Berkowitz, Coulter, Oil, Do a Good Deed,
– “Prices are as attractive as I have ever seen“
– Sorry but Ann is funny…
Watch CBS Videos Online
– You must read Gregor
– Help out
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“There was certainly no pay-to-play involved, because I don’t have no money,”
Roland Burris on his Senate nomination (WSJ Page 1 article)
hmmm…interesting logic. Also, can’t he at least use proper english? Seems like he will fit in well with everyone else in the Senate.
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This is a follow up to previous interviews… View them here and here
We have gone from trying to push them away in Q1, to begging for their money in Q2, to them just ignoring the rest of the world on Q3. Funny how events unfold…
Q3 Highlights:
Monitor Group Research Reveals Sovereign Wealth Funds
Alter Investment Strategies during Worsening Global Financial Crisis, Funds Focus on Joint Ventures and Home Market Investments
Cambridge, Mass. – December 17 – In Q3 of 2008, as the global financial crisis continued to worsen, SWFs sought to limit their exposure to the riskiness of OECD markets. At the same time these funds sought to put more capital to work in their domestic economies which were becoming increasingly strained. These developments are highlighted by Monitor Group, one of the world’s leading advisory and consulting firms in its July-September 2008 quarterly analysis of global SWF investments.
The latest Monitor Group analysis is a quarterly update to its June 2008 report: “Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.” Key findings of the latest analysis include:
§ SWF recent behavior shows a marked shift toward domestic and emerging markets deals. 46 percent of reported deals in Q3 were domestic transactions, the highest percentage since 2003. Also, 54 percent of Q2 and Q3 deals by value ($23 billion out of $42 billion) were in emerging markets, the highest share of total deal value since 2005
§ Investment in OECD countries has declined sharply during 2008, from $37 billion in Q1 to $9 billion in Q2 and $8 billion in Q3. In Q3, North American targets were involved in 7 SWF deals totaling $2.4 billion. In contrast, there were 7 North American deals totaling $23 billion during Q1 2008.
§ Investment in financial sector targets has fallen off significantly since Q1; real estate investment, which spiked up in Q2, also dropped sharply in Q3. Financials comprised $43.4 billion of deal value in Q1, compared to $4 billion each in Q2 and Q3. Real Estate deals were $3.2 billion in Q3 (16 percent of the total), compared to $13.7 billion (52 percent) in Q2 2008.
§ SWFs from the MENA region were the most active in Q3, carrying out some 90 percent of the deals by value. Asian SWFs were much less active in Q3 2008 than in previous quarters.
§ In Q3, funds in the Monitor SWF Transaction Database executed 46 deals totaling $15.4 billion. This is a decline from $58.3 billion in Q1, and $26.5 billion in Q2, although the total number of deals per quarter was similar in all three quarters.
I spoke to Drosten Fisher today, a principal with the international strategy consultancy Monitor Group. His focus is serving government and commercial clients in the areas of economic competitiveness, national security and international finance. A Middle East specialist, he speaks Arabic and has lived and worked in the region. He is a co-author of a recent Monitor report into sovereign wealth fund investment and is a regular speaker and commentator on Middle Eastern investment, politics and business. Educated at Oxford, LSE, and Georgetown, Drosten is a member of the Arab Bankers Association of North America.
He feels that SWF’s are going to be very selective going forward, especially in the financial services area when investing. Domestic pressures, both from the fall of oil and the falling trades surpluses are forcing SWF’s to focus internally in their investment choices. This paradigm does not show any reversal until the global economy, especially the US (#1 trade partner) improves. Further, continued weakness in oil prices will depress foreign investment from SWF’s indefinitely.
Here is the Full Report:
Monitor Group SWF Q3 Report
Like I said repeatedly, I don’t think Kuwait thought their decision to cancel the Dow Chemical (DOW) deal all the way through and are only now beginning to recognize the damage they have done to themselves.
MP Jamaan Al-Harbash on Tuesday asked his colleagues to conduct a thorough investigation on the Dow Chemical project, especially after the company announced its plan to take legal action against the state-owned Kuwaiti company which, sources say, might be asked to pay a fine of $2.5 billion for pulling out of the deal. Al-Harbash also urged the MPs to look into allegations that some people have earned commissions amounting to $750 million from the deal, conflict of interests, and unfair penalty clause. He also stressed the importance of determining the actual reason behind the decision of the Supreme Petroleum Council (SPC) to sign the deal only to withdraw from it later.
Proposing the formation of an investigative committee to look into the alleged violations, Al-Harbash stated “we have to find the truth to take the right decision on the issue. We must identify the people behind the violations and hold them liable for their acts as Kuwait has now become the laughing stock of the whole world due to this deal.”
