Category: Articles

Housing….Not Near The End

Post author By ToddSullivan
Post date July 8, 2009

Whitney Tilson of T2 Partners has done the most extensive public work yet on the housing crisis. Even better than that, the conclusions he came to over a years ago were 100% accurate.

For those who do not wish to read the whole presentation (I suggest you do), here is the most applicable slides (click to enlarge):

Simple explanation is that we are about 1/2 way through this.

We have spoken about housing here before and nothing here changes our outlook, a recovery is a year or more away. Now, by recovery I mean stabilization in prices and sales, NOT a return to prior levels. That type of recovery will take the better part of the next decade.

Whole Presentation:
The Housing Crisis: By T2 Partners

Disclosure (“none” means no position):

Articles

Wednesday’s Links

Post author By ToddSullivan
Post date July 8, 2009

Tylenol, Savings, Recession, Rosenberg

– Caution

– We keep hearing about a “savings glut”. This paper addresses it. It is long but well worth it

– Over?? Not too sure about that

– He has been all of this…

Disclosure (“none” means no position):

Articles

Wednesday's Links

Post author By ToddSullivan
Post date July 8, 2009

Tylenol, Savings, Recession, Rosenberg

– Caution

– We keep hearing about a “savings glut”. This paper addresses it. It is long but well worth it

– Over?? Not too sure about that

– He has been all of this…

Disclosure (“none” means no position):

Articles

Brick & Mortar Books Dead?

Saw this and thoughts it was very interesting given the talk out there of the “demise” of brick and mortar book retailers especially as it related to both Barnes and Noble (BKS) and Borders (BGP).

From Media Bistro

After just one week in the Apple App Store, the brand-new Barnes & Noble iPhone app has grabbed the number one slot on the “Top Free Apps” list in App Store’s “Books” category–unseating two Amazon digital reader applications from the top spots.

With the new Barnes & Noble app, readers can shop, read reviews, and explore web-only extras via smartphone. While these rankings are constantly shifting, the new app has overtaken both the Amazon Kindle (AMZN) for iPhone (AAPL) and Amazon-owned Stanza e-reader in popularity–perhaps a good omen for Barnes & Noble’s future in the smartphone market.

Here’s the most geeky and interesting feature on the bookselling app, from the release: “Barnes & Noble has partnered with LinkMe Mobile from Evryx Technologies, Inc. and Spotlight Mobile, Inc. so that users can simply snap a photo to search millions of products. Using the iPhone or iPod touch camera, just snap a photo of the front cover and within seconds get product details, editorial reviews, and customer ratings–even find and reserve a copy in the store closest to you.”

To me this is a tell that there will always be something “tactile” as my friend @wood83 says when it comes to both books and the sales process for them. The Barnes & Noble reader has the advantage of tying the online/store shopping experience together (shame on Borders for not having this done yet). Now this is not a negative for either Apple or Amazon but a huge plus for Barnes. Successfully tying in the web with the store at all levels give them a unique model that is effectively unmatched.

We seem to be in a series of “death of” loops now. Everyday I turn on something electronic I am hearing about the “death of buy and hold”, the “death of value investing”, the “death of (place item here)”. Ignore them all.

Is the book business changing, perhaps forever? Yup. Is the experience of going to a bookstore going away? No.

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

Tags amzn, bgp, bks

Articles

BMW Sales Decline Slows

Post author By ToddSullivan
Post date July 7, 2009

Watch the video. This goes directly to the strategy at AutoNation (AN). The luxury auto market was dragged into the recession and will lead the auto market out. The length of time sales spend in it will be dwarfed by domestic and non-premium imports.

Just yesterday we talked about AutoNation’s Mercedes push. When I first spoke with CEO Mike Jackson last year, before credit market imploded he was stressing his desire to move the company away from domestic and into imports with a special emphasis on premium brands.

He stated then that the premium market, while not immune, was less markedly less affect by the business cycle, offered better margins and had longer service revenues
as those drivers tended to place a priority on keeping those vehicles running at a higher level. Currently AutoNation has 10% of Mercedes and 4.5%-5% of BMW US markets.

In June most domestic foreign makers saw sales fall 20% to 30%. Ford (F) was the lone bright spot with an 11% decline. But again, this is against already eviscerated sales as a starting point.

Now the usual disclaimer comes into play here. It is only a months worth of data and we need to see more for it to then become a trend. BUT, after what has happened to the auto market the last 8 months, good news of any sort is very welcome indeed.

Disclosure (“none” means no position):

Tags AN

Articles

Boone…..

Post author By ToddSullivan
Post date July 7, 2009

Whether you agree with Boone or not, you have to give the guy credit, he puts his money where his mouth is. Because of that, anything he says ought to be given a closer look. He is 100% right on natural gas. We have century’s worth of it in the ground. Why we are not laser focused on getting it is mystifying.

