No matter what your politics, this is a great, very thoughtful interview. Hats off to Charlie Rose for the job he did.
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Category: Articles
Just because CEO Phil Schoonover is gone, it doesn’t mean the people who hired him and kept him there can’t continue to bury this thing…
Circuit City Stores Inc. is considering a plan to close at least 150 stores and cut thousands of jobs, as an alternative to filing for bankruptcy-court protection, said people familiar with the company.
Earlier this month, the nation’s No. 2 electronics retailer by sales hired Skadden, Arps, Slate, Meagher & Flom LLP — the law firm that oversaw the Chapter 11 reorganization of Kmart — as its bankruptcy counsel, according to several people familiar with the matter.
Circuit City also retained FTI Consulting Inc. to develop a turnaround plan and investment bank Rothschild Inc. to guide talks with banks and secure emergency financing, these people said.
What bank in their right mind right now would loan them a penny? Who?
In June of 2007 in a post that speculated on the possibility of a Circuit City (CC) bankruptcy, I said “if the economy slides any further….see ya’..”
In Sept. of 2007 I said they were on the “Bankruptcy Express”
Now, Circuit City did try to help the management that ran it into the ground by lowering the price points on their stock options in a move to keep this incompetent bunch happy. Stunningly, the performance of the company did not improve. Please note the sarcasm..
Nothing has changed from either post. The good news? The company still does have a good brand and whoever buys it in bankruptcy has a great opportunity to revitalize it. The price that will be paid will be minimal as the competition for it in the current environment will be minimal. That gives a buyer a tremendous opportunity for success. The bad news? If you are a current shareholder you will get nothing. Sorry…
Disclosure (“none” means no position):none
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Buying Rohm & Haas
This is a short term arb play.
Dow Chemical will purchase Rohm & Haas (ROH) for $78 a share and the deal will close in early 2009.
Berkshire Hathaway (BRK.A) is investing $3b in the deal and it is an all-cash transaction. Currently shares trade at $70 a share under the current credit environment. Purchasers of shares today will get a 10% 4 month return (30% annualized). Downside is minimal.
What could go wrong?
Kuwait, who is buying 1/2 Dow’s commodity business for $9.5b could back out of the deal. That cash is being used for funding the ROH transaction. How likely is this? Well, when one considers that the newly formed JV is in the process of hiring personnel and setting up shop in Michigan, not very.
Berkshire could back out. Again, can anyone come up with a scenario when this has happened? Me either.
Since no debt is being used for the transaction and Dow has already received the bridge loan necessary to complete it, credit market conditions are irrelevant here.
Why did the price fall? Simple. During mass sell-offs like we have had, everything falls, whether is should or not. That gives us tremendous opportunity for very safe situational investing. What this trade is essentially is a way to park some money for 4 months with a very high probability of a 10% payoff with very little downside risk (not none, but very little).
The deals today that are at risk are the ones that depend on bank’s lending for the financing, looks for the all cash or all stock ones.
Disclosure (“none” means no position):Long Dow, none
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Monday’s Links
Drunk email, 25yrs., Cramer, Selling low
– This is great….a way to stop you from sending drunk email by making you do math problems first
– 25 years since the first cell phone
– Another example to different opinions on the same day
– Cramer
Disclosure (“none” means no position):
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Weekend Humor
We could all use some….this is one of the funniest video’s yet… “Little Bill vs Barney Frank”
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Whitney Tilson "Never Been More Bullish"
One bear finally turns…
Whitney is buying more Berkshire Hathaway (BRK.A), MLP’s (natural gas pipelines), Target (TGT). He also said Altria (MO), J&J (JNJ), Coke (KO) were “amazingly cheap”.
Disclosure (“none” means no position):Long MO, none
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Here they are, #1, and then #2, and finally this one.
On Wednesday. Sears’ (SHLD) Chairman added another 105K shares at $102 to $104 a share of the auto part retailer AutoZone (AZO).