No kidding…..
As for proof Kuwait still does not get it, Reuter reported yesterday,
“The state of Kuwait has undertaken all necessary measures to counter the case Dow Chemical is pursuing against KPC for not concluding a deal by Petrochemicals Industries Co with Dow,” al-Watan quoted Commerce & Industry Minister Ahmad Baqer as saying.
Baqer did not elaborate.
Several Kuwaiti officials have told Reuters that under the agreement Dow would need a court ruling proving that Kuwait had violated the deal to qualify for a break fee.
Dow is not suing for a “breakup fee” but for damages due to breach of contract as CEO Andrew Liveris stated several times over the last two days. The two are very different things. Dow only needs to prove monetary damages due to the Kuwait action (will be easy enough) to be awarded a settlement. Although I think the real reason for the suit is to force the deal.
Disclosure (“none” means no position):Long DOW
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Given what is happening in the retail universe right now, this is an outstanding report from Sears (SHLD).
HOFFMAN ESTATES, Ill., Jan. 8 /PRNewswire-FirstCall/ — Sears Holdings Corporation (the “Company”, “we”, “us”, or “our”) (Nasdaq: SHLD) today announced domestic comparable store sales for the five-week (“December”), quarter-to-date (“QTD”) and year-to-date (“YTD”) periods ended January 3, 2009 for its Kmart and Sears stores as follows:
Kmart’s December comparable store sales benefited from a year over year increase in sales made through our layaway program. Sears Domestic December comparable store sales reflect reduced sales across most hardlines and apparel categories. We believe that comparable store sales were affected by unfavorable economic conditions, including the weak housing market and consumer credit issues.
Gross margin rates for the quarter-to-date period improved slightly from last year as higher margin rates at Kmart were somewhat offset by lower margin rates at Sears Domestic. We currently expect that net income for the quarter ending January 31, 2009 will be between $300 million and
$380 million, or between $2.44 and $3.09 per fully diluted share. Our expectation of fourth quarter net income and earnings per share excludes the potential impact, if any, related to store closings, restructuring activities including severance, mark-to-market gains and losses on hedge transactions executed by Sears Canada and impairment of goodwill and other intangible assets as prescribed in Statement of Financial Accounting Standards No. 142. In the fourth quarter of the prior year, the Company reported net income of $426 million, or $3.17 per fully diluted share.For the full year ending January 31, 2009, the Company expects net income to be between $163 million and $243 million, or between $1.27 and $1.90 per fully diluted share, which also excludes the potential fourth quarter impact, if any, related to store closings, restructuring activities including severance, mark-to-market gains and losses on hedge transactions executed by Sears Canada and impairment of goodwill and other intangible assets as prescribed in Statement of Financial Accounting Standards No. 142.
During the month of December 2008, we repaid all borrowings under our revolving credit facility as working capital needs declined as expected (although we do expect to borrow under the revolver again in January 2009 due to the seasonal increase in working capital). We currently expect to end the fiscal year with approximately $1.3 billion in cash and cash equivalents (of which approximately $600 million will be domestic and $740 million will be Sears Canada). The expected cash and cash equivalents balance indicated does not give effect to any share repurchase activity after January 7, 2009. In addition, we currently expect to end the fiscal
year with approximately $8.5 billion of domestic inventory, down from $9.1 billion last year, despite the addition of approximately $135 million of Kmart footwear inventory. Kmart began operating its footwear department on January 1, 2009. Prior to that time, Kmart’s footwear department was operated as a licensed business by another party.Also during the fourth quarter, we repurchased 2.9 million common shares at a total cost of $119 million (or $40.82 per share) under our share repurchase program. As of January 7, 2009 we had remaining authorization to repurchase $506 million of common shares under the previously approved programs.
It is looking like Sears’ decision to be first in launching their layaway program was a real winner with consumers and a coup for the company. Also, how happy are shareholder there is still $1.3 billion in the bank and the debt repaid? With the destruction of balance sheets happening all over retail, Sears’ is holding strong, very strong….
This is really good news folks…really good…
Like the auto retailers, those who end up standing tall after this carnage will be the winners and emerge stronger. Sears is levered heavily to the home. With Linen’s N Things “sleeping with the fishes”, that leaves one less place for folks to buy those items. Given that many of them are in the same malls as Sears, that means by default these shoppers will wander in Sears for these items.
Disclosure (“none” means no position):Long SHLD
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Oil just may be the only real value out there right now especially when you consider what is happening to housing and the economy..
