Boise, Spitzer, Berlusconi, Facebook
– How is this possible?
– Is it better?
Disclosure (“none” means no position):
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Tuesday’s Links
Category: Articles
Following Goldman Sachs (GS) and Morgan Stanley (MS)
The Federal Reserve Board on Monday announced its approval of the applications and notices under sections 3 and 4 of the Bank Holding Company Act by American Express Company (AXP) and American Express Travel Related Services Company, Inc., both of New York, New York, to become bank holding companies on conversion of American Express Centurion Bank, Salt Lake City, Utah, to a bank, and to retain certain nonbanking subsidiaries, including American Express Bank, FSB, Salt Lake City, Utah.
FULL RELEASE
Disclosure (“none” means no position):Long GS, none
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Seth Klarman: Bailout "Makes Us Sick"
There are a handful of investors that ought to be listened to whenever they speak. Seth Klarman from Baupost Group is one of them.
In a recent article Klarman said:
Time for some sanity. Just like today we read about people who made billion shorting housing in 2006 -2007, in a couple years we will read the same of those who started buying in today’s market.
FULL ARTICLE
Disclosure (“none” means no position):None
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Sears Mobile Shopping Site Live
If you have not been to Sears Holdings (SHLD) site recently, there have been huge changes.
From the release..
“Just in time for the busy holiday shopping season, Sears.com today announced the launch of Sears2go — a mobile commerce Web site. Sears2go, which enables customers to find and buy select Sears.com merchandise from their mobile phone, is the first on-the-go technology offered by a US retailer ; pairing mobile commerce with Sears’ best in class in-store pickup.
“In Sears’ continued effort to innovate and serve our customers as they adopt new technologies, Sears2go makes it easier than ever to cut out the holiday shopping hassles and shop from the convenience of your mobile phone,” said Ravi Acharya, Director of eCommerce at Sears Holdings. “More and more customers are using their mobile phones to shop online and Sears2go is completely geared for mobile devices with an emphasis on speed, usability and security. So, whether you’re stuck on the commuter train or waiting for your child’s holiday concert to begin, you can get your shopping done – ultimately leaving more time for you!”
Sears2go lets customers select products from a wide variety of categories, including apparel, electronics and computers, fitness and sports, jewelry, tools, toys and games with home delivery or in store pickup.
After purchasing an item on Sears2go, shoppers picking up their order in store will receive a text message alert when their merchandise is ready for pick-up.”
We know Sears.com was one of the most trafficked site during last years Holiday Season and Lampert has alluded to their success online. Perhaps more information from Sears on results here would bring more investor excitement from it?
I have tried the site on my Blackberry and it worked great and was easy to use..
Disclosure (“none” means no position):Long SHLD
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A lesson trying to get some facts before running a story..
First, here is the story:
“GalleyCat has received a copy of a “special alert” sent from a major book distributor specializing in independent publishers to its clients, warning them that Borders, whose financial difficulties are widely recognized, “now tell us that they will not be paying us for two months due to anticipated excessive returns,” a situation the company views with understandable concern. This distributor “typically carries receivables of approximately two million dollars with Borders,” the memo continues. “A default of that amount would by no means put [us] out of business, but it would be painful, weaken the short-term health of the company, and would mean we would have to defer some of our plans for future growth.”
Therefore, the distributor is telling its clients they need to make a decision this weekend: “Publishers must either instruct [us] not to ship their titles to Borders [or] accept the provision that [we], for Borders business only, will guarantee payment only for the publishers’ historical printing cost of books that are not paid for, rather than for the whole amount of any unpaid invoices.” (As the memo explains, the printing cost of a $14.95 paperback is roughly $1.50, compared to the $7.48 the distributor bills Borders.) The new policy is contrasted to what the company says other distributors do, asserting that some of its competitors are refusing to take any credit risk at all on inventory sent to the struggling chain.
The memo emphasizes, however, that this distributor does not actually recommend that any of its clients start denying Borders their titles:
“Borders has been paying [us], they are reported to have cash on hand and access to credit in the future, and the last thing anyone wants is to have only one giant chain in the retail book market. Borders may prosper, and even in the worst case, given [our] uniquely flexible policy, the value of your inventory would be preserved.”
