Playing Jobs With Volt

Employment sucks. We know that. BUT, we also know it will get better. Let's look at a potential play on that improvement.

When the turn does come, where will we look? I am guessing employers will crawl, not rush into re-employment of staff. With that being said, I think companies that provide professional services will be the first to benefit from this trend. The cost/benefit to employer is huge and given any recovery will most likely be a shaky one, employers will want to add people at a minimal cost in term of both training and continued employment cost. Volt enables both of these scenarios.

Enter Volt Information Services (VOL):

Company Description:

Volt Information Sciences, Inc., incorporated in 1957, provides staffing services, and telecommunications and information solutions. The Company is organized in two businesses: Staffing Services and Telecommunications and Information Solutions. Staffing services segment provides a range of employee staffing services to a range of customers throughout North America, Europe and Asia/Pac, and has expanded operations in Latin America. Telecommunications services provide telecommunications and other services, including design, engineering, construction, installation, maintenance and removal of telecommunications equipment for the outside plant and central offices of telecommunications and cable companies. In September 2008, the Company sold the net assets of its DataNational and Directory Systems divisions.

Staffing Services

Services offered by the Staffing Services segment fall within three major functional areas: staffing solutions, information technology (IT) solutions and e-procurement solutions. Staffing solutions provides managed staffing, temporary/contract personnel employment and workforce solutions. This functional area comprises the Technical Resources (Technical) division and the Administrative and Industrial (A&I) division. This functional area also provides direct placement services and, upon request from customers, subject to contractual conditions, is focused to allow the customer to convert the temporary employees to full-time customer employees under negotiated terms. In addition, the Company's Recruitment Process Outsourcing (RPO) services deliver end-to-end recruitment and hiring outsourced solutions to customers. The Technical division provides skilled employees, such as computer and other IT specialties, engineering, design, life sciences and technical support. The A&I division provides administrative, clerical, accounting and financial, call center and light industrial personnel.

E-procurement solutions provide global bid human capital acquisition and management solutions by combining Web-based tools and business process outsourcing services. IT solutions provides a range of services, including consulting, outsourcing and turnkey project management in the software and hardware development, IT infrastructure services and customer contact markets.

Telecommunications and Information Solutions

This segment is divided into three sub segments: telecommunications services, computer systems, and printing and other. Telecommunications Services segment designs, engineers, constructs, installs and maintains voice, data, video and utility infrastructure for public and private businesses, military, and government agencies.

Computer Systems segment provides directory and operator systems and services primarily for the telecommunications industry and provides IT maintenance services. The segment also sells information systems to its customers and, in addition, provides an application service provider (ASP) model, which also provides information services, including infrastructure and database data services to others. This segment consists of Volt Delta Resources LLC, Volt Delta International, LSSiData and the Maintech computer maintenance division.

Super...so why Volt?

1- Volt is global and stands to benefit as the global recovery takes hold
2- Professional/technical skills will be in high demand and Volt enables employers to better manage costs
3- Insiders/Founders/Directors own 42% of the outstanding shares
4- VALUATION.....

Let's look closer at #4 because we value guys like that stuff.

Volt has typically traded at 16-20 times earnings and about twice book value (remember that). Earnings, as one would expect have suffered along with employment and Volt has reported operating loss from continuing operations in the 2009 six-month period of $21.7 million, or ($1.04) per share, compared to a loss from continuing operations of $12.3 million, or ($0.56) per share, in the fiscal 2008 six-month period. The Company incurred a restructuring charge of $7.1 million ($4.2 million, or $0.20 per share, net of taxes) and goodwill and long-lived intangible impairment charges of $7.3 million ($6.8 million, or $0.32 per share, net of taxes) in the first six months of fiscal 2009 as compared to a restructuring charge of $1.5 million in the comparable fiscal 2008 period.

About what you would expect given what has happen to employment...

So then, what to like?

1- Cash and cash equivalents, excluding restricted cash, totaled $141.5 million at the end of the second fiscal quarter of 2009.

At May 3, 2009, the Company had sold a participating interest in accounts receivable of $50.0 million under its securitization program and had the ability to finance an additional $125.0 million under the program. In addition, the Company may borrow under a $42.0 million five-year unsecured revolving credit facility (“Credit Facility”) and the Company’s wholly owned subsidiary, Volt Delta Resources (“Volt Delta”), may borrow under a separate $75.0 million revolving secured credit facility (“Delta Credit Facility”). At May 3, 2009, the Company had borrowed $10.7 million under its Credit Facility and Volt Delta had borrowed $41.7 million under the Delta Credit Facility.

Why does that matter? The company's current market cap? $131 million meaning it is trading for LESS THAN THE CASH ON ITS BOOKS..

2- Book Value.

Currently about $18 a share. Remember earlier we said Volt tends to trade on average about 2x book? It current valuation of .3x book. Look close, this isn't 3x it is point 3x book or 33%.

Lets look at it this way. Say tomorrow the company decide to close up, sell it all and distribute the proceeds to shareholders.

Right now you would pay $6.61 a share for the stock. The cash on hand comes to $6.77 a share so already your are up in the investment and not a single asset has been sold. Let then say the current book value of $18 a share gets slashed 80% (I am not saying it would, just picking an extreme scenario for illustration). That leaves $3.60 a share for shareholders for a nice total of $10.37 or 56% profit. The margin of safety here is huge..

Risks:

Simple, the global slowdown takes longer than anyone thinks to resolve itself. If US unemployment hits 10% and then stubbornly stays there for all of 2010, large share price recovery is put off. Now, depending on the global economy we could see improvement as it recovers absent the US but large shares gains will need US participation. The company has ample cash and debt availability to withstand a prolonged poor employment scenario. Because of this, the risk is not a "will it survive or not" but a "how long before shares recover" situation.

Like any of these deep value plays (especially ones tied to employment), because the valuation is so rock bottom, if you wait until you see clarity in employment you very well may be buying a $10-$12 stock vs $6.

Latest 10-Q:
Vol



Disclosure ("none" means no position):none

Tuesday's Links

Climate change, Lead Paint, GM, Stimulus

- Now that the earth is no longer "warming" skeptics are growing..

- Perfect....eat wood, sue someone

- Will retain liability for future product claim cases.......the least they could do after soaking taxpayers for $50B

- This is an excellent piece on the stimulus and the "effect" it is having



Disclosure ("none" means no position):

Lampert's Interesting AutoZone Sale..A Reason?

OK, we all saw last week that Eddie Lampert sold 4% of his holdings in auto parts retailer AutoZone (AZO). He must not be bullish anymore? Not quite. Let's look.

Remember this agreement from last year?

AutoZone also announced that it has entered into an agreement with ESL Investments, Inc. (with its affiliates, "ESL") setting forth certain understandings and agreements concerning ESL's continued investment in AutoZone. ESL currently owns approximately 36.2% of the outstanding AutoZone common stock. Pursuant to the agreement with ESL, the Company has agreed to use its commercially reasonable efforts to achieve at least the new 2.5x adjusted debt / EBITDAR leverage metric by the end of the Company's second quarter fiscal 2009.

"We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated, by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements," said Bill Rhodes AutoZone's Chairman, President and Chief Executive Officer. "We appreciate ESL's belief in the Company and its management over the past eleven years and look forward to its continued involvement in helping us achieve our goals for the benefit of all stockholders."

The agreement with ESL provides, among other things, that, should ESL's percentage ownership of Company shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted. The initial threshold is 40%, which will reduce to 37.5% following the 2009 annual meeting of stockholders. The agreement also states the Company's intention to add three directors in the near future, two of whom will be identified by ESL for consideration by the Company's Nominating and Corporate Governance Committee, thereby increasing the Board's size to 12 members. Thereafter, the Company expects to reduce the Board's size to 10 members in conjunction with the 2008 annual meeting in December. The agreement also contains certain other protections for non-ESL affiliated shareholders as well as for ESL.

The agreement with ESL or certain of its provisions will terminate, except as the parties otherwise mutually agree, upon the earlier of the date upon which the shares (a) owned by ESL constitute less than 25% of the then outstanding shares or (b) owned by ESL constitute more than 50% of the then outstanding shares, provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.

Then his news from last week?

AutoZone Inc (AZO.N), the leading U.S. auto parts retailer, said on Wednesday its board had authorized another $500 million to buy back common stock.

Shares in the Memphis-based company have gained almost 12 percent since the start of the year as the U.S. recession has prompted more consumers to drive cars longer and shop for better deals on replacement parts.

"AutoZone's strong financial health has allowed us to continue to repurchase our stock while operating within our targeted leverage metric," said AutoZone Chief Financial Officer Bill Giles said in a statement.

In late May, AutoZone posted a 9-percent gain in profit that topped analyst estimates.

Billionaire investor Edward Lampert and his ESL Investments owns about 43 percent of AutoZone (prior to recent sale). Lampert is also the largest shareholder in AutoNation (AN), the largest U.S. auto dealership chain.

So, Autozone is upping its leverage ratio and using it to repurchase shares. Lampert's recent sale lower his ownership to below the 37.5% threshold so he may vote his shares as he wishes and maintains board representation.

What happens now? As Autozone completes their repurchase (approx $600m left) they will have reduced the outstanding shares (at today's prices) by 7.5%. That sale also triggered a 6% drop in the stock price so that $600, will repurchase moire shares. In essence, Lamper sold shares for a nice profit and then Autozone will repurchase shares to increase his ownership once again back to the mid 40% range.

Why not hold them to get to the 50% threshold? The agreement above requires Lampert "to acquire" additional shares to the gain benefits from being at/above 50% in terms of voting. One can only assume he sees no "value" in shares at these prices (they aren't) and therefore does not want to buy more. Doing it this way he can free up capital and have the company maintain his ownership level for him.

Nice....

On another note, Autozone, in my opinion is nearing an earnings peak. With auto sales at decade lows they have benefited from the repair biz. If "cash for clunkers" does increase sales as predicted by AutoNation CEO Mike Jackson, that will directly negatively impact Autozone's biz. Perhaps another reason Lampert is not buying more???



Disclosure ("none" means no position):Long AN, none

Wilbur Ross Comments on Economy/Regulation

Wilbur Ross talks about the US economy.

Couple of notable quotes:

"I can't even think ten years down the road much less make predictions for that time frame". Said in response to a question regarding predictions that the US economy is stagnant for the next ten years

Regarding consumer sentiment:
"Yes, it has risen three consecutive period but look where it is in absolute terms, its not at a very happy point in absolute terms."...meaning it is still historically low



Regulation:
"You can't really legislate against people making mistakes"

The old wall street model was partnerships:
"Participants had unlimited individual liability and that is a much better policeman that some kids out of college trying to catch a Madoff"

On the Gov't:
"What worries me is they are trying to do too much too fast, you can't fix everything overnight"




Disclosure ("none" means no position):

AutoNation: "Cash for Clunkers" Should Add 10%

I think 10% may be a bit conservative. From the empirical evidence department. I know several folks who are eagerly looking into the "cash for clunkers" program's details to get a new car. These are folks who have been putting off buying a new car for the past year and a half not wanting a new car payment. But, the advertised incentives, coupled with the age of their current vehicles, has them taking a very close look at this.


From Bloomberg:

- AutoNation Inc. said the “cash-for- clunkers” law President Barack Obama signed may increase new- vehicle sales at the largest publicly traded U.S. auto retailer by 10 percent through year end.

AutoNation sold 65,698 new vehicles in the third quarter of last year through its 289 dealer franchises. A 10 percent increase from the law approved yesterday may mean “roughly” an extra 4,000 new vehicles because industry demand has been running as much as 40 percent lower than last year, according to Marc Cannon, a company spokesman.

“The fact that this incentive will be available only at new-vehicle franchises is a big advantage,” Chief Executive Officer Mike Jackson said in an interview. “At a minimum it will generate a lot of traffic.”

Knowing Jackson, my guess is that 10% is "in the bag" so to speak and he is looking for much more. In the past he has said about other statements of this order, "if we weren't sure we could do it, we wouldn't say it", and to this point, he has yet to let investors down on that.

No reason to expect him to start now...


Disclosure ("none" means no position):Long AN

Wall St. Media 6/24

Sorry for the lag on this...getting used to the "new baby" schedule...

Doug and I here are talking about my initial thoughts on Saks (SKS), more on natural gas (UNG) and General Growth Properties (GGWPQ) .

Catch more great investing video at Wall St. Media





Disclosure ("none" means no position):Long SKS, UNG, GGWPQ

Monday's Links

Bernanke, Porn, Rules, RMBS

- Great WSJ piece on him. Ben is going to take the fall for everything. He does not deserve as he was handed a huge shit pile from Greenspan.

- This is a bad idea....it is hard enough to keep it away from kids w/o Johnny putting it up on the school bus on his iPhone.

- "4 Investing Rules to Ignore". Morningstar does a good job here

- S&P finally downgrading these.....finding it hard to believe this was not done last year



Disclosure ("none" means no position):

Anon Bidder Ponies Up $1.68M For Lunch With Warren

I am sure there are a bunch of jokes as to who coming until we actually know the bidder....

Visit msnbc.com for Breaking News, World News, and News about the Economy

Disclosure ("none" means no position):

"House of Cards"

Personally, I think Faber does a nice job on this one. Wondering how the whole thing started and came tumbling down? Check it out...

Greenie gets off a bit easy though...







Disclosure ("none" means no position):

Buy and Hold Dead? Um...No

Been hearing this a ton lately. Problem with the statement is it taking a blanket approach and doing that in anything, is wrong. Those who typically espouse it say that the S&P 500 has done a round trip over the past decade so those who "bought it" have made no money. But, do most of us "buy the S&P"? No one I know does.

I'm going to take a look at the longest holding I ever had...Altria (sold last December).

I bought it in late 1999 in the midst of the "Master Settlement" and Chapter 11 fears for them. The buying thesis was simple:

1- Addicts will buy their products
2- They can't go Chapter 11 because those suing them (States) need the money they provide
3- Because of that, their long term health was assured.

The purchase price for Alria was $21.65 a share and when I sold it was $16.75. In addition to that I received $21 a share in the Kraft (KFT) spin-off (sold immediately), $48 a share in Phillip Morris International (PM) shares (still held and today worth $42).

Oh, and over the 9 years I held it I received $23.25 a share in dividends.

Here is a 10-yr. chart of Altria.


Now the temptation would have been to dump it in 2003 as it fell and then even again in 2004 as it dipped. But why? Just because the price fell?

Questions to have asked yourself then:

• Were the fundamentals of the tobacco business impaired?
• Did the legal environment deteriorate?
• Did management do something that changed the earnings profile of the company in a negative way?

The answer to all of those questions was no and in reality the legal environment improved steadily in those years to the point then CEO Camilleri said prior to the PM spin, "the current legal environment is the best we have seen it in years".

So in 9 years here is the tally:


That is a 18% annual return over those 9 years for doing.......nothing...

A very similar scenario has unfolded with McDonalds (MCD) since I first bought during the "Mad Cow" scare. While not as extreme, and I did make the HUGE mistake of selling Chipolte (CMG) shares when I received them in the spin, it has been a fantastic investment.

Has the market done a round trip the past decade? Yes. Are there plenty of companies whom over that time have gone up/down and then back to start? Yes. BUT, if you buy it low enough and pay attention to its business environment/prospects to determine your selling time, you can avoid many of the losses.

Altria's business environment never deteriorated over the 9 years and in fact dramatically improved over where it was at purchase. I sold it in December because I felt that changed and PM International has a superior one. The same can be said of McDonalds, it environment is still improving with its very successful move into coffee and consumer trade to value.

