Category: Articles

Lampert’s "Bad Investment" Up 70% In 6 Months and Other Thoughts $$

Post author By ToddSullivan
Post date March 3, 2009
2 Comments on Lampert’s "Bad Investment" Up 702 In 6 Months and Other Thoughts $$

Remember last fall when AutoZone (AZO) fell under $100 a share and CNBC was doing it’s “Lampert has lost it” refrain? What a difference a few months make…

AutoZone, Inc. (NYSE:AZO) today reported net sales of $1.4 billion for its second quarter (12 weeks) ended February 14, 2009, an increase of 8.1% from fiscal second quarter 2008 (12 weeks). Domestic same store sales, or sales for stores open at least one year, increased 6.0% for the quarter.

Net income for the quarter increased $9.2 million, or 8.6%, over the same period last year to $115.9 million, while diluted earnings per share increased 21.1% to $2.03 per share from $1.67 per share in the year-ago quarter.

For the quarter, gross profit, as a percentage of sales, was 49.7% (versus 49.9% last year). Gross margin was negatively impacted by higher than prior year shrink expense of approximately 30 basis points offset in part by lower distribution costs as a percentage of sales due to improved efficiencies and lower fuel costs. Operating expenses, as a percentage of sales, were 34.9% (versus 35.2% last year). The lower operating expense ratio primarily reflected positive leverage of store operating expenses of approximately 80 basis points due to higher sales volumes and lower promotion costs, offset in part by higher investments in hub store enhancements of approximately 20 basis points, higher medical costs, and an increase in legal costs associated with estimates for minor settlements.

Under its share repurchase program, AutoZone repurchased 2.8 million shares of its common stock for $375 million during the second quarter, at an average price of $133 per share. Year-to-date the Company has purchased $647.2 million of stock, at an average price of $128 per share. The Company has $462 million remaining under its current share repurchase authorization.

Now, Lampert first began buying AutoZone shares in 1998. Those shares are up over 345% despite two recession, the tech bubble collapse and the current sell-off. In fact, in the last year, AZO is up 28% vs a 47% decline in the S&P. By early 2000, Lampert owned 21 million shares of AutoZone. Why does that matter? Today he owns just over 23 million shares after recent purchases late 2008 and early this year. What is also of note is through share repurchases he spurred at AutoZone, his ownership share has gone from 16% in 2000 to near 50% today.

Does any of this sound familiar?

Much of the commentary on Sears (SHLD) focuses on recent share price losses. What is lost in the debate is that early shareholders with Lampert are still sitting on gains despite that fall. Meanwhile Lampert has steadily reduced the outstanding share count and increased ownership percentages for current shareholders. Let’s also not forget that Sears has a balance sheet second only to Wal-Mart (WMT) and Target (TGT) in the retail space with $1.3 billion of cash on the books.

One also should credit Lampert for selling Sears credit card division in 2007 (2006?) for top dollar at the time. Anyone who follows Target knows that store credit cards are becoming an giant albatross on hanging on the neck of retail earnings.

Yes he is under with Citi (C), Sallie Mae (SLM) and a few other small positions but when measuring Lampert and Buffett, we need to look back after years, not 6 months. When you have an $8 billion portfolio (not including cash, that is not disclosed), a $19 million Home Depot (HD)investment is less than .2% of assets (note: that is “point” 2% … not 2%). For comparisons sake, Lampert has $2.3 billion in AutoZone stock, a $.80 cent rise in those shares cover the entire Home Depot investment.

Why the media disdain? One can only guess. My assumption would be that he has a loyal investor base and just does not talk to the media and that pisses them off. He also shuns communication with analysts. He essentially communicates once a year through his annual letter and the occasionally letter in between. That is it and the media hates it. Just guessing but can’t really come up with a better reason, if anyone has one, please comment below

For example it is rare to hear a story about the dismal auto environment without hearing how Lampert’s investment in AutoNation (AN) is “down “x” from its highs”. What is omitted is that AutoZone gains of $1.4 billion just since the $92 November 2008 low more than offset the approx. $700 million reduction in the value of AutoNation shares. Since the early 2008 high.

