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Bruce Berkowitz Files 13G/A in Mohawk Industries

Post author By ToddSullivan
Post date July 9, 2008

Bruce Berkowitz just filed a 13G/A for his 10.6% stake in Mohawk Industries (MHK)

“7,223,821 shares of Common Stock of Mohawk Industries, Inc. are owned, in the
aggregate, by various investment vehicles managed by Fairholme Capital
Management, L.L.C. (“FCM”)of which 5,800,653 shares are owned by Fairholme
Funds, Inc. Because Mr. Berkowitz, in his capacity as the Managing Member of FCM
or as President of Fairholme Funds, Inc., has voting or dispositive power over
all shares beneficially owned by FCM, he is deemed to have beneficial ownership
of all such shares so reported herein.

While the advisory relationship causes attribution to Bruce Berkowitz, Fairholme
Funds, Inc. or FCM of certain indicia of beneficial ownership for the limited
purpose of this Schedule 13G Amendment, Bruce Berkowitz, Fairholme Funds, Inc.
and FCM hereby disclaim ownership of these shares for purposes of
interpretations under the Internal Revenue Code of 1986, as amended, or for any
other purpose, except to the extent of their pecuniary interest.”

Disclosure (“none” means no position):None

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Columbus Dismisses Lead Paint Lawsuit "With Prejuduce"

Post author By ToddSullivan
Post date July 9, 2008
1 Comment on Columbus Dismisses Lead Paint Lawsuit "With Prejuduce"

More good news for Sherwin Williams (SHW) and NL Industries (NL)

Jane Genova Reports
“The city of Columbus, Ohio has voluntarily dismissed with prejudice its public nuisance lawsuit against the former manufacturers of lead paint.

According to a press release issued by Prism Public Affairs, which represents a number of lead paint public nuisance defendants, this action by Columbus “follows a series of significant decisions over the last two years, all of which have rejected public nuisance lawsuits against former manufacturers. On July 1st, the Rhode Island Supreme Court unanimously rejected a public nuisance lawsuit filed nine years earlier, saying that the claim ‘should have been dismissed at the outset.'”

This filing is the last of the 10 city lawsuits in OH to have been voluntarily dismissed or, as with Toledo, rejected by the court. Still pending in Ohio is the statewide lead paint public nuisance lawsuit filed by former OH Attorney General Marc Dann.”

Disclosure (“none” means no position):long SHW

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Ken Heebner the Bull

Listen to Heebner. Sounds like a guy loading up for a bull market?

It is hard to argue with a guy like Heebner and his track record…

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Faber on Value Investing

It seems he doesn’t get it. Value Investing is not about a quarter or a year.

Faber talks about financials, value investing, Freddie (FRE) and Fannie (FNM).

If you are a value investor you are buying the unwanted and unloved. That by itself means that your initial investment, unless you happen to perfectly pick the bottom will sink or flat-line for a period, especially in the current economic state.

The hand-wringing that is going on now it just not warranted. Look out a year, that is what the true value investor is doing.

Disclosure (“none” means no position):None

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So, Selling Assets Isn’t The Same as "Raising Capital"?

Post author By ToddSullivan
Post date July 9, 2008

Is anyone going to call Merrill Lynch’s (MER) John Thain out on this one?

first we need to go back to April when Merrill CEO Thain first made the statement that Merrill would “not need to raise additional capital”.

Then, in May he inexplicably followed it up again.

Reuters is reporting:
“A blind trust run by New York City Mayor Michael Bloomberg is willing to pay between $4.5 billion and $5 billion to buy Merrill Lynch & Co’s (MER) 20% stake in financial news and data provider Bloomberg LP, the New York Post reported, citing sources.

Discussions are still under way, and a deal could fall apart as Merrill aims to sell its minority stake in the privately held company ahead of its second-quarter earnings call set for July 17, the paper said.

Merrill is also looking to sell part of its 49 percent stake in money manager BlackRock Inc (BLK), which may be sold to multiple parties, the paper said.”

So, this isn’t “capital raising”?