Have it missed any? Sure. Dow Chemical (DOW) comes to mind. I got caught up in the Rohm & Hass/Kuwait deals and their potential benefits while the surrounding business climate deteriorated. The stock fell to a low of $6 from $50's in 2005 (my original cost was $26 in 2002). While I lost a bunch of unrealized profits, between $8 and $9 in March of this year I was able to lower my cost basis to $14 with several purchases. Again, when we add in $9.32 in dividends received since 2002, we are still up nicely, although not nearly as much as before..not nearly.

Am I selling Dow now? No. The Rohm deal is done and the business environment, while I missed the downside, looks to improve going forward. This will still turn out just fine eventually IMO, it will just take some time. We'll see...

Beware of "X investing theory is dead" proclamations. There are plenty of value folks who do great, plenty of day traders who do great and plenty of swing/momentum ones that do. There are also plenty of all three that do awful.

Find good ones in the style that fits you and get to know them. Blogs & twitter allow unprescedented communications between investors, take advantage of it.


Disclosure ("none" means no position):Long PM, MCD, DOW, none

Phillip Morris International to Return $9B in '09

Received Phillip Morris International (PM) shares from Altria in last years spinoff. Due to the deteriorating US legal environment for tobacco recently, I sold my long time holding Altria (MO) in December and now only still hold PM shares.

I consider PM the company of the two with better longer term prospects and business environment.

One overlooked investment thesis for PM is that it is a hedge against the general devaluation of the US dollar. PM sells tobacco in other nations in their local currencies, it then convert those currencies to US dollars for reporting purposes. As the dollar falls in value, those conversions yield more dollars for shareholders.

For those who do not want to go through the whole presentation, slide 67 is the applicable slide. The comments were:

In August last year, we raised our dividend by 17.4% to an annualized rate of $2.16 per share and we have confirmed our willingness to exceed our target 65% dividend payout ratio in 2009. At the current stock price, our dividend provides an attractive yield of approximately 5.2%.

We have completed over half the $13 billion two year share repurchase program that we initiated in May 2008 and are one of the few major companies in the world to have maintained their share repurchase program throughout the current financial crisis.

All in all we expect to return some $9 billion in cash to our shareholders during 2009.

So we have a 5% dividend yield and a company growing earnings 10-12% annually. Based on that earnings growth, we should see a dividend next year or $2.43 a share for a current yield of 5.7%. PM did say they may consider exceeding that (65% of earnings) this year which would boost it higher.

Phillip Morris International


Disclosure ("none" means no position):Long PM

Friday's Links

Railroads, Frank, Onion, Google


- Bolling seconds my railroads call.

- Actually wants to lower lending standards for Condo's. Apparently has been asleep the last two years?

- Another classic

- Sell ads on mobile phones

Disclosure ("none" means no position):

Notes on Buffett's Media Tour

Berkshire's (BRK.A) made the rounds yesterday. Some of his comments:

For those not sure Berkshire is intimately tied to the consumer through its Shaw Carpets, American Express (AXP), Dairy Queen, Home Services (real estate brokerage), furniture companies, banks and more. Because of that, Berkshire is uniquely sensitive to all sectors of the economy. So, when Buffett says he is seeing little improvement, it is something we all need to pay attention to. Quote may not be 100% accurate verbally but are for sentiment. For instance, "we" rather than "us" etc....meaning of quotes intact.

"We are setting the stage for VERY SIGNIFICANT inflation down the road"

On US Dollar: "probability of significant purchasing power decline has risen dramatically"

US AAA Rating: "the US will keep it as long as I and you (Liz Claymen) are alive and longer"

Unemployment: "it is going higher, we are not coming off the bottom yet"..

Obama's health care reform: "malpractice premiums are 1/2 of 1% of what we (the US) spend on health care each year"

Regulation: "the wrong regulation would be one that attempts to solves evils and stifles the markets system that has worked pretty well over the years"

Acknowledged he is sitting on a $1 billion profit from his Goldman Sachs (GS) investment and said he will "keep the warrants for their duration"

On the de-leveraging process for consumers and corporate America "there is a lot still to do"

"Economy will be in shambles this year and well beyond"

"you can't produce a baby in 1 month by getting 9 women pregnant". Meaning we can't turn the economy around in a couple months, it is a long process and gov't officials would be wise to acknowledge this.

Should Ben Bernanke be given another term?: "I don't know how you could do any better"

"The incentives in a market system are too overshoot" and he gave the impression he was relatively sure it would happen again some day.

"I do not worry about deflation a all and we will not see any serious deflation...."

On Gov't TARP funds & Wells Fargo (WFC) "the gov't set the terms, they (WFC) just signed a blank piece of paper"

On Steve Jobs "if any CEO is facing serious surgery, it is a material event"

Cap and Trade: "is a regressive tax"


Disclosure ("none" means no position):Long WFC, None

Why Competition Matters: Apple & RIMM

Here is a very interesting smart-phone study that primarily deals with Apple's (AAPL) iPhone and RIMM's (RIMM) Blackberry. This has nothing to do with value investing although it does show how tech margins always compress when a hot products sees competition.


Crowd Science Smart Phone Results

So, if you are RIMM seeing this study you have two options:
1- Lower your blackberry prices to capture value conscious buyers
2- Dramatically improve the add-on availability and functionality of the social aspects of your product.

Either of those options will cost RIMM and benefit users of their products. Apple users are very loyal no matter what the product. RIMM has very little chance of altering that barring an earth shattering product. Their choice is to now keep their users and entice those entering the smart-phone market to buy theirs over Apple's.

With Apple lowering the price of its 3G 16GB phone to $147 in Wal-Mart (WMT), (down from the original $599 8GB price only just over two years ago), consumers ought to see even better deals in the future.

How long before a 32GB 4G phone hits the shelves for $99? Another year? RIMM needs to so something fast. Now, I discount the "loyalty" part of the equation for the Apple folks. They were this way about the company before the iPhone. What matters more here is the number of "other smart-phone" users considering buying an iPhone with their next purchase.

That means defections for RIMM and other makers. It also means they are probably busying themselves finding ways to bend over backwards to give users "a deal they cannot resist". RIMM did drop prices last year and was very successful capturing value conscious shoppers. Apple followed suit and based on RIMM most recent earnings call, that drop looks to be having an effect on RIMM going forward.

What does it all mean then? Look for more applications, better & faster phones and lower prices going forward....

Capitalism at its finest..



Disclosure ("none" means no position):Blackberry user, none in stocks

Thursday's Links

Bing, Predictions, China, Banks

- It just keeps growing. Good, more options make those that are available improve them

- Sorry but this end of the world stuff just does not wash. While we may stagnate for a good long time until we work through this, doomsday predictions will not come true. Also, any economic prediction of 10 or 20 years time frames is not worth the paper you print it on.

- Actively lowering its cost of oil

- This is a startling chart and shows how far US banks nave fallen


Disclosure ("none" means no position):

Warren Buffett Makes the Rounds Today...

Berkshire's (BRK.A) Buffett was everywhere today. Saying this was a "cautious" interview session would be understated..

On Bloomberg


On Fox talking Economy & Inflation


On Fox talking Unemployment


On CNBC talking the Economy

Visit msnbc.com for Breaking News, World News, and News about the Economy

Disclosure ("none" means no position):

More "Green" Possibilites?

The other day we looked at railroads and their "green" impact. Today we look in another direction.

From the NY Times:

Dow Chemical & Gazprom recently signed a memorandum in which they agreed to look at opportunities where Dow technologies could be used to reduce carbon emissions, thus generating the emission credits. The companies agreed to look at opportunities worldwide.

Dow could then use some of the credits to offset its own industrial activities while Gazprom’s trading arm in Britain could market any excess.

In other words, by using Dow technologies, companies can generate carbon credits that they can then sell or use as currency to offset the purchase of the technology.

Additionally:

However, the true promise for this business is in carbon credits that come, like the gas, from Russia. Companies in Russia and elsewhere in Eastern Europe are among the world’s big producers of greenhouse gases. But they stand to benefit under the climate treaty by selling their rights to release carbon dioxide into the air, if they invest in greater efficiencies.

The statement said the companies would also explore projects in the small carbon market in the United States.

As a country, Russia possesses the credits in abundance under the Kyoto Protocol, which set a baseline in 1990 for emissions, before a sharp contraction in the Russian economy greatly reduced carbon emissions. Russia can transfer those benefits to its companies to sell.

In 2004, when Russia ratified the protocol, officials estimated Russian companies could earn $6 billion to $9 billion selling credits created from investments in emissions-reducing technologies.

Now, lets put aside that the largest polluters will benefit the most from the cap/trade program because of the 1990 baseline. Is it wrong? Yes. A joke? Yes. But, it is what it is and wishing it wasn't won't change anything.

Cap/Trade is shaping up to be a massive market. Personally, I'll avoid anything in Russia as their recent history of respecting property rights is poor to say the least. However, if you have the stomach for it, the potential for nice profits is there as a large additional revenue stream will appear for those Russian companies. That being said, companies that have the technologies polluters (for lack of a better word) will want to generate the credits will be in high demand.

Why? Using a baseline of 1990 when Russian /Eastern Europe were coming out from a century of Communist rule means that even token upgrades ought to generate huge credits. In all reality many operating facilities probably now already produce less than 1990 levels of pollutants so the impetus to "do something" to qualify for large numbers of credits will assuredly be there. That assures demand for products.

It also means that the potential impact of cap/trade on some industrial companies may not be as great as originally thought as the products they produce may offset the emissions they produce. They may not realize the full potential profits from the sales of these products as credits may be used as currency, but the downside is reduced. Sadly, companies whose products do not lower emissions will pick up the tab for the rest.

A company like Dow looks to benefit as their products will be used by Gazprom and US energy companies to lower their emissions. The credits generated can be used by Dow to reduce their own emissions tab. Again, everything depends on base levels, requirements etc. but that is the basic theory. Other possible beneficiaries could be GE (GE) and BASF (among others) who make emission control systems.

Again, until final legislation/treaties are signed and finalized, making investments here is guesswork. But, seeing that the market will be huge and knowing early entrants into markets tend to benefit the most, it is time to begin looking into possibilities.


Disclosure ("none" means no position):Long DOW, GE, none

ESL Files 13D/A in AutoZone

Lampert and ESL files 13D/A in Autozone (AZO)

Lampert 13D/A in Autozone



Disclosure ("none" means no position):

"Breaking the Bank" Merrill & Bank of America

Frontline does it again....watching this though....does anyone else get the impression both Thain from Merrill (MER) and B of A's (BAC) Lewis are....well....."truth challenged"?




Disclosure ("none" means no position):None

Lampert Sells AutoZone Shares

Look like Sears Holdings (SHLD) Chairman Eddie Lampert lightened up on his AutoZone (AZO) holdings. There were two filings with the SEC (see below)


Lampert AutoZone Sales

Lampert AutoZone Sales II

Disclosure ("none" means no position):

Interesting

Stuff like this I find interesting but do not use it to invest. File this under "gathering additional knowledge".


This chart which was prepared many years ago by a Monk, shows when good and bad times have occurred and when they will occur again. Some outstanding dates were 1870 - the Franco-Prussian War - dear bread and scarcity of money in 1870, the Baring Crisis 1888-1890, 40 failures on the London Stock Exchange in 1888 to 1890, the American crisis of 1893, the South African War, 1899-1903, the Russo-Japanese War of 1904. 1915 speaks for itself, and so do 1931 and 1942. Recent recessions in the U.S. occurred in 1973-75, 1981-82, 1990-91 and 2000-2. The year 1999 was the peak of the high-tech boom and is shown at the top of the chart with the dismal down-turn indicated to last for 6 years to 2005. The current recessionary/deflationary leg may last till 2012!

This chart is a useful form of guidance for business transactions. Certainly, there is a case for giving it consideration. But in all transactions in commodities and securities there are individual factors which have to be taken into consideration. Sometimes those individual factors may go against the general trend.

(click to enlarge)







Disclosure ("none" means no position):

Wednesday's Links

Gas, Jobs, Art, Goldman

- A 12 month natural gas ETF to take out contango effect

- Why isn't the CEO getting a liver transplant before he dies a "material event"?

- This is the way this ought to look

- Another reason government needs to stay out of business...they don't understand it



Disclosure ("none" means no position):

Taking a Very Close Look at Saks

Been looking around for more opportunities and this one caught my eye...


The Basics:
Saks, Inc. (SKS) is a leading retailer primarily offering high-end brand-name fashion apparel, shoes, accessories, and cosmetics. The company operates 53 Saks Fifth Avenue stores and 51 Off 5th units (off-price luxury goods). Discontinued Club Libby Lu, 11/08. Sold its department stores in 2004-2006. Saks Fifth Avenue stores carry merchandise from leading fashion houses. Key brands include Armani, Chanel, Gucci, and Prada. Has about 13,000 employees. Off. & Dir. own 3.2% of common stock; Inmobiliaria Carso (Carlos Slim), 17.7%; Baugur Group, 8.5% (4/09 Proxy).

For 2008:

On a consolidated basis, total net sales and comparable store sales for the year ended January 31, 2009 decreased 6.0% and 6.1%, respectively. The Company recorded a loss from continuing operations of $122.8 million, or $0.89 per share compared to income from continuing operations of $50.7 million, or $0.33 per share, for the years ended January 31, 2009 and February 2, 2008, respectively. After recognition of the Company’s after-tax loss from discontinued operations of $32.2 million, or $0.23 per share, net loss totaled $154.9 million, or $1.12 per share for the year ended January 31, 2009. After recognition of the Company’s after-tax loss from discontinued operations of $3.2 million, or $0.02 per share, net income totaled $47.5 million, or $0.31 per share for the year ended February 2, 2008.

Saks released results for its fiscal first quarter (ended May 2nd). The company lost $0.04 a share, much better than forecast of a $0.28 share loss. Cost controls drove the upside, as the company realized about $44 million in SG&A cost reductions in the quarter. For the whole of fiscal 2009, SG&A cost savings are expected to be approximately $60 million. Sales were down 27% on a year-over-year basis. Comparable-store sales fell 27.6%. Given the April period's upside, and ongoing cost controls and inventory reductions, the company should lose about $0.50 a share this year, less than previous estimates of a $1.00 share loss.


Saks recently closed a convertible offering:

Saks granted the initial purchasers of its Notes an option to purchase up to $15 million principal amount of additional Notes, solely to cover over-allotments. The Notes will bear cash interest semiannually at an annual rate of 7.5%. The Notes will be convertible at the option of holders at an initial conversion rate of 180.5869 shares of common stock per $1,000 principal amount of Notes into, at Saks` election, cash, shares of Saks common stock or a combination thereof. The initial conversion rate is equivalent to an initial conversion price of approximately $5.54 per share of Saks common stock. The initial conversion price represents a premium of 25% relative to today's closing sale price of Saks common stock. The Notes will not be redeemable before the maturity date, December 1, 2013. The Notes will be fully and unconditionally guaranteed by all of Saks` subsidiaries that are guarantors under its existing revolving credit facility. Saks intends to use the proceeds from the offering to pay down amounts outstanding under its revolving credit facility and for general corporate purposes.

The offering is interesting both for the interest rate being paid (just over 7%) and the conversion premium (25% higher than day of offering). Neither of those give an indication of a troubled company or heightened investor fear.

The NYC flagship store accounts for 21%of sales and 30% of company wide sales take place in Q4.

Owned v Leased locations (click to enlarge):



Catalysts:

Valuation
Saks currently sports a book value of $6.86 which means at its current $3.80 a share it trades at 56% of its book.

Even in a worse case scenario, in Chapter 11, Saks has $2.1 billion in assets v $1.1 billion in liabilities so there is plenty left for shareholders. Because they only own 1/3 of their locations, the current CRE problems will have limited effect on the "assets" side of the equation. When you couple that with the fact the locations they do own are prime RE, then that effect is even further diminished.