Note: a true “loss” number is hard to deduce because of heavy buying in 2008 of AN shares, lowering Lampert’s costs basis. For instance Lampert picked up millions of shares last fall between $6 and $10 a share, those purchases are gains currently. This means the actual loss on AN shares is most likely less than I stated above but we will just go with the guess above.

As for the end game. Here are my thoughts on that

The point is not to get too caught up with a single tiny investment in a portfolio and really do not get too caught up in the MSM.

Much of the malignant chatter about Berkshire’s (BRK.A) Warren Buffett’s “equity put options” is baseless. Those who wonder out loud if it will destroy Berkshire only prove they know little to nothing about the transaction. For instance. Buffett got $4.7 billion in 15-20 yr. S&P index puts covering $37 billion. Warren is on the hook for the full amount if at the end of the option (15-20 years) the S&P stands at 0, no chance. If at the end it is down 25% from last year, he owes $9 billion. BUT, he only need to grow the $4.7 billion just under 3% a year to cover it. In short, the option was basically a dirt free loan he can grow.

Anyone who says “Berkshire is on the hook for $37 billion” ought to be taken off your reading list….now.

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

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Jeff Immelt: Please Stop Talking…..Please $$

Post author By ToddSullivan
Post date March 3, 2009

I need Jeff Immelt to worry far more about his company and far less about telling people about it. Why? He credibility was shot last year and nothing he says publicly inspires any reassurances anymore. Mr. Immelt, let the company’s performance talk for you.

Let’s walk back in time.

It was April 2008 when Immelt told investors that earnings results for 2008 “were in the bag” only to reverse that statement just weeks later

It was Feb 5th this year Immelt backed the dividend payout for GE only to reduce it 70% two weeks later. For the record I know the dividend “is a board decision” but Immelt is Chairman of The Board, I am guessing he has some sway in the decision making process?

Now:

General Electric Co (GE.N) CEO Jeffrey Immelt acknowledged on Tuesday the company’s reputation had been “tarnished” and said the entire finance industry would need to be rethought due to the global economic meltdown.

The U.S. conglomerate is already identifying parts of its hefty finance arm that it will exit in the coming years, GE’s chief executive said in his annual letter to shareholders.

“Our company’s reputation was tarnished because we weren’t the ‘safe and reliable’ growth company that is our aspiration. I accept responsibility for this,” Immelt, 53, wrote. “No one is more disappointed than I am with the performance of our stock in this tough environmen

I think this latest falls under the “no sh%t” category. Here is the thing. Had Immelt NOT said anything about earnings and the dividend, he recent dividend cut would be looked at as prudent rather than desperate and this statement would not be necessary.

Anything said from this point forward, until results improve will be looked at with a huge does of warranted skepticism. Past statement have proved looking down the road is not Immelt’s strong suit, let’s work on the here and now. Immelt needs to drop out of sight and re-emerge when operations improve, assuming he is still there.

GE (GE) investors do not need Immelt “falling on his sword”, they need him to fix the finance unit and turn this boat around….the sooner the better…

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

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Tuesday’s Links

Forgotton Man, Ayn, Economy, Stem Cells, Woodrow

– Thank you to my friend Gregor for this

– Record sales of “Atlas Shrugged” … this means something

– Ouch….

– It would be nice to put this to rest

– If you do not read this blog, you should, Woodrow’s thought are always very insightful
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Lampert’s Suggested Reading: "Road to Serfdom" Please Read

Post author By ToddSullivan
Post date March 2, 2009

In his recent letter to shareholders, Sears Holdings (SHLD) Chairman Eddie Lampert suggested two books for all to read. Here is one of them. If you do nothing else, read the introduction, the parallels to today are stunning.

Please forward this post to as many friends as possible…

John Chamberlain characterised the period immediately following World War II in his foreword to the first edition of The Road to Serfdom as ‘a time of hesitation’. Britain and the European continent were faced with the daunting task of reconstruction and reconstitution. The United States, spared from the physical destruction that marked Western Europe, was nevertheless recovering from the economic whiplash of a war-driven economic recovery from the Great Depression. Everywhere there was a desire for security and a return to stability.

The intellectual environment was no more steady. The rise and subsequent defeat of fascism had provided an extremely wide flank for intellectuals who were free to battle for any idea short of ethnic cleansing and dictatorial political control. At the same time, the mistaken but widely accepted notion that the unpredictability
of the free market had caused the depression, coupled with four years of war-driven, centrally directed production, and the fact that Russia had been a wartime ally of the United States and England, increased the mainstream acceptance of peace-time
government planning of the economy.