Back in May I wote:
““We deliberately raised more capital than we lost last year … we believe that will allow us to not have to go back to the equity market in the foreseeable future,” Merrill Lynch (MER) CEO John Thain.

What does Thain gain with the proclamation? Nothing. No one believes what comes out of banker’s mouths today anyway, why say it?

It get’s even worse when just hours later he clarified the statement to mean “raise additional cash through equity”. Super, nice job John. Close the door and then go back and open it up a crack.

Now he either will be forced to take a bad deal on a debt offering or asset sale to raise cash if necessary in order to save face. If he does another equity or preferred sale, his reputation at the bank and with shareholders is crushed even before it has a chance to grow. Let’s say he is right? So what? That and $5 will get him a latte’ and Starbucks (SBUX). Had Merrill be forced to tap equity markets again, it would have been bad but now if they do, Thain will most likely be getting his resume updated.

Thain had absolutely nothing to gain by making the proclamation…….nothing. He now has created an atmosphere in which those so inclined (CNBC’s Charlie Gasparino) are going to make sport out predicting when Merrill will need more cash and how they will get it.

I always thought rule #1 was “under promise and over deliver”. Thain ought to see the example set by Berkshire’s (BRK.A) Warren Buffett.”

So, Thain can play semantics here and say he is not raising it through equity. But, isn’t selling very profitable assets hurting the equity? I mean he is taking future earnings from the shareholders through the sale and therefore depressing the future earnings power of the equity holders. Right? One could make the argument that selling assets is a permanent impairment of earnings power while a equity offering isn’t as those shares could be repurchased down the road while the assets continue to become even more profitable than they are now.

It is one thing to shed non-performing assets, this is not what Thain is doing. He is dumping the good stuff.

Once again, shut up and stop making promises you aren’t 1000% sure you can deliver on.

Capital raising is capital raising, I do not care how you do it, equity offering, debt, asset sales, whatever. This is all a bit like saying a high priced escort is not a prostitute because she does not walk the streets, yes she is…

Disclosure (“none” means no position):None

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Tags buffett, sbux

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So, Selling Assets Isn't The Same as "Raising Capital"?

Post author By ToddSullivan
Post date July 9, 2008

Is anyone going to call Merrill Lynch’s (MER) John Thain out on this one?

first we need to go back to April when Merrill CEO Thain first made the statement that Merrill would “not need to raise additional capital”.

Then, in May he inexplicably followed it up again.

Reuters is reporting:
“A blind trust run by New York City Mayor Michael Bloomberg is willing to pay between $4.5 billion and $5 billion to buy Merrill Lynch & Co’s (MER) 20% stake in financial news and data provider Bloomberg LP, the New York Post reported, citing sources.

Discussions are still under way, and a deal could fall apart as Merrill aims to sell its minority stake in the privately held company ahead of its second-quarter earnings call set for July 17, the paper said.

Merrill is also looking to sell part of its 49 percent stake in money manager BlackRock Inc (BLK), which may be sold to multiple parties, the paper said.”

So, this isn’t “capital raising”?

Back in May I wote:
““We deliberately raised more capital than we lost last year … we believe that will allow us to not have to go back to the equity market in the foreseeable future,” Merrill Lynch (MER) CEO John Thain.

What does Thain gain with the proclamation? Nothing. No one believes what comes out of banker’s mouths today anyway, why say it?

It get’s even worse when just hours later he clarified the statement to mean “raise additional cash through equity”. Super, nice job John. Close the door and then go back and open it up a crack.

Now he either will be forced to take a bad deal on a debt offering or asset sale to raise cash if necessary in order to save face. If he does another equity or preferred sale, his reputation at the bank and with shareholders is crushed even before it has a chance to grow. Let’s say he is right? So what? That and $5 will get him a latte’ and Starbucks (SBUX). Had Merrill be forced to tap equity markets again, it would have been bad but now if they do, Thain will most likely be getting his resume updated.

Thain had absolutely nothing to gain by making the proclamation…….nothing. He now has created an atmosphere in which those so inclined (CNBC’s Charlie Gasparino) are going to make sport out predicting when Merrill will need more cash and how they will get it.

