This is the introductory article for my JP Morgan quarterly opinion, which asks questions that will probably piss off management but I haven't heard anyone else ask them. I will be presenting views on this topic on CNBC's Squawk on the Street tomorrow (Monday) morning. I urge all to tune in.
Much noise has been made about David Einhorn's presentation of "more than a hundred" pages on St. Joe at the Value Investor Conference from earlier this week. What few however seem to know, is that this is merely round two in what is at least a three year ongoing vendetta between the Greenlighter and the Florida real estate company. On May 23, 2007 Einhorn gave what is essentially an identical presentation to the Ira Sohn conference held at the Lincoln Center. In other words, to say that this is a new idea for the hedge fund manager is certainly a stretch. Below are the full notes that Einhorn presented back then. Contrast these to today (you can read the full presentation at Market Folly). In essence the only thing that has changed is the price target: in 2007 Einhorn saw a fair value of JOE of $15, when the stock was $53. This time, when the stock was $25, he values it anywhere between $0 and $10. Could he eventually be proven right? Who knows: after all that's why he gets paid the big bucks, and has had some great calls in the past. However, his long matched calls at the 2007 Ira Sohn conference are certainly not among them. At the time, Einhorn was a fan of Helix Energy Solutions (HLX), back when the stock was $40, and now is $10, and Natixis (KN.FP) which was €13 and now is €4, both underperforming his short call materially in the past 3.5 years. A long HLX (or KN.fp)/short JOE pair trade has certainly cost anyone who put it on a pretty penny. So, as always, buyer beware. Just because a star hedge fund manager likes or does not like something, does not make it a slam dunk.
There is a Part 2 to the story of Consumer Deleveraging that will play out over the next decade. Consumers will deleverage because they must. They have no choice. Boomers have come to the shocking realization that you can’t get wealthy or retire by borrowing and spending. As consumers buy $500 billion less stuff per year, retailers across the land will suffer. To give some perspective on our consumer society, here are a few facts...
FASB Proposes Semi-MTM Requirement, American Banker Association Goes All "Mutual Assured Destruction"Submitted by Tyler Durden on 09/15/2010 15:23 -0400
Ever since the financial crisis made it all too clear that all US banks would be insolvent if their assets were marked anywhere near fair market value, Bank Holding companies received a green card to actually represent any of their securities "held to maturity" at anything else than mark-to-model/myth/unicorn on their books. Obviously models miraculously priced all barely cash producing loans at par, and with "out of sight, out of mind" receiving the full blessing of the administration's treatment vis-a-vis an insolvent banking system (i.e., no risk, all return), investors realized they have nothing to fear as pertains to the asset side of bank balance sheets, they ended up purchasing such otherwise undercapitalized companies as Citigroup (and soon, incidentally, Government Motors, which as Jonathan Weil reported recently, would have an equity value of negative $6 billion if the bankrupt company's $30 billion in goodwill assets was removed). Well, the FASB has just fired a semi-warning salvo at the banking system with a new proposed rule that would seek the gradual return of that long lost concept known as mark-to-market.
Despite lackluster market conditions, Molycorp managed to raise $394 million through its July IPO at $14/share. The company will use the funds to reopen the first rare earths production in the US since 1992, making it the largest such producer in the world outside of China. The hard asset crowd has been pouring in, making it one of the best equity launches of the year. An alternative energy, national defense, commodity, inflation play is a win-win-win-win. (MCP), (LYSCF).
Without a CEO, the longer HP languishes at the $41 a share level, the more likely it will become a takeover target.
Wheat prices have doubled in six weeks. Domestic grain traders, seeing nothing but rows of corn, wheat, and soybeans at home as far as they eye could see, were caught totally flat footed. This crop disaster was totally foreign in its origin. Trouble with the canola crop in Canada rippled from Australia, Western China, the Ukraine, and then to Russia, big time. Time to take profits. As any farmer will tell you, pigs get slaughtered.
Making money as the sell side turns on itself...
Some bad news for Uncle Warren. In a note by Barclays' Jay Gelb, the insurance analyst evaluates the impact of FinReg on that "other" company and concludes that as a result of Berkshire having $62 billion in notional derivative exposure, the additional collateral requirement contemplated in the current version of Financial Reform (don't worry, the corrupt idiots in Congress will strip it before all is said and done), which amounts to 10% of notional, or 100% of option proceeds, would result in $6-8 billion in collateral posting requirements imposed on "America's Company." Even for Buffett, this is not purely chump change.
The bankruptcies and debt collapses are coming as a result of overcrowding in the sovereign and public debt markets. This series aims to prepare you for the coming collapse... The Doo Doo 32 revisited!
Throw a Little Conspiracy Theory into the Pan-European Sovereign Debt Crisis and an Impending Spanish Bank Collapse and Who Needs TV For Entertainment?Submitted by Reggie Middleton on 06/14/2010 12:45 -0400
The global equity markets are in meltup mode again. I want to take this opportunity to reiterate that I am still quite bearish on much of the situation in Europe. Let’s glance at the credit markets, major banks and the state of sovereign indebtedness in Spain.
Last week, we pointed out that the ECRI Leading Index dipped to negative for the first time in over a year, which on a historical basis tends to predict a recession with surprising regularity. Today, David Rosenberg takes this data and expands on his views of the probability of a double dip.An interesting observation: when the ECRI drops to -10 (from the current -3.5, and plunging at the fastest rate in history), the economy has gone into a recession 100% of the time, based on 42 years of data. At the current rate of collapse, this means in two months we should know with certainty if the double dip has now arrived.
As a follow-up to our piece on the Australian macro outlook (Australia: The Land Down Under(water in mortgage debt), We looked into the four largest Australian banks...
Developing Implications on Loan Accounting Law: Mark to Market, Mark to Model, or Mark to Market Crash?Submitted by Reggie Middleton on 06/05/2010 06:42 -0400
Relevant commentary from BoomBustBlog and sources throughout the Web on the accounting change that added 80% to the S&P since March 2009!!!
The Equity Markets Are Ignoring Screams of FUD (Fear, Uncertainty and Doubt) in the European Money and Credit Markets: Enter Lehman Fiasco v2.0!!!Submitted by Reggie Middleton on 06/03/2010 10:46 -0400
The title says it all...