Blogs, thank you, New sports,Nat Gas
– Timing of this is odd as having conversations with several IR Depts… hope they read this
– Sullivan, AIG, Sptizer & Melissa Theuriau all in one post!!
– Victory for Title IX, chicks in panties playing football
– Lock in those prices if you can
Disclosure (“none” means no position):
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Vintage Lampert, buying shares of a company he offer to buy for less than he offered two years ago…patience..
From the National Post
Sears Holdings Corp. (SHLD) continues to add to its nearly 73% stake in Sears Canada Inc. The U.S. retailing giant bought 29,600 shares of its Canadian subsidiary for around $17.85 per share between March 9 and March 10, 2009. This brought SHLD Acqusition Corp.’s holdings in the Canadian retailer to 20,756,173 shares. The transactions follow Sears Holdings Corp.’s purchase of 32,000 shares on Dec. 1, 2008.
In November 2006, Sears Canada shareholders rejected an $888-million bid by its parent after some investors said the $17.97 per share takeover price was too low. However, the potential deal sent Sears Canada shares nearly 50% higher since the offer was made to almost $30 per share.
Now follow this. As of 1/31, Sears Canada (SCC) had 107 million shares out and $891 million in cash on the books or, $8.32 a share. So, Lampert pays $17 a share, and then gets to add the $8.32 a share to Sears Holdings cash balance because of his ownership percentage for a nice 52% return. Beautiful…
Disclosure (“none” means no position):Long SHLD, none
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For those who have not noticed, AutoNation (AN) shares have surged 193% from their October 2008 lows. They sell cars …….why?
Reasons:
1- Cars fall apart. Demand for auto’s does not disappear. As a matter of fact, it has not fallen by that much, as sales numbers would have you believe. AutoNation CEO Mike Jackson has said he has full showrooms of customers, they just cannot get the credit to buy cars. Demand is steadily is building and customers will surge to pick up low priced vehicles when credit loosens.
2- Market share. Thousands of dealerships have closed of the last two year sand near a thousand more this year will go under. The good news for shareholders is they are not AutoNation’s. AN is picking up large market share gains “through attrition” as Jackson predicted they would last year in my interview with him.
3- Microsoft’s (MSFT) Bill Gates and Sears Holdings (SHLD) Eddie Lampert have been aggressively buying shares and own over 58% of it.
All that is great Todd you say. BUT, when does auto credit loosen? Well, it just might be now.
From Reuters
The first asset-backed securities offering under the Federal Reserve’s TALF program met with robust demand on Tuesday, leaving hungry investors clamoring for more of Nissan’s $1.3 billion deal.
“The deal was four to five times oversubscribed in the first eight minutes that it was announced,” said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles, who did not get a chance to participate in the sale.
Through its Term Asset-Backed Securities Loan Facility, or TALF, the Fed aims to unclog the consumer loan market and jump-start the fledgling ABS market, nearly shut down by the credit crunch and soaring funding costs last year. ABS supply slumped by 82 percent to $159.8 billion in 2008 and has totaled just over $4 billion so far this year.
Under the plan, the Fed will make loans to investors for the purchase of ABS securities. Once the securities are sold, issuers of bonds will have freed up capacity on their balance sheets to make new loans to consumers.
JPMorgan Securities and Banc of America Securities are underwriting the “AAA”-rated four-part sale, which includes a 0.32 percent issue offered at a spread of 40 basis points over one-month Libor, a one-year issue offered at 185-200 basis points over eurodollar swap futures and two-year and 3.16 year notes at spreads of 200 to 225 basis points and 325 to 350 basis points over swaps, market sources said.
Other ABS investors agreed the deal met with very strong interest. “It quickly came and went,” another investor said.
Automakers, which rely heavily on the securitization market for funding of their auto loans, are expected to benefit the most from the plan. World Omni is also expected to be in the line-up of TALF-eligible auto sales over the near-term, market sources said.
I first picked up shares in May last year at $15 an change a then quadrupled the position in Sept-Oct between $7 and $8 for a now average cost of just over $9. Since they are up over 40% am I thinking of selling? No.
