Archive for February 2012

Opening Bell: 02.27.12

Buffett’s Board Selects Manager to Eventually Take Over as Berkshire CEO, Won’t Say Who It Is (Bloomberg)
…saying instead that directors were “enthusiastic” and have had “a great deal of exposure” to the person designated to take over as CEO. Buffett, 81, didn’t specify a timeline for the switch.

Buffett On Hormones, Housing (Berkshire Letter)
Every day we are creating more households than housing units. People may postpone hitching up during uncertain times, but eventually hormones take over. And while “doubling-up” may be the initial reaction of some during a recession, living with in-laws can quickly lose its allure. At our current annual pace of 600,000 housing starts – considerably less than the number of new households being formed – buyers and renters are sopping up what’s left of the old oversupply.

Buffett Says BofA Warrants Have ‘Great Value,’ Praises Moynihan (Bloomberg)
“Some huge mistakes were made by prior management,” wrote Buffett, 81. “Brian Moynihan has made excellent progress cleaning these up, though the completion of that process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that will endure long after today’s problems are forgotten.”

Berkshire Profit Falls 30% on Insurance, Derivatives (WSJ)
Berkshire Hathaway Inc. said fourth-quarter profit fell 30% as the conglomerate’s insurance units struggled and derivatives bets added less to the bottom line. Mr. Buffett, who serves as Omaha, Neb.-based Berkshire’s chairman and chief executive, has urged investors to evaluate the firm by how it is growing in relation to the broader market. He often draws attention to Berkshire’s book value, a measure of assets and liabilities that he says understates the company’s actual value but can serve as an objective indicator of the company’s performance over time. Berkshire’s book value increased 4.6% in 2011, exceeding the 2.1% return of the benchmark Standard & Poor’s 500 Index. It marks the first time in three years that Berkshire’s book value increased more than the return of the S&P, according to data provided by Mr. Buffett on the second page of Berkshire’s annual report released early Saturday.

Buffett–Adding IBM but more tech unlikely (Reuters)
Berkshire Hathaway Inc has bought more shares in International Business Machines Corp during the first quarter but is unlikely to do much more investing in the technology sector, Warren Buffett told CNBC on Monday. Buffett, asked about Apple Inc, said he has never bought the shares. He did note, though, that Apple’s late CEO Steve Jobs contacted him a few years ago seeking advice about that company’s substantial cash pile.

Actress Lucy Lawless arrested in oil-ship protest (AP)
Police arrested actress Lucy Lawless and five Greenpeace activists Monday, four days after they climbed onto an oil-drilling ship to prevent it from leaving a New Zealand dock. Police removed the protesters from their perch atop a 174-foot (53-meter) drilling tower on the Noble Discoverer in Port Taranaki. Chartered by oil company Shell, the ship had been due to leave over the weekend to drill five exploratory wells in the Arctic. Lawless and six activists climbed the tower early Friday to stop the ship’s departure and raise awareness about Arctic oil drilling…Lawless, 43, a native New Zealander, is best known for her title role in the TV series “Xena: Warrior Princess,” and more recently for starring in the Starz cable television series “Spartacus.” Read more »

Write-Offs: 02.24.12

$$$ Bonus cuts hide bigger problem for investment banks [FT]

$$$ Newsletter Flagged Possible ‘Japanese Madoff’ in 2009 [WSJ]

$$$ Gray in position to succeed Schwarzman [FT]

$$$ Apple would like to break the law of large numbers, for very loose definitions of “the law of large numbers” (or very strong forms of EMH?) [NYT]

$$$ BREAKING: Jim Chanos eats bread [BI]

$$$ Lenny Dykstra can go to Gary Carter’s funeral [NYP]
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  • 24 Feb 2012 at 6:24 PM

UBS Hitches Its Wagon To Bear Stearns Alum’s Star

Princes of Bear Stearns, kings of Lehman Brothers– have you attempted to gain new employment in the last several years only to encounter prejudice among people who learn of your past? Is pounding the pavement with Bear and Lehman on your resumes not unlike being forced to knock on the doors of your new neighbors and let them know about your registration on a certain list of individuals? Take heart– one investment bank would like to let it be known that while you may have an asterisk next to your name, it believes in second chances. Read more »

Possibly the best thing about the Wynn-Okada saga is the payment to Okada in exchange for poofing his shares away. Recall that Wynn’s charter lets the board disappear the shares. But they can’t just disappear them for free – that would be unfair. They have to pay a fair price for them:

“Redemption Price” shall mean the price to be paid by the Corporation for the Securities to be redeemed pursuant to this Article VII, which shall be that price (if any) required to be paid by the Gaming Authority making the finding of unsuitability, or if such Gaming Authority does not require a certain price to be paid, that amount determined by the board of directors to be the fair value of the Securities to be redeemed; provided, however, that the price per share represented by the Redemption Price shall in no event be in excess of the closing sales price per share of shares on the principal national securities exchange on which such shares are then listed on the trading date on the day before the Redemption Notice is deemed given by the Corporation to the Unsuitable Person …. The Redemption Price may be paid in cash, by promissory note, or both, as required by the applicable Gaming Authority and, if not so required, as the board of directors determines. … [T]he principal amount of the promissory note together with any unpaid interest shall be due and payable no later than the tenth anniversary of delivery of the note and interest on the unpaid principal thereof shall be payable annually in arrears at the rate of 2% per annum.

