A quick conversation with Doug regarding Brookfield Properties (BPO) from 4,000 ft. above sea level in New Hampshire’s White Mountains……Skype is pretty awesome…
Disclosure (“none” means no position):
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Month: August 2009
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Buffett: Inflation a Real Threat
I’m guessing Geithner/Bernanke will not be quoting Warren anymore in front of Congress…Berkshire’s (BRK.A) Buffett on what he sees as a potentially huge problem lying in wait down the road.
Full Op-Ed:
IN nature, every action has consequences, a phenomenon called the butterfly effect. These consequences, moreover, are not necessarily proportional. For example, doubling the carbon dioxide we belch into the atmosphere may far more than double the subsequent problems for society. Realizing this, the world properly worries about greenhouse emissions.
The butterfly effect reaches into the financial world as well. Here, the United States is spewing a potentially damaging substance into our economy — greenback emissions.
To be sure, we’ve been doing this for a reason I resoundingly applaud. Last fall, our financial system stood on the brink of a collapse that threatened a depression. The crisis required our government to display wisdom, courage and decisiveness. Fortunately, the Federal Reserve and key economic officials in both the Bush and Obama administrations responded more than ably to the need.
They made mistakes, of course. How could it have been otherwise when supposedly indestructible pillars of our economic structure were tumbling all around them? A meltdown, though, was avoided, with a gusher of federal money playing an essential role in the rescue.
The United States economy is now out of the emergency room and appears to be on a slow path to recovery. But enormous dosages of monetary medicine continue to be administered and, before long, we will need to deal with their side effects. For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself.
To understand this threat, we need to look at where we stand historically. If we leave aside the war-impacted years of 1942 to 1946, the largest annual deficit the United States has incurred since 1920 was 6 percent of gross domestic product. This fiscal year, though, the deficit will rise to about 13 percent of G.D.P., more than twice the non-wartime record. In dollars, that equates to a staggering $1.8 trillion. Fiscally, we are in uncharted territory.
Because of this gigantic deficit, our country’s “net debt” (that is, the amount held publicly) is mushrooming. During this fiscal year, it will increase more than one percentage point per month, climbing to about 56 percent of G.D.P. from 41 percent. Admittedly, other countries, like Japan and Italy, have far higher ratios and no one can know the precise level of net debt to G.D.P. at which the United States will lose its reputation for financial integrity. But a few more years like this one and we will find out.
An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let’s look at the prospects for each individually — and in combination.
The current account deficit — dollars that we force-feed to the rest of the world and that must then be invested — will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients — China leads the list — to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.
Then take the second element of the scenario — borrowing from our own citizens. Assume that Americans save $500 billion, far above what they’ve saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).
Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington’s printing presses will need to work overtime.
Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can’t come close to bridging that sort of gap.
Legislators will correctly perceive that either raising taxes or cutting expenditures will threaten their re-election. To avoid this fate, they can opt for high rates of inflation, which never require a recorded vote and cannot be attributed to a specific action that any elected official takes. In fact, John Maynard Keynes long ago laid out a road map for political survival amid an economic disaster of just this sort: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens…. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
I want to emphasize that there is nothing evil or destructive in an increase in debt that is proportional to an increase in income or assets. As the resources of individuals, corporations and countries grow, each can handle more debt. The United States remains by far the most prosperous country on earth, and its debt-carrying capacity will grow in the future just as it has in the past.
But it was a wise man who said, “All I want to know is where I’m going to die so I’ll never go there.” We don’t want our country to evolve into the banana-republic economy described by Keynes.
Our immediate problem is to get our country back on its feet and flourishing — “whatever it takes” still makes sense. Once recovery is gained, however, Congress must end the rise in the debt-to-G.D.P. ratio and keep our growth in obligations in line with our growth in resources.
Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar’s destiny lies with Congress.
Disclosure (“none” means no position):
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“Davidson” on the Investing Noise
This is a great piece of advice from my friend “Davidson”.
The term Ockham’s(Occam’s) Razor is attributed to a Franciscan Friar William of Ockham:
William Ockham (c. 1285–1349) is remembered as an influential nominalist but his popular fame as a great logician rests chiefly on the maxim attributed to him and known as Occam’s razor: Entia non sunt multiplicanda praeter necessitatem or “Entities should not be multiplied unnecessarily.” The term razor refers to the act of shaving away unnecessary assumptions to get to the simplest explanation.