If we took an extreme scenario and wrote off 50% of the value of their RE, we still have a situation where assets 50%> liabilities, a nice 11 scenario for shareholders. The good news here is that their own RE is currently all unencumbered, giving them huge flexibility there.

They have $193 million is senior notes outstanding and of that, only $45 million is due soon and that is in Dec. 2010 and they have ample liquidity under a $500 million revolver that comes due 2011. No issues here...

The point here is not that I am anticipating bankruptcy, it is just a scenario we have to run when taking into account the risk if a $3 stock. This tells me that if I risk $3, even if they go belly up, I will retain some value. Should they avoid it a stabilize operations, the scenario I presume happens, then my end value is multiples of that $3, a very nice risk/reward.

Trends:
Right now "cheap is chic". It will not last. With almost 1/4 of company sales coming from its NYC flagship, a sea change is not needed for results to change. What is simply needed is for those folks who normally shop there to feel secure in their job, home situation, tax situation etc. Once they see clarity on those issues, the cache of buying a handbag at Target (TGT) or Wal-Mart (WMT) vs their normal Gucci will loose its luster pretty quick.

Expanded to the rest of its operations, Saks locations in upper scale malls should see similar improvements.

The next question is "why not wait until we see things improving before buying?". This was a $1.50 stock just a few months ago. Now it is near $4 after a quarter that was not nearly as bad as expected. Waiting another quarter or two may have you buying a $6 or $7 stocks (assuming improvements trend similarly) and severely cut into potential gains. Doing it this way requires more patience and also more homework, but the potential payoff is far larger.

Market Cap:
Saks only has 144 million shares outstanding and a market cap of just over $500 million. This simply means that an activist investor or small changes in the macro environment could have a out-sized effect on the stock appreciation. While this is not a singular reason to purchase the stock, IF you decide to buy it, this helps with the "should I buy it now" decision. Because the stock could make large leaps easily, waiting for confirmation of your purchase thesis may just price you out of large gains...

Latest anual report



Disclosure ("none" means no position):None

AutoNation v Carmax

Here is a look at both AutoNation (AN) and CarMax (KMX)



My thoughts are this:
CarMax will hold up well during times of crisis,but, when that crisis ebbs (they always eventually do) AutoNation will outperform. Of the two, the current GM, Chrysler dealership shedding has far more benefited AutoNation in terms of its market share.

I also am not sold on the "used car" model longer term. Again, in times of stress it will, while not prospering, hold its own so to speak. I much prefer the diversity of options and product mix of an AutoNation.


Disclosure ("none" means no position):Long AN, none

Marty Whitman Q2 Letter

Interesting things here is that 40% of the Third Avenue Value Fund (TAVFX) is now investing in Hong Kong

Marty Whitman Q2 Shareholder Letter


Disclosure ("none" means no position):

Tuesday's Links

Indeflation, Welfare, Oil v Gas, Roubini

- Chris nails it. We are in a period of commodity inflation due to scarcity and incessant money printing and deflationary asset prices. For those wondering, this is not good

- Are we surprised? Nothing out of Washington in terms of aid is actually tied to working or responsibility

- 6 reasons gas in a better investment than oil. I agree with all six.

-


Disclosure ("none" means no position):

Sears Holdings: A Reader Submits

Reader Justin did some nice work on this presentation. Rather than blather on and add my two cents, I'll let it stand on its own.


How Sears Stacks Up!


Disclosure ("none" means no position):Long SHLD

Railroads..... "Green"

For those looking for "green investments", the answer may just be rolling through cities and towns all over America.

For instance, Burlington Norhthern recently announced:

BNSF Railway Company (BNSF) today announced that it has developed a new tool that allows shippers to quantify the amount of carbon emissions that can be saved for those route segments on rail instead of over the road. Overall, shipping by BNSF can save Americans an average of 200 pounds of greenhouse gas emissions per American per year, which is the equivalent of planting 37 trees for each person living in the United States.
"Earlier this year, BNSF provided its customers with customized letters that analyzed their total rail carbon footprint and savings compared to movements of those shipments over the road," said John Lanigan, executive vice president and chief marketing officer. "Because of the overwhelming positive customer response to this yearly analysis, we wanted to provide our customers with a tool they can use to determine environmental benefits before they make their transportation choice."
The new BNSF Carbon Estimator tool bases its calculations on commodity type and weight, and distance traveled by rail. It also takes into consideration the different fuel efficiency of trailer, container or carload shipments, and incorporates the required truck movements to and from BNSF intermodal facilities. The calculations used by the BNSF Carbon Estimator and its accuracy have been verified by Clear Carbon Consulting.
"In addition to conserving scarce energy resources, rail provides tremendous value in reducing the country's overall transportation emissions and carbon footprint," Lanigan said. "In 2008, BNSF reduced our nation's greenhouse gas emissions by 30 million metric tons by moving shipments over the rail rather than on our nation's crowded highways. We hope this new tool helps our customers make greener transportation choices. After all, if you can't calculate it, you can't change it."

Consider this:

Association of American Railroads -Research Report Smart Effective Way to Reduce Greenhouse Gas Emissions J...

Here is one thing to consider. It seems that some type of "Cap & Trade" system is coming down the pike. Could shipping by rail be part of it in order to reduce emissions? We know that it does, we just need to know if/how it is included in the legislation. If it is, that could be a huge boon to railroads, all of them. The first ones to look at would be those that serve industrial markets as those would be the heaviest emitters and thus those most likely to use rail in some fashion for carbon reduction means.

I have not looked any further into it other than postulating and won't until the legislation gets out of the amoeba stage and into something tangible. At that point though, it does bear a much closer look because it very well could cause a substantial and permanent change in rail demand...


Disclosure ("none" means no position):None

Dow Ag Still Up For Sale?

I thought we had put this to bed but this little item in the South China Morning Post caught my attention:

China National Chemical Corp, the mainland's largest chemicals maker, has returned to the bidders' table after Dow Chemical (DOW) restarted an auction for its agricultural chemical unit, Dow AgroSciences, which could fetch as much as US$7 billion, market sources said pitting ChemChina against Monsanto and Switzerland’s Sygenta, the world’s biggest farm chemicals maker. Sources told the paper that the odds are against a successful acquisition by ChemChina, as Monsanto (MON) and Sygenta’s businesses are more in line with those of Dow AgroSciences. ChemChina has previously rejected offers of a minority stake in the unit, favoring a takeover or joint venture. Chinese chemical firms such as Sinochem, Sinopec and ChemChina have been pursuing overseas acquisitions to expand their product offerings.

We need to look back here. Originally, Dow had planned have the Rohm purchase bridge loan of $9.5 billion down to a balance of $4.2 billion in 90 days. As of last mid-May, the loan is now down to $3 billion, meaning $1.2 billion additional has been paid off 55 days ahead of schedule according to the company.

Dow said it continues to look at its options to sell units. In addition to over $3 billion from the sale of Morton Salt, TRN, Calcium Chloride and other units, Dow is considering raising $4 billion to $6 billion from businesses in a successor to the K-Dow Petrochemicals deal or regional agreements; $1 to $2 billion from aromatics and derivatives.

Dow has also since then announced another $900 million in asset sales

Based on that, there is no reason to sell Dow Ag, none. If the goal is truly to turn Dow into a stable earnings growth company, the Dow Ag must be an integral part of the finished product. Further, when one considers the current market we are in, selling an asset like Dow Ag into it is not going to garnish full value for the seller. If the unit must be even partially sold, doing it a year from now when we are further into the recovery would reap far more value for shareholders.

Now, this still may just be taking bids to see if an "offer we can't refuse" is submitted or to garner concrete value for a partial IPO. Still, when perhaps the most valuable part of a company is even being mentioned in a sale process, investors are wise to keep close tabs on it.



Disclosure ("none" means no position):Long DOW ,none

Thursday's Links Bogle-palooza

All Bogle..note to Mornigstar, make your vid embeddable. Charging $8500 to put the on a blog is insane....has anyone actually ever bought one? Wider distribution will get you more readers, free embeds would do just that..

- How to keep your portfolio on track

- Bogle addresses the notion that "buy and hold" is dead

- What the business of investing is all about

- "This is the worst bear market I have ever seen"



Disclosure ("none" means no position):

New Addition

The Sullivan clan added a 4th child Wed. am. Posting to be limited this week.



Thank You

Wednesday's Links

Google, Breastfeeding, Berkowitz, Berkowitz

- Logging twitter feeds......this I think bigger news than people are making it out to be for those of us on Twitter

- Breastfeeding & kids. FTR, I am pro-breasts

- Berkowitz and AmeriCredit

- Berkowitz and his Florida land deal


Disclosure ("none" means no position):

Pershing Square General Growth Swap Details

Have been getting a bunch of questions regarding General Growth (GGWPQ). The majority tend to be of the "is it too late to buy?" vein.

I thought I would answer by giving some of Bill Ackman's (the company's largest shareholder) ownership data. Remember, Ackman has said he feels he may eventually see 13 times appreciation over his purchase prices. The swaps are settled monthly with collateral being posted in either direction based on the movement of the stock price and a cash payment in either direction at expiration..

Chart (click to enlarge)



SEC Filing


Disclosure ("none" means no position):Long GGWPQ

Bloomberg Looks at Natural Gas Rise

Reader know we hold both UNG (UNG) the natural gas ETF and Oct. 16 calls on UNG. Analysis and Discussion with Neal Dingmann of Wunderlich Securities.






Disclosure ("none" means no position):Long UNG

Tuesday's Links

Iran, Inflation, Cell Tax, Stimulus

- As much as this will be very bad for everyone, can you blame them?

- I agree. I just can't see a way this is avoided

- This is too much.We are being nickeled and dimed to death people. Have you ever looked at your cell phone bill? It is already taxed insanely...

- If Geithner is wrong, the mess he will have created just may today look like the "good 'ole days". To in one sentence call actions unprescedented and then claim they have an exit strategy is dishonest. There is no road map here. If that is true, to then say with any degree of confidence you know how to unwind what you have done is either dishonest or naive. Either is dangerous...


Disclosure ("none" means no position):

Lenders Seek To Remove Malls From General Growth Chapter 11

There are two questions we need to answer:
- Will they be successful?
- Does it matter?

First the news:

From the Providence Journal:

In a filing with the U.S. Bankruptcy Court in New York City, MetLife contends General Growth is trying to “cramdown” a wholesale reorganization plan for its more than 200 mall properties that will hurt the insurer’s financial interests in Providence Place.

“No reorganizational purpose is served by allowing [the mall owners] to have the benefits and powers of Chapter 11,” MetLife states in a recent court filing.

MetLife contends the mall’s net operating income, a standard measure of the cash flow generated by real estate holdings, is more than enough to satisfy the debt payments tied to Providence Place.

General Growth borrowed nearly $400 million from Lehman Brothers Bank on Providence Place shortly after it took control of the retail center in 2004. In August 2005, Lehman Brothers sold a portion of that debt, $104.3 million, to MetLife, secured by the Providence Place property.

According to the court filing, Providence Place generated $9.9 million in free cash in 2008, after subtracting the roughly $25 million in total payments due on two loans on the property. MetLife also claims General Growth made no effort to refinance or extend its loan from MetLife.

The borrowing, on a shopping center that had changed hands only months before for $510 million, is symptomatic of the problems General Growth Properties Inc. (GGP:NYSE) created for itself as it amassed a portfolio of more than 200 properties in 44 states.

General Growth filed for Chapter 11 bankruptcy protection after failing to persuade a majority of its debt holders to give it more time to refinance billions of dollars in debt racked up during an aggressive expansion that included the $11.3-billion purchase of Rouse Co. in 2004. Just months before, Baltimore, Md.-based Rouse had purchased Providence Place for $510 million from the developers who built the shopping center in the late 1990s.

General Growth had about $29.6 billion in assets and more than $27 billion in liabilities as of Dec. 31, according to documents filed with the U.S. Bankruptcy Court in the Southern District of New York.

MetLife’s demand, first made in a May 29 filing, followed similar ones by other lenders to General Growth. On May 7, a unit of Wells Fargo Bank asked the court to pull Boston’s Faneuil Hall Marketplace out of the massive bankruptcy case, citing much the same reasoning used by MetLife.

Wells Fargo-FHM claims rents at Faneuil Hall Marketplace are large enough to cover the monthly loan payments and operating costs at the iconic shopping center.

Clarion Capital Services LLC, which holds mortgages on eight malls General Growth owns in the West, has made the same request in a separate filing.

Where to start. Simply put, in order for the entities to be removed from the Chapter 11 process, the essentially have to prove that GGP engaged in "bad faith" in its filing.

General Growth Council answers this claim:

"Against this backdrop, Movants’ claim of “bad faith” filing is meritless. In this Circuit, dismissal for lack of good faith should be granted “sparingly, with great caution,” In re G.S. Distrib., Inc., 331 B.R. 552, 566 (Bankr. S.D.N.Y. 2005) (Gropper, J.) (internal quotation marks omitted), and only “if both [1] objective futility of the reorganization process and [2] subjective bad faith in filing the petition are found.” In re Kingston Square Assocs., 214 B.R. 713, 725 (Bankr. S.D.N.Y. 1997) (emphasis in original). A bankruptcy petition should not be dismissed unless “it is clear that on the filing date there was no reasonable likelihood that the debtor intended to reorganize and no reasonable probability that it would eventually emerge from bankruptcy proceedings.” Baker v. Latham Sparrowbush Assocs. (In re Cohoes Indus. Terminal, Inc.), 931 F.2d 222, 227 (2d Cir. 1991). The Movants bear this heavy burden, but they do not and cannot satisfy it.

► Reorganization Is Not Objectively Futile. Because they have nothing to say about
this requirement, Movants ignore it. Not only do Movants fail to offer any evidence of objective futility, but the facts they assert and that are disclosed in their depositions – that the project entities presently have positive cash flows and are current on their loans – dispel the notion that a restructuring here would be futile. Rather, these claimed facts establish a reasonable likelihood that the debtors can successfully emerge from bankruptcy. The motions fail for this reason alone.

► There Is No Subjective Bad Faith. The crux of Movants’ argument is that the
filing was in bad faith because the Project Debtors currently are not at risk of imminent default. This ignores that two of the Project Debtors, Faneuil Hall Marketplace, LLC and RS Properties Inc., already were in default before filing for bankruptcy, and is not the relevant legal standard in any event. Rather, a debtor need only “face such financial difficulty that, if it did not file at that time, it could anticipate the need to file in the future.” Cohoes, 931 F.2d at 228. Given the
condition of the credit markets, the boards made a considered and reasonable judgment that filing for bankruptcy and undertaking a coordinated restructuring now would maximize stakeholder value for each Project Debtor. Waiting for a series of anticipated defaults would benefit no one.

Finally, ING speculates that one of the Project Debtors – the Lancaster Trust – is a
land trust and therefore “may not” be eligible to file for bankruptcy. ING is legally and factually incorrect. Like any other trust, a land trust may file for bankruptcy, so long as it engages in some business activity. Here, the Lancaster Trust is an operating business, just like every other GGP project-level subsidiary, and its leasing documents reflect that it is in fact an Illinois business trust. It is, therefore, eligible to file under the Bankruptcy Code."

Now, did GGP make a good faith effort to extend loan before filing Chapter 11?:

As GGP’s President and COO Thomas Nolan testified, “the master servicers indicated [to GGP] that they had no ability to make any meaningful amendments, adjustments, restructurings on the – on the loans and that until such time as a loan went into default, that they weren’t capable or they weren’t allowed under their servicing agreements to engage in any discussion [of] restructurings and that only those matters could be addressed with the special servicer.” (Ex. 3, Nolan Dep. at
29:8-17) Helios’ corporate representative likewise testified that if a borrower had contacted the special servicer concerning the terms of a loan for which a special servicing event had not yet occurred, the special servicer would have refused to discuss the issue: “We would simply explain that a servicing transfer event has not occurred and that our authority under the PSA is triggered only by a servicing transfer event. They – there was no role that we can play in the discussions, negotiations of a loan until after the servicing transfer event.”

