MBIA, Fat Pitch, Primus, Steve & Barry, Texas Gov.
– Felix Salmon has more thoughts on MBIA and Ackman
– Check out George’s new look
– Cullen nailed this one
– Didn’t think Eddie was interested
– Dope
Visit the ValuePlays Bookstore for Great Investing Books
Remember when Ackman spoke before Congress on both MBIA (MBI) and Ambac (ABK)? Seems to me he was on the ball then..
Mr William A Ackman – Get more Legal Forms
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
MBIA (MBI) is considering suing Pershing Square and Bill Ackman. I think the last thing MBIA want to so is get into a “whose statements were more truthful” pissing contest with Ackman.
Bloomberg Reports
“MBIA Inc. said it may sue Bill Ackman, striking back against the hedge fund manager who waged a six-year campaign against the bond insurer and said this year that the company may be insolvent.
MBIA is “assessing all our options, including litigation” against Ackman’s Pershing Square Capital Management LP, Chief Executive Officer Jay Brown said on a conference call today after the Armonk, New York-based company reported a $1.7 billion profit. Ackman, in an e-mail, said he stands by his comments.
Brown’s decision to consider legal action escalates a feud that began when Ackman wrote a 2002 report criticizing MBIA’s use of credit-default swaps to guarantee debt. Ackman has appeared before Congress and written letters to the U.S. Securities and Exchange Commission, at the same time betting against the stock.”
Ackman in the article said “Ackman, 42, said in his e-mail that “we continue to believe that MBIA is insolvent” under one of two tests in state insurance law. The test relies on whether an insurer can afford to reinsure its liabilities in the current market. MBIA appears solvent under the other test, Ackman wrote, based on statutory filings which rely on management predictions of future losses, though he called those estimates “understated.”
Here is the thing. It looks as though MBIA and Ambac (ABK) have avoided BK for the near future. It was done in no small part from help from NY Insurance Commissioner Eric Dinallo’s constant assurances on TV the insurers were in fact solvent and his work behind the scenes. Does anyone really think that if Ackman is sued he will not call for all conversations and emails between the bond insurers and the Commissioners office to be made public?
Do we really think Dinallo wants that to happen?
Ackman has been right on MBIA up until this point. It appears MBIA may have escaped the worse, perhaps because folks grew tired of the story and moved on the bigger fish (Fannie (FNM) and Freddie(FRE)).
One would think that the last things either insurer want is a court of law going over their books line by line and forcing them to disclose everything to the world. They can’t want that and I get the feeling Ackman would welcome the chance.
Sun Tzu in the “Art of War” said that many times it is better to “retreat in order to survive to do battle another day” (paraphrase).
This is one of those times….
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
remember in June 2007 when Leucadia (LUK) invested $200 million in Pershing for it Target (TGT) investment? Check this out
In its annual report in February Leuvcadia booked an $85 million loss on the investment.
In its most recent 10-Q for the first six months of 2008 Leucadia is booking another $31 million dollar loss on the investment.
In short it is now down a total of $116 million or 58% in just about exactly a year.
It is funny. One has to assume Ackman saw the credit and housing trouble far before anyone else did based on his Ambac (ABK) and MBIA (MBI)shorts. It is equally apparent he did not foresee the credit issues creeping into the general economy as they have. You would think that if he did he would have held off on purchases like Target (TGT) and Sears Holdings (SHLD).
Long term I am sure Ackman will recognize gains on these just not the out-sized gains he could have.
Even Leucadia bet against mortgages in Jan. of 2007 and is still profiting from them now as they have booked a $10 million gain in the years first 6 months
Odd
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
This is really good stuff. Einhorn is great to listen to..
I like how cerebral he is. He does not get to worked up about what folks say ans sees the situation for what it is. I think to be a visual short seller you have to be that way. It is easy to see how Ackman and he get along so well (or at least work together so well).