The turnaround story here is just beginning. AN is now a very lean operation and there are years of markedly improved earnings coming. As I first said in August last year and still believe, eventually AutoNation, Sears auto and AutoZone become one.
Disclosure (“none” means no position):Long AN
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Prank, Barney Frank, Short Squeeze, Apps
– This is really funny
– BS outrage at AIG
– They should have done this already
– Free blackberry apps
Disclosure (“none” means no position):
Check out the following videos…
Courtesy All Things Jim Rogers. This ought to be the first stop for Jim Rogers devotees.
Part 1
Jim Rogers told Bloomberg that the U.S. risks sending the world into a depression as its bailouts of failed companies rob healthy businesses of capital.
Part 2
Visit All Things Jim Rogers for rest of videos (2 more).
Now in his recent letter to shareholders Berkshire’s (BRK.a) Warren Buffett recently said:
“Clayton’s lending operation, though not damaged by the performance of its borrowers, is nevertheless threatened by an element of the credit crisis. Funders that have access to any sort of government guarantee – banks with FDIC-insured deposits, large entities with commercial paper now backed by the Federal Reserve, and others who are using imaginative methods (or lobbying skills) to come under the government’s umbrella – have money costs that are minimal. Conversely, highly-rated companies, such as Berkshire, are experiencing borrowing costs that, in relation to Treasury rates, are at record levels.
Moreover, funds are abundant for the government-guaranteed borrower but often scarce for others, no matter how creditworthy they may be. This unprecedented “spread” in the cost of money makes it unprofitable for any lender who doesn’t enjoy government-guaranteed funds to go up against those with a favored status. Government is determining the “haves” and “have-nots.” That is why companies are rushing to convert to bank holding companies, not a course feasible for Berkshire.
Though Berkshire’s credit is pristine – we are one of only seven AAA corporations in the country – our cost of borrowing is now far higher than competitors with shaky balance sheets but government backing. At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one.”
This is the real cost of the government bailouts. Healthy enterprises are being starved for capital. If they get it, its cost is such that the scope of the economic activity they can produce from it is limited because of what it took to get it.
This is severely hampering economic recovery. The government THINKS they are helping by making the guarantees. The truth is they are hurting healthy companies.
This just ass backwards. Healthy companies MUST have a lower borrowing cost than those who aren’t. This is what is called “unintended consequences” of government action. Try to save a few companies and then you hurt thousands more.
Disclosure (“none” means no position):None
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Took the evening to digest the General Growth Properties (GGP) news. Here is what I came up with for to affirm the investing thesis of the equity (stock).
First, here is the news (linked for those who have already read it):
So, why invest in the common stock, does bankruptcy destroy it, why aren’t lenders forcing it, will it be a Chapter 11 (reorganization) or Chapter 7 (liquidation)?
The answers are all tied up and related so lets go through it:
If (when) there is a bankruptcy filing, why 11 and not 7? The simple answer is having the second largest mall operator go into liquidation and throwing 200 million square feet of retail space up for sale would destroy the commercial real estate market. Why? The sudden supply of properties without bidders (loans still are very tough to get) would mean they would have to be placed on the market below “fire sale” prices to sell. Because of that, all other operators real estate values would fall, dramatically, and in turn, causing debt covenants for them to be tripped. That would create a cascading effect on the whole industry. For those not sure, this would be a very, very bad thing. You think you have seen write-downs in home mortgage loans at banks? Force liquidation of GGP and as the saying goes “you ain’t seen nothing yet”.
It also means the banks holding the loans on the properties would then be forced to take pennies on the dollar, very bad for them. In a Chapter 7, shareholders, debt holders and the industry as a whole suffer. No one wins.
So, if we rule out liquidation. What happens in Chapter 11? Who wins there? Here is what Bill Ackman said yesterday in the WSJ:
Some investors, however, consider a bankruptcy filing likely. Among them is activist investor Bill Ackman of Pershing Square Capital Management LLC, who bought 7.5% of General Growth’s stock in recent months and put another 18% under swap contracts in a bet that the company’s equity will survive a bankruptcy unscathed. Mr. Ackman also expects to soon get a seat on General Growth’s board.