Additionally, “this policy will stay in affect only while there are serious concerns about Borders viability.” Of course, given that Borders announced a new inventory display strategy earlier this year that would require cutting the stock at a typical outlet by as much as 10 percent, the overall impact of this development on small publishers may be difficult to fully ascertain at first.”
I spoke to people at Borders who told me:
Since books are a returnable item (unsold inventory can be returned to the publisher for credit) it is possible as they stay with their ongoing focus on inventory productivity that they could have a credit exceed the amount of an invoice, and that explains what happened here … it comes across as Borders being unable to pay this vendor, but it is a case where the returns outpaced the invoices.
Now anyone familiar with Borders know that one of the first items on CEO George Jones’ “to do” list was decrease the bloated book and music inventory in the stores.
Part of the inventory strategy does involve returns. Borders absolutely must get titles that don’t sell out of the stores to make room for titles that do sell. Toward this end, inventory teams have been doing a deep dive into the inventory of each store and removing unproductive inventory while adding productive inventory to the stores on a case by case basis where needed. In addition, they are looking at the inventory in their distribution centers and making appropriate returns.
Simply put, this is NOT a case of Borders delaying payments due to a cash crunch but simply not paying invoices that are going to be credited back to them eventually anyway.
Look at it from your point of view, would you pay an invoice sent by a vendor in full if you were returning items for a credit? Me either. This is just a common sense decision from Borders.
Disclosure (“none” means no position):Long BGP
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File this under “tell me something I don’t know”.
“Citigroup (C) is in talks to buy a regional bank that operates in areas that overlap with the New York financial-services company’s focus in the U.S. Northeast, California and Texas, people familiar with the situation told The Wall Street Journal. The move comes less than a month after Citi walked away from Wachovia (WB), which is trying to close its purchase by Wells Fargo (WFC), the Journal reported. The identity of the target bank couldn’t be determined, the paper said. But it said Citi Chief Executive Vikram Pandit wants to deepen the bank’s U.S. deposit base, which is a cheap and reliable funding source.”
In a post last month after talking to people at Citi in regards to the then Goldman Sachs (GS) / Citi rumors “So, the question then becomes. Where does Goldman fit? Answer? It doesn’t. Citi wants deposits and neither Goldman nor Merrill (MER) have any. Sources at Citi indicated to me if it does a deal it will be with a depository institution that has minimal branch over lap with current operations, not a broker.”
Citi buying a regional bank isn’t news. It just isn’t…If this was a secret, then I was the last to know it was a secret…
Disclosure (“none” means no position):Long GS, none
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Politics and Investing
So, I got the following comment from a reader.
“the blog was not about politics before and now after the election you take shots at the new admin, so you starting to dilute your blog focus, which I thought was about undervalued companies and business.
As a reader i am not really interested in your political views, actually I am not interested in politics at all. so you can choose to continue to obsess about obama and whatever and I choose to stop visiting and reading.”
Where to start? How about a quiz.
– Can anyone name the largest investor in US financial companies?
– Can anyone name the entity that forced shareholder dilution on US banks?
– Can anyone name the entity that has control of the US mortgage market?
– Can anyone name the entity that arbitrarily changed the basic rules of investing when it banned short selling, first in financials them a gamut of US businesses?
– Can anyone name the institution, that had it’s “bailout fund” been classified as a “Sovereign Wealth Fund” would be the world largest?
The answer to all of the above is the US government.
At no time in my adult life has the day to day action of the US Government had so much effect on investors. Perhaps one could argue the election of Ronald Reagan in 1980, but since I was 12 then, we’ll omit that. The reason politics rarely entered the conversation here before was that politics before had very little effect on it content.
I can understand and enjoy hearing differing views, but to ignore Washington now as a investor is to do so at your own risk. Shareholders of Fannie, (FNM), Freddie (FRE), and AIG (AIG) held by some of the greatest investor of all time and at the time called “undervalued” were wiped out by the actions of the US gov’t.
I’m not sure I have been anything but vicious in my criticism of Bush appointee SEC Commissioner Chris Cox and have begged Treasury Secretary Paulson to take a “time out” and have criticized the current bank injection plan. I have even come off my earlier in the year support of Ben Bernake and said he is trying too many things right now. All these folks are product of the current administration. In that respect, my criticism easily crosses political party lines.