At this hesitating, unstable moment appeared the slim volume of which you now hold the condensed version in your hands, F. A. Hayek’s The Road to Serfdom.

Hayek employed economics to investigate the mind of man, using the knowledge he had gained to unveil the totalitarian nature of socialism and to explain how it inevitably leads to ‘serfdom’. His greatest contribution lay in the discovery of a simple yet profound truth: man does not and cannot know everything, and when he acts as if he does, disaster follows.

He recognized that socialism, the collectivist state, and planned economies represent
the ultimate form of hubris, for those who plan them attempt – with insufficient knowledge – to redesign the nature of man. In so doing, would-be planners arrogantly ignore traditions that embody the wisdom of generations; impetuously disregard
customs whose purpose they do not understand; and blithely confuse the law written on the hearts of men – which they cannot change – with administrative rules that they can alter at whim. For Hayek, such presumption was not only a ‘fatal conceit’, but also ‘the road to serfdom’.

Hayek Friedrich-The Road to Serfdom Readers Digest Version-4-1945

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Monday’s Links

Post author By ToddSullivan
Post date March 2, 2009

Taxes, Opportunity, Grant, Poole

– “The rich” can’t fund these spending plans

– “Of a lifetime“

– When will it end

– Stop the bailouts
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Should We Apply Wicksell Rate to Monetary Policy?

Post author By ToddSullivan
Post date March 2, 2009

“Davidson” took a stab at having an influence with the Dallas Fed using their own published data and their statement that Wicksell is the “Father of Modern Monetary Policy”. The following letter was sent..

To whom this may concern:

Below you will find a comparison of what I call the Wicksell Rate based on Knut Wicksell’s observation that the cost of capital is arbitraged on the Return of GDP vs. comparable fixed alternatives, namely the 10yr Treasury Note. I took the Dallas Fed trimmed mean12mo PCE values and added these to the long term trend line of the Real US GDP(2nd Chart) to produce the Wicksell Rate(1st Chart). The reason for using longer term trends is that business investors typically make capital commitments with 10yr time horizons and ignore year to year fluctuations.

I think this comparison helps to differentiate the enormous short term effect of market psychology which can be observed in the multiple deviations reflecting both periods of enthusiasm and gloom. Net/net the proper relative return relationship holds over long periods. Perhaps, one will find a better fit with changes in tax treatment of capital gains, but I am a lone practitioner and have neither the resources nor the time for extensive analysis.

I note that a better alternative for making the same point which would strip out the economic swings of earnings (because the market does look ahead on the expected returns on assets) is to use a 5yr MovAvg ROE for the SP500 and its P/BV multiple thus producing a ROE/(P/BV) = hypothetical Asset Based Return Yield.

Not all returns come from earnings. For instance, oil companies and real estate companies have asset gains due to inflation which are eventually converted to earnings at some point in the future in the form of higher rents or asset sales. This is less true of companies like GE and PG which have finished products with rising cost inputs but do not have the ability to convert the rising cost of production (rising value of factory equipment) into higher margins during inflation periods as do oil and real estate based businesses. The problem with this approach is that SP500 has to my knowledge stopped issuing BV information as it is deemed unreliable as a financial indicator. However, I think that as a gross measure of the asset base of the economy, I have seen from Ned Davis Research an avg 14% ROE and ~6.1% BV growth rate which is much smoother than the ~6.1% earnings trend you see below for the SP500(3rd Chart).

The point to be made is that Knut Wicksell had the correct observation in 1898 even though the tools for proving it were not available till much later. By using his observation a less volatile monetary policy should produce a less volatile economy, less volatile inflation, fewer economic headaches and Federal Reserve decisions with substantial genius.