Part 1
Part 2
Part 3
Visit the ValuePlays Bookstore for Great Investing Books
So when Jud emailed me this yesterday I spit coffee out my nose. I recommend not doing that, it hurts. Anyway, since things are slow here for the moment, let look at it.
So the jist of the article was that:
“It’s the economy, stupid. We are in a recession, sales and profit margin are falling year over year at Sears. Commercial real estate values are falling. Eddie wil unlikely sell any property at an attractive price anytime soon. In recent years, under the leadership of Eddie Lampert, Sears cut marketing expenses to the bone. There’s nothing left to cut. In its latest quarter ended May 3, 2008, the company posted a pretax loss of $64 million vs. pretax income of $381 million in the same period last year. As the economy gets tough for some extended period and the housing bust continues to get worse, departement stores like Sears will lose more business to the discount retailers. It will be increasingly more diffcult to turn a profit at Sears and K-Mart.
Sears Holding has bought back $2.96 billion dollars worth of stock in 2007, and that leaves Sears with very little or no money on hand to endure an economic downturn. That stress has clearly shown up in its latest quarter, as it had to borrow $646 million dollars in short term commercial paper to cover some cash flow issues.
I have a hard time believing that Sears will turn a profit this year, with almost $10 billion dollars in total current liability, and only $13 billion dollars in current assets, mainly comprised of $10.3 billion in inventory. A bankruptcy filing for Sears Holdings is a real possibility in the next two years if it continues to struggle.”
Where to start. Yes Sears did lose $64 million last quarter its first quarterly loss in over three years. That also left it with $1.4 billion (yes billion) in cash on the books. It should be noted that almost three times Macy’s (M) and Kohl’s (KSS) combined! That number is twice what sits on the books over at Home Depot (HD). It is also essentially equal to that of JC Penny (JCP) and Lowes (LOW). The main difference between JC Penny, Lowes and Sears is that Sears carries 40% LESS long term debt that Penny’s and Lowes do.
Sears carries the same amount of debt as Kohl’s does despite having in excess of three times Kohl’s sales and has 1/4 the debt of Macy’s despite almost doubling its sales. If we look at Home Depot, Sears tallies 65% of the sales the Depot does yet carries less than 20% of the debt of its appliance rival. In short Sears has the strength of balance sheet second only to Wal-Mart (WMT) and Target (TGT).
The exercise here is that if we are looking for a retailer that may face bankruptcy, I think a cursory look could find more likely candidates.
But hey, why listen to me? Let’s hear what none other than Bruce Berkowitz has to say.
Read more of Berkowitz’s thoughts on Sears here:
One also can easily look at the stunning success of the Land’s End brand.
From the article:
“But one part of the $50.7 billion company is sparkling: Lands’ End (SHLD). The apparel subsidiary is thriving with its reputation for impeccable customer service and sturdy-but-stylish designs. While Sears doesn’t break out numbers, retail analyst Anne Brouwer of Chicago’s McMillan/Doolittle estimates the unit made $200 million on $2.2 billion in sales last year. The Lands’ End Web site, where the brand rings up 80% of sales, is among the retailing industry’s top 10 by several measures. And offline sales are rising as Sears has put Lands’ End boutiques in more than 200 of its 935 mall stores. Retail consultant Howard Davidowitz calls the business “Sears’ shining star.”
More:
“Lands’ End was not such a gem when Sears acquired the company in 2002 for $1.9 billion. At the time, its apparel was available only online or through catalogs, and was generally seen as well-made but staid preppy gear. Seeking a chance to broaden its apparel offerings, Sears quickly began stocking Lands’ End shirts and slacks in stores, though it kept the two brands’ Web sites separate. But Lands’ End got lost in the aisles until Lampert took over Sears and pushed to build the brand. In mid-2005, a month after McCreight became president, Sears opened the first Lands’ End boutique in a White Plains (N.Y.) store.
