Frontline does its usual fantastic job…
Disclosure (“none” means no position):
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Month: April 2009
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Leucadia 2008 Letter
The folks at Leucadia (LUK) have a fantastic track record despite the train wreck that was 2008. The types of investments they make are very unique and they take major positions in all of them. They have a very eclectic mix of assets.
The section I paid closest attnetion to was the one on AmeriCredit (ACF)
As of December 31, 2008, we acquired approximately 25% of the outstanding common shares of AmeriCredit Corp., a company listed on the NYSE (symbol: ACF) for aggregate cash consideration of $405.3 million. ACF is an independent auto finance company that is in the business of purchasing and servicing automobile sales finance contracts, historically for consumers who are typically unable to obtain financing; this segment of the business is known as subprime. At December 31, 2008, our investment in ACF is classified as an investment in an Associated Company and is carried at fair market value of $249.9 million.
Years ago we owned a similar business and as a result carefully followed ACF. We observed that their large volume and efficient processing and underwriting abilities made them a fierce competitor. We also observed that when a recession hit ACF went through a period of poor results, but when a recovery began they were able to make very large profits by being able to select more credit worthy customers and to charge more for loans.
Much of the above remains true; however, we began to buy the stock too soon and paid too much. The recession has been much harder and much deeper than we anticipated, though ACF is succeeding in acquiring more credit worthy customers and is able to charge higher rates. The fly in the ointment has been that it has been almost impossible to secure additional funding to make loans. Securitizations, which were the lifeblood of their financing, are in rigor mortis. The Federal Reserve has announced a program to restart consumer lending known as TALF, but as yet ACF has not been able to access it. Perhaps that will change. ACF has adequate financing to operate at a much reduced volume and is committed to preserving its net worth of $15.03 per share. We have a high regard for its management.
Regarding the current state and when it will end:
Out of prudence we have a pessimistic view as to when this recession will end. To think otherwise would be to gamble about the beginnings of good times whereas by imagining a bleak future we will most likely survive for the good times to arrive.
Leucadia 2008 Shareholder Letter
Disclosure (“none” means no position):
So I am reading the NY Times (yea, I do that every so often) and come across the following article on Bill Ackman. Being a fan, I read it.
Then I get to this (bold italics mine):
In the case of General Growth, Mr. Ackman was clear from the start that the company should file for protection from its creditors. He invested last fall, as the financial crisis reached a fever pitch, and for months urged the company to seek bankruptcy. (Pershing has not disclosed the price at which it bought its General Growth stock.) General Growth controls Faneuil Hall Marketplace in Boston and the South Street Seaport in New York, and Mr. Ackman argues that its properties are worth far more than they are valued on its books.
Has not disclosed the price it paid?
WHAT??!!???!!???!!???!
So , I go to this neat little organization called the SEC and look it up. It took little ‘ole me blogging along 35 seconds to find it so I can understand why an organization with the Times resources thinks IT DOES NOT EXIST!! Here is the link the GGP SEC Filings. Ackman’s will be in 13D section
They also could have found it on my blog here
This post of mine actually has the exact trades Ackman made as of its date
I always knew The Times did shoddy work when it came to its politics, now I guess its business section needs to be included too? How can anyone writing for a business section not know this information is available…..how????
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Disclosure: The video maker is from DeepCapture.com . With that being said, there was some really funky stuff going on before Bear collapsed..
Hedge Funds and the Global Economic Meltdown from Judd Bagley on Vimeo.
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Sunday…..More Hannan
I can’t get enough of this guy…Oh….listen to what he says and look forward 3 years
National Health Care?
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Weekend Viewing..CNN Hypocrisy
For anyone who doubted CNN’s hypocrisy
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Weekend Reading
Please take the weekend to read this. It is one of the more interesting pieces I have run across in a while. Hat tip to 1440 Wall St. for finding it
Martin Armstrong (October, 2008) Its Just Time [77p.]
Disclosure (“none” means no position):
Here is the filing in General Growth Properties (GGWPQ) as well as the comittment letter and term sheet for the DIP financing.
