Category: Articles

AutoZone Earnings Ups……Lampert Still "Lost It"??

Post author By ToddSullivan
Post date September 22, 2008

So, all last year CNBC has been running stories about Sears Holdings (SHLD) Chairman Eddie Lampert and saying he has “lost it”, or word to that effect. Yet, AutoZone (AZO), which Lampert will soon own about 50% of is trading just off an all-time high. The silence from the boob tube is deafening.

AutoZone, which is the largest U.S. auto-parts retailer, reported a 12.2% rise in quarterly profit on Monday.

Net income rose to $243.7 million, or $3.88 per share, in its fiscal fourth quarter that ended August 30, from $217.2 million, or $3.23 per share, a year earlier. Net sales increased 10.4 percent to $2.2 billion and same-store sales, rose 0.6 percent in the quarter.

Now, I still say that something is in the cards for AutoZone (AZO), AutoNation (AN) and Sears Auto. Lampert has controlling stakes in all of them and has friendly Boards to deal with.

Maybe not now, but there are just too many things pointing to it to ignore.

Disclosure (“none” means no position):long SHLD, AN, none
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Tags AN, SHLD

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(update with video) Goldman and Morgan Approved as "Bank Holding Company"

Post author By ToddSullivan
Post date September 22, 2008

Goldman Sachs (GS) and Morgan Stanley (MS) have received approval from the Fed.

From the Fed

The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.

To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve’s primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.

Perhaps speculation of either or both making a move for a bank is not so crazy after all? In the case of Morgan, it has all been assumed but Goldman has been at least publicly denying it.

Video:

Disclosure (“none” means no position):Long Gs, None
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Dow Chemical JV Update

Post author By ToddSullivan
Post date September 22, 2008

A couple updates on new Dow Chemical (DOW) JV’s.

Dow Izolan, a joint venture between Dow Chemical and Izolan (Vladimir, Russia), has broken ground on a polyurethane (PU) systems plant at Vladimir. Dow says the plant will help meet demand from the “fast-growing” appliance, automotive, construction, consumer products, and furniture markets in Russia. The facility is due onstream in mid-2009.

Saudi Aramco and Dow’s giant Ras Tanura petrochemical faces delays as the sheer size of the project complicates design, the Middle East Economic Survey (MEES) reported.

Dow’s investment in the plant, estimated at $22 billion, will be the largest single foreign investment in Saudi Arabia’s energy sector. The plant, due to begin production in 2012 had awarded KBR (KBR)the front-end engineering and design contract for the plant in July 2007, but that contract will be split and partly awarded to another company, MEES reported, citing industry sources.

“Around 2 million man hours of work, covering utilities and offsites and some aromatics units have been taken off KBR and will be given to another firm, leading to delays,” the weekly MEES reported.

I’m not sure this really qualifies as a “delay” as the original time frame for the project was 2011-2012. I am guessing that the 2011 part of the equation isn’t going to happen. Not really all that big a deal as they are still in the ballpark and a whole lot of time can be made up between now and 2011.

The Russian JV shows a ton of promise. It is also fraught with risk due to Putin. One has to consider the very real lesson Mr. Putin learned the past couple week watching his country’s stock market and currency plunge after the Georgian actions. Far from politician’s teaching him a lesson, the market will enact a far more severe cost to him. That being said, one can only hope the reality of the world he now lives in is sinking in.

That being said, the Russian JV is not critical project like Ras Tanura but event in Russia will now bear a closer eye. One can only hope markets have taught Putin a lesson he needed to learn.

Disclosure: Long Dow
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Tags dow

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A Review: "Once in Golconda"

Post author By ToddSullivan
Post date September 22, 2008

I cannot recommend this book enough.

Backround from the Saturday Review:

Once in Golconda “In this book, John Brooks-who was one of the most elegant of all business writers-perfectly catches the flavor of one of history’s best-known financial dramas: the 1929 crash and its aftershocks. It’s packed with parallels and parables for the modern reader.” -From the Foreword by Richard Lambert Editor-in-Chief, The Financial Times Once in Golconda is a dramatic chronicle of the breathtaking rise, devastating fall, and painstaking rebirth of Wall Street in the years between the wars. Focusing on the lives and fortunes of some of the era’s most memorable traders, bankers, boosters, and frauds, John Brooks brings to vivid life all the ruthlessness, greed, and reckless euphoria of the ’20s bull market, the desperation of the days leading up to the crash of ’29, and the bitterness of the years that followed. Praise for Once in Golconda “A fast-moving, sophisticated account.embracing the stock-market boom of the twenties, the crash of 1929, the Depression, and the coming of the New Deal. Its leitmotif is the truly tragic personal history of Richard Whitney, the aristocrat Morgan broker and head of the Stock Exchange, who ended up in Sing Sing.” -Edmund Wilson, writing in the New Yorker “As Mr. Brooks tells this tale of dishonor, desperation, and the fall of the mighty, it takes on overtones of Greek tragedy, a king brought down by pride. Whitney’s sordid history has been told before..But in Mr. Brooks’s hands, the drama becomes freshly shocking.” -Wall Street Journal “It’s all there in Once in Golconda-the avarice of an era that favored the rich; and the later anguish of myriads of speculators doomed by a bloated market, easy credit, and their own cupidity and stupidity.”