Disclosure (“none” means no position):Long SHLD, none
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The Mother of All Goodbye Letters
A hedge fund manager who made 866% last year betting against real estate goes out with a bang….
The letter from Andrew Lahde of Lahde Capital.
Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.
Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.
There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.
I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.
So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.
I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.
On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.
Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.
With that I say good-bye and good luck.
All the best,
Andrew Lahde
Some Friday levity…
John McCain
Pt. 1
Pt. 2
Barack Obama
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Berkshire’s (BRK.A) Warren Buffett penned the following Op-Ed in today’s NY Times.
From The NY Times
“THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.
So … I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.”
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Interestingly enough, the last time Buffett opined about the general market was 1999 when he said they were over priced (soon after the tech bubble popped). Before that one has to go back to 1974 and a Forbes Op-Ed he did in which he said the market, like today was vastly undervalued. Ironically enough, that market bottomed soon after and the Dow never again touched those levels….
Buffett’s final words in 1974: “Now is the time to invest and get rich.”
Anyone who invested with Buffett and Berkshire in 1974 surely did….many times over.
Here is the 1974 Forbes Interview
Disclosure (“none” means no position):None
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Friday’s Links
Brawl, Festival, Gphone, Margin, Twitter, Late Bloomers
– If anyone has video of this, pleas email it to me…it would be hysterical
– The latest Festival of Stocks
– I will look at this phone..
– Makes sense…but millions of folks did it
– For those who do not Twitter, you are missing some very informative material
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Lampert Adds Again to AutoZone Holdings
It is only a matter of time before he has 50%.
After adding 165k shares earlier this week, Lampert added another 177k on the 14th at $106 a share.
Disclosure (“none” means no position):Long SHLD, none
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Altria Cleared To Purchase UST
Altria’s (MO) purchase of UST (UST) has passed regulatory review.
Altria today announced that the Federal Trade Commission has granted early termination of the initial waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and therefore no further regulatory review by the federal antitrust authorities is required in connection with Altria’s acquisition of UST for $69.50 per share in cash.
Completion of the transaction remains subject to UST shareholder approval and certain other customary closing conditions. UST is in the process of scheduling a special shareholder meeting for on or about December 4, 2008, during which UST’s shareholders of record as of the close of business on October 23, 2008 will vote upon the proposed transaction. Details of the shareholder meeting will be contained in the proxy statement which UST expects to mail during the week of October 27th. If approved and all other conditions to closing are satisfied, the transaction is anticipated to close no later than January 7, 2009.
for those who have not noticed, buying Altria shares now will give you a 6.7% (and growing) yield on your invested money. Earnings, about as stable as they come will grow 10% plus through product sales and share repurchases.
No matter what the economy, folks are still lighting up and chewing.
Disclosure (“none” means no position):Long MO
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National City CEO: "Quite Optimistic"
National City Bank (NCC) CEO Peter Raskind said Wednesday that it’s “simply too soon to say” if the bank will avail itself of government assistance — and if it did, what the impact of that help would be.
“We’re closely studying the potential implications, you bet we are,” Mr. Raskind said. “We’re deeply engaged in that process, that analysis. We’re going to take a little more time than that.”
Mr. Raskind spoke to a crowd of nearly 200 people at a weekly lunch for chartered financial analysts sponsored by the CFA Society of Cleveland. Organizers said the meetings usually attract about 70 people and that Mr. Raskind’s talk was the best-attended event the group has held.
It continued:
In his speech, Mr. Raskind also addressed rumors that the bank will be sold by saying that while he would not comment about speculation, he is “quite optimistic” about the future of the company.
National City has been steadily reducing its exposure to products sold through brokers and Mr. Raskind said “significant changes” to the bank’s businesses and leadership teams give him reason to be confident.
