Milton Friedman on “Limited Government”.
Note: The intro in in Iclandic but the discussion in English
Friedman vs 3 Left wing “Scholars” on Iclandic television, 1984
Disclosure (“none” means no position):
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I hope this was not a surprise. We have been pounding this point here repeatedly. April was the month moratoriums in foreclosures expired. It should not be a surprise that folks in November 2008 whom could not afford their home still can’t in April 2009. People losing their jobs who put no money or minimal money down on a home and then tapped what little equity they may have had in it have no ability at all to stay in those homes, none.
Here is the Realty Trac Report:
RealtyTrac® (realtytrac.com), the leading online marketplace for foreclosure properties, today released its April 2009 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 342,038 U.S. properties during the month, an increase of less than 1 percent from the previous month and an increase of 32 percent from April 2008. The report also shows that one in every 374 U.S. housing units received a foreclosure filing in April, the highest monthly foreclosure rate ever posted since RealtyTrac began issuing its report in January 2005.
“Total foreclosure activity in April ended up slightly above the previous month, once again hitting a record-high level,” said James J. Saccacio, chief executive officer of RealtyTrac. “Much of this activity is at the initial stages of foreclosure – the default and auction stages – while bank repossessions, or REOs, were down on a monthly and annual basis to their lowest level since March 2008. This suggests that many lenders and servicers are beginning foreclosure proceedings on delinquent loans that had been delayed by legislative and industry moratoria. It’s likely that we’ll see a corresponding spike in REOs as these loans move through the foreclosure process over the next few months.”
the more important number in my opinion each month is the foreclosure number. It represents not only an addition to the existing housing inventory, but a more permanent reduction in demand as foreclosed buyers are not going to then go out and purchase another home.
When you add these folks to those losing jobs, demand is plummeting. What’s worse is that this is not demand destruction in terms of those waiting for better prices, this is a more permanent kind of demand destruction as these buyers are not coming back into the market for quite some time (years).
I have still yet to been offered any type of evidence that housing is going to do anything but fall further from here for at least the next 6 months..
If you have it, please either email it or add it to the comments…
Disclosure (“none” means no position):
No matter what your opinion of Ackman, we all have to be thankful he is giving us something other that the Government to talk about.
In an interesting development yesterday Target (TGT) made a move that to some extent, validates what Ackman has been saying for over a year now, Target badly underutilized their grocery potential. Target announced that in 100 stores they are dramatically expanding their grocery offerings. This is a move that Ackman has been pushing for and Target’s grudging acceptance if it, so close to the upcoming meeting in which Ackman’s slate of electors will be voted on, well ought to give current shareholders pause before checking their prospective boxes on the proxy.
Here is the thing. If you are a shareholder and happy about the company’s performance the past two years, stick with what you have. IF, on the other hand, you are not and feel that like Wal-Mart (WMT), Target ought to have seen results improve as the consumer felt more pinched, not deteriorate, that you need change. Change on the board level would not be akin to “wholesale change” but would be significant enough to alter the company’s focus and direction in way that should pay of long term.
Either way, will be fun to watch..
Disclosure (“none” means no position):Long WMT, none
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Latest Wall St. Media Appearance 5/11
Talking about General Growth Properties, GM, housing and the economy.
More video at Wall St. Media
Disclosure (“none” means no position):
I agree with Rogers although I am not nearly as dire in my outlook. Rather a continued downtrend, I think we slog along the bottom for a long while…
Rogers does like raw materials, agriculture and metals.
Disclosure (“none” means no position):
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Wilbur Ross Interview (video)
Ross Discusses Real Estate, Banks, and Automakers
Disclosure (“none” means no position):
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Wednesday’s Links: More Ayn Rand
From 1959
Part 1
Part 2
Part 3
Disclosure (“none” means no position):
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General Growth DIP Group Chosen
Turn out Goldman Sachs and Brookfield Asset also got involved in the bidding. The final DIP lender must be approved by the judge but after the process that has been undertaken, one ought to assume that it gets rubber stamped.