In other words, under the CMBS structure, master servicers generally do not have authority to renegotiate loan terms. That authority resides with the special servicers but the Project Debtors cannot talk to the special servicers until the loan is close to, or in, default. The bankruptcy filings thus eliminated one of the fundamental structural impediments to renegotiating CMBS loan terms.29

So then what are the courts parameters in calling a filing "in bad faith" and thus removing entities currently in bankruptcy?

In re Kingston Square Assocs., 214 B.R. 713, 725 (Bankr. S.D.N.Y. 1997); see In re RCM Global Long Term Capital Appreciation Fund, Ltd., 200 B.R. 514, 520 (Bankr. S.D.N.Y. 1996), the court held a bankruptcy petition should not be dismissed unless “it is clear that on the filing date” that (1) “there was no reasonable likelihood that the debtor intended to reorganize,” and (2) there was “no reasonable probability that it would eventually emerge from bankruptcy proceedings.”

The SPE's actually in a round about way make the case that the Chapter 11 filings, based on their claims that the entities included are viable make the case FOR GGP that emergence from Chapter 11 was not only planned but likely, thus rendering the "bad faith" argument moot.

Neither of the above conditions apply to General Growth Properties, because of that, based on case law, the motions for the entities to be removed from the Chapter 11 process ought to be denied.

If they are denied, and again, once in Court the outcome is never guaranteed, then a global solution will be more likely for General Growth. A global solution, barring a total collapse of the CRE market means shareholders ought to be happy when this is concluded.

Full Filing:

GGP 705

Publish at Scribd or explore others: Finance Business & Law general growth prope

Disclosure ("none" means no position):Long GGWPQ

Inflation's "Green Shoots"

A press release hit the wires a few minutes ago that ought to make people look again at the inflations meme.

The Dow Chemical Company (NYSE:DOW) announced today that it will increase the off schedule prices for Acrylic Monomers in North America and Latin America, effective July 1, 2009, or as contracts allow. The increases are $0.10/lb or
$220/MT for Acrylates, Methacrylates and Specialty Monomers.

The company also announced it will increase the off schedule prices in Europe and Asia for Acrylates, Methacrylates and Specialty Monomers by $0.3/lb or $70/MT, effective July 1, 2009.

These increases are necessitated by the continuous cost escalation of key raw
materials used to manufacture monomer products.

Now Dow is a "building blocks" company. In its simplest terms, they make the stuff people use all over the world to make stuff we use. If they are increasing prices, then those prices either:

1- Get absorbed by the companies buying their chemicals, causing profits to fall or:
2- Get passed onto to end users (us) causing consumer prices to rise

We have been told repeatedly that inflation will not be a problem. Yet, we are beginning to see anecdotal evidence that it is brewing. Admittedly these are not widespread price increases but they are price increases that effect scores of industries.

It bears very close watching....

Disclosure ("none" means no position):Long Dow

Six Flags "Inherited" Problem

Six Flags (SIXF) CEO Mark Shaprio is at it again. He issued a letter to employees and in it was, for me, a startling paragraph.

The letter is below but there is one paragraph you really have to read:

Unfortunately, however, as you know, we inherited an unsustainable $2.4 billion debt load from the previous management team. To put it into context, even if you have a record year and make approximately $275 million as we did last year, when you have to pay out approximately $175 million in interest expense on your debt and $100MM in park improvements to maintain and keep up with the business, that's a balancing act you just can't risk year in and year out. Furthermore, we have over $400 million of debt coming due within the next 12 months that cannot be refinanced in these financial markets.

Let's look at it. Shapiro is saying that he "inherited" the current situation (that seems to be the excuse of the moment recently?). But, he didn't. Daniel Snyder waged a proxy contest in 2005 against the management team at Six Flags. He was successful at placing Shaprio in as the head of the company. Shapiro and his team sought out the situation they are currently in, they did not "inherit" it.

Proof?

In 2005 Snyder, when he proposed Shaprio and himself be named to the board at Six Flags said in an SEC filing:

Although we believe the entire Board should be held accountable to stockholders and removed for the Company's underperformance, we are seeking only a non-majority position on the Board due to the approximately $2.6 billion in poison debt and preferred stock (collectively, the "poison debt") the Company has put in place over the years. The Company's approximately $2.6 billion in "poison debt" permits the holders of such securities to either accelerate the outstanding amounts or require the Company to offer to repurchase the securities if we (or any other party) were to obtain a majority position on the Board. For this reason, if elected, our Nominees will not be able to cause the Board to take (or not take) any specific actions, but we are confident that our Nominees will use their best efforts to influence the Board and management and bring about changes that in their judgment are in the best interests of all Six Flags' stockholders.

We believe that with the right management team in place, Six Flags can implement measures to increase revenue and decrease expenses, eventually outperform its peers in the amusement, recreation and leisure industry and maximize stockholder value. Therefore, on or about the time we file our definitive consent solicitation statement with the SEC, we plan to commence a fully funded cash tender offer (the "Offer") to purchase up to 34.9% of the Company's outstanding Shares (the calculation of such percentage to include any Shares we own at the time we accept Shares for purchase pursuant to the Offer) at a price of $6.50 per share. The Offer will be on the terms and subject to the conditions to be set forth in an offer to purchase and related letter of transmittal which we plan to file with the SEC at the commencement of the Offer.

Six Flags answered Snyder by saying:

Red Zone contends that the Company's strategies must be completely overhauled. Yet, the evidence, in our judgement, shows that our plan is working. Starting in late 2003, the Company launched a series of initiatives to improve performance, including targeted capital expenditures, improved guest services and the aggressive launch of a new advertising program. Early results of the turnaround include significant increases in attendance, per capita spending and cash flow. The Company recently reported that year-to-date revenues through August 1 of this year were 9.8% higher than in the comparable period of the prior year, on an attendance increase of 6.3%. This compares to a 1.8% decrease in revenues in the comparable 2004 period over the prior year and an attendance decrease of 4.2%.

If any of that reasoning sounds familiar, it should. It is the same lame attempt at painting a rosy picture for a money losing operation Shaprio has been using every quarter since he assumed control. Read the letter below, it is there...

Also from the "other guys playbook". Snyder in his letters chiding previous management said they "cannot continue to blame bad weather for poor results". Yet, in 2007, Shaprio rolled out he very same excuse.

Let's just say Shapiro inherited nothing, he got exactly what he and Snyder wanted. It should be noted here that over he last two years, current management added net $240 million of debt onto the company's exhisting debt load.

Now, am I defending prior management? No. Six flags has been doomed for years and the above paragraph in Shaprio's letter seems to admit it . The letter is stunning in that it openly admits even in a record year, Six Flags will be a money loser. In his haste to blame previous management, he in effect lays a question mark on anything he has said about "increasing shareholder value" in the past.

Daniel Snyder is on record saying Shapiro and his team's performance "exceeded expectations". Well, if a record year that exceed expectations resulted in a loss and an admission that the situation was unsustainable, then how did they ever really expect to turn a profit?

When all is said and done, despite all the rhetoric, Six Flags performance has gone nowhere. In 2005 the company had operating income of $129 million on revenues of $956 million and debt of $2.24 billion and lost $1.17 a share. In 2008, the company made $143 million from operations on $1.02 billion in revenues while carrying $2.36 billion in debt and losing $1.11 a share. Flat-lined....

Shaprio & Co. did increased liabilities by $600 million while decreasing assets by $400 million and increasing share count by 4 million. If you are wondering, none of these are good. Want more? Cash from operations, $120 million in 2005, fell to $66 million in 2008. In 2005 the company repaid $46 million of debt while in 2008 it added $275 million. Again, both of these bad...

I think in retrospect one would have a hard time arguing that an unfettered buyout process proposed in 2005 by pre-Snyder management, at the near height of the Private Equity buying bonanza may just have resulted in shareholders getting a far better deal when all was said and done...

Six Flags Letter to Employees

Publish at Scribd or explore others: Finance Business & Law six flags bankruptcy

Disclosure ("none" means no position):None

Monday's Links

California, Letterman, Inspector General, FOB

- Not for nothing, BUT, why do states have AG offices if they use contingency fee attorney's?

- As a father of a daughter, Dave needs a good old fashioned ass kicking...Shame on Matt Laure for defending him. Just when I thought I could not have less respect for the guy....he stoops even lower.

- This will be ignored unless the guy goes public but this scary stuff. Think any other IG is going to look at FOB (friends of Obama) if they think they can get fired?

- This article nails it. The MSM is asleep at the wheel here. They can't stop these actions but ignoring them is just sad...



Disclosure ("none" means no position):

Six Flags Mercifully Reaches its Inevitable Conclusion

Six Flags (SIX) CEO Mark Shaprio is the kind of guy who could urinate on you and tell you with smile he is "rinsing some dust off you".

From the NY Times:

The amusement park company Six Flags is seeking Chapter 11 bankruptcy protection, saying it needs to reorganize and shed $1.8 billion of debt.

Mark Shapiro, the New York-based company's chief executive officer, says the move won't affect the operation of its 20 theme parks in the U.S., Mexico and Canada.

Six Flags says it actually had a great year in 2008. It saw 25 million visitors and posted record revenues. But executives are trying to lighten a $2.4 billion debt load that they say is unsustainable.

Saturday's bankruptcy filing came after an earlier plan to negotiate an out-of-court deal with creditors failed.

Six Flags shares have traded below $1 since September. They closed at 26 cents on Friday.

A "great year". Now while the $1.11 a share they lost last year is better than the $2.49 and $2.43 they lost the previous two years, I think only the pathologically incompetent would call it "a great year". For those of you wondering, since Daniel Snyder took over the company, they never made a dime.....or a penny.

Here is a brief review of some thoughts on Six Flags here from the past:
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.

Just recently in March I wrote:

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.

The bankruptcy filing will 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 brought in his own management team who have finished the company off.

"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, today they are worthless.

There is nothing left here for shareholder, they are done. Debtholders will assume the company and the only thing left to decide is whether to break it up, sell it, or make a go off it.

Don't get me wrong, I like trying to enjoy myself with my <6 yr. old children while avoiding the cursing and smoking teenage mobs who run rampant in the park as much as the next guy, but I think it tends to put a damper on most folks day.

Whatever the new owners decide to do, who ever picks up the pieces and tries to make a go of it, I have one word for them .....FAMILY...




Disclosure ("none" means no position):None

Sunday Humor

Not safe for work, wives, moms or kids...This is hysterical though....






Disclosure ("none" means no position):

Saturday Humor

Obama Drastically Scales Back Goals For America After Visiting Denny's


Disclosure ("none" means no position):

Tobacco and The FDA: A Partnership

Here is a flashback to a post I wrote in April 2008.

Let's take a look at the FDA Tobacco Bill and see what effect it may have on the industry.

The bill would effect tobacco products manufactured and sold primarily by R.J. Reynolds Tobacco (RAI), Loews Corp.'s Lorillard Tobacco (LTR), Vector Group Ltd.'s Liggett Group (VGR), British American Tobacco (BAT) and Altria (MO) in the US.

The bill will enable the FDA to prevent the introduction of new cigarette brands.

"`(1) NEW TOBACCO PRODUCT DEFINED- For purposes of this section the term `new tobacco product' means--

`(A) any tobacco product (including those products in test markets) that was not commercially marketed in the United States as of June 1, 2003; or

`(B) any modification (including a change in design, any component, any part, or any constituent, including a smoke constituent, or in the content, delivery or form of nicotine, or any other additive or ingredient) of a tobacco product where the modified product was commercially marketed in the United States after June 1, 2003.

`(2) PREMARKET APPROVAL REQUIRED-

`(A) NEW PRODUCTS- Approval under this section of an application for premarket approval for any new tobacco product is required."


Now, what could cause a new product to be denied?

"(2) DENIAL OF APPROVAL- The Secretary shall deny approval of an application for a tobacco product if, upon the basis of the information submitted to the Secretary as part of the application and any other information before the Secretary with respect to such tobacco product, the Secretary finds that--

`(A) there is a lack of a showing that permitting such tobacco product to be marketed would be appropriate for the protection of the public health;"

In other words, do not expect a new cigarette to be introduced in the US. What is here now is what will be here 20 years from now. If you are Altria (MO), and have over 50% market share, this is very good news indeed. It also means that recently introduced low cost products may come under review and alterations to the product may become necessary that will substantially raise the cost of it. A shrinking cost basis for consumers between brands, will most likely cause many to "trade up" to the premium brand.

Currently, any litigation risk in cigarettes surrounds alleged fraud. Fraud in marketing and fraud in labeling. What will the FDA bill do? It completely removes the risk of litigation for fraud and allows the tobacco companies to tell consumers that they are complying with government product safety standards. By doing this they assure a safer product produced under the guidance of the FDA. Let's look.

Since most of the current litigation is of the "Light" cigarettes, lets go to that section.

SEC. 911. MODIFIED RISK TOBACCO PRODUCTS.

`(a) In General- No person may introduce or deliver for introduction into interstate commerce any modified risk tobacco product unless approval of an application filed pursuant to subsection (d) is effective with respect to such product.

`(b) Definitions- In this section:

`(1) MODIFIED RISK TOBACCO PRODUCT- The term `modified risk tobacco product' means any tobacco product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products.

This means FDA approval of all claims on "light" and "low tar" cigarettes. This clause means that FDA approval of these cigarettes does give their stamp of approval that "light" is "safer".

What are the conditions for approval?

Approval-

`(1) MODIFIED RISK PRODUCTS- Except as provided in paragraph (2), the Secretary shall approve an application for a modified risk tobacco product filed under this section only if the Secretary determines that the applicant has demonstrated that such product, as it is actually used by consumers, will--

`(A) significantly reduce harm and the risk of tobacco-related disease to individual tobacco users; and

`(B) benefit the health of the population as a whole taking into account both users of tobacco products and persons who do not currently use tobacco products.

They do not have to be "safe", just "safer" than the current choice to legally be called "light".

The bill also requires the FDA to inspect tobacco sellers for counterfeit cigarettes and report instances to the applicable Attorney General "immediately". This has been a very large issue for domestic manufacturers as foreign "knockoffs" have entered the country and cost Altria millions of dollars in annual revenue. The bill effectively makes the FDA the "sheriff" and forces them to protect the market.

Could the FDA ban tobacco? The bill says no.

"`(3) POWER RESERVED TO CONGRESS- Because of the importance of a decision of the Secretary to issue a regulation establishing a tobacco product standard--

`(A) banning all cigarettes, all smokeless tobacco products, all little cigars, all cigars other than little cigars, all pipe tobacco, or all roll your own tobacco products; or

`(B) requiring the reduction of nicotine yields of a tobacco product to zero,

Congress expressly reserves to itself such power."

Will Congress ban tobacco? Never.....How will the States ever replace the billions of dollars in tax revenue they receive from taxing them?

What the bill does is stop the FDA from banning tobacco and forces them to endorse it.....

The final bill passed yesterday (it is not materially different that the previous bill above)and cheers were heard from many in the Tobacco industry. That ought to have been clue #1, that this was not as advertised by those in government.

It essentially creates a government sponsored Tobacco Cartel in the US that cannot be broken into by outside players. Personally, I do not care either way. I am no longer an Altria shareholder, preferring to holds my Phillip Morris International (PM) share received in the spin off from Altria.