If you read this for no other reason, it will assure you that “this time” is not really different. These boom bust cycles always happen, whether it be tech, housing or credit. You cannot legislate and regulated away people emotions when it comes to money. If anything, the more you try to regulate them, the more folks seem to become determined to find a way around those regulations and it typically involves more risk/reward, thus the bubble then pop (see “liar loans” or $100 tech stocks than ignored earnings).

By walking through history perhaps the reader will be able to put current events in a historical context, be able to see the “how’s” of the end of the crisis (not necessarily the “when’s”) and be better able to control oneself when the talking heads on TV or the MSM do their best to try and make you jump out of your office window everytime the Dow falls 300 points.

What was of particular interest was what “was to blame” for the 1929 crash and what followed:

1- “Short Sellers”
2- Banks
3- “Speculators”
4- Excess leverage
5- Lack of Gov’t regulation

Did any of them work? No…It was the war and the energy it out into business that did the trick…not Gov’t “engineering”.

Geez…..glad we have managed to avoid the same pitfalls now that were are allegedly almost 80 years wiser.

So, in the past eighty years we increased regulation, enacted capital requirements, separated investment houses from banks, set margin rates and yet…here we are.

You cannot, under any circumstances regulate stupidity and greed, no matter how hard you try.

It really was a great book.

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Monday’s Links

Post author By ToddSullivan
Post date September 22, 2008

Save $$, Sprint, Sotheby’s, SEC

– This is kool, save money on some bills

– Better but still needs a ton of work’

– George has a very interesting buy here

– Some more blame for the SEC

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Sears Holdings Responds to Fitch Action

Post author By ToddSullivan
Post date September 21, 2008
1 Comment on Sears Holdings Responds to Fitch Action

Let’s just call this what it is, the rating agencies, tired of looking like duplicitous dopes in the current credit environment, are going to cut a swath through businesses downgrading or putting them on “watch” in a classic “CYA” move.

Sears Holdings (SHLD) Responds:

Today Fitch Ratings (“Fitch”) issued a press release in which it downgraded the ratings associated with certain of Sears Holdings Corporation’s (“SHC”) outstanding debt obligations. SHC does not agree with Fitch’s action given our current liquidity position, reduced debt levels, demonstrated history of cash flow generation and available assets. We believe that we are being unfairly treated, as many of our biggest competitors have dramatically increased debt levels over the past several years with little or no consequence to their ratings.

SHC has consistently maintained a strong capital structure and generated significant cash flow from operations. In fact, SHC has generated $5.2 billion of operating cash since the merger and $1.5 billion last year. The $4 billion credit facility entered into at the time of the Sears/Kmart merger was structured to provide significantly more liquidity than Sears Holdings anticipated requiring in order to provide flexibility to fund our working capital needs and to pursue a variety of value creating strategies. Since the merger in March 2005, the largest amount outstanding under the facility at any time to date has been $1.8 billion, of which $1 billon represented standby letters of credit issued primarily to support our insurance programs. Over this same period, SHC has paid down approximately $2 billion of the outstanding debt assumed from Sears at the time of the merger. SHC has also made contributions of approximately $1 billion to fund the frozen pension plans of its predecessor companies. This credit facility, by its terms, continues through March 2010 and carries no financial ratio covenants that are applicable (the financial ratio covenants contained in the agreement are only applicable at SHC’s election).
SHC has significant assets, including cash of $1.5 billion, owned and attractive long-term leased real estate, a stable of nationally recognized proprietary brands (Kenmore, Craftsman, Lands’ End and DieHard) and a 70% equity interest in Sears Canada. In addition, SHC has $9 billion of inventory that currently secures the $4 billion credit facility.

We wish to thank Fitch for retracting the incorrect statement that appeared in its Retail Register Report published on September 17, 2008 in which reference was made to concerns stemming from the elimination of the Bank of America cash-backed letter of credit facility. As noted in the correction issued today by Fitch, that facility did not provide incremental liquidity over and above the existing $4 billion credit facility. The Bank of America facility was designed as a less expensive means for Sears Holdings to issue letters of credit at a time when we had several billions of dollars of excess cash with which to collateralize the facility. With lower cash levels, the facility no longer made economic or operational sense and was significantly reduced, with a small amount retained to continue certain outstanding international letters of credit. Bank of America continues to hold one of the largest commitments in our existing $4 billion credit agreement.