It is clear to me that the activities of the Federal Reserve have proven to have been since the US Real GDP trend from 1930 very beneficial as a shock absorber. However, under the Greenspan years the availability of cheap money followed by comparable contractions has resulted in higher corporate earnings volatility(see 3rd Chart Earnings Trend Line)

I ask that you consider using the Wicksell Rate. I ask that you publish this for all to see so that corporate and investment decisions can be made with greater long term clarity. My suggestion is that in the current environment an immediate implementation would be disruptive, BUT, if you were to announce that you were going to work towards implementing Wicksell Rate as a policy over the next 5yrs-10yrs, I believe you would bring great clarity to many financial decisions as well as give all a period in which to make adjustments that would not be unduly disruptive. Importantly this would result in far less speculation as returns would have to breach the Wicksell Rate and all would realize that the cost to doing this would be considerably higher than with funds much lower. Perhaps it would also be helpful to dampen rampant speculation that the Federal Reserve promote the concept of “matching maturities” when investment commitments occur and recourse as opposed to non-recourse financing.

I think some of these suggestions would result in higher levels of individual discipline and common sense.

Humbly submitted,

“Davidson”

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Buffett "Endorses" Mark-to-Market Because of It’s "Strange Results"

Post author By ToddSullivan
Post date February 28, 2009
2 Comments on Buffett "Endorses" Mark-to-Market Because of It’s "Strange Results"

Now, before mark-to-market fans get all excited, one needs to take a close look at what Berkshires (BRK.A) Chairman says about it.

For those not sure where I stand on it, visit a past post.

From the Annual Letter.

Buffett makes the following statement, “We endorse mark-to-market accounting”.

Now, is it for the transparency its advocates seem to think it produces? On that subject Buffett says “Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives.

Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).”

If he does not believe that true transparency is possible simply due to the complexity of the instruments, then why would he support mark-to-market? What does the particular accounting system solve or produce that he finds of value?

Later he says:

“At the request of our customers, we write a few tax-exempt bond insurance contracts that are
similar to those written at BHAC, but that are structured as derivatives. The only meaningful
difference between the two contracts is that mark-to-market accounting is required for derivatives whereas standard accrual accounting is required at BHAC.

But this difference can produce some strange results. The bonds covered – in effect, insured – by these derivatives are largely general obligations of states, and we feel good about them. At year end, however, mark-to-market accounting required us to record a loss of $631 million on these derivatives contracts. Had we instead insured the same bonds at the same price in BHAC, and used the accrual accounting required at insurance companies, we would have recorded a small profit for the year. The two methods by which we insure the bonds will eventually produce the same accounting result. In the short term, however, the variance in reported profits can be substantial.

We have told you before that our derivative contracts, subject as they are to mark-to-market
accounting, will produce wild swings in the earnings we report. The ups and downs neither cheer nor bother Charlie and me. Indeed, the “downs” can be helpful in that they give us an opportunity to expand a position on favorable terms. I hope this explanation of our dealings will lead you to think similarly.” (Emphasis mine)

Buffett believes that mark-to-market accounting produces the very inefficient market pricing that he searches for and seeks to exploit. He gives a wonderful example how the same security, held in a different part of Berkshire and thus accounted for differently produces a far different results (one a large loss, the other a small profit).

Buffett’s endorsement of mark-to-market is NOT an endorsement of it as the best accounting system but an endorsement of it as an accounting system prone to producing conditions in which he believes he can profit handsomely.

Let’s see how the MSM and politicians run with this one……

Disclosure (“none” means no position):None.

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Berkshire Hathaway Annual Letter

Post author By ToddSullivan
Post date February 28, 2009

Haven’t read it yet so thoughts on it will come later……

Enjoy….

Waren Buffett’s 2008 Berkshire Hathaway Letter

Publish at Scribd or explore others: Wills and Trusts Business & Legal berkshire hathaway Warren Buffett

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Saturday Reading

Post author By ToddSullivan
Post date February 28, 2009

Housing

– Paul Kedrosky nails it..

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Saturday Humor

Post author By ToddSullivan
Post date February 28, 2009

From the John Stewart

The Daily Show With Jon StewartM – Th 11p / 10c

Unusual Suspect

Daily Show Full Episodes
Important Things With Demetri Martin

Funny Political News
Joke of the Day

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Leucadia Reports 10K: Discloses Pershing Square Target Loss $$

Post author By ToddSullivan
Post date February 27, 2009
3 Comments on Leucadia Reports 10K: Discloses Pershing Square Target Loss $$

Wow… a 82% loss in Target (TGT) for Leucadia (LUK)

Full 10K

In June 2007, the Company invested $200,000,000 to acquire a 10% limited
partnership interest in Pershing Square, a newly-formed private investment
partnership whose investment decisions are at the sole discretion of Pershing
Square’s general partner. The stated objective of Pershing Square is to create
significant capital appreciation by investing in Target Corporation. The Company
recorded losses under the equity method of accounting from this investment of
$77,700,000 and $85,500,000 in 2008 and 2007, respectively, principally
resulting from declines in the market value of Target Corporation’s common
stock. At December 31, 2008, the book value of the Company’s investment in
Pershing Square was $36,700,000.