“We think the company will ultimately have to file for bankruptcy, but we think that it’s a wholly solvent company with a liquidity problem,” Mr. Ackman said in an interview Monday. “I don’t think they’ll need to dilute shareholders. All they need to do is extend the maturities [in bankruptcy court] and they can refinance those debts as they come due.”
Now, one must know that Ackman took his stake AFTER GGP’s troubles were known. This is not a situation where we have an investor trying desperately to save a bad investment. He bought in knowing this scenario we now face was likely.
The typical bankrupcty is forced because the liabilities (debt) outsize the assets. In this case the common shareholders are wiped out. But, we know that the assets GGP has are in excess of the liabilities. In this case, even in a worse case Chapter 11, shareholders are not wiped out.
But, this goes even further. Again from Ackman “Most of the time, insolvent companies go bankrupt,” Ackman said. “It’s rare for a solvent company to go bankrupt. This is a solvent company with a liquidity problem.”
General Growth is not losing money. Rents are stable, occupancy rates are over 90% and FFO (funds from operations) remain healthy. What is the problem? Credit. GGP has loan due that they typically just rollover into longer maturities. With the current credit “lock down”, they cannot do that. That means bulk payment come due and the cash is not there. It should be noted that this is not an odd situation, this is what REIT’s typically do with their debt.
With a Chapter 11 debt holders are put in a room and told by a Judge, “we can pay you all 100% but we need to change and lengthen maturities OR we can liquidate and you can pick up scraps for pennies on the dollar”. Here are the new terms. The choice is rather obvious
The banks all recognize this too. This is the reason they have not been paid a dime since late last year and have not forced a Chapter 11 filing. They do not want to take the risk of writing down loan portfolio’s. Remember, our mark-to-market world means they just do not just write down GGP loans, they then have to write down ALL of them on their books. Again, this is very bad. So we get endless extensions to pay.
Why? The banks are riding this out. If we get MTM changes in Congress then we may see the log jam break. In that case a Chapter 11 would not have a cascading effect on their whole portfolio and restructuring the loans to again begin receiving payments makes perfect sense. They may be hoping for an economic turnaround late this year that enables GGP to sell some property to pay them off. They may all be playing a waiting game hoping someone restructures and set the bar for the rest of them that is better than a bankruptcy judge will do.
Who knows the exact reason why for each lender. We do know what they don’t want right now, a Chapter 11 filing. If they wanted it they could force it easily.
Because of the financial situation of GGP, there is no need to convert debt to equity. Restructuring the loans would allow for payments to be made, equity holders would remain intact, the banks again have performing loans on their books and everyone is happy…..VERY happy.
I think the specter of Ackman going on the board must give the banks pause and perhaps want them to restructure sooner rather than later. Then knowing he wants a Chapter 11 I am guessing will bring people to the negotiating table a bit faster…
Disclosure (“none” means no position):Long GGP
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William Issac, former chair of the FDIC testified before Congress on March 12th. His testimony is the most damning I have seen on the mark-to-market debate to date.
March 12, 2009
For those who want to skip the whole testimony, here is the most striking chart (click to enlarge):
Issac’s point holds as he makes valid comparisons to the S&L Crisis of the 1980’s. Had banks been forced to MTM then, claims Issac, the recession we faced then would have been far worse and the bailouts we see today would also have happened.
When markets are not functioning properly, as they are now says Issac, MTM accounting produces “terribly inaccurate” accounting results.
It is definitely worth the read
Testimony MTM House Financial Services 3-12-09-WIsaac-Final
Disclosure (“none” means no position):
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“Davidson” makes the case that it is indeed flawed analysis….
Robert Shiller has made quite an impact with his various appearances in the media and his active financial consulting business heavily promoting his negative market views. I downloaded his spreadsheets with the goal of understanding his views better, but was surprised to discover serious errors in his approach. I start with his analysis of the housing data and then follow with his view of the SP500.