With its own look and branding, McCreight’s store-within-a-store worked. He says transforming the brand’s catalog image into a physical space was “a once-in-a-lifetime career opportunity.” Analyst Brouwer figures the Lands’ End boutiques bring in at least $200 in sales per square foot annually. That’s just a third what a top retailer such as Nordstrom (JWN) produces, she says, but it’s far ahead of the $137 per square foot Sears averages from its goods and apparel.”
Almost forgot. The “had to borrow $646 million for cash flow issues” statement. A quick read of the last earnings release told us that as of the time of the release $400 million of it has been repaid. In other words it was a non-issue.
No folks, a Sears BK is not in the cards. Think of it this way. Sears is heavily levered to housing (a top appliance seller) yet despite the worst housing environment in 6 decades they lost $64 million. If housing just returns to historically average levels (it will) the profit again begin to flow.
I am buying more after the next earnings release. Do I expect a loss. Probably a nominal one unless Lampert pulled a rabbit out of his hat with the excess inventory. Chumps will sell off shares and I will pick some more up. I bet Ackman and Berkowitz will be there with me.
Good company…..
Disclosure (“none” means no position):Long SHLD, WMT none
Visit the ValuePlays Bookstore for Great Investing Books
The applicable portions of the filing are below.
As of August 7, 2008, as reflected in this Amendment No. 1, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 3,137,659 shares of Common Stock (approximately 8.8% of the outstanding shares of Common Stock). The Reporting Persons also have economic exposure to approximately 4,540,896 notional shares of Common Stock under certain cash-settled total return swaps (“Swaps”), bringing their total economic exposure to 7,678,555 shares of Common Stock (approximately 21.5% of the outstanding shares of Common Stock).
Item 3. Source and Amount of Funds or Other Consideration
Item 3 is hereby amended and restated in its entirety, as follows:
Pershing Square advises a number of client accounts, including the accounts of Pershing Square, L.P., Pershing Square II, L.P. and Pershing Square International, Ltd., a Cayman Islands exempted company (collectively, the “Pershing Square Funds”), which owns an aggregate of 3,137,659 shares of Common Stock and 4,540,896 notional shares underlying certain cash-settled total return swaps, and paid therefor total consideration (including brokerage commissions) of $136,609,962 derived from the capital of the Pershing Square Funds.
Disclosure (“none” means no position): None
Visit the ValuePlays Bookstore for Great Investing Books
Ambac(ABK) announced second quarter 2008 net income of $823.1 million, or net income of $2.80 on a fully-diluted per share basis. This compares to second quarter 2007 net income of $173.0 million, or net income of $1.67 on a fully-diluted per share basis. The increase in the second quarter of 2008 is primarily due to recording net mark-to-market gains on credit derivatives, increased accelerated premiums from refundings, and loss reserve reductions on the direct residential mortgage-backed securities (RMBS) portfolio, partially offset by market losses on RMBS within the financial services investment portfolio.
Short translation? The write-downs that killed earnings are becoming write-ups and helping them.
Quarter Highlights:
• Financial guarantee revenues, excluding net securities gains/losses and accelerated premiums from refundings (both are defined below), were flat at $314.1 million, quarter over quarter, despite little new business generated during the quarter.
• Net loss reserve reductions of $339.3 million were recorded for the quarter primarily relating to the second-lien direct RMBS portfolio. The majority of this benefit resulted from the inclusion in our loss reserve estimates of substantiated representation and warranty breach recoveries in certain transactions.
• Net mark-to-market gains on credit derivatives amounted to $961.6 million. However, estimated impairment losses in this portfolio amounted to $1,061.9 million during the quarter primarily due to credit deterioration and internal downgrades in several transactions. Operating earnings2 and core earnings2 for the second quarter and six months of 2008, shown below in table I, include the impact of estimated credit impairment for those periods.