I always thought rule #1 was “under promise and over deliver”. Thain ought to see the example set by Berkshire’s (BRK.A) Warren Buffett.”

So, Thain can play semantics here and say he is not raising it through equity. But, isn’t selling very profitable assets hurting the equity? I mean he is taking future earnings from the shareholders through the sale and therefore depressing the future earnings power of the equity holders. Right? One could make the argument that selling assets is a permanent impairment of earnings power while a equity offering isn’t as those shares could be repurchased down the road while the assets continue to become even more profitable than they are now.

It is one thing to shed non-performing assets, this is not what Thain is doing. He is dumping the good stuff.

Once again, shut up and stop making promises you aren’t 1000% sure you can deliver on.

Capital raising is capital raising, I do not care how you do it, equity offering, debt, asset sales, whatever. This is all a bit like saying a high priced escort is not a prostitute because she does not walk the streets, yes she is…

Disclosure (“none” means no position):None

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Tags buffett, sbux

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Sears and Centro JV? The End of Kmart?

Post author By ToddSullivan
Post date July 9, 2008
2 Comments on Sears and Centro JV? The End of Kmart?

There has been some of this floating around as if it is something new so I decided to look at the SEC filings for Centro (CNP) , formerly New Plan Excel Realty Trust for more information.

The rumor was this venture was formed in October to perhaps finish off the Kmart chain for Sears Holdings (SHLD). Like the other rumors (Sears going private), not so fast.

5/5/2008 10-Q
“NPK Redevelopment I, LLC. The Company has a joint venture with Kmart Corporation (Sears Holding Corp.) pursuant to which the joint venture will redevelop three Kmart Supercenter properties formerly owned by Kmart. Under the terms of this joint venture, the Company has agreed to contribute $6.0 million which had been fully contributed as of March 31, 2008. After the Company’s contribution of the total committed amount, the Company had a 20% interest in the venture and is responsible for contributing its pro rata share of any additional capital that might be required by the joint venture; however, the Company does not expect that any significant capital contributions will be required. The joint venture had no loans outstanding as of March 31, 2008. As of March 31, 2008, the book value of our investment in NPK Redevelopment I, LLC was approximately $10.7 million.”

The 2008 filing
“NPK Redevelopment I, LLC. We have a joint venture with Kmart Corporation (Sears Holding Corp.) pursuant to which the joint venture will redevelop three Kmart Supercenter properties formerly owned by Kmart. Under the terms of this joint venture, we have agreed to contribute $6.0 million which had been fully contributed as of December 31, 2007. We will have a 20% interest in the venture and are responsible for contributing our pro rata share of any additional capital that might be required by the joint venture; however, we do not expect that any significant capital contributions will be required. The joint venture had no loans outstanding as of December 31, 2007. As of December 31, 2007, the book value of our investment in NPK Redevelopment I, LLC was approximately $9.5 million.”

2007 Filing:
“NPK Redevelopment I, LLC. We have a joint venture with Kmart Corporation (Sears Holding Corp.) pursuant to which the joint venture will redevelop three Kmart Supercenter properties formerly owned by Kmart. Under the terms of this joint venture, we have agreed to contribute $6.0 million, $3.6 million of which we have contributed as of December 31, 2006. After our contribution of the total committed amount, we will have a 20% interest in the venture and will be responsible for contributing our pro rata share of any additional capital that might be required by the joint venture; however, we do not expect that any significant capital contributions will be required. The joint venture had no loans outstanding as of December 31, 2006. As of December 31, 2006, the book value of our investment in NPK Redevelopment I, LLC was approximately $3.6 million.”

2006 Filing:
“NPK Redevelopment I, LLC. We have a joint venture with Kmart Corporation (Sears Holding Corp.) pursuant to which the joint venture will redevelop three Kmart Supercenter properties formerly owned by Kmart. Under the terms of this joint venture, we have agreed to contribute $6.0 million, of which $1.0 million had been contributed by us as of December 31, 2005. After our contribution of the total committed amount, we will have a 20% interest in the venture and be responsible for contributing our pro rata share of any additional capital that might be required by the joint venture. The joint venture had no loans outstanding as of December 31, 2005. As of December 31, 2005, the book value of our investment in NPK Redevelopment I, LLC was approximately $1.0 million.”