“The Pickens Plan”- Update:

Natural Gas:

Energy Independence:

Disclosure (“none” means no position):

Articles

Tuesday’s Links

Post author By ToddSullivan
Post date July 7, 2009

News Corp, Health insurance, California, Unemployment

– Murdoch is ahead of everyone else in media charging for content…and because he has great content, he is getting his money for it

– This is an intentionally unreported truth. Most of those without health insurance CAN afford but CHOOSE to go without. The number one offenders are the self employed contractors. I know roughly a dozen folks w/o any type of health insurance, EVERY one could afford it should they CHOOSE to pay for it. When you hear the “millions of people w/o insurance”, the number that leads us to believe they cannot afford it is a LIE.

– State is Bankrupt…yet they are dipping into a “special fund” to pay for a pedophile multi millionaire’s funeral…. I despise this state…it is the poster child for everything wrong with gov’t

– Could happen

Disclosure (“none” means no position):

Articles

Tuesday's Links

Post author By ToddSullivan
Post date July 7, 2009

News Corp, Health insurance, California, Unemployment

– Murdoch is ahead of everyone else in media charging for content…and because he has great content, he is getting his money for it

– Could happen

Disclosure (“none” means no position):

Articles

General Growth Properties Seeks Until 2010 to File Reorg Plan

Post author By ToddSullivan
Post date July 6, 2009
2 Comments on General Growth Properties Seeks Until 2010 to File Reorg Plan

This was not unexpected as General Growth had initially said when it filed it had hope to file a plan “by the end of the year”. If you follow bankruptcies, you know that those initial deadlines are rarely met due to the complex nature of the process. But, having the clarity is a good thing. It would be shocking were this extension not granted. The only way I can see it done is if Gropper decides to consolidate the filings and just cram down all debt. In that scenario (unlikely), the reorg plan becomes very simple overnight.

This isn’t to say a cram down is not likely or in the best in interest of all parties, it is that there will likely be some dilution and deciding the “who and what” of it will take time…

Dow Jones Reports:

General Growth Properties Inc. (GGWPQ) needs until early next year to
complete its plan to exit bankruptcy, saying its operations are too large and
too complex to meet an upcoming August deadline.

General Growth, the second-largest mall owner in the country, is asking a
judge for a six-month extension to file its plan to exit bankruptcy and repay
creditors. The existing deadline is Aug. 14.

If approved, the extension to Feb. 26, 2010, would allow General Growth to
maintain exclusive control over the path of its bankruptcy case by preventing
creditors and others from filing rival plans with the court.

Chicago-based General Growth filed for bankruptcy April 16 to restructure $27
billion in debt. It said in court papers last week that it has achieved “major
and solid accomplishments” during the case but needs more time to negotiate
with creditors.

The company has spent much of its time in court fighting with lenders to its
malls. Early in the case, lenders unsuccessfully tried to block General
Growth’s plan to spend the cash generated by its individual malls. The lenders
claimed the cash couldn’t be swept into a central account to benefit other
properties.

More recently, a group of lenders and loan servicers representing lenders
moved to force about a dozen of General Growth’s malls out of bankruptcy. They
claim there’s no reason for the properties to be part of General Growth’s
Chapter 11 case because they generate positive cash flow and can service their
debts.

Judge Allan Gropper, who’s overseeing the case in the U.S. Bankruptcy Court
in Manhattan, has yet to rule on the dispute.

At a court hearing scheduled for July 28, Gropper will consider General
Growth’s request for more time to file its bankruptcy plan. In addition to
setting a Feb. 26, 2010, deadline, General Growth wants until April 23 to win
creditor support.

Disclosure (“none” means no position):Long GGWPQ

Tags ggp

Articles

More Empirical Evidence “Buy and Hold” Not Dead

Post author By ToddSullivan
Post date July 6, 2009
1 Comment on More Empirical Evidence “Buy and Hold” Not Dead

This is a follow-up to a post from a week or so ago on the “death of buy and hold”. As a group value investors tend to have a longer holding period than most. Because of that typically the “buy and hold/forget” mantra is applied to them in a blanket fashion.

In the previous post I gave a specific example from myself as to why the death declaration is false.

Let’s look at another investor, Bruce Berkowitz of the Fairholme Fund (FAIRX).

Here are the funds returns (click to enlarge):

Here is the funds prospectus:
Prospectus

Berkowitz is the perfect example of what today’s “buy and hold” investor needs to be. He buys cheap, waits for value to be realized OR for a fundamental negative change at the company and then sells. He does not simply “buy it and ignore it”. While the markets have indeed done and round trip the last decade, Bruce’s “buy and hold” has returned 195% over the same time frame….hardy “death like” performance…

If you are a buy and hold type of investor, you MUST buy cheap. There is no other option. Far too many buy and hold folks are under water because they bought expensive. Buy stocks like you buy a TV…..on sale..

