SCOTUS, NY Times, Taxes, Denial
– This just cannot be true…..can it?
– No they don’t
– Raising them hurts………everyone
– How can this be?
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Category: Articles
Dow chemical (DOW) has given an update on the bridge loan it used to pay for the Rohm & Haas deal and changed the rhetoric on the possible Dow Ag sale.
At the recent annual meeting of shareholders CEO Andrew Liveris said Dow’s focus through the end of the year will be to pay down the bridge loan and deleverage the company, run the business effectively and integrate Rohm and Haas to begin growing once again.
Originally, Dow had planned have the Rohm purchase bridge loan of $9.5 billion down to a balance of $4.2 billion in 90 days. As of last Thursday the loan is now down to $3 billion, meaning $1.2 billion additional has been paid off 55 days ahead of schedule according to the company.
Dow said it continues to look at its options to sell units. In addition to over $3 billion from the sale of Morton Salt, TRN, Calcium Chloride and other units, Dow is considering raising $4 billion to $6 billion from businesses in a successor to the K-Dow Petrochemicals deal or regional agreements; $1 to $2 billion from aromatics and derivatives.
Liveris repeated the company position that AgroSciences is a growth unit that is valuable to Dow, and would only be sold if a full-value offer is made ($15 billion). they also gave the usual boilerplate disclaimer that they are “still assessing its options” to keep the business, create a joint venture or sell it outright. This is a slightly harder line on the unit that when the original announcement was made that “all options are on the table”. At that time there was very little talk of price for the unit and it was stated that there were “several” interested parties.
I don’t think it is a great leap to assume those parties perhaps assumed they could pick up an incredibly valuable asset on the cheap from a distressed seller. I think it is also the reason not long after we saw both the equity and debt offerings and no additional mention of a DowAg sale. If the above is true, then Liveris does deserve kudos for not dumping the unit and holding firm on price. All that being said, even a full value sale of it is unacceptable.
The joint venture makes sense and since they already have one with Monsanto (MON), they would be a powerful partner. It would aid in cost reductions/capex and produce the clear industry powerhouse. what would remain would be looking at the composition of it.
Dow also announced today that it will increase the off schedule price in all regions for the product lines of both Acrylic Monomers and Vinyl Acetate Monomers effective June 1, 2009, or as contracts allow. The increases are $0.03/lb or $66/MT for Acrylates and Vinyl Acetate Monomers and $0.04/lb or $88 MT for Methacrylate and Specialty Monomers. This too is good news as price increases do mean some demand is coming back into the system.
Now, it is only 1 increase and we need to see if it sticks and if other products follow suit. Never the less, it is good news.
Disclosure (“none” means no position):Long Dow, none
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Margins Levels vs S&P 500
“Davidson” comments on this and I have some after the image.
This chart of the record of use of margin debt by Hays Advisory reveals a fascinating view of the relationship of the SP500 vs. Margin Yr/Yr Change and the signals provided for tops and bottoms.
This chart says volumes regarding the effects of investors’ appetites for risk, how rapidly it can build and signal tops, how the rise in risk appetite can signal market recovery.
This is an interesting relationship and one that makes sense regarding market attitudes at tops and bottoms. The current rise in margin debt does fit other leading indicators which suggest changes in investor attitudes.
This is in my view a useful as well as fascinating indicator to watch.
This does bear close watching. I would focus on the relationship since the explosion of the “guy next door” investor. It, in my opinion gives a better sample of behavior.
If we accept that and use it as a guide, then the last recession was the 2001-2002 on. Looking at the peaks in the market in both 2001 ans 2008, the both correlate almost exactly with the peak in margin debt. This makes sense because margin selling is fast and furious so as it fell, the market would follow violently.
But, we are not interested in that now are we? We want to know about bottoms. Again going back to 2001-2002, we see a lag from when margin debt begins to again increase until the market turns. This also makes sense as recently burned buyers will tip-toe back into the market using margin gingerly and that means any rally will lag their entry.
Using that as a guide, it looks as though we can look for the market to gain more permanent footing in 6 months to a year. Now, while I do not as a rule place too much faith in charts, margin charts are useful because they go directly to investor sentiment. A confident investor is more likely to use larger margin amounts to purchase stocks that one who is pessimistic about the future.
Like any indicator this is not perfect and does bear close watching. It does give us more confidence though that the worst of the market may be over but, a true recovery in equities may be of a bit….
