Todd Sullivan's - ValuePlays

“Why This Is NOT the Great Depression”: A Reader Writes..

2008-10-12T07:13:00.002-04:00

Received this from reader Justin and thought it put some thingd in perspective..

Over the past few months, the media has discovered another story to strike fear into the hearts of America, and incidentally to sell newspapers and airtime. This time it’s not SARS, terrorists, or once-in-a-lifetime hurricanes (which seem to happen every year or so), it’s the Great Depression. I do not want to make light of the current economic situation because it is serious, and likely the most serious of our lifetime. However, as part of justifying my continued buying into the current market, I did some research to understand if perhaps this time the world was really coming to an end. Here’s what I’ve found regarding the Great Depression:

* S&P 500 PE multiple over 30
* 25% unemployment
* 5000+ bank failures with numerous panicked bank runs resulting in $140 billion lost by depositors (no FDIC insurance)
* 30% GNP contraction
* 50% duties on imports
* Huge drought that led to the Dustbowl in an economy heavily dependent upon agriculture
* No unemployment benefits
* No social security
* Severely delayed government interventions

Where are we today?

* Current S&P 500 PE 18
* 6.1% unemployment
* Under 20 bank failures with not a penny lost by depositors and an increased FDIC insurance
* 2008 GDP is up
* No Smoot-Hawley
* More diversified economy
* Increased unemployment benefits, which means they are spending money even if they aren’t working
* Numerous, ongoing domestic and international initiatives

Math of current situation:

Financial loss estimates (Jan Hatzius, Goldman Sachs; Nouriel Roubini, NYU) - -$2 trillion

US Govt. intervention (stimulus pkg, “bailout”, AIG loan) - +$1trillion

Private sector (SOV funds, Hedge Funds, Buffet, etc.) - +500 billion

___________

Potential Unrealized Losses -$500 billion

Actual losses (US Stocks $8 trillion; US Home Equity $4 trillion) ($12 trillion)

The $12 trillion loss appears to be an overshoot to the downside. How do I explain it? There are 2 answers I’ve come up with. First, in my opinion, the majority of these are paper losses, which will be “written up” over time, which is why I’m buying equities. I think the market will soon realize that companies are reporting solid earnings, and that there is pent up, quality consumer demand for cars and homes, albeit at lower levels than 2007. Second, it’s pure irrational fear, ie the best time to buy. Here’s a simple analogy to drive home my perspective. Someone yells “fire!” at the local movie theater. You have 2 choices. You can follow Jim Cramer and run for the exit, or you can sneak in with Warren Buffet and watch the movie for free in an empty theater. I think I’ll stay for the double feature.

Disclosure ("none" means no position):None
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Buffett Sells More Puts on Burlington Northern

2008-10-11T10:58:00.003-04:00

Just days after selling puts on 1.3 million shares of Burlington Northern (BNI), Berkshire's (BRK.A) Warren Buffett is at it again..

This time he sold puts on Burlington Northern:
$80 strike, 1.1 million shares, expiring 12/08 for $7.03
$75 strike, 761k shares, expiring 12/08 at $5.78

1. The put options were written by National Indemnity Company (?NICO?), a subsidiary of OBH, Inc. (?OBH?). OBH is a subsidiary of Berkshire Hathaway Inc. (?Berkshire?). As OBH and Berkshire are each in the chain of ownership of NICO, each of Berkshire and OBH may be deemed presently to both beneficially own and have a pecuniary interest in all securities of Burlington Northern presently owned by NICO. Warren E. Buffett, as the controlling stockholder of Berkshire, may be deemed presently to beneficially own, but only to the extent he has a pecuniary interest in, the Burlington Northern securities presently owned by NICO. Mr. Buffett disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein.

Disclosure ("none" means no position):None
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Robert Schiller on Housing (video)

2008-10-11T06:53:00.000-04:00

From the guy who predicted the housing bubble....and its popping..

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WOW... Chesapeake CEO Dumps ALL Stock to Meet Margin Calls

2008-10-10T17:22:00.003-04:00

This is hard to believe...he has been buying shares on margin???? Millions worth....

