|
I can only find one sector that has really performed and indeed doubled in price since the October/November low and it is the gold/silver stocks index. All other sectors seem to have bottomed and are now displaying a sideways move. The difference is striking. That is also despite a fairly strong U.S. dollar since then. M0 has doubled in 2008. Historically, the annual growth was tight around 6%. The only other time that it rose significantly or 15% was just prior to Y2K with Greenspan fearing a panic. It took over a year to wipe out some of the excess. How much time is it going to take now to bring back the monetary base to normal from a double? It would have to go to a negative rate for a long time and this has never happened before. Cardboard
|
|
Ericopoly, It did one big thing and it was to reverse the course of trading in a major way. From a technical perspective it was huge and even dipping to $240 afterwards did not mean a resuming of a declining trend. I know that technicals are a iffy topic on this board, but it cannot be denied that a great deal of traders use that stuff. I would argue that it dominates trading right now. You can watch many charts from 2008 of different stocks and you will see how painful it was in October and November. If the declining trend or pattern had not been broken in Fairfax shares, it is quite possible that it would have traded down well below $200. It would have been great value, but there is nothing to stop a stock on the way down once panic settles in. No matter how attractive it becomes. Cardboard
|
Hi Zorrofan, It is true that I hold no Fairfax po...show/hide message
|
Hi Al, No I don't write for the Post. I have looked at the possibility of investing in U.S. banks and every time I end up thinking along these lines: 1- Banks had a chance up until September 08 to issue shares at a decent price. I can't recall one who did and now the window is shut unless they are willing to almost completely wipeout existing shareholders. 2- Their assets (mortages, CDO's, various investments) keep losing value in this market. This leads to loan loss provisions which decreases their book value or reduces their ability to write new business. 3- Their liabilities are not decreasing (deposits) and some increasing (CDS) in this environment. In a way, this kind of looks like Fairfax in 2002, 2003. The thing is that Fairfax had more control (and better timing) over its future than what these guys have. They had friends which helped with #1. They were excellent investing in treasuries which lead to massive gains with #2 and the economy was getting better at that point which helped their equities. They were benefiting from a hard market in insurance which helped eliminating bad policies and replacing them with good ones fixing #3. So the solution for the banks is not obvious. Cardboard |
Packer, I am not sure that this can work. The "to...show/hide message
|
If Pfizer does that, I don't get it. There is no way that they will be able to make this an accretive deal. It may soften the blow from the Lipitor patent expiry, but will not eliminate it. It seems to me that big pharma companies have the perfect opportunity with the credit crisis to rebuild their drug pipeline at very low cost. They are flush with cash, continue to generate large stable cash flows and could acquire a ton of promising small biotechs desperate for cash in this environment. Many are trading for net cash and some less. Cardboard
|
|
"Known Unknown for WFC: Did they discover any toxic assets in Wachovia after the merger?" Could be, but I doubt that it explains any of the recent stock movement. Look at U.S. Bancorp or M&T Bank for example. I don't recall them doing any large acquisition recently and they are recognized also as being among the very best U.S. banks. Still, their stock has been decimated lately. Investors must be truly worried about huge loan losses coming from home equity loans, credit cards and further losses due to continuing housing price declines. Large loan losses should be a temporary phenomenon and good banks should survive. However, if home prices go down another say 30% then what happens? I don't think that any bank has been so conservative between 2000 and 2007 to avoid any bad lending under such a severe scenario. It is quite a problem to fix. Stop the deflationary spiral without creating huge inflation on the other side which would significantly increase borrowing costs and create a slew of other issues. Creating new jobs is the way to go, but they have to be productive jobs creating real profits in the economy. Still, I truly believe that the government needs to step in here in a major way. Stability of the financial system is a key part to revive this economy. They need to create a regulated market for all the illiquid assets: CDO, CDS and other structured products and derivatives. For the very large banks, this could look like nationalization since a large portion of their assets will be pooled and restructured within this "organization". I tought that the industry could figure it out on its own, but now it looks like not since they have had since August 2007 with nothing so far. Cardboard
|
Ben, My point may sound crazy, but the risk I am ...show/hide message
I am kind of surprised that no one in the press is talking a...show/hide message
|
I think that a big factor is consumption and it is related a lot to demographics. Housing and vehicles are the two largest purchases of most households. If this spending is significantly curtailed then its impact on the economy has to outweigh benefits created from innovations on GDP. Also, many innovations tend to increase productivity which may not lead to job creation; increased profits may just go sit in someone's pockets. The baby boomers form a large proportion of the U.S. population and should now be moving toward reduced consumption as retirement approaches. Buying a new home over the next few years or a SUV with the kids now away does not seem likely. Immigration may help, but I have a feeling that it may just help keep things neutral. So I agree with Hoisington that we are in for many years of very weak GDP growth. However, I disagree that treasuries are a good investment. They may go up in price from here, but as they said the road will be bumpy. The big, rapid gains have been made. Might as well buy equities and sell when they rally strongly during this probably secular bear market. Cardboard
|
|
Does anyone here holds USG? If so, where do you believe that they stand at the moment vs their competitors in terms of total delivered cost for their product? Also, was this a Warren Buffett or Lou Simpson pick for Berkshire? Thanks Cardboard |
|
Mackenzie Financial sold 2.47 million units of SFK.UN during the month of December (Early Warning Report Jan 9). That is a lot of volume for this company by this seller alone and must have help created the large downward movement that we have seen. Cardboard
|
|
I have not done complete due diligence on it but, before you buy, please review carefully the agreement that they have with Air Canada which will expire in 2015. Air Canada is again on dangerous grounds and the bankruptcy word is flying again. Some of us on this board got killed with Air Transport Services Group (I was) and Pinnacle Airlines. Both of these guys looked very cheap until agreements got cancelled or simple fear of these being broken undermined the valuation. It is not clear at all yet on how these two situations will end, but clearly they were tough babies to value properly. Cardboard
|
|
One has to remember that the huge swing in oil from $70 up to $147 then down to $35 in only about a year has occured mainly in the nearest dated contracts. When oil was going up, especially at the "peak", it was more expensive in the short dated contracts while cheaper in the long dated ones. They call this backwardation and was a sign that immediate supply of oil was very tight. Today, it is the opposite or what they call a contango. For example, oil to be delivered in 2011 is now around $70 a barrel while today's oil goes for just over $40. It shows that we are oversupplied at the moment, but that the market demands higher prices down the road due to factors such as lack of discoveries, lack of drilling, higher costs and higher demand. IMO, this tells us that oil true equilibrium price probably lies around $70-80 for now. Then trending higher with time. In terms of investments, betting on oil directly seems like a good idea. But, I would take profits if oil reaches $60-70 within a year. Confidence has been hammered and it will be a long time until we reach new highs in oil. We may remain into a contango situation for a few years. There could be more upside in small oil companies if oil goes back to these levels, but you have to pick a good one which is not easy. Management can screw up, resources can be less than thought or more expensive to extract. You need a very good story if not, you are unlikely to beat the sector by a lot. I think that this environment following a boom and bust in short dated oil contracts presents a great opportunity for the large players. If they have refineries, they benefit from a low oil price now. Then they have the financial strength to scoop smaller companies having no more access to funding which will help to rebuild their dwindling resources. Then they have the ability to lock in $70 or more for oil that will be delivered in the future. These guys can plan years ahead. All of this should help keep their earnings at high levels which is not the case for the smaller companies. Take ConocoPhillips for example. Their earnings are forecasted to still be $6.78 this year meaning a P/E of 8.0 at current stock price. For 2008, EPS should amount to $11.08 which gives you a flavour for what could happen again once oil & gas return to higher prices. Exxon Mobil earnings are even more stable with 09 EPS of $6.17 and 08 EPS of $8.61. It is more expensive although with a P/E of 12.8 times. I think that these stocks are too cheap. Big oil companies typically don't trade at low P/E's at the bottom of the oil cycle. In fact, repricing or revaluation to account for higher oil longer term has not occured in the sector. COP looks like a very cheap stock for its size, stability and quality. Buffett likes it quite a bit too. I think it will do well, but I am considering buying LEAPS to increase my returns. Cardboard
|
|
"For some of you guys investing in small cap Asian stocks...buyer beware! " While I agree with that statement generally, I think that it applies to any country and not just Asian companies. I also read on the board the other day that Pabrai said that some Chinese companies had three sets of accounting books. It could be true, but some is not all. I shall remind people that the biggest frauds of all time have occured in the United States: WorldCom, Enron and now Madoff. Canada had its share too: Bre-X Minerals, Nortel. In every country, there is always a majority of honest and good hard working people and a minority of crooks. I think it simply reinforces my view that one should always diversify unless you are on the board of directors or an insider. And even that, I don't think it is enough to justify putting all your assets into one firm since there could be someone within it hiding away the truth from you. The business of that firm could also turn negative from events outside of their control and much faster than you think. Per The Snowball, when Warren Buffett made a big personal bet in South Korea, he bought a bunch of companies. Some were small, some were big. If you can buy five or ten companies trading at 3 times earnings with similar growth prospects and financial strength why trying so hard to pick only one or the winner among these? Per Warren himself: "I think a group of these stocks will do very well for several years. Some of them may not do well, but as a group, they should do very well." If the master himself is not able to tell which company will go sour, what makes you believe that you will be able to determine which one will be the winner while you have relied mainly on publicly filed information? Cardboard
|
|