Disclosure (“none” means no position):none

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General Growth Files 10K: Comments on Liquidity

Post author By ToddSullivan
Post date February 27, 2009

This is shaping up to be a classic game of chicken. Just read what General Growth Properties (GGP) has to say.

Liquidity

Since the third quarter of 2008, liquidity has been our primary issue. As of December 31, 2008, we had approximately $169 million of cash on hand. As of February 26, 2009, we have $1.18 billion in past due debt and an additional $4.09 billion of debt that could be accelerated by our lenders.

The $900 million mortgage loans secured by our Fashion Show and The Shoppes at the Palazzo shopping centers (the “Fashion Show/Palazzo Loans”) matured on November 28, 2008. As we were unable to extend, repay or refinance these loans, on December 16, 2008, we entered into forbearance and waiver agreements with respect to these loan agreements, which expired on February 12, 2009. As of February 26, 2009, we are in default with respect to these loans, but the lenders have not commenced foreclosure proceedings with respect to these properties. Additional past due loans include the $225 million Short Term Secured Loan which matured on February 1, 2009 and the $57.3 million mortgage loan secured by Chico Mall. The $95 million mortgage loan secured by the Oakwood Center, with an original scheduled maturity date of February 9, 2009, was extended to March 16, 2009.

The maturity date of each of the 2006 Credit Facility ($2.58 billion) and the Secured Portfolio Facility ($1.51 billion) could be accelerated by our lenders. As a result of the maturity of the Fashion Show/Palazzo Loans, we entered into forbearance agreements in December 2008 relating to each of the 2006 Credit Facility and Secured Portfolio Facility.

Pursuant and subject to the terms of the forbearance agreement related to the 2006 Credit Facility, the lenders agreed to waive certain identified events of default under the 2006 Credit Facility and forbear from exercising certain of the lenders’ default related rights and remedies with respect to such identified defaults until January 30, 2009. These defaults included, among others, the failure to timely repay the Fashion Show/Palazzo Loans. Without acknowledging the existence or validity of the identified defaults, we agreed that, during the forbearance period, without the consent of the lenders required under the 2006 Credit Facility and subject to certain “ordinary course of business” exceptions, we would not enter into any transaction that would result in a change in control, incur any indebtedness, dispose of any assets or issue any capital stock for other than fair market value, make any redemption or restricted payment, purchase any subordinated debt, or amend the CSA. In addition, we agreed that investments in TRCLP and its subsidiaries would not be made by non-TRCLP subsidiaries and their other subsidiaries, subject to certain ordinary course of business exceptions. We also agreed that certain proceeds received in connection with financings or capital transactions would be retained by the Company subsidiary receiving such proceeds. Finally, the forbearance agreement modified the 2006 Credit Facility to eliminate the obligation of the lenders to provide additional revolving credit borrowings, letters of credit and the option to extend the term of the 2006 Credit Facility.

On January 30, 2009, we amended and restated the forbearance agreement relating to the 2006 Credit Facility. Pursuant and subject to the terms of the amended and restated forbearance agreement, the lenders agreed to extend the period during which they would forbear from exercising certain of their default related rights and remedies with respect to certain identified defaults from January 30, 2009 to March 15, 2009. Without acknowledging or confirming the existence or occurrence of the identified defaults, we agreed to extend the covenants and restrictions contained in the original forbearance agreement and also agreed to certain additional covenants during the extended forbearance period. Certain termination events were added to the forbearance agreement, including foreclosure on certain potential mechanics liens prior to March 15, 2009 and certain cross defaults in respect of six loan agreements relating to the mortgage loans secured by each of the Oakwood, the Fashion Show/Palazzo and Jordan Creek shopping centers as well as certain additional portfolios of properties.