The great mass of material that is presented to us each day on investment analysis could benefit in my opinion by “…shaving away unnecessary assumptions to get to the simplest explanation” There is much more information presented in a single day than any single individual could possibly hope to digest in a lifetime. Most of it is designed to encourage a high level of trading based upon momentary headlines that in most instances are of little long term significance for most of us. This is information overload in the extreme!!
I advise that most are better served by applying Ockham’s Razor. This forces one to step back far enough to gain a wider perspective of market history, manager performance and the actions one can take to monitor and offset risk once it has been identified. The investment process becomes one of locating successful managers and letting them attend to the details while we monitor the broad cycles, historical Return/Risk relationships and parse the deluge of daily reports for specific commentary and investment activity of insightful investors known for their keen sense of investment valuation. Then, by rebalancing vs the Return/Risk assessment as it evolves from our broad analysis, portfolios can be adjusted as the situation appears appropriate.
Even with leaving much of the detail to others, continuously monitoring the market keeps me busy each and every day. In this effort, it is not necessary to perfectly identify market “Bottoms”/”Tops”, it is not necessary to make split-second decisions and determine whether a particular issue is or is not owned by a particular manager. These are details that do not determine manager selection or the Return/Risk characteristics of an asset class. In the portfolio management process the focus is on larger issues, namely the on-going Return/Risk relationship of each asset class.
However, examining the details of our manager portfolios as to what is selected and when does provide some insight to their investment decision making. Understanding the manager’s investment style is important to manager selection. I do the same for a select group of individual company CEOs as to which of these corporate managers are best to monitor for their investment insights. Together the selected group of portfolio managers, CEOs and private investors comprise approximately 300 individuals which is continuously tracked. This information can be used manage an all cap US portfolio depending on individual needs and desires as the US portion of a globally balanced portfolio.
The amount of investment commentary available is enormous. Taking the Ockham Razor approach greatly simplifies the investment process. By allocating the detail to others who have proven themselves skilled, the larger and more important allocation decisions can occur with less attention to the daily market static.
With many calls for the market correcting in the near term, the longer term evidence supports remaining positive and disciplined within this context.
Disclosure (“none” means no position):
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Wall St. Media 8/14
Talking about Brookfield Asset Management (BAM) and Brookfield Properties (BPO) that were first featured in this post
Go to Wall St. Media for more video
Note: Late Friday Monish Pabrai disclosed a stake in Brookfield Properties
Disclosure (“none” means no position):none
Categories
Wall St. Media 8/14
Talking about Brookfield Asset Management (BAM) and Brookfield Properties (BPO) that were first featured in this post
Go to Wall St. Media for more video
Note: Late Friday Monish Pabrai disclosed a stake in Brookfield Properties
Disclosure (“none” means no position):none
Categories
Active Value Investing Presentation
Readers. This book is perhaps the best investing book (for me) that I have read. It changed the way I looked at Value Investing and has made this year my best to date (so far). Please do yourself a favor and read it….
“Value investing” DOES NOT EQUAL “buy and forget”
From Vitaliy:
A presentation/speech of Vitaliy Katsenelson’s book (on Active Value Investing. This presentation/speech explains why we are likely suffering through a range-bound market. I updated the data; found a better way to explain old and new topics; changed my mind on some things; and answered questions that have been raised by readers. I have to warn you this PDF is 20 pages long. However, a lot of space is consumed by charts and tables thus don’t let the size scare you. Kill some trees, don’t kill your eyes – print it.
Avi Presentation
Disclosure (“none” means no position):
So I am sitting there at the kids hockey practice Friday afternoon having a blast watching son #1 score some pretty goals and son #2 go “Abu Ghraibe” on a few kids when my blackberry starts going nuts. “Ackman sold GGP shares” were the emails and a few twitter DM’s said the same. Buzz kill…..
You see Pershing Square filed its 13F late Friday and General Growth was not listed as a holding….