I have no position in both companies at the moment, so I will give you my perspective from an "outsider". Odyssey Re is benefiting from the possibility of a privatization. The odds are high considering that the company has been agressive at buying back its shares leaving only a small public float, Fairfax has bought already its other public subsidiary (Northbridge) and it still has the financial capacity to acquire the rest of ORH. Fairfax on the other hand is seen as the acquirer which means less cash available if they do it. That creates uncertainty in the market place and a typical trade is to buy the acquiree and to short the acquirer. It could have happened with Northbridge and some could be putting on this trade already expecting the same to occur with Odyssey Re. Another issue is the treasury market having dropped quite a bit over the last few days. The 10 year went from 2.1% to 2.56%. If Fairfax has followed the advice of Hoisington and kept most of its position including the very volatile zero coupon bonds, then the market is right to be worried about the evaporation of large gains. It is possible that they have sold a large chunk, but we just don't know. So the market is selling instead of giving the benefit of the doubt. On the other hand, Odyssey Re is kind of protected from this malaise since there is a conviction that they will be taken over, especially if the price was to drop. Cardboard
|
|
Happy New Year! Health and prosperity to all of you! I hope that today is a sign of things to come in 09. One factor that I believe was important today was the end of selling in the U.S. for tax loss selling purposes. In some small caps the result of fewer sell orders was amazing... if that was the main reason for their moves. In Canada, this activity should have stopped a little earlier since Revenue Canada goes by settlement date to recognize losses and gains, although I am sure that many don't know and sold all the way through December 31. Big moves in many oversold names on this side of the border today as well. My hope for 09 is that the market will be more rational compared to the second half of 08 and consider earnings and improvements made at the company level (micro) to assign decent valuation. If the market goes into panic mode again, selling everything, then doing our little intrinsic value calculations will offer little reward or reassurance. In the short run anyway. Cardboard
|
|
Does anyone here holds LQW? Francis Chou owns about 14% of the company via his RRSP fund. It has not been good for him since purchase and I assume that his initial thesis must have changed. Current market value is around $5.2 million while net-net working capital is around $20 million. Most of that value is derived from their inventory which is already discounted stuff since they buy from distressed sellers. Of course, quite a bit of it may never get sold. They have been exploring strategic alternatives since June 4 (nothing announced yet) and the CEO has recently resigned. The company is losing money, but looking at the results just published, it seems that a good chunk of loses would be eliminated if they had not been as agressive this year to liquidate some slow moving inventory (part of the risk I mentioned above). I see that Armoyan is involved in the story which could be a plus or negative. He can come out at anytime and make a take-over offer, but history shows that he pays little. Unless they can turnaround, which now seems unlikely after a few years trying, the best option seems to liquidate the business. It is a process that could take some time to realize since they lease their stores, however I would be surprised if it does not yield at least $15 million considering their inventory alone. There are better situations out there for sure. I just think that it could be easy money if one could take control and get that done. Cardboard
|
|
Packer, You mention that you would like pollution to be reduced and dangerous chemicals to be contained. Well, I cannot come up with a broader and bigger source of pollution releasing various dangerous chemicals than the burning of fossil fuels. In almost any form of fossil fuel combustion, CO, NO and NO2 or NOx are being released. This will turn into smog, nitric acid vapor and ozone (which is highly toxic). Some cities are already plagued with this problem and its major health effects. I also understand that now in Asia, there are major "brown" clouds circulating which are so dense that they will impact the sun rays to reach Earth leading to bad crops, water issues, health issues, etc. These are due mainly to the release of soot and black carbon from coal plants and other chemicals. It is also happening in NA, but density of population/emission along with winds allow for it to dissipate more. Then it is not over. In combustion engine, we need to add something to prevent knocking. First it was lead. It is still used in some countries. Then we added MTBE to both increase the octane content to reduce knocking and to reduce the amount of CO in exhaust gases. It looked like a win-win until we found out that it was contaminating our groundwater. Then gasoline is full of benzene and toluene which are released in the environment at almost any point between refining and burning of fuel. Of course, known carcinogen. Should I add anymore? So when you fight CO2, you fight all of the above. These are not late century type issues, but immediate which are leading to thousands of deaths every year. What is there to lose if we can develop smart, cost efficient technologies to do it? On top of that, what is there to lose if we already know that our most flexible source of fossil fuel (oil) is declining rapidly and will become expensive to not affordable at some point in the middle of this century? Cardboard |
Locutusoftexas, " Parenthetically, my experience ...show/hide message
Global warming is only one item off the menu of unintended c...show/hide message
|
Yu, You are absolutely correct. It is a freight train right now and I am not willing to short it at this point. The housing numbers that came out today were simply atrocious which will reinforce the trend toward safety hence treasuries. At some point although, it will reverse. It could take time. I find this whole bond/currency thing amazing. On one hand, a big bond buyer like China will help the currency to strengthen. At the same time, a lower yield should spur consumer demand and lending. On the other, a lower yield means at some point lesser attractive bonds vs say Europe. This yield differential along with big trade deficits helped creating the weaker dollar between 2002 and 2008. It is a highly complex relationship. Way too complex for me to make winning investment decisions on a consistent basis. So for the most part, I will stick to buying boring Graham type bargains which are plentiful right now. Cardboard
|
Agatesystems, I totally agree with you on the lar...show/hide message
The rise in price of long term treasuries in the past month ...show/hide message
I agree. These guys are getting greedy and just seem able to...show/hide message
|
Hi Dengyu, There is an order of events for sure with the economic cycle. However, this bear market is different than the one from 2000-2002. Back then, I was making 25-30% a year buying good quality cheap mid-caps left for dead during the Internet bubble. Gold stocks were also doing terrific and there was pockets of value being surfaced in many areas. You could find stocks going up. At the same time, I had no problem being almost 100% in cash at the end of 1999 and in early 2000 since there was almost nothing really cheap to buy. This year, I am struggling to find any area of strength. The only people that I am aware of making money are outright short sellers or trading "dead cat" type bounces. Even arbitrageurs are getting killed because so many deals are being cancelled due to financing issues, business issues or buyers simply walking away because things have gotten cheaper. It is forced liquidation on a grand scale. At the same time, it is not hard at all to see how someone got fully invested in early 2008. The January crash followed by the Bear Stearns debacle created lots of cheap stocks especially among small caps. It was very hard to say no with all these bargains around. Tonight, Tilson was on 60 minutes as Sanjeev pointed out. He spent most of the show highlighting how bad it is going to get due to Alt-A and Option Arm mortgages resetting heavily in 2010 and 2011. But, at the end of the show, he said that the stock market is now discounting all that bad news and that bargains were real. That seems really odd to me. If there are so many defaults coming, how can it be good for the stock market since it is often said that it is forward looking for only about 6 months? Is he planning to buy now and sell during a rebounding 2009 in what seems a quieter period for resets? Or is he just a sucker like I am and buying stocks when they look like screaming buys despite a very uncertain economic outlook? Of course, buying stocks with no regard to fundamentals or with a business model that can make them go away tomorrow only because the stock price is down a lot (like Miller buying Countrywide) seems like jumping in front of a freight train. However, the jury is still out as to the merits of buying stocks appearing capable to survive in late 2008 because of the possibility of a depression in coming months/years which I am not able to predict and its devastating effects on these normally capable businesses. Cardboard
|
|
Watching the pricing of U.S. bonds vs other really depressed securities (especially small caps) and the gap in potential return appears simply enormous. However, I have seen a chart from Ibbotson indicating that the biggest yearly lost on U.S. treasuries (not T-bills) since 1926 was in 1967 and a mere -9.2% (this is total return, so including interest). The chart did not say the duration, so I assume it was a mix of everything from 2 to 30 year treasuries. I should add that a total return loss in any given year was rare and often less than 5%. This gave me a big pause because it means that these treasury buyers are pretty sharp on the long term direction of interest rates. Otherwise, you would think that they would get slammed more severely during economic recoveries. So if history repeats and Ibbotson is presenting the right data, we are going to see low interest rates for a long time and the return to higher yields (say 5% on the 10 or 30 year) is far out in the future. How bad is the economy and how bad is it going to get really? Cardboard
|
|
"it is likely that our operating income will increase significantly in the years to come." I think that this will get the job done to finally unlock the value in Fairfax shares and Odyssey Re if that one remains public. A key issue with Fairfax right now is to determine its earning power. Many of us here are trying before every quarterly release to determine how much they are going to earn. Currently, it is impossible to do since it is almost entirely dependant on asset movement and capital gains. We look at lot at CDS values and bond values and try to figure out the impact on the balance sheet. However, this valuation process does not lead to a great trading price vs book or other metric because it is difficult to do, prone for errors and we always wonder what is going to be the next trick or asset gain to push up book value. Once Fairfax redeploys its cash and treasuries into high yielding debt and stocks, it will become much easier to figure out its earnings and investors will be willing to pay a higher price to book for the added visibility. By that time also, it is quite possible that underwriting will grow again delivering even more operating income. Relative to treasuries and the market. I strongly encourage you to check this video from James Grant. He is doing a terrific job to explain perceived risk in the market today. Cardboard
|
|
Broxburnboy, "It also betrayed an ignorance of the workings of the constitutional democracy we call Canada. Several posters have since pointed out that the coalition's actions are indeed perfectly legal, one can even say obligatory under the circumstances." I know that it is legal. The average Joe doesn't. Talk to people who don't follow politics that closely and ask them what they think about Dion now becoming their Premier. You will see the reaction. Explain them afterwards the constitutional thing and you will still see the outrage. I am not talking about Conservatives or Liberals, I am talking about non-party members. The great majority of voters. People are used to simple democracy. This has left a terrible taste in the mouth of most and created even more distrust than doing the right thing: calling a new election, NPD and Liberals to merge for good. That would be an honest course of action. Not some constitutional or law trick to take power. Go onto Wikipedia and read about dictatorship or putsch. This how they do it in other countries. Cardboard