OKLAHOMA CITY--(BUSINESS WIRE)--Chesapeake Energy Corporation (NYSE:CHK) today disclosed that its Chief Executive Officer, Aubrey K. McClendon, involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan calls.

Management Comments

Mr. McClendon commented, “I am very disappointed to have been required to sell substantially all of my shares of Chesapeake. These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis. In no way do these sales reflect my view of the company’s financial position or my view of Chesapeake’s future performance potential. I have been the company’s largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company’s strategy and assets. My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead.”

Chesapeake Energy Corporation is the largest producer of natural gas in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and corporate and property acquisitions in the Fort Worth Barnett Shale, Haynesville Shale, Fayetteville Shale, Anadarko Basin, Arkoma Basin, Appalachian Basin, Permian Basin, Delaware Basin, South Texas, Texas Gulf Coast and Ark-La-Tex regions of the United States.

Does anyone want to know why the market is crashing???MARGIN... and forced selling

People....there are huge bargains here...huge...

Disclosure ("none" means no position):None
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Pershing Fails To Find Alternate Buyer for Longs

2008-10-10T17:18:00.003-04:00

Bill Ackman just sent a letter to shareholders of Longs Drug (LDG) in regards to his effert to find another buyer for them as an alternative to the CVS (CVS) offer, now that Walgreen's (WAG) has backed out. There was none...full letter below

Disclosure ("none" means no position):none
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What is a CDO? (video)

2008-10-10T17:12:00.000-04:00

This is a great explanation for those afraid to ask...

Crisis explainer: Uncorking CDOs from Marketplace on Vimeo.

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David Einhorn's Q3 Letter

2008-10-10T10:24:00.003-04:00

Just got this emailed to me...It is a great read...

Disclosure ("none" means no position):None
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New Bank Model....Humor

2008-10-10T07:57:00.001-04:00

From the Financial Times. on the lighter side...

A new bank model

By Robert Shrimsley

Published: October 9 2008 03:00 | Last updated: October 9 2008 03:00

1) Take money from members of the public in savings accounts on pretext of keeping it safe

2) Use that money to lend to people who are unlikely to repay it.

3) When loan defaults rise and wholesale markets dry up, start refusing loans and credit to those who are able to repay.

4) Resist paying more for insurance scheme to guarantee savings accounts. You can always take money from the public, through nationalisation, as the price of keeping their money safe.

5) As investors notice structural weakness, start hoarding cash.

6) When this leads to system crisis, take money from the public by offloading bad loans by swapping for Treasury bills at Bank of England.

7) As turbulence continues, stop lending money to businesses.

8) Take more money from the public through government recapitalisation, in return for promise to keep lending people their own money.

9) Slash dividend. Create new executive remuneration scheme.

Original Link

Disclosure ("none" means no position):
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Capital World Investors Files 13D/A in National City

2008-10-10T07:53:00.002-04:00

Now that the Wachovia (WB) saga seems to be settled and Wells Fargo (WFC) is the winner, will Citi (C) turn its sights to National City (NCC)?

Capital World Investors now beneficially owns 103 million shares, up from 8 million in the last quarter.

From the filing:
Capital World Investors is deemed to be the beneficial owner of 103,764,990 shares or 5.1% of the 2,035,010,452 shares of Common Stock believed to be outstanding as a result of CRMC acting as investment adviser to various investment companies registered under Section 8 of the Investment Company Act of 1940.

Disclosure ("none" means no position):Long C,NCC, WFC, none
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@VIC Bill Ackman Press Conference

2008-10-10T05:41:00.000-04:00

Here is the audio of Bill Ackman's press conference at the Value Investing Congress. If you are an investor of any type, you must listen to it..

The questions are hard to hear (that does not matter) but Ackman's answers are very clear and great stuff. For me, this was the highlight of the conference. Ackman was very gracious with his time answered questions on all subject for over an hour. I was able to ask him about short selling disclosure, Borders (being on the board he opted not to answer), and why hedge funds have such a lousy reputation.

He talks about AIG (AIG), Wachovia (WB), Citi (C), Wells Fargo (WFC), the SEC, Treasury, the Fed, the "Bailout", Longs Drug (LDG), Walgreen's (WAG), CVS (CVS), Borders (BGP), Barnes and Noble (BKS).

Disclosure ("none" means no position):Long BGP, WFC, C, none
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Dow 14,000.....What a Difference A Year Makes

2008-10-09T22:51:00.001-04:00

This year will make for some good "year in review" clip on New's Years..

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Bruce Berkowitz is Buying

2008-10-09T19:34:00.003-04:00

Like Seth Klarman from a previous post, Fairholme's (FAIRX) Bruce Berkowitz is using the market weakness to add shares.

Berkowitz added over 7 million share of AmeriCredit (ACF) brining his total to over 21 million shares. From the filing:

21,049,200 shares of Americredit Corp. are owned, in the aggregate, by various
investment vehicles managed by Fairholme Capital Management, L.L.C. ("FCM")of
which 15,588,200 shares are owned by Fairholme Funds, Inc. Because Mr.
Berkowitz, in his capacity as the Managing Member of FCM or as President of
Fairholme Funds, Inc., has voting or dispositive power over all shares
beneficially owned by FCM, he is deemed to have beneficial ownership of all such
shares so reported herein.

While the advisory relationship causes attribution to Bruce Berkowitz, Fairholme
Funds, Inc. or FCM of certain indicia of beneficial ownership for the limited
purpose of this Schedule 13G Amendment, Bruce Berkowitz, Fairholme Funds, Inc.
and FCM hereby disclaim ownership of these shares for purposes of
interpretations under the Internal Revenue Code of 1986, as amended, or for any
other purpose, except to the extent of their pecuniary interest.

Berkowitz now owns 18% of ACF and between Fairhome and Leucadia (LUK) combined, own over 50%. Leucadia, is Berkowitz's 7th largest holding.

Disclosure ("none" means no position):none
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Fed Statement on Citigroup and Wells Fargo

2008-10-09T19:21:00.002-04:00

Looks like the path is cleared for Wells Fargo (WFC) to acquire Wachovia (WB) over Citigroup (C).

Release Date: October 9, 2008
For immediate release

The Federal Reserve acknowledges the considerable efforts of Citigroup Inc. and Wells Fargo & Company to reach an accord regarding the acquisition of Wachovia Corporation.

While no agreement between Wells Fargo and Citigroup was reached, the two parties have indicated that they will no longer seek injunctive relief to prevent a transaction.

The Federal Reserve will immediately begin consideration of the filings submitted by Wells Fargo for approval to acquire Wachovia Corporation.

So, here it is. We are done with the legal games and it would seem the decision is up to the Fed. The way I read it, the Fed is going to decide between either proposal, not decide how to break up Wachovia.

If that is the case, then Wells Fargo has to win because their deal involves no FDIC involvement. Simple. That, and it is a far better deal for shareholders.

Disclosure ("none" means no position):Long WFC, C
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Another WSJ Hatchet Job on Sears

2008-10-09T16:36:00.002-04:00

It's been a while since the last one...

The WSJ Reports

Even after coming way off its highs of last year, Sears' stock is trading at the nosebleed valuation of more than 26 times this year's expected earnings. In comparison, discount retailers such as Wal-Mart Stores (WMT) and Costco Wholesale (COST) -- both of which reported higher same-store sales in September, even as consumers deserted other stores -- are trading in the mid-to-high teens. Not to mention lower profile retailers like TJX Cos. (TJX), whose chains draw brand-conscious consumers looking for a bargain, which is trading at a multiple of about 11.

Part of the reason for the anomaly could be Sears' inclusion on the no-short sale list; indeed Thursday, after the ban expired, Sears fell sharply. Sears also benefits from a relatively small float, as several loyal investors have stuck by controlling shareholder Eddie Lampert. And the company has been steadily buying back stock, even as cash generation has slumped.

At some point, though, the faith in Mr. Lampert displayed by these investors may start to crumble. Recessions are the ultimate in Darwinian exercises for retailers. Every time there's a severe economic downturn, a smattering of big and small retail chains go bankrupt. Recent months have already seen a handful of specialty chains file for Chapter 11 bankruptcy protection, including Steve & Barry's, Linens 'n Things and Mervyn's. Others, like electronics chain Circuit City (CC) and drug store operation Rite Aid Corp. (RAD), face serious challenges. Sears' prospects in an extended downturn aren't much better.

OK...So let's for a minute just sit back and reflect the inclusion of cash rich (it currently holds more cash that all the other combined), low debt (it currently has less than any of the other did) Sears with any of the above retailers. Why not look at is next to Macy's (M), Kohl's (KSS), JC Penny (JCP) or even Home Depot (HD)? My guess is the article would then have been far less dramatic or interesting as people would have come to the logical, "well, all of retail is suffering now" conclusion.

What the author alludes to but chooses not to focus on is that unlike at the above, Sears is still churning out profits and cash flow. He does note that Sears tumbled today after the "no short ban" was lifted. A 680 point drop on the Dow today would lead some to believe that perhaps this was not a "Sears specific event"?

The Sears shareholder base. This has merit. 86% of the shares are held by investors who typically have a holding period measured in years. In fact, Chairman Lampert himself controls 51% and isn't going to be selling anytime soon. So, aside from the "naked shorting", of Sears shares (IS THE SEC'S CHRIS COX STILL ON THE JOB?), in any given day only about 14% of the shares are going to be sold by anyone other than those who view purchasing a stock as "ownership", not trading paper.

That math ought to lead anyone to conclude that there isn't a ton of downside to shares, or , if there is, based on the reputations of the investors that hold shares, they most likely will eagerly be snapping them up.

Sears is a complicated investment both due to the various businesses and parts it has, and its evolving ownership base. A true "why isn't it going down" analysis really cannot honestly be done in a pithy 3 paragraph piece...

When you have a stable investor base that is not inclined to sell, many of the usual daily market machinations and their effect of the stock price tend to not matter as much. That by the way, is a good thing...

I just may have avoided the 23% drop this month in the Dow..

Disclosure ("none" means no position):Long SHLD, none
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Seth Klarman Was Buying This Week

2008-10-09T16:27:00.002-04:00

Not everyone was dumping shares this week...

Seth Klarman's Baupost Group has acquired 6.1 million or 11.7% of Breitburn Energy Partners LP (BBEP).

BreitBurn Energy Partners L.P. is an independent oil and gas partnership focused on the acquisition, exploitation and development of oil and gas properties in the United States. The Company’s assets consist of producing and non-producing crude oil and natural gas reserves located in the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Permian Basin in West Texas, the Sunniland Trend in Florida, the Antrim Shale in Northern Michigan and the New Albany Shale in Indiana and Kentucky. The Company conducts its operations through a wholly owned subsidiary, BreitBurn Operating L.P. (OLP) and OLP’s general partner BreitBurn Operating GP, LLC. On June 17, 2008, the Partnership announced the acquisition of all of the limited and general partnership interests of the Partnership previously owned by Provident Energy Trust. As part of the transaction, the Partnership acquired a 100% interest in BreitBurn GP, LLC, the general partner of the Partnership.

A theme at the Value Investing Congress this week was oil and gas parnership both for valuation and yield.... Breitburn's current yield? 17%.

Disclosure ("none" means no position):None
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Jim Chanos on Short Selling (video)

2008-10-09T12:34:00.003-04:00

From the man who uncovered the Enron scandal...

Chanos explains the mechanics behind why many people short and how the ban has hurt investors..

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National City in Buyout Talks

2008-10-09T08:00:00.002-04:00

One really has to think this was only a matter of time...

The WSJ Reports:

As the scramble to resolve the Wachovia (WB) situation continues (Wells Fargo (WFC) and Citigroup (C) are sorting it out), National City Corp. (NCC) , a Cleveland-based regional bank crippled by bad real-estate loans, is in talks with a number of banks about a possible sale, people familiar with the situation said.

Among the potential buyers are PNC Financial Services Group Inc. (PNC), a Pittsburgh-based lender that has dodged many of the industry's problems, and Toronto-based Bank of Nova Scotia. PNC declined to comment Wednesday, and Bank of Nova Scotia (BNS) couldn't be reached.

National City declined to comment.

In the beginning of October I bought National City shares, not for this situation but because I thought their loan portfolio was notably superior to Wachovia or Washington Mutual (WM), it was still growing its deposit base and the market was pricing it as though either of those scenario's did not exist.

It might seem other banks agree. With industry consolidation underway full steam, and National City not in dire straits, those institutions in a position to expand their operations are obliged to kick the tires...

Disclosure ("none" means no position):Long NCC, WFC, C, none
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Buffett Selling Puts on Burlington Northern

2008-10-08T21:28:00.006-04:00

Berkshire's Warren Buffett is taking advantage of the volatility out there to sell put options on Burlington Northern (BNI)

Buffett sold 12/08 puts at an $80 strike price for $7.02 each on 1.3 million shares on 10/6.

Explanation of Responses:
1. The put options were written by National Indemnity Company (?NICO?), a subsidiary of OBH, Inc. (?OBH?). OBH is a subsidiary of Berkshire Hathaway Inc (BRK.A). As OBH and Berkshire are each in the chain of ownership of NICO, each of Berkshire and OBH may be deemed presently to both beneficially own and have a pecuniary interest in all securities of Burlington Northern presently owned by NICO. Warren E. Buffett, as the controlling stockholder of Berkshire, may be deemed presently to beneficially own, but only to the extent he has a pecuniary interest in, the Burlington Northern securities presently owned by NICO. Mr. Buffet disclaims beneficial ownership of the reported securities except to the extent of his pecuniary interest therein.

FULL FILING

Disclosure ("none" means no position):None
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Dick Fuld in Front of Congress (full video

2008-10-08T15:49:00.007-04:00

Here is the full video of Lehman's (LEH) Fuld before the Senate. I can't do it justice, you really do have to watch it. Fuld's action are indefensible, despite his best efforts to do so...

He blames the SEC, short sellers (David Einhorn), Goldman Sachs (GS)...everyone except...oh yea...him..

Disclosure ("none" means no position):Long GS, none
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@ VIC: Us Value Folks Are Funny People

2008-10-08T15:26:00.004-04:00

Some reflection on the past few days and the Value Investing Conference.

Friday the Dow hit 10,700, today it hit 9,200. People are scared. People are panicking. TV folks are ashen with fear. CNBC's Jim Cramer is running around in a panic telling everyone to "sell everything". Hank Paulson is on TV trying to reassure people. McCain and Obama are in a debate battling over who has the best "consumer bailout" plan.

Yet, a constant theme was observed at the Value Investing Congress. Disbelief. Not in that equity values were evaporating, but that securities people have wanted to buy reached buying targets in only a matter of days.

Bill Ackman said, "we are buying heavily". Whitney Tilson said, "we are buying hand over fist". Leon Cooperman said, "America is on sale". Several money managers I spoke to, (they and their activity will remain nameless until they disclose it, it is not my place to do so) were practically laughing at the prices they were buying equities at. Despite a 14% drop in the Dow in 48 trading hours, this was a very happy group of people.

Why?

Simple. Markets were are in today happen perhaps once a century. We are in a state of almost paralyzing fear. What does Berkshire's Warren Buffett say about fear? "Buy it". Talk to anyone you know and they want to yank all their money out of the market. Let me ask you this. Why? Until you actually sell a stock, any loss or gain you have is only theoretical. It fluctuates day by day. Once you pull the sell trigger you then have actually lost or gain money. Why cement a loss now unless you believe the value of American business will continue to decline in perpetuity. It won't, so if that is true, your imaginary losses today will decrease and perhaps become gains down the road.

Back to the conference....

I spoke to countless people at the conference and there were two themes...

- Nobody was selling anything...
- Everyone had bought something (including me)..

There was no signs of anxiety or panic. People were relaxed, joking and trading "can you believe "x" is selling for that?" stories.

It was my first conference and I plan on being a regular at future ones. As I think about what would make these folks (and myself) begin to attend with apprehension and be a bit nervous sitting there my mind flashed back to 1999 and 2000. Stratospheric valuations would make us value folks nervous sitting there because if history tell us anything.....there is a reckoning coming.

Disclosure ("none" means no position):None
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Central Banks Cut Rates

2008-10-08T09:21:00.002-04:00

Unprecedented action...we are investing in once in a century conditions...

Federal Reserve Actions
The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.

Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation.

The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 50-basis-point decrease in the discount rate to 1-3/4 percent. In taking this action, the Board approved the request submitted by the Board of Directors of the Federal Reserve Bank of Boston.

Bank of England Reduces Bank Rate by 0.5 Percentage Points to 4.5%

8 October 2008

The Bank of England's Monetary Policy Committee today voted at a special meeting to reduce the official Bank Rate paid on commercial bank reserves to 4.5%.

The Monetary Policy Committee held a special meeting on Wednesday 8 October, some hours in advance of its normal schedule. After that meeting, the Bank of England, in conjunction with the Bank of Canada, the European Central Bank, the US Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the Bank of Japan, released the following statement:

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Bank of Canada lowers overnight rate target by 1/2 percentage point to 2 1/2 per cent

The Bank of Canada today announced that it is lowering its target for the overnight rate by 1/2 percentage point to 2 1/2 per cent. The operating band for the overnight rate is correspondingly lowered, and the Bank Rate is now 2 3/4 per cent.

The intensification of the global financial crisis is having a marked impact on all countries. In recent weeks conditions in global financial markets have deteriorated sharply, the U.S. economy has weakened further, and commodity prices have fallen abruptly.

The Governing Council of the ECB, by means of teleconferencing, has taken the following monetary policy decisions:

* The minimum bid rate on the main refinancing operations of the Eurosystem will be reduced by 50 basis points to 3.75 %, with effect from the main refinancing operation to be settled on 15 October 2008.
* The interest rate on the marginal lending facility will be reduced by 50 basis points to 4.75 %, with immediate effect.
* The interest rate on the deposit facility will be reduced by 50 basis points to 2.75 %, with immediate effect.

The Swiss National Bank (SNB)

Has decided to ease conditions in the money market by 50 basis points in a bid to bring down the Swiss franc three-month Libor from its most recent level of 3% to 2.5%. To this end, the SNB is lowering the target range to 2–3%.
The global financial crisis has intensified and is having a considerable impact on the international economy. The slowdown in economic activity in the US and Europe is more severe than what the SNB had forecast at its last monetary policy assessment of 18 September 2008.

FULL FED LINK

Disclosure ("none" means no position):
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Supreme Court to Hear Tobacco Case

2008-10-08T04:56:00.000-04:00

Altria (MO) is asking the US Supreme Court to dismiss a class action lawsuit by Maine smokers who say they were misled into believing that "low tar" and "light" cigarettes are a healthier alternative to regular cigarettes.

The smokers filed suit against Philip Morris USA and its parent company, Altria, charging that the companies engaged in a decades-long fraud on Maine smokers in violation of state laws against deceptive business practices.

Altria is arguing that its products are regulated by federal law and the Federal Trade Commission (FTC), not the State of Maine. Earlier, a Federal Judge agreed and dismissed the smokers' suit then the First US Circuit Court of Appeals in Boston reinstated the action, ruling that the state lawsuit is not preempted by federal law.

On Monday, the dispute, Altria Group v. Stephanie Good comes before the US Supreme Court, where the justices will decide whether the Maine suit can proceed to trial or must be dismissed because it intrudes into the exclusive realm of a federal regulatory agency, the FTC.

Under Chief Justice Roberts, the court has previously proven sympathetic to similar pro-business preemption arguments. Last February, for instance, the court in Riegel v. Medtronic concluded that a federal statute blocked state lawsuits over certain medical devices.

"A general common-law duty (not to deceive) can be preempted by a specific statute," Roberts noted pointedly Monday. Also, Associate Justice Anthony Kennedy told the attorney for the smokers, "I have difficulty in accepting your position in this entire case."

Altria argues the case falls under the "Labeling Act" which directed how cigarette could label their products and thus the suit has no merit. They are right. They labeled their products based on FTC guidelines. If anything, the smokers ought to go after the FTC, as the justices angrily said to the FTC during the hearing "you created this mess".

The Supreme Court will rule in the case by July 2009

Disclosure ("none" means no position):Long MO
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Wednesday's Links

2008-10-08T01:06:00.000-04:00

Funny, Buffett, The Crash, Cramer

- Dealbreaker just always nails 'ole Charlie

- Who does Warren listen to?

- Didn't think there would be any left

- Please....Please....ignore him

Disclosure ("none" means no position):
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@ VIC Leon Cooperman: Omega Advisors

2008-10-07T22:24:00.001-04:00

Leon Cooperman presented on "The Investing Climate and All-Weather Stocks"

Climate:
* Thinks we have "leadership by crisis" in the US
* Thinks the Fed is not out of options and is being very creative
* Sees the rate of decline in housing falling
* S&P 500 (ex. financials) with a yield higher than 10 yr. notes is at 13%, an all-time high.
* Corporate America is very liquid, cash to debt at 30 yr. high.
* Expects dividends to grow rather than cash being used for stock repurchases.
* Companies have "pissed away cash" on buybacks the last year buying stock at high prices
* The average recession lasts 10 months and the S&P returns 30% from trough to end.
* Never could anyone have predicted AIG (AIG), Bear Sterns (BSC), Merrill Lynch (MER), Wachovia (WB) and Washington Mutual (WM) would be gone in the same year.
* "America is on sale"

Cooperman recommended the following inter-related companies:

Why?

What did Mr. Cooperman think the upside was?

On a personal note, Mr. Cooperman was a great speaker, who had the whole audience engaged and involved (as well as laughing out loud several times). His speech was one of the highlights of the conference.

This idea is one I am going to look into much closer as they have a great business in a very necessary field and sell at a huge discount AND, have unbelievable yields at current levels.

I think Mr. Cooperman, for me, had the most actionable idea of the conference..

Disclosure ("none" means no position):None......yet
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@VIC Jeff Matthews: Evaluating GE: What Would / Did Warren Do:

2008-10-07T15:58:00.003-04:00

After my recent purchase of GE (GE) and what Berkshire's (BRK.a) Warren Buffett did days later, this presentation intrigued me from the day I saw it.

Runs RAM Partners LP, and is author of this NEW book:

Evaluating a Company:
- Read every report and Chairman's letters
- Is it a good business, do I understand it, does it have a moat, does it throw off cash?
- Is management good, honest, do they manage for the long term?
- Is Board aligned with shareholders?
- What is stock worth, what is it priced at today?

Rather than seeing price first then evaluate, Buffett look at company first and figures out what he thinks it is worth.

Is a fan of CNBC's Jim Cramer (my note.....Cramer is a fool)

GE
Does business in (in descending order of revenues) infrastructure, commercial finance, GE money, industrial, NBC universal, healthcare.

GE "core competency" is the recruiting and training of the world's best people according to Jack Welch in 2000 Chairman's Letter.

GE Capital's business and ratings is stable and NOT at risk.

Bought back $25 billion in stock 2005-2007 at average price of $35. Recent offering of $3 billion was at $22.

GE has had a falling tax rate from 30% in 2000 to 15% in 2007, inflating the net earnings number.

GE Culture (+ means "good" and - means "bad"):
+ Numbers + values = good manager
- numbers - values = gone
- numbers + values = eventually gone
+ numbers - values = hardest to part with

The "lowest common denominator" of manager at GE "makes the numbers"

Institutional imperative: "Companies do stupid things because they can". This lead GE to get into the mortgage business by pursuing this "growth" and GE caught the mortgage problem.

In short, Matthews was not very encouraged by GE. Matthews did point out accurately the pitfalls of Immelt being the "guy who followed THE GUY" who was Jack Welch. The same holds true for managers in sports or of any business.

If he was in charge of GE, he would keep Immelt there and change the board of director and alter expectations. Immelt ought to focus on core business and not worry about numbers.

Matthews thinks the GE deal was a bit of a "please do this" scenario and points out Buffett did not take a 9% stake like he did in Coke (KO) and American Express (AXP)

Disclosure ("none" means no position):Long GE, none
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