GM at 4.74!!

Did anyone buy GM at 2.85? I did. Did anyone "accidentally" place a stop order at 2.10? I did.

I propose changing our blog's name to: "Too big to fail."

GGP @ $1.50!!!! Activist Investor Bill Ackman

Did anyone buy last week when I recommended the stock at $.50 a share? You'd be sitting with a pretty 300% gain right now.

Woulda, coulda, shoulda.....




http://www.bloomberg.com/apps/news?pid=20601087&sid=a6uFaQ4pPn4M&refer=home

FLOOR TALK - Still a skittish market

It was another treacherous open for the market, marked by the kind of immediate fade of the opening rally that we've seen so many times before over the past several weeks. Given all of the crosscurrents investors have been dealing with this week, here's how we break down the current sentiment:

The Backdrop: The major averages, and literally thousands of individual stocks, are incredibly oversold, and have been since mid-October. Valuations are dirt cheap (although no one in their right mind would trust the forward estimates) and high quality companies are sporting very attractive dividend yields.

The Here and Now: Ever since the Nov 4 election there has been an almost total buyers strike, with the longs essentially ceding the market to the shorts. And once the major averages breached the key support level marked by the Oct-Nov lows two days ago, we immediately started to see a whole new round of forced selling by funds and market risk-reduction efforts by insurance co's. Hartford (HIG) essentially confirmed that insurance co's have been major sellers last night, when it stated that "The company's investment management team is taking a series of actions aimed at repositioning the portfolio in light of current economic outlooks, with plans to enhance the overall credit quality of the general account. The company is currently investing in treasuries and other high-quality securities, and maintaining higher levels of liquidity than it has in recent quarters."

In an ominous turn, the financials are back driving the market again. The plunge in Citigroup (C) this past week has created another round of uncertainty in the Financials. And earlier in the week a major story emerged -- but has surprisingly flown under the radar -- that kicked out the one remaining leg of the stool that the financials were sitting on: There was an announcement that two separate operators, a shopping mall and a hotel, were past due on their payments to their creditors. The commercial property space (as opposed to residential) had been the one remaining "safe" area in real estate, so this announcement caused a rush by lenders to insure themselves in case of default, thus causing the CMBS market to rocket higher, which in this environment is a recipe for panic (we saw an identical panic develop with LIBOR rates a few months ago when FNM, FRE, and LEH were on the brink). As a result, all financial stocks and REITs are getting thrown overboard, the former on concerns of additional portfolio writes-downs and the latter due to concerns that REITs will have extreme difficulty rolling over debt.

Tying these together, since the election the path of least resistance for the mkt has been down, and there really is no way to know when this latest round of forced selling will end. But especially given the oversold nature of this market, the dirt-cheap valuations on high-quality stocks, and the fact that "shorting every rally" has become a far too obvious tactic by now, this suggests that the potential is great for a significant short-covering rally at any time. This is why, despite their recent success, even the shorts are skittish down here

Bull!

S&P is at 822. Mark my words, I just turned bullish on the S&P today will be the low. If I had not lost most of my cash in the downturn, I would be buying big today. S&P, Bank of America, most of the REITs and maybe even Citi.

FLOOR TALK - No one has an edge right now

There are a few key things that traders and investors need to keep in mind as they try to navigate this very difficult market. Broadly speaking, we're in sort of a no-man's land right now. Buyers, while "nibbling" on their favored stocks each time we test the October lows, refuse to chase prices higher (instead preferring to let them "come in" to their levels). For all intents and purposes, this is a buyer's strike occurring right at the level (the October lows) where you would expect value buyers to step up. In turn this refusal to buy as prices climb has made it impossible to build on any intraday rallies we've seen over the past several weeks.On the other hand, short sellers have been in control of this market ever since the election, and have been making consistent money fading each rally. However, while the repeated tests of the October lows and the complete inability to sustain rallies suggest that the path of least resistance is a break to new 52-week lows, the market is still very oversold and prone to sudden and intense short-covering rallies -- which makes it very difficult to have a high level of conviction in putting on new shorts at these levels.What this adds up to is that both bulls and bears are showing extremely tentative behavior here as they wait for the other side to blink. More than anything this explains the seemingly "random" intraday movements of the market. In fact these aren't random at all, but represent the fierce tug-of-war going on between two teams that are equally weak and indecisive. The key thing for investors to remember is that the market is not trading on fundamental factors right now. On any given day, declines are not due to some new datapoint that sparks "renewed worries over global economic weakness" but are rather due to the simple unwillingness of buyers to commit in any meaningful way at current levels (i.e. a buyer's strike). Conversely, rallies are being fueled by short-covering rather than real buying, making them very fleeting and unstable events. This is a market where no one has an edge

Yahoooooooooooooooooo for Yang

BELLEVUE, Wash. (AP) -- Microsoft says it is still interested in some sort of Web search deal with Yahoo.