Here is the story. General Growth Properties (GGWPQ) is no longer classified as a “reportable security” for the purposes of 13F filings by the SEC. Don’t ask we why they say it isn’t (my guess is because it is in bankruptcy) I make no claim as to being able to discern why the SEC does what it does, it just is…
BUT, as a member of the Board of General Growth, his activity as it relates to the stock would be reportable on a Form 4 filing. Because of that, if/when he does sell/buy actual shares, we will be notified ASAP as Form 4’s must be promptly filed….
Interesting note his being back in McDonalds (MCD)….
Here is the filing:
Disclosure (“none” means no position):Long MCD, GGWPQ
It would appear Einhorn is not a believer in the recent rally as he added puts in the S&P (.INX) and GE (GE) to his portfolio in the last quarter.
Maybe this is why? From Bespoke
A P/E ratio rising from 10 to 18.35 is what happens when the S&P 500 rallies 50% (the P) while earnings (E) continue to decline. Below we provide a chart of the S&P 500 price to earnings ratio since the start of the 2002 bull market using trailing 12-month diluted earnings per share from continuing operations.
The S&P’s P/E ratio reached its highest level since the end of 2004 earlier this week. While P/E expansion is not unusual during bull markets, investors will remember that the S&P 500’s P/E actually declined from the start to the finish of the ’02-’07 bull. This is because earnings grew even faster than stock prices. When looking at the chart below, you can see that the P/E did expand in the early days of the ’02-’07 bull before earnings finally started to grow again in late 2003 and early 2004. Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing P/E ratio, investors are paying up on the hopes of future earnings growth.
Full Filing
greenlight13f_082009
Disclosure (“none” means no position):
It would appear Einhorn is not a believer in the recent rally as he added puts in the S&P (.INX) and GE (GE) to his portfolio in the last quarter.
Maybe this is why? From Bespoke
A P/E ratio rising from 10 to 18.35 is what happens when the S&P 500 rallies 50% (the P) while earnings (E) continue to decline. Below we provide a chart of the S&P 500 price to earnings ratio since the start of the 2002 bull market using trailing 12-month diluted earnings per share from continuing operations.
The S&P’s P/E ratio reached its highest level since the end of 2004 earlier this week. While P/E expansion is not unusual during bull markets, investors will remember that the S&P 500’s P/E actually declined from the start to the finish of the ’02-’07 bull. This is because earnings grew even faster than stock prices. When looking at the chart below, you can see that the P/E did expand in the early days of the ’02-’07 bull before earnings finally started to grow again in late 2003 and early 2004. Obviously if the current bull is going to have any sustainability at all, earnings will have to start growing again. But for now, as evidenced by the skyrocketing P/E ratio, investors are paying up on the hopes of future earnings growth.
Full Filing
greenlight13f_082009
Disclosure (“none” means no position):
Categories
Might Be Time To Invest in Real Estate
Brookfield Properties Corporation (BPO) is a North American commercial real estate company. The Company operates in two principal business segments: the ownership, development and management of commercial office properties in select cities in North America, and the development of residential land. As of December 31, 2008, the Company’s commercial property portfolio consisted of investment in 108 office comprising 74 million square feet in 12 United States and Canadian markets. The Company’s primary markets are the financial, energy and government center cities of New York, Boston, Washington, D.C., Houston, Los Angeles, Toronto, Calgary and Ottawa. Brookfield Properties is 50.2% owned by Brookfield Asset Management (BAM)
Q1 Results:
Brookfield Properties Corporation (BPO: NYSE, TSX) today announced that net income for the three months ended March 31, 2009 was $38 million or $0.10 per diluted share, compared to $23 million or $0.06 per diluted share during the same period in 2008.
Funds from operations (“FFO”) was $127 million or $0.32 per diluted share for the three months ended March 31, 2009, compared with $126 million or $0.32 per diluted share during the same period in 2008.
Commercial property net operating income for the first quarter of 2009 was $327 million, compared to $340 million during the first quarter of 2008.
During the first quarter, Brookfield Properties leased 1.8 million square feet of space in its managed portfolio, improving the company’s five-year lease expiry profile by 160 basis points. The company’s managed-portfolio occupancy rate finished the quarter at 95.6%.
Q2 Results:
–Jul. 29, 2009– Brookfield Properties Corporation (BPO: NYSE, TSX) today announced that net income for the three months ended June 30, 2009 was $60 million or $0.15 per diluted share, compared with $45 million or $0.11 per diluted share during the same period in 2008.