The reader says I “take shots the new administration”. Not really. I have repeatedly trashed the media’s lap dog mentality to it. As a rule if the media in mass love something, I immediately become skeptical about it. For proof one need only go back the first press conference as President Elect. We were subject to hard hitting questions like “what kind of dog will you get”, “what book are you reading”, “where will your kids go to school”. Really? That is the best you got?
The world stands on the edge of global recession and we are wondering if Obama will get a beagle or a lab? Really?
My fear of the current administration is that we know nothing about what they will do. Why? The media did a pathetic job getting answers. Even Tom Brokaw admitted post election “I don’t know” in response to a question about what Obama will do now elected. Isn’t that their job in its most basic element, to find out?
If anyone read the Sunday papers this week they were full of articles guessing about what Obama will do. Guessing…Again, at no time in my adult life have these questions been asked AFTER and election. We knew where Clinton was going and we certainly knew what GW was going to do.
The reader then says I “obsess about Obama”. We’ll, he is the new President. He will be for the next 4 years. I think by default that requires he be top of the list? I will give Obama credit for one thing, he managed to be elected President without anyone really knowing what his plans are. Kudos..
What we do know is based on Barack’s record and his words. From that we know he has never voted for a tax cuts, has had a floating “tax increase” income target and wants to spend $1 trillion more . Other than that, nada. We have some grand plans but, thank to the media, we have scant, if any details.
At least in the 1980 election Reagan had been Governor of California so people had a good idea of his plans based on how he had previously governed. That and the media then at least asked him for specifics. The media was right about one thing in this election though. This is perhaps the most important election in a generation. I just wish they had attempted to give us the information necessary to make an informed decision.
For any investor to ignore politics today is to do so at their own peril. Does anyone think shareholders of Ford (F) or GM (GM) are not wondering if the gov’t will step in, and if they do if their shares will become worthless? Does anyone really think that based on the AIG, Freddie, Fannie episode anyone thinking about buying shares is not standing by waiting to see what the gov’t is going to do first?
Need value investors look any further that Friday’s press conference to see Berkshire’s (BRK.A) Warren Buffett standing onstage for proof that the political climate has the interest in and is of primary importance to investors of all types?
One could easily argue and be correct in saying that Bush 1, Clinton and Bush 2 (until 2008) only had an effect on the fringes of the economics of the country as none faced anything like what is in front of us today.
Today we are embarking on re-writing the basics of our economic and regulatory framework that has been in place for almost 80 years. We are also doing so with an incoming administration we know very little about at a time when things will have to be done rapidly. Does anyone think the rules the banking system follows are going to be the same at this time next year? Me either. If you don’t know what the rules will be next year, how can you value and entire sector of the economy?
Do I want Obama to succeed? Of course. His failure will be all investors and America’s failure. A Carter-like Presidency from Obama is bad for all of us and no one wants that (at least not here). That being said I am not going to sit back and say that a “new day has dawned” or the “world is better today” because we have a new leader who can give a hell of a speech. For the record, had McCain won I would be saying the same thing. Changing the driver does not mean the car works better right away.
I have not commented on Obama’s foreign policy or social programs, their effect on investing in general is negligible. I do get nervous when his people use words like “rule” to describe his readiness though..
Has anyone seen or heard a politician talk recently without them using the words “Wall St.”? Why should we as investors ignore Washington when clearly they are focused on us?
I can’t think of how it would be anything but irresponsible to ignore it and the effect it will have on investing going forward in the blog. If you disagree, feel free to talk about it in the comments section but to ignore the political landscape today I think may be costly..
Disclosure (“none” means no position):None
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This has been a long time coming..
In October 2007, I wrote a post “Circuit City on the Bankruptcy Express“. While they did not take the “express” there, they still got to their ultimate destination.
Circuit City Stores Inc. (CC) filed for Chapter 11 bankruptcy Monday in Virginia’s Eastern District bankruptcy court.
The Richmond, Va., consumer electronics retailer had long suffered under competition from its larger rival, Best Buy Co. (BBY).
Circuit City listed its amount of assets at $3.4 billion and its total debts at $2.3 billion, according to a bankruptcy document filed with the court. About 168 million shares of its common stock are held by about 4,463 shareholders, according to the filing.
The company said it had has more than 100,000 creditors. The largest single debt listed in the filing is $118.8 million owed to Hewlett-Packard Co. (HPQ).