The software maker's chief executive, Steve Ballmer, says Microsoft Corp. is no longer interested in buying all of Yahoo Inc. But he told shareholders Wednesday that the company would be "very open" to a search collaboration.

Yahoo spurned Microsoft's $47.5 billion takeover offer in May. It also later rejected Microsoft's bid to buy only its search engine. But co-founder Jerry Yang, who resisted those overtures, is now stepping down as Yahoo's CEO.

"Let me be clear," Ballmer told shareholders. "We are done with all acquisition discussions with Yahoo." Ballmer says the companies are not currently talking about a search deal, either.

GM Needs Your Support

When any of you have the opportunity, please say a prayer for GM. Stop order has been placed...

JP Morgan

Crazy about Mark Cuban, how embarrassing for the SEC. Who's taking bets on how soon that dumb ass lawyer at the SEC gets fired?

BD - Isn't moral hazard grounds for dismissal?

JP Morgan could be a great short candidate. I think they are going to have a huge earnings loss in the 4th quarter as they expend cash to consolidate WAMU and see a huge fall off in investment banking income/transactional fee related income. Their stock is still trading relatively high.

Peace, Ying-Yang

Yang is out, what is next for Yahoo? Talks with Microsoft? We probably need to wait for some direction before any sustainable upward movement in the stock price.

More on Cuban

Did you see the email Cuban released which he received from an SEC employee? Cuban responded way too quickly to the allegations in my opinion. Regarding the email, there is a question of relevance. Even if Cuban was targeted for political reasons, that accusation is ultimately null if he did in fact engage in insider trading. Prosecutorial misconduct? We'll see. Still a valid insight into the politicking and bad faith that exists among the ranks.

From: Norris, Jeffrey B.
Sent: Saturday, May 05, 2007 2:27 PM
To: Mark Cuban
Cc: Cox, Christopher

Subject: RE: “Lose Change”

I AM SHARING THIS WITH CHAIRMAN COX. NEITHER HE NOR THE COMMISSION ENDORSE MY OPINIONS, BUT IN LIGHT OF YOUR THREAT, I THOUGHT SHOULD SEND THIS TO HIM.

Mark:

If this upsets you, I wonder how George Bush feels. I assume that Mr. Cox would view your involvement with “Loose Change” much as I do. After all, he served his country as a Republican Congressman from Orange County for nearly 20 years and was appointed by President Bush. If you feel like sharing my thoughts with Chairman Cox, be my guest.

Previously, I thought you were merely foolish and naïve. Now, however, I see that you are also a hypocrite. I guess your belief in free speech has severe limitations. If someone else is the victim of an absurd conspiracy theory, you defend your right to participate in smearing the good name of of a patriot like President Bush. But, when you are the subject of a parody of the attack you have endorsed, you suddenly issue threats.

I think I will e-mail this to Chairman Cox myself. I think he will enjoy it. I’m sure he is also a Laker fan.

Since Chairman Cox may not know the background, I will explain. Mark Cuban is the owner of the Dallas Mavericks and has participated in distributing the vicious and absurd documentary, “Loose Change,” which posits that President Bush planned the demolition of the World Trade Center as a pretext for going to war against Iraq. We have had some past exchanges about my opinion the Mr. Cuban’s support for this project is irresponsible and immoral. Below, I parodied his position that every opinion, no matter how absurd and vicious, deserves to be broadly disseminated.

–Michael J. de la Merced

GGP Corrections

Correction to previous post. Senior unsecured corporate bonds had traction at 21 cents on the dollar earlier today, not 50 cents as previously stated.

This would be second in line to get paid down if GGP defaults just behind secured mortgages. Very safe play with 500% upside.

Finding Gems in Market Debris

Yeah, just read that about Cuban. Pretty dumb for a guy worth $1.8 Billion to try to save $750,000 in losses.