The 2006 filing for FY 2005 is the first mention of the JV. Note the number of Kmart’s affected (3) has not changed.

What is interesting is that they have marked the investment over 50% higher than their cost as of 12/31/2007 and 76% higher on 3/31/2008. In other years, they marked it at their cost. No further details were given.

One can only assume Sears is seeing the same return?

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Wednesday’s Links

Congrats, 1440, Key words, Buffett

– Congratulations to Jane

– True

– Hard to get all these into investing posts

– It was only a matter of time before the next round of guessing games

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Wednesday's Links

Congrats, 1440, Key words, Buffett

– Congratulations to Jane

– True

– Hard to get all these into investing posts

– It was only a matter of time before the next round of guessing games

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Wednesday’s Upgrades and Downgrades

Post author By ToddSullivan
Post date July 9, 2008

Upgrades
Inter Parfums (IPAR)- Caris & Company Above Average » Buy
Schnitzer Steel (SCHN)- Longbow Neutral » Buy
Genesis Energy, L.P. (GEL)- Morgan Keegan Mkt Perform » Outperform
UPS (UPS)- Stifel Nicolaus Hold » Buy
United Dominion (UDR)- Stifel Nicolaus Hold » Buy
Equity Res (EQR)- Stifel Nicolaus Hold » Buy
UnionBanCal (UB)- BMO Capital Markets Underperform » Market Perform
Bankrate (RATE)- RBC Capital Mkts Sector Perform » Outperform
Medivation (MDVN)- Rodman & Renshaw Mkt Perform » Mkt Outperform
ACE Limited (ACE)- Wachovia Mkt Perform » Outperform
NCR Corp (NCR)- Robert W. Baird Neutral » Outperform
Fulton Fincl (FULT)- Keefe Bruyette Underperform » Mkt Perform
Valley National (VLY)- Keefe Bruyette Underperform » Mkt Perform
WD-40 Company (WDFC)- JP Morgan Underweight » Neutral
Capital Trust (CT)- UBS Sell » Neutral
Marsh McLennan (MMC)- Citigroup Hold » Buy
ACADIA Pharmaceuticals (ACAD)- Banc of America Sec Sell » Neutral

Downgrades
Children’s Place (PLCE)- Sterne Agee Buy » Hold
Wyeth (WYE)- Caris & Company Above Average » Average
Bankrate (RATE)- Sun Trust Rbsn Humphrey Buy » Neutral
Kimco Realty (KIM)- Credit Suisse Outperform » Neutral
Tween Brands (TWB)- Friedman Billings Outperform » Mkt Perform
Gymboree (GYMB)- Friedman Billings Outperform » Mkt Perform
Asset Acceptance Capital (AACC)- Jefferies & Co Hold » Underperform
Skyepharma plc (SKYE)- Jefferies & Co Hold » Underperform
Synovus (SNV)- Morgan Keegan Outperform » Mkt Perform
Tronox (TRX)- Lehman Brothers Equal-Weight » Underweight
Teva Pharm (TEVA)- Deutsche Securities Buy » Hold $55 » $47
Downey Fincl (DSL)- Lehman Brothers Overweight » Equal-Weight
Omnicom (OMC)- Bernstein Outperform » Mkt Perform
Willis Group (WSH)- Citigroup Buy » Hold

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Wednesday's Upgrades and Downgrades