Disclosure (“none” means no position):None

Tags theory

Articles

A Peak Behind AutoNation’s Land/Lease Deal

Post author By ToddSullivan
Post date July 6, 2009

My opinion is there is more here than a quick glance would lead one to appear…

First the news:

AutoNation, the nation’s largest car retailer, has returned to Oxnard, spending $9 million for property it’s leasing to an independent operator who has opened two new dealerships — Mercedes-Benz and Smart Car.

In 1998, AutoNation entered the Ventura County market with a used car megastore in a location that most recently housed Cars 101. But a year later, AutoNation exited the used vehicle megastore business and shuttered nearly two dozen stores nationwide, including the one in Oxnard.

Both brands are products of German automaker Daimler AG. The parent company reported Wednesday that combined U.S. sales for its Mercedes-Benz and Smart Cars fell nearly 26.5 percent in June to 16,271, compared with 22,121 in June 2008. The company said it sold 15,155 Mercedes-Benz vehicles, a nearly 22.6 percent decline from a year earlier, while its smart USA line of micro-cars sold 1,116 units in June, a 56.2 percent decline.

Eberhardt could not be reached for comment, but his membership information with the Gerson Lehrman Group’s consulting network sheds light on his ties to Mercedes. From 2003 to 2007, he headed up Chrysler’s global sales and had responsibility for the operation in more than 125 countries with more than 5,500 dealers. From 1993 to 2003, he held a variety of roles with Mercedes-Benz, Daimler and Chrysler, including CEO of Mercedes-Benz UK Ltd.

AutoNation is acting as the landlord of the property, which is about five acres at 1511 Auto Center Drive. The Mercedes and Smart Car dealerships together total approximately 218,000 square feet, according to county records.

Eberhardt and AutoNation have an operating agreement whereby Eberhardt is running the stores, Cannon said.

“We’ve done this before,” he said. “This is not uncommon. It’s like I own the land for the hotel and Hilton comes in as a franchise. It’s really a simple deal. We’re the landlord, he owns the rights to the dealership.”

What is the deal? AutoNation currently has 10% of the US market for Mercedes Benz through 14 Mercedes dealerships and upcoming openings look to bring that total to 12%. We also know AutoNation wants more of the upscale auto market as it has proven less dramatically impacted by recessionary events. They have also not shown any inclination in this environment to reduce their move into this area.

But, like any smart business, while now is the time to be making deals, economic uncertainty does require a certain amount of prudence. This is, in essence a cheap way for AutoNation to get another Mercedes dealership up and running without large upfront expenditures. Anyone else want to bet this dealership eventually (2-4 years) becomes their 100%?

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

Tags AN

Articles

A Peak Behind AutoNation's Land/Lease Deal

Post author By ToddSullivan
Post date July 6, 2009

My opinion is there is more here than a quick glance would lead one to appear…

First the news:

AutoNation, the nation’s largest car retailer, has returned to Oxnard, spending $9 million for property it’s leasing to an independent operator who has opened two new dealerships — Mercedes-Benz and Smart Car.

In 1998, AutoNation entered the Ventura County market with a used car megastore in a location that most recently housed Cars 101. But a year later, AutoNation exited the used vehicle megastore business and shuttered nearly two dozen stores nationwide, including the one in Oxnard.

Both brands are products of German automaker Daimler AG. The parent company reported Wednesday that combined U.S. sales for its Mercedes-Benz and Smart Cars fell nearly 26.5 percent in June to 16,271, compared with 22,121 in June 2008. The company said it sold 15,155 Mercedes-Benz vehicles, a nearly 22.6 percent decline from a year earlier, while its smart USA line of micro-cars sold 1,116 units in June, a 56.2 percent decline.

Eberhardt could not be reached for comment, but his membership information with the Gerson Lehrman Group’s consulting network sheds light on his ties to Mercedes. From 2003 to 2007, he headed up Chrysler’s global sales and had responsibility for the operation in more than 125 countries with more than 5,500 dealers. From 1993 to 2003, he held a variety of roles with Mercedes-Benz, Daimler and Chrysler, including CEO of Mercedes-Benz UK Ltd.

AutoNation is acting as the landlord of the property, which is about five acres at 1511 Auto Center Drive. The Mercedes and Smart Car dealerships together total approximately 218,000 square feet, according to county records.

Eberhardt and AutoNation have an operating agreement whereby Eberhardt is running the stores, Cannon said.

“We’ve done this before,” he said. “This is not uncommon. It’s like I own the land for the hotel and Hilton comes in as a franchise. It’s really a simple deal. We’re the landlord, he owns the rights to the dealership.”

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