Pursuant and subject to the terms of the forbearance agreement related to the Secured Portfolio Facility, the lenders agreed to waive certain identified events of default under the Secured Portfolio Facility and forbear from exercising certain of the lenders’ default related rights and remedies with respect to such identified defaults until January 30, 2009. These defaults included, among others, the failure to timely repay the Fashion Show/Palazzo Loans. On January 30, 2009, we amended and restated the forbearance agreement relating to the Secured Portfolio Facility.

Pursuant and subject to the terms of the amended and restated forbearance agreement, the lenders agreed to waive certain identified events of default under the Secured Portfolio Facility and agreed to extend the period during which they would forbear from exercising certain of their default related rights and remedies with respect to certain identified defaults from January 30, 2009 to March 15, 2009. We did not acknowledge the existence or validity of the identified defaults.

As a condition to the lenders agreeing to enter into the forbearance agreements described above, we agreed to pay the lenders certain fees and expenses, including an extension fee to the lenders equal to five (5) basis points of the outstanding loan balance under the 2006 Credit Facility and Secured Portfolio Facility in connection with the amendment and restatement of the forbearance agreements relating to such loan facilities.

The expiration of forbearance and waiver agreements related to the Fashion Show/Palazzo Loans permits the lenders under our 2006 Credit Facility and Secured Portfolio Facility to elect to terminate the forbearance and waiver agreements related to those loan facilities. However, as of February 26, 2009, we have not received notice of any such termination, which is required under the terms of these forbearance agreements.

In addition, we have approximately $1.60 billion of consolidated property-specific mortgage loans scheduled to mature in the remainder of 2009. Finally, we have significant accounts payable and liens on our assets, and the imposition of additional liens may occur.

A total of $595 million of unsecured bonds issued by TRCLP are scheduled to mature on March 15, and April 30, 2009. Failure to pay these bonds at maturity, or a default under certain of our other debt, would constitute a default under these and other unsecured bonds issued by TRCLP having an aggregate outstanding balance of $2.25 billion as of December 31, 2008.

We do not have, and will not have, sufficient liquidity to make the principal payments on maturing or accelerated loans or pay our past due payables. We will not have sufficient liquidity to repay any outstanding loans and other obligations unless we are able to refinance, restructure, amend or otherwise replace the Fashion Show/Palazzo Loans, 2006 Credit Facility, Secured Portfolio Facility, other mortgage loans maturing in 2009 and the unsecured bonds issued by TRCLP which are due in 2009.

Our liquidity is also dependent on cash flows from operations, which are affected by the severe weakening of the economy. The downturn in the domestic retail market has resulted in reduced tenant sales and increased tenant bankruptcies, which in turn affects our ability to generate rental revenue. In addition, the rapid and deep deterioration of the housing market, with new housing starts currently at a fifty year low, negatively affects our ability to generate income through the sale of residential land in our master planned communities.

We have undertaken a comprehensive examination of all of the financial and strategic alternatives to generate capital from a variety of sources, including, but not limited to, both core and non-core asset sales, the sale of joint venture interests, a corporate level capital infusion, and/or strategic business combinations. Given the continued weakness of the retail and credit markets, there can be no assurance that we can obtain further extensions or refinance our existing debt or obtain the additional capital necessary to satisfy our short term cash needs. In the event that we are unable to extend or refinance our debt or obtain additional capital on a timely basis, we will be required to take further steps to acquire the funds necessary to satisfy our short term cash needs, including seeking legal protection from our creditors. Our potential inability to address our past due and future debt maturities raise substantial doubts as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, our consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern.

So, we know the reason they have not been forced into bankruptcy, the $595 million due March 15 and the $2.25 billion that was due 12/31/2008 is all non-recourse to GGP. For the remained of 2009, there is $1.6 billion due that is tied to property mortgages.

So, GGP is sitting there in this filing saying they are preparing a bankruptcy filing essentially “unless you refinance or convert” your debt.

Let’s not forget that Citigroup (C), a major lender of GGP also owns 5% of the equity (this is a recent position). We have a company looking at its lenders saying we’re going to file and lenders saying we do not want to refi the debt and deep down you do not want to go Chapter 11.

