Dow Chemical (DOW) filed its 8K regarding tis agreement to sell it s recently acquired Morton Salt division.
Morton had annual sales last year of $1.2bn and earnings before interest, tax, depreciation and amortization (EBITDA) of $270m meaning Dow received 6.2 times EBITDA for the asset, a very good price especially in the current environment.
Disclosure (“none” means no position):Long Dow
This should not qualify as news..
Faber said the Standard & Poor’s 500 Index may drop as much as 10 percent before resuming gains.
The measure may decline to about 750 and rebound after July, Faber, 63, said in a Bloomberg Television interview in Singapore. Global stock markets are unlikely to fall below their October and November lows, he said.
“We need some kind of correction, maybe around 5 to 10 percent, and after that we can maybe rally more into July,” said Faber, the publisher of the Gloom, Boom & Doom report. “The economic news, while it won’t be good, the rate of getting worse will slow down.”
5% to 10%? we have been seeing swings like that on a weekly basis this year. Investors should be surprised if we do not see a swing that large, especially after the run. Saying it “needs” to happen is almost insane. Given the run the markets have had, dropping 5% is virtually irrelevant and I think you would be hard pressed to find anyone other than the congenitally optimistic who thinks we might not see more than that. Hell, I would not be surprised if we do not see 5% by Friday now that we are in earnings season.
This is a “gimme” prediction from Faber so he can sit back and boast when it happens and say “I was right”.
I predict the sun will rise tomorrow…
Disclosure (“none” means no position):
Talking about General Growth Properties (GGP), RHI Entertainment (RHIE), Best Buy (BBY), Sears Holdings (SHLD), Bill Ackman, The Economy and the Red Sox.
Disclosure (“none” means no position):Long GGP, RHIE, SHLD, None
Nice job Aaron Task in this interview….
Disclosure (“none” means no position):
Looks like my post yesterday was a day premature. Latest weekly and monthly numbers released today.
Week Ending 4/4
Month of March:
Month of Feb.
Best Buy has fallen from having 27% larger share of traffic over Sears in February to now being equal to it as of the first week in April. Thee are some seasonality issues at play here but that does not explain it all away. Were that purely the case we would be seeing similar changes in other retailers and the truth is 1-6 (Target (TGT), Wal-Mart (WMT), JCPenny (JCP) & Amazon (AMZN)) have stayed basically steady except for Sears and Best Buy.
Now, it could be appliances? Best Buy made a big push into the area over the past few years and this may be hurting them now. Sears’ new “Blue Crew” appliance price guarantee has recaptured market share for them so it is obvious the marketing of it has had a positive effect. This may be increasing searches on Sears’ site for these items at the expense of Best Buy.
This theory is further buttressed by the time of year. Folks expecting tax refunds would be using them for big ticket purchases like a new appliance. If all this is true, we should expect Sears’ traffic to begin to fall soon. People who expect refunds have most likely filed and received them already.
Should this traffic trend NOT reverse, then we should start to assume there may be a fundamental shift underway. The seasonal argument will be over, the tax refund theory will be exhausted leaving us electronics and clothing.
Since the other clothing retailers share has remained consistent, we should not assume Sears is picking up large gains here. That then leaves us with electronics. That would be the logical choice to extrapolate the reason for the gain at the expense of Best Buy.
Again, this is an unfolding story and a great detective exercise. We’ll see how it plays out.
Data from Hitwise.
Disclosure (“none” means no position):Long SHLD, WMT, none
As god is my witness, if Mark Wattles ever buys shares in any company I own shares in, I am selling next day. Who is Mark Wattles you ask? More on that after the news.
Blockbuster announced today in an SEC filing it is on life support:
The risk that we may not successfully complete this refinancing and obtain the related amendment of certain financial covenants included therein, and/or the risk that we may not have adequate liquidity to fund our operations as a result of not meeting our projected financial results, even if the refinancing is completed within the time and upon the terms contemplated, raise substantial doubt about our ability to continue as a going concern.
If we close on our amended credit facility, this amended facility and our other indebtedness will impact our business by, among other things:
• requiring that a substantial portion of our cash flows from operations be used for debt service payments, thereby reducing the availability of cash flows to fund working capital requirements including inventory purchases, capital expenditures, acquisitions and other general corporate purposes;
• making us vulnerable to deterioration in our results of operations and to general adverse economic, market or industry conditions which could impact our ability to make our debt payments;
• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate including limiting our ability to invest in certain strategic initiatives, consequently placing us at a competitive disadvantage to our competitors; and
• providing liquidity at or near minimum cash levels required to operate the business during certain periods of time during 2009.
