Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Weekend Reading
What ??!!?, Polls, The Week,
– So a week ago we were on the precoice of depression , now this?
– Lower than “W”
– The Week that was
–
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Saturday Reading- Dunamis Captial Letter
Here is another shareholder letter from a manager that was up last year. Year end letter from Dunamis Capital, the fund run by Jason Kaspar.
Dunamis 2008 4th Quarter Letter
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Sears Gains Appliance Market Share
This is great news for Sears Holdings (SHLD) shareholders
By Mary Ellen Lloyd Of DOW JONES NEWSWIRES
Sears Holdings Corp. (SHLD) increased its share of the U.S. retail market for major appliances in 2008 – its first increase after years of declines – as new marketing programs and price discounts helped sales.
The department-store holding company plans to build on its momentum in 2009 through a new rebate-finder program, consumer credit offers and an ongoing rollout of appliances to more stores in its Kmart chain, executives said in a recent interview with Dow Jones Newswires.
“We’re not doing any victory laps yet, but we’re encouraged,” said Doug Moore, Sears’ president of home appliances.
Indeed, Sears isn’t completely out of the woods. Weak appliance sales contributed to an 11% drop in comparable-store sales at the entire Sears chain in the fourth quarter. Even so, Sears picked up a larger share of the overall appliance market.
Moore wouldn’t share dollar or unit sales but said third-party research shows Sears maintained market share in the first quarter of 2008, then gained in each of the remaining quarters to capture a full-year increase.
With its top-ranked Kenmore brand, Sears has long been the top U.S. seller of refrigerators, washers and other major appliances. Lowe’s Cos. (LOW) in the late 1990s and Home Depot Inc. (HD) around 2001 began pushing harder to take market share, expanding selling space and adding brands.
Sears saw its market share decline from about 40% in 2001 to 29.5% in 2007, according to trade magazine This Week in Consumer Electronics, in conjunction with market research firm The Stevenson Co. of Louisville, Ky.
Second-ranked Lowe’s had 15.3% of the $28.1 billion retail appliance market, Home Depot ranked third with 13.8%, and Best Buy Inc. (BBY) was next with 6.8%.
TWICE typically updates appliance rankings in June. Bob Tancula, Stevenson’s vice president of research, declined to release 2008 numbers, citing the confidentiality of paying clients such as Sears. But he confirmed the company had stemmed market-share losses.
“Sears is still the No. 1 by a long shot,” he said.
The gains didn’t come from Lowe’s or Home Depot but were likely taken from smaller local or regional players. “Home Depot and Lowe’s market share in 2008 did not drop off,” Tancula said.
Category Hit By Economy, Discounting
Like automobiles and other big-ticket categories, major home appliance sales have been hit hard by the weakening U.S. economy, tighter credit and the collapse of the housing market. Industrywide unit shipments in the U.S. fell 8.9% to 68.2 million units in 2008, according to the Association of Home
Appliance Manufacturers.
And pricing has been very competitive. Sears regularly offered 15% to 20% off
appliances around the holidays. Home Depot gave up appliance sales rather than sacrifice profit margins in the latest quarter, said Chief Financial Officer Carol Tome. “It was a highly promoted category and we elected not to promote it,” she said.Lowe’s spokeswoman Chris Ahearn said the retailer’s fourth-quarter unit market share was 18.1%, up 1.4 percentage points from a year earlier. But matching some of the promotions at Sears and others hurt gross margins. Moore, the Sears executive, said it’s taking share “in a financially responsible way.”
“We are not abandoning principles of profitability in how we go to market,” he
said, declining to provide specifics.Customers have responded favorably to Sears’ “Blue Appliance Crew” marketing
campaign launched last fall, Moore said. As part of that, Sears’ blue-shirted
employees use Web kiosks to show customers other retailers’ prices on the spot,
potentially removing one obstacle to completing a sale.The campaign also touts Sears’ delivery, variety of brands and financing offers. Sears has been able to offer no-payments and no-interest financing for 12 months on major purchases more frequently than some of its competitors, said Kevin Brown, chief marketing officer for appliances.
Sears’ competitors and some analysts don’t expect appliance discounting to accelerate. Moore said the company plans to capture more business by touting its repair services and by expanding retail space devoted to the category through Sears Home Appliance Showrooms and other newer formats. It also expects to add appliances to more of its 1,400 Kmart stores after putting them in about 286 stores in recent years.
New customer service programs could help, too. For example, Sears recently launched a rebate-finder service. Store employees can determine whether a specific appliance qualifies for a state, federal or utility company rebate through the “Energy Star” program, and they can walk customers through applying for the rebate when they make a purchase.