Now that this is done, the next big decision, expected tomorrow and on the CMBS lenders challenge to certain properties being included in the filing. The judge is expected to rule with GGP in this one also and that sets the stage for stronger operational results through the BK process.
Here is the DIP news from this afternoon.
The Farallon group, which includes Canpartners Investments IV LLC and Delaware Street Capital Master Fund LP among others, beat out both activist investor William Ackman’s Pershing Square Capital Management LP and a third group led by Goldman Sachs Group Inc. (GS) to provide the $400 million in financial backing, according to people familiar with the talks.
General Growth outlined the new debtor-in-possession, or DIP, financing in filings in its case on Tuesday in U.S. Bankruptcy Court in the Southern District of New York.
The new Farallon pact caps nearly four weeks of back-and-forth negotiations in which General Growth first chose a proposal from Pershing, then went with Farallon’s group, then back to Pershing and finally back to Farallon. The drawn-out process resulted in several aspects of the deal shifting in favor of General Growth, including the DIP lenders requiring less collateral for their loan and the elimination of an offer of warrants convertible to company stock after the bankruptcy.
The new Farallon pact provides lenders in the DIP pact a secondary claim to cash flow at General Growth’s corporate level, behind the claims of secured lenders. Previous pacts provided the DIP lenders a senior lien on that cash flow, raising objections from General Growth’s secured lenders. Another change: The DIP lenders no longer get a second lien on General Growth assets that already have first mortgages. The DIP lenders do, however, retain a first lien on a collection of unencumbered properties.
The new pact also omits any warrants for the lenders similar to those in the initial Pershing deal, which would have granted Pershing warrants convertible to 4.9% of General Growth’s stock upon emergence from bankruptcy. Pershing already amassed a nearly 8% stake in General Growth through buying stock in the months before the bankruptcy filing. Pershing also tied up another 17% of General Growth stock by putting it in swap contracts with various investment banks.
Now, the new arrangement with the Farallon group allows for General Growth to pay off the DIP lenders by converting their loan into up to 8% of the company’s stock, depending on the company’s equity value upon emerging from bankruptcy, rather than paying in cash. The original Pershing deal had a similar provision. Farallon and some of the other lenders in its group already are General Growth creditors, holding an undisclosed amount of the company’s bonds.
The Farallon deal comes with an interest rate of Libor plus 12%, limiting the lowest-acceptable Libor rate to 1.5%. The pact has a term of two years. The exit fee is set at 3.75%, down from 4% in the Farallon group’s initial proposal.
General Growth intends to use much of the DIP financing to pay a short-term, high-interest loan that Goldman provided it in the months before its bankruptcy filing. Goldman’s failed bid to provide General Growth’s DIP financing included participation from Brookfield Asset Management Inc. (BAM), the Canadian office and retail property owner.
Disclosure (“none” means no position):Long GGWPQ, None
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Tuesday’s Links: Friedman and Rand
Greed, Ayn Rand,
– Watch and Listen:
Part 1
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Part 2
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Part 3
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Part 4
Part 5
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General Growth Files Cash Flow 8-K
General Growth Properties (GGWPQ) today filed an 8-K (below) for its estimates cash flows for 2009-2010, the estimated bankruptcy period.
A Few Notable figures:
Unrestricted cash balance end 2009= $381 million
Unrestricted cash balance end 2010= $570 million
Cash flow from operations 2009= $1.2 billion
Cash flow from operations 2010= $1.9 billion
The filing backs the claim that General Growth is not a company that cannot function on a day to day basis ie. GM (GM). It is in Chapter 11 not because it cannot pay its bills but because credit markets have frozen and it debt cannot be refinanced.
General Growth 8-K BK Cash Flow
Disclosure (“none” means no position):Long GGWPQ
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Sears Holdings Meeting Notes
Attendee notes from the recent Sears Holdings (SHLD) annual meeting.
Via Fool Boards and verified for accuracy by reader Russ who was at the meeting
I went to the Sears Holdings annual shareholders meeting on May 4th, and thought i’d share some of what i heard.