We believe that cash on hand, cash from operations and available borrowings under the amended credit facility (assuming that we close on such facility) will be sufficient to fund our anticipated cash requirements for working capital purposes and normal capital expenditures, and that we will remain in compliance with the financial covenants contained in our amended debt agreements, for at least the next twelve months. However, there can be no assurance regarding these matters given the current state of the global economy, which has negatively impacted our ability to accurately forecast our results of operations and cash position, and which may result in deterioration of our revenues beyond what we anticipate. Our current 2009 plan contemplates that worldwide same-store revenues will be lower than what we experienced in the fourth quarter of 2008. Further deterioration would expose us to declining margins as a result of an imbalance between our inventory levels and customer demand. Additionally, if our trade creditors were to impose unfavorable terms on us, it would negatively impact our ability to obtain products and services on acceptable terms and operate our business.
Our independent registered public accounting firm has issued an opinion on our fiscal 2008 consolidated financial statements that includes an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern. As part of the amendment discussed above, and not subject to closing of the amended credit facility, our lenders have agreed to waive the requirement in our credit agreement that our fiscal 2008 audit opinion not include a going concern explanatory paragraph or like qualification.
If we are unable to generate sufficient cash flow from operations to service our indebtedness and remain in compliance with our financial covenants, we would be in default under one or more of our debt agreements, which if not cured or waived, could result in the acceleration of all of our debt due to cross-default provisions contained in such agreements and in certain of our leases.
In such event, we would be required to search for alternative sources of liquidity to refinance the debt, which may not be available to us on acceptable terms, if at all. Our ability to obtain alternative financing would likely be adversely affected because substantially all of our assets have been secured as collateral for our existing debt and because our financial results, substantial indebtedness and credit ratings could each adversely affect the availability and terms of any such financing.
If we were unable to repay our debt upon acceleration, we could be forced to file for protection under the U.S. Bankruptcy Code. In addition, as discussed above, our financing arrangements are relatively short-term in nature. As a result, we will face additional refinancing pressures over the next several years.
Now, Wattles. From a post a few weeks ago:
Wattles, co-founder and former CEO of Hollywood Entertainment and currently the majority owner of the Ultimate Electronics chain, said in a Securities and Exchange Commission filing on Monday, March 16, that he acquired the shares for investment purposes because he believes Blockbuster “does not have a motive to reorganize under Chapter 11.”
Anyone remember Wattles last investment? Yup, now defunct Circuit City.
Mr. Wattles, principal of Wattles Capital Management LLC and the founder of video-rental chain Hollywood Entertainment, took a 6.5% stake in Circuit City, which had at the time about $12 billion in annual sales. Circuit city was evenautally liquidated
Beofre Circuit city Mr. Wattles bought Ultimate Electronics out of bankruptcy, ran it back into bankruptcy, and the bought it out again in 2005. Today it has locations in 9 states and is private, so no word on how it is performing is easily available.
Before that Wattles was best known as the founder of Hollywood Entertainment Corp., which he sold to Movie Gallery Inc. for $1.2 billion in 2005. Good timing. The combined company? You guessed it, ended up in bankruptcy.
Now he will eventually be able to add Blockbuster to his list. This is way beyond bad luck, this is just bad investing, period. As the filing states, there will nothing left should Blockbuster file Chapter 11, all its assets are pledged as collateral. The banks own them.
For those who wish to void the Wattles train wreck in their holdings, you can follow his activity here at the SEC’s website. I suggest the RSS feed as it delivers filings as they are made.
Said Wattles in his Blockbuster filing:
The Class A shares of Common Stock were acquired for investment purposes by the Reporting Person, primarily because of his belief that the Issuer does not have a motive to reorganize under Chapter 11 and that the Issuer will continue as a “going concern” despite the market’s expectation of obtaining a qualified opinion from the Issuer’s auditors in conjunction with the year-end audit.
Given the operating fundamentals of the Issuer combined with the short term of its real estate leases (typically five years) and the aggressive and proactive manner in which the Issuer has managed its store base (including relocations, store closings, reductions in store size and subleases), Mr. Wattles does not believe that the Issuer has a motive to reorganize under Chapter 11.
In addition, regardless of the likelihood of obtaining a “going concern” qualification from its auditors, Mr. Wattles believes the Issuer will be successful in refinancing its revolving bank line of credit, or if it cannot, that it will be able to use cash flow from operations to meet its August repayment obligations and 2009 liquidity needs.
Blockbuster disagrees….
