Thursday, January 22, 2009

Warren Buffet's Musing

Berkshire Hathaway (BRK) And then God saw it was the best value in town and publicly mused about if he should buy himself. Warren Buffett the world’s most successful investor is thinking aloud that he should buy back some more of his own shares because they are undervalued. But first he would make a public announcement that would actually do it. He mentions that the last few times he did this he made a bundle. So thinking aloud that you are thinking of doing it is what? Reg FD. But who would have the balls to tap him on the shoulder and ask for an explanation.

Wednesday, January 21, 2009

UAL Hedge Book Disaster

UAL corp. (UAUA) the holding company whose primary subsidiary is United Airlines, reported results for the Q4 and they lost a lot of money. Well it’s an airline and so who is really surprised. In reading the press release they had a lot of standard airline descriptions relating to passenger seat miles and costs based on capacity.

Then they tell you that they lost money primarily because the fuel hedges that they undertook went against them. They are not totally clear but the total cost of the hedges seems to have contributed approximately $1 billion dollars to the red. They then go on to say that it seems to be over and that these losses have been curtailed. Read this quote

Kathryn Mikells, senior vice president and CFO said. "The cash impact, while significant, is now behind us, and we are well positioned to manage through a challenging 2009 with good expected cost performance building on our momentum from this past year."

OK that’s the CFO he should know.

Then read note 10 to the financial statements. “....based on the hedge portfolio as of January 16, 2009...... at an illustrative $35 per barrel the Company's January 16, 2009, required collateral provision to its derivative counterparties would be approximately $780 million.”

The reality is that UAL as well as most other airlines has become almost a pure oil play with the complicating factor of a hedge book that does not seem to be working in their favour. The hedge book is not transparent to the equity investor with the exception that they seem to be taking big hits constantly.

All we have is management’s comment that the losses from hedging seem to be over. We have no idea what the future hedge strategy is to be if there will be one. The only certainty is that UAL does not know how to mange that risk and it will probably continue to bite them over and over again.

Tuesday, January 20, 2009

JNJ When Did It Disclose?

Johnson & Johnson (JNJ) laid out its Q4 and full year earnings. Investors were disappointed to realize that they were being guided down. Why investors still hold to delusional hopes is beyond me, but the JNJ balloon popped today. The problem I have with JNJ is the contrast between the press release and the conference call.

The press release crossed the wire at approximately 07:45 ET. The conference call was scheduled to start at 08:30 and was to run to approximately 10:00. Half an hour in market trading. When you line up the press release and the conference call transcript the conference call has deeper and richer disclosure and is infinitely more valuable than the press release. Even before you get into the Q&A. The level of disclosure and detail is superior in the press release.

By the time you finish reading the conference call transcript you have no further use for the press release. This brings up an interesting Reg FD dilemma. At the end of the day JNJ can say they have disclosed. But at the end of the day the press release which becomes a statutory document becomes useless. The conference call replay may disappear and investors may not know where to get the transcript.

This is not a level playing field.