Disclosure (“none” means no position):
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Monday’s Links
Law, Stewart, Pelosi,
– Sooner or later people are going to see all this for what it is..
– I agree with him here…
| The Daily Show With Jon Stewart | M – Th 11p / 10c | |||
| The Pageant of the Christ | ||||
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– when CNN goes after a Dem, you know it is bad…
Disclosure (“none” means no position):
Berkowitz has been busy buying in his Fairhome Fund (FAIRVX)
Added:
American Express (AXP), 10 million shares
Sears Holdings (SHLD), 2 million shares
St. Joe (JOE), 7 million shares
Reduced (number shares sold):
Canadian Natural Resources, (CNQ) 9 million shares
United Health (UNH), 5 million shares
Sold Out:
Bekshire Hathaway “B” shares (BRK.B)
Mueller Water Procuts (MWA)
Disclosure (“none” means no position):
Mike Jackson of AutoNation (AN) commented today on the GM (GM) closings announced.
ORT LAUDERDALE, Fla., May 15 /PRNewswire-FirstCall/ — AutoNation, Inc.
(NYSE: AN), American’s largest automotive retailer, today announced that
General Motors notified AutoNation that six of its dealerships were identified
for potential closing by GM. The notification is part of GM’s communication
today to approximately 1,100 dealers that GM does not expect to continue as GM
dealerships past October 2010. The AutoNation stores potentially impacted by
the consolidation plan represent 0% of AutoNation’s 2008 operating income.
AutoNation does not believe that any one-time charges that may be associated
with these actions will be material to its continuing operations or debt
covenants.Commenting on the consolidation plan, Mike Jackson, Chairman and Chief
Executive Officer, said, “We believe GM’s consolidation plan is a difficult but
positive step that will strengthen America’s dealer network and improve dealer
profitability over the long term. The consolidation plan is consistent with
AutoNation’s long-term strategy that we implemented in 2000 to consolidate
domestic dealerships and realign our brand mix more towards import and premium
luxury franchises. With our financial and operational strength and diversified
brand mix, we are well-positioned to succeed in the rapidly changing automotive
retail landscape.”
Have been saying for a while now this would be helpful for AutoNation (AN) in allowing for it to expedite its domestic reduction plans. What remains to be seen is what is happening around them. 1100 GE dealers closed by the end of 2010, mostly in metro areas leaves a lot of competition be be shuttered.
Will update as soon as I get word…
Disclosure (“none” means no position):Long AN
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Ackman Files 13-HR: Adds YUM! Brands
Notable activity for Q1 2009 vs Q4 2008.:
Added:
Yum! Brands (YUM) : >1.5 million shares
General Growth Properties approx. 3 million more shares
Reduced:
Visa (V), sold almost 5 million shares
Sold out:
Sears Holdings (SHLD)
Dr. Pepper Snapple (DPS)
Disclosure (“none” means no position):
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Buying News Corp…… Finally
Finally took the plunge and bought the “limited voting” A shares at $8.86 of News Corp. (NWSA) vs the “B” shares (NWS)
Here is some of the reasoning for News Corp from previous posts…
Why the “limited voting” shares vs “B”?
Couple reasons.
1- Murdoch owns 40$ of the voting shares so buying “B” shares really affords the purchaser no advantage as what Ruppert wants, Ruppert will get.
2- Discount. Currently the A shares trade at about a 13% discount to the regular (NWS) shares. Now, that discount has typically been around 8% so I am adding a 5% normalization of value into the mix.
3- Dividends between the two shares are treated equally.
Here is the SEC filing regarding the two classes of shares:
News Corp. A vs B
Here is the “Murdoch Agreement”:
“Murdoch Agreement”
So, if you have “x” amount of money to invest in the stock, the “A” shares are the way to go as they enable you to, as today’s prices purchase 13% more share and participate is essentially equal performance. I am assuming this is the reason they were created, the ensure Ruppert’s control of the company was not challenged. Personally, given his track record, I have no reason to want to.
I have saved some money in case we get a sell-off in shares, if that happens, I will resume buying on the way down.
So there it is, will update later.
Disclosure (“none” means no position):Long NWSA, none in NWS
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Friday’s Links: Friedman on Free Markets
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Seth Klarman Files 13-HR
Klarman’s Baupost Group made some interesting additions since the February filing
News Corp “A” (NWSA) shares up from 16 million to 27 million shares
RHI Entertainment (RHIE) from 3.6 to 4.9 million shares
Domtar (UFS) from 33 million to 40 million shares
Linn Energy (LINE) from 7.9 million to 4 million shares
Disclosure (“none” means no position):
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Yet Another Housing Headwind
I was stunned when I saw this. Why am I so focued on housing? Because I feel the disinformation out there on it is staggaring and hope to give folks a different, more accurate outlook on the situation.
