Friday, September 04, 2009

Warren Buffets Eulogy for Moody's

Berkshire Hathaway (BRK.A) a.k.a. Warren Buffett continues to sell Moody’s (MCO). Clearly the model is broken and has significant litigation to look forward to. The courts recently ruled that the freedom of speech defence is not acceptable. Bring on the lawsuits. Moody’s does not have the capital to pay the losses. Standard and Poor’s a.k.a. McGraw-Hill (MHP) and Fitch also cannot pay the bill. Charles Gasparino of CNBC in his new book “The Sellout” identifies that analysts working on structured products made more money than analysts working on regular ratings. Good to know we found the thirty pieces of silver.

The market needs to stop identifying pall bearers for the credit rating funeral. Investors particularly institutional investors need to learn how to do due diligence. This is costly, time consuming and unfamiliar. If General Motors can be knocked off its pedestal imagine what can happen to Moody’s and Standard & Poor’s.

Thursday, September 03, 2009

Corporate Library Locates Ten Highest Paid 2008 Executives

Corporate Library put out a list of the Top 10 Highest Paid Executives for 2008. Go to corporate library for the full report.

They are

Stephen Schwarzman Blackstone Group (BX)
Lawrence Ellison Oracle (ORCL)
Ray Irani Occidental Petroleum (OXY)
John Hess Hess Corporation (HESS)
Michael Watford Ultra Petroleum (UPL)
Aubrey McClendon Chesapeake Energy (CHK)
Bob Simpson XTO Energy (XTO)
Mark Papa EOG Resources (EOG)
Eugene Isenberg Nabors Industries (NBR)
Michael Jeffries Abercrombie & Fitch (ANF)

Hovanian Strange Tax Obligations

Hovnanian Enterprises, Inc. (HOV) reported results typical for a house builder. They have the market focused on sales, liquidity and debt reduction. Scanning their results you realize they are paying taxes. How so they are losing money? For the three quarters year to date they have a tax tab of $42.7 million, with $20.8 million in Q3 alone. No explanation of how they do that.

There is an obscure point about The FAS 109 current and deferred tax valuation allowance charge to earnings was $76.7 million during the third quarter of 2009 and $198.3 million year to date and as of July 31, 2009, the total valuation allowance is $873.8 million. This FAS 109 charge is a non-cash valuation allowance against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years.

But the numbers do not seem to line up.

Taxes are settled in cash. They need to explain the tax liability and why it is occurring

Wednesday, September 02, 2009

Brown Forman ------ Fundamentals Scream in Agony

Brown-Forman (BF.A) the purveyors of Jack Daniels reported something called exceptional earnings. This was done with declining sales and even more severe declines in costs. So management can take the credit for lowering costs. There has been a small decline in outstanding shares so the EPS is easier to manage. But take a look at what they did to achieve the results.

Lower marketing costs for a purveyor of booze has never been a good idea. For some dark psychological reason the consumer needs to be reminded that he/she should have a drink. If you drink enough Jack you black out and have memory loss. This will not get them the marketing awards now and definitely will not get them the financial awards that we all want.

In the meantime, in the context of improved earnings the balance sheet is starting to wilt. Cash is down and receivables and inventories are up on declining sales. The fundamentals are screaming out in pain and agony. But they increase the dividend and increase short term borrowings. Time to close the bar.

Tuesday, September 01, 2009

Rosetta Stone Progress??

Rosetta Stone Inc (RST) continues to make the same mistake? They reported several weeks ago, over exuberant marketing and advertising costs which were not having the required impact. i.e. poor sales. Is it just me or are they still all over TV with the same type of ad? The stock still trades at the bottom of its 52 week range. Are they cleaning up their act? Or is the act cleaning them out?