Funds from operations (“FFO”) was $148 million or $0.38 per diluted share for the three months ended June 30, 2009 compared with $157 million or $0.40 per diluted share during the same period in 2008.Commercial property net operating income for the second quarter of 2009 was $338 million, compared with $341 million during the second quarter of 2008 as a result of the impact of a weaker Canadian dollar and a lower contribution from non-managed properties. Absent these items, commercial property net operating income increased 3% over the same period in the prior year.
During the second quarter, Brookfield Properties leased 725,000 square feet of space in its managed portfolio at an average net rent of $25 per square foot, which represents a 32% improvement versus the average expiring net rent of $19 on this space in the quarter.Additionally, the company has improved its five-year lease rollover exposure by 240 basis points since the start of the year. Year-to-date leasing totals 2.5 million square feet. Brookfield’s managed portfolio occupancy rate finished the quarter at 95%
Here is what makes Brookfield so interesting to me at this time..
From the BPO Press Release:
Brookfield Asset Management Inc. (NYSE/TSX/Euronext: BAM) and Brookfield Properties Corporation (NYSE/TSX: BPO) (collectively, “Brookfield”) today announced the formation of a US$4 billion Investor Consortium dedicated to investing in under-performing real estate. The Consortium will invest in equity and debt in under-valued real estate companies or real estate portfolios where value can be created for stakeholders in a variety of ways, including financial and operational restructuring, strategic direction or sponsorship, portfolio repositioning, redevelopment or other active asset management. Investments will be targeted at corporate property restructurings with a minimum US$500 million equity commitment, and pursued on a global basis, but with a focus on North America, Europe and Australasia.
In addition to Brookfield, the participants in the Consortium consist of a number of institutional real estate investors who have each allocated between US$300 million and US$1 billion to the Consortium. Brookfield has allocated US$1 billion to the Consortium with opportunities in the office sector being funded by Brookfield Properties, at its option, and opportunities in other sectors being funded by Brookfield Asset Management. The Consortium participants have expertise in investing across different geographies and property types and this expertise will be pooled together to maximum advantage in individual investment opportunities.
“This is the next step in our global property growth plan, as it combines our strength as one of the world’s leading real estate operating companies with our extensive expertise in corporate restructurings and strategic acquisitions,” said Ric Clark, CEO of Brookfield Properties.
Brookfield Properties and Brookfield Asset Management will each own 25% of the fund.
So we know based on results these guys know how to buy property that will hold up during the worst of times. So, when we are in the worst of times, doesn’t it make sense to go with the guys that have near $5B to pick up the pieces?
BUT, the big fear on any real estate company is their debt. Can they roll it/pay it or will it undo them? Here is Brookfield immediate picture:
Leases you say?
Lease expiration schedule:
The beauty of investing in real estate this way is that you get the benefit of these folks expertise which, based on results, is tops in the industry. You also get a global opportunity and the patience they have to execute the right deals at the right time.
So, armed with $4.9B to invest (which is, by the way, more than the current market cap of the company) I think folks looking into real estate would have a hard time going wrong here…
Full Report:
bpo
Here is their current portfolio Q2, 2009 (XLS)
Link to SEDAR documents (Canadian version of SEC)
Disclosure (“none” means no position):None
Categories
Wall St. Media 8/12
Talking about Stocktwits and General Growth Properties (GGWPQ)
Disclosure (“none” means no position):Long GGWPQ
Categories
Wall St. Media 8/12
Talking about Stocktwits and General Growth Properties (GGWPQ)
Disclosure (“none” means no position):Long GGWPQ
From “considering acquisitions” to “on the hunt” in a month. Great news
Here is the appplicable portion of the interview:
Because of the significant improvements from the financial turmoil that befell the U.S. financial markets last year, and AutoNation’s ability to weather this most recent downturn, the company has begun to ramp up its orders for new cars and trucks …..AutoNation is also “on the acquisition hunt”.
The conditions for opportunity are beginning to outweigh the recent “risk environment” for the company, Mike Maroone concludes, ….consequently, AutoNation will be moving forward.
