 2009 Anheuser Busch InBev sold approximately $7.5 billion in two debt offerings to repay short term indebtedness.
Interestingly, although Anheuser Busch InBev shares initially declined to a low of euro 10.31 on November 24, 2008, as a result of the repayment of the bridge loan with the equity and debt financings, the stock has risen 93% from its November low to close at euro 19.91 on January 30, 2009.
We suggest that Dow can follow the same strategy as InBev and close and refinance the Rohm & Haas acquisition. As we previously indicated, depending on the terms we would have a high interest in participating in any equity or hybrid security offerings. We also suggest that the Board act quickly in closing the transaction as you risk further damage to your shareholders by unnecessarily delaying the closing.
Let’s just look at it.
Cut the dividend to “pay of bridge loan in 4.5 years” Really? 4.5 years? Paulson does realize that the bridge loan is a ONE YEAR FACILITY, right? I am going to go out on a limb and say that the banks will not accepts “we’ll pay the rest in 3.5 year”….is it just me?
There is an appetite for “investment grade debt”. Here is another problem. Dow is currently under watch to be downgraded to “below investment grade” from the ratings agencies due to the possibility of the forced merger. Where Dow to attempt to issue new debt right now, to think it would be granted at investment grade is wish-full thinking at best. Dow has been exploring additional financing options and has found nothing that is amenable. Does Paulson think this avenue has not been explored?
He says “depending on term” he would seriously consider participating” in a stock or hybrid offering, well, my response would be “why not be like Berkshire (BRK.A) and take some convertible preferred now?” Buffett bought $3 billion, how much do you want? Promises of consideration after the fact are, well, meaningless.
Let just see this for what it is, a Rohm $ Haas (ROH) shareholder who wants to just cash out. You know what? That is ok, who can blame him? I don’t. But as a Dow shareholder, the best thing for US is to delay the closing, sell the commodity businesses and then use that money to complete the transaction and preserve the dividend. That is what is best for us and the management he is writing to works for us, not him or Rohm & Haas shareholders.
Mr. Pauslon, if you want us to take your ideas the least bit serious, come aboard and pick up some shares, debt, or preferred. Do not sit there and tell us what the best thing for us to do is.
We’re not listening..
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I have named my optimistic and very intelligent new writer “Mr. Davidson”. It is a brilliant pseudonym and maybe someday I will be able to explain it.
Davidson Writes:
If you learn the effect of psychology on markets you will come to know that you cannot predict bottoms or tops. These are unpredictable turns in market psychology and is directly tied to the use of margin in how fast greed can turn to fear. No one has a handle on this although many claim to have modeled some market behavior or other only to have a 10 sigma event prove the model wrong. Long Term Capital is the most well known, but lately the market is strewn with disproved models. AIG hung its hat on a model by a Wharton/Yale professor and “poof”
You cannot model human behavior. You can observe, you can place a historical deviation to it, but you better not hang 20xleverage as so many have done and lost.
There is no better indicator of market psychology than the Treasury yield chart. All maturities are rising. This reflects substantial flow of funds into other opportunities. If fear still ruled, you might see the longer term maturities rates rise while the T-Bill rates remained low or even turn negative once again. Not so. All maturities show fund outflows. THIS IS THE TURN!
Buffett recognizes this among others.
He also provides the following chart:
Of it he says:
We have already witnessed a return to par of the LQD ETF(Invest Grade Corp) and a substantial rise in the HYG ETF(HiYield Corp) as well as rises in all the indices since November. House sales appear to be finding a bottom, The insider buying is extraordinarily high, investor and consumer pessimism at record 30yr+ levels, savvy investors announce new commitments(Buffett, Ackman, Berkowitz, Cumming and many not as well known) weekly.
Changes are there for all to see if only they would give up listening to the endless stream of negative headlines. Markets turn without fan fair in the gloom of pessimism. I think the best time is to invest is now.
Treasury rates are rising across all maturities as this chart from Don Hay’s recent note indicates. The best interpretation in my opinion which has been offered by only few observers thus far is that capital is flowing from Treasuries to other parts of the economy and securities markets. The desperate hoarding of cash that has been a hallmark of the current economic slump is diminishing in my view.
I remain positive that the current financial issues will be resolved and that this chart provides strong evidence for this.
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Reprinted with permission of Pershing Square….
Pershing Square 2008 Annual Report
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Part 1: “The place to make money the next ten years is in raw materials”….. “whenever we have had period of forced liquidation as we are now, the way to make money is to find the things in which the fundamentals are unimpaired”……”The fundamentals of most industries in the world are impaired”…. “the only area I see the fundamentals improving are commodities”
Part 2: “Anyone buying gov’t bonds anywhere in thew e world is making a terible mistake”
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Makes you think…..no?
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Video courtesy of my friend Doug at Wall St. Media. I really do recommend the site as it is full of highly useful information.
The ETF’s are iShares Barclays 20+ Year Treas.Bd (ETF) (Public, NYSE:TLT) and if you want to short them, ProShares UltraShort Lehman 20+ Yr(ETF) (Public, NYSE:TBT). I would buy the short, I can’t see how these rates stay low and people keep buying something that pays them nothing for much longer.
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this is a great video on inflation and were we may be in the cycle….
Hat tip Marketfolly for finding it
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