The government can't kill Tobacco as they rely on it too much for tax revenues. As a matter of fact, states who are receiving master settlement money have already mortgaged the future there selling bonds based on that revenue. The final bill mandate the FDA cannot remove nicotine from cigarettes so they will still be just a addicting. The bill "reduces advertising" it claims. So what? They hardly advertise now? But, hey, at least the warning labels will get bigger because we know people pay attention to those...yeah..

This bill will only serve to strengthen Big Tobacco in the US and considerable expense to US tax payers and is yet another example of why government needs to stay out of business.



Disclosure ("none" means no position):Long PM, none

CRE/CMBS Disaster Imminent? Not So Fast

The general theory has been, and even I speculated here in March that commercial real estate (CRE) & commercial mortgage backed securities (CMBS) may be the next shoe to drop. But, there have been some event recently that force us to take a closer look.

Since March we have seen improvement in the AAA rated CMBS market, mostly due to the TALF being used there. Again, no comment on the "right or wrong" of this action, but it is undeniably helping this market.

Then we had none other than Sam Zell coming out and saying that all the talk of a REIT industry "melt down" was overblown.

Most recently was the very important news that loan servicers were looking at extending maturities on debt from the customary 6-12 months to out as far as 5 years

Now this from the WSJ:

With the commercial real-estate industry bracing itself for the onslaught of hundreds of billions of dollars in maturing loans, the Treasury is considering issuing rules that will make it easier for property developers and investors and their loan servicers to restructure debt, according to people familiar with the matter.

Tax rules make it difficult for borrowers who are current on their payments to hold restructuring talks with the servicers of commercial mortgages that were packaged and sold as bonds. This lack of flexibility was one of the reasons cited by the management of mall giant General Growth Properties Inc. for its Chapter 11 bankruptcy filing in April.

At present, developers and investors complain that only those who are delinquent can talk to servicers of these bonds, named commercial-mortgage-backed securities, or CMBS. But now the Treasury is considering issuing guidance that would allow servicers to start talking about ways to avoid defaults and foreclosures sooner, possibly at least two years ahead of the maturity date of a loan, these people said. The Treasury guidance, which could be released within weeks, would essentially enable loan-modification talks to take place without triggering tax consequences, these people say.

What does it mean? If we convert this to housing. You are having trouble with you loan. Under the current rules, the banks could not talk to you about altering your loan until you defaulted. Once is default on commercial loans, all sort of cross defaults and debt covenants are triggers across other debt. This is bad.

When Treasury alters the current rules, loans can be altered BEFORE default. This huge and it retrospect may have save General Growth Properties (GGWPQ) from Chapter 11 as it was not able to restructure loans until it defaulted which then drove into 11.

Back to the article:

... property owners and investors hoping to restructure troubled mortgages are hearing a tough message from CMBS servicers: We can't talk to you unless you first fall behind on payments. This is because when CMBS offerings are created, the underlying mortgages are legally held by tax-free trusts. The trusts can be forced to pay taxes if the underlying loans are modified before they become delinquent, according to current CMBS rules.

"It can be frustrating," says Monty Bennett, chief executive of Ashford Hospitality Trust Inc. The Dallas-based real-estate investment trust that owns 102 upscale hotels has tried to start negotiations with servicers for extensions of payment deadlines for CMBS loans coming due. They have had little success. "You're trying to be proactive and get a plan together to address [a loan maturity], but you can't get someone to talk to you

There are scores of operationally healthy REIT's that will simply not be able to restructure debt as it comes due to stagnant credit markets and will suffer the same fate as GGWPWQ. By allowing refinancing (for lack of a better word) before default, many will be avoided. Will there still be defaults and REIT collapses? Yes. But the key difference will be that those falling by the wayside will not be healthy organizations but the weak that deserve to fade away.

Yesterday I had an email exchange with Davidson on the subject and he said:

All the noise about Alt-A and Commercial Real Estate being the tsunami on the horizon tells me that this one will be solved as well. I can tell you that private equity funds of $billions have been established to capture value. Roth of Vornado (VNO), Simon of Simon Prop (SPG) have cash to buy up the best properties that may be thrown on the market. Some one may take a hit but these guys may be stumbling over themselves to buy this troubled stuff and in the end a solution will clear the inventory.

It would seem that the commercial real estate (CRE) market has watched and learned something from what happened in housing. They are taking proactive steps to stave off a total meltdown. For instance REIT's have already issued equity and cut dividends (issuing them in stock rather than cash) ahead of problems rather than well after as the banks did with housing. This means that going into any problem they are already capitalized to levels that will allow far more of them to remain healthy and actually expand operations as this develops.

Does it mean there is not some pain in store? There surely is. But, I think one has to revisit the "total collapse" meme and perhaps materially alter that. Now if Treasury opts not to modify the current rule (which does not make much sense by the way) then we may very well see considerable pain here. Based on recent actions though, I think it is safe to assume something is coming from them.

I am going to begin to look far closer at this sector and will report in as I find things..


Disclosure ("none" means no position):Long GGWPQ, None

The CMBS Market Inventor Interviewed $$

This is a wide ranging interview. Really well done...


Ethan Penner - Interview

Publish at Scribd or explore others: Finance Business & Law real estate commerci

Disclosure ("none" means no position):

Friday's Links

Amherst, Natural Gas, Fed, Shareholders

- This may be a bit odd, but I take pleasure in seeing some little firm take the major banks for a ride...legally.

- Now is the time...it is going higher

- This story could develop into something. There will be a patsy that goes down in all of this, it remains to be seen if it is Lewis, Bernanke or Geithner...

- This is too bad. Barney Frank makes some good points in this piece on shareholder rights but is such a hostile person, he ruins it at the end with a tantrum...He seems to not get the point that this is an interview, not a speech...



Disclosure ("none" means no position):

Davidson: "Risk to Trust Always Present"

Davidson is back with more data and commentary inferring the worst may indeed be over. He has provided the charts at the end of his commentary.

"Davidson" sumbits:

The point to observe in all this is that market psychology went from cautious to panic on the Lehman failure Sept. 15th, 2008. Corporations experienced an almost immediate freezing of short term cash accounts which cascaded into Money Market funds as a literal “run on the bank” and an almost complete halt to credit based import/export and capital transactions in the US and around the world.

The reason the global financial system works is that all participants trust that certain rules will be followed and that terms in contracts will be honored. When it became clear that marginal participants had gamed the system and infected it with contracts that had violated the accepted standards of conduct, trust in exactly which contractual arrangements would be honored experienced a dramatic decline for all contracts.

The psychology of trust is elemental to a global financial system. With trust the system works! Without trust the system fails!

The system requires rules that all understand and that cannot be arbitrarily changed.

At the moment trust in the global financial system is returning as is reflected in The Conference Board’s reports of the past few days. Declaring victory, declaring the “End of the Recession” as many would like to do at this time is always subject to continuing trust in the system.

I have just finished Amity Shlaes’ “The Forgotten Man” a new and refreshing look at the Great Depression. I highly recommend it. While many previous authors have focused on policy issues, legislation errors, banking errors and the like, Shlaes’ focus is centered on the intangible quality of “Trust in the System” and how when trust is lost the system fails to function. Corporations and individuals hold on to cash not knowing who or what to trust. Just as we recently experienced!




Trust is returning, but if someone again games the rules, then trust can be lost. Market participants are working through the issues one at a time.

Risk to trust is always present.

Disclosure ("none" means no position):

Wall St. Media 6/10

Talking about General Growth Properties (GGWPQ), Oil (USO), Gold (GLD), Natural Gas (UNG) and Red Sox/Yanks

See more video at Wall St. Media





Disclosure ("none" means no position):

Thursday's Links

Taxes, Reading, Shoe, Jobs

- We live in a world without traditional borders. The US tax rate MUST compete internationally or we will lose jobs. There is no debate on that. NY & California have seen that with their wealthy resident as they decided to move rather than pay exorbitant taxes. Nations will suffer the same fate

- Interesting polls on what people tend to read re: their views.

- Now, I'm not a fan of the guy but this is is bit much. But, it does go to the hyper-sensitive nature of Israel right now feeling isolated. That is very, very dangerous

- What is dissapointing is that the MSM is letting this go. There IS NO way to measure what the administration claims. Why do they continue to let them claim it?


Disclosure ("none" means no position):

Substantive Conslidation, CMBS, GGP

June 17th. D-Day for many lenders in the General Growth (GGWPQ) bankruptcy case. Why?

From Reuters:

group of creditors and loan servicers is scheduled to ask U.S. bankruptcy Judge Allan Gropper on June 17 to dismiss about a dozen malls from the case.

Chicago-based General Growth set up each mall as a special purpose entity -- a separate company -- that protected General Growth from each of the malls' obligations. Each SPE was be governed by independent directors, and each entity's cash was to be managed separately. They were intended to be "bankruptcy remote."

During the hearing next week, the creditors of the SPEs will argue that General Growth put the SPEs into bankruptcy in order to give the company more leverage from which to negotiate loan modifications and extensions.

The commercial real estate and the lending sectors will be watching this hearing and the overall bankruptcy, said experts speaking at the Commercial Mortgage Securities Association conference in New York.

"I think the debtor (General Growth) is inclined to fast track this, and we will have to wait to see what proposals come out short of a dismissal to see if the a negotiated exit is possible," Cross said.

When General Growth filed for bankruptcy protection in April, it swept 166 of its malls along with it, replacing the directors with new ones who voted to put the SPEs into bankruptcy. The entities in bankruptcy were facing $24 billion of debt, about $15 billion of which consisted of commercial mortgage-backed securities.

The remainder of General Growth's other 200 or so malls are joint ventures and are not in bankruptcy nor is the General Growth's management company.

Will the judge rule to consolidate or not?

When a corporation files for bankruptcy, the court must address a fundamental question: Are these entities legally distinct or should they be collapsed?

Substantive consolidation is the pooling of the assets and liabilities of technically distinct corporate entities. For the purposes of confirming a Chapter 11 plan or for liquidating assets under Chapter 7, the creditors of the previously distinct subsidiaries are creditors of a single debtor. Although courts use language akin to “piercing the corporate veil,” the doctrines are quite distinct—instead of pooling assets vertically (e.g. parent and subsidiary), substantive consolidation pools asserts horizontally (e.g. subsidiary and subsidiary).

Is this valid in the GGP Chapter 11? In many instances, yes. What we have brewing is a ruling of the lending agreements vs the actual structure and operations of the SPE. In many instances in the malls in question, there was no defined separate director (or whether or not there was one is debatable) and cash flows were not managed independently from other operations. This enables them to be consolidated under Chapter 11. The consolidation will be done on a mall by mall ruling but expect many to be folder into the current filing.

How does this effect shareholders. Directly, it doesn't as we only care about the big picture (what is left after debt claims settled). Indirectly, it does. If GGP is victorious in this ruling, they then will have more sway over debtholders. The more debt that can be extended, the stronger the resulting entity that emerges remains. Also, the fewer moving parts in a filing, the faster it is then able to emerge from Chapter 11.








Disclosure ("none" means no position):

Beige Book: "Economic Conditions Remained Weak or Deteriorated"

Here is the line most are looking for:

Reports from the twelve Federal Reserve District Banks indicate that economic conditions remained weak or deteriorated further during the period from mid-April through May. However, five of the Districts noted that the downward trend is showing signs of moderating. Further, contacts from several Districts said that their expectations have improved, though they do not see a substantial increase in economic activity through the end of the year.

This goes to our expectations. The decline moderates or perhaps stop and then we just slog around for a while.

Read the last section on pricing. This is the first reports we have seen of steady or increasing prices in certain areas. Now, that those increases are coming in food and fuel are concerning because people cannot do without either. This bears close watching...

Fed Beige Book 6-2009

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Disclosure ("none" means no position):

Interesting Oil Discussion

I have no idea who this guy is, but this is the first unique view on oil (USO) and its rise aside from the usual demons (inflation/dollar weakness).

He makes a valid point that the inflation argument for oil does not really hold up as Gold (GLD) has not participated in the current rise w/oil.

To me the "endless bid" theory makes perfect sense. Now, all three have a part in its rise and I am not saying this is the sole reason, but the bid theory does explain why oil is moving opposite fundamentals recently.





Disclosure ("none" means no position):none

Jim Grant Talks Inflation, The Fed and What He'd Do.

Grant is great. A nice reasoned opinion. If I am being honest I was getting more that a little frustrated at the CNBC crew interrupting him incessantly. New Rule: If you ask more than a 1 word answer question, please allow for it to be answered.

Not for nothing but Carlos there letting us know how many Google hits "inflation" gets vs "deflation" has to just about be the most useless bit of information ever expelled from any orifice on air. Really Carlos, you have Jim Grant sitting there and you are doing a Google search?

Anyway, here it is...







Disclosure ("none" means no position):

Commercial Mortgage Servicers Extending Maturities

For shareholders of General Growth Properties (GGWPQ) this bit of news is huge....it really is.

From Reuters:

U.S. commercial real estate mortgage servicers are seeking to extend maturing loans for up to five years in a bid to prevent borrowers from defaulting and giving up office, retail and apartment buildings at distressed levels, an industry executive said on Tuesday.

The moves by special servicers, which oversee mortgages in or near default, would sharply increase the maturity of the loans from the six- to 12-month extensions commonly negotiated today, John D'Amico, a senior managing director at Centerline Capital Group, told Reuters after a panel hosted by the Commercial Mortgage Securities Association in New York.

Modifying loans has consumed the $700 billion market for commercial mortgage securities this year. Frozen credit markets have limited refinancings for maturing loans in commercial mortgage-backed securities, resulting in a wave of defaults and exacerbating the impact of the U.S. economic recession.

Loans coming due in CMBS will grow to $42 billion in 2010 and $69 billion in 2011, from $15 billion this year, according to Credit Suisse.

So why is this such a big deal? It is an admission by the industry that market were broken AND that the best way to prevent a cascade of defaults is to materially extend maturities of current debt.

This scenario is the reason for GGP's Chapter 11 and expected to be the very plan put forward when it files the plan of reorganization later this year. The plan stands a far better chance of acceptance by the court and will resist challenges from any dissenting groups if the plan runs in accordance with already established practices by the industry. Creditors will not be able to argue the plan is "unfair" if what is being proposed is in some form what is already being practiced.

From the article:

The loan "workout" process has often turned "nasty" as servicers try to hammer out terms agreeable to a variety of borrowers, lenders and investors that will limit losses and prevent foreclosures, a lawyer said at the CMSA conference on Monday. Among sticking points, lenders often demand borrowers put up additional equity, and the extensions add risk for CMBS investors because it delays return of their principal.

But with property prices falling and outlooks dire, parties are coming to terms with longer extensions, D'Amico said.

"I think we will see more cases where people will put more (equity) in the properties" to get extensions of up to five years, D'Amico said.

This gives even more credence to the cram-down scenario we brought up here in April. It is not by any means unreasonable to think the court will simply say that since the market is currently operating in this fashion, it is going to handle to Chapter 11 in a similar way and simply extend all debt.

A cram-down in this case that uses existing practices as a general guide would make for an expedited Chapter 11 and give a certain level of stability to a market that desperately needs it. It also is the best scenario to ensure both debtholders and stake holder are kept whole.


Disclosure ("none" means no position):Long GGWPQ

Berkowitz, Marsico and Weitz Talk Stocks

Classic line..... from Berkowitz on what stocks to buy, "You want a company where your idiot nephew can make money"


Covered: Sears (SHLD), Leucadia (LUK), Berkshire (BRK.A) Pfizer (PFE)

Berkowitz Marsico and Weitz

Publish at Scribd or explore others: Finance Business & Law bruce berkowitz wall

Disclosure ("none" means no position):Long SHLD, none

A Special Invitation for ValuePlays Readers

I have been playing around with SkyGrid for a while now. It is in beta and is currently offered to people by invitation only. I think this has the possibility to replace much of what I currently use Google Reader for as it enable me to group stories by topic, ticker, portfolio, etc... enabling far more efficient information gathering.

