Thank you to reader Vlado for this…….an instant classic..
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Category: Articles
55.00002% of the outstanding shares are now held by Gates, Eddie Lampert and Todd Sullivan. 🙂
Microsoft Chairman Bill Gates has taken a 10% stake in car retailer AutoNation Inc., according to a regulatory filing Friday.
Gates’ investment firm, Cascade Investment LLC, owns 9.4 million shares, or 5.3 percent, and the Bill and Melinda Gates Foundation Trust holds 8.3 million shares, or 4.7 percent, according to the filing with the Securities and Exchange Commission.
In July, Gates disclosed a 5.5 percent stake in AutoNation, also through Cascade and his foundation trust, which together at the time held 9.9 million shares.
AutoNation’s largest shareholder is billionaire investor Edward S. Lampert who disclosed last week that his entities control about 45% company’s outstanding stock.
Disclosure (“none” means no position):Long AN
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Berkshire’s (BRK.A) Warren buffett sits down with Fox Biz…
Part 1:The Market & Paulson
Part 2:Economy and Jobs & Goldman Sachs (GS)
Part 3:Auto Industry: “the model must change”
Part 4:More on Paulson
Bill Ackman’s plan for Target (TGT) is getting good reviews out there..
Here is the Lazard Research Piece:
Here is Ackman’s latest proposal
Disclosure (“none” means no position):None
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The “Gloom,Boom and Doom Report” editor says we are “oversold” in almost all areas…
Part 1: Very good value in corporate bond market
Part 2:
Categories
Lee Scott Steps Down
After a very rough start, Wal-Mart (WMT) CEO Lee Scott is stepping down with his retailer again “the place to shop”…
Back in May of 2007 I said it was time for Scott to go. I said rather than concentrating on growth, he ought to cut back growth, buyback shares and invest in current locations. Less than a month later Wal-Mart announced they were cutting back expansion plans and planned a $15 billion share repurchase plan.
No, I do not think they were listening to me but it does show Scott was nimble enough to turn the tide of two decades of breakneck growth plans and change the company’s focus. For that he ought to get kudos…
It wasn’t too long ago we were hearing about how Target (TGT) was displacing Wal-Mart as the top retailer…….haven’t heard that for a while now..
Don’t think we will be either…
Disclosure (“none” means no position):Long WMT, TGT
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Why Can’t Bank Execs See in The Mirror?
Recent complaints by Citi’s (C) Pandit and Bank of America’s (BAC) Lewis can only leave investors head shaking..
Today Vikrim Pandit said that “rumor mongering” was at the heart of the company’s stock slide and yesterday called in Gov’t officials to re-instate the short sale ban. It should be noted that this was tried earlier this fall, and , well, stocks fell anyway. Not sure what Pandit hopes to accomplish here. He also said the bank has plenty of liquidity and will not break itself up.
I can believe #1 but still do not understand #2 at this point. There has to be assets that can be sold to raise equity. They have $2 trillion of them. Something must be able to let go…
Now, watch Ken Lewis in Chicago Thusday..
Lewis blamed “lax regulation” for much of the problems today. Was he forced to loan money? Was he forced to pay billions for Countrywide (CFC) when he could have just stood still and watched it go into bankruptcy? Was he forced to overpay for Merrill Lynch? He bought it and paid what he did for “before someone else bought it”. Now, if we listen to what Lewis said above, then his reasoning behind buying it then was flawed. If that model can no longer survive, then had he waited, he could have bought it far cheaper and no, Ken, no one else wanted it.
Ever notice how little we hear from Kovacevich at Wells Fargo (WFC) and Dimon at JP Morgan (JPM)? It seem the only time we hear from them are when Dimon is bailing out another institution or Kovacevich is complaining about being force fed TARP funds he does not want.
Whining about short sellers has never entered into the conversation.
Lewis and Pandit are seeing their company’s in the positions they are in due to poor decisions. Lewis has no one to blame but himself with very poor acquisitions recently. Both the businesses he bought and the prices he paid should have never been attempted. Pandit can blame the mess he inherited on former CEO Chuck Prince but cannot excuse the near year of inaction he has since held rein over.
Don’t invest in companies who blame other for the stock and performance slide…
Disclosure (“none” means no position):Long WFC, none
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Berkshire Hathaway (BRK.A) and Fairfax Financial (FFH) are investing in USG (USG) convertibles.
USG Corporation (USG) , a leading building products company, reported today that it has entered into an agreement to sell a total of $400 million of 10 percent contingent convertible senior notes due 2018, $300 million to Berkshire Hathaway Inc. and $100 million to Fairfax Financial Holdings Limited. The notes will initially bear interest at a rate of 10 percent per annum. In accordance with New York Stock Exchange rules, USG will seek shareholder approval to allow conversion of the notes into shares of USG common stock. Assuming an affirmative vote of USG’s shareholders, the notes will become convertible into shares of USG common stock at a conversion price of $11.40 per share. If shareholder approval is not obtained prior to the 135th day after closing of the sale of the notes, the notes will bear interest at 20 percent per annum until after shareholder approval is obtained.