Sears is working to expand the program to manufacturers’ rebates.
Such conveniences may help close the sale, but the big issue facing Sears and others will be folks like Nick McCoy, who recently waited to replace his washing machine “until the puddle got too big to live with.”
McCoy, who is a senior consultant following home goods for market-research firm Retail Forward, said price and having the key brands are the key issues for most customers these days.
“It’s going to continue to be a battle,” he said.
This will not get much press because its effect now is negligible. This is the same story (too a slightly lesser degree) as Lampert’s other investment, AutoNation (AN). Picking up market share gains in downturns. When the appliance market turns, and like auto’s it will (they break and wear out) Sear’s will see out-sized gains from the increases.
For a retailer there are plenty of ancillary gains. People in the store shopping for appliances will spend money while there on other items increasing overall sales.
Here is the best part. What this does is begin to put Sears higher on the list in people’s minds as a place they can stretch their dollars. We are clearly entering a prolonged period in which people are thinking hard about every dollar they spend. We can see this easily in results at Wal-Mart(WMT) as perceived value drives customer behavior.
The fact that a customer can go to Sears, find and appliance and then be sure they are paying the lowest price for it saves a huge amount of time AND assures the customer they have made a wise buying decision. There is a great long term value to this.
Disclosure (“none” means no position):Long SHLD
Visit the ValuePlays Bookstore for Great Investing Books
Categories
SEC Report on Short Selling
To then SEC Commissioner Chris Cox dates 12/16/2008.
Analysis of Short Selling Activity
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Uptick Rule Test Report to SEC
This is the report given to SEC Christopher cox on 12/17/2008 regarding the “uptick rule”.
The “uptick rule” was designed to slow down short selling in stocks. Short selling is in essence selling a stock you do not own in the hope it will fall in price and you can buy it back later at a cheaper price, pocketing the difference.
The uptick rule was implemented to slow down the effect of large amounts of short selling. It requires short sellers to wait for a price rise essentially before selling shares. It is designed to stop short sellers from unbridled selling as the price drops and causing a cascading effect in the stock price.
It was removed last year and those who want it back say its removal is partly responsible for the collapse in the market.
Here is the report:
Analysis of Short Sale Price Test, Uptick Rule
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Six Flags About To Finally Surrender
Hard to believe its been a year and a half since I first wrote about Six flags (SIX), “As for the stock? Don’t touch it”.
Six Flags Inc., one of the nation’s largest amusement-park companies, has hired bankruptcy counsel and financial advisers as it fights to avoid a bankruptcy filing amid a mountain of debt.
The company, which has 120 roller coasters and more than 25 million visitors a year, is trying to negotiate with creditors so it can avoid seeking protection under Chapter 11 of the U.S. Bankruptcy Code. But, according to a securities filing, it “may be compelled to seek an in-court solution in the form of a prepackaged or prearranged filing.”
“Our creditors are very supportive, but obviously there are issues we need to address,” said Six Flags Chief Financial Officer Jeff Speed in an interview.
“We are trying to accomplish something on a consensual basis,” added Mr. Speed, who confirmed the hiring of the advisers. “That is always preferred, but I can’t speculate on what the ultimate resolution will be.”
A bankruptcy filing would likely wipe out the ownership stake of Washington Redskins owner Daniel Snyder, who took control of Six Flags in a public and contentious proxy fight in late 2005 and then brought in his own management team.
“Stockholders would have been better off hiding their money under a mattress” than investing in the company under the prior management, Mr. Snyder wrote in a letter to Six Flag shareholders in October 2005, during the proxy battle. At the time, Six Flags shares were trading at about $7.25. Thursday, they closed at 19 cents on the New York Stock Exchange.
Pot, meet kettle.
It is an interesting timeline of events as I go back through the old posts. You can see some them in order here, here, here, here and finally here.
Now, the story of Six Flags is not one of a bad economy, although it is certainly a factor. The main story is a poorly run operation saddled with far too much debt and a lousy consumer experience.
Teenagers love the place, just ask any of them. It is designed for them from the rides to the entertainment to the layout. But, teenagers are not where the money is. It is families that are. Six Flags is quite possibly the least family friendly place I have ever been too. That is their downfall.
Since my boys were born we have done Disney (DIS), Hershey Park (HSY), Sesame Place, Canobie Lake (NH), Storyland (NH) and Santa’s Village (NH). All were incalculably better experiences than Six Flags. Talking to other folks, this is not an uncommon experience.
Six Flags will go under, of that there has never been a doubt, I wish the next owners better luck. They have great properties, they just need better people to run them.