Good article in the Journal today. If you can't read it by clicking on the link it's entitled "Finding Gems in Market Debris"

http://online.wsj.com/article/SB122687170367431693.html?mod=testMod

DUMB ASS

SEC charges Mark Cuban with Insider Trading - WSJ
WSJ reports the SEC filed insider-trading charges against Mark Cuban for allegedly dumping shares in Mamma.com upon learning it was raising money in a private offering. The SEC alleges in a civil action that Cuban sold his entire 6% ownership stake on June 28, 2004, after learning that Mamma.com was raising money through a private investment in a public entity, or PIPE. The next day, on June 29, the company announced the PIPE financing and shares of the company dropped by more than 10%. By selling his stake, the SEC alleges, Cuban avoided more than $750,000 in losses. In a PIPE transaction, new shares are issued at a discount to the current trading price. An announcement of a PIPE transaction is often followed by a drop in the stock price as shareholders anticipate their stake will be diluted.

General Growth

Disclamer: The statements made do not represent the opinion of GGP's management. Any decision based on the advice contained herein is made solely by that party making the decision and MoneyMaker2000$$ shall not be held liable for any loss eminating there from. Any profit made on account of your acting on said advice shall be charged a 25% "advice" fee payable to Josh Patinkin.

How could a company teetering on the edge of bankruptcy still have share value? Good question, the answer is simple. GGP's current ails is a question of liquidity not a question of solvency. Meaning, the net of all its assets outweigh its liabilities, even if GGP had to sell each individual asset at a big discount.

So why is GGP stock trading at $.50? Four words, NEAR TERM MATURING DEBT. $900mn in non-recourse mortgages November 28th, $58mn in bonds December 1st, $595mn in bonds March and April 2009, another $800mn in non-recourse mortgages in 1st and 2nd quarter 2009. Over the next 20 months, the company needs to raise over $6bn in capital to pay down existing debt, no small task indeed.

Allow me to lay out the facts. First off, GGP has $27.85bn in debt, irrefutable. Moving to the income side, GGP estimates 2008 Net Operating Income (before interest, taxes and depreciation) at $2.614bn. GGP's portfolio of malls is considered one of the finest in the industry, 75% of the $2.614bn in NOI comes from Grade A malls, trophy assets. In recent history, Grade A malls have sold between 15-18 times NOI. Even in the recession of 2002, Grade A malls were changing hands at a multiple of 12-13 times NOI. This being the case, if GGP was forced to sell its core mall business in good times at an 18 multiple it would gross around $47bn. In bad times with a multiple as low as 12 it would gross $31.3bn. You have to get down to a multiple of 10 before GGP equity value gets wiped out. I don't think I have ever heard of good mall assets selling at a 10 multiple, maybe in the 70s under Carter.

Just to hammer the point home that GGP is indeed a very solvent company, there are a few other big unencumbered assets on the balance sheet. Outside of its mall business is its master planned communities segment, the company owns huge swaths of land in Columbia, MD, Huouston, TX and Summerlin, LV. The company's audited books put the value of all this land at around $2.176bn. In good times the market would support these land holdings in excess of $4bn, today they are worthless. The company also holds numerous shopping center sites planned for development around the country as well as a former robust development pipeline which intrinsically hold value. In its last 10Q filing, GGP estimated this value to be at $1-1.3bn.

Taken together, audited book value of the Master Planned Communities segment ($2.176bn), its other land holdings and development pipeline ($1bn) and a conservative estimate on its assets 2009-10 market value ($30bn) the company has combined assets of $33.176bn against debts totalling $27.85bn. It is true, GGP simply cannot sell everything today, given liquidity levels in the capital markets. However, in a chapter 11 bankruptcy scenario the Company has the exclusive right to propose a plan of reorganization for a period of time. Given the complexity of the estate ($30+bn in assets), this period of time would be quite long and if history has told us anything it is that the American economy is resilient. GGP would not begin selling its assets aggressively until 3rd and 4th quarter of 2009, by which time the economy will most likely be back in some manner and real estatate assets marketable for sale.

Furthermore, no one likes bankruptcy, not even the creditors, it is super expensive, timely and generally a waste. The only party that benifits are the god damn attorneys (BD = sucky). It is my opinion that the banks will work with GGP to avoid bankruptcy, pushing the behemoth mall REIT into Chapter 11 would only stop their interest payments, delay their balloon payments and cost them tens of millions in attorney's fees.

GGP does indeed have an uphill battle in front of them, but the new management team is working ferociously to deleverage the balance sheet. The most likely scenario is that the creditors GGP is beholden to extend maturing loans based on advantageous terms (10-15% interest) and allow GGP the time to deleverage itself by selling assets. Bankruptcy or not, the company has upwards of $4bn in equity, about $12 a share, if it had to sell itself over the next 1-2 years. If you bought a share right now at $.5, I think you would see a mimimum 2,400% gain on your investment when all is set and done.