It is also Twitter connected making it easy to share items with your Twitter folks.

There are only a limited number of invites so follow this link to get your invitation if you are interested



Disclosure ("none" means no position):

Wednesday's Links

Taxes, Krugman, SCOTUS,

- For anyone who has ever run a small business, this plan is disastrous. It will cause booking costs to explode and it essentially places the burden on tax collection from the IRS to the payer of services, not the payee. If we just went to a straight consumption tax, we could rid ourselves of all of this

- Paul needs to make up his mind....it was just recently he said 2009 was lost. Now he expects us to recover? Still can't figure out why anyone listens to him..really, i can't.

- Place your bets on Sotomayor. Personally I find racism of ANY kind distasteful and she ought to be eliminated. Has anyone asked her why "Lady Justice" is blindfolded? Because color/race/gender are not supposed to come into the mix. Just ask the all lily white court that ruled in Brown v Board of Education.

- Vitaliy is right. The best thing for everyone now is to see stock values rising. 401K's look better, investment accounts gains value and people feel safer.



Disclosure ("none" means no position):

Pershing Square Q1 Partner Letter

Pershing Square's Q1 Letter to Investors

Publish at Scribd or explore others: Finance Business & Law target pershing square capi

Disclosure ("none" means no position):

General Growth's Director Letter to Ackman

Here is the the letter from General Growth Properties (GGWPQ) to Bill Ackman inviting him to join the Board of Directors.

GGP Letter to Ackman

Publish at Scribd or explore others: Finance Business & Law bill ackman general

Disclosure ("none" means no position):

The New Value Investor's Guide: "The Active Value Investor"

So, what if I told you there was a book out there that gave you the fundamental background of investing from Buffett/Graham yet answered the questions that haunts most value investors........when to sell?

Value investing is wrongly associated with "buy and hold". That is simply because its principle practishioner today, Berkshire's (BRK.A) Warren Buffett has said repeatedly that his favorite holding period for a stock "is forever". Now, while that may be true for some of his portfolio, Buffett does fairly regularly trade in and out of positions in the rest of it for various reasons. Personally, I think Buffett is doing investors a disservice making statements like that, but that is a post for another day.

Back to the book..

Vitaliy Katsenelson in 2007 wrote, "Active Value Investing".

Here is the boiler plate stuff:

Katsenelson's is straightforward enough to keep a rookie investor engaged, and in-depth enough to retain the interest of old pros, which makes this a great book for those of all skill levels. He does a comprehensive job of reviewing the market's past, projecting its potential future, and developing a case for why value investing will shine as the market stagnates. He combines historical and financial analysis, along with engaging stories from his experience as a professional investment manager.--Chuck Saletta, Motley Fool

This book should be considered a practical compendium of modern finance, leaving no stones unturned on your way to better investments. Katsenelson’s passionate, witty and accessible writing expertly takes the reader through his original framework for valuing stocks in range-bound markets. A student of history and an overzealous stock picker, the author entertainingly illustrates every concept with a collection of real-world examples, demonstrating an impressive breadth and depth of understanding of what makes stocks move!--J.P. Tremblay, CFA

"How to adapt value investing for "range-bound" markets." (Financial Times, Tues 26th February 2008)

"The new Benjamin Graham is Vitaliy N. Katsenelson. I highly recommend Katsenelson's book, Active Value Investing: Making Money in Range-Bound Markets (Wiley, 2007). I like to think the old Ben Graham would have recommended it, too."--Forbes

Why is this so different from every other value investing book? It dispels the myth that the best thing for an investor to do is "buy it and forget it". While that works wonderfully in long bull markets, in a market that is range bound, it means your investment tends to make a round trip back to where it started.

This caught my interest. If we look at the S&P 500 for the last decade, today it sits 29% below where is started this time in 1999. During this time it peaked around 1500 in 2000 & 2007 and bottomed around 800 in 2002 and 2009. In other words, it has traded in a range for the last 10 years. The fact that Vitaliy in the book predicted this, while other authors were writing books about Dow 36000 or Dow 100 was not lost on me.

S&P 500 1999-2009

Vitaliy does not try to reinvent value investing. Of that, there is no need. Ben Graham did it just fine several decades ago. But, unlike others before him, Vitaliy dispels the notion (myth?) that value investing and selling stocks are somehow contradictory phrases. The typical value investing book is great at telling us when to buy a stock (they simply regurgitate Graham's words), what to look for, how to value it etc, etc. What they do not do, and this is just as dangerous as not knowing how to buy is tell us when to sell.

There are few experienced more disheartening to a value investor than buying a stock, watching it climb and then watching it collapse because we have been told countless times the best holding period "is forever". For some reason to value investors, selling is now synonymous with pornography. You don't want to admit at a cocktail party you have engaged in either.

The "not selling" action and subsequent price collapse of the stock then causes the value investor to think their purchase decision was wrong. NO. The decision to purchase was 100% correct as the stock rose, it was the lack of a decision to sell that was the error.

Enter Vitaliy. Chapter 12 is the pertinent chapter. In it he lays out simply reasons to sell (buy the book for more detail).

1- The price has gone up and the stock is no longer a value
2- Fundamentals have deteriorated

Simple? Everything is in words, in practice is gets much harder. We value guys tend to fall in love with our best picks and that blinds us to current reality at times. We have all done it. For that reason Vitaliy says that we need to have pre-determined sell metrics in place and simply make the sell decision when they are hit.

If we truly love the stock and it becomes over-priced (which means you made a great buying decision, by the way), sell it and wait for it to become a value again. Then you will have captured your deserved profit and either by additional shares next time, or have funds to invest other places.

The perfect example? Buffett and Coke (KO). Buffet bought shares of Coke (avg. price $5) and watched it explode to $86 in 1998 at which it traded for an astounding 87 times 1999's earnings. Not buy any measure was this any longer a value, it was buy all measures grossly over-valued. Buffett did not sell. Over the next decade the earnings have risen to $2.50 a share while the stock price has collapsed to today's $49. I also want to note that less than 3 months after shares hit $86 in 1998, they collapsed to $62 and never again approached $80. In fact, Coke shares have traded between $40 and $60, in a range the past decade like the overall market. Buffett has publicly alluded to that fact he should have sold Coke shares in 1998-99.

For Buffett and Berkshire shareholders, the "no sell" decision cost them  roughly $5 to $7 billion dollars (200 million shares and about $25-$35 a share in lost appreciation).

Buy low and selling high is always a successful strategy, if you actually do it. Vitaliy finally lets value investor not feel dirty for doing what they should do... "sell high".

Here is the book for purchase, it is worth every penny and more:











Disclosure ("none" means no position):

Davidowitz Goes Off the Deap End

OK, so I am not a fan of the current adminstrations policies, I agree we have spent too much, we do have too much retail and the consumer will retrench for a while. BUT, using terms like "forever" & "never" just cannot be done.

We know we cannot predict more than 6 months into the future economically without any real accuracy (some would say far less than that), so for Davidowitz to say we will "never see the same standard of lining again" is just irrational and irresponsible.

I'll give him that things are going to change short term as consumers save more (that is a really good thing) but to say what he does is just not honest. He is smart enough to know he cannot predict 10 years from now, why make bombastic statements alluding to his ability to do so?

Howard should know this. In Feb. 2005 he said that the Sears/Kmart brands would "likely no longer exist in 3-6 years".......so unless Sears folds up shop in the next 18 months, wrong Howard. Based on the last quarter Sears turned in, not likely.

This is not to say Howard doesn't know his stuff.....it is just that no one can predict years down the road confidently.

If the Great Depression did not alter people's behavior permanently, this little recession won't...

I guess is does make for a good interview...




Disclosure ("none" means no position):

"Speculation as Fine Art" $$

Was emailed this over the weekend and read it. Fans of "Reminensec of a Stock Operator", this is a quick, wonderful read.

There is a great line in the book:

"When in doubt, do nothing. Don't enter the market on half convictions; wait till the convictions are fully matured."

Anyone know of other titles from the publisher?


Dickson G Watts-Speculation as a Fine Art and Thoughts on Life-En

Publish at Scribd or explore others: Finance Business & Law stock market bond tr

Disclosure ("none" means no position):

Tuesday's Links

Debt, Treasury, Health Care, Lobby

- Real-Time US government and consumer debt clock.....frightening

- Of all the actions currently being undertaken, this is the worst. The argument for those in favor of compensation pay is that "US bank execs are paid more than those in Europe" and that limiting their compensation will not hinder the acquisition of talent. WRONG. Banks compete with SWF's, Hedge Funds, Mutual Funds and PE for talent. This is where they will and are losing talented people too.

- This logic is the same logic used by people who go and buy $800 worth of clothes that are 50% off and claim they "saved money"

- Sometimes the "little guy" isn't so little after all


Disclosure ("none" means no position):

The Jobs Illusion (not Steve)....

So, the jobs number last week was better than expected...

Was it?

David Rosenberg nails it when he says (bold emphasis mine):

All this excitement over a 345,000 payroll decline tells us that we have been in a recession for so long now that we have all forgotten what an economic expansion looks like. A 345,000 job slide is double what we were experiencing before the Lehman collapse and is worse than the worst months in each of the last two recessions.

Admittedly, with the help of a 220,000 boost from the Birth-Death model (compared with 174,000 in May 2007 — at the peak of the cycle), the nonfarm data was better than consensus estimates and not nearly as bad as what we had been seeing through most of this year when the declines were hovering around 700,000 per month. Then again, the economy is no longer contracting at a 6% annual rate, so why should anyone really be expecting detonating job losses any more? The fact that the employment data are "less bad" than a depression-style experience misses the point.

So what is this birth/death thing?

From the BLS:

In 2008, the CES sample includes about 150,000 businesses and government agencies drawn from a sampling frame of Unemployment Insurance tax accounts which cover approximately 390,000 individual worksites. The active CES sample includes approximately one-third of all nonfarm payroll workers. The sample-based estimates are adjusted each month by a statistical model designed to reduce a primary source of non-sampling error which is the inability of the sample to capture, on a timely basis, employment growth generated by new business formations.

There is an unavoidable lag between an establishment opening for business and its appearing on the sample frame and being available for sampling. Because new firm births generate a portion of employment growth each month, non-sampling methods must be used to estimate this growth.

Earlier research indicated that while both the business birth and death portions of total employment are generally significant, the net contribution is relatively small and stable. To account for this net birth/death portion of total employment, BLS uses an estimation procedure with two components: the first component excludes employment losses from business deaths from sample-based estimation in order to offset the missing employment gains from business births.

This is incorporated into the sample-based estimate procedure by simply not reflecting sample units going out of business, but imputing to them the same trend as the other firms in the sample. This step accounts for most of the net birth/death employment.

The second component is an ARIMA time series model designed to estimate the residual net birth/death employment not accounted for by the imputation. The historical time series used to create and test the ARIMA model was derived from the UI universe micro level database, and reflects the actual residual net of births and deaths over the past five years.

The net birth/death model component figures are unique to each month and exhibit a seasonal pattern that can result in negative adjustments in some months. These models do not attempt to correct for any other potential error sources in the CES estimates such as sampling error or design limitations.

Note that the net birth/death figures are not seasonally adjusted, and are applied to the not seasonally adjusted monthly employment estimates to derive the final CES employment estimates.

Here is the last year in chart form:

What I have a very hard time believing is that we are creating more new business jobs now in such restricted credit environment that we were last April before the recession hit. I could under stand a flat number as opposed to a negative one and even have it explained away as "so many business have closed doors that more of what is left are the stronger business models". That may or may not be true but at least we could look at that and find it within the realm of reality.

I cannot see how we are creating hundreds of thousand of more new businesses jobs than we are losing each month right now given what everyone is seeing out there. We are they coming from? Unemployment ranks are still climbing, initial claims climb each week and people are spending more time on unemployment. Credit markets for established businesses are difficult much less those for new business. The typical avenue for starting new business, tapping home equity, has all but evaporated so, where is the money coming from for all these news businesses?

In order for 200k plus news business jobs to be created IN EXCESS of those closing, the businesses being created are not housewives making cookies in their kitchens to sell over the internet (nothing wrong with that, just not going to move this particular needle). These are moderate sized endevours.

Anyone have any empirical evidence of one?

The big tell here is what happens going forward. April and May are seasonably better and the birth/death numbers are not seasonably adjusted. So, if the non-farm number remain about 350k each month and birth/death returns to the typical essentially flat summer numbers, that means we should see losses back into the 500k range in a month or so.

If the birth/death does not experience a dramatic summer/fall decline like it has every year this decade, then we'll really have to start to wonder if this information is beginning to be massaged for lack of a better word..

Birth/death historical information


Disclosure ("none" means no position):

Looking North of The Border for Gas

This will not be for everyone but, that does not mean it is exceptionally risky, it just has more than the usual number of moving parts.

Natural gas/the US dollar. The general thesis here is that gas prices are going up and the US dollar is going to decrease in value due to the unprecedented actions by the Fed and Treasury. So, if that is what we think, how do we play it in a single trade?

Canada.....

If we go to the Toronto stock exchange we find the CLAYMORE NATURAL GAS COMMODITY ETF (GAS: TSX) and HOR BTPR NYMX NAT GAS CL A UNT ETF (HNU: TSX).

Horizons BetaPro NYMEX Natural Gas Bull Plus ETF (HNU) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, to correspond to two times (200%) the daily performance of the New York Mercantile Exchange (NYMEX) natural gas futures contract for the next delivery month. The Fund is managed by BetaPro Management Inc.

Their US counterparts are the UNG and DXO. DXO is the 2X oil (USO) ETF and as their is no US 2X natual gas etf, is is the closest cousin to HNU. The HNU is not a currency play because we do not want to hold double ETF for a long period as they decay (2% down day loss > a 2% up day gain). We would use it simply for a trade because there is no US version of it.

GAS simply tracks NYMEX natural gas on the Toronto exchange.

Why would we use GAS rather than its US counterpart UNG? Currency.

Natural gas like all other commodities are priced in US dollars. Inflation, or the devaluation of those dollars causes the price of those commodities to rise (or not fall as much) irrespective of supply/demand/production/use variables.

When we buy GAS on the Toronto exchange, our dollars are converted to Canadian currency to make the purchase. Now, IF the US dollar continues it devaluation trend, when we convert the Canadian currency back to dollars after we sell, those Canadian dollars buy more US dollars and we get an additional bump in our trade.

Well, how has that worked out so far this year? For the past three months the Canadian Dollar/ US Dollar exchange has gone from $.79 to $.89. Essentially that means that if we had done this trade in March, every $.79 cents we invested would have bought us a dollar worth of Canadian assets. If we exited the position today, then each dollar of Canadian assets would be converted into $.89 cents of US dollars. That is a 13% return on just he currency part of the trade, any underlying commodity move excluded.

As for the commodity, the ETF fell roughly 22% during that time span. BUT, with currency buffer, your loss would only have been 9%. So, if you think you are buying natural gas at/near a bottom at these prices and if you think inflation is inevitable, then rather than buffering losses in the ETF, the currency changes with provide additional returns...

Here is the chart:

Now the obvious risk is that the US dollar begins to regain value and the trade works in the opposite direction, meaning upon conversion, each Canadian dollars then buys LESS US dollars. I think, however that risk is minimal. The US government is dead set on stopping deflation and the only way to do that is to create inflationary forces. If history tells us anything about government actions in financial matters, it is that they tend to overstep their efforts. In his case that means that we ought to expect deflation to stop and then strong inflationary trends to begin. This is one swoop devalues to dollar and causes commodity prices to rise, a double win for our trade.