Now to be fair, the Circuit City bankruptcy was not Wattles fault, he did not cause it. What is his fault is buying shares in these companies that are doomed….repeatedly…I just do not get it
Call him by his Biblical name “Mark: Chapter 11”
Disclosure (“none” means no position):None
For those who do not know what it is, Stocktwits is a great investment idea generator. I think it gets hyped too much for being a “traders tool” which it certainly is, but it has just as much value for those like myself who are low turnover investors.
It is a constant stream of ideas and thoughts that you can then adapt to what you do. You can follow like minded folks to keep the “noise” down on the stream should you wish or you can open it up a bit and see where it takes you.
Anyway, Here is Doug from Wall St. Media talking about it and the annual “Lindzonpalooza” investor conference in Phoenix that was highly attended this year.
Disclosure (“none” means no position):
Natural gas, Oil, Andy Beal, Wall St.
– This price cannot hold
– Oil spike?
– Please read this article…..I am curious as to what readers take form it. Use the comments section
This is an update to a 3/30 post on web traffic.
As a refresher here are Feburary’s final numbers:
Here is the latest available information on web traffic:
What is important is the 25% fall by Best Buy (BBY) since February. For a company that was supposed to be the primary beneficiary of the Circuit city implosion, at least on the web, it has not happened.
Best Buy is no essentially locked in a three way tie with Sears Holding (SHLD) and JC Penny (JCP) who have climbed in visits. If we include Sears’ Kmart site, Best Buy is a distant third some with some 27% less traffic. Sears new site may have something to do with this.
Amazon (AMZN) has regained it’s lead and Target (TGT) and Wal-Mart remain numbers two and three with stable numbers.
Best Buy has been in a steady web fall for 8 weeks now. Something is happening and it is not good for Best Buy shareholders.
Data from Hitwise
Disclosure (“none” means no position):Long SHLD, WMT, none
Now, If you are a shareholder, where are you going to go. Think about it. Target (TGT) management has already said they do not feel any changes are necessary and they “just need to manage through the downturn”. OR, will you go see what the guy who has successfully implemented changes at McDonalds (MCD), Wendy’s (WEN), Longs Drug (LDG)etc.. and, oh yeah, also happens to be the largest shareholder of Target?
It is a no-brainer….
Ackman really is stoking Target shareholders emotions in this letter by making the direct and unavoidable comparisons to Wal-Mart (WMT) in what has to be a painful step by step process for shareholders. He details the divergence of the two companies over the past year. It really is stunning..
He also says, “Despite the fact that Target’s two principal business lines are retail and credit cards, Target currently has no independent directors with senior, executive-level experience in these two businesses,”.
The letter
Ackman’s Letter to Target Shareholders
Target responded to the letter saying:
The company said, “We believe that the current Target Board has the strength, diversity, experience and qualifications to provide effective and independent oversight and direction to the company. Target’s Board consists of highly qualified directors, all but one of whom are independent. Each member of Target’s Board is committed to delivering superior results and serving the best interests of all Target shareholders.”
Yeah, ok, thanks for that. Where is Ackman speaking again?
I have said from day on this issue that the folks at Target are not doing themselves any favors by keeping Ackman on the outside and summarily rejecting all of his proposals. Some folks just gotta learn the hard way I guess.
Disclosure (“none” means no position):Long MCD, WMT, None
From SNL…
Disclosure (“none” means no position):
This is pretty wide ranging and in depth interview.
You may view it here (pdf)
Disclosure (“none” means no position):
Now, every reader here knows I am bearish on housing for 2009/2010. But, a new ETF out there has my contrarian indicator on high alert.
From the WSJ:
MacroShares’ Major Metro Housing product, brainchild of economist Robert Shiller, will offer investors a way of betting on rising house prices by buying “Up” shares, or expressing pessimism via “Down” shares. Unusually, these won’t be backed with the underlying physical housing assets.
Instead, MacroShares will be tied to the Standard & Poor’s/Case-Shiller Composite 10 Home Price index. When the Up and Down shares float, proceeds will be invested in U.S. government bills to ensure liquidity. If the index moves up, the trust behind the Down shares will shift a corresponding portion of its assets to the Up shares trust, raising the net asset value underlying the Up shares. The prices should follow.
This seesaw structure dictates there always being an equal number of Up and Down shares. So if, for example, there is high demand for new issues of Down stock, not an unlikely scenario in today’s climate, an equal amount of Up stock will have to be created and sold into the market. In this scenario, Down shares ought to trade at a premium to NAV because of high demand, while Up shares would tempt buyers with a discount.
First, readers also know how we at ValuePlays feel about Case-Shiller and its flawed methodology.