Berkshire Hathaway and Fairfax have agreed to vote all shares of the corporation’s common stock controlled by their affiliates over which they have voting control in favor of the proposal to permit conversion of the notes.
Completion of the sale of the notes is subject to customary closing conditions and is expected to occur within the next several business days.
“We are gratified by the expression of confidence in USG Corporation by two premier financial institutions,” said USG Corporation Chairman and CEO William C. Foote. “We consider these substantial investments by Berkshire Hathaway and Fairfax as validation of our business strategy and the company’s long-term prospects. This transaction provides USG with long-term capital that significantly improves our financial flexibility as we manage through the steep recession in our primary markets.”
USG intends to use the proceeds from the sale of the notes for general corporate purposes, including a partial repayment of the amounts outstanding under its unsecured credit agreement.
The company intends to hold a special shareholders meeting in the first quarter of 2009 to seek shareholder approval to allow conversion of the notes.
“We have taken numerous actions over the last 2 1/2 years to stay ahead of a declining market and optimize both our operations and our finances,” said Foote. “We know that one of the keys to future success is maintaining sufficient financial flexibility to manage through this downturn. The proceeds of the sale of the convertible notes significantly strengthen our capital position and greatly enhance our ability to navigate through this recession and position the company for an eventual market rebound.”
The notes will not be and have not been registered under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This press release does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state, and is issued pursuant to Rule 135c under the Securities Act of 1933.
Disclosure (“none” means no position):none
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Friday’s Links
Thank you…
– A thank you for the mention and a recommendation. For those who do not read Abnormal Returns daily….do so. It is one of the, if not the best blog/msm daily linkfest out there.
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Every investor ought to be forced to read Berkshire’s (BRK.A) Buffett at least once a week..
A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the “hamburgers” they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
For shareholders of Berkshire who do not expect to sell, the choice is even clearer. To begin with, our owners are automatically saving even if they spend every dime they personally earn: Berkshire “saves” for them by retaining all earnings, thereafter using these savings to purchase businesses and securities. Clearly, the more cheaply we make these buys, the more profitable our owners’ indirect savings program will be.
Furthermore, through Berkshire you own major positions in companies that consistently repurchase their shares. The benefits that these programs supply us grow as prices fall: When stock prices are low, the funds that an investee spends on repurchases increase our ownership of that company by a greater amount than is the case when prices are higher. For example, the repurchases that Coca-Cola, The Washington Post and Wells Fargo made in past years at very low prices benefitted Berkshire far more than do today’s repurchases, made at loftier prices.
At the end of every year, about 97% of Berkshire’s shares are held by the same investors who owned them at the start of the year. That makes them savers. They should therefore rejoice when markets decline and allow both us and our investees to deploy funds more advantageously.
So smile when you read a headline that says “Investors lose as market falls.” Edit it in your mind to “Disinvestors lose as market falls — but investors gain.” Though writers often forget this truism, there is a buyer for every seller and what hurts one necessarily helps the other. (As they say in golf matches: “Every putt makes someone happy.”)
We gained enormously from the low prices placed on many equities and businesses in the 1970s and 1980s. Markets that then were hostile to investment transients were friendly to those taking up permanent residence. In recent years, the actions we took in those decades have been validated, but we have found few new opportunities. In its role as a corporate “saver,” Berkshire continually looks for ways to sensibly deploy capital, but it may be some time before we find opportunities that get us truly excited.
On another note, In March of this year I claimes that Berkshire shares proiced at $133,000 a share were no bargain. Then in July I said “priced at $111,000 a share, more downside is in store”.
Today we sit at $81,000 a share, a 39% drop from March and 27% since July alone. Now at 2003 price levels, Berkshire looks enticing. The current environment reminds me of when I first bought Berkshire shares late in 1999 (I sold them in 2003 for a 63% gain, don’t cheer, I sold before another 60% would have been realized)). Buffett then was being called “out of touch” and Berkshire shares had taken a beating as folks rushed into tech stocks.
Flash forward to today and Berkshire’s situation is similar. Buffett is being questioned about investments in GE (GE) and Goldman Sachs (GS) and the market is pricing the risk of default by Berkshire higher on a daily basis. Currently the market thinks Berkshire has a higher default risk on its debt than Allstate (ALL), defying all rational thought.
Buy? Well, not so fast. It all comes down to insurance for Berkshire. We know the operating businesses will not improve during a recession. Will insurance? The operating environment will stop sliding but probably not turn. There are less homes to insure, less autos and those that are being insured are being done for for lower values. Both those add up to lower insurance results and lower earnings for a while.