As it happens, Okada is now the proud owner of a $1.9bn 10-year subordinated note at 2% interest. Wynn has 2020 first mortgage bonds trading at 4.4%. Let’s generously say that a 10-year parent company subordinated note should trade at 7%; that makes a 2% note worth about 65 cents on the dollar, making that Wynn note worth about $1.26bn. That’s call it $1.5bn less than the $2.77bn value of Okada’s shares on the day before the February 18 redemption notice (24.55mm shares at $112.69), or about a 55% discount.

So … fair … then. The board thinks so: Read more »

As many of you know, PIMCO chief Bill Gross is fond of weaving life stories throughout his monthly investor letters. One of his favorites, and a “Gross family legend,” was featured in a March 2011 correspondence entitled “Two Bits Four Bits Six Bits A Dollar.” It is the tale of the time he gave a waitress “negative tip,” noting on a napkin: “Thanks for the shitty service…you owe me 25 cents.” So, clearly, acting like a cheap prick to waitresses is kind Gross’s thing, as indicated by the fact that he proudly wrote about it in a note disseminated to thousands. Which is why it distresses us to report that someone has not only been flagrantly stealing BG’s move but doing so in on his own turf. Examine the evidence with us. Read more »

There’s a possibly true anecdote about Greek uncompetitiveness that goes like this:

“An online store is more complicated than a regular store basically because of the way payments are carried out,” explained Fotis Antonopoulos, one of the co-founders of, which sells olive oil-based products such as cosmetics, mostly to foreign markets. …

Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

This is contrasted with the US system, where Antonopoulos says “I contacted the FDA and they sent us an e-mail with directions immediately. I filled in an online form and was done in five minutes. We received the approval 24 hours after making our application.”

Now, I’m sure you’re as horrified as I am that the people in charge of protecting our health and safety will let us smear olive-derived creams on ourselves without so much as examining the poop of the people providing the funding to the people selling those creams. Fortunately, though, US regulators keep watch over some aspects of our lives to make sure they’re not affected by shareholder irregularities. Specifically, they keep watch over our slot machines.

That is I suppose the genesis of this awesome Wynn thing. Quick recap (based largely on this report from former FBI director Louis Freeh because why not have a former FBI director involved): Steve Wynn had a friend, a Japanese engineer named Kazuo Okada, who runs a company named Aruze that was a 24.55% investor in Wynn Resorts when it IPOed in 2002 and a 19.66% shareholder as of … last week. Okada tried to open his own casino in the Philippines, maybe doing some shady stuff with Wynn resources including the “city ledger” account set up by Wynn to, as far as I can tell, allow Okada to gamble more efficiently. Also maybe doing some shady stuff like kind-of bribing Philippines regulators, which is a violation of US law and also a serious no-no in the casino world. Things got unpleasant and Okada accused Wynn of doing some bribing himself, which was followed by that Freeh investigation by Wynn finding conflicts of interest and bribery by Okada.

Then things got amazing: Read more »

While a small group of protesters marched outside Apple’s shareholders meeting this morning over labor practices in China, investors inside were mostly saying thank you. And with good reason. Take Rich Bleyle, a retired teacher attending the annual meeting from Buffalo, New York. He and his wife Mary spent $16,000 on Apple shares in 1997, about the same time late co-founder Steve Jobs returned to the company. Today, the couple has about $2 million worth of Apple shares. Bleyle, wearing a handlebar mustache and wearing a blue t-shirt that said “Macho Man,” said the couple sold only 200 shares since that initial investment and still owns another 3,800…Mark Barchas, who has owned shares for about 14 years, owns an iPhone, iPad, iMac and Apple TV. He’s such a fan that he can’t bring himself to sell the shares, even as they hit record highs. “One time he sold and couldn’t sleep until he bought it back,” said his wife, Kay. [Tech Blog]

  • 24 Feb 2012 at 2:18 PM

Jon Corzine’s Weekend Just Got A Bump

The last several months have not been the best of times for Jon Stephen Corzine. His fund went down for the dirt nap. He was forced to shelve his dreams of becoming a count. He made the tearful decision to put his Hoboken hideaway on the market, probably to free up some cash should it become necessary to pay legal fees. And while some pissant MF Global clients have in fact served him with papers, today brings the joyous news that any sleepless nights spent worrying over doing time were all for naught. Read more »