• Progress continues in our efforts to establish a triple-A rated public finance subsidiary. The appropriate approval forms have been filed with the Office of the Commissioner of Insurance of the State of Wisconsin (OCI) and the Company believes that it will receive a favorable response; rating agency review is ongoing.
Does this mean they are out of the woods? No. I think it is safe to say that their complete obsolescence is not in the cards. Coming off the $1.4 billion placement of CDO’s last week and now this, one must assume while they may never see the heights they say two years ago, they will be around for a while.
With famed Bears like Bill Ackman reducing (eliminating?) their shorts on the company and Marty Whitman piling into the stock, it would seem there is reason for the stock jumping from $1 to $5 in a month, the bears are getting out.
Does this make it a buy? I think that it is gambling money…..could hit big, but, be wary..
SEC earnings filing
CDO Sale filing
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Ackman has taken a large position in Longs Drug Stores (LDG)
Based upon the Issuer’s quarterly report on Form 10-Q for the quarterly period ended May 1, 2008, there were 35,788,396 shares of Common Stock outstanding as of May 29, 2008. Based on the foregoing, the 3,137,659 shares (the “Subject Shares”) of Common Stock beneficially owned by the Reporting Persons represented approximately 8.8% of the shares of Common Stock issued and outstanding as of such date.
In addition to the Common Stock beneficially held by the Reporting Persons, on July 31, 2008 and August 4, 2008, the Reporting Persons entered into Swaps for Pershing Square, L.P. (the “PSLP Swaps”) and Pershing Square International, Ltd ( the “PSIL Swaps”). The Swaps constitute economic exposure to approximately 6.6% notional shares of Common Stock in the aggregate, have reference prices ranging from $46.56 to $48.56 and expire on January 29, 2010 and July 30, 2010, respectfully.
Under the terms of these Swaps (i) the applicable Pershing Square Fund will be obligated to pay to the counterparty any negative price performance of the notional number of shares of Common Stock subject to the applicable Swap as of the expiration date of such Swap, plus interest, and (ii) the counterparty will be obligated to pay to the applicable Pershing Square Fund any positive price performance of the notional number of shares of Common Stock subject to the applicable Swap as of the expiration date of the Swaps. With regard to the PSIL Swaps, any dividends received by the counterparty on such notional shares of Common Stock will be paid to Pershing Square International, Ltd. during the term of the PSIL Swap. With regard to the PSLP Swaps, any dividends received by the counterparty on such notional shares of Common Stock during the term of the PSLP Swaps will be paid to Pershing Square, L.P. at maturity. All balances will be cash settled at the expiration date of the Swaps. The Pershing Square Funds’ counterparty for the Swaps includes entities related to UBS and Citibank.
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Discussed: Fannie (FNM), Freddie (FRE), Target (TGT), Sears (SHLD), Borders (BGP), Wendy’s (WEN).
Disclosure (“none” means no position):Long SHLD, BGP, none
Visit the ValuePlays Bookstore for Great Investing Books
Well, at least if they actually do it..
The SEC may force investors to disclose short positions and may take additional steps to rein in rapid-fire short sales, Chairman Christopher Cox said. The SEC is examining whether to require short sellers to reveal “substantial” stakes, just as investors must disclose significant positions in companies. The agency may also reinstate a version of the so-called uptick rule, which barred short sales of stocks when prices are falling, he said Thursday in testimony to the House Financial Services Committee.
The regulator is trying to strike a balance between installing a “circuit breaker, or something that keeps things from running away,” and providing trading liquidity, Cox told the House panel.
Now, I have stumped here many times that disclosure for some should mean disclosure for all. If you are long or short you ought to be required to disclose it.
When asked, Whitney Tilson said, “Many short-sellers will object to disclosure because there is such a stigma associated with short selling,”. I partially agree and at the same time disagree with Whitney. I agree short sellers will balk at the rule but I also think part of the “stigma” associated with short selling is because it is often done in the shadows, since no disclosure it necessary. Anything that is viewed being done in secret, is always going to be viewed sceptically.