I still think there is more downside to shares, maybe another 10% to 20%. We’ll see….If I see that, I will be buying…
Disclosure (“none” means no position):Long GE, GS, none
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A whole lot of reading to get to the meat 2/3 of the way through and some thoughts at the end…
From the Release
In the forecast prepared for the meeting, the staff lowered its projection for economic activity in the second half of 2008 as well as in 2009 and 2010. Real GDP appeared to have declined in the third quarter, and the few available indicators that reflected conditions following the intensification of the financial market turmoil in mid-September pointed to another decline in the fourth quarter. The declines in stock-market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to hinder household spending over the near term. Business expenditures also probably would be held back by a weaker sales outlook and tighter credit conditions. The staff expected that real GDP would continue to contract somewhat in the first half of 2009 and then rise in the second half, with the result that real GDP would be about unchanged for the year. Although futures markets pointed to a lower trajectory for oil prices than at the time of the September meeting, real activity was expected to be restrained by further contraction in residential investment, reduced household wealth, continued tight credit conditions, and a deterioration of foreign economic performance. In 2010, real GDP growth was expected to pick up to near the rate of potential growth, as the restraints on household and business spending from the financial market tensions were anticipated to begin to ease and the contraction in the housing market to come to an end. With growth below its potential rate for an extended period, the unemployment rate was expected to rise significantly through early 2010. The staff reduced its forecast for both core and overall PCE inflation, as the disinflationary effects of the receding cost pressures of energy, materials, and import prices and of resource slack were expected to be greater than at the time of the September FOMC meeting. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010.
OK. So, if any of us has paid any attention to anything Nassim Taleb has said recently or read his book “Black Swan” (if you haven’t, do it), then we know any prediction past the next three months is essentially worthless. Great, so why the post then and why does that matter?
The prediction of negative GDP for the next 9 months then growth in the second half of 2009 will create a pessimistic environment. People will believe what the Fed predicts will happen. That is good for those thinking of buying stocks now.
A bad investing mood will expect bad news for the next 9 months. If the news is indeed bad, much or the downside from that news ought to be incorporated into stock prices, as Ben Graham would say “Mr. Market is depressed”. Bad news will be looked at in a “we expected that” prism. Equity prices reflect for the most part that future pessimism. Note…this does not mean we have bottomed by any means, just that current equity prices reflect the pessimism of the investing public in the future.
Any news that comes out that is good, will have surprise value. “What if things are not going to be that bad” Mr. Market will think. “If things are not that bad, prices are really cheap” he will lament to himself. He may buy a little and should more good news come out, he may rush into buying stocks causing prices to surge.
The point is, with the Dow (.DJI) at 8000, a recession and negative growth expected for the next 9 months, Ford (F) and GM (GM) teetering and banks desperate for cash, there isn’t much else that could happen that could really “shock” investors save a terrorist attack or another War breaking out. Another bank failure? Seen it. Bigger bailout? Yawn.
On the other hand, any good news of any kind would not be expected and could cause prices to rise…fast…
The point is that either is just as likely to happen based on the inability of economic predictions to be very accurate as we extend the time frame. If the Fed is right, we are there already with expectations. If they are wrong, current buyers could be very well rewarded.
PS. Please note the time frame….9 months. Let’s not expect this to turn by Christmas and be crushed if it doesn’t. Patience…
FULL MINUTES
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Thursday’s Links
“Media Malpractice”, Rather, Eaton, TARP
– Like i said…..the media
– Does this just reek of hypocrisy or what?
–
– Who doesn’t have their hand out?
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Lampert Picks Up More AutoNation ($an)
Over a million shares of AutoNation (AN) the last 4 trading days.
In a new SEC filing Sears Holdings (SHLD) Chairman Eddie Lampert purchased just over 750k shares of AutoNation at an average price of $6.20 a share.
He now holds over 79.4 million shares or 44.9% of the total.
He now has over 50% of Sears, an almost 50% of both AutoNation and AutoZone (AZO).
There is something there…..I just feel it…
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This is a video of today’s presentation from Pershing Square’s Bill Ackman’s updated presentation that addresses Target’s (TGT) concerns.
Disclosure (“none” means no position):None
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I just do not have a problem with Lampert shrinking the share base…Look at the billion spent by other retailers in the current environment. What has it got them? Nothing..
Sears Holdings Corporation
(Nasdaq: SHLD) announced today that its wholly-owned subsidiary SHLD
Acquisition Corp. acquired on November 11, 2008, 326,700 common shares of
Sears Canada Inc. on the Toronto Stock Exchange (“TSX”) at an average price of
C$16.37 per share. This acquisition represents 0.3% of the outstanding shares
of Sears Canada. Taking into account this acquisition, other purchases made
on the TSX and other published markets and the prior holdings of Sears
Holdings and its affiliates, Sears Holdings now beneficially owns and controls
77,683,290 common shares, representing approximately 72.2% of the outstanding
shares of Sears Canada.
The purchases were made to increase Sears Holdings’ interest in Sears
Canada. Sears Holdings may in the future acquire additional common shares of
Sears Canada depending upon a number of factors including, among others,
general market and economic conditions and prices and volumes of shares
available for sale. In addition, purchases of Sears Canada common shares may
be made pursuant to an automatic share purchase plan that is currently in
effect.
Disclosure (“none” means no position):Long SHLD, none
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