Disclosure (“none” means no position):Long DBO, DXO
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2009, Tobacco, Coal, Dollar
– Bad news
– In the cross hairs
– A dollar ETF
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This is a great presentation..
Disclosure (“none” means no position):Long DXO, DBO
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Watch the following video…
So, how to play it? the tickers are (USO), (DBO) and the double return (up or down) is the (DXO).
Right now, I find it hard to be investing in stocks. Financials are out, consumer discretionary will get hit and until we know what the stimulus is, jumping into infrastructure blindly is real risky.
So, that leaves certain commodities and I think the most value here is in oil..
Disclosure (“none” means no position):Long DBO, DXO
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For those visually inclined………scary..
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Anyone have any thoughts on which one?
Billionaire investor Wilbur Ross, known for his investments in distressed companies in the steel, automotive industries, said it is only a matter of time before his firm acquires a bank.
“We will end up with a bank, there is no doubt about that,” Ross, the chairman and CEO of WL Ross & Co., said in an interview Tuesday.
Ross, a major player in the private equity industry, said that his plans to purchase a depository institution were delayed last year after the government moved to inject capital into the nation’s banking system as part of a broader effort to halt the financial crisis.
He estimated that the rescue package delayed his investment anywhere between six to twelve months, and suggested that his firm might look to buy a commercial bank or thrift institution.
Ross made a string of investments across the financial services sector last year, including the purchase of H&R Block’s (HRB) subprime mortgage servicing unit last spring for $1.3 billion and the acquisition of bankrupt American Home Mortgage Investment Corp.
But some of those bets have backfired. Last February he plowed $250 million into the bond insurer Assured Guaranty (AGO) at around $21 a share. The company’s market value has been nearly cut in half since then.
Still, acquiring sources of deposits has become a top priority for banks and other financial institutions in the past few months since credit has gotten harder to come by as a result of the ongoing crisis. Private equity investors like Ross have also expressed a desire to buy banks as well.
“What is important is to get access to a stable, low-cost source of funding,” Ross said. “That is what we are interested in.”
Faced with a quickly rising tide of bank failures, banking regulators have relaxed restrictions about who can buy a depository institution in the hopes of coaxing outside investors to take part in the bidding.
Last Friday, a group of private investment firms, including buyout shop J.C. Flowers & Co and hedge fund Paulson & Co., struck a deal with the Federal Deposit Insurance Corp. to buy failed mortgage lender IndyMac for $13.9 billion.
As part of the deal, the buyers will take responsibility for the first 20% of losses, and the FDIC will cover the majority of additional losses.
Last week’s IndyMac announcement is particularly noteworthy since there have only been a few investments made in banks by private equity firms and other distressed investors in recent months — and many of those deals have quickly soured.
Most notably, private equity firm TPG made a disastrous investment in Washington Mutual (WM), the savings and loan that collapsed in September. It was the largest bank failure in history. WaMu was subsequently sold to JPMorgan Chase (JPM).
But Ross said it would make more sense if private equity firms are allowed to take full ownership of a bank instead of just a small stake.
“Private equity is not passive. We are not minority investors. We are control investors. That is the whole theory of private equity – adding value through better management,” he said.
Disclosure (“none” means no position):None
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The worst estimate yet…
The breakdown is as follows:
Small businesses= -281,000
Medium businesses= -321,000
Large businesses = -91,000
BY SECTOR
Goods-producing sector= -220,000
Service-providing sector= -473,000
As ADP stated: Beginning this month, the ADP Report will incorporate methodological improvements intended to improve the correspondence between the nonfarm private employment estimates shown in the ADP Report and estimates published in the Bureau of Labor Statistics’ Employment Situation Report.
Now, with job losses surging and another body blow to housing coming as the option-arm fiasco comes home to roost, one has to seriously wonder how those who think the second half of 2009 will show growth honestly come to that conclusion. American’s have proven to be smarter than Congress through this as they took the first stimulus checks and either saved it or paid off debt. There is no reason to expect they will do anything different with another one.
It is the right thing to do with the money even though it hurts the overall economy for now. Too bad…
American’s are thinking about their personal balance sheet, when that is healthy, all will be well again. The problem is that will take a while..
Disclosure (“none” means no position):
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So, I was asked to review “Clean Money: Picking Winners in Green Tech Boom”. Whenever I get asked to review a book that tells me what stocks to pick, my BS antenna goes way up. So, I asked for all the authors books so I could review his last predictions. Your gonna want to read this.
First up was:
“How to Profit From The Coming Real Estate Bust”, written in 2003.