First, 60% of homeowners think their home has fallen in value and 22% say it has stayed the same. Reality? 80% have lost value. Which means 20% of homeowners are not living in reality.
Here is the chart that got me:
So, 31% of all homeowners out there are likely to add to record home inventory levels at the first sign of improvement in the housing market. Now, we need to define “improvement”. According to the survey, the top response from 71% of people, think the market is improving if “there is evidence homes sales in my neighborhood are increasing”.
What does this tell us? At the first signs of stabilization in housing, it would seem we have yet another wave of inventories set to hit the market from people wanting to sell their home.
This again leads to a negative view on housing. Look at the supply demand equation:
Demand Decreasing:
- Foreclosed buyers cannot go out and purchase another home
- Tightened credit standards by banks eliminate marginal buyer
- Rising unemployment
- Falling prices reduce existing equity used to roll into new homes
Supply Increasing:
- Foreclosed homes hitting market in record numbers
- Homebuilders still building new homes
- 31% of existing homeowners ready to put homes on market at first sign of market stabilization
How does this equate to a rebound in housing anytike soon? It isn’t even enough for one of these factors to be eliminated from the equation, we need several.
Full Report:
Homeowner Confidence Q12009
Disclosure (“none” means no position):
All the talk today is, “are we in recovery or not”. Let’s look at a chart of retail sales which dictates the health of the consumer who is 2/3 of the economy (click to enlarge):
What does it tell us? Things are worse than February but not a bad as March. We could say that the “rate of decline” has slowed so that is good news. We could also say we are “still declining” so that is bad.
What do I think? March was abnormally bad, making April better than it really was. I think we in the middle of the two which means still a sizable decline. This makes sense to me when you seen the recent foreclosure wave, continued record declines in home prices, rising unemployment and steep declines in GDP.
Here is another issue not talked about. 342,000 homes received foreclosure notices last month, on top of the 320,000 the month before. Here is the “issue”. These folks have been mostly being held out of foreclosure because of a 6 month foreclosure moratorium by the banks. During that time frame they clearly were not paying their loan. So, where was the money going? My guess would be clothing, dinners, entertainment, etc. There was no rent or mortgage to pay so it was spent. We know that once people admit foreclosure, they sit and wait without making payments until forced to leave. Unless they are one of the unfortunate to have lost a job (the minority), they now have disposable income that they were before putting towards a home payment.
Now that these folks are getting foreclosed on and booted from their homes, they’ll need to come up with a rent payment. That means far less disposable income available for other uses. The argument can be made this money has be artificially making retail sales better than they would ordinarily have been, and that is a scary thought. It also means we can expect another negative headwind for sales trends to continue down on top of the others previously mentioned.
The point in the exercise is two-fold. First, don’t make long term predictions based on small time data samples. You need a longer series. Second, and more importantly, you need to look at different data, not just one. For instance, if we only looked at the chart above, the clear conclusion might be things are improving. But, if we add the data from home prices, foreclosures and unemployment we get a very different story and then we would have to wonder where the money for people to improve retail sales is coming from.
Disclosure (“none” means no position):
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Auto Dealers Fate (update)
(UPDATE: At end of post is the list of Chrysler dealerships closing. AutoNation has 7)
This has been a long time coming. Both Chrysler and GM (GM) are expected to notify up to 2000 dealers combined that they are closing either today or tomorrow. The moves are expected to cost about 150,000 jobs at the dealership level. Note, these job losses DO NOT include losses associated with the dealerships such as cleaning & maintenance crews contracted to do work on the premises and other ancillary services.
Is this a good thing? As sad as it is, and a bad as the job losses will be, it is the best thing for the industry on all levels. Those dealerships left will become stronger as their market share immediately grows and increased profitability ought to follow.
Now the GM closings, as far as I know can only be done in a Chapter 11 scenario. In any other scenario, GM will most likely spend an eternity in State Courts for violation of State Franchise Laws. A Chapter 11 eliminates that scenario. Now the other option is for GM to offer franchisees a sweetner to take the deal (they just may as those being closed are most likely not profitable now). This would be a waste of time and money for GM, BUT, based on its history, just may be what happens.