The 13D/A
Pershing 13D/A GGP
Commitment Letter
Pershing GGP Comittment Letter
Disclosure (“none” means no position):
After the conference call yesterday regarding General Growth’s (GGWPQ) …new symbol.. bankruptcy filing, I sat down for a conversation with Doug at Wall St. Media to share thoughts on it. Rather than regurgitate them in a blog post, here is the video.
Disclosure (“none” means no position):Long GGWPQ
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What to Short When The Rally Dies??
So, I have been droning on for what seems an eternity (few weeks) that I feel this market rally is just over done and due for a fall. I still feel that way but am getting to the point I am going to put some money where my mouth is.
Now, don’t get me wrong. I have been very happy to be wrong for the last month as the rally has been very good to me. Core large long holdings like Dow Chemical (DOW) (which was significantly added to at $6.80 in March and again at $9 in early April), AutoNation (AN), Sears Holdings (SHLD) and Wells Fargo have all seen tremendous share price increases of at least 50% since the March lows (am still down 10% in Wells Fargo overall though). This makes up for the gut wrenching carnage in January and February although Sears and AutoNation are up 50% and 60% YTD respectively.
Even Borders (BGP) has finally shown signs of life almost tripling in a few weeks (still down 40% in this small position).
That being said, I cannot escape the fact that the economic fundamentals of the economy do not warrant the general market rally we have seen. It is also possibly true that the drop we saw early this year was overdone meaning part of this rally is simply correcting an over reaction to the downside in March. I am hesitant to fully buy into that though.
There are over 6 million folks without jobs now, the housing industry is simply in shambles and getting worse, foreclosures are surging, Q1 GDP is decidedly negative and Q2 looks only marginally if any better. Commercial Real Estate is the next time bomb to drop on banks and that fuse is only just beginning to burn and the Federal Reserve is just about all out of ammo unless they want to start paying people to borrow. In short, not too much to be optimistic about..
Do I short CRE with the SRS ETF? Not for me. REIT’s are already on death doorstep so buying in there might be a bit like going hunting and shooting a deer caught on a trap, not very satisfying or meaningful.
Short financials with FAZ? Not too sure about that one either. While the rally there has been spectacular and unwarranted, it has become clear that the US Government will stop at nothing, including changing accounting rules, bogus “stress tests” and more capital infusions to make sure the banks are propped up. That being said, I am hesitant to bet against the guy with the ability to change the rules of the game on a whim to make sure he wins.
Short the dollar with UDN? Now, while, the dollar may be headed for devaluation because of massive Treasury actions, when compared to many other currencies, it may actually gain in value vs them. Its perverse. In fact, since December that is what has happened. Being “less bad” than the other guy isn’t really a reason to invest.
I think the safest way to so it is the simple SH Short S&P ETF, PSQ to short the Nasdaq or DOG to short the DOW. It tracks to daily price fluctuation of the overall index without exposing the holder to the negative returns of the leveraged ETF’s. The 3X’s ETF’s are only good for short term trades and the volatility will scare most folks. That and the downside pain is fast and furious and the longer you hold them, any downside you experience exceeds any upside you see later unless it is dramatic.
These can protect you from a market sell-off and unlike the leveraged ETf’s, not hurt you bad should the market continue to rally (which it can, markets are not rational by any means). I like the SH the best of the lot. Should I go into it, the position will not be all too large, just enough to take the bite out of what I think is the upcoming sell-off
Here is a good list of ETf’s
Disclosure (“none” means no position):Long Stocks listed, none in ETF’s
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$300 Billion = 1 Home Saved
No, that is not a misprint. The $300 billion “Hope for Homeowners” program has saved 1 home to date. This is a case of the real reason for the defaults of homes being vastly different than the reasons we are being told. According to Government officials, folks are being foreclosed because:
1- The value of their homes has dropped (this one has never made sense to me)
2- Loans are resetting and they are a few hundred bucks a month short
3- Some other, less than permanent condition
4- Evil banks are kicking them out
In the five months since it has been in effect, HOPE has helped exactly one homeowner to avoid foreclosure. This despite Congress having made $300 billion available to back these loans and estimating that the program would benefit as many as 400,000 families.