Given that Fitch’s rating change utilizes mid-year debt levels and credit metrics, we have requested that Fitch monitor our credit rating for upgrade as soon as the calculations on which their decision is based no longer govern. At a time when many companies are suffering from excessive leverage undertaken over the past several years, Sears Holdings is well positioned from decisions we made to reduce our leverage since the merger and to allow for the inevitable cycles that tend to occur in the retail business.

Now, Sears has a balance sheet second only to Target (TGT) and WalMart (WMT) in retail. That being said, I think either a slew of retail credit downgrade are coming OR and this is the most likely one, the rating agencies are just running around trying to figure out what went wrong.

As they run around, they are cutting everything in sight. This, the irony here is that they are cutting rating, just as we have clarity (some at least) and things looks like they may finally stabilize.

This will be yet another case of them cutting too late, then finally taking action just when things get better..

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

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WaMu, Citi or Wells Fargo

Post author By ToddSullivan
Post date September 21, 2008

Who is it going to be?

The WSJ Reported:

Citigroup Inc. (C), moving to take advantage of the turmoil that is hobbling banks throughout the U.S., is considering making a bid for Washington Mutual Inc. (WM), according to people familiar with the situation.

“People view us today as being a source of the solution, instead of part of the problem,” Gary Crittenden, Citigroup’s chief financial officer, said in an interview. He declined to comment specifically about WaMu.

Citigroup and several other banks are reviewing the Seattle thrift-holding company’s books, which are packed with shaky mortgages, people familiar with the matter said Thursday. Other interested parties include Banco Santander SA, of Spain, and Wells Fargo & Co. (WFC), of San Francisco. J.P. Morgan Chase & Co. (JPM), which was spurned by WaMu earlier this year, is biding its time on a potential bid, people close to J.P. Morgan said.

Who will be the winner? Let’s look.

JP Morgan has its hand full digesting Bear Sterns (BSC). While it does have the balance sheet to do a deal, doing so with the Bear liabilities hanging on it and then adding those of WaMu might just tax things a bit much for CEO Jamie Dimon’s comfort.

Citi. Well, if Pandit has promised to shed $400 billion or so in “non core” assets, I think the likely hood of Citi being a prime bidder would be enhance were he to do it first. Citi is much more likely to be a buyer of much smaller regional banks.

Wells Fargo. The best bet in the lot. I has no current integration issues like Morgan does and is in a infinitely stronger position that Citi. If WaMu is going to get an offer, my guess is that now Wells can unload many of the undesirable mortgages WaMu holds to Hank Paulson, the thrift becomes a bit more appealing at its current $4 a share price.

Disclosure (“none” means no position):Long C, WFC, none
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Jessie Livermore Video

Post author By ToddSullivan
Post date September 21, 2008

Now, I do not for a second condone trading like this, but, this is still very interesting…more history

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Wow….Bye, Bye Lehman and I (to American Pie Music)

Post author By ToddSullivan
Post date September 20, 2008

This is a classic…

From the FT:

Click here for music to go along with words

A long, long time ago,
I can still remember,
How much wealth there was in the Square Mile,
And I knew that if I had my chance,
I could make it in finance,
And maybe I’d have money for a while.

But subprime assets made me shiver,
With every product I’d deliver,
Bad news in the press(es),
Just look at those CDSs.

I can’t remember if I cried,
When my salary was pushed aside,
But something resounded worldwide,
The week the IB died.

So bye, bye, Lehman Brothers (LEH) and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s (AIG) too big to die,
AIG is too big to die.

Why’d Fuld wait, put all at stake,
Did he think he’d make more at a later date?
Greedy finance tycoons,
Now Barclay’s buying, let’s be frank,
A pretty cheap investment bank,
Can you hire me, real soon?

Well, I know that it’s a lot to ask,
When Einhorn’s taken us to task,
Using our balance sheet to guise,
Our level 3 assets’ demise.

Now Morgan Stanley’s (MS) feeling short,
And BofA’s (BAC) Merrill’s (MER) last resort,
The banking system’s pretty morte,
The week the IB died.

I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s too big to die,
AIG is too big to die.