Now, for those of you who look to jump in and out in a day or so, there is no point to doing this trade for the currency reason. Currencies are not going to jump that far that fast to make the trade overly beneficial for exchange reasons. But, if you are doing this for a longer time frame, I think it may work out very well for you.

Things to check

1- What fees does you broker charge you for foreign markets?
2- Any additional requirenments

Like I said at the beginning, this is not for everyone but I am leaning towards it for me...



Disclosure ("none" means no position):Long UNG, none

Gartman Bearish on Oil.....For Now

Crude oil (USO) has had a large run the past 5 months. Having sold out of all my USO positions, I am waiting for a price drop to buy back in. Gartman is a top notch trader and a guy worth listening to when it comes to commodities.

I also agree with his opinion re: the fed and unemployment.





Disclosure ("none" means no position):None

Goldman Takes A Closer Look at Borders

Goldman Sachs (GS) last week released the following note on Borders Group (BGP). Not sure many of you have notice but Borders has jumped from $2.50 to $4.50 in less than a week.

Price jump aside, what is even more promising is that their reasoning backs what we have been talking about here for the better part of 6-8 months now. Borders is heading in the right direction in a simply brutal environment....

In a group that has moved, BGP stands out as an underappreciated turnaround situation with significant potential upside off a low base. We are raising our 12-month price target sharply, to $4.50 from $2.00, reflecting BGP’s solid 1Q performance relative to expectations, strong short-term cash flow dynamics, and the more generous multiples being rewarded to levered turnaround stories in the early stages of economic recovery. The firm’s new management team is driving financial discipline, with significant cost controls, and implementing merchandising improvements, i.e. driving the children’s business, gradually exiting music and video, and reducing cycle times with vendors. BGP faces structural and financial risks, but there is a price for every security, and its riskadjusted upside has become increasingly appealing as the firm emerges from financial distress, and EBITDA looks poised to stabilize off 2008 troughs.

Implications
We are raising our 2010/2011 EPS estimates to ($0.16)/($0.08) from ($0.60)/($0.40), respectively, reflecting the 1Q beat, as the company delivered a loss of ($0.31) per share, vs. our ($0.49) and last year’s ($0.53), reflecting both gross margin and expense upside. We are flowing additional margin improvement through to the year, and expense control to 2Q & 3Q, noting that the firm does cycle substantial expense cuts at 4Q. We are also introducing a 2011 estimate of ($0.07).

Valuation
Our new $4.50 target, up from $2.00, is derived using risk/reward EV/EBITDA analysis. Note that the stock appears quite inexpensive on FCF yield, but that cash flows are not sustainable at these levels given the depressed state of cap-ex relative to D&A.

So what happens to Borders? My friend on twitter @Dasan thinks the paper book biz is headed the way of the CD via amazon (AMZN). I disgaree. While an increasing number of folks will get digital books, children's books will never be digitized and books, unlike a CD are a hands-on experience for most folks.

That being said, Borders and Barnes & Noble (BKS) need to merge. While they cannot compete separately with Amazon's Kindle, Border's deal with Sony's Reader can enable them to compete combined. Further, rather than competing with each other on price, the combined entity would see margin improvement in the physical stores & give them more bargaining strength with suppliers. Anit-trust issues are minor as Wal-Mart is a huge book retailer and the combined entity would still be dwarfed by Amazon. There is store overlap but working off that excess is less of a concern that the benefit they would see from a merger.

Let's not forget that it was just last year that BKS looked at BGP but declined to make an offer. Let's also not forget this was last year at a time when credit markets were collapsing and BGP's turnaround was in doubt by many. Now that both of those issues are far less urgent, do not be surprised to see BKS take another look at its brick and mortar rival.

Pershing Square ans Bill Ackman have become a 40% shareholder.

Patience is required on this one. This is a hold because selling now, to try and buy back in later could cost you. I can easily see a scenario in which we wake up one day and either BKS or another private equity firm make an offer for the company.


Disclosure ("none" means no position):Long BGP

Ackman Named to Board of Directors at General Growth Properties

For any of those not sure Bill Ackman would be able to influence General Growth Properties (GGWPQ) to put forward the most shareholder friendly plan of reorganzation possible, comes this:

GENERAL GROWTH PROPERTIES, INC. today announced the appointment of William A. Ackman to its Board of Directors. Mr. Ackman brings more than 16 years of investment fund manager and advisor experience to the Company.

Mr. Ackman is the founder and managing member of the general partner of Pershing Square Capital Management, L.P., an investment advisor founded in 2003. He is a member of the Board of Dean's Advisors of Harvard Business School and a Trustee of the Pershing Square Foundation. Pershing Square Capital Management and its affiliates own slightly less than 7.5% of the Company's outstanding common stock.

"Bill brings an important perspective and creative thinking to our Board at this critical time in the Company's development of a sustainable long-term capital structure and we look forward to his future contributions to the Company," said Adam Metz, chief executive officer of General Growth Properties.

GGP Information

For those who do not know, Ackman controls approx. 25% of the outstanding shares of General Growth either directly or through total return swaps. Having him on the Board is fantastic news for those holding shares. It assures mutual alignment.


Disclosure ("none" means no position):Long GGWPQ

Wells Fargo Again Expands Insurance Operations

After a brief lull from the serial insurance acquisitions of last year, Wells Fargo (WFC) is back at it.

Chicago, June 4, 2009 – Wells Fargo Insurance Services, Inc. – part of Wells Fargo & Company (NYSE: WFC) - announced today that they have signed a definitive agreement to acquire Grady & Associates, a single office, retail insurance broker in Las Vegas, Nevada. The acquisition closed June 1, 2009, and the terms of the transaction were not disclosed.

Grady & Associates has served customers across in Nevada since 1999. Founded by John Grady, the agency focuses exclusively on health and benefits insurance. The company serves a broad customer base, including customers in the hospitality, construction, hospitals, auto sales and home development industry.

“We’ll continue to service our customers in the same ways we have in the past,” said John Grady, Managing Director of Employee Benefits. “Joining Wells Fargo Insurance Services is a great benefit for our customers. We will expand our health and benefit capabilities to help customers protect their business and employees, and also be able to help them to grow their assets through our Wells Fargo connection.”

“Grady & Associates boasts a highly respected team of professionals,” said Nick Rossi, Regional Managing Director, Mountain West Region. “The team will strengthen and further support Wells Fargo Insurance Services’ existing health and benefits insurance professionals in serving our customers.”

“Grady & Associates is an outstanding retail brokerage firm and we’re excited to welcome the company to Wells Fargo,” said H. David Wood, Executive Vice President, insurance brokerage operations, West. “They will strengthen our growing presence in Nevada and further support Wells Fargo Insurance Services and the Wells Fargo commitment to help our customers succeed financially”.


About Wells Fargo Insurance Services
Wells Fargo & Company is a diversified financial services company with $1.3 trillion in assets, providing banking, insurance, investments, mortgage and consumer finance through more than 10,400 stores, over 12,000 ATMs and the internet (wellsfargo.com) across North America and internationally.

Wells Fargo Insurance Services, Inc., along with Wachovia Insurance Services, is the fifth largest insurance brokerage in the world and the largest bank-owned insurance brokerage in the U. S.

Wells is quietly becoming not only one of the largest banks in the US but one of the largest insurance brokers. With Warren Buffett being the largest shareholder in Wells and his Berkshire Hathaway (BRK.A) essentially being an insurance company, this does fit.

I currently hold shares and while I do not trust the veracity of banks earnings currently, I do know this:

1- We need banks
2- Wells Fargo & JP Morgan (JPM) may just be the only two that continue from here on out as is. Citi (C) and Bank of America (BAC) are just very weak.
3- Warren Buffett is a backstop for Wells shareholders that no other bank shareholders have and that means something.
4- Insurance, when run right is VERY profitable and diversifies Wells away from pure banking in a very positive way. This focus by Wells is a very good idea.

What you essentially have is a shrinking base of banks that will handle what banking there is out there. That means a far greater piece of the pie for those left. With that greater piece of the pie will come the profits associated with it.

Yes, Congress has plans for increased regulation but one thing we know, Bankers are smarter that those who write the laws designed to thwart them. They will still find a way to make money after all is said and done.

Would I be running out and buying banks shares now? Personally I am not as I see far other more compelling opportunities elsewhere. That does not mean I am a seller though. I am going to hold and see how this plays out.


Disclosure ("none" means no position):Long WFC, none

Monday's Links

Cable, Palm, Digital, Economy

- This deserves a closer look, there could be some value here

- Anyone have any first hand accounts of the new "Pre"? Not looking for "tech reviews". Looking for one of us common folk who have used it.

- OK, I'm sorry but if you were not aware by now that TV was going digital, perhaps you really do not need one?

- I agree with this. Just because things are "not as bad", it does not automatically equate to they are "getting better". It is my believe we are in a soft spot that has huge risk for another leg down (in housing this is all but certain). Just be careful out there.



Disclosure ("none" means no position):

Sun Activity Responsbile for Climate Change

Now the "Cap and Trade" looks as thought is might be a reality. Let's take a look at a possible cause might be. The Sun? You mean it isn't my SUV?

Sun Activity

Publish at Scribd or explore others: Science Research sun activity climate

Disclosure ("none" means no position):

"Black Money"

"Over the past two years, the U.S. government has collected almost a billion and a half dollars in fines in foreign bribery cases," says Mark Mendelsohn, the Department of Justice prosecutor in charge of more than 100 ongoing cases, one of which culminated in a record seven-year prison term for the former CEO of a subsidiary of the Halliburton Corp., and another which ended in a record $800 million fine against the German giant Siemens. "There's a whole world of conduct that rarely sees the light of day."

In Black Money, FRONTLINE correspondent Lowell Bergman investigates this shadowy side of international business, shedding light on multinational companies that have routinely made secret payments -- often referred to as "black money" -- to win billions in business.




Disclosure ("none" means no position):

"10 Trillion and Counting"

The journey begins as FRONTLINE correspondent Forrest Sawyer takes viewers to a secret location: the Treasury's debt auction room, where the U.S. government sells securities backed by the "full faith and credit of the United States." On this day, the government is auctioning $67 billion of Treasury securities. The money borrowed will be used to fund services and programs that the government cannot pay for through tax revenues alone.

Observers warn that the United States' reliance on borrowing to fund essential programs is a dangerous gamble. For the first time, investors are beginning to question the ability of federal government to meet its growing financial obligations, and fading confidence can have dire consequences. "You might have a situation where there is one day when the government says we need to sell several billion dollars of bonds, and nobody shows," Economist reporter Greg Ip tells FRONTLINE. "No money to pay the Social Security checks, no money to give to the states for their Medicaid programs. Cut, cut, cut, cut, cut."




Disclosure ("none" means no position):

Saturday "Shock and Outrage"

As regular readers know, weekends are for whatever. Whether it be humor, video, politics, whatever...

Here is today's:

Immediately after Dr. Tiller was gunned down President Obama said:

I am shocked and outraged by the murder of Dr. George Tiller as he attended church services this morning. However profound our differences as Americans over difficult issues such as abortion, they cannot be resolved by heinous acts of violence.

3.5 days after the killing of an Army recruiter and the wounding of another President Obama said:

“I am deeply saddened by this senseless act of violence against two brave young soldiers who were doing their part to strengthen our armed forces and keep our country safe. I would like to wish Quinton Ezeagwula a speedy recovery, and to offer my condolences and prayers to William Long’s family as they mourn the loss of their son.”

For the record, I think both murders were heinous and I am shocked and outraged by both acts, I just wonder why our President isn't.....

Please use the comments section for your opinion...


Disclosure ("none" means no position):

"The Culture that Caused the Crisis"

The Seventh Annual John M. Templeton, Jr. Lecture on Economic Liberties and the Constitution considers the social, cultural, and moral causes of the current financial crisis in the United States.

In doing so, the Lecture revisits basic lending principles and examines our nation's skyrocketing debt, our lack of savings, and basic understanding of economic principles within the household, as well as corporate America, and the effects of our political and legislative effort to reduce discriminatory credit practices.





Disclosure ("none" means no position):

GM's "Wiped Out" Shares rise 21% Thursday

Proof insanity knows no limits. GM (GMGMQ) shares are rising despite everyone, including GM saying they are worthless.

AP Reports:

Late Monday, U.S. bankruptcy court judge Robert Gerber gave interim approval for the Detroit-based automaker's use of a total of $33.3 billion in bankruptcy financing, with $15 billion available for use over the next three weeks. He will rule on final approval of the financing on June 25. Gerber also approved GM's sale procedures, setting a sale approval hearing for June 30.

"Our agreement with the U.S. Treasury and the governments of Canada and Ontario will create a leaner, quicker more customer and completely product-focused company, one that's more cost competitive and has a competitive balance sheet," CEO Fritz Henderson said at a news conference in New York. "This new GM will be built from the strongest parts of our business, including our best brands and products."
The Detroit automaker said warranty coverage, service and customer support will continue uninterrupted, plants will continue to make cars and trucks, and essential suppliers and GM's 235,000 employees worldwide will continue to be paid. GMAC Financial Services said in a statement that it will continues to provide automotive financing to GM and Chrysler dealers and customers, and the federal Pension Benefit Guaranty Corp. said workers' pension plans remain safe.

GM will follow a similar course taken by smaller rival Chrysler LLC, which filed for Chapter 11 protection April 30. A judge on Sunday gave Chrysler approval to sell most of its assets to Italy's Fiat, moving the U.S. automaker closer to a quick exit from court protection, possibly this week.

The plan is for the federal government to take a 60 percent ownership stake in the new GM. The Canadian government would take 12.5 percent, with the United Auto Workers getting a 17.5 percent share and unsecured bondholders receiving 10 percent. Existing GM shareholders are expected to be wiped out.

In case you are still not convinced, GM on its own website says:

Will I receive payments on any shares or cancelled shares?

We think it is unlikely that you will receive payment. We cannot predict what the ultimate value of GM’s common stock may be or whether stockholders should expect any financial recovery in the Chapter 11 proceedings. When a company files for Chapter 11, its primary obligation shifts to maximizing the value of the company for its creditors. Stockholders of a company in Chapter 11 generally recover value only if the claims of the secured and unsecured creditors are fully satisfied. Thus, in most Chapter 11 cases, stockholders receive little or no recovery of value from their investment.

Yet despite all that, GM shares have rallied from $.27 cents each the moment of the filing to $.71 cents a share on Thursday. For those who do not want to do the math, that is 162%. Yup....a 162% gain for shares the company just told you will not be worth anything soon.

Why not?  The company said it has $172.81 billion in debt and $82.29 billion in assets when it filed for Chapter 11 protection. In a Chapter 11, the ONLY way shareholders collect is if there is anything left AFTER debtholders are satisfied. With federal government getting 60% ownership, the Canadian government 12.5%, the United Auto Workers 17.5% share and unsecured bondholders receiving 10%, there is NOTHING left for current shareholders...nothing...

If you own them and think they may have value someday, they will not. Take what you can get and move on...

Disclosure ("none" means no position):None

US Homeowners Are Effectively Broke

If we subtract those folks who own their home free and clear, US homeowners essentially own what their home is worth or more.



Bad news, we can look for these number to worsen over the next year.


Disclosure ("none" means no position):

Friday's Links

GM, Fed, Mozillo, Jobs

- Romney could fix it

- Interesting comments on regulation

- Will he go quietly?

- Coming back to Apple?