“As it stands now, we’ve only gotten 752 applications,” said Federal Housing Authority spokesman Brian Sullivan. “And only insured one loan. Needless to say, the program isn’t working terribly well.”
Rep. Michael Castle (R – Del.), who sits on the House Financial Services Committee, agreed, calling HOPE “one of the most failed programs we’ve had in a long time.”
Nonetheless, the House of Representatives recently approved an updated version of HOPE as part of the bankruptcy-reform bill that is a keystone to President Obama’s Homeowner Affordability and Stabilization Plan. But it was no overhaul to the program; the changes are very subtle.
Castle is concerned that the new program will also be a waste of time and money. But Sen. Chris Dodd (D – Conn.), one of the chief architects of the earlier version of HOPE, supports keeping it in the bankruptcy bill, according to a source close to the negotiations. He hopes the changes will help convince more servicers to use the program.
This goes to the core of government intervention. The reason people are not applying for the program OR getting approved is not because they are not aware of it but because the conditions the government thinks are causing people to lose their homes aren’t vaid. Thus, the requirements to be eligible for the program are not being met because they have no relation to what is actually happening in the real world.
The overwhelming majority of foreclosures are people:
1- Unemployed
2- Took out a mortgage they could barely afford with little or no money down now can not afford
3- Took out a “pick a pay” loan that has reset at a level they have no hope of affording
4- Simply refuse to pay a $550k mortgage on a house now worth $375k
5- Speculators who were the “last fool in”
None of the above folks will qualify under any government program for “help”. Yet, we are constantly lead to believe these folks are the fringe of the problem and not the problem itself. Unfortunately, the converse is true.
The stunning lack of success of ANY government program to date is proof of that. The first FDIC intervention to halt foreclosures resulted in an over 50% rate of folks who where then delinquent again less than 6 months later. Translation? These folks should have not been helped in the first place.
There are unfortunately million of homeowners out there who are beyond help. The sooner the government realizes this, and admits it to us all the sooner they can focus efforts in the proper areas. Unfortunately, this will also run counter to the current populist rhetoric coming from Washington. Telling the 2 million homeowners about to be foreclosed on this year, “you did this to yourself and you need to deal with it yourself” will not win any votes among that sect.
But, alas it is far easier to blame the banks for them and initiate ineffective programs with catchy titles that play well on the nightly news.
Disclosure (“none” means no position):
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CNBC Doesn’t Understand Housing
Was at a loss for words when I saw this…
Watch this video:
Visit msnbc.com for Breaking News, World News, and News about the Economy
The fact they even state they “thought housing was turning” is stunning. The fact that they view the housing starts retraction as bad news is equally as stunning.
Supply/Demand 101. Too much supply lowers prices and low demand does the same thing. We have an over 1 yr. supply of new homes. Prices CANNOT recover until this is worked off. There are only two ways to do this. Buy more homes or build less.
Since millions of folks are losing their jobs or seeing work hours reduced and credit is being tightened, the buyer variable as salvation is out of the question. So building less new homes now is actually a good thing for the market on a long term scale. It will help reduce the inventory.
This is a point I tied to make yesterday on Wall St. Media:
All this blind rush to call a housing bottom just defies history and reality and it is dangerous for people putting money to work based on it. This was a bubble unlike any other in history, to assume it will resolve itself in less time than lesser events is just plain naive. Please ignore those who suggest it may…
Disclosure (“none” means no position):
He make salient point about the operating businesses, they are fine.
* Rent are stable
* NOI up
* Not negotiating leases
* Occupancy strong
Visit msnbc.com for Breaking News, World News, and News about the Economy
Disclosure (“none” means no position):
It finally happened this morning.
