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):
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:
Supply Increasing:
Full Report:
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):
(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):
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):
Now that the market has sold off some, time to buy some items performing well.
Recently we looked at News Corp (NWS) and noticed that unlike its various industries, both the Newspaper business lead by the Wall St. Journal was increasing paid subscriptions and the Cable TV dicision, lead by Fox News was both increasing share and advertising rates. This was one of the reason we were tempted to buy shares. At the tine, only the recent market surge prevented us from doing so.
Now this on Fox’s internet sites is but more good news for the company.
From MediaWeek.com
Fox News’ online ascent continues, as the network’s formerly lightly-trafficked Web site FoxNews.com has significantly improved its numbers for several key engagement scores over the past year as its audience has steadily climbed, according to newly-released data from Nielsen Online.
According to Nielsen, FoxNews.com’s audience ballooned by nearly 50 percent in April to 15.7 million uniques versus the 10.5 million reached during the same month in 2008. The site reaches over 18 million users when all of its sub-domain URLs are included (such as Fox News’ mobile site and FoxBusiness.com).
But even more eye-catching is overall increase in FoxNews.com¹s stickiness. For example, the site¹s total page views jumped by 75 percent in April, going from 382 million last year to 669 million this year.
That’s more page views than were recorded by category giant Yahoo News (which generated 614 million), despite reaching an audience less than half its size (Yahoo officials contend that the home page for Yahoo News does not automatically refresh its content, limiting the total number of page views it serves).
Furthermore, when examined on an individual site vs. site basis, FoxNews.com led all the major sites in Nielsen¹s News and Information category in time per person (an average of 39.9 minutes, just edging CNN.com) and pages per person (an average of 43, four more than the AOL News) in April.
It seems every division of the Fox franchise is running full speed ahead in a very difficult environment. As a potential investor, when you can see this (and the company is buying back shares), over $6B of cash on the books and a low stock price, the decision to buy or not becomes much easier. Look at it this way, the cash on the books is roughly $3 a share which means you are paying just $6 for all the assets and operations.
Shares closed at $9.91 Wednesday. any lower, not starting to buy might be impossible..
Disclosure (“none” means no position):None…will be buying soon
Was having a conversation with “Davidson” about Leucadia (LUK) after posting the annual meeting notes the other day. He was talking about the excellence of management of which I agree. He is an owner of shares. I said my hesitation in owning shares was that I could not accurately forecast earnings into the future due to the fact they tend to buy then sell businesses.
Here is his reply:
Ahh. Here is where you plot management’s results, read their history of investing in distressed assets and turning them into gains and then realize that this is not a cash flow nor an earnings story. LUK is a holding co. They report boosts in BV only when an asset has been sold which may take 10yrs. Analysts really have to do a bit of leg work to grasp the value growth from year to year. My plot of BV vs. stock price I think tells the story of success.
Book Value/Share Price Analysis
There really isn’t any doubt as too the skill of Steinberg or Cummings skill. It is pretty clear that earnings will fluctuate wildly depending on what is sold in what year. So, Davidson’s BV chart is the way to go.
If we look at the chart, it is pretty clear that Leucadia, when priced right, tend to trade around book value. That gap rose to almost 2 times book over the last couple years and the stock has responded by falling from the $50’s to the current $20 as book value fell.
Current book has fallen to roughly $12 a share and that is due mainly to $1 billion in asset write-downs in Q4 2008 (like the rest of the world) and an additional $900m in debt. A normalized operating environment book is more likely to be in the $15-$16 range which means shares, currently price at $20 are getting close to a “buy” point for those who want to be shareholders.
Disclosure (“none” means no position):None
Milton Friedman on “Limited Government”.
Note: The intro in in Iclandic but the discussion in English
Friedman vs 3 Left wing “Scholars” on Iclandic television, 1984
Disclosure (“none” means no position):
I hope this was not a surprise. We have been pounding this point here repeatedly. April was the month moratoriums in foreclosures expired. It should not be a surprise that folks in November 2008 whom could not afford their home still can’t in April 2009. People losing their jobs who put no money or minimal money down on a home and then tapped what little equity they may have had in it have no ability at all to stay in those homes, none.
Here is the Realty Trac Report:
RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its April 2009 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 342,038 U.S. properties during the month, an increase of less than 1 percent from the previous month and an increase of 32 percent from April 2008. The report also shows that one in every 374 U.S. housing units received a foreclosure filing in April, the highest monthly foreclosure rate ever posted since RealtyTrac began issuing its report in January 2005.
“Total foreclosure activity in April ended up slightly above the previous month, once again hitting a record-high level,” said James J. Saccacio, chief executive officer of RealtyTrac. “Much of this activity is at the initial stages of foreclosure – the default and auction stages – while bank repossessions, or REOs, were down on a monthly and annual basis to their lowest level since March 2008. This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months.”
the more important number in my opinion each month is the foreclosure number. It represents not only an addition to the existing housing inventory, but a more permanent reduction in demand as foreclosed buyers are not going to then go out and purchase another home.
When you add these folks to those losing jobs, demand is plummeting. What’s worse is that this is not demand destruction in terms of those waiting for better prices, this is a more permanent kind of demand destruction as these buyers are not coming back into the market for quite some time (years).
I have still yet to been offered any type of evidence that housing is going to do anything but fall further from here for at least the next 6 months..
If you have it, please either email it or add it to the comments…
Disclosure (“none” means no position):
No matter what your opinion of Ackman, we all have to be thankful he is giving us something other that the Government to talk about.
In an interesting development yesterday Target (TGT) made a move that to some extent, validates what Ackman has been saying for over a year now, Target badly underutilized their grocery potential. Target announced that in 100 stores they are dramatically expanding their grocery offerings. This is a move that Ackman has been pushing for and Target’s grudging acceptance if it, so close to the upcoming meeting in which Ackman’s slate of electors will be voted on, well ought to give current shareholders pause before checking their prospective boxes on the proxy.
Here is the thing. If you are a shareholder and happy about the company’s performance the past two years, stick with what you have. IF, on the other hand, you are not and feel that like Wal-Mart (WMT), Target ought to have seen results improve as the consumer felt more pinched, not deteriorate, that you need change. Change on the board level would not be akin to “wholesale change” but would be significant enough to alter the company’s focus and direction in way that should pay of long term.
Either way, will be fun to watch..
Disclosure (“none” means no position):Long WMT, none
Talking about General Growth Properties, GM, housing and the economy.
More video at Wall St. Media
Disclosure (“none” means no position):
I agree with Rogers although I am not nearly as dire in my outlook. Rather a continued downtrend, I think we slog along the bottom for a long while…
Rogers does like raw materials, agriculture and metals.
Disclosure (“none” means no position):
Ross Discusses Real Estate, Banks, and Automakers
Disclosure (“none” means no position):
From 1959
Part 1
Part 2
Part 3
Disclosure (“none” means no position):