Now for four years we’d been on the phone,
Selling mezzanine CDOs,
But that’s not how it used to be,
When Dick came in, we just did bonds,
Good thing he helped us right that wrong,
By buying Aurora Loan LLC,

Oh, and while the Fed was looking ‘round,
They thought they’d try and shoot us down,
The market was all broken,
Bank lending was a croakin’,
And while we unwind our trading book,
The head hunters all have a look,
The hedge funds are put on the hook,
The week the IB died,

I was saying,
Bye, bye, Lehman Brothers and I,
Needed credit to get better but the credit was dry,
Hank Paulson’s Fed had carved up the pie,
Saying, AIG’s too big to die,
AIG is too big to die…

Here is the original post

Disclosure (“none” means no position):None
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Tags einhorn

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Kass Defends the Short Sellers

Post author By ToddSullivan
Post date September 20, 2008

Doug Kass must annoy those who attack short sellers. He uses these annoying things like facts to prove them wrong.

Kass discusses Lehman (LEH), Merrill (MER), Morgan Stanley (MS)

Disclosure (“none” means no position):None
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"Freaky" Weekend Viewing

Post author By ToddSullivan
Post date September 20, 2008

Here is an interview by Charlie Rose with Levitt and Dubner, Co-authors of Freakonomics.

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Bogle and Heebner Talk US Business

Post author By ToddSullivan
Post date September 19, 2008

John Bogle put this week in perspective. “If you think the intrinsic value of US business rose and fell by a trillion dollars this week, you are nuts”. Amen..

Disclosure (“none” means no position):
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The Week’s Top Stories at VIN

Post author By ToddSullivan
Post date September 19, 2008

Here are the top stories for the week at Value investing News

1. 7 Stocks Priced For Buying

(via www.dividends4life.com)

When investors purchase their initial position in a stock, it is usually after their most rigorous research. Once a stock is in their portfolio, some investors relax on the research for subsequent purchases. Each and every time you purchase a stock, you should run it through the same process as if you were buying it for the first time.

2. Stock Analysis: Colgate Palmolive (CL)

(via www.thediv-net.com)

Colgate-Palmolive Company (Colgate) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products. Linked here is a detailed stock analysis and commentary.

3. Auto Retailers: Value Here?

(via barelkarsan.com)

Since cars are big-ticket items, a drop in spending has manifested itself with utmost clarity in the auto retail space. US motor vehicle sales were down some 18% in June year over year. As a result, many car retailers have been punished in the market.

4. Defending Warren Buffett: “Getting Better With Age”

(via www.cnbc.com)

Some are once again questioning Warren Buffett’s current investments, but Whitney Tilson comes continues to defend him.

5. Intangibles: Find Them!

(via barelkarsan.com)

I guess if you read as many annual reports as Saj and I have in the past few months you get hungry for some excitement! So to quench this desire, I decided to skip directly to the note disclosure on goodwill and intangibles! The interesting part between these items ended up residing with the disclosure on intangibles.

6. Nokia (NOK) Stock Dividend Analysis

(via dividendgrowth.blogspot.com)

Nokia is an international dividend achiever. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 5.00 % to its shareholders. Nokia’s share price has not recovered yet form its all time highs in the early 2000. The stock has lost over 45% of its value so far in 2008.

7. Walter Schloss Talks Investing

(via video.google.com)

Walter J Schloss answers questions at the Ben Graham Center for Value Investing February 12, 2008.

8. Investing Carnival # 13

(via www.nurseb911.com)

The DIV-Net’s Investing Carnival #13 with posts on dividends, value investing, stock analysis, general market commentary and real estate

9. Archer Daniels Midland (ADM) Dividend Stock Analysis

(via dividendgrowth.blogspot.com)

Archer Daniels Midland is a dividend aristocrat as well as a component of the S&P 500 index. It has been increasing its dividends for the past 33 consecutive years. From the end of 1999 up until September 2008 this dividend stock has delivered an annual average total return of 6.50 % to its shareholders. The stock has lost over half its value so far in 2008.

10. Lehman Brothers to File for Bankruptcy

(via streetcapitalist.com)

Summary of the Lehman Brothers bankruptcy coverage including a link to the official Lehman Brothers’ press release.

11. Bank of America / Merrill Lynch… Why Now?

(via valueplays.blogspot.com)

Todd Sullivan comments on Bank of America CEO Ken Lewis’ decision to takeover Merrill Lynch.

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Tags buffett

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Acronym for Paulson’s Plan

People have been asking all day what it is called…I’ve got it

The “Securitization & Housing Investment Trust” or SHIT for short

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1929……….On Film…More on "Golconda"

Post author By ToddSullivan
Post date September 19, 2008

I am on a history kick after reading “Once in Golconda”. Here are eyewitness accounts to 1929 and the aftermath. As you watch it, you’ll be struck by the similarities..

Here is the book:

Here is a book about Jessie Livermore

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