The ETF also seems at first blush to be a way to increase the relevance of the index the ETF’s creators have it tied to (they are the same people)
BUT, now that the average Joe has an easy way to bet against housing, are we looking at the “last fools in” on the downside? Please note, under no circumstances do I think there is any “rally” happening in housing. In all actuality just price stagnation would be stunningly good news. Past real estate busts have taken the better part of a decade to come out of and this was worse than any of them, there is no price rally in store.
Could the “RE ETF” to the downside be the “Lair Loans” from the bubble? Time will tell.
Now, when you couple that with this little piece of news also from the WSJ:
Jumbo mortgages became more expensive and harder to come by as the nation’s credit crisis deepened. That might be starting to change.
“Jumbo” refers to mortgages that are too large to be bought by Freddie Mac or Fannie Mae. The “conforming loan limit” for those government-backed entities is $417,000 in many parts of the country, but goes up to $729,750 in high-cost areas of the continental United States.
Bank of America recently began trumpeting its jumbo program, offering 30-year fixed-rate jumbo mortgages with rates in the high-5% range. “We decided it was time to really go after that market,” says Vijay Lala, a product management executive for the bank.
Also:
The rates on 30-year fixed-rate jumbo mortgages averaged 6.5% for the week ended March 27 — the lowest since May 2007, according to HSH Associates, a publisher of consumer loan information. On Oct. 31, a recent high point, the average rate on a 30-year fixed-rate jumbo mortgage was 7.9%, according to HSH data.
GMAC also has been pricing its jumbos aggressively, says Paola A. Kielblock, national product specialist for Fairway Independent Mortgage, a mortgage broker and banker based in Madison, Wis.
She recently has seen rates in the high-5% to the low-6% range for 30-year fixed-rate jumbo mortgages, and the low-5% range for five-year adjustable-rate jumbos.
Bill Higgins, chief lending officer for ING Direct, says his firm has been offering jumbos in the 5% range for several months — even back when average rates were higher
I have claimed here for what seems an eternity that helping over-levered people 6 months behind on their mortgage was a waste of taxpayer money. Why? There is no economic impact to saving the home. John and Mary’s loan has reset and they are hopelessly underwater and cannot afford the loan. Forcing the bank to refi it only enables them to barely afford the loan. That is it. There is no discretionary income freed for other economic uses. Results from FDIC programs that show near 60% of these folks re-defaulting 6 months later would prove that point.
The argument is that saving the foreclosed homes saves property values. Bull, once the first home on the block (or near area) goes into foreclosure, homes 2 and up have no effect on pricing until #1 sells as that is now the low price. Since we know we cannot save every home because some people cannot afford their homes under any circumstances, saving the others in the area is wasting money and resources.
Fording them to foreclose and rent would actually free up more money for them to recycle back into the economy.
Jumbo loans. Today these are folks with high credit scores (>720), at least 20% equity in the home and higher incomes. Lowering their payment adds to their discretionary income that then gets recycled. I have argued that refinancing current loans at 4% to credit worthy borrowers would have more beneficial impact for the overall economy than just allowing someone to squat in a home.
Will this “save housing”? No. We could not build another house for a year and still have new home inventory unsold next April. Until that is fixed, prices cannot climb. It will though help the overall economy.
So, what does it all mean? The ETF? A piece of garbage. It will take at least a decade to recoup housing values in the hardest hit areas. Housing has collapsed and the easy money has been made for those who think further falls are in store. Not that is matters as the ETF isn’t even backed by actual home prices (unlike commodity ETF’s) but by the “feelings” of investors. Housing could rally or fall 20% but if investors do not rush to buy or sell shares in the ETF, the value of the investment remains flat. Contrarily, prices could remain flat but a rush of sellers could cause a long position to crater totally unrelated to housing prices. Nice…
Also, the folks at Macroshares have lousy timing with this type of investment:
When MacroShares first tried the structure tracking oil prices, the results were mixed. In its first outing, in 2007, the sudden rise in oil prices from $60 a barrel to triple digits caused it to automatically liquidate in the summer of 2008. In a seesaw structure, if prices move 100% either way, the net asset value of either the Up or Down shares must go to zero. This is by design, but some investors may be put off by the idea that returns are capped.
Final thoughts:
Climate change, Geithner, $200 oil,Oil & Recession, David Frye
– The other side
– “Close but no cigar” does not cut it
– The longer we ignore it, the more likely it will happen
– Did the spike cause it?
– RIP
Disclosure (“none” means no position):
This follows my post on AIG.
Disclosure (“none” means no position):