Who is the main beneficiary of this? AutoNation (AN). Why?
1- They have made no secret of their desire to reduce domestic exposure, this may do it for them very easily. Now, if some of their dealerships are chosen, since AutoNation owns the building and land on almost all dealerships, transferring that property to another brand is virtually as simple as moving existing inventory to another dealer, changing signs and then moving new inventory in.
2- Most of the closing are expected to be in Metro markets. AutoNation has heavy exposure to those very markets. So, even if the scenario in #1 does not unfold, they do just fine because they receive large market share from the dealerships closing around them.
3- Totally aside from the other two scenarios, there are other dealer groups in a precarious situation that simply will not be able to withstand the loss of a franchise, even a marginally profitable one. Consider the scenario. A dealer with three dealerships Ford (F), GM (GM) and Chrysler. Depending on the mix, the GM dealership could be covering for losses at Ford and Chrysler (or Chrysler at Ford & GM). But, because of the area concentration of GM (Chrysler) dealerships, their is selected to close. Now the dealer is stuck with two money losing dealerships and that may just force the closure of the other two.
Before you dismiss this scenario, you must consider that most dealers own multiple locations and depending on the sales mix in the area, the above scenario is not only possible, but very likely in a number of locations.
The summary here is that the end number of closings from these actions will be in excess of the final, stated number form both Chrysler and GM.
When all is said and done, the clear winners will be those left standing. Their earnings power when its over will be in excess of pre-dealer decimation levels even with industry sales below 2006-2007 levels. They will receive immediate benefits from share and margin increases that will be maintained as a return to previous dealer levels is not likely for years..
UPDATE: Here is the list of Chrysler Dealers:
List of Chrysler Dealers
Disclosure (“none” means no position):Long AN, none
Disclosure (“none” means no position):
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Auto Dealers Fate Decided This Week
This has been a long time coming. Both Chrysler and GM (GM) are expected to notify up to 2000 dealers combined that they are closing either today or tomorrow. The moves are expected to cost about 150,000 jobs at the dealership level. Note, these job losses DO NOT include losses associated with the dealerships such as cleaning & maintenance crews contracted to do work on the premises and other ancillary services.
Is this a good thing? As sad as it is, and a bad as the job losses will be, it is the best thing for the industry on all levels. Those dealerships left will become stronger as their market share immediately grows and increased profitability ought to follow.
Now the GM closings, as far as I know can only be done in a Chapter 11 scenario. In any other scenario, GM will most likely spend an eternity in State Courts for violation of State Franchise Laws. A Chapter 11 eliminates that scenario. Now the other option is for GM to offer franchisees a sweetner to take the deal (they just may as those being closed are most likely not profitable now). This would be a waste of time and money for GM, BUT, based on its history, just may be what happens.
Who is the main beneficiary of this? AutoNation (AN). Why?
1- They have made no secret of their desire to reduce domestic exposure, this may do it for them very easily. Now, if some of their dealerships are chosen, since AutoNation owns the building and land on almost all dealerships, transferring that property to another brand is virtually as simple as moving existing inventory to another dealer, changing signs and then moving new inventory in.
2- Most of the closing are expected to be in Metro markets. AutoNation has heavy exposure to those very markets. So, even if the scenario in #1 does not unfold, they do just fine because they receive large market share from the dealerships closing around them.
3- Totally aside from the other two scenarios, there are other dealer groups in a precarious situation that simply will not be able to withstand the loss of a franchise, even a marginally profitable one. Consider the scenario. A dealer with three dealerships Ford (F), GM (GM) and Chrysler. Depending on the mix, the GM dealership could be covering for losses at Ford and Chrysler (or Chrysler at Ford & GM). But, because of the area concentration of GM (Chrysler) dealerships, their is selected to close. Now the dealer is stuck with two money losing dealerships and that may just force the closure of the other two.
Before you dismiss this scenario, you must consider that most dealers own multiple locations and depending on the sales mix in the area, the above scenario is not only possible, but very likely in a number of locations.
The summary here is that the end number of closings from these actions will be in excess of the final, stated number form both Chrysler and GM.
When all is said and done, the clear winners will be those left standing. Their earnings power when its over will be in excess of pre-dealer decimation levels even with industry sales below 2006-2007 levels. They will receive immediate benefits from share and margin increases that will be maintained as a return to previous dealer levels is not likely for years..
Disclosure (“none” means no position):Long AN, none
More video on Wall St. Media
Disclosure (“none” means no position):