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Historical Look at S&P Book Value
According to everything I am finding, we are way oversold long term. Now, that does not mean run out and blindly get yourself fully invested. We can also stay this was for a very long time. It does mean for the patient investor the are bargains out there..big ones…
Take a look at this chart (click chart for larger version):
“Davidson” submits:
The value to using this is to know that the average ROE for the SP500 is ~14% with about 57% of earnings paid out in Dividends and ~43% being reinvested. This provides for a Book Value growth rate of ~6% which has been remarkably consistent and in line with the SP500 earning’s chart showing the remarkable consistency of our economy. Knowledge of this consistency becomes a tool for the value player.
What you do is to convert the P/BV into a ROE to the investor. On 3/6/2009 the P/BV was 1.2 which converts to 14%/1.2 = ~11.7% return for investors who buy the SP500. Then, what must be done is compare this to the Wicksell Rate which is 5.4% today and falling.
“Wicksell Rate” explained here
You can look at this discrepancy as Buffett would and simply say that you are buying an 11.7% yield in a long term 5%-7% SP500 return range. The current SP500 provides sizable upside if inflation remains low. The lower the inflation the higher the SP500 valuation will be in the future during normal times.
For example:
If inflation is 1.8% the Wicksell Rate will be ~5% and the SP500 will reach about 20 P/E. If inflation drops to 1% then the Wicksell Rate becomes ~4.2% and the SP500 could reach ~25 P/E. You can also have inflation move in the opposite direction and should it move to 3% the Wicksell Rate will be ~ 6.2% and SP500 would price near ~16 P/E.
What permits an investor to enter the market during times of distress such as these is the knowledge of economic history and the trust that the growth of our economy is inherent within the free nature of our society and will continue in the future.
This is one instance in which knowledgeable investors expect history to repeat itself.
Categories
Borders Seeks Reverse Stock Split
This only is am attempt to get Borders (BGP) share price over $1 to avoid delisting on NYSE.
Borders Group Inc. plans to ask its shareholders to approve a reverse stock split at its annual meeting in May, the Ann Arbor-based bookseller said today.
A reverse stock split would combine multiple shares of Borders stock into one in an effort to increase the value of the shares.
Borders stock is currently trading around 50 cents a share. The company faces being delisted by the New York Stock Exchange this summer if it doesn’t get its stock price above $1 a share. A reverse stock split is one way to do that.
In a statement, Borders said it still “reserves the right not to proceed with a reverse stock split if it is not in the best interests of the company.”
Borders will hold its annual shareholders meeting on May 21 at the Ann Arbor Marriott Ypsilanti at Eagle Crest.
Just be aware of it should you see a dramatic price change just this summer for non-results related reasons.
Here is the math, the stock is at $.50 , you have 200 shares and they do a 2 for 1 reverse split. After the split the stock price will now be $1 a share but your number of shares are reduced to 100. No value change in your holdings.
Disclosure (“none” means no position):Long BGP
Visit the ValuePlays Bookstore for Great Investing Books
Categories
Friday’s Links
Thanks you, Google, Misery, Bank Myth’s, James Carville
– Thank you for the mentions. Still say if you are not reading Abnormal daily you are missing out.
– Screwing shareholders
– Hmmmmm
– So, how is Carville wanting Bush to “fail” any different than Rush v Obama?
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
Did you ever hear the saying “when a pendulum swings too far one way, it then swings too far the other”?. This is your textbook example. Tonight Fitch has downgraded Berkshire Hathaway (BRK.A)
Below is the action from Fitch (hat tip to Zero Hedge for finding it).
BUT, to find out what this is really all about one need only read one paragraph in the whole document (click image to open larger).
As you read the document, the reasoning is …bizarre, for lack of a better word.
Berkshire was downgraded because:
1- There can be no AAA rated “holdings companies of financial oriented enterprises”.
2- Warren Buffett is old (they actually take pain to say “this is not age related”) Well, what else could it be? Berkshire’s corporate structure has not changed in 44 years and in reality, Berkshire now has a succession plan in place that was not there 4 years ago so the “risk” for anything other than age is less. But, Fitch says having the arguably the single best capital allocator in history at the helm is “too risky”. They would apparently prefer two mediocre ones?
3- Actually, there is no #3, just those two….
Here is what it is NOT due to:
1- Equity Index Puts
2- Derivative Contracts
3- Equity investment losses in 2008
4- Operating businesses
5- Insurance results
In other words, some legitimate reasons one would think a downgrade might be warranted.