Disclosure ("none" means no position):

Vanguard Picks Up 3.6 Million General Growth Shares

We knew folks were buying General Growth Properties (GGWPQ) in bulk he last couple weeks, now the news as to who is coming out. Hat Tip reader Mark for the information



Data source

Ackman's Ira Sohn Presentation on General Growth

GGP Presentation 5.27.2009

Publish at Scribd or explore others: usa air

Disclosure ("none" means no position):Long GGWPQ

Sears May Just Have Something With MyGofer $$

Let start out with the premise that we as American's love convenience and anything that saves us time. We love it for our coffee, our lunch and our prescriptions. A liquor store near me actually has a drive thru window. Anything that saves us from getting out of the car we like and will use anytime we can.

So, why not drive thru retail? If I can go online and order soap, shampoo, water, soda and other household items and then go to the store and have them bring them out to my car, can anyone tell me why I would rather wander around the store and get them myself? I mean think about it. I have 4 kids, all under 6. As relaxing and fun as you might think taking all 4 of them to the store to buy household items is, I am finding it really hard to wonder why I would rather not have someone just bring them out to my car for me when I pull up. To be even more honest, I'm finding it hard to think of a reason why I would not do that even if I did not have the kids with me.

A recent study found that convenience is becoming almost as important as price for consumers today.


Enter Sears Holdings (SHLD) concept Mygofer:

From Bnet

Brenda Storch, a spokeswoman for MyGofer and Sears Holding said:

"Our goal is to make life easier for customers and to offer options that were not available before, all designed to save customers time and money. The Joliet store will feature a large online assortment and will cater to shoppers seeking both convenience and value, from the busy parent with three kids in the back seat to the person who needs a last minute gift, the DIY’er or the host that needs to throw a party with very little notice."

Another way MyGofer provides convenience, she pointed out, is by carrying a broader assortment of products and brands than a traditional retailer including appliances, bed and bath, baby essentials, daily consumables including food, electronics, sporting goods and workwear. “Our customers can browse our expanded assortment which includes thousands of products and trusted brands to meet a variety of budget ranges,” she added. “Over time we will be able to tailor our assortments based on the needs of our customers in a given market.”

Order and pick up are designed to be convenient, too. Customers put together an order at www.mygofer.com, by phone, or at terminals in the store’s showroom lobby, then select when they’d like to receive their merchandise. They can pick up their MyGofer order immediately – or at least within a few minutes – at some other point in the day or days later. Joliet visitors retrieve their products through a drive-thru, via in-store pick-up or by shipment. “MyGofer offers its customers more flexibility than ever before, more choices, more shopping options, and we will save them valuable time on top of that,” Storch said.

Think about it. Family cookout coming this weekend and the wife give you a list Friday night of everything she wants from plastic plates, napkins, soda chips etc. Would you just go online that night, place the order and then go have it brought out to your car in the morning? Or would you rather trudge around the store on a Saturday morning? To me it is a no-brainer.

The service also lets you creates lists so that you can simply 1-click a list rather than searching for all the items each time.

The stores that have it available are listed on this link

We American's love saving time. If Sears does this right, meaning they have plenty of staff available so it is truly convenient and time saving, this could catch on very easily. But, because it is a new retail concept, execution from day one has to be seamless, otherwise the negative word of mouth will cause the idea to flame out.


Disclosure ("none" means no position):Long SHLD

Thursday'sLinks

Hosuing, Bankruptcy, Harvard, Fat Pitch

- 10 cities bucking the trend

- This is big news folks

- Agreed

- Great job George

Disclosure ("none" means no position):

A Look at Unemployment

Have been tracking the jobs information since last August. Three categories are paramount for me. Non-farm payrolls (the total), private and government. What interests me the most of the three is not the total number each month of job declines but the percentage change that number represents from the total employed the month before.

Why? If we have a firm that employees 10 people and lay off one, we have laid of 10% of the workforce. If we double employment to 20, then lay of 2, we have still laid off 10% BUT, people would also be accurate in saying "layoffs have increased 100% (from 1 to 2)". In this case, simply looking at the total number skews reality. For that reason I want to know what percent of the total who had a job the month before lost it. Then I want to know how that percentage is trending. I also want to know this for the private sector and government.

Here is the datat from the (BLS all numbers seasonally adjusted where applicable):



The number do show an improvement in the rate of decline since the Dec./Jan. highs.

The key point to note is the April numbers. Without the highly abnormal hiring done by the government (72k jobs for temporary census workers), the improvement in April would have been roughly halved. Noting that does place a large dose of doubt as the the "improvement" in the job situation. May estimates are for -532k non-farm job loses in May (to be released 6/5).

My thought is that number is too low. I think -575k or greater is more likely unless the government hired another 72k people like it did in April. Assuming the government employment changes are normalized, then I think a spike is in order...

Again, what is of more importance is how government hiring effects this number and does the rate of decline in private sector jobs abate. True growth will only come from the private sector. Government can only grow payrolls and pay for them either through increased borrowings or increase takings of private capital (taxes). Neither is conducive to growth. We cannot keep losing a greater percentage of private jobs that the overall picture would lead us to believe and hope the economy improves soon.

That also goes to earnings. Q2's earnings were better than many of the reduced expectations. BUT, it was not due to top line sales growth but increase cost cutting (jobs). If we have sales declining but cut costs ahead of them, then we can improve the earnings picture. Now, this is not to say this is a bad thing, but it is reality.



Disclosure ("none" means no position):

Tilson's Updated Housing Analysis

For those who do not wish to peruse the whole presentation (your insane if you do not) there are two slide that bear a close watch. The whole sub-prime has been exhausted. It is the Alt-A mortgage storm that is the cause of then next wave down.

What is an Alt-A loan? Current slang terms for them are "liar loans", "no doc", "teaser", "pick a pay" etc. In short, these loans, whose use exploded in 2005-2008 and the next bane of housing's existence. The largest problem comes from the resets over the next 2-3 years. These are loans that allowed the payee to "pick a payment". They could choose the full payment, interest only, or the "minimum". The minimum choice then allowed the bank to add the rest of what would have been a full payment onto the existing loan which caused it to "negatively amortize" or grow larger rather than shrink over times.

After a preset period, usually 3-5 years, the loans "reset" with a new payment (no more pick a pay) based on current interest rates and a current loan amount. Do we think folks who paid less than the full payment before will now be able to afford a new, far higher amount on a home worth less than the loan? Me either.

So the question then is, when do they reset? How much more pain is in store?


The next question is, "how big is this market"?


Yeah, big...

Please check out the presentation especially if you are either think of buying or selling a home. It may save you a fortune on either side...

T2 Partners Presentation on the Mortgage Crisis-4!3!09 3

Publish at Scribd or explore others: Finance Business & Law subprime housing crisis

Disclosure ("none" means no position):none

Wednesday's Links

Moore, Bloggers, Reich, Leftist

- Don't get the joy here

- This is exciting news

- Even the home team is turning on the administration

- It is funny how definitions change over time

Disclosure ("none" means no position):

AutoNation's Mike Jackson on the Auto Industry

AutoNation's (AN) Mike Jackson was on CNBC this am as GM (GM) files for bankruptcy protection. Since Jackson sells cars from every dealer, he is probably the best guy out there to comment on both the industry and the auto makers.

Regular readers know how high we hold Jackson here. He has his pulse on the consumer and credit markets. Not sure if he was asked to be the "car czar" or not but if he wasn't, huge fail on the government. If he was, my guess is that he turned it down because he seems to lack the ability to tolerate the garbage that goes on in Washington. Good for him (and shareholders)

Part 1: Banks are not lending...


Part 2:

Were they managed for the unions?


Part 3: What the industry will look like in 5 years




Disclosure ("none" means no position):Long AN

6/1 Appearance on Wall St. Media

Talking about oil (USO), natural gas (UNG), General Growth Properties (GGWPQ) and Phillip Morris International (PM).

See more video at Wall St. Media




Disclosure ("none" means no position):

Tuesday's Links

Funny, Newspaper, Horror, WTF???


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Disclosure ("none" means no position):

Latest Hurricane Forecast Coming Tomorrow

We all know how reliable these tend to be...not very. But, if you are an investor in oil or gas, you will want to know what is being said. It has been a few years since we have had a significant storm so I think it may tend to be "more likely than not" we see something this year..

I am long both natural gas (UNG) and oil (USO) through both the ETF's and options in them.






Disclosure ("none" means no position):

"9 Predictions for 2009" Mid-Year Update

Here is the original post from 12/26/2008

Note: I try to make these a bit of a stretch but not too far "out there" so as to make following them a bit interesting. 

Here are the predictions:
1- Oil again reaches in excess of $100 a barrel from the $40 it sits at today

update: Oil today sits in excess of $66 after having its best month is a decade....we'll see on this one..

2- The US dollar nose dives in value another 30%

update: The dollar rallied into March this year but has since given it all back and today sits roughly 4% below Jan. 1 levels.

3- Gold soars past $1100 an ounce and stays there for much of the year

update: Gold has fluctuated between $900 and $1000 an ounce and has made another run at $1000 the past two weeks. While the "most of the year" part seems to have passed, $1100 is very reachable

4- 2009 GDP growth is negative for the year

update: This looks to be as close to "in the bag" as possible after a -5.7% final Q1 number and a Q2 that does not look much better.

5- Steve Jobs leaves Apple for health reasons

update: In January Jobs did take a "leave" for health reasons and now rumors are in June, he retires

6- Illinois Gov. Rod Blagojevich takes someone in President Obama's administration down with him...media ignores it..calls the offender "a renegade staffer" and praises the new administration for not knowing what its staffers are doing.

update: Rod was indicted and faces trial. After failing to be allowed to go to Puerto Rico to film a reality series (really!!), he has been quiet. More to come on this

7- Israel takes military action against Iran (see oil and gold predictions)

update: In May President Obama gave Iran "until the end of the year" to alter its stance on the nuclear issue. Israel will not wait that long as the rhetoric out of Iran grows increasingly hostile almost daily.

8- An anti-trust suit is brought against Google

update: Turns out Obama's new antitrust Chief has previously linked Google to antitrust issues. We'll see if anything happens before 12/31

9- Dow 6/1 7500, 12/31 8300...

update: On 6/1 the Dow stood at...8500

Disclosure ("none" means no position):

Zell: Commercial Real Estate Demise Overstated

Zell makes some interesting comments on commercial real estate (CRE).

“Well, there’s been a lot of speculation and a lot of journalists have written about the impending demise of commercial real estate,” he said. “First of all, I think that the fact that interest rates are as low as they are means that even if people are under water in commercial real estate, they still can carry it. And if you’re under water and you can carry it, the last thing you’re going to do is sell it, because you don’t get anything.”
“So therefore, that’s why we have no transactions,” he said. “And I think it’s going to take two or three years before we start seeing that happen.”

While I wholly disagree with Zell on residential real estate (RRE), on the CRE side, his comments do make a level of practical sense. While it is true that there will be a few implosions, a housing style bust may not be in the offing. A simple reason may be the string of payments. Unlike a homeowner who loses their job then their home, the owner of CRE has a buffer. First the rents of the tenants pay the loans, and only when they are not enough to cover, do the owner then dip into their own pockets.

In short, the risk/payment responsibility is dispersed among several parties. Again, this is not to say that there will not be defaults, many of them or that REIT's will not suffer, it is just the widespread and pervasive losses we are seeing in RRE may not be in the cards (losses here are defined foreclosures on CRE).





Disclosure ("none" means no position):

Robert Rodriguez at Morningstar Conference

This is a long read but a must read none-the-less.

Robert Rodriquez

Publish at Scribd or explore others: Finance Business & Law

Disclosure ("none" means no position):

Some Portfolio Updates

Some minor news in a few items not enough for full posts but noteworthy none the less.

USO Calls

- Had a tight trailing stop on the OLL AI calls in USO (USO). Oil has its best month in a decade and did not want to catch a downdraft. That being said, got stopped out at 8.10 each for a 47% gain in 3 weeks. Still am holding USO AO at an unrealized gain of 41% (same time frame). Have a tight stop there also to guarantee the gains.

If I get stopped out of this, I will wait before getting back in for oil to pull back a bit. I have been more active here than normal but large price spikes demand so type of action when the economies underlying fundamentals don't quite justify it.

Natural Gas

- Still hold UNG calls UNE JP and are down 13%. These are October calls so there is no rush or worry here.

News Corp (NWSA)

News Corp got twin upgrades last week. From Streetinsider.com

Earlier, a JPMorgan analyst upgraded News Corp. (Nasdaq: NWSA) from Neutral to Overweight. The analyst also raised JPMorgan's price target on News Corp from $9 to $12, saying the "market is improperly assigning a negative value to several News Corp. businesses".

JPMorgan's raised price target represents potential price appreciation of 25% from current levels.

The JPMorgan analyst points out that the negative market sentiment comes despite positive cash flow generation in each of these divisions. Specifically, the analyst believes News Corp.'s Cable Networks branch deserves "a higher premium than competitors due to potential expansion opportunities in international markets". JPMorgan also sees the media-giant's Film business rebounding following this year's "trough year".

Traders may also be buying shares of News Corp. on the back of new coverage over at Wunderlich Securities. The firm started News Corp. at Buy, also citing the cable programming and film segments.

Readesr here will be thinking......."no kidding JP Morgan..where you been"? About 3 weeks late on this call

RHI Entertainment (RHIE)

From Worldscreen

In a bid to strengthen its ties with the Hollywood creative community and expand into the TV-series production business, RHI Entertainment has opened a programming office in Los Angeles, to be led by Tom Patricia and Elizabeth Stephen.

Tom Patricia, the executive VP of movies and mini-series, and Elizabeth Stephen, executive VP of series, will be responsible for production and development as well as co-financing opportunities, working closely with RHI’s New York creative team, including company founder and head creative executive, Robert Halmi, Sr., and senior VP of development, Lynn Holst.

“While RHI has always had a high profile in Hollywood, this new programming arm will enable us to ramp up our West Coast development and production efforts even further,” said Robert Halmi Jr., the president and CEO of RHI. “Tom and Elizabeth are extremely talented executives who have the key relationships and know how to get projects greenlit and produced. They will have an immediate and far reaching impact on RHI’s creative output.”

Patricia is an Emmy-nominated producer whose credits include Homeless to Harvard for Lifetime Television and the mini-series The Gathering. He served as senior VP for Michael Ovitz’s Artists Television Group, where he was head of the television movie and mini-series department. He also headed up TV movies and mini-series at Mandalay Entertainment. Stephen most recently was president of Mandalay Television, and served as executive producer of the Showtime series Brotherhood.

I love it when holdings, in the midst of a severe recession make smart moves to expand their business. While other are retrenching, RHI is smartly and cheaply setting up shop in LA. Many feel the move is a precursor to them getting into the "regular TV lineup" shows from the current mini-series/TV movie format they have.

I like the move as the company has a great reputation in their current format so attracting talent and getting serious looks at projects for the TV genre ought not be too difficult.




Disclosure ("none" means no position):

Matthew Simmons' Latest Energy Update

For those thinking we have enough oil and gas, you may want to take a gander at the data Mr. Simmons has put together. I am solidly in the "there is not enough" camp.

When do we feel the pain of that? We'll, consider two successive quarters of -6% GDP growth in the US (and a third that looks only marginally better), the consumer of 25% of all the World's energy and we still have $66 a barrel oil (USO). What happens to the price of oil when we actually begin to grow? $90?? $100??? $150??

Please take a close look at this...

Simmons "Two Oxymorons: Energy Independece, Security"

Publish at Scribd or explore others: Finance Business & Law matthew simmons ener

Disclosure ("none" means no position):

Monday's Links

Lifelock, Onion, GM, Murder

- Just do not get this one

- Why do they not have a regular TV gig?

- Finally....done

- This will be turned by the media into the "mainstream"....

Disclosure ("none" means no position):