Had you read this one in 2003 when it was released, you would have been introduced to little letters like, CDS, GSE’s, CDO, RMBS, CDS and the like. You would have been told that Fannie and Freddie were perpetuating an unsustainable cycle of lending in the sub-prime market. You would have been told that home equity was at generational lows and that any drop in prices would lead to massive foreclosures as new mortgage products reset and buyers would be able to afford the new payments nor would they be able to sell the homes since the mortgages were upside down.
One of the best parts was were Rubino assembled a slew of headlines from 2002-2003 telling us the housing market was in a “new paradigm” and that there were new rules in housing (always a sign we are in a bubble).
You would have been told of the problem with the CDO market and how it was giving banks a false sense of security and that a fall in the housing market would have consequences in the hundreds of billions of dollars.
This is one of those book that reading after the fact you sit there and say “well yeah..we know that”. But in 2002-2003, most folk didn’t. I’ll admit, I did not think the gains we were seeing in housing prices then could continue but did not see the current “crash” we are seeing.
So, what to do about it then? Here is a group of stocks Rubino suggested shorting in 2003 for those who believe him that housing was going to crater.
Citigroup (C)
Ambac (ABK)
Capital One (COF)
Lennar (LEN)
Fannie Mae (FNM)
So, how did those 5 do since 2003? Down 84%, 97%, 48%, 82% and 98%. Not a bad return???
Here is the book:
Next up was:
“The Collapse of the dollar and How to Profit from It”
I suggest the paperback version because it was updated in Nov. 2007. Rubino here does a nice job going into the history of currencies and gold without drowning the reader in a mind numbing history lesson. He keep the history relevant to his point.
Rubino argue that Fed actions are slowly rendering the dollar nearly worthless and as it happens, inflation will rear it head in a savage way and gold wil be the commodity people pile into.
He gives several way to invest in gold from ETF’s for the commodity itself (GLD), (IAU) to both miners and way to buy gold directly. Again ,based on results form when the book was originally released in 2004 show Rubino was dead on as gold staged a huge rally up 84% since then.
Rubino also introduces the readers to the “Fear index. No, it is not the VIX we all hear about today. It is an index that gives us a value of US Gov’t holdings of golds per dollar bill. For instance, a value of 2% means that 2% of the value of a dollar bill is backed in gold. 2% is a notable number as that is roughly what the value is today. The last “buy signal” for gold was had in May 2002, the signal is still positive for gold today and recent Treasury and Fed action have continued to devalue the dollar.
A neat way to buy gold direct (no recommendation here, have not investigated it fully yet) is “Gold Money“. It is in essence a savings / checking account that buys gold as you deposit funds into it. The value of the account rises and falls with the value of gold .
Again Rubio in Nov. 2007 gives the readers a portfolio of stock to short for 2009. The List?
Lehman Brothers (LEH)
Bear Sterns (BSC)
Fannie Mae (FMN)
Freddie Mac (FRE)
Citigroup (C)
Wachovia (WB)
Merrill Lynch (MER)
Goldman Sachs (GS)
Bank of America (BAC)
There were a few other but suffice it to say none of the stocks he recommended shorting are up in 2008. Now, admittedly most stocks are down in 2008 but in the list above, most are down in excess of 70% and several no longer exist.
Here is the book:
Finally “Clean Money: Picking Winners in the Clean Tech Boom”
The book begins with a primer on oil and gas (limited, dirty and expensive) and then moves onto renewable fuels and energy sources.
Rubino details for the first half of the book all renewable fuels, the technology that goes into them and the progress that has been made and is being made in making them economical and more efficient. It is not an “all renewables are great” thesis as he does steer the readers aways from certain areas.
This part of the book is extremely informative and detailed yet is written in a way that all readers can understand and grasp the points he is making. There is a tendency in these types of books to let the science run away with the discussion but Rubino thankfully avoids this.
The second half of the book goes into the possible investments that one could make from part one. He gives companies for every category both domestic and foreign as well as mutual funds that specifically invest in the area.
The only aspect that left me wanting for more was a more detailed investment thesis. In his first two books, Rubino was very specific about how he would invest based on his ideas. Here, he is very general and does not give specific guidance. That very well may be a function of the field and its infancy making a definitive selection difficult to do accurately. Still, after his results in the prior two book, a reader would be wanting more detail.
But, for the information provided in part one alone, the book is worth a read…
Schloss, New World, Oil, Auto’s
– A great pick Schloss would like
– 2009
– Everything you want to know
– Have sales bottomed?
Disclosure (“none” means no position):
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First, I’m a fan of Mr. Matthews but too be honest he really over reached on this one and what gets me the most is it is a bit dishonest..