Mike Maroone on NBC 8-12-09 from http://marccannon.vox.com/
AutoNation has already gobbled up market share where it does business and acquisitions will multiply that effect. Note, this may not translate into dramatically more “metal moved” but will mean better pricing (although one has to expect more than 2008). When you couple that with the cost cuts already enacted, that is a very good recipe for earnings growth….
Disclosure (“none” means no position):Long AN
From “considering acquisitions” to “on the hunt” in a month. Great news
Here is the appplicable portion of the interview:
Because of the significant improvements from the financial turmoil that befell the U.S. financial markets last year, and AutoNation’s ability to weather this most recent downturn, the company has begun to ramp up its orders for new cars and trucks …..AutoNation is also “on the acquisition hunt”.
The conditions for opportunity are beginning to outweigh the recent “risk environment” for the company, Mike Maroone concludes, ….consequently, AutoNation will be moving forward.
Mike Maroone on NBC 8-12-09 from http://marccannon.vox.com/
AutoNation has already gobbled up market share where it does business and acquisitions will multiply that effect. Note, this may not translate into dramatically more “metal moved” but will mean better pricing (although one has to expect more than 2008). When you couple that with the cost cuts already enacted, that is a very good recipe for earnings growth….
Disclosure (“none” means no position):Long AN
Am I missing something here? After reading the headlines yesterday one would believe Bill Ackman reduced his ownership stake in Target. I don’t see it. Let’s look…
Here is the applicable portion of his SEC filing:
Item 4 of the Schedule 13D is hereby supplemented as follows:
As of May 26, 2009, the date of the last amendment to this Schedule 13D, the Reporting Persons beneficially owned approximately 7.8% of the then outstanding shares of Common Stock, consisting of 3.3% in shares of Common Stock and 4.5% in stock-settled call options. As a result of the transactions reported in this Amendment No. 9, the Reporting Persons sold options and engaged in net purchases of shares of Common Stock, resulting in a net increase of Common Stock ownership of 0.2% and a decrease of beneficial ownership to 4.4%, consisting of 3.5% in shares of Common Stock and 0.9% in stock-settled call options.Item 5. Interests in Securities of the Issuer.
(a), (b) Based upon the Issuer’s quarterly report on Form 10-Q for the quarterly period ended May 2, 2009, there were 752,279,589 shares of Common Stock outstanding as of June 3, 2009. Based on the foregoing, 32,994,586 shares of Common Stock (which includes Common Stock and physically-settled listed and over-the-counter American-style call options), representing 4.4% of the shares of Common Stock issued and outstanding, are reported on this Amendment No. 9.
As of the date hereof, none of the Reporting Persons owns any shares of the Common Stock other than as reported herein.
So, what seems to be the issue is the type of ownership he had/has.
To help put this into context wee need to look at Target’s (TGT) case against him in this spring’s proxy battle:
Target made apparently a compelling (I say so because he lost the proxy battle, not because I believe it) case that since much of Ackman’s ownership consisted on “call options”, that he truly was not a long term investor.
The options are not “ownership” per se but an interest in the outcome of the stock price. Because of that the interest in those shares cannot be voted and it was this structure that Target harped on to diminish Ackman’s plans as “short term”. The options mentioned above were stock settled. So, he did not sell them for cash but essentially converted them to stock.
Based on this, while the % of shares he holds an interest of some sort in has fallen, his monetary interest probably is not all that unchanged or likely has risen. Look at this example. I buy 2 $40 call options for Target and pay $100 each for them. I have an economic interest in 200 shares (each option =100 shares) but ownership of none. Then, at expiration, I convert 1 of the 2 options into shares. The cost of doing that would be $4000 for the stock based on the price of it. In this case, the “economic interest” I have based on the number of shares in the stock has fallen but my monetary interest has risen, considerably.
So, in Ackman’s case, if he intends on making another run at the board next year, what matters more than anything is not the total economic interest he has through swaps/options/ownership but simply his outright ownership of shares. That structure will eliminate the argument from management and bolster the ideas he has for the company. For this reason, if he eliminated all the option and swap contracts he has and simply owned 3.5% to 4% of the common shares, based on recent results, this would be a more meaningful position in the company in the eyes of shareholders vs the 7.7% he had through the above mentioned agreements.
Because of this the headlines out to have been “Ackman Increases Target Ownership” as Pershing had a “net increase” in shares directly held.
Disclosure (“none” means no position):None