After years of lumping BBB- mortgages together and then telling people they are now AAA and selling them as such only to watch them behave like, well CCC loans, Fitch is now telling us no AAA will be given to Co’s. with “financial oriented enterprises”. Let’s not forget, Fitch at one time told us AIG (AIG) was a AAA company. So, you know, we should take what they say “to the bank”.
For those who do not know about AIG, they are this cute little company that almost brought down the entire US financial system last year. It’s bailout will eventually cost US taxpayers well in excess of $100 billion. But, hey, they had a much younger guy running things over there so AAA was entirely warranted.
It matters not that Berkshire maintains at .25 debt to equity. It matters not that the roughly $9 billion in notes downgraded Warren could write a check for tomorrow and pay off without any impairment in Berkshire operations. It matter not also that Berkshire’s insurance operation generate $35 billion of float for Warren to invest for free……free….
Nope, we now have blanket rules at Fitch..
This decision flies in the face of all reason, logic and is not in the least based on operating results at Berkshire. It makes no sense…
Well, given what the ratings agencies have done for the last decade, I guess them making yet another decision that undermines the investing community’s faith in anything they say does make perfect sense…
BRK Downgrade
BRK Downgrade
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Categories
GE Ratings Cut: Is IT A Big Deal??
So, just in case you have been in a cave this am, GE (GE) had it’s credit rating cut.
General Electric lost its coveted triple-A credit rating from Standard and Poor’s on Thursday, as the credit-rating agency downgraded G.E’s long-term debt one notch, to AA+. GE had held the rating for 50 years
S&P said the outlook for G.E. was stable, meaning that further downgrades to its debt rating are unlikely in the next six months to two years.
The S&P analyst who wrote the report says:
GE issued the following statement which said in part,”Standard & Poor’s (S&P) today announced a single-notch downgrade of General Electric Company’s and General Electric Capital Corporation’s (GECC) long-term ratings from AAA to AA+, with a “stable” outlook. The ratings downgrade does not affect GE’s and GECC’s short-term funding ratings of A-1+, which was affirmed by S&P.
The action follows a thorough review of GE’s portfolio by S&P. GECC is one of the only financial services companies in the world with a rating as high as AA+. S&P defines a company with this rating as having a “very strong capacity to meet its financial commitments.” Also, S&P’s “stable” outlook means the rating is unlikely to change in the next six months to two years. GE does not anticipate any significant operational or funding impacts from this change.”
So, what to think. More important than the cuts is the “stable” rating. This downgrade is more bark than bite. There is no material change to operations from it and there is zero effect on its short term borrowing.
Just a week ago with shares at $6 I pondered picking some up but was waiting for a bit more clarity before doing so. It is looking like sitting on my hands may have been a mistake. Shares are up a cool 50% since then. Now, I have not lost any money (in fact my existing GE holdings are enjoying the ride) but have not picked any additional up either.
What to do, what to do, what to do. I resist the urge to buy anything after a 50% run and a 10% market rally, both of what we have just had. We will settle a bit and big run are almost always followed by pullbacks and then I will pick up more. I don’t think I will ever get the $6 price a gain but I think I’ll do much better than then near $10 today.
GE is still a great long term play, I’m just holding out for an even better price
Here are more thoughts on it:
Disclosure (“none” means no position):Long GE
Visit the ValuePlays Bookstore for Great Investing Books
Categories
JP Morgan’s Jamie Dimon (video)
JP Morgan’s (JPM) CEO talks about banking, mark-to-market accounting, compensation and regulation.
The speech:
Dimon is right when he talks about mark-to-market accounting. It is a good idea taken to the extreme and that always ends up being a bad idea. It’s widespread use for all assets type will (has) lead to insane valuation volatility. That leads to people like Berkshire’s (BRK.A) Warren Buffett liking it due to the “opportunity it presents us”. Meaning, mark-to-market produces the extreme pricing inefficiency Buffett enjoys so much.
That cannot be the goal of the system of any accounting methodology. It ought to seek to find the true value of the asset, not simply discount it to whatever the lowest seller will let something go for in times of distress. It, in its essence, is lazy accounting.
Q&A
Disclosure (“none” means no position):none
Visit the ValuePlays Bookstore for Great Investing Books
Categories
How Much Bailout Money Do I Deserve??
Now if I could just find the application, I’ll split the difference betwen the two amounts…don’t want to be greedy.
ValuePlays deserves:
My Twitter Feed Deserves..
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books
This is a great read and when you consider the fund was UP over 60% last year, well worth the time looking into it.
The outlook for 2009 starts on page 7. Please read it…..
Disclosure (“none” means no position):
Visit the ValuePlays Bookstore for Great Investing Books