SubscribeLynching Merrill - Suicide or Murder ?
August 4, 2008
It is really bad isn’t it? Even as we are being told that all is okay on Wall Street, the banks and brokers are so full of disease it can easily be compared to necrotizing fasciitis. You know, that awful flesh eating disease.
The latest shenanigans by Merrill Lynch (MER) is almost too much to Bear (pun intended) and now we are going to surely continue with a crisis of confidence as it seems impossible for this group to allow the truth to come out when they speak. Now Merrill is in a jam and they are trying everything to make it seem that all is just fine.
Bill Fleckstein had a few observations on this that just cannot be ignored:
So the question is: What changed in the past couple of weeks to cause a CDO — a package of loans known as a collateralized debt obligation — valued at 36 cents on the dollar to be “sold” last week at 22 cents? What did Thain know about this at the last conference call, and why was it not made clear to folks? (For more on the sale, click here.)
Of course, this is more a consignment sale than a true sale. Merrill is providing 75% financing on a non-recourse basis. That means it’s really receiving about 5 cents on the dollar. It may get the other 17 cents later, or it may get the securities back. In essence, Merrill wrote a put option “down 5 cents on the dollar” and gets a call option to get the other 17 cents.
Essentially, Merrill is putting up the funds to sell of the assets. Does that mean that the super-senior-debt they put up was sold for almost nothing? Why the payoff? What did Lone Star, Temasek or others have on them or even better, why did they unload the debt and lose the potential upside? Are they out of options?
The ugly factor is at an all time high. If Merrill goes down, it will not be because they were murdered, it will be because they kicked the chair out and hung themselves.
Jim Jubak’s feathers are in a ruffle over this and is mad as heck at the way CEO Thain has treated shareholders. The 38% dilution after this deal is appalling and shareholders should really take notice.
The games that are being played are the absolute worst thievery I have ever encountered. How do we invest in an environment in which the rules are continually changing - and we are not getting any of the updates. Something stinks on Wall Street. Perhaps it is the rotting corpses of the brokers that are still walking around like zombies, not knowing that they are already dead.
Jim Jubak on The Disciplined Investor Podcast is HERE.
Disclosure: Horowitz & Company clients do not hold positions (of this crap) as of the time of this writing.
Bill Gates and AN - The Most Charitable Man Alive
July 24, 2008
It is official! Bill Gates has to be the most charitable man alive. Now, he is providing a chunk of his assets to help out ailing Autonation (AN). Sure he takes a nice piece of the company and if you look at the history of this once darling/roll-up king, you will realize that this may be actually approaching a bottom.
Whether it is a brilliant move or a plan for a tax write-off is still not know, but it does appear that Autonation’s CEO Michael Jackson seems to have a plan for cost cutting and working within this difficult environment. Do we follow Gates into this without any thought? Do we then follow Lampert as he has been continuing to add to his holdings (40% now)? Maybe not.
How about a contarian play? Maybe… Whatever you think about the fate of the auto industry, this happens to be a well run company that is caught within a very bad situation. It is at a relative low and as oil prices seem to be turning and companies are waking up to the fact that they need to change their ways. This could give Autonation a boost. The biggest concern is still the consumer and their ability to buy or borrow to buy a new car.
Thoughts???
Bill Gates Tunes Up With AutoNation Buys - Barrons.com
The stock has been driven down by the weak economy and consumer pullback, but Bill Gates has used the softness to raise his stake in the auto retailer to 5.5%.
On Monday, Gates’ personal investment vehicle, Cascade Investments, reported owning 5.3 million shares, or a 2.9% stake in Fort Lauderdale, Fla.-based AutoNation. Also, the Bill & Melinda Gates Foundation reported owning 4.6 million shares, or a 2.6% stake in the company.
At the end of the first quarter, Cascade had no position in AutoNation and the foundation reported owning 800,000 shares.
Both filed as passive shareholders and indicated July 17 as the date the ownership threshold was met to trigger the filing.
The investments combined give Gates, the world’s third-richest man according to Forbes, control of 9.9 million shares, a 5.5% stake. Gates is now the company’s third-largest shareholder. Edward Lampert’s ESL Investments is AutoNation’s largest shareholder, with a 40.4% stake. Lampert has been actively buying AutoNation shares since October.
Revolving Credit Moderating is NOT Good News
June 9, 2008
The reports last week showed that in April there has been a precipitous slowing of revolving credit. It would have been better if we saw it slow at a more reasonable rate rather than what actually occurred. While that may seem to be a strange statement, the quick turnaround only provides evidence that consumers were, in large part, simply utilizing their governmental stimulus gifts for spending. Which is the point of it of course, but that is not going to last for long. So, any excitement should be tempered with a dose of reality.
Consumer Flow: Consumer Borrowing Accelerates notes: (subscription required)
Revolving credit was almost unchanged in April, despite moderate increases in retail sales excluding autos. Demand for additional revolving credit is likely to remain tame over the very near term, as more recent indicators, such as weekly chain store sales, suggest that consumer spending growth remains weak. Furthermore, the federal government is beginning to disburse the stimulus checks and about half of them have recently been mailed out or directly deposited into bank accounts. This will also lessen the need for cash-strapped households to run up their credit card balances. However, once the stimulus checks are spent, households are expected to turn to credit cards again to offset the effects of weak housing and labor markets, fading mortgage equity withdrawal, and sluggish growth of real disposable personal income.
The general trend for credit is still moving in the wrong direction and it is still providing evidence that the consumer is still struggling to pay for goods. This is clearly shown by Read more
TDI Episode 55: I Love those Warm Nuts!
May 5, 2008
Guest: Felix Salmon, Condè Nast Portfolio.com. Microsoft and Yahoo!, airlines and media stocks and a dose of the world economy. Felix brings a fresh perspective on the markets and world economy. Andrew asks
Felix if bloggers are here to stay or simply a pest that will fade into the nothingness.
Find out which is Andrew’s favorite airline to cross the pond. Who has the best warm nuts?
Felix Salmon arrived in the United States in 1997 from England, where he worked at Euromoney magazine. He also wrote daily commentary on Latin American markets for the former news service Bridge News, freelanced for a variety of publications, helped set up the New York bureau of a financial website, and created the Economonitor blog for Roubini Global Economics. He has been blogging since 1999 and now Read more
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