Ruth Madoff Keeps A Few Million!

Ruth Madoff will keep some $2.5 million. Others go into the poor house. What type of financial advisor will she use to help her manage what admittedly in some circles is chump change? Was she shrewd and squirreled money away in other secret places. Bernie will go to the big house. Ruth will be watched very closely if she does go to a big house. Karma.

KB Homes - Is It Planning For The Future

KB Home (NYSE: KBH), one of America’s largest homebuilders, reported Q2 financial results. Predictably the results include massive amounts of red ink. But when you try to look into the future as stock market investors are prone to do you find confusion. Read this quote about pre-sales:

“The Company’s backlog at May 31, 2009 totaled 3,804 homes, representing potential future housing revenues of approximately $796.9 million, compared to a backlog of 6,233 homes representing potential future housing revenues of approximately $1.47 billion at May 31, 2008. Company-wide net orders for new homes in the second quarter were 2,910, down 31% from 4,200 in the second quarter of 2008 but up 59% from 1,827 net orders in the first quarter of 2009. The Company’s cancellation rate based on gross orders improved to 20% in the current quarter, compared to 28% in the first quarter of 2009 and 27% in the second quarter of 2008.”

Essentially they are telling you that the backlog number is no longer the predictable factor that it used to be. The cancellation rate while greatly improved is still terrible. Imagine what Macy’s would look like if 20% of all sales were returned.

What you need to hear from the executive is what they have learned from this current round of difficulty. Will the model stay the same? Sure they are trying to become more energy efficient but that is just a feature similar to kitchen finishes.

Loading up on land, managing your trades, build interesting model homes, buy ads in the local paper and wait for buyers to show up may not be the way of the future. The management team may be frozen on the bridge and are not preparing for the future.

Bank of America - Lewis vs Bernanke

Bank of America (BAC) President and CEO Ken Lewis claims he was bullied into it. Bernanke says what me! Congressional committees sit and cannot tell who’s who and what’s what. Bank of America is what it is. The management team will have to work their way out of it. The most powerful financial institution in the USA and arguably on the planet says they did not bully anyone. The very nature of their power is make or break. So when they speak to mere mortals, who must toil for their existence, the mortals may conclude that there was some kind of bullying involved. Human rights issues will not apply, there was too much money at stake.

The financial world as we know it was burning down. There was some panic and jostling as we entered the escape hatch. Now, Ken Lewis wants to blame the Fed Reserve, because they were the most powerful guys around. Did the Fed Reserve want him to do the Merrill deal; certainly. Did Ken Lewis bite off more than he could chew; certainly. Does Ken Lewis not understand signals from the Fed; certainly.

Ken Lewis tried to bitch slap Bernanke. It did not work. Federal politicians will preserve the power and privilege of federal institutions. If they have to fry up a big bank CEO with hearing difficulties, no problem.

So what does the Bank of America board do now? The CEO cannot substantiate public claims. There is a nasty tension that does not create shareholder wealth.

SUPERVALU No Leadership

SUPERVALU (NYSE:SVU) CEO Craig Herkert claims that shoppers have become more cautious and revenues are down. “I am engaged in a full review of our operations and support functions. SUPERVALU has significant potential and I look forward to sharing with you my thoughts and vision for the business in the months ahead.”

Thanks a lot buddy! Why were you not on top of this problem before. The slowdown is not new. Every business has problems and issues. The board of directors should have been asking these questions a long time ago. Basically this is a ship without a Captain.

Rite Aid - Tricky Liquidity Headline

Rite Aid (NYSE:RAD) released Q1 results insisting that they have improved their liquidity. Mary Sammons, Rite Aid Chairman and CEO insists she is pleased with the results. The headline in their press release claims an increase to $900 million in liquidity. The tricky word is to and not by. Big difference.

Truly impressive! How did they do it?

Compared to the last quarter cash is down some $15 million. Accounts receivable in the face of declining sales has increased some $80 million or approximately 18%. Meaning the aging of your receivables is growing. Working Capital has decreased from approximately $2.1 billion to $1.8 billion. Inventories have decreased some $150 million but accounts payable have not budged significantly. This means they are stretching out their suppliers.

This does not mean improved liquidity.

Boeing - Dreamliner - Is This Integrity?

Boeing (NYSE:BA) reported a significant technical problem and delayed the test flight of their new 787 Dreamliner. I would like to applaud the integrity that Boeing is showing. They took the hit and did not slip one out on the market. The pressure must have been enormous to do something like that.

The media frenzy is focused primarily from the financial point of view. What will happen to guidance? It will go down so bake that into your thinking and stop crying into your single malt scotch (if you can still afford it)

Here is some diabolical thinking. They release the bad news knowing full well that the stock will drop. But they also declare a dividend. Same dividend lower stock price. Hmm. The risk is with the board. If the project is in serious death spiral difficulty why are they signalling to the market by keeping the dividend the same. In fact the $0.42 @ share dividend is now higher than the $0.35 @ when the stock was north of $100 @ share not that long ago.

Year end is December. Executive options and compensation is set toward the end of the year. Unless you really figure you will be terminated most executives will actually want a lower stock price this year. Create a lot of negative financial news now. Fly your way literally out of the problem a little later and make a bundle on the whole thing.

But then again I am not an engineer and do not understand on a technical basis what the issues are. Neither do most investors.

Apple - Steve Jobs - iPhone vs liver

Apple’s (AAPL) leader Steve Jobs it turns out has had a liver transplant and is coming back to work. Maybe just part time. Everyone makes much of the confidentiality quandary. The right of shareholders to know vs the right of Steve Jobs to privacy. At this point I would say that Steve Jobs does not have privacy and the shareholder really knows nothing, at least not on a timely basis.

Mr. Jobs, who co-founded Apple in 1976, is considered the company's visionary and creative leader. William Hawkins, a doctor specializing in pancreatic and gastrointestinal surgery at Washington University in St. Louis, Mo., said that patients whose tumors have metastasized can live for as many as 10 years without any treatment so it is hard to determine how successful a transplant has been in curing the disease.

Pundits say that once he returns to work Apple will have to be very careful about what it says about his health. But has he really left work? News reports indicate that he has stayed involved in product decisions and has even been seen in his office.

What makes me skeptical about this one is that the whole liver transplant issues seems to be coming out at the same time as the new iPhone release. The hype which is considerable over shadows the liver issues that Steve Jobs has.

This is a serious medical issue which does not lend itself to business thinking. Businessmen want control and predictability. Liver transplants can go either way. The real issue is leadership at Apple. Steve Jobs as a medical wild card should be baked in by now. What we do not have a clear enough view on is the replacement players. This is the responsibility of the Apple Board and so far they have not comforted the shareholder.