Here is the 8-K Just filed:
General Growth 8-K
Here are the voluntary filings filed with the court
General Growth Properties’ Bankruptcy Filing
So, what to think.
* Liquidation is not happening. It would destroy the entire CRE market and take the banks down with it.
* GGP is current on its mortgages and has asked the bankruptcy court to allow them to remain current while reorganizing, this is a huge point as it goes to solvency vs seized credit markets
* The incentive for the banks is to be “made whole” on the debt. That give validation to the marks they currently carry on other CRE.
* Because of that, GGP’s plan to ensure that, will receive serious consideration from the court.
* This is not a typical Chapter 11 as the reason for reorganization is not due to a company that cannot pay bills, credit markets have cause extenuating circumstances. because of that, the “usual outcome” some assume must be discounted and other options receive more weight.
* There is legal precedent in 11 for equity remaining whole.
* Pershing and Bill Ackman. They have a stake in 25% of the equity, own debt and are the DIP financier. In other words, he will have a seat at every negotiating table as a large holder, that is more than a little significant
More after the call at noon today…
Reuters Article
Disclosure (“none” means no position):Long GGP
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General Growth: Here We Go, Chapter 11
CHICAGO, Apr 16, 2009 (BUSINESS WIRE) — GENERAL GROWTH PROPERTIES, INC. (NYSE:GGP) today announced it is voluntarily seeking relief to reduce and restructure its debts under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. In addition, approximately 158 regional shopping centers owned by GGP and certain other GGP subsidiaries (collectively with GGP, the “Company”) have also filed for protection. The Company intends to work with its constituencies to emerge from bankruptcy as quickly as possible while executing on a plan of reorganization that preserves the Company’s integrated, national business operations.
Certain subsidiaries, including GGP’s third party management business and GGP’s joint ventures, have not filed for protection. A complete list of subsidiaries that have filed voluntary petitions can be found at www.ggp.com.
All day-to-day operations and business of all of the Company’s shopping centers and other properties will continue as usual.
The decision to pursue reorganization under chapter 11 came after extensive efforts to refinance or extend maturing debt outside of chapter 11. Over many months, the Company has endeavored to negotiate with its unsecured and secured creditors to obtain the time needed to develop a long-term solution to the credit crisis facing the Company. Unable to reach an out-of-court consensus, the Company reluctantly concluded that restructuring under the protection of the bankruptcy court was necessary. During the chapter 11 cases, the Company will continue to explore strategic alternatives and search the markets for available sources of capital. The Company intends to pursue a plan of reorganization that extends mortgage maturities and reduces its corporate debt and overall leverage. This will establish a sustainable, long-term capital structure for the Company.
The Company also announced it has received a commitment for a debtor-in-possession financing facility of approximately $375 million from Pershing Square Capital Management, L.P., as agent. When approved by the bankruptcy court, the new facility will provide a source of funds to the Company during the chapter 11 process. The Company has requested, and expects to receive, additional approvals to give the Company the authority to make payments to ensure that the Company’s shopping centers and other properties continue to operate uninterrupted in the ordinary course of business, including paying employee compensation, certain critical service providers, insurance and other claims. The Company intends to pay all providers of goods and services delivered post-petition.
“Our core business remains sound and is performing well with stable cash flows. We believe that chapter 11 is the best process for restructuring maturing mortgage loans, reducing the Company’s corporate debt, and establishing a sustainable, long-term capital structure for the Company,” said Adam Metz, Chief Executive Officer of the Company. “While we have worked tirelessly in the past several months to address our maturing debts, the collapse of the credit markets has made it impossible for us to refinance maturing debt outside of chapter 11,” he said.
GGP Information/Website
The Company currently has ownership interest in, or management responsibility for, over 200 regional shopping malls in 44 states, as well as ownership in master planned community developments and commercial office buildings. The Company’s portfolio totals approximately 200 million square feet of retail space and includes over 24,000 retail stores nationwide. The Company is listed on the New York Stock Exchange under the symbol GGP.
Disclosure (“none” means no position):Long GGP