First, i will say that i was extremely impressed with Eddie Lampert and left the meeting 100% reinforced that he is one of the smartest people out there.
The meeting was about 3 hours, the first 20 minutes or so, Bruce Johnson gave a presentation on the operating businesses, talked about things like expense control and inventory reductions, and he also highlighted things i had not noticed before, such as the improving performance of comp sales relative to competitors, quarter by quarter. The number of competitors who had comp sales worse than Sears Holdings accelerated dramatically towards the end of last year and Eddie Lampert brought up the point of saying, Which is worse, negative 4% comps four quarters in a row, or flat comps for three quarters and then a single quarter of negative 25% comps, as in the case of Abercrombie.
K-Mart had 1.4 million new layaway customers last year. Bruce Johnson talked about the subsequent purchases that layaway brings as customers visit the stores every two weeks to make payments.
Bruce Johnson talked about market share, saying that Sears Holdings has 34.6% market share in appliances, which leads all competitors, up from 30% in Q3 2007. Said they are reversing years of declines in market share in the appliance category. Eddie Lampert said that while you could sell a heck of alot of $3,000 washer/dryers at $1,500… all you’d essentially be doing is “renting market share” and that they wanted to “own market share”.
Market share in other categories mentioned:
22.3% tools
14.2% home repair
21.0% power lawn and gardenThe majority of the meeting though Eddie Lampert took questions from the audience. Some interesting points and comments he made were:
Lampert wants to encourage more experimentation, even though it could mean more failures.
He noted that Sears is determined not to make any “serious mistakes” that can put you out of business, he noted ethical mistakes and serious amounts of leverage as two “serious mistakes”
He noted that he wants Sears to “grow out of the difficult operating enviornment” rather than only being defensive.
One of my favorite comments was Lampert saying “We don’t package B.S”… making reference to other company managments that claim to have ideas they are sure will work, in which they spend large amounts of capital rolling the plan out only to see it fail… after which they make an excuse as to what went wrong and then never mention it again. He told the audience that he’s not going to stand there and tell everyone he knows exactly how to fix all of Sears Holdings problems, and that he wants to “get this thing right” and they were willing to continue to try ideas such as MyGopher until they find what will work before they spend significant shareholder capital on any ideas. He also said there is nothing wrong with making a five million dollar mistake but there is something wrong with making a five hundred million dollar mistake.
On the subject of naked short selling, Lampert said he doesn’t have a problem with short selling, but he does have a problem with “selling something you don’t own, and can’t deliver”…. adding that… “it’s not a sport to destroy companies or jobs, even if you are right.”
Lampert made the comment that layaway sales were up 106% last year, to $157 million dollars.
Lampert said that “the ultimate goal is the transformation of the business”, transforming two american icons.. and he also said that “if the economic envioronment were different, we’d know better if what we are doing is working”
On the subject of inflation, Lampert said that we are probably likely to have higher inflation in the next few years, and that they were “trying to be ready for it”… He said that in certain categories inflation will help the company and in certain categories it will hurt. Higher inflation forces larger investments in working capital.
Lampert said that Sears should have no problem getting a new revolving credit line before the current one expires, saying that Sears Holdings has substantial collateral (inventory) to support one, although he did say the current four billion dollar revolver was more than necessary, and the new one will be smaller.
When asked at what point will Sears have enough cash flow to consider investing in other companies, Lampert sort of dodged the question, saying that “just because the market is valuing a stock a two dollars per share, does not mean the company will agree to sell itself at that price”.. I say he sort of dodged the question because the person asking the question (a representative of Fairholme Capital Management) seemed to be asking why Lampert didn’t use the extreme low market prices in February and March to invest Sears cash in different stocks, and Lampert responded as if the question was instead, why didn’t Sears use the low market prices to acquire whole companies.
At one point in a discussion with a shareholder, Eddie Lampert referred to himself as “a professional investor”, which i found very interesting because he could have claimed to be a merchant, or a retail guy. He also said that “At some point ESL will sell shares of Sears Holdings”, although they have not sold any since taking K-Mart out of bankruptcy.
Much of the meeting focused on retail, and Lampert does seem genuinely interested in turning around Sears Holdings, There was very little discussion on capital allocation decisions, real estate values, etc.. and no discussion on liqidation values of the company. Whenever someone would ask capital allocation question, Lampert basically dodged the question, instead talking about the retail operation…
I absolutely get the feeling that Lampert will continue to try to make the retail value of the business worth more than the liquidation value, but i also think that he will not do anything in the process that destroys shareholder value. After all, he owns over 50% of the company. I still feel that Sears is a long term runoff situation, that a majority of the cash generated will go towards reductions of debt and repurchases of shares, atleast until the point that the public float is nearly non-existent…. and I think that this will play out over many years, perhaps over a decade…. In the meantime Lampert will try different ideas and see if anything seems to work, and why shouldn’t he? Why kill a business that is generating and will continue to generate free cash flow? In the end though, I am basically indifferent as to whether or not the company gets liquidated or is turned around. Either way the end value will be significantly higher than today’s prices, or any price that Lampert ever paid for share repurchases. It will be very excited indeed to watch it play out over time.
What is most exciting is the growing share in appliances. That will bring shoppers into the stores and reinforce the value/quality proposition for the company with shoppers.
Disclosure (“none” means no position):Long SHLD
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Leucadia Meeting Notes
Hat Tip to The Inoculated Investor for posting these. Leucadia (LUK) is an eclectic mix of assets that long time managers Steinberg and Cummings make work.
2009 Leucadia Annual Meeting Notes
Disclosure (“none” means no position):
Busy day for Bill Ackman. CNBC in the morning, Target “Town Hall” Meeting at lunch, court hearings for General Growth (GGWPQ) in the afternoon and closing his Wendy’s (WEN) stake.
Disclosure (“none” means no position):Long GGWPQ, none
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Whitney Pours Ice Water on Rally
You know, she was on top of this from day one. To me, what she is saying now still does make sense.
She backs what I have been saying here.. “the government is changing the rules in the midle of the game….”
Also, “The rally was based on zero fundamental improvement”.
She also questions how fewer people working can cause an increases in economic fundamentals.
Disclosure (“none” means no position):
If the ruling goes as indicated by the judge, his is bad for bondholders, very good for General Growth and then good for shareholders as anything that strengthens the holding company is by default good for them.
Also, tomorrow a ruling is expected on the DIP financing General Growth will present to the judge. We may find out today whom they have selected.
(Dow Jones)–A final ruling is expected Wednesday on whether General Growth Properties Inc. (GGP) would be allowed to tap into the cash flow from its properties, and overturn what was believed to be a basic tenet of commercial mortgage securities.
At a hearing last Friday, the bankruptcy judge postponed the decision, but indicated he was likely to side with the company.
He pointed out investors in commercial bonds would continue to receive their interest payments, and General Growth is only looking to sweep the excess cash into a centralized account that would pay for its general expenses.
Investors and lenders had believed pools of mortgage collateral that back commercial bonds would be cocooned in these special-purpose entities, and steady cash flow to investors would be protected even when the parent company files for bankruptcy.
So when General Growth dragged 166 of its properties into the bankruptcy filing and sought to consolidate the income from these properties, more than a dozen investors and industry groups rallied to protest strongly against such a move.
The Commercial Mortgage Securities Association and the Mortgage Bankers Association filed a brief stating such a move would hurt the $1 trillion commercial mortgage market.
However, the bankruptcy judge called such statements “hyperbole.”
“I am not surprised,” said Richard Zeigler, counsel in Mayer Brown’s bankruptcy and restructuring group.
“Bankruptcy remote doesn’t mean bankruptcy proof, and that’s what investors are finding out,” he said. Zeigler isn’t representing any of the interested parties in the bankruptcy.
Disclosure (“none” means no position):