BYD Puts Words in Warren Buffett's Mouth

Warren Buffett who of course runs Berkshire Hathaway (BRK:B) wakes up this morning and finds that the boss of one of his investments may be putting words in his mouth. BYD Co (HK:1211) claims MidAmerican a unit of Berkshire has always intended to raise its stake in BYD because it believes BYD has good prospects in the development of renewable energy, but we are still considering (whether to sell more),” BYD Chairman Wang Chuanfu told reporters on Monday.

This is very un-Buffett like. The company’s shares have been rising, particularly after BYD touted Buffett’s involvement.

The NY Times DealBook reports “BYD shares are not cheap at the current price level, but since the company’s strategy is in line with Beijing’s policy, and with the support of Buffett, the market is willing to pay a premium for that,” said Ben Kwong, the chief operating officer of KGI Asia.”

The publicity drum sounds really loud right now. Is the big promote on? Public discussion of private deals. Hmmm

Monday, August 31, 2009

Motorola Where is The Value?

Motorola (MOT),which clearly has been struggling, wakes up today to hear MKM Partners a trading and research driven firm has initiated coverage with a sell recommendation. They have posted a target of $5. The shares are currently approximately $7.20 Nasty but then again Motorola has become everyone’s whipping boy. What the analyst Tero Kuittinen failed to mention is where where these guys three years ago when Motorola was trading north of $25 @ share. The current 52 week range is $2.98 to $9.74.

The analyst does point out that the consumer will be stingy and smart phone sales will not be as good as the hype would have you expect. Fair enough. But when we are scrapping the bottom of the coffin a sell recommendation is problematic. What if Motorola’s strategic value is recognized and a take over offer comes in. Or just go Chapter 11, blow out your problems and reboot. Strict trading approach just may not identify value.

Citigroup Insider Trading Explains What?

Citigroup (C) has been delighting and confounding the stock market with its August trading action . The bank has problems and is mainly owned and controlled by Uncle Sam. So the stock price jumps for no apparent reason. When in doubt look at the insider trading and fathom these very recent purchases. William S Thompson a director bought 100,000 shares at $4. Eugene Mcquade CEO of Citibank NA bought a whopping 1,000,000 shares at $3.41. Mora Manuel Medina Chairman and CEO for Latin America and Mexico matched the 1,000,000 but at $3.21. and Vikram S Pandit loaded up as well but before the previously mentioned. So they clearly believe in something.

CIT Group Directors' History Of Insider Trading

CIT Group (CIT) had an interesting run of massive insider buying which strangely enough all happened on the same day. May 12, 2009 if anyone is asking. Susan Lyne, Peter Tobin, Michael Carpenter, William Freeman, John Ryan, Seymour Sternberg and Lois Van Dusen all had a sudden desire to own more stock of the company on whose board of directors they sit. That way they can claim that they were believers in CIT future. They certainly cannot say they can make winning stock picks. Hmmm

Sunday, August 30, 2009

How To Smell A Rat

At first this latest book by Ken Fisher with Laura Hoffmans seemed simple until you remember that most investors do not follow these rules. Kudo's to Ken Fisher for reminding us all. The five signs of financial fraud according to Ken Fisher are:

1. Separate decision maker and custodian.
2. Too good to be true usually is.
3. Don't be fooled by flashy tactics.
4. Ignore exclusivity, marble and other things that don't count.
5. Don't let anyone in between you and the decision maker.

The book is readable and quickly teaches important lessons that investors should be mindful of. Each chapter also includes an additional list of books and readings that most students of the market will find useful. Of course if you are not a student of the market you probably will not read this book.

Ken Fisher includes an interesting commentary about politics on page 97 under political pandering. The snippet is "If we look at the history of professional investors, there is no evidence that Democrats or Republicans or folks of no persuasion do any better--none."

Therefore should investing be politically agnostic?

Particularly interesting are the comments about the SEC on page 121 under "True Crime" essentially law enforcement is good at capturing stupid criminals. The smarter they are the harder it is to catch. White collar crime and securities fraud seem to be the best paying and the SEC is woefully under resourced.

Caveat Emptor.