Why don’t the banks want to refi and see a Chapter 11? Look at housing. The last think banks want to have is impaired commercial loans on one of the nation’s largest REIT’s. Any impairments on these loans would the cause “mark to market” write-downs on their whole portfolio’s. Bad news…

So, what will happen. The best solution would be for debtors to convert to equity outside of Chapter 11. Shareholders get diluted big time but anyone buying shares today already expects that to happen. Even if this does end up in a Chapter 11, my opinion is that this is not a loss for shareholders.

Ultimately this is looking as though March 15 will be a showdown at the OK Coral. Gonna be fun to watch..

FULL 10K

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“Bailouts, Your Dollars, & the Whole Credit Mess"

Post author By ToddSullivan
Post date February 27, 2009

Ronald H. Muhlenkamp is founder and president of Muhlenkamp & Company, Inc., established in 1977. He is a nationally recognized, award-winning investment manager, frequent guest of the media and featured speaker at investment conferences nationwide. Take your time and go through the presentation. It is worth the read..

“Bailouts, Your Dollars, & the Whole Credit Mess”

Publish at Scribd or explore others: Academic Work ron muhlenkamp bailo

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Friday’s Links

Post author By ToddSullivan
Post date February 27, 2009

Wall St. Media, NetFlix, Housing, Gphone, Google

– Thank you for the mention

– Streaming growth is exploding

– Still to high

– Am anxious to see this

– Breakup?

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Ackman Going for Target Board Seats $$

Post author By ToddSullivan
Post date February 26, 2009

Did anyone really think he was just going to go away? Target (TGT) us in for a battle whether they know it or not.

In a just released 13D/A Filing

As of February 26, 2009, as reflected in this Amendment No. 5, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 58,390,835 shares of Common Stock (approximately 7.8% of the outstanding shares of Common Stock), which include shares of Common Stock and shares subject to certain stock-settled American-style call options. The Reporting Persons also have economic exposure to approximately 1,250,766 notional shares of Common Stock subject to certain cash settled call options, bringing their total economic exposure to 59,641,601 shares of Common Stock (approximately 7.9% of the outstanding shares of Common Stock).

Item 4. Purpose of Transaction.

Item 4 of the Schedule 13D is hereby amended and restated in its entirety, as follows:

The Reporting Persons hold Common Stock and options for investment purposes. The Reporting Persons continue to believe in their fundamental investment case for Target, and that the Company’s Common Stock is undervalued at current market prices.

Representatives of the Reporting Persons have met and may in the future meet with management and/or representatives of the Issuer to engage in discussions that may include matters relating to the strategy, business, assets, operations, governance, management, capital structure, financial condition and/or future plans of the Issuer in an effort to enhance shareholder value. The Reporting Persons have engaged, and may engage additional, advisors to assist it, including consultants, accountants, attorneys, financial advisors or others, and may contact other shareholders of the Issuer and/or other relevant parties to discuss any and all of the above.

Without limiting the generality of the foregoing, the Reporting Persons are currently engaged in discussions with the Issuer regarding the consideration by the Board of Directors of the Issuer of certain candidates proposed by the Reporting Persons as directors of the Issuer.

Depending on various factors, including, without limitation, the Issuer’s financial position and strategic direction, the outcome of discussions referenced above, actions taken by the Issuer, and trading price levels of the Common Stock, the Reporting Persons may in the future take such actions with respect to their investments in the Issuer as they deem appropriate including, without limitation, purchasing additional shares of Common Stock or related financial instruments or selling some or all of their respective beneficial and economic holdings, engaging in any hedging or similar transaction with respect to such holdings and/or otherwise changing their intention with respect to any and all matters referred to in paragraphs (a) through (j) of Item 4 of Schedule 13D. The Reporting Persons may change their beneficial or economic holdings depending on additions or redemptions of capital. The Reporting Persons’ are in the business of trading — buying and selling — securities and other financial instruments. Consequently, the Reporting Persons’ beneficial ownership as reported on this Schedule 13D will vary over time depending on various factors, with or without regard to the Reporting Persons’ views of the Issuer’s business, prospects or valuation (including the market price of Common Stock), including without limitation, other investment opportunities available to the Reporting Persons, concentration of positions in the portfolios managed by the Reporting Persons, conditions in the securities market and general economic and industry conditions.

Disclosure (“none” means no position):Rooting for Ackman

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