Post author By ToddSullivan
Post date July 9, 2008

Upgrades
Inter Parfums (IPAR)- Caris & Company Above Average » Buy
Schnitzer Steel (SCHN)- Longbow Neutral » Buy
Genesis Energy, L.P. (GEL)- Morgan Keegan Mkt Perform » Outperform
UPS (UPS)- Stifel Nicolaus Hold » Buy
United Dominion (UDR)- Stifel Nicolaus Hold » Buy
Equity Res (EQR)- Stifel Nicolaus Hold » Buy
UnionBanCal (UB)- BMO Capital Markets Underperform » Market Perform
Bankrate (RATE)- RBC Capital Mkts Sector Perform » Outperform
Medivation (MDVN)- Rodman & Renshaw Mkt Perform » Mkt Outperform
ACE Limited (ACE)- Wachovia Mkt Perform » Outperform
NCR Corp (NCR)- Robert W. Baird Neutral » Outperform
Fulton Fincl (FULT)- Keefe Bruyette Underperform » Mkt Perform
Valley National (VLY)- Keefe Bruyette Underperform » Mkt Perform
WD-40 Company (WDFC)- JP Morgan Underweight » Neutral
Capital Trust (CT)- UBS Sell » Neutral
Marsh McLennan (MMC)- Citigroup Hold » Buy
ACADIA Pharmaceuticals (ACAD)- Banc of America Sec Sell » Neutral

Downgrades
Children’s Place (PLCE)- Sterne Agee Buy » Hold
Wyeth (WYE)- Caris & Company Above Average » Average
Bankrate (RATE)- Sun Trust Rbsn Humphrey Buy » Neutral
Kimco Realty (KIM)- Credit Suisse Outperform » Neutral
Tween Brands (TWB)- Friedman Billings Outperform » Mkt Perform
Gymboree (GYMB)- Friedman Billings Outperform » Mkt Perform
Asset Acceptance Capital (AACC)- Jefferies & Co Hold » Underperform
Skyepharma plc (SKYE)- Jefferies & Co Hold » Underperform
Synovus (SNV)- Morgan Keegan Outperform » Mkt Perform
Tronox (TRX)- Lehman Brothers Equal-Weight » Underweight
Teva Pharm (TEVA)- Deutsche Securities Buy » Hold $55 » $47
Downey Fincl (DSL)- Lehman Brothers Overweight » Equal-Weight
Omnicom (OMC)- Bernstein Outperform » Mkt Perform
Willis Group (WSH)- Citigroup Buy » Hold

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Boone Pickens Energy Plan

Ya’ know what, this is what it will take, the market solving the problem..

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Fooling Some of The People…..A Review

Post author By ToddSullivan
Post date July 8, 2008

So, finished David Einhorn’s book over vacation. Pissed me off…

Let’s just put aside the whole “short seller” argument. Like I have said before, I do not care how folks make money, short, long, whatever. Short sellers, when wrong, get creamed and can make longs tons of cash in a very sort time when the shorts cover en mass.

Now, Einhorn was right about Allied. What pissed me of was the “regulators”. Far from being asleep at the wheel, it is their abject ambivalence at the Allied situation that ought to infuriate people. They just did not care. Both the SEC, SBA and Congress (surprise!!) are to blame here. Einhorn painstakingly details his efforts to bring the Allied fraud to regulators who just did not care…..

Now we are talking about further regulating capital markets? Why bother? We do not even enforce the regulations we have now!! Why add more regulations that can be ignored by the very folks who are supposed to enforce them? Why?

Do not feel bad for David though, the publicity he has gotten has vaulted him to “famed” status and now his picks and thoughts are sought after. Shorting a stock successfully just became far easier for him now that millions believe in him. Now, this is warranted given his 20% plus annual returns at Greenlight, it is just that a whole lot more folks are listening to him now.

Too bad Lehman’s (LEH) Erin Callahan was not one of them…

Read Einhorn’s book. It is an eye opening and sobering experience.

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Buffett Talks About "Mistakes" (video)

Post author By ToddSullivan
Post date July 8, 2008
2 Comments on Buffett Talks About "Mistakes" (video)

This is interesting coming off Bill Miller’s recent interview.

From the inteveiw with Berkshire’s (BRK.A) Chairman,

“What is the biggest miss that you didn’t get in on that you wish you had?”