This is an analysis of Robert Shiller’s data downloaded from his site with out modification. His chart is inflation adjusted Housing Prices in arithmetic format. My chart below is of his Nominal Housing Price Index in semi-log format.
Price/time series of this type require semi-log analysis and clearly reveal that conditions over the series are non-uniform. The point to make with this comparison is that Prof. Shiller draws conclusions regarding housing trends from 1890-Present (Chart 1) treating the period as if the conditions affecting housing prices had been uniform. My chart below Chart 2) provides a clear indication that this is an erroneous supposition as the pre-1933 environment greatly differed from the post-1933 environment. Namely, the Banking Act of 1933 and the Glass-Steagall Act provided improved financial stability which led to a ~300% growth rate in the housing index post-1933 vs. pre-1933. No analytical method can make a valid combination of pre-1933 data and post-1933 data and hope to come to conclusions with any validity.
Prof. Shiller’s housing forecasts are simply meaningless based on the data he presents.
Chart 1: Shiller’s Inflation Adjusted Housing Index Chart arithmetic scale
Chart 2: “Davidson’s Chart of Shiller’s Nominal Housing Index in semi-log format.
Next I turned to Prof. Shiller’s analysis of the Inflation Adjusted SP500 Index and again compared his chart (Chart 3)analysis vs. the proper semi-log format unadjusted SP500 Index(Chart 4). Prof. Shiller draws conclusions and makes forecasts based on the SP500 Inflation Adjusted chart below. He assumes that uniform conditions applied throughout the period. This is shown to be a very simplistic and incorrect assumption by observation of my semi-log non-inflation adjusted plot of the SP500 below. Pre-1933 and post-1933 environments are readily observed. Again one cannot combine the pre-1933 period with the post-1933 period as he has and make any intelligible analysis much less a valid forecast.
Note that the SP500 grew ~400% faster post-1933 when compared to the pre-1933 pace.
The greatest difference in both instances of Shiller’s analyses is that the laws enacted in 1933 to protect the US financial system, greatly reduced the rate of bank failure post-1933 and the subsequent capital destruction. Prof. Shiller has failed to recognize this in his assumptions that conditions remained uniform throughout the period of his analyses. He needs to reassess his approach.
Chart 3: Shiller’s Inflation Adjusted SP500 Index
Chart 4: “Davidson’s SP500 Index unadj. From Shiller’s Data in semi-log format.
I believe Prof. Shiller’s work by this simple analysis is revealed to be considerably flawed.
Humbly submitted,
“Davidson”
Disclosure (“none” means no position):
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Thank you, Dow & Rohm, “Blob”, smart phones
– Thank you for the mention
– Other thoughts on it
– Few people point out how wrong Krugman was about Europe
– Who has the best?
Disclosure (“none” means no position):
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Here is the news, more on this tomorrow including more on Ackman’s role
-General Growth Properties, Inc. (NYSE:GGP) (the “Company”) announced today the administrative agent under the Company’s 2006 Senior Credit Agreement received consents from the requisite lenders thereunder to waive certain identified events of default under the 2006 Senior Credit Agreement and to forbear from exercising certain of the lenders’ default related rights and remedies with respect to such identified events of default until December 31, 2009 (unless terminated earlier in accordance with the terms of such forbearance agreement), subject to certain conditions, including final documentation.
The Company also announced today its subsidiary, The Rouse Company LP (“TRCLP”), has extended the expiration date for its previously announced consent solicitation to 5:00 p.m., New York City time, on March 20, 2009. In the solicitation, TRCLP is seeking consents from the holders of TRCLP’s unsecured notes (five series with an aggregate outstanding principal amount of approximately $2.25 billion at December 31, 2008) (the “TRCLP Notes”) to forbear from exercising remedies with respect to various payment and other defaults under the TRCLP Notes through December 31, 2009.