First here is his post…
Headline of the Day: “We’re Firing 5,000 Workers So We Can Make a Stupid Acquisition”
Tuesday, January 6, 2008: Dow Chemical admitted today that roughly 5,000 workers are being laid off in order to help pay the cost of acquiring Rohm & Haas at a price that makes no economic sense…
Actually, we made that up. Dow Chemical admits no such thing.
The company, which in July agreed to buy specialty chemical maker Rohm & Haas at a pre-Credit Crisis valuation of $15.4 billion—more than Dow’s current $14 billion market value—recently received a shock when Kuwait exercised economic prudence by backing out of a $9 billion joint venture that no longer made sense, thus depriving Dow of money to pay for Rohm & Haas.
So today, Dow released a whopper of a rationalization for not excercising its own economic prudence, in the form of a press release that begins as follows:
The Dow Chemical Company (NYSE:DOW) today announced a wide range of legal, operational and financial actions that will keep the Company on track to fulfill the transformational corporate strategy Dow has pursued since 2005.
Dow’s strategy will continue to involve aggressive steps to establish Dow as a high-performance, earnings growth company organized around a strong portfolio of joint ventures and market-facing performance business divisions. Central to Dow’s strategy is its commitment to retain a strong investment grade rating and to maximize shareholder return.
If that last sentence is suppposed to bear any semblance to reality, how is it possible that Dow continues to pursue the acquisition of a chemical company at a pre-Credit Crisis price which even Wall Street’s Finest consider to be as much as, oh, a third too rich?
Well, one way is layoffs, as today’s press release trumpets:
Since the onset of the global financial crisis in September 2008, Dow has taken aggressive actions to reduce capital spending, working capital and operating expenses. With further weakening in the global economy, Dow announced a restructuring in December which will reduce the Company’s workforce by approximately 11 percent, close facilities in high-cost locations and divest several non-strategic businesses. “We undertake actions like these with a very clear outcome in mind — to preserve our financial flexibility and improve our financial performance.
In the final paragraph of the release, labeled “About Dow,” the company claims 46,000 employees worldwide.
So the real headline should be more like, “We’re Firing 5,000 Workers So We Can Make a Stupid Acquisition.”
Why can’t they just say it?
Well, maybe because it is not true in any aspect? I’ll not go into the arguments for or against the Rohm & Hass (ROH) deal but just deal with the erroneous claims above..
Here is the December 5th press release Mathews references. Note the date? December 5th. Kuwait pulled out of the JV on December 27th (that comes after the 5th) meaning the decision to lay off workers at money losing locations and sell other businesses has nothing to do with the Kuwait decision.
Further, Dow said in the release “The Company also expects to complete several divestitures within the next 2 years, which will result in a reduction of approximately 2,000 positions. As a result of the restructuring plan, the global workforce reduction and the divestitures, approximately 5,000 jobs will be eliminated across several functions, geographies and businesses.”
So 2,000 of the 5,000 are not even losing their jobs, as the businesses are for sale. They may even still end up working for a new JV Dow will be involved in, who knows? In short, they’ll be on someone else’s payroll, just not Dow’s.
Why the closings? Again, from the 8-k
– Due to the recent, severe economic downturn, a decision was made to shut down a number of facilities, including the following:
* Chlor-alkali manufacturing facility in Oyster Creek, Texas
* Styrene and styrene derivative manufacturing facilities in Freeport, Texas; Pittsburg, California; Terneuzen, The Netherlands; and Varennes, Quebec, Canada
* Facilities that manufacture NORDELTM hydrocarbon rubber in Seadrift, Texas, and TYRINTM chlorinated polyethylene in Plaquemine, Louisiana
With manufacturing firms the world over cutting back production, it would have been irresponsible for Dow to keep these facilities open as prices and demand plummet for the products they make and they become unprofitable.
“Why is Dow going forward with the deal” Matthews asks? Because ROH actually accepted a lower price from DOW in the auction for itself in return for a purchase agreement that gives Dow virtually no ability to cancel the sale save for regulatory objections. It is called a binding contract.
As for the “paying for the acquisition” claim. A cursory glance at the 8-K says “the Company will record a charge of $300 million to $400 million in the fourth quarter of 2008 for severance costs associated with the restructuring plan and the workforce reduction, and curtailment costs associated with Dow’s defined benefit plans.”……followed by this “Once fully implemented, these actions are expected to result in $700 million in annual operating cost savings by 2010.”
So, can anyone do the math for me? How does a charge of $400 million now, followed by saving maybe $700 million by the end of next year finance a $15.4 billion deal by the end of this week?
Anyone?
Bueller? Bueller?
Disclosure (“none” means no position):Long DOW, Sold ROH Jan. $50 puts this morning
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