|
|
Partner, I understand what you are saying about outsiders "knowing" more than insiders. However, I see so many dumb managers these days sitting on piles of cash and not doing anything with it that it just makes me sick. You also have managers continuing to do the same thing over and over again and expecting different results. Then you have the managers who select one route instead of another to simply keep their job and perks. It is fine to hit the sell button and move on after you see such things and a 30, 50 or 70% loss, but it is terrible to see real value not being released because the majority of shareholders adopt this laissez faire attitude. That is the beauty of a strong outsider coming in to bring some external focus. Shareholders are the owners of these businesses. They have a right to say and are the ultimate boss. A bad CEO needs to be removed if he is doing the wrong thing. If you had a small business and your manager was running it into the ground would you have a little talk with him or her? Then if no change occurred would you remove him or her? Why is it any different with public companies? Cardboard
|
|
I brought this issue on this board as a non-partisan issue. It is not about Harper being right or wrong. This I truly don't care. I want democracy plain and simple. Some here have to remember that only a few years ago that the Conservatives were going nowhere. They had to re-unite with the Reform Party to get something going. This was due to years of mis-management and scandals under Mulroney. Now the Liberals are going nowhere because they have been unable to come up with a trusted leader to lead this country and some (many?) people remember the scandals under Chretien. What needs to be done is for the Liberals to get their act together: find a leader, merge with the NDP if they want to and call a new election. What I care about is the voice of Canadians. Now on the Bloc. Living in Quebec, I know that this latest twist could have a very damaging effect on the Province and could even help the separatists. It is now easy to say: "Hey look at these Federalists, they can't even govern themselves. We can do better." There is a provincial election going on here and it is not clear yet that the PQ won't win. If you believe that the Bloc is weaker with this action forget it. It got reinforced. Cardboard
|
I think that democracy is all about the following: ...show/hide message
http://www.theglobeandmail.com/servlet/story/RTGAM.20081202...show/hide message
|
"10 years from now the net proceeds of the put for Berkshire can easily be over 10 billion, you have to be pretty pessemistic about the future if you think the Dow will be @ 8000 by 2018 which is where around the price they'd break even." A few months ago I thought that this would be impossible, but not now. I have to assume some not insignificant probabilities that we are now into the 2nd Great Depression. The Japanese have done exactly what the Fed is doing now since the late 80's and all that has happened was to increase exponentially their national debt without any increase to private lending. As you know, the Nikkei is still well well below its high. Then if you only look at the charts of Citigroup and GM, it is pretty clear that these companies could enter some form of bankruptcy. What we are talking about here is 2 to 3 times the impact of Lehman Brothers. Think about that for a second. Then one could then ask: if these two go then who is next after? Guys, this is no repeat of 1973-1974. The conditions are way too different. It looks much closer to the hang-over following the great debt binge of the late 20's. It could take years even a decade to undo this mess. The key question is how to deal with it as an investor and I am not sure yet that I have the answer. What I have been doing is buying the cheapest stocks that I could find. But, if we are really into Great Depression 2.0 then whatever I bought may look awfully expensive in 2 or 3 years. I sure hope that Graham theory works and that my businesses have a lot of resiliency. The other alternative seems to hedge. By that I mean being in cash or being short. The issue is when do you remove your hedge? Are you going to stay in cash or short until things improve and once they improve how long do you keep your cash before investing again? Cardboard
|
|
The quarterly results were actually pretty good. We know it won't stay as is due to DHL, but it was comforting to see that their CHI acquisition is still performing. Also very good to see that their relationship with DHL has improved. The stock right now is trading for less that 1 time earnings for whatever it is worth. Reading through the report, it is clear that we are very close to facing big issues with the debt. Some lenders have questioned weather the DHL announcement is a default event. Then if the term loan defaults and we end up having to repay the DHL note, the financing available to repay the DHL note is gone. This daisy chain means bankruptcy guys. So the big issue that I have is with management. Their desire is to "put" back to DHL as fewer planes as possible in order to just cover the cost of converting B767's to freighter configuration. They have already signed a big contract for the conversion and there are penalties if they don't follow through. Being more conservative at this time would seem like a smart thing to do. In a way, it is very hard to follow their thinking because of all the warnings in the report, while at the same time they must have discussed in length their current plan with their lenders who in some way must have blessed it. An explanation could be in the real market value of the planes. They received $30.3 million in insurance proceeds for the plane that burned down or above the book value of $24.4 million. I don't know these insurance policies, but I assume that you can insure for more than the current value. Still, why would you do that? Or are the planes really worth more than book value? The real big negative seems to be the pension plan. The assets were down 13% as of September 30. If we assume down 20% as of now, we are talking about a hit of $90 million. This really hurts our tangible book value calculation using the ABO principle discussed previously by MLoub1. It remains a very uncertain story. Even DHL could come back to make them deliver international freight instead of using UPS. There are so many things at work that it is very hard to come up with a clear valuation. Holding on could result in huge gains from here to total loss. Since I am already so close to the latter with this pick, I might as well hang on to see the end. Cardboard
|
It is fine to be a contrarian and to focus on your "Inner Sc...show/hide message
|
I tend to agree with you. On the other hand, I have learned the hard way that we can't simply dismiss the market: we cannot simply assume that the person on the other side of the trade is dumb. It is true that the effect of forced selling caused by margin calls has been enormous but, where are the buyers? Are current prices indicative of a massive decline in profitability ahead which will severely impair some companies or it is just the result of panic selling? This deflation thing needs to be stopped now, if not we could be looking at 15% unemployment in just a few years. It has happened before and it could happen again. So yes, better to stick with strong, conservative and well run businesses. The issue remains that debt is collateralized with an asset that is declining in value (housing). Then you have issuers of this debt levered 10-20 to 1. You can try to support the issuers or you can try to stop the decline in house prices. I think the latter would be more effective to renew confidence in the financial system and economy. IMO, a cheap and effective way to do that would be for central banks to secretly buy gold. It is a small market (you won't need $700 billion), and it could be moved rapidly to "change the mood". If gold was to pop over $1,000 an ounce in the next little while and continue slowly climbing, I guarantee you that people would look at their homes in a completely different way. Especially that home prices are now more in line with true value. We have to get people to think about inflation and to stop thinking about deflation. We can live with one, but not the other. When oil was at $140 a barrel, gold at $900 and commodities pretty high we did not hear about this deflation crap. This was only 3 months ago. I think the time has come to really jolt the system. Cardboard
|
|
Hi MLoub1, I am still stuck with ATSG and I still agree with your value assessment that we have discussed many times on this board. However, a grave question has entered my mine just now. Deutsche Post is a large profitable German company with solid finances. They can afford to pay the severances, pension and "put" feature to ATSG. On the other hand, DHL Express or the U.S. division is doing absolutely terrible. Is there any possibility for DHL Express to declare bankruptcy and being non-recourse to Deutsche Post? Did you look into the corporate structure of DHL to ensure that our counterparty can/will pay? I noticed that the negotiation with UPS is taking a lot longer than expected. Something is going wrong here and I also saw that DHL wants to speed-up its cost cutting effort in the U.S. If the deal with UPS falls apart then what could be next? This is the latest thing that I could think of that could derail our value calculation. Other than that, I think that the value is very attractive vs trading price forcing me to keep this dog. Still, way too complicated for this kind of market. They can't pay more than 3 times earnings for some simple companies with no debt, so just imagine what they are willing to pay for ATSG!!! Cardboard
|
|
The selling pressure is amazing and is not abating. I have taken a beating on pretty much all my longs. What I find truly amazing is that I have been batting 100% on my shorts this year. This can't last. It has been a small refuge for me since I can't contemplate going 100% short in my portfolio. I hold a lot of longs. However, I think that the bottom is in, at least for 2008. I noticed that the market and many stocks are now playing yo-yo close to their bottom, but not hitting new lows. My best guess, is that once Americans start thinking about the elections and Thanksgiving, we should see some kind of rally. Cardboard
|
|
Hi Uccmal2, I am thinking more to buy and sell the calls on "medium" term rallies (a few weeks, months). I can't do day or weekly trading. Right now, I think that we have hit maximum pessimism. Most if not all indicators point to an oversold market. I found the same in late January and it was followed by a decent rally. Bear or bull markets never go in straight line. So far, I have sold companies that did not offer the greatest potential in my portfolio (highest price to value ratio) and CGS because they have too much debt and the economy will hurt them. Thankfully, my loss was minimal. I may tune in later if things improve. I still hold some SFK.UN because it is simply too cheap to sell and the fundamentals are not that bad. http://www.paperage.com/foex/pulp.html. You also have CFX.UN which will survive for sure yielding 27%. Can't sell something like that. At least now, I have cash to deploy. Prices could get better while fundamentals could start improving: the "show me" state of mind from investors. We are not there yet. Cardboard
|
|
Slasx, Absolutely! Holders of commodities and their stocks got creamed lately. There are some people quite happy now: I told you it was a bubble... The problem is that these guys have never researched the fundamentals and a real bubble has always the public right behind it. We have some companies here trading below book, at 3 times earnings using current prices and with fantastic balance sheets. Once the economy looks better, they will be the go to names. I agree that $150 oil was too much and too fast. That is why I shorted oil via an ETF. Now, I think that we have a decent price. You have guys now talking about $10 oil ! I find interesting that we have not heard about China lately. They are still growing 8% a year. India is similar. These guys have savings and should continue growing. Cardboard
