Friday, December 05, 2008

Replace GM's Board

General Motors (GM) is asking for billions of dollars almost immediately or they threaten to blow up and cause tremendous problems in the economy. Washington is reticent and smells a rat. Senators are not about to be buffaloed into writing big cheques and not knowing what they will get for it. While the Senators are examining the financial corpse of GM lets take a look at the board of directors that got us there. If GM is in this much trouble why are they not being replaced en masse. If the government does pour billions into the problem why should those guys keep their hands on the steering wheel.

Any competitive enterprise does not retain its losers. To survive you need to cull out the weak and inadequate. Replace the board immediately.

Thursday, December 04, 2008

Prudential Lacks Value Proposition

Prudential (PRU) announced by way of 8K and its compliance with Reg FD that there is new guidance. Well OK so we read the press release and see what Pru is thinking these days. We catch this assumption.

“The 2009 earnings per share expectation assumes a December 31, 2009 S&P 500 Index level of 900, an average S&P level of 850 for 2009...” We can debate the merits of the assumption but essentially they are telling us that they are an ETF with some business operational risks that may muck up the earnings picture.

Thanks for the tip. So where is the compelling reason to invest in this stock? Management is not offering a value proposition. The cost of management far exceeds fees incurred by ETF’s.

Wednesday, December 03, 2008

Dillards Dividend Delusion

Dillards (DDS) declares a dividend of $0.04 per share. They have red ink everywhere but the dividend continues. The yield is approximately 4.46% if you believe in the dividend. Management is signalling that everything is OK by keeping the dividend in force. That’s a huge statement for a retailer in this environment. According to their own press release for the 13 week period ending Nov 3, 2008 sales are down some 10%; 9% for same store sales.

Tuesday, December 02, 2008

Ford Should take Uncle Sam's Money

Ford (F) announced a restructuring plan that was drafted by their PR dept. Sell the corporate jets, cancel bonuses and the big guy will work for a $1.00 per year if they have to access any government financing. They are going to come out swinging with green products and market their way out. OK now take a look at the risk factors that they threw into the safe harbour clause of the press release. First of all its it takes up about 50% of the line space. Secondly they have thrown in every possible risk that you could imagine. Maybe commodity prices will be disrupted, maybe interest rates will go against us, maybe labour will cause trouble. Maybe they do not really have this thing nailed down and need to blame every pebble on the road if it does not work out.

They do claim to be aggressively cutting costs. That most likely means UAW will experience pain. UAW will be trying to avoid pain at GM and Chrysler through government funding. Why will they accept it at Ford knowing that government cash could have been used to help them out.

Will government funding for GM and Chrysler allow them to catch up on green products which will penalize Ford investors who may have been getting ahead in R&D.
It sounds good to not take government funding for the time being. But if Uncle Sam is showing up with billions he will inadvertently change the competitive landscape. Ford needs to be on that bus.

Monday, December 01, 2008

AIG Yanks Our Chain Or Was It The Federales

AIG (AIG) announced the sale of its private banking operation to a wealthy Abu Dhabi group called Aabar. Not unexpected. AIG of course is the motivated seller. The Abu Dhabi group Aabar has the Mike Barris who points out in the article that:

“Aabar Investments, whose shares trade on the Abu Dhabi Securities Exchange, said in October it could spend as much as $2.4 billion on expansion efforts in the next year. Its cash levels swelled after Aabar's board in September approved issuing 6.7 billion U.A.E dirhams ($1.82 billion) of convertible bonds to Abu Dhabi oil-and-gas investment firm International Petroleum Investment Co.”

But maybe everything did not go into this one deal so its hard to guess any further. Given that the Feds sign off on everything you would think they would help financial markets return to sanity by putting out correct information in a timely manner. If the transaction is financially significant that say so and put a number out there. If the transaction is not significant than stop yanking our chain. We have had enough chain yanking.