Thursday, October 30, 2008

Real-Time Data on the World, Courtesy of Visa


One of the great frustrations of most quarterly earnings calls is that they are, by definition, backward-looking.

Specifically, companies generally have 40 days to file their quarterly 10-Q with the SEC, so the earnings being reported are anywhere from two weeks to more than a month old by the time they're released.

Furthermore, the numbers that are being reported cover a period that started 90 days before the quarter’s end, so the information a company is reporting can be quite stale by the time it’s out.

Also, the advent of Reg. FD, which requires companies to disclose material information to the public—not just a few of Wall Street’s Finest, as used to be the case—caused many companies to clam up on current trends when pressed on earnings conference calls.

So earnings calls these nervous days mostly resemble a game a charades, in which management gets asked the same question in fifteen or twenty different ways.

That question, of course, is “How do things look today?”

Fortunately, we have companies like UPS and Visa, whose business is such that they can’t help but provide the kind of day-by-day insight into the global economy that Wall Street’s Finest beg for.

And thanks to the indispensible StreetEvents, we highlight a few choice nuggets from Joe Saunders, Chairman and CEO of Visa Inc., on last night’s earnings call:

"Deconstructing this further credit volume growth averaged in the low single digits in the quarter trending lower through September. In sharp contrast to credit, debit volume growth was running at low to mid double digits throughout the quarter pointing out not only the resiliency of this product but the fact that the secular shift to plastic continues.

"Since the beginning of October we have experienced additional moderation in volume growth in the US credit payment volume which was in the 1% to 2% range for most of the quarter, has turned negative through the first three weeks of October. In contrast, debit payment volume has continued to grow at low double digits.

"While international payment volume growth rates remain stable through September, cross border volumes are off the high teens level seen in the June quarter and were running in the high single digits at the end of September."


So, the world is slowing—the US more than elsewhere. But we already knew that.

Now if we could only find a company that could provide this stuff a year in advance


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Tuesday, October 28, 2008

No Fortress Here

“Your guess is probably as good as ours.”
—Peter Carlino, CEO Penn National Gaming, on the near-term outlook

Earnings season is underway—the chief reason for the paucity of updates here at NotMakingThisUp—and the conference calls are bleaker than any we have ever heard.

While we usually like to present highlights from the best and the worst of the quarterly calls here on these virtual pages, there are so few “best” and so many “worst” that it would be piling on.

But the most concise summary of the state of the world came from Penn Gaming, a racetrack and casino operator that may well go down as the poster child of the excesses of the liquidity bubble.

On June 15, 2007—just a week before the Blackstone IPO, which itself marked the absolute top of the credit cycle, in our view—Penn was the subject of a $67 a share, $8.5 billion buyout by the unfortunately named Fortress Investment Group, along with Centerbridge Capital.

That deal, of course, fell apart a year later, and the buyout group, despite the $1.5 billion termination fee, are probably glad it did: last trade in Penn Gaming was $13.35 a share.

The reason for the deal falling apart and the recent price of Penn shares is obvious. As Penn’s chief operation officer, Tim Wilmott, said on yesterday’s call, “September was probably the worst month I have ever seen in my 20-plus years in the industry. October has been a little better, but still not good, more like July and August.”

As for the future outlook, Penn management declined to give one.

“Your guess,” CEO Peter Carlino said at the top of the call, “is probably as good as ours about where this is all going as one looks at the economy and the things that affect our business.”

As for Penn’s stock price, and the prospects of further share repurchases, Penn’s CFO would say “we do find the price is compelling and interesting,” but declined to commit to the kind of share buyback Wall Street’s Finest are always pushing for on these calls.

After all, Penn paid $27.54 a share in the just-finished quarter to buy back a little over a million shares.

At $13.35 a share, or roughly 20% of the aforementioned $67 all-cash deal price, one would think those shares would appear much more than just “interesting.”

But with almost $3 billion of debt on the books prior to receipt of the termination fee—no fortress of a balance sheet there—management sounded frozen.

As have most management teams we’ve heard thus far.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.


Friday, October 24, 2008

Paulson Explains Himself: Calling Frank Drebin!



“I felt like Butch Cassidy…. Who are these guys who just keep coming at us?”

—‘Running a Step Behind as a Crisis Raged’ by Joe Nocera and Edmund L. Andrews, New York Times, October 23, 2008


So began yesterday’s excellent, and profoundly disturbing, inside look at how it was that Lehman Brothers was allowed to file for bankruptcy, essentially by one man: Hank Paulson.

While few of its competitors shed tears for Lehman, the ramifications of that Chapter 11 filing are now making the collapse of Bear Stearns seem like a walk in the park.

Yet, as the article makes clear, the Feds looked on like the bumbling but always successful Lieutenant Frank Drebin in that famous scene in “The Naked Gun,” when, gas tanks exploding and missiles flying, Drebin urges gawking pedestrians to ignore the carnage:

“All right, move on! Nothing to see here!”

The Times article appears to be based largely on the recollections of the man who has been on center stage during the entire credit crisis, Hank Paulson, and the chief inconsistency appears right up front, in the second paragraph.

See if you can spot it:

It was the weekend of Sept. 13, and the moment Treasury Secretary Henry M. Paulson Jr. had feared for months was finally upon him: Lehman Brothers was hurtling toward bankruptcy — fast.

Knowing that Lehman had billions of dollars in bad investments on its books, Mr. Paulson had long urged Lehman’s chief executive, Richard S. Fuld Jr., to find a solution for his firm’s problems. “He was asked to aggressively look for a buyer,” Mr. Paulson recalled in an interview with The New York Times.

The operative word, we think, is 'asked.'

We do not recall the heads of Fannie Mae, or Freddie Mac being “asked” to sell their companies to the Federal Government, thus wiping out shareholders and even preferred shareholders in the process.

We do recall the two men being told what was going to happen, whether they liked it or not.

Nor do we recall the heads of Goldman Sachs, Morgan Stanley, Merrill Lynch, JP Morgan, Citigroup, Bank of New York, Bank of America and Wells Fargo being “asked” sell stakes to the U.S. Government.

We do recall that the men were summoned to the Treasury and handed a single page term sheet, with the expectation that every one of them would sign it.

And sign it they did.

So why the kid gloves with Dick Fuld?

Why, while Lehman was “hurtling towards bankruptcy” as Hank Paulson had “feared for months,” was Dick Fuld being “asked” to do anything at all except get the hell out of the way before his company failed and took so many other banks, hedge funds, commercial paper funds, bond funds, real estate developments and who knows what else with it that a catastrophe would result?

Why, really, did Hank Paulson let Lehman Brothers go under and cause precisely the kind of global shock that he professed to avoid with his $29 billion Treasury bailout of Bear Stearns?

The article provides no clear answers, although the reporters hint that the most obvious—that it was a mistake Paulson profoundly regrets but will not admit—is also the truth.

Like Alan Greenspan absurdly telling Congress yesterday that it was not that he did anything wrong by fueling a housing bubble with 1% money; rather, it was the inability of Wall Street to regulate itself, Hank Paulson seems to be attempting to protect his legacy.

Only in Paulson’s case, he isn’t even off the stage yet.

Where's Frank Drebin when you need him?


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Tuesday, October 21, 2008

Memo to Google: Don't “Grow Up”



Google's Cash Conundrum: Too Much

Could Google provide a stimulus package to help boost the ailing U.S. economy?

Google CEO Eric Schmidt revealed Monday to The Wall Street Journal that the company is "thinking" about returning cash to shareholders. It's only a concept at this point, mind you: Mr. Schmidt ruled out a dividend and said no cash return was likely anytime soon.

—The Wall Street Journal, October 21, 2008


Did Eric Schmidt learn nothing this year?

And does the Wall Street Journal not pay attention to the very headlines it has been writing these last few liquidity-deprived months?

Could it be that a single weekend without five or six bank failures around the globe has blocked out the memory of five or six months’ worth of round-the-clock meetings involving sleep-deprived Treasury officials crafting rescue packages for every major investment bank—save the one that filed Chapter 11—in America?

Did we miss something, or did Team Iceland—by losing all three of its banks in one week—not just bat 1.000 in the Bank Failure World Series?

Was this whole crisis all a dream?

Apparently it was, because the above-quoted Wall Street Journal article provides a circa 2005-2006 take on the miseries of a publicly traded corporation with too much cash:

Google's growth and love of experimentation is not over. But, on the financial front, it may be growing up.

If “growing up” means throwing away cash on the kind of mindless, investment banker-enriching share buybacks and special dividends that Dean Foods, Scott’s Miracle-Gro, Office Depot and many others embarked on at precisely the wrong time, financial-crisis-wise, we vote for Google remaining a strapping youth.

Readers may recall the “growing up” of Office Depot CEO Steve Odland, who “cleared the balance sheet” of nearly $1 billion in cash in fiscal 2006, buying 26 million shares of Office Depot at an average price of $37. (See
The Shareholder Letter You Should, But Won’t, Be Reading Next Spring,” from August 08, 2007 and “Attention Target Management: Pay No Attention to Analysts Begging for Buybacks,” from November 21, 2007).

Odland’s move earned kudos from Wall Street’s Finest and temporarily provided a lift to the stock price of a second-string office products distributor, but it did nothing to turn Office Depot into a first-string office products distributor, nor did it prepare the company for whatever the world's economy could throw at it: the stock could be bought yesterday at $2.85 a share.

Thus it was with some shock we read the following about Google’s supposed interest in the same sort of “cash-clearing” exercise that crippled more than a few companies at precisely the moment they could least afford being crippled:

Even so, it was a telling comment, indicating that despite Google's continued investment in a range of new business initiatives and infrastructure, the company's cash is piling up faster than it can be spent. On Sept. 30, Google had $14.4 billion in cash and marketable securities.

It may also signal that management is concerned about the roughly 50% fall in Google's stock price over the past 12 months.

We have never seen a company—particularly a supposed high-growth enterprise such as Google—that has successfully propped up its stock in any other way than by continuing to grow its business in a rational, sustainable manner.

And that includes especially the kind of “cash-clearing” follies that helped bring Office Depot from $37 a share to less than $3 in a few short years, and paralyzed hundreds of other companies that might otherwise have taken advantage of cheap prices in the current liquidity squeeze, while forcing the least healthy to seek shotgun mergers or worse.

If a lesson is to be learned from the last three months, it is that cash is not 'trash,' as the saying goes: it is a valuable strategic asset that gives a company an enormous leg up when its competitors have had their legs cut out from underneath them.

Just ask Steve Odland, Eric.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Monday, October 20, 2008

How Not to Write a Comment


It may or may not be a surprise to readers that not all comments submitted to us in response to our posts get published.

Some we delete. You never see them.

This was not always the case. Early on, the “Google Blogger” tool was very primitive, and whatever comments were submitted got posted. We had to go back and delete the offensive stuff after it was up and readable.

Over time, Google has vastly improved Google Blogger—particularly its ability to weed out spam comments—and now allows us to preview all comments before we decide whether or not to publish them or reject them.

We reject about one in five.

We do not, however, reject any for content, no matter how critical they may be of what we write, so long as they relate to what we have written. Comments do get submitted that are actually an attempt to sell a product, or market a service, and these constitute about half the “comments” we reject.

The other half of the comments we reject use what we have long called “Yahoo message-board language” to make their point.

What follows is an excellent example, just posted on Horse Out of the Barn; Feds on the Case!:

well danielle, pretty soon mr. matthews is going to have to rename his blog kaput because *** in this country is about to hit the fan.

word on the street is that unemployment is in a pretty ridiculous state right now. which is fine while everyone is capable of collecting it. but how long does that last? under four months or so? wait and see what happens to our stock market once nine million plus americans can't stimulate our economy…



There was more, but you get the drift. It was deleted summarily.

As always, informed observations and opinions are more than welcomed here at NotMakingThisUp—they are encouraged.

The rest of them, please stick with Yahoo.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Thursday, October 16, 2008

Horse Out of the Barn; Feds On the Case!


U.S. Agencies Investigate WaMu Failure

Federal prosecutors are investigating the failure of Washington Mutual Inc., citing the “intense public interest” in the largest bank collapse in the history of the U.S….

The investigation into Washington Mutual is part of the a wider effort by U.S. law enforcement to determine the extent of fraud connected to the subprime-lending troubles that have batter financial institutions.

Federal investigators…have been delving into the books of Fannie Mae, Freddie Mac, Lehman Brothers Holdings Inc….

—The Wall Street Journal


That is the story, and we are not making it up: now that the subprime explosion has littered the landscape with dead banks, vacant neighborhoods and zombie homeowners, the Feds are on the case!

They’re going to look into exactly what might have caused this problem, like, three years ago.

And then they’re going to…well, we’re not sure what they’re going to do.

Write a report? Form a blue-ribbon commission? Whine?

We met a mortgage broker several years ago—when and where we don’t recall—who gave us a hair-raising preview of the impending doom now pending all across the globe.

Money was so easy and brokers so unscrupulous, he told us, that mortgages were being sold to working class urban multifamily home-buyers who would not be able to make a mortgage payment if they missed a day of work or if the illegal tenant in the basement skipped out.

Most sickeningly, in his eyes, was the fact that these poor shlubs did not understand that the fee to the mortgage broker—hidden as it was inside the mysterious stack of documents they could barely read—was often more than the down-payment they were borrowing from relatives.

But, he assured us, neither of the first two points mattered because the mortgages these home-buyers were signing were variable-rate mortgages with absurdly low up-front interest rates: “they won’t be able to pay anyway once the teaser rate evaporates,” he said.

Did anyone investigate those mortgage brokers? Of course not: things were good, and the mortgage lobby was powerful.

Besides, Congress wanted Fannie Mae and Freddie Mac to lend more—not less. And Time Magazine was telling us “Why We Love Our Homes,” so the public wanted in on the game. Plus, all the tax money from those real estate deals was helping governments across this land balance their budgets.

Even the first signs of a crisis did not spur anyone into action.


Last May, when David Einhorn said, in public, the Feds ought to recapitalize Lehman Brothers before the worst-case scenario happened, did anyone think to investigate?

Nope.


Instead, Einhorn was dismissed as a crank, a short-seller, a guy with an axe to grind. By the very company that went bankrupt last month.

So now that the horse is out of the barn, across the north forty and into the next state, the sheriff is arriving at the scene of the crime to search for clues.

Unfortunately, they will find that the barn has already burned to the ground.



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Tuesday, October 14, 2008

Hank Listens Up



Treasury Said to Invest $250 Billion in U.S. Banks
By Robert Schmidt and Peter Cook

Oct. 14 (Bloomberg) -- The U.S. will invest about $125 billion in nine of the nation's biggest financial institutions, including Citigroup Inc. and Goldman Sachs Group Inc., as part of a $250 billion effort to shore up the banking system.



It seems like only a few weeks ago we here at NotMakingThisUp urged Hank Paulson—who at the time was pushing Congress for nearly a trillion dollars to buy bad assets from regretful bankers—to adopt, instead, the Warren Buffett plan of taking preferred equity stakes instead.

Hey, it was just a few weeks ago.

September 24, in fact.

In “The ‘Oracle’ Speaks: Listen Up, Hank,” we asked: “How is it that Warren Buffett can cut a better deal with the best-run financial company in America [Goldman Sachs] than the U.S. Treasury can ask from the worst-run financial companies in America?”

It looks like somebody else has been asking the same question, for in the Bloomberg story, we read the following:

The proposed cash injections in exchange for preferred shares are part of a $700 billion rescue approved by Congress and follow similar moves by European leaders to unfreeze credit markets by helping beleaguered banks….

The purchases represent a new approach for Treasury Secretary Henry Paulson, who first promoted a bailout targeted at illiquid mortgage-related assets.


Now, we claim no special smarts in having suggested Hank Paulson follow Warren Buffett’s example, as he is now doing.

John Paulson, the genius who made billions shorting the very bonds the Treasury was planning to buy, came out for much the same plan in a Wall Street Journal op-ed piece not long after.

And it seemed fairly obvious to us that a dollar spent buying bank equity would be worth seven or more dollars spent buying bank debt, given the leverage banks employ in the normal course of business.

Furthermore, if you were asked to bail out your errant neighbor who had misspent his fortune building a McMansion and now couldn’t pay his mortgage, would you really want to take over your errant neighbor’s mortgage, and become his creditor?

Of course not.

You’d rather get ownership in the house, not only to make sure the guy keeps up the place, but to get the upside when he finally sells it.

Like that errant neighbor, Wall Street did, after all, screw it up, only on a super-spectacular scale beyond all imagination.

And Wall Street did so after decades of lobbying government to deregulate the very industry Wall Street subsequently destroyed.

So now that all those Wall Street hotshots are running to the government as the buyer of last resort, it seems only fair that those hotshots give up the most valuable piece of the capital structure: ownership.

Is it any wonder that Hank Paulson—the former head of Goldman Sachs, and one of the hottest of those hotshots—didn’t want to do that in the first place?



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Friday, October 10, 2008

Potter Isn’t Buying. He Can’t.


Don’t you see what’s happening? Potter isn’t selling. Potter’s buying! And why? Because we’re panicky and he’s not.

—Jimmy Stewart as George Bailey, It’s a Wonderful Life



The last two weeks have seen near endless speculation on when, precisely, the bottom of this crash will have been seen—so that investors can start to buy.

Gray-hairs who’ve actually been through real crashes—1987, for example—understand that so long as television talking heads are still asking if it is time to buy, then whatever we’ve been through that day didn’t amount to a seller-clearing, bottom-creating panic.

It’s when everybody is too scared to buy—and we mean everybody, including smart-alack blog writers—that the opportunity has come.

And one of the hallmarks of just such a crash is forced selling—the kind of “automatic, involuntary selling” of stocks that has occurred in Boston Scientific in recent days.

Seems stock belonging to the cofounders of the upstart stent-maker and top-tick buyer of Guidant, known as “Boston Sci” on Wall Street, was sold out in recent days owing to the shares having been put up as collateral for loans. Quite a lot of stock in fact: 13 million shares worth.

And it’s not just wealthy founders of medical device companies who’ve been forced to sell when they might have wanted to start buying.

We noticed sales hitting the tape in recent days by the executive officers of other, less high- profile companies, and have learned that in more than one case the sales were due to margin calls.

And it exactly this kind of the forced liquidation of securities that creates the kind of fear-inducing, but ultimately seller-clearing crashes, that all the talking heads seem to so earnestly want.

Even Potter, it seems, isn’t buying right now: he can’t.

Potter has a margin call.


Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Monday, October 06, 2008

Russians Discover Leverage Cuts Both Ways



Russian Tycoon Turns Big Stake Over to Creditors
Divestment in Auto-Parts Maker Shows How Financial Turmoil, Stock Free Fall Hit the Country's Wealthy Power Brokers
By
GREGORY L. WHITE

—The Wall Street Journal



A year ago last summer, we attended a conference at which the keynote lunch speaker—the chief investment banker of one of Wall Street’s largest, and still functioning, brokerage houses—gave what we thought at the time might go down as one of the all-time market-topping speeches we had ever heard.

And, in hindsight, it was.

The banker told the assembled gathering that in light of the enormous pools of capital, including sovereign wealth funds and private equity, not to mention corporate buyers, “no company was immune” to the takeover binge sweeping the world.

“You’ll see a $100 billion deal before this is over,” he boasted, and explained with a straight face how the flexible financing and easy terms being accorded ridiculous ideas such as the leveraging of Freescale Semiconductor would make those buyouts impervious to down-cycles.

For proof of how deep the pool of capital was, he put up a slide showing the respective buyers in various circles, with the size of the buyer represented by the size of the circle. We can’t find our notes right now, but what struck us most was the circle labeled “Russian Oligarchs.”

That’s right. For one brief, shining moment, a handful of well-connected thugs had accumulated so much money and power that they represented an entire class of buyers in a Bubble that seemed as if it never could burst.

Well, burst it has, most spectacularly here in the U.S. And by the looks of things it is bursting all around the globe.

Even those once untouchable “oligarchs” seem squeezed, as the Wall Street Journal reports:

MOSCOW -- One of Russia's billionaire tycoons, Oleg Deripaska, gave up a showcase Western acquisition to creditors, in the first public example of how the global credit crisis is squeezing some of the country's wealthiest and most powerful men.

Mr. Deripaska, who controls aluminum giant UC Rusal and auto company OAO Gaz, has holdings that span energy, construction and banking. On Friday, his holding company confirmed turning over to creditors his 20% stake in the Canadian auto-parts maker
Magna InternationalInc.

A year ago, he announced a strategic partnership with Magna and bought the stake for $1.4 billion, using loans collateralized by the shares to fund the deal. But the shares have fallen in value because of weakness in the global auto industry.

Last we looked, nearly every commodity 'accumulated' by the oligarchs—oil, zinc, copper, aluminum, to name a few—has dropped in price, some more than others.

And if all the oligarchs have leveraged themselves as Mr. Deripaska appears to have done—like a Miami condo buyer juggling mortgage payments—the next time that circle appears on the investment banker’s slide show, it will have shrunk quite dramatically.


Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Friday, October 03, 2008

It’s as Bad on Main Street as on Wall Street



A long-standing observation of ours is this: the further you get away from Wall Street, the more optimistic you get.

On Wall Street, stocks go up and down—sometimes violently—every hour, minute and second of the trading day. Wall Street’s Finest slash ratings on stocks, worry about quarterly earnings and panic at the slightest headline.