Warren responded, “Fannie Mae (FNE) early 1980s, Walmart (WMT) mid 1990s both of those deals could have made us as much as $10B”.

Disclosure (“none” means no position):None

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Ambac Files 8-K

Post author By ToddSullivan
Post date July 8, 2008

Ambac (ABK) just filed an 8-K with the SEC.

On July 7, 2008, Ambac Financial Group, Inc. (“Ambac”) issued a press release announcing that it has had positive discussions with the Office of the Commissioner of Insurance for the State of Wisconsin (OCI) regarding a plan to capitalize its Connie Lee subsidiary with an $850 million contribution of capital by Ambac Assurance Corporation (AAC).

Ambac intends to seek formal approval from the OCI for capitalization of Connie Lee and believes that it will obtain OCI’s approval of the plan. A contribution of capital of $850 million to Connie Lee would bring Connie Lee’s total capital to slightly over $1.0 billion. The new capital will support the claims paying resources for Connie Lee’s financial guarantee business, which will focus solely on U.S. public finance and global infrastructure transactions. Ambac has been in communication with Moody’s and Standard & Poor’s in pursuit of Aaa/AAA ratings for Connie Lee.

Also:
On July 7, 2008, Ambac issued a press release providing financial details regarding the collateral requirements of its investment agreement business.

Rating agency actions affecting Ambac Assurance Corporation (AAC) during June 2008 resulted in $506 million of increased collateral posting requirements in the investment agreement business and investment agreement terminations of $270 million:

•

The downgrade of AAC by Standard & Poor’s to AA on June 5, 2008, resulted in an incremental collateral posting requirement of approximately $76 million.

•

Moody’s downgrade of AAC to Aa3 on June 19, 2008, resulted in an incremental collateral posting requirement of approximately $70 million and investment agreement terminations of approximately $270 million.

•

The action by Fitch to withdraw the ratings of AAC on June 26, 2008, resulted in an incremental collateral posting requirement of approximately $360 million.

The current collateral and termination obligations have been adequately covered by the investment agreement asset portfolio.

Aggregate collateral requirements and terminations for the investment agreement business at various AAC rating levels, starting with the lower of AAC’s two current ratings (currently Moody’s at Aa3), are as follows:

The book value of investment agreement liabilities at May 31, 2008, amounted to $6.9 billion (down from $7.7 billion at December 31, 2007). The market value of the investment agreement asset portfolio, including cash of approximately $400 million, as of May 31, 2008, is approximately $5.6 billion. In addition, the market value of interest rate derivative contracts held by the investment agreement business is positive $160 million.

Based on May 31, 2008 investment agreement asset portfolio market values:

•

Upon a downgrade of AAC to A+ or A1, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio has sufficient value to meet projected cumulative collateral requirements and terminations.

•

Upon a downgrade to A or A2, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.0 billion.

•

Upon a downgrade to A- or A3, which Ambac believes is unlikely, Ambac estimates that the investment agreement asset portfolio is insufficient to cover the projected cumulative collateral requirement and terminations by approximately $1.1 billion.

In the event of cash and/or security shortfalls in the investment agreement business, management anticipates utilizing the resources of AAC (through inter-company transactions). Utilizing the resources of AAC would allow time for the assets in the investment agreement asset portfolio to recover in value and would preempt claims on insurance policies issued by AAC and prevent the realization of losses in the investment agreement asset portfolio. Ambac is in discussions with the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) with respect to its strategies for managing the collateral posting and termination obligations of the investment agreement business. These discussions have been positive.

Ambac believes that it will obtain OCI’s approval of its plans to address the collateral posting and termination obligations of the investment agreement business in the event of downgrades to the A/A2 rating level. AAC’s investment portfolio is valued at approximately $12 billion with over $1 billion in cash and short-term securities at May 31, 2008. At the A/A2 rating level, Ambac management would evaluate its various resources and utilize those considered most appropriate to satisfy the contractual obligations of the investment agreement business.

Management continues to closely monitor the cash requirements of the investment agreement portfolio and manages the related cash and securities portfolio accordingly.

Disclosure (“none” means no position):none

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