The Company also noted that it has been informed by the representatives of an ad hoc committee of holders of TRCLP Notes, the members of which hold in the aggregate approximately 41% of TRCLP Notes, that all of the members of the ad hoc committee have committed to consent to the forbearance.
As of 5:00 p.m. on March 16, 2009, consents had been validly delivered (and not validly revoked) with respect to the following amounts of TRCLP Notes (click to make larger):
The minimum acceptance levels for each series of the TRCLP Notes are: 90% of the 3.625% Notes due 2009 and the 8% Notes due 2009; 75% of the 7.20% Notes due 2012, the 5.375% Notes due 2013 and the 6 3/4% Notes due 2013. Holders of TRCLP Notes who have previously validly delivered consents will continue to have the right to revoke their consents through the extended expiration date.Effectiveness of the forbearance under the 2006 Senior Credit Agreement will be conditioned on and subject to, among other things, the successful completion of the consent solicitation and effectiveness of the forbearance agreement relating to the TRCLP Notes.
“We are pleased that we have been able to obtain consents from the requisite lenders under our 2006 Senior Credit Agreement and with the positive reaction to the TRCLP bond consent solicitation,” said Adam Metz, chief executive officer. “Given this support, we feel it is appropriate to extend the expiration date for the consent solicitation in order to give bondholders more time to receive and review the consent solicitation materials and to consider this request.”
GGP INFORMATION
General Growth is a U.S. based, publicly traded Real Estate Investment Trust. The Company currently has an ownership interest in, or management responsibility for, more than 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol GGP.
Disclosure (“none” means no position):Long GGP
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Something about Bill Ackman’s Target (TGT) talk today on Bloomberg really bugged me after I listened to it. Took a while but it sunk in.
Watch it again:
So, does Target take its best shoe associate and place them in electronics without any training? Would they take the head of marketing and give them the job of CFO? Of course not.
So, why then, as their business grows and expands into different areas, do they lack those who have extensive knowledge in those areas on their Board? It makes no sense. For Target’s board NOT to have expertise on it that covers the major areas of its business is just irresponsible at best, negligent at worst.
Selling groceries is not the same as selling shoes. The fact that the food is at the front of most Target stores is a mistake. Food is something folks need to buy. People will make more trips there to buy milk than socks. Put it in the back or in the middle and force people to walk past cloths and through homegoods to get to it (like Wal-Mart (WMT))does. Ackman is right that people there for food will pick up other items, but let’s make them go buy them for the impulse buy.
Target execs are making a huge mistake buy just saying “no” to Ackman. As their sales and stock price deteriorate, shareholders are going to take an increasingly close look at whatever he proposes. Last year it was just the TIP REIT idea. Now it is board seats. Eventually even the most management loyal shareholder is going to look at it and say, “Ummm, why are this guys ideas so bad? What have you done to turn things around?”
Last time I checked “doing nothing” was not really an action plan.
Note to Target management: Hole dug…
Disclosure (“none” means no position):None
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Pershing Square’s Bill Ackman talks about Target (TGT) and his plans for it. On another note, I have been trying to get an interview with Ackman for two months, he chooses this international outfit called Bloomberg over me?!? Just because they have millions of viewers? I’ll tell you one thing, I would have let him finish and not cut him off at the end……..you have my number guys…
Disclosure (“none” means no position):
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This is a great piece on “mark-to-market” and its implications top banks via FASB 157.
Disclosure (“none” means no position):
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Bernanke may have done more tonight than any other official to assure people Washington is trying to look out for them and that the world is not ending tomorrow. Where Geithner recently appeared aloof and evasive on Charlie Rose, Bernanke was in total control and was angry about the same things US citizens are. He also explained himself clearly and calmly. Where Geithner seems to be pushing an ideological policy, Bernanke come off a genuinely trying to do what is best regardless of ideology. Watch for yourself
Part 1:
Watch CBS Videos Online
Part 2
Watch CBS Videos Online
Disclosure (“none” means no position):
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Value, NY Times, Grover, Rove. Thank you
– A nice piece on value investing
– Now this will be interesting
– Now you know it is bad
– Karl nails it