|
|
Hi Smazz, I hold 18 different long positions at this time. I typically like to hold between 10 to 15 companies, but there has been so many bargains showing up in the past year that my list has extended. Many small caps are cratering this morning again. They are trading like bankruptcy is imminent. You don't see that on the indices like the Russell 2000, but if you look deeper, you will find many names coming down 10%, 15% or even more. There are simply no bids. Cardboard
|
|
The issues that I have with this market are the following: 1- When the market moves up, my stocks (long's) don't do a thing. And, when the market goes down, my stocks move down. 2- Fundamentals of my companies are deteriorating: sales/earnings are heading lower, price of some commodities are dropping, deals that were supposed to happen don't happen and if any refinancing is needed, they could be in serious trouble. This must be a common problem for value investors who have invested in lesser known companies. It is probably also where exists the highest upside potential if things improve before they all go caput. The land of the 4, 5 baggers and maybe more. Hedging against these stocks is near impossible. Options don't exist and they don't move in sync with any indices. What I have done to try to hedge my ever mounting losses is to short companies that have really bad problems: high operating losses, large need for refinancing. I am batting 100% on my shorts this year. Let's be clear, I am no genius. This just shows how negative the market is. However, despite the success, it is not enough to offset my longs losses. That is because I don't really feel comfortable shorting more than say 30-40% of the value of my longs. I also realized that along with some other value investors that I am greedy. I hold my longs right now because I am afraid to miss the upside. So far, I have been terribly wrong. The macro negativity is so strong that even any improvement on the micro level makes little difference. At this point, I am highly concerned of the possibility of a depression. If we don't get a depression, we will get some kind of hyperinflation. We can't have the Fed and all other central banks simply buying all the paper out there. At some point they will have to unload it back on the market or if they hold it, they will have to print like mad. A country can only support so much debt and it depends on its GDP. Since I can't completely dismiss the possibility of something really nasty happening (it has happened before if you read stuff before WWII), I am considering to move all in cash except for a few names that have been beaten up so badly that raising cash won't do much for me. Since it is clear that my longs are not rebounding with the market, there is not much point being "greedy" and being afraid to miss the bottom. They very likely will only move up after confidence has been restored in the system. To "protect" in the eventuality that these small caps longs move up along with the inevitable real rebound (it could be 3 years from now), I am thinking to buy S&P 500 calls during periods of extreme negative sentiment (like now) and to sell them on any 20-30% rally. This should give me some ammo needed to offset any missed opportunity by not owning these small caps during the rebound. I could then buy them back once the economic picture looks clearer. In the meantime, I will continue to short bad names because it works and the S&P calls will even help protect me in the case of a huge rally. I realize that I may miss some upside and that the calls could lose me money, but I am thinking that it will be minimal both ways. I will sleep well at night and will have a ton of cash (which I don't have now other than to cover my shorts) to deploy in sweet opportunities when the stars are all aligned. I would like to know if you have lived a similar experience as mine over the past year or so and what you think about my proposed plan. Cardboard |
|
Look, my goal was not to entertain a panic. I really don't know if we will have a crash on Monday, no one knows. The odds for something nasty happening are there however. An encouraging sign, is the fact that Europe is considering this week-end their own bail-out package. A key issue over the last few weeks has been a massive short covering of the USD. This has created a need to sell everything benefiting from a weak dollar. In the bear market of 1973-74, things got really nasty when the dollar strengthened. Once the USD stabilizes or weakens, we will know that things are getting better. Ericopoly got my point perfectly: "It's one thing to say, "Oh, who cares if Mr. Market panics, it's just more opportunity to buy more". It's another thing to say "Oh crap, my business just failed because of the panic"." Many value guys lost everything in some companies because they thought that things would get nasty, then improve. They were wrong on the length and depth of the "nasty" period. We have to do everything we can to avoid the same fate. And regarding Prem, would you not want to be fully hedged if you held: SFK.UN, CGS and ABH convertibles? Exposed to the economy, not generating massive profits and all leveraged. Cardboard |
I suppose that many will wonder about that this week-end. Al...show/hide message
|
If one is to look only at the charts of steel, oil, potash, gold and other commodity producing companies then he or she will conclude rapidly that inflation is dead. However, I have this question for the board. How do you explain that CPI for the last 3 months is such: 5.0 % (June), 5.6 % (July) and 5.4% (August) above last year? Even after excluding energy and food, the August reading was 2.5% above last year. I know that the deleveraging process and the housing bust is deflationary and that we have not seen the reading for September yet, but are these rates above not indicating that treasuries will be a terrible place to be? In other words, they have gone up in price simply due to fear of an economic collapse, but if the economy is to just stabilize (a recession, not a depression) that they will return an increasingly negative real rate. Cardboard
|
|
Let the manipulation continue. That is how we got into trouble in the first place with everything designed to keep the market going up: Greenspan put, a house for everyone, CDS, Working group on financial market, etc. WaMu went under during this "protectionist" period. I am convinced that we will see a few more small banks taken over by the FDIC on Friday evening. After market close of course! I find interesting that almost everybody now hates hedge funds. Who owns them? A very large portion is pension funds. Actually, we must be about to hear a lot about unfunded pension liabilities. This will be another huge anchor on earnings going forward. Cardboard
|
|
Danier Leather is cheap, but for a reason. They sit on a pile of cash, are not buying back any share and earnings have never really turned around. We just saw two very minor insider purchases in September. Reading the annual letter, I don't see any mention about shareholders, the share price, nothing. Then you have something that I find outrageous. The CEO received $950,000 and the CFO $300,000 for their "additional efforts and responsibilities" winning the shareholder class action lawsuit which would have costed otherwise the company $18 million. However, we have no idea how much insurance recoveries would have been on that $18 million. And it is not like results have been stellar during this period of 9 years. I have some doubts that this was all "overtime". Cardboard
|
|
Isn't how this debt bubble got created with all this exotic debt insurance? We have mortgage insurance which allowed regular people to over-leverage in housing. We have Credit Default Swaps which allowed corporations to raise too much debt at lower costs. We have municipal bond insurance which probably allowed the construction of infrastructure projects which can't be financed on normal terms. This concept is truly amazing to me. Insurance in the cases that I have mentioned above is a mechanism of passing to someone else normal loan loss provisions. Someone accepts to lend money at much lower rates because someone else is willing to insure for potential losses. It works until the losses finally materialize and in the economy it happens all at once. It is not like auto insurance, but very similar to catastrophe insurance. The problem is that there was no safety net in place, meaning that the combined ratio was not that attractive during good years and with not enough capital vs claims. Eventually, losses have to be recognized by someone within the system. I doubt very much that we will go back to a great future for this industry within a short time frame. Cardboard |
|
Valueinvestor007, I could not find a chart with the data from 87 to today. But, with this one along with the many articles available right now, you will have what you need. Arbitragr, I have been investing for over 12 years and I have always used the value method. The returns have been great. My issue with this crisis is that it has been over 13 months now and it is not getting any better. Nothing is getting solved. To find similar chaos or similarities, I had to read about the crisis of 1893, the one of 1907 and the Great Depression. The crisis of 1893 is actually the worst one. Unemployment went from 3% to 18% and stayed above 12% for 6 years in a row!!! I know that some of my small caps could not survive such duress. What about SNS holders out here? CGS holders (I am in for now)? Some will dismiss and say that the economy at the time was not the same and all that. But, what if we are really going through a 100 or even a 200 year event? Could history repeat itself? Isn't wise to look at what happened prior to World War II? IMO, the odds of something really bad occuring over the next few years are not negligeable. Cardboard
|
This indicator or the difference between Libor rate and 3 mo...show/hide message
|
Dengyu, I think that your strategy is sound. You buy cheap, but you are also buying things that have tailwinds. Many say that this and this is cheap in the U.S., but when you read the quarterly reports and all you can see is declining sales and earnings, then it is hard to imagine a higher stock price. It may pop, but it won't last long and won't yield great returns. And if you are lucky, it may get taken over. A pop of 20-30% with very low odds? Big deal! I am not going to bet on the direction of the market because it can act crazy, but it looks flat at best. Actually, Wamu just failed and JPM is buying with FDIC protections of course... In energy, I really like Petro-Canada. I talked about it in a different post. If oil is strong it will go up and there is tremendous pressure mounting on its CEO to do something to get the price up no matter what. Relative to oil, I found interesting today that the price went up because of fears that the bail-out could be delayed/not implemented implying a lower USD. The other day it went up because of hopes for the bail-out since it would improve the U.S. economy and demand for oil. A can't lose situation? Cardboard
|
Uccmal2, "I originally bought S&P puts in Jun...show/hide message
Dengyu, I have thought quite a bit about why th...show/hide message
Dengyu,
I have thought quite a bit about why the market is not lower with all this bad news and I came up with two potential answers.
1- We live in a capitalist system and there is always someone looking to make a buck which pushes them to buy something or to make a loan that looks attractive. This keeps the deal making business going and keeps a floor on prices. I still see a fair bit of M&A. It is not private equity anymore, but real companies acquiring assets. They must think that they are making a good deal if not they would not do it and would wait for lower prices. So "real" earnings seem to be priced decently since the market holds there.
2- The indexes are probably being cleaned up more often than in the past. As soon as there was trouble with AIG, it was dumped from the DOW and they included Kraft. This has to stabilize the indexes.
At this point to partially hedge my longs, I prefer to short companies that are in need of refinancing and already generating operating losses. That is where I see the most complacency or a high price considering that the risk of dilution or bankruptcy is significant. So, it is hedging, but with a value twist: I can follow the story and value things. Buying puts on indexes is too complex for me. There are two many variables involved: future earnings of the market, supply/demand for shares, index rebalancing. I have almost always lost money on them. There was quite a bit of discussion on this board way back in the Fall of 2006 to buy S&P 500 puts. I am wondering how many collected big dividends on this strategy?
One of your key points for a declining market seems to be that banks are looking at $0 of capital left once <st1:country-region><st1:place>U.S.</st1:place></st1:country-region> houses have depreciated their full amount. Meaning that their loans or assets have been written down so much that they are left with no equity. This is possible in theory, but in practice things will move between now and then. Point #1 will be in full force and guys who are sitting on cash (sovereign wealth funds, Buffett, hedge funds who predicted the crisis) will buy controlling stakes in the best banks at very nice prices under such scenario.
It will be just irresistible when you consider that making a loan to someone is a business that will always exist. It was just the supply of loans and terms that were out of whack. The sovereign wealth funds in particular have only spent a few pennies relative to their fortunes in the U.S. banking sector so far. These deals could be in the work right now. Somebody knows and it may act to support the market.
While the bad banks or unattractive to buyers will end up owned by the Fed (think a huge FDIC), backed by the Fed (Bear Stearns) or liquidated (Lehman Brothers).
So index puts no thanks. Shorting companies with terrible problems seems easier and safer for me.
Cardboard
|
Dengyu, The longer term issue that I see with the bailout is that it assumes a resuming of climbing house prices in order to sell back these securities in the marketplace at par or at a profit. In the short term, it provides liquidity to banks allowing them to continue lending to American businesses and the public. For many years I have wondered why house prices kept going up and at such a pace. Demographics were telling me that just around now, that many baby boomers would enter an age where downsizing their homes would make sense. Kids are gone, let's travel and play more, why keeping and maintaining this big home? Quite a bit of supply if you look at the age curve. Also, quite an incentive for them to cash-in considering that for most the house value is an integral part of their retirement funding. What seems to have tilted the balance was easy lending to anyone including immigrants who are balancing somewhat the age curve. With easy lending a thing of the past, I believe that the equation needs to be looked at once again. Basically, is there any chance for demand to equal supply even if prices decline to absurd levels? The other aspect of an aging population is lack of economic growth. It seems to be a reason why Japan never recovered from its bubble. If long term U.S. growth is weaker than what was experienced in the past 20 years due to a change in consumer demand resulting from demographics, I think that the bail-out will turn out to be a big add-on to the existing U.S. debt and unfunded liabilities. Many assumptions including corporate pension rate of returns will also be out of whack. Based on that, I see the standard of living diminishing with higher taxes to fund debt and entitlements combined with tougher competition for good jobs from emerging nations who become capable to do more than just manufacturing and servicing. A scenario similar to what Europe has experienced for quite a while. Cardboard
|
|
Then there is this large canadian company called Petro-Canada that could be worth a look. It is trading at a P/E of 3.9 times while the average for integrateds is around 6.9 times (and I excluded Suncor because it trades at a large premium). The situation is somewhat similar to ConocoPhillips a while back when there was this huge valuation disconnect with peers. People didn't like it because they had debt, return on capital was lower and the acquisition of Burlington Resources was making them a large player in natural gas which was experiencing price weakness. Petro-Canada is not in favour today because of lack of free cash flow due to spending on oil sands projects (mainly Fort Hills) which prevents them from buying back a lot of shares, their leverage to the oil price is higher than peers and weak growth profile in the short term. So, similarly to ConocoPhillips, I believe that they should trade at a discount to peers for these valid reasons, but the discount today looks simply extreme. Their assets are well diversified and good quality. I also believe that the recent "bad news" on Fort Hills could be a nice catalyst for management to say no to this project and to refocus on free cash flow. Has anyone looked at that situation? Cardboard
|
|
Dengyu, I have been invested in gold and silver since 2000. It has been a profitable "investment", although the returns were much better in the early years and overall less than I expected. From 2000 to about 2004, gold and silver stocks delivered great returns. It was a stealth bull market which very few noticed. I loved it because it ran counter-cyclical to the bear market in equities following the Internet bubble and on a fundamental standpoint you could follow the story with improvement in earnings, balance sheets, net asset value, etc. It was value investing in cyclicals. Since 2004, the returns in gold and silver stocks have been much less interesting and very volatile. Many companies have not done anything since 2004 and some juniors are even cheaper. What is interesting is that gold and silver themselves have performed much better than during 2000 to 2004. You would think that higher profits would have materialized and pushed the stocks higher. The issues are costs and lack of discoveries. Back in 2000, good companies were averaging $200 cash cost per ounce and less. Today, $400 to $500 is about the norm while many are producing less ounces a year than back then. Gold and silver stocks are supposed to be "leveraged" plays on gold and silver. However, if I look at their performance over the last 8 years vs gold and silver it is not that impressive considering the risks involved: mining issues, management teams. The other aspect that is worth considering is their trading vs the stock market. They often plunge more than the market even when their fundamentals are improving (higher gold or silver). You seem to like calls and puts. If so, you could buy options on the HUI or a basket of unhedged gold and silver stocks. For the metals themselves, the fundamentals have not changed too much since 2000. There is still disinvestment from Central banks to meet the gap between supply (mines, scrap) and demand (investors, jewelry, industry). However, production costs are much higher and demand could accelerate with what is going on in the financial market. If you choose that route, you could buy an ETF holding bullion. You could buy options on these ETF's. There are also some Proshares which offer double the variation. Of course, you could buy futures. This is extremely profitable if you are right, but highly dangerous if you are wrong. Cardboard
|
|
oec10210, Your observation is right on. ABK was actually up around 900% from its low at one point recently. Why the disparity with AIG, I would not even try to post a theory. Unfortunately for them, Moody has placed them on negative watch for a potential downgrade of a couple notches. The company is now busy blaming Moody. Before it was the short sellers who were to blame for all their woes, but they were not allowed to short today being on the "799" list. So where was the selling pressure coming from during the day and after hours??? Somehow, this trading action tells me that American capitalism is not dead yet. It will just take more time to cleanse the system from all these bad loans and for banks, funds, investors and others to finally realize their losses and move on. Cardboard |
|
This article from the Financial Times gives more information as to how it will be implemented in the UK. More interesting: they are also banning futures and options trading in the financial stocks involved. This could create a massive short squeeze. It becomes impossible to bet against these firms in any kind of way. If it is implemented in the U.S., instruments such as the UltraShort Financials (SKF) could become banned. I am against naked short selling, but what they are doing is terrible. They are orchestrating a short squeeze in financial names which will force hedge funds to liquidate good companies in all other sectors. Cardboard |
|
Fairfax shareholders need to salute the AIG bail-out. IMO, a failure of AIG would have lead to the famous "daisy chain" of failing insurers and reinsurers. Berkshire Hathaway can survive such event and even thrive, but I am not sure about Fairfax. Fairfax can hold all the CDS that they want, but if the entire insurance industry collapses because they all hold each other paper (reinsurance contracts, swaps), it would have lead to a massive write-down in reinsurance recoverables AND possibly reducing greatly the value of their CDS because of the inability of their counterparties to post additional collateral (big banks would also run into trouble under such circumstance). Based on balance sheet values, this could have been a very big problem. At least enough for Fairfax to have to curtail on a large scale its underwriting activities. So in a way, the "fear" of AIG collapsing has probably given Fairfax massive gains on their CDS (because I am sure that they collected a decent portion) while a "real" collapse of AIG could have lead to a serious business problem. Cardboard
|
|
Based on this article, this downgrade means that a very large sum of capital will now have to be posted as additional collateral. Cash that they may not have right at the moment. Cardboard
|
|
The world right now is dominated by short term traders. I look at many of my stocks and they all seem to move based on chart trends or technical analysis. I don't do that stuff, but honestly it seems to work more than not in the short term and especially right now. It means that the majority of trades must be using that kind of "analysis" which becomes self reinforcing. So, even if one of my companies is very cheap or is reporting great earnings or asset sale, it does not matter. It seems to be the trend on the chart that determines the next movement. This activity is killing my results and this is even after making some trades lately which improved dramatically the price to value ratio of my portfolio. So looking at Fairfax (I have no position at the moment), the balance sheet is stronger than it was, but I have yet to hear anyone on this board giving me a reason why the earnings or even the balance sheet will improve in the short run. It is neutral at best. The shorts know that too and the trend on the chart has been their friend. So, they have made a mint being short. Once the trend reverses, the smart ones will cover. Do you believe that the stock will climb in a single day from $213 U.S. to $300? Personally I do not, so the smart shorts will have plenty of time to cover and to realize some gains. And why are they not short other weaker financials such as LEH or insurers such as AIG? Probably because like some of us, they know Fairfax better than AIG and their knowledge/confidence of opportunities has brought them to place a short on FFH. This circle of competence if you will has lead them to place a lesser profitable trade. Cardboard
|
|
My comparison with Rita was for "insured losses" which typically exclude flooding. However as I mentioned, the final path or trajectory of the eye of the storm is key. If max speed winds head straight into downtown Houston, we could see huge property losses. Cardboard
|
|
Money makr, I don't know if you were or not into Longs Drugs, but you were right that other bids would emerge. Cardboard
|
|
$80 billion in damage seems way too much. Although, the final path is a significant factor. I just looked up Rita on Wikipedia to compare with Ike. That thing was a Category 5 before in the Gulf down to 3 at land fall. $11.3 billion in damage and the evacuation was a mess compared to this one. Cardboard
|
|
On Canwest, I fully agree with you. The stock is also very compelling on a NAV basis, especially if the valuation for the Australian asset improves and if Global TV numbers improve. Both scenarios occuring together are quite possible. The unfortunate part is that Asper seems to like his empire: he wants to retain everything at all cost. Even Fairfax did let go the crown jewel or some of Northbridge when they needed cash. So, unless the balance sheet starts improving in some meaningful way, I have a hard time seeing the stock price improving in this scared environment. On Abitibi, I would be very cautious. Debt is very heavy and it is no longer certain that price increases will stick. We have just seen it in pulp. This situation is not like CGS; these guys need a business improvement just to survive. There is a reason why Prem selected a convertible instead of straight equity. In that sector, I prefer Catalyst Paper because the debt is more manageable and they have been able to buy at a low price one of the lowest cost newsprint mill in NA from ABH. Cardboard
|
|
Sanjeev, I deeply regret my post. It was stupid and I apologize. I too appreciate greatly the efforts that you have put in and that you are still spending to keep this board dynamic and very resourceful. So why did I write it in the first place? I must admit that I was quite unhappy when Jordan was removed because I thought he was one of the sharpest guys and among the strongest contributors on the board. The original discussion over the incident was not really that important: a long argument about the greatness or not of the track record of a known fund manager or Larry Sarbit. Then it did degenerate. If I recall well some threads were deleted and that is probably in these that Jordan showed disrespect because he was likely mad. He should have cooled down, but didn't. It is also too bad it did not repent. Cardboard |
I find it unfortunate that a decent and smart member called ...show/hide message
|
Albeit small, this acquisition raises a big question mark: why is this reinsurer being purchased by Fairfax instead of Odyssey Re? Within Fairfax, everything related to reinsurance is done by Odyssey Re. The only exception is Group Re which reinsures internal business: "reinsurance of Fairfax’s subsidiaries by quota share or through participation in those subsidiaries’ third party reinsurance programs on the same terms as the third party reinsurers." So, the know-how on external reinsurance is at Odyssey Re and nowhere else. One can say that knowledge flows freely throughout the Fairfax organization, but then it seems pointless to have Odyssey Re operating as a stand alone unit. It is also worth mentioning that Odyssey Re has two main offices in Europe (Paris and London) and a smaller one in Stockholm. I don't know what is going on in the Fairfax organization sometimes and this is just one of these moments. This is as bizarre as what would be the purchase of a Canadian trucking insurer by Fairfax instead of Northbridge. Cardboard
|
|
There will be little left for existing shareholders. This will be a good lesson for Bill Miller and some others who claim to be value investors and who have been adding and propping up the share price of some of these terrible companies. Since when is it that a company with negative equity and reporting mounting losses a good and sound investment? Ben Graham has never tought such a thing. Marty Whitman is another one of those "value investors" who has "speculated" in MBI and ABK. Ambac has now negative equity based on their latest press release. The result of a $2.5 billion decline in fair value of their credit derivatives book. By the way, that swing is on a $6.5 billion net derivative exposure and for July alone! They also cancelled a $400 million debt facility because the terms had become too expensive. But, somehow, their main sub is going to magically inject $850 million to restart their Connie Lee subsidiary and it will get AAA rating! In what kind of world do we live? Isn't time for bad companies to go away and for the good ones to pick up the slack? Why is the stock market completely unable to sort this out? It is not hard at all to find companies with terrible financials trading at higher multiple than top notch firms such as Berkshire Hathaway. Until this cleansing starts for real, I cannot see a recovery occuring in the United States. Cardboard
|
|
Mungerville, If we get there (a take-out), I am now afraid that the offer will be dismal. Looking at the price offered for Cunningham Lindsey and more recently Advent Capital, then I cannot say that Prem has demonstrated a lot of respect for minority shareholders in sister companies. It is hard to say that there was Fair Friendly Acquisitions at work in these two transactions. I really thought that ORH would have moved on its own by now with all the good news and the discount to book (which remains). Considering that Fairfax is now appreciably cheaper relative to book value and that I now consider unlikely that ORH will be valued properly in a going private transaction, holding ORH at this time does not seem like a great pick. Cardboard
|
|
Thanks for all the ideas guys! Please keep them coming. I found one as well recently that looks pretty interesting. Tundra Semiconductor (TUN-T) is selling bridges and switches to support System Interconnect. Stuff to enable PCI, Rapid IO and other standards. I am not an expert in that field, but they always introduce new products and seem to be on the leading edge of that industry. The board is filled with "techies" or former top executives of Motorola, Nortel-Matra and ATI Technologies. So, I think that it would meet a few tenets of Philip Fisher. What is more interesting is that the company trades for $3.70 while they sit on $3.00 of cash and EPS are forecasted at $0.30 for this fiscal year growing to $0.50 next fiscal. The company is a bit of a turnaround on earnings which had declined to $0.23 (adjusted) last fiscal. Of course, a key risk is what they will do with this cash. On that front they seem fairly disciplined having made only pretty small acquisitions in the recent past and they are now buying back shares. There are also some interesting value investors in it with Mackenzie (Cundill?) owning 13%, Howson Tattersall also at 13% and Letko Brosseau at 19%. Cardboard
|
|
Joe Hete (CEO) was buying shares on the open market before the DHL collapse. He is buying now as well! I had not seen any share purchase by insiders since the DHL announcement. There must have been some black-out dates, but still... IMO a great development! MLoub1, "I am not assuming that the value of property will not go down over 12 months, just that it will transfer from property to cash as they are reimbursed for the D&A, and potentially back to property if they buy more planes, or convert existing ones." I am there too. But, this means that book value, after assuming pension liability reduction and elimination of goodwill, is today what it will be also in 12 months unless they earn a profit above reimbursed depreciation. If all they are doing for 12 months is piling the cash from reimbursed depreciation, then the cash increase has equalled the property & equipment decrease. Lots of FCF, but no real increase to total cash that can be extracted from the business since the remaining book value of planes can also be sold for cash. Only net income over the next 12 months can increase the liquidation value that you calculated at $2.64. Cardboard
|
The news release on the agreement with DHL yesterday just re...show/hide message
Looks like that one of the risks is diminishing or the one r...show/hide message
|
I have noticed that both shares of ABK and MBI have risen sharply since their lows. There has been some settlements with banks and investment banks. S&P has also affirmed their AA rating on Friday and affirmed ratings on certain CDO's and other asset backed securities insured by these firms. MBI still pays a very attractive dividend and both companies are now trading a bit below book value. Just over a month ago these companies were thought to go under. Now looking at the market reaction, they appear poised for good days ahead. Who is right? I am kind of surprised that companies with items that are next to impossible to value on their balance sheets, financials that are quite difficult to understand and earnings that are impossible to predict could trade so close to book value in this environment. Is there anyone short these names? Cardboard
|
|
Stocktime, In Canada, Hyduke Energy Services (HYD-T). It sells for $0.70 while net-net working capital is $0.93. Book value is $1.60 and they are profitable. They have suffered from the Canadian downturn in drilling, but now the business is coming back. They are also expanding in international sales. On that one, I have seen more talk than actions until just recently, but contracts are now starting to come in. Another concern of mine is weak investor relations (I did not receive answers to my questions from IR and there are no conference calls), although executives salaries are decent and they seem focused on running a solid business. The CEO bought shares last December in the $0.90 range. Cardboard
|
|
Omagh, The companies that you mention are very well managed. KOS is dirt cheap although, I have concerns about cash being spent on acquisitions, the loss of the deal with Bell and large insider selling. UNS is a good reminder for me to check into. I noticed that Autozone and Advance Auto Parts are both hitting 52 week highs. It could mean some tail wind in the sector which should also help UNS. Another Quebec company that I am starting to look into is ATB. It is not dirt cheap on an absolute basis, but it is very cheap relative to growth and quite cheap vs peers. Everything I have read so far indicates a well managed company. I like the fact that their recent results indicate an insulation from a slowing economy. Cardboard
|
|
MLoub1, I have read a bit more on pensions on the Internet and I am now convinced that you are right on the shift to ABO. On the $45 million (more $46 M), yes there is the $32 million from unfunded healthcare and there is roughly $6 million unfunded between ABO and plan assets at Dec 31. The remaining difference is the differential between the balance sheet liability at June 30 vs December 31 or roughly $8 million. I suppose that this comes from a decline in the value of the pension assets due to the weakness in the stock market. I see now how you get to $3.50/share by excluding the impact of depreciation on the value of property & equipment. You are right that on a market value standpoint that the value of the planes in 12 months time will not fluctuate in exact steps with accounting depreciation. However, the "put" is at the lesser of book value and fair market value. Because I am cautious about the state of the U.S. and global economy, which could negatively impact fair value, I tend to stick more with book value at this point which would have to include the impact of depreciation. Nonetheless, I am still at a loss relative to the market reaction that resulted in the sharp decline from $3 to less than $1. I was assuming odds of almost 50% that DHL would exit the U.S. completely before the announcement. The shares had already declined substantially before the announcement to account for the DHL uncertainty. The UPS deal was a surprise, but an exit from the U.S. (the equivalent for ATSG of the UPS deal) could not have been excluded from the range of possibilities. If the price had gone to $2 I would have understood, but less than $1 is crazy. Cardboard
|
|
"west may be relatively over valued compared to some of the other 50 cent dollar opportunities you see out there but it is far from being over valued in absolute terms. especially if you subscribe to the notion that sns is significantly under valued here." I own neither WEST nor SNS at the moment. However, I really don't understand how someone can justify holding WEST vs SNS at this point of time unless you have a huge tax bill to pay on the sale of WEST. Even so, must of these capital gains on WEST must now be "long-term" from an IRS standpoint meaning a fairly low taxation rate. For a Canadian they are low as well at any time. So, considering the large valuation differential and the large importance of SNS to WEST valuation, I have a hard time understanding why a switch is not warranted at this time. If SNS goes right it will be a double at least while WEST will move up by how much? If SNS dies, WEST will be cut at least in half. So WEST is more defensive, but where is the upside? Depending on your forecast, add your capital gain taxes to the mix on a WEST sale and I am sure that there is still a lot of incremental return available here. The "jockey" is in charge at both places and SNS must go right for WEST to do ok. There is simply too much capital invested in SNS. To out grow SNS, WEST will need huge internal growth or additional capital and IMO a great deal of potential investors will wait to see Biglari execute well at SNS before sending more cheques. Switching has worked in 2003 and 2008 with Fairfax and Odyssey Re or both times where the valuation differential favored ORH. I can't say that it will work every time, but I think that the odds are high enough to warrant a thorough study in every case. Cardboard
|
|
MLoub1, Thanks for answering so quickly and with such a detailed response. I really like the information that you provided relative to pilots wages and the recent certifications and its implications. Makes a lot of sense. Based on your analysis, there is a lot of weight in it around the pension liability shift from PBO to ABO. You must be absolutely sure that we will move to an ABO if not, your liquidation numbers tend to fall apart. Did you see a precedent for that somewhere with a different company? Did management gave you a better confirmation afterwards following your question in last conference call? Also, don't forget that this does not fully eliminate the $194.7 million shown on the balance sheet. It brings it down to around $45 million based on my math. Now, if DHL owes some of that left over amount I have no clue. Still, this finding or yours is a huge asset. Thank you! I am also curious as to why you are not substracting current liabilities (other than current portion of long-term obligations) from your liquidation analysis? This amount exceeds by quite a bit current assets (excluding cash). With these two adjustments, I obtain a lower liquidation value than yours, but well north of $1. With all the risks involved, that is why I am worried. My number is simply not big enough to my liking to factor in suprises which always tend to be negative. Timing of cash coming in vs coming out could be a problem. Mainly, I am not sure how long the lawyers can push back on the DHL note repayment. The "put" is not going to bring in any significant cash until B767's are put back to DHL which could be a long way out or late 09. In the meantime, cash flows could get eroded due to the economy and the availability of credit is uncertain. Although, even if they are forced into bankruptcy because of DHL, we can make a case that $1 of value could remain with the shareholders. Finally on the insurance proceeds, I hope that "fully insured" is what we think it is. These guys have self-insurance which covers certain aircraft claims. Cardboard
|
|
Dotbowels, Is Pabrai the guy that you were upset about when you wrote the post about: "People that talk about 5 & 6 baggers."? If so, then I am assuming that this has to do with him dumping PNCL. Cardboard |
|
MLoub1, Do you still hold ATSG after all that has happened? I am debating what to do. Clearly, the risks seem to have increased exponentially. I am quite worried about some of the risks now being discussed in the 10-Q namely: 1- Deal with DHL regarding termination costs and pension. 2- Wage concessions required to be competitive and need for lease at Wilmington post DHL. 3- Potential goodwill impairment due to economic conditions. On number 1, I am quite concerned to read this in there in such terms. In the last conference call or following the DHL announcement, this sounded like a standard item or pretty much all fixed up. I am concerned that they have now realized that most items will be covered except such and such item. On number 2, this sounds like another: Oh no! We didn't think about that! Seems to me that they thought mostly about the planes, but forgot that they need experienced flying crews and a landing strip close to where they live. Changing the business model from ACMI to dry lease could eliminate this risk, but I am not convinced that they can be competitive in that field. On number 3, that is a big watch-out since all goodwill and intangibles have arisen following the acquisition of CHI. If they start talking about that, it means that there is some probability in their mind that profitability could decline materially at CHI. A big write-off would likely trip some debt covenant. Overall, I think that they can find ways via their current cash flow, cash on hand and use of the put feature (even selling to DHL some non-converted B767's) to end up with a fairly large fleet of B767 freighters. However, the risks above and especially the tough heads at DHL could derail that plan. Still, where is the value creation? What they are doing is using a bunch of cash to end up with a converted fleet of B767's. Doing that is not going to unlock some hidden asset or increase book value (cash simply goes to equipment). And as you pointed out to them, their cost of capital is high and the return on the planes is not great meaning little profit or future increase in earnings. I value your opinion on the company and would love to hear your thoughts. I am also wondering if you are still expecting a big reduction in pension liabilities (underfunded) following restructuring. Is anyone else still holding and having something to share? Cardboard
|
|
Did you guys notice that he bought some puts against his Wellcare Health Plans position? I find his portfolio to be quite different compared to previous quarters. Normally, he always had 6 to 8 names with each at 10 to 15% of the total value. Now, he has only 4 of these and the rest are fairly small holdings. Of course some of them got hit, but he has not averaged down. Cardboard
|
|
"If Pinnacle did declare liquidation, it might be interesting to try to play the stock in that fashion rather than a going concern. Until that happens though, the questions about the operating performance are much more relevant." This is right in line with my current thinking on: "avoiding evolving thesis". I saw that in David Einhorn's book and thought it was a very smart observation. If one bought PNCL based on its earnings power, then one should hold based on that alone and not based on: "Well, even if the earnings are now lower, I am safe because it is still worth $10 or $12 once dead." The problem with this thinking is that Trenary will do whatever he can to turn around the earnings at Colgan Air and will try to make as much money as he can with the contracts and planes at Pinnacle Airlines. A liquidation is not at all on his mind. Managers will almost always do whatever they can to make things better before giving up and liquidating or selling the company. We are talking a long time until the give up phase kicks in and when it happens, often losses have piled up so much that you original liquidation value is a fraction of what it was. Many CEO's think that they are super heroes and are so focused on their business that they often don't see major trends or outside factors that could eventually destroy their business. Unless it is cash or something very easy to liquidate in any environment at what is recorded on the book, I have found that you cannot rely too much on book value as a strong defense or margin of safety. Graham found the same and that discovery was back during the Great Depression. Cardboard |
|
This article mentions that there is a filing showing that Buffett has added $3.98 billion worth of COP during the quarter. We are talking a very large increase if it is true and a commitment big enough to indicate that Buffett believes that oil will stay high. Did anyone see that filing? Since he moved the stock to confidential status we cannot tell how much he held at June 30 with the 13-HR. Cardboard
|
|
Looking at the liquidity numbers it did deteriorate quite a bit since last quarter. There is $83.9 million of cash and $55.6 million of debt available in the revolver or a total of $139.5 million. They repaid some debt, so cash came down and I cannot blame them for that. However, $47 million is now used up somehow by the reduction in the term loan via the "investment". There is also $9 million that looks like locked up or unavailable for unclear reasons: "During the second quarter of 2008, the Company deposited $9.0 million with its lead bank in a restricted, interest bearing account." This leaves us with $83.5 million or not enough to even pay for the $92.3 million DHL note if it occurs. Then there is this little disclosure underlined/bold that I don't recall seeing before: "In the event that it should become necessary to repay the note before January 2009, the Company established replacement financing of $61.0 million with certain former shareholders of CHI. The replacement financing agreement expires in January 2009 and would become unavailable if the Company is in default of the Credit Agreement. " How useful is that replacement financing!!! What really gets me over the hedge is this wild capital forecast that remains at $130 million for 2008 following the DHL announcement. They have only spent $54 million so far, leaving $76. Where is that money gonna come from? Cardboard |
|
I think that David Einhorn summed up best my current thinking when he discussed in his book his investment style vs the one of his former boss: avoid evolving thesis. IMO, this means that if you bought a stock because the earnings and growth looked attractive, then do not hold because it now looks good to book value and eventually relative to net-net working capital!!! To avoid such issue, I think it is wise to sell at the first crack of trouble in your earnings forecast. It is drastic but, thinking about it, I cannot recall too many cases where this would not have been "profitable". It is true that the current bear market is tough on value metrics but, even during bulls, why sticking with a potential serial disappointer? There has to be another company out there that will be happy to please you with solid performance. If you want a cheap stock based on assets, then chose one in the first place that offers something valuable relative to that or like a management team looking to exploit this advantage. Cardboard
|
|
Yes, it looks like that the trial will go on. However, I think that the stock is weak because there is not a lot to cheer about in the short term: underwriting income is down, interest and dividend income is down (with lower interest rates) and there is not a lot of capital gains to be harvested at this point. The CDS card has worked very well, but many are now asking what is next? You can tell me that liquidity is strong and that recoverables are down significantly and that they are in a position to sign great investment deals and all that, but the reality is that the Street does not give a .....! Frustrating and sad, but that is how it is. In terms of ORH vs FFH. I would say that now is a good time to consider getting out of ORH and to move into FFH. I was a big supporter of leaving FFH in the $300 range and to move into ORH which was available almost at any time between $35 and $37. I felt that ORH offered more value. At this time, I think that FFH offers more value. Not by a huge margin, but the differential is there. Although, I think that one factor is now even more important than valuation between the two: we know that Fairfax will get recognition for its investment talent while ORH may not. As the CDS gains developed, FFH shares moved up significantly to recognize this gain in intrinsic value. At ORH, nothing has happened despite the large gains. The flip side is that FFH share price could continue to see more weakness in the short run. I think that the only thing that will get ORH moving is some very visible improvement in operating income (interest, dividends and underwriting income) while gains in book value via capital gains will always be discounted by our dear analysts. They keep comparing the company to other reinsurers. A large change in operating income will need the end of the soft market and/or a significant shift in Hamblin Watsa's portfolio. IMO, that could be 2 years out. So if new CDS gains arise, FFH will move up a lot while ORH could end up threading water again. Cardboard |
|
I am starting to believe that this is the costliest and dumbest thing to do, especially when a stock has declined a lot following your initial purchase and that value has been somewhat eroded. It may sound like something silly to say among value investors, but I will explain my reasoning. You buy a stock based on what you think it is worth vs trading price. To value the company, you use public filings and other available information. Then the stock keeps on falling after you decided that it was cheap enough and bought in. Suddenly some news come out and you realize that the numbers that you were using have to be reduced. The stock falls another 10%. Then it keeps on falling and is suddenly 40% below your initial price. Then you re-run the numbers and the stock now looks extremely attractive or with better ratios than what you saw initially even with the reduced profitability numbers. You buy a second time. Unfortunately, you notice that the stock keeps on declining. Why is that? Are they dumb to sell such opportunity? Unfortunately, my experience tells me that it is quite probable that disappointments will keep on coming. Once a company has disappointed once, it is likely to do it for a few quarters in a row. A trend is often hard to reverse in 3 months. That is where I believe that looking at the chart is useful or at least a way to remind one that the story needs to be re-checked carefully before averaging down. The chart also tells another story. Some are quick to blame short sellers and the like, but I have seen some small companies with no short selling at all heading straight down with no apparent reason. IMO, insider selling is much worse than short selling and no one seems to be going after any of these obvious cases. You don't see the insiders selling directly, but it is all kind of people who know what is going on inside. They know that the results are still heading down and getting out. The chart is about the only tool telling you the truth. Of course, sometime people just sell because they are worried for nothing. Finding out which is which is key. Some investors have established a simple rule which is to sell whatever company has not met their expectation on a single news or quarter. To me, it is too simple. Sometimes it works, sometimes it doesn't. How do you guys deal with this? Cardboard
|
|
Adding the DHL volume to their network (UPS) will mean a more efficient system overall: more planes running full, more packages sorted through the same system. So, they must have been able to propose to DHL a lower cost to fly and sort than what DHL was able to do on their own with the help of ATSG and ASTAR. Unfortunately from what I have read, this also means an overnight service that will be much inferior to what it offered previously (delivery routes will start later). Many customers who were with DHL have complained and will probably have to move to another carrier. The latest results from ATSG were again less than terrific. EBITDA before special charges were less than during the first quarter. At least, they seem concerned about the debt level and are continually reducing it. I think that a sale or liquidation of the company is the preferred outcome. It is hard for me to envision a scenario where ATSG can be a competitive dry leasing company or effectively competing with banks and finance companies. Their cost of financing their planes is just too high. The only option is wet leasing or the ACMI model and who needs that right now on the scale of DHL? UPS keeps saying that they are looking to switch some of their older planes to the B767 in a few years from now. If it can be done at an attractive price why not now? Cardboard
|
Here is a big one announced just a few minutes ago. ...show/hide message
|
I don't know who it is that Dotbowels is so upset about, but I would certainly love to read more discussion on this board about potential 5 or 6 baggers. And yes, that kind of return in 2 to 3 years max. Big fat opportunities, really undervalued companies. If you scan through a few Valueline's, you will find that there were many of these following the 2001 recession. There has to be as many brewing right now. We have talked about Canwest Global on this board which I believe is a 3 to 4 bagger from here if the Asper's manage it right. Air Transport Services Group is another one if the company manages to sell or lease its released planes from DHL at equal or better rates. I have talked about Hyduke Energy Services before. It is now in the $0.70 range and it is very cheap. Net-net working capital alone is $0.90 and one of their plant is brand new. They build equipment for on-shore drillers and demand is just picking back up in Western Canada. A 4 or 5 bagger is a very real possibility. Viking has talked quite a bit about SFK Pulp Fund. It could be a triple from here. This whole sector has been decimated. I recall that coal and fertilizer stocks were no fun at all just a few years ago. Things can change in a cyclical sector after many years of disinterest. What I am having a hard time finding now are companies currently trading at very low P/E's with sustainable growth or non-cyclical. If you have any suggestion I would love to hear it. Cardboard
|
|
Gordoffh, The lump sum payment is attractive if you are a good investor. The discount rate used in the calculation is so low right now that today's amount or the lump sum is high. Another potential benefit if you commute and are a Canadian below 55 (you should verify the age, but that is what I recall), is that there will be an adjustment made relative to your RRSP available contribution room. Every year because you were in a defined benefit plan, they have substracted a Pension Adjustment amount (see your T4) from your gross overall RRSP available contribution amount, effectively reducing your RRSP available room. If you commute they will: sum all PA amounts then substract the Lump Sum and Revenue Canada will add this difference to your RRSP room in one shot. It could be interesting if it increases your room by a fair amount and you want to invest that sum in your RRSP to reduce your taxes and grow more money tax deferred. Cardboard
|
|
Looks like that the U.S. market does not get it once again: when oil goes down and other commodities, the market skyrockets. When you look at it, oil at $140 or $120 or even $100 won't make a difference to U.S. consumers. It has been a profitable trade for now with very high correlation. If it is just a short term trade that is fine, but if that is it for oil and it really comes down (say to $60 a barrel), it will indicate a much larger decrease in demand than we see currently and quite likely a global recession. So with all this said, LEH is up again over $20. I believe that the issues discussed before related to U.S. financials remain in place. It is not a pull back in oil that will change any of that. I picked LEH because it is still quite exposed to U.S. mortgages and they have not been as agressive as Merrill to unload bad assets and to raise capital. A take-over is possible, but when you read about the deal between JPM and Bear Stearns, it seems to me that executives in these firms are worried about each other's book of business. Is anyone looking at shorting any U.S. financial? Cardboard
|
|
I realize that I was not fully clear. There is this comment in the 2nd quarter report: "The substitution of total return swaps for the closed short positions during the second quarter of 2008 resulted in the release of a significant portion of collateral formerly pledged in support of those obligations." That part and resulting benefit I understand. What I am trying to figure out is the remark about counterparty risk. Cardboard
|
Reading the Fairfax conference call transcript I found this ...show/hide message
"Jeff Fenwick - Cormark Securities
Okay, great. Just one question on the investment portfolio. It looks like you've exited all of your SPDR positions that you had. Sort of what was the thinking there, and --?
Prem Watsa
All we did Jeff, was to convert it from a SPDR, a straight short position, to a total return swap. And the collateral arrangements are such that we have less exposure to the counter party and we just thought that was appropriate at this time."
If I understand that right, they were short the Spiders or the SPY. Now, they are into a complex derivative arrangement that provides a positive return when the S&P 500 goes down. The sentence means that they were worried about counterparty risk pushing them to switch from the short position to a swap. Are they worried about ETF's? A run on ETF's of some sort or a collapse in confidence that would make them impossible to trade? What do you see being the major counterparty risk shorting the SPY?
Cardboard
|
I recall about two years ago, that many on this board were buyers of GM in the $20 range. Profits must have been pretty good since the shares rebounded quickly well into the $30's on their turnaround efforts and a partial sale of GMAC. Things have changed quite dramatically since then with very high gas prices and a weak economy. The financials of the company are now quite weak to say the least and I am surprised that the shares are still trading where they are. The credit guys seem to be much more worried and they are first in line: If you look at their cash burn rate, operating cash flow was negative $3.6 billion in the most recent quarter. Looking at the sales figures for July it seems unlikely to get much better in the short run. To this negative operating cash flow, one needs to consider a heavy capital spending program to retool their business to smaller cars. Capex was $2.2 billion in the 2nd quarter. Their cash stack was around $20 billion on June 30 and they mention that they have access to another $5 billion on their credit line for a total of $25 billion. Along with their continued restructuring efforts, they believe that they have enough to make it until the end of 09. However, what are we left with at the end of 2009? If they continue burning through $4 to 5 billion a quarter, we are looking at $0 cash left and a fully utilized credit line. Book value is already negative $57 billion. Considering that capex more or less equals depreciation, book value would now be negative around $80 billion. This has to be a record. Of course, if they return to profitability by then, they could reverse a previous tax deferred asset write-off and bring back $40 billion to book value. Still a negative equity of $40 billion. If they have a good stretch between 2010 and 2013, they could try rebuilding their cash pile and reduce their negative book value. How is it going to happen? If we look back at 2004, a decent year for SUV sales (I guess!), operating earnings from their automotive division was still negative $550 million. So, I don't really understand why shareholders are not more worried than they are. It just seems to me that recapitalization is almost inevitable. A few debt holders and banks who get worried and that is it. The business itself could be turned, but it will take time and massive cost savings. Is there a very large hidden asset on the balance sheet that could realistically be liquidated (at the very least $5 billion) to improve their position? Am I missing something? Cardboard
|
|
I thought this was weird. I don't own the stock, but I have been watching closely. It just seems to me that things have gotten much better for these guys with the renewal of the Delta contract. I thought it was the most important contract to renew since they own the CRJ-900's that are being leased/operated for Delta. You cannot afford to own/finance a billion $ worth of planes sitting idle. For the Northwest contract, they have a put feature which protects them completely (of course not for their earnings): simply return the planes owned by NWA and book a nice one-time deferred revenue amount in their book value. So, I am unclear why the sale. It was only one of his funds as well. Cardboard
|