That said, you have to be willing to lock up your cash for awhile. And while the potential upside is not as great, it is a much safer play to bet on GGP's corporate debt or on its Mortgage Backed Securities (MBS). Both are trading at about 50 cents on the dollar right now and I just cannot forsee a situation where all of it does not get paid back in full, even in the advent of a Macy's or Nordstrom bankruptcy (extremely unlikely unless we really do go into an extended consumer depression).

You guys decide for yourself, but if I did not already have what once was many thousands in GGP, I would make a play here.

GGP

As of Saturday night/Sunday morning at 12:25am, Joshua Patinkin still believes that GGP is a fundamentally sound investment. Before trying to catch a falling knife, we would appreciate some evidence to back up these claims.

More on Futures

I like the concept. We all know that other areas, including sports tickets, have been tapped: http://www.firstdibz.com/

Wish it was me...

Maybe its time to turn away from the irrational financial markets and open accounts at: http://www.intrade.com/

I'm willing to bet the first case of bird flu shows up in the US before March of 2009, any takers?

Iowa Electronic Markets

Very cool, check it out. Basically for $1 a share you can trade futures on Politics, etc. For example you can trade based on who you thought would win the Presidential Election. They say by putting money on the line, the data is much more sufficient, as opposed to collecting data by polls. Should be interesting to see if this sort of Futures market amounts to anything in the future...

http://www.biz.uiowa.edu/iem/markets/

http://iemweb.biz.uiowa.edu/graphs/graph_PRES08_WTA.cfm

Yahoo-ooooooo

Hello,

Phil, just wanted to speak to Yahoo, I took a very brief look at it. Looks like their earnings will be more than 50% off this year, largely on account of advertising sales. Yahoo continues to lose search volume and thus add market share to Google every quarter. I would not invest in Yahoo today based on their current business model.

The upside on this one would be the event of a Google of Microsoft buy out of their lesser cousin. If you guys recall, Microsoft almost bought Yahoo last year for $35 a share, Jerry Yang wanted $36 and the deal fell apart... however, activist investors including Mark Cuban and Icahn tried to seize the board and effect a sale, unsuccessfully.

I took a look at Microsoft's books to see how liquid they are and how easily they could gobble up the $15bn Yahoo. Microsoft has over $20bn in cash equivalent assets, that's a lot my friends. However, much of it is in mortgage backed securities, corporate debt and other assets that are probably valued pretty low right now. Good and bad from the Yahoo acquisition perspective. Good because I am sure Microsoft is marking those assets to market and in good times their $20bn in cash equivs is much much higher. Bad because they aren't going to want to sell or can't sell any of those assets right now given markets and depressed valuations, why take the loss? However, they do have access to the Paper Money Market and their stock price has hung in there giving them ability to tap stock equity in a big transaction.

Bottom line, I would not rule out a Microsoft acquisition of Yahoo. Today, Yahoo is valued at a 35 price to earnings ratio. That is probably high, but perhaps Microsoft is willing to pay a premium over it to control more of the internet and take on Google.

Hedge Funds and Yahoo

Ha, great quote Todd!

Any comments on the Hedge Fund article in the Journal today? "More public disclosure by hedge funds and the creation of a public clearing house for derivatives trading, particularly in credit default swaps."
http://online.wsj.com/article/SB122659001034724549.html

Thinking about buying buying Yahoo Stock. At $10.78 up over 4%. Any suggestions?

Maken moves like China!

Quote of the Day

"The financial situation at the moment is so bad that women are now marrying for love"

Yahoo

Phil - Yahoo is at $10.13 what are your thoughts?

CEGE UPDATE

CEGE is presenting Rodman & Renshaw Investment Conference Presentation going on right now. To sum up:

CEGE OUTLOOK IS GREAT!!!!! STRATEGIC ALTERNATIVES UNDER CONSIDERATION 1) SALE OF COMPANY 2) MERGER WITH PUBLIC COMPANY 3) REVERSE MERGER WITH PRIVATE COMPANY 4) AQUISITION OF NEW PRODUCT/TECHNOLOGY ASSETS 5) SALE OF ASSETS

Not sure what this means for the price of the stock. It is still trading under .30, I will keep everyone updated.

Feeling on the Floor

Can't get into it now but the buzz over here is not good. