Newspapers, Blockbuster, Wrestling, Fed Ex
– Are you kidding?
– Once again about 6 months behind Netflix
– I am sure this is a question the Founding Fathers wrestled with??
– Tells Congress where to shove it
Disclosure (“none” means no position):
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It recently came to my attention that many of you were not able to, for a while, add comments to posts. Don’t know why it happened, I believe it happened about the same time I changed the layout. It has been fixed so please comment away..
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It really is the hardest thing to do.
So on Sunday March 8th I was on Fox News talking about what I felt was an upcoming rally in the stock market.
That Monday the S&P (.INX) sat at 676 and today hovers at the 800 market for a 18% gain in a dozen trading days. Great? No. Why not you say? While I expected a large rally, I did not think it would begin the following day. Because of that, names I own and was looking at adding to like GE (GE), Dow Chemical (DOW) and AutoNation (AN) have all climbed over 30% since then. The bad news is that I did not add to them then.
Do you know how hard it is to have something you wanted to buy, at an unbelievable price climb and to not have added to what you own? The near irresistible impulse is to run out an chase it higher and buy is killing me. There is also the self aggravation of NOT pulling the trigger then because you decided to wait it out just a bit longer, yes, I’m annoyed at myself.
But, I’m not buying now. Why? While the market was in my humble opinion too low at 676, there is not a real reason it should be at 800 now, this soon. The economic landscape, while not deteriorating as badly as before, is by no means improving. Recent housing numbers were not positive, unemployment still getting worse and lending still restricted.
Banks, rather than taking TARP money and helping to expand the economy has grown tired of overbearing politicians have decided it is not worth it to have it and has said they will instead pay it back. This is bad for growth.
Now, things aren’t desperate. I am not gloom and doom. I just do not think the value of US business is 18% higher today than it was 12 days a go.
So I wait. I wait for the recalibration of value I think is coming and then I will be sure the next time not to miss the lower prices.
Disclosure (“none” means no position):Long Dow, GE, AN
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This is great. Our irresponsible Congress has declared war on innocent workers trying to fix the mess created by others and in part, by Congress itself. Nothing to do with investing but tried to ignore this on the blog as long as possible. Have to say something.
Here is a good post on the current “Financial McCarthysim” currently being exhibited. Another one by Fred Wilson is here
Another interesting point. The resent legislation to tax AIG bonuses above $250k at 90%. This is a retroactive tax legislation akin to Congress deciding driving a SUV is illegal and fining everyone who currently owns one. No different.
The height or the lunacy was the admission from Congress that member voted for it even though they assumed and realized it “would not pass a Court challenge”. In other words, the succumbed to the angry mob they themselves incited. Let’s not forget, these bonuses were not a secret and Treasury Secretary Tim Geithner knew about them months ago, as did many members of Congress.
In an effort to extort those who received the bonuses to give them back, the NY AG Cuomo demanded the names of those who received one. The implied threat here was the names would be made available to a then frenzied public. One must not forget these folk were already being subjected to death threats, had armed security at the building and patrolling parking areas. This was no idle concern on their part.
Let’s look back shall we? Remember a little event called 9/11? What would have happened if the President and Congress attacked “Arabs” the way they currently are attacking “Wall St.” and “Bankers”. If we decided to pass retroactive legislation stripping Arab mosques of their tax free status as houses of worship and refund monies would that have been accepted or cheered by the public? Would the ACLU have remained silent?
We are a nation of rights and laws. The willing suspension of those for any group, no matter how distasteful it may be cannot be tolerated. Why? Someday you may be in the group targeted.
In the Federalist Papers #35, Alexander Hamilton wrote “There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy, so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue. It might be demonstrated that the most productive system of finance will always be the least burdensome.”
Yet, this is exactly what this Congress did….it is shameful.
Congress in its infinitesimal childness held hearings to publicly eviscerate those NOT RESPONSIBLE for the problems at AIG. Now, they are leaving. Who will replace them? Who will try to assure the US taxpayers gets repaid? Would anyone in their right mind go work there now?
This was a pyrrhic victory for Congress. The theologian, Reinhold Niebuhr writing of the need for coercion in the cause of justice warned that: “Moral reason must learn how to make a coercion its ally without running the risk of a Pyrrhic victory in which the ally exploits and negates the triumph”
Guess Congress did not get the memo…
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Friedman, MTM, Oil, Oil
– I do not always agree with him, but do this time
– More on the debate
– From the demand side
– Did you know oil was essentially free right now?
Disclosure (“none” means no position):
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This isn’t the good news people might think it is. So, I was going through some old news and found this (I forgot to write about it the first time).
Blockbuster Inc. (BBI) has received a boost from its former rival Mark Wattles, who purchased a 5.7% stake in the movie rental chain and said he doesn’t believe the Dallas-based company will file for bankruptcy any time soon.
Wattles, co-founder and former CEO of Hollywood Entertainment and currently the majority owner of the Ultimate Electronics chain, said in a Securities and Exchange Commission filing on Monday, March 16, that he acquired the shares for investment purposes because he believes Blockbuster “does not have a motive to reorganize under Chapter 11.”
Anyone remember Wattles last investment? Yup, now defunct Circuit City.
Mr. Wattles, principal of Wattles Capital Management LLC and the founder of video-rental chain Hollywood Entertainment, took a 6.5% stake in Circuit City, which had at the time about $12 billion in annual sales. Circuit city was eventually liquidated
Before Circuit city Mr. Wattles bought Ultimate Electronics out of bankruptcy, ran it back into bankruptcy, and the bought it out again in 2005. Today it has locations in 9 states and is private, so no word on how it is performing is easily available.
Before that Wattles was best known as the founder of Hollywood Entertainment Corp., which he sold to Movie Gallery Inc. for $1.2 billion in 2005. Good timing. The combined company? You guessed it, ended up in bankruptcy.
Now Blockbuster.
Blockbuster Inc. Chief Executive Jim Keyes recently an independent auditor’s doubts about its ability to continue as a going concern shouldn’t hamper its day-to-day operations at a time when so many other companies are having difficulty coping with the economic crisis. “Given the tightness of the credit markets these days, we are not going to be alone,” he said on a conference call. Blockbuster has spent “a lot of time” explaining its liquidity position to movie studios and various suppliers, Keyes explained.
He also that the “single biggest driver” weakening U.S. DVD rentals in the last two months been lackluster new release titles. In last year’s first quarter, new DVD titles included “Enchanted” and “I Am Legend,” while debuting releases this year have been “good but not great” in comparison, Keyes said during a recent conference call. “The good news is that we’re seeing unprecedented theatrical strength,” he added, pointing out that current box office hits like “Watchmen,” “Slumdog Millionaire” and “Paul Blart: Mall Cop” will be available on DVD in a few months, driving greater domestic DVD rentals.
What effect? Blockbuster swung to a fourth-quarter loss on a $435 million non-cash charge related to a decline in the value of its assets. The company also said three of its largest creditors have agreed to extend its revolving credit facility through Sept. 30, 2010, alleviating concerns about a debt payment that would have been due this August. The company said it lost $362.7 million, or $1.89 a share in the fourth quarter of 2008. In the same quarter a year earlier, it posted a profit of $38.1 million, or 20 cents a share. Excluding items, the company would have earned $80.4 million, or 40 cents a share, in the latest three months. Revenue fell to $1.38 billion from $1.57 billion, as the quarter included one less week than the fourth quarter of 2007.
Keyes did not comment or was not asked why Netflix (NFLX) “is kicking his ass”. Blockbuster has drifted aimlessly under Keyes from an attempt to go after Netflix through the mail, a half hearted streaming online push and now some bizarre Apple (AAPL) envy induced store concept.
I’m not sure what Wattles thinks he can do at Blockbuster. If he wanted cheap real estate he should have just picked up some of Circuit City’s locations. Blockbuster is dying…it just does not know it.
This whole thing is a bit incestuous if you remember correctly because it was Keys who offered $1 billion for Circuit City just months before it was worth, um ZERO.
If history is a guide…..it is only a matter of time before we see another “11” associated with a Wattles investment.
Disclosure (“none” means no position):none
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Not for nothing but Wilbur Ross and Berkshire’s (BRK.A) Buffett said from day one they would e willing to participate in this. It is beyond my ability to understand why it has taken so long to implement.
Disclosure (“none” means no position):
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This is a nice piece on Chanos saying them that executives at AIG (AIG) did not really know what they had on the books then. He also comments are Treasury’s new plan for “toxic assets”.
He makes the sobering point that “the only things are getting done are those with government assistance”. That is not good news as government cannot continue to make all markets.
Chanos also had an op-ed in the WSJ today:
In it he defends mark-to-market accounting but does admit some alterations to it are necessary.
Unfortunately, the FASB proposal on March 16 represents capitulation. It calls for “significant judgment” by banks in determining if a market or an asset is “inactive” and if a transaction is “distressed.” This would give banks more discretion to throw out “quotes” and use valuation alternatives, including cash-flow estimates, to determine value in illiquid markets. In other words, it allows banks to substitute their own wishful-thinking judgments of value for market prices.
The FASB is also changing the criteria used to determine impairment, giving companies more flexibility to not recognize impairments if they don’t have “the intent to sell.” Banks will only need to state that they are more likely than not to be able to hold onto an underwater asset until its price “recovers.” CFOs will also have a choice to divide impairments into “credit losses” and “other losses,” which means fewer of these charges will be counted against income. If approved, companies could start this quarter to report net income that ignores sharp declines in securities they own. The FASB is taking comments until April 1, but its vote is a fait accompli.
Obfuscating sound accounting rules by gutting MTM rules will only further reduce investors’ trust in the financial statements of all companies, causing private capital — desperately needed in securities markets — to become even scarcer. Worse, obfuscation will further erode confidence in the American economy, with dire consequences for the very financial institutions who are calling for MTM changes. If need be, temporarily relax the arbitrary levels of regulatory capital, rather than compromise the integrity of all financial statements.
Regarding mark-to-market, I do not see too many market participants backing it 100%. All those I have seen favor some modifications to it, the argument seems to rest of what or how much.
Disclosure (“none” means no position):none
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I am slowly turning from wanting to unload my Wells Fargo (WFC) position to just sitting back and keeping it.
Here is the Wells Fargo 2008 annual Report to shareholders:
Wells Fargo Annual Report
Tom Brown had some interesting thoughts on it. Here are just a few:
Management is honest. Candid admission of error in CEO letters is rare, yet right up front, Stumpf concedes, “We made some mistakes but kept our credit discipline.” Nor does Stumpf sugarcoat his outlook for the future. “If you’re a pessimist, there’s a lot for you to like about 2009,” he writes. “It will be a rough year for our economy and our industry. Consumer loans will continue under stress, chargeoffs [uncollectible debt] probably will continue to rise.” Contrast that with what you’ll read in letters from banks that lost money in 2008 (which Wells Fargo did not.) You’d never guess they’re buried under problem loans! Wells Fargo is not in denial.
The company wants to build value, not an empire. In 2008, Wells Fargo doubled its assets with the acquisition of Wachovia. But in discussing the deal, Stumpf emphasizes that Wells didn’t do it simply to bulk up. “Size alone means nothing to us,” he writes. Then Stumpf repeats a mantra coined more than a decade ago by his predecessor, Dick Kovacevich: “You don’t get better by getting bigger, you get bigger by getting better”. Somebody please tell that to AIG, Bank of America, and Citigroup!Management is truly focused on its teammates. In most shareholder letters, CEOs feel the need to buck up the rank and file with some gratuitous comment that “our employees are our greatest asset” or “our people are our greatest competitive strength.” They don’t mean a word of it, of course. Wells Fargo does. The company has long believed it can differentiate itself with superior employee performance; the record of the last 20 years shows that it can—and has. Stumpf writes, “we call them team members (an asset in which to invest), not employees (an expense to be managed).” At Wells, that investment has paid off. According to survey data gathered by Gallup, Wells Fargo’s community banking group has 8.7 team members who say they’re engaged in their work for each team member that’s actively disengaged. This compares with 2.5 engaged-to-disengaged team members five years ago, and a national average of 1.5 to 1. I believe the deep commitment of Wells’s employees is a key factor in the company’s long-term success.
For my money Wells Fargo’s Chairman Richard Kovacevich had the best line about the current crisis when he said last year, “I’ll never understand why bankers always seem to invent new ways to lose money when the old ones worked just fine”.
Let’s not forget Wells Fargo fought tooth and nail NOT to take TARP funds but was strong armed into it by then Treasury secretary Paulson. Now, those may say, “give it back”. I am sure Wells will repay it as soon as they can but, if the gov’t is giving all your competitors (JP Morgan (JPM), Citi (C), Bank of America (BAC))a financial boost, don’t you risk losing some competitive advantage by declining it in an uncertain market? I believe you do.
This is especially true when you consider Paulson made it clear to Kovacevich that should he decline it then and then need it later, it would a most unpleasant transaction for shareholders. In the end, Wells took the money.
Time to sit back now and watch to see how the Wachovia merger is digested. There is too much uncertainty out there politically (both good and bad)to make a concrete decision.
Disclosure (“none” means no position):Long WFC, none
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Katrina, Ross, Banks, Pay
– The current mess is Obama’s Katrina
– Wilbur Ross is the best at this stuff
– The bank rally?
– This is a huge mistake
Disclosure (“none” means no position):
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Let’s put this the nicest way possible, it now is obvious drug testing is not happening at UBS (UBS).
First the news:
UBS bank downgraded the Fort Lauderdale-based company’s stock to “sell” from “neutral.”
An analyst report by the Zurich, Switzerland-based financial services company said: “We believe that AutoNation continues to face liquidity concerns, especially in the third quarter of 2009, when its debt covenant thresholds change.”
UBS analyst Colin Langan wrote in his report that “AutoNation is currently trading at 19 times our revised 2009 earnings per share estimate, above its historic average, despite its limited liquidity.”
The UBS downgrade came one day after AutoNation announced a new program to cover customer auto loan payments for six months if the customer suffers a layoff or involuntary job loss.
AutoNation (NYSE: AN) said Wednesday it will cover customer payments for six months in the event of job loss. The program starts Thursday in 33 South Florida dealerships. It’s similar to one announced by Hyundai last year, in which the Korean automaker allows people to return cars if they lose their jobs.
Customers must have been employed for at least 30 days and apply for unemployment benefits. The benefit does not start until the car has been owned for three months, according to an advertisement.
What does it all mean?
Well, for UBS to be remotely accurate, annual vehicle sales would have to:
1- Drop below the 9 million annual units they are now
2- AutoNation’s cost cutting program that is still ongoing would have to come to a complete stop
3- The “job guarantee” program referenced above, the one which Hyundi has called a “home run” would have to be a flop (Hyundai has seen sales fall by the lowest amount, due to the program)
4- Fewer dealerships would close, thereby eliminating the market share gains AutoNation is currently seeing
5- The recently enacted TALF would have no effect of the industry, despite that fact it already has.
Let’s not forget, Mr. Langen is predicting the US auto market out to Q3 this year. It just is not possible to do that at this point with any degree of accuracy. There are so many material events currently unfolding designed to free up the credit necessary for the market to grow that making an assumption about what will happen almost 30 weeks from now is just irresponsible.
There is significant postponed demand right now. A friend of mine who sells cars told me this weekend that loans that were a blanket “no” a month ago are now getting a serious look and more are being approved. The now 6 month backlog of buyers out there is starting to show signs of letting loose.
Let’s look at UBS’s history with AutoNation
They initiated it with a “neutral” in Jan 2008 ad then as the economy and credit markets fell off a cliff they maintained the “neutral”. As consumer credit totally froze in Q4 2008 and up through Jan. 2009, UBS was still “neutral”. But now, that the program AutoNation CEO Mike Jackson called for last year to free up consumer credit (TALF) has just been enacted, now that we are actually seeing signs credit flowing and previously denied consumers getting auto loans, now it is time to jump ship.
Time to jump ship for a reason that is unprovable and at best a wild guess. This just typical. It gets even more bizarre when you consider AutoNation itself is not giving guidance. They have said that the situation is too fluid and changing daily, therefore any look down the road can easily be inaccurate. In other words, the guys who are on the inside and have all the information aren’t comfortable looking down the road. Perhaps next time Mr. Langen next time ought to actually go to AutoNation, take a look around and talk to executives, it would improve the accuracy of his projections…
Remeber all the “buy calls and $900 – $1000 price targets from analysts in Google (GOOG) when ut was at $700???? today? $330.
You should give this the the same treatment…..ignore it.
Disclosure (“none” means no position):Long AN, none
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AIG, GE, Oil, Inflation
– Sues the government
– Inside the black box
– This is a real problem down the road people
– With the printing presses running full speed, you cannot discount this
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The similarities are striking…Bill Ackman talks about it in the video at the end.
Why did Amerco file for bankruptcy?
Amerco took the action in 2003 to restructure its debt, officials said, adding that since the its assets are greater than its debt, it intends to repay its creditors in full pursuant to a full-value plan of reorganization. Amerco obtained a commitment from Wells Fargo Foothill (WFC) for a $300 million debtor-in-possession facility, officials said, and for a $650 million bankruptcy emergence facility.
On Oct. 15, 2002, Amerco defaulted on a $100 million principal payment owed to holders of 1997 asset-backed notes. That default triggered defaults on other debt outstanding. Until the filing, the company had been in negotiations with creditors about restructuring its debt.
“Business fundamentals at the company remain strong,” said Joe Shoen, Amerco’s chairman at the time. “Amerco has taken a positive step in choosing Chapter 11 to facilitate the restructuring of its debt. We are getting our financial house in order.”
Amerco’sJoint Plan of reorganization filed Oct. 2003
Debtors disclosure statement under the Joint plan
Here is the part is this bankruptcy that GGP shareholders need pay attention to
Specifically, the Debtors believe that their businesses and assets have significant going concern value that would not be realized in a liquidation, either in whole or in substantial part. According to the valuation analysis and the liquidation analysis prepared by management with the assistance of the Debtors’ restructuring advisors, Alvarez & Marsal, Inc. (“A&M”), and the other analyses prepared by the Debtors with the assistance of A&M, the Debtors believe that the value of the Estates of the Debtors is significantly greater in the proposed reorganization than in a liquidation.
So, as debtholders were made whole, through restructuring of the debt, this is what was propsed for the common and prefered stock
Existing Common Stock means shares of common stock, par value $0.25 per
share, of AMERCO that are authorized, issued and outstanding prior to the Effective Date. Other Interests means the preferred share purchase rights issued by AMERCO pursuant to that certain stock-holder rights plan adopted by the Board of Directors of AMERCO in July 1998, with each such right entitling its holder to purchase from AMERCO one one-hundredth of a share of Series C Junior Participation Preferred Stock (Series C), no par value per share of AMERCO, at a price of one one-hundredth (1/100th) of a share of Series C, subject to adjustment. The Plan does not alter or otherwise impair the Allowed Existing Common Stock and Other Interests.
Here was the thought process behind the debtors plan:
Shortly after filing for relief under Chapter 11 of the Bankruptcy Code, the Debtors focused on the formulation of a plan of reorganization that would allow them to quickly emerge from Chapter 11 and preserve their value as a going concern. The Debtors recognize that in the competitive arena in which they operate, a lengthy and uncertain Chapter 11 case may detrimentally affect the confidence in the Debtors by their respective vendors and employees, impair their financial condition, and negatively impact the prospects for a successful reorganization. The terms of the Plan are based upon, among other things, the Debtors’ assessment of their ability to successfully restructure their capitalization, make the distributions contemplated under the Plan, and pay their continuing obligations in the ordinary course of the Reorganized Debtors’ business.
Also, like GGP, Amerco had a very higher percentage of insider ownership of the common stock.
Well, you ask? What happened?
AMERCO today announced that all of its creditor classes have approved the Company’s Plan of Reorganization. Creditors under the Plan will receive a combination of cash and new notes in AMERCO.
“Now that we have a 100 percent consensual agreement with all creditor groups, we are poised to emerge from Chapter 11,” stated Joe Shoen, chairman of AMERCO. “We are gratified that our creditors have recognized that our Plan is in the best interest of all of the company’s constituencies.”
According to Richard Williamson, Regional Managing Director at Alvarez & Marsal, Inc., “AMERCO is positioned to accomplish one the most successful restructurings in recent history. On the effective date of the Company’s Plan of Reorganization, AMERCO will have restructured, on a consensual basis, over $1.2 billion in debt and lease obligations with no dilution to equity holders.” Alvarez and Marsal, Inc. has served as the exclusive financial advisor to AMERCO since May 2003, with respect to its negotiations with creditors and in the raising of exit financing and its capital restructuring.
A Confirmation Hearing is scheduled to be held by the U.S. Bankruptcy Court in Reno, Nevada beginning on February 2, 2004. Subject to confirmation by the Court and the completion of all necessary documentation, the Plan should become effective and be funded shortly thereafter.
The plans were approved and common shareholders were let whole.
This is part of the blueprint Ackman is looking at in my opinion. Were is not for the credit markets, GGP would have refinanced the debt and because of its strong operations, the company itself would be functioning.
Because of the similarities to Amerco, GGP can make the same arguments for the debt restructuring and the survival of the equity.
Now, a warning. I know people have been following into this investment. If you do, you must be prepared to lose all of it. There is no guarantee of the above outcome. Buying this stock now is essentially buying a call option on the company’s survival. It is hits, you win big, very big. If not, what you invested is worth nothing. I believe the above scenario plays out, I am also not going to be broke should it not.
Disclosure (“none” means no position):Long GGP
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Energy, Oil
– If government won’t do it, entrepreneurs will
– Chu’s got it all wrong
–
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NetFlix, Atlas Shrugged, Reader, GE
– What does it cost to stream a movie?
– Not just a political novel
– Sony and Google take on Amazon
– What happened?
Disclosure (“none” means no position):
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