Admittedly, Tilson, Ackman and Einhorn do not fall into this camp as they are upfront and honest with the investor community about their actions. Thus they tend to be viewed (at least by those other than their targets) as “short investors” rather than traders that “pile on” falling stocks. It does make a tremendous difference.
When the above mention three short something, it is because they view a fundamental flaw in the business, not because they think “banks stock will fall”. They are almost betting on the extinction of the company like Ackman and Tilson in MBIA (MBI) and Ambac (ABK) (although both have reduced short positions in those) and Einhorn in Lehman (LEH).
Far from a “we can make 20% here”, it is a “this thing ought to go to zero”.
The SEC is right to require disclosure, the more open everything is, the better. I think the more open it is, the less short sellers would be viewed as though they are “boogymen”.
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Thanks to John for the email alerting me to this. It is a slide show on Ackman’s plan for Freddie Mac (FRE) and Fannie Mae (FNM)
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Thanks to John for the email alerting me to this. It is a slide show on Ackman’s plan for Freddie Mac (FRE) and Fannie Mae (FNM)
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Ackman is short the junior debt and equity of both, but not the senior debt.
First watch Rep. Paul Ryan from the Ways and Means and listen to his concerns regarding Fannie (FNM) and Freddie (FRE).
Now listen to Ackman’s plan:
Part 1:
Part 2:
Ackman’s plan is brilliant as it restores the institutions financially so they can help the housing market, punishes equity holders for investing in a company with equity of 140 to 1, save senior debt that has the implicit guarantee and uses most likely, no tax payer funds.
If you do not get it, listen to the plan again. It is very simple and covers all the bases as far as the current objections to any government involvement in them.
With all the hand wringing out there over both entities, this solution is by far the best proposed. Now, the skeptics will say “Ackman just wants to make money”. So what? Let him is he saves us all a whole lot more losses. Besides, if he comes up with the plan, why shouldn’t he profit?
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
Does anyone really think the SEC will be able to stop rumors? Do they really?
The U.S. Securities and Exchange Commission said Sunday that it and other regulators are firing up new examinations to prevent stock-price maniplation by short sellers and others.The agencies’ goal is the “prevention of the intentional spread of false information intended to manipulate securities prices.”
Now, who is to say what is “false” vs what is “wrong”. We are now delving into the realm of a persons intent and when you do that, it is a losers game. On another note, why are we only looking at short sellers?
How about CEO’s and CFO’s of financials who said “things were ok” only to write down billions months later? Are they not just as guilty?
The SEC is up against it in this one because up until now, the shorts have been right and the firms that have come under attack are poorly managed, over leveraged and have questionable business models for down times. Reads Bear Sterns (BSC), Lehman (LEH).
If I “think Lehman has questionable loans and think management is not forthcoming enough so things must be worse”, then am I spreading false rumors or just speculating? Is this going to be a rear view mirror test? We are going to prosecute people after the fact when what they have said proves wrong? Will journalists get into trouble by reporting these rumors?
Will we investigate Congress-people in an election year like this one who throw bombs about the economy and stocks in an attempt to curry votes? In effect they are hurting equities and stock prices by making the current situation seemingly worse than it is. Surely we can prove half of what is said there is “less than truthful”. Is a SEC investigation into Sen. Schumer coming? clearly his letter lead to a run on the bank. any bad news is bad for Republican’s in the election. Was Schumer pushing Indymac over the edge for votes?
If we are going to investigate Bill Ackman and David Einhorn, let’s look at Schumer’s motives also.
Rumors have and will be around forever. If you have a strong business, they may affect the share price temporarily but not impair it. If your business is weak, they may hurt it….
How about the SEC investigate all those newsletters I get in the mail pumping stocks that never go anywhere?
Disclosure (“none” means no position):None
Visit the ValuePlays Bookstore for Great Investing Books