Disclosure (“none” means no position):None
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Berkshire’s Post Party Hangover ($brk.a)
The real story here isn’t the derivative contracts or the investment holdings, it is that indeed, “the party is over”.
Thus was the quote from Berkshire’s (BRK.A)Chief Warren Buffett in his annual letter earlier this year in regard to insurance results.
Here are the details:
Net income fell to $1.06bn, or $682 per share of Class A stock, marking the fourth consecutive decline in net quarterly profits. Berkshire’s operating earnings, which exclude investment and derivatives losses that were recorded for accounting purposes but largely unrealised, slid 19 per cent to $2.07bn. Given the slide in the economy, the fall in operating earnings should not shock anyone nor be unexpected.
Berkshire Hathaway recorded $1.01bn in losses on the value of some investments and derivatives for the third quarter, compared with $2bn in gains in the third quarter of 2007. Berkshire said that the amount of investment and derivative gains or losses it reported “in any given quarter or year is usually meaningless”.
Most of those losses stemmed from unrealised losses on derivatives contracts. Again, true. Given the fall in the market, and the option contracts Buffett has written, one can only expect from quarter to quarter large swings in wither direction here.
Now we get to the real problem.
Berkshire said profit from underwriting insurance fell 83 percent to $81 million amid the most costly hurricane season since the record storms of 2005. Its reinsurance group, which sells catastrophe coverage to other insurers, posted a $166 million pretax loss for the quarter. Profit from selling policies at car insurer Geico Corp. fell 27 percent to $246 million. Berkshire typically gets about half its revenue from insurance.
Hurricanes Ike and Gustav cost insurers a combined $10 billion when they struck the Gulf Coast in September, according to preliminary data althought it is not clear what portion of this is Berkshire’s.
Berkshire, is, for all it various parts an insurance company.
Back in July I wrote:
“For all its holdings, Berkshire is essentially an insurance company. It has operated under “perfect” conditions for the last two years according to Buffett and eventually to run must end. Premiums are already falling and as houses are re-poed and fewer new cars are purchase, insurance premiums derived from those products will fall accordingly. I know people who are looking at homeowners and auto policies for way to decrease coverage and save money. Whether or not this is a good idea is irrelevant (I do not think it is), it is happening. Throw in a hurricane or two (we are due) and insurance could suffer quite a poor year.
For more on Berkshire’s insurance read this former post:”
So what about the future? Buffett has invested billion in Goldman Sachs (GS), Dow Chemical (DOW) and GE (GE). These bets will all pay off long term. But, in the next year or two, one has to believe that the insurance industry must turn around if you are to believe Berkshire is.
There really isn’t anything one should be able to point to on the horizon that would return the industry to its 2005 -2006 glory years. Those were in essence “bubble years” in insurance also. as housing has fallen, so have results there. If that is true, then 1/2 of Berkshire’s results will suffer.
Is Berkshire “in trouble”? No. To say other wise would be foolish.
Buffett’s investments will pay off down the road. But, rather than helping earnings grow, they just may have the role of slowing or mitigating the decline.
Disclosure (“none” means no position):Long Dow, GE, none
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Monday’s Links
Rahm, Thank-you, Leder, Brokaw
– Just what does Obama’s Chief of staff believe?
– Thanks for the mention
– Wow….both Brokaw and Rose admit, post election, they “don’t know about” Barack. Perhaps if they had just asked him questions other than “what’s your favorite color”?
From the Mises Institute
. From Feb. 2006. This is a great video on the damage inflation does.
Disclosure (“none” means no position):
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This is a long video but it is crucial if you want to understand what happened.
Hat Tip to the blog “Distressed Volatility” for finding it
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Ambac CEO: Liquidity Issue Solved
Ambac (ABK) CEO David Wells addresses the Moody’s (MCO) downgrade.
So, now we know Ambac has talked to the Treasury about the TARP program. Does this “solvency” vs “liquidity” argument sound eerily like the AIG (AIG) fiasco?
Disclosure (“none” means no position):None
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Mort Zuckerman on the Markets
Boston Properties (BXP) Chairman, the nations largest office landlord ought to be listened to.
Don’t want to watch and want the cliff notes….don’t be too optimistic.
Disclosure (“none” means no position):none
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I had tears coming down my face….
Obama Win Causes Obsessive Supporters To Realize How Empty Their Lives Are