Yet head out to La Guardia, and the airplanes are full of business travelers; travel to Silicon Valley and Route 101 is packed with traffic; visit Chicago and Michigan Avenue stores are full of shoppers. Life—and commerce—carries on.


The same holds true when we attend conferences and visit companies.

Managements seem always to be holding Wall Street’s hand at these gatherings, reassuring us that whatever Mr. Market is panicking about at that particular moment, business in the real world doesn't care: people still need to eat, buy clothes, travel, live.


And so it was striking to listen to a handful of companies at an investment conference in New York City yesterday, and hear the uncertainty in their voices and see the concern in their eyes as they grappled with what seems to be happening in their businesses right now.

For as all of Wall Street seems to be holding its breath for The Vote That Will Save the World, Main Street is suffering in ways nobody on Wall Street comprehends, or, perhaps more accurately, can bother to notice given the state of affairs here.

Credit-dependent businesses have collapsed. Order books are slim. And that's only the half of it. Inside companies, morale has also collapsed. Employees can’t buy houses, cars or even get credit cards. They’re watching their IRA accounts fall. They want their cash now, not sometime in the distant future.

For the first time in our experience, bad as things are on Wall Street, they’re just as bad on Main Street.

We have no doubt The Vote will pass. We wonder if it will matter.



Jeff Matthews
I Am Not Making This Up

© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.

Wednesday, October 01, 2008

What Did Warren Do?


On Tuesday, Mr. Buffett says, he was sitting with his feet on his desk in Omaha, drinking a Cherry Coke and munching on mixed nuts, when he got an unusually candid call from a Goldman Sachs Group Inc. investment banker. Tell us what kind of investment you'd consider making in Goldman, the banker urged him, and the firm would try to hammer out a deal…
—The Wall Street Journal, September 25, 2008


Such was the Wall Street Journal’s folksy account of the Oracle of Omaha’s initial involvement in talks that led to a $5 billion investment in Goldman Sachs, the folksy details provided, of course, by the man himself.

The Oracle does like good press, when it suits him.

And so we here at NotMakingThisUp could not help but wonder about yesterday’s article in the same publication regarding a financial company Berkshire Hathaway has had an investment in for much longer than Goldman Sachs—nearly 18 years longer, by our math.

That company is Wells Fargo, which, according the Wall Street Journal was prepared to buy Wachovia Sunday afternoon, but backed out.

Here’s how the deal with Wachovia did not go down, according to that paper:

By Saturday morning, talks had heated up with various suitors, and Mr. Steel and his team flew to New York.

By the evening, Wells Fargo had begun to emerge as the favorite. It had told both Wachovia's advisers and regulators that it was prepared to do a deal without government assistance and was willing to pay a premium. Just as important, Wells Fargo representatives said they were confident they could complete a deal before the stock market opened Monday….

Midday Sunday, Mr. Kovacevich dropped a bombshell. Wells Fargo had developed concerns about the health of one of Wachovia's loan portfolios. Unless Wachovia could convince it otherwise, Wells Fargo wouldn't be willing to pay any more than $10 a share….

Now, "Mr. Kovacevich" is Dick Kovacevich, Chairman of Wells Fargo.

Warren Buffett himself has lauded Mr. Kovacevich as one of a handful of “giant-company managers whom I greatly admire,” ranking him alongside Jeff Immelt of GE and Ken Chenault of American Express.

Oh, and Berkshire Hathaway owns over 9% of Wells Fargo.

Given the long history, the large ownership stake, and the presence of Warren Buffett at the center of every financial crisis since Long Term Capital, we kept expecting Warren Buffett’s name, and Berkshire Hathaway’s ownership position, to come up in the Wall Street Journal account of Wells Fargo’s deal/no deal for Wachovia.

But they did not:

For the next four hours, Wachovia's team tried to ease his concerns, but Mr. Kovacevich kept repeating: "It's not my call, it's our loan people." Behind the scenes, Wachovia's advisers began to hear from regulators that Wells Fargo was getting cold feet.


Still, we wonder if somebody else besides anonymous “loan people” was gettting cold feet about Wells Fargo’s bid for Wachovia.

And, if so, we wonder why the same type of folksy details of that 'somebody else', like those provided in the Goldman Sachs story a few days back, never made yesterday's Wall Street Journal account of the deal/no deal for Wachovia?



Jeff Matthews
I Am Not Making This Up


© 2008 NotMakingThisUp, LLC

The content contained in this blog represents the opinions of Mr. Matthews.
Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way: such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author.