Still, he said, National City’s board of trustees understands its responsibility to shareholders and would seriously consider selling the bank if that was in shareholders’ best interest. The board considered selling National City in March but decided that the capital infusion was the better choice. Mr. Raskind said that decision has turned out “quite clearly” to be the case.
I bought NCC shares at the beginning of the month for $2 (read why here). The reasoning behind the buy still hold.
Buyout talk. There is something there. Now that Wells Fargo has Wachovia (WB), Citigroup (C) which needs to expand its capital base has no dancing partner. They remain the most likely candidate as JP Morgan (JPM) and Bank of America (BAC) busy digesting recent acquisitions.
What is it doesn’t happen? I still think shares are worth $6 short term and much more long term. I also think that perhaps the reason a buyout has not happened is because NCC is not in the same position both Wachovia and Washington Mutual (WM) were. Because of that, the bargain basement price buyers of those institutions got will not be had for NCC. It may be something a potential buyer has to get over.
NCC is the “best of what’s left” as far as takeover candidates. If it happens or it doesn’t, shareholders (recent ones) will do just fine.
Disclosure (“none” means no position):Long NCC, WFC, C, none
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The Wells Fargo Tug of War
There are some real dichotomies out there when it comes to Wells Fargo (WFC).
Here is a WSJ Article on it
So why isn’t the San Francisco-based lender doing more to beef up its cushion against loan losses as the country slips into a recession?
As investors sift through banks’ third-quarter numbers, they will be focusing on the strength of their loan-loss reserves, which exist to absorb losses from defaulted loans. Wells allowed a key measure of reserve strength to drop considerably.
If it had held that measure at its second-quarter level, Wells’s third-quarter earnings would have been half the 49 cents per share it reported Wednesday. At a time when bad loans are expected to continue rising, it makes sense to compare a bank’s loan-loss reserve with past-due loans.
Many of those won’t return to health and will lead to a loss.
In the third quarter, Wells’s $7.87 billion reserve was 1.57 times as big as its $5 billion in past-due loans. That’s down from 1.81 times in the second quarter. Maintaining that ratio at 1.81 times in the third quarter would have taken an extra $1.18 billion out of earnings.
After tax, that would work out to 24 cents a share.
Wells’s defenders might argue that some loan portfolios are not deteriorating as fast as they had been, allowing the bank to ease up a bit on this reserve measure. But that’s a bold step in a faltering economy.
Even after getting $25 billion under the government’s financial-rescue plan, Wells still wants to raise another $20 billion of capital on its own to support its planned purchase of Wachovia (WB).
Here is CFO Howard Atkins on the results and Wells capital situation:
So, who to listen to? I am not overly concerned about this an don’t see it a the big deal some are trying to make it out to be. The tone is that Wells is doing something sneaky in its reserves. I think to many folks are trying to be Perry Mason.
Wells is saying that it has taken the most of the losses on the worst of the loans and that while loan losses will continue to grow as the economy worsens, the size of those losses will not significantly grow. The home equity portfolio, where most of the losses are has portions being liquidated and Atkins did say that liquidation is “going orderly”
Now, Atkins did say that the Wachovia deal will “double the size of the bank” and that they “didn’t need the $25 billion from the gov’t”.
So, in August Berkkshire’s (BRK.A) Warren Buffett, Wells largest shareholder he was either buying shares in Wells or American Express (AXP). At the time I speculated it was Wells (still feel that way) and soon enough we will find out. Wells Chairman at first refused the TARP money from Treasury until Hank Paulson force fed it to him.
What can we discern from that? One of three things. Management is either:
1- Spectacularly stupid
2- Slyly dishonest
3- On top of the situation.
We can eliminate #1 as it is clear Wells Fargo and JP Morgan (JPM) are the class of the industry. Buffett has little patience for #2 and unless he believed management was being totally upfront, he would not have even alluded to increasing his stake in the company.
That leaves #3. Based on results for the past two decades, until proven different, I got to go with that…
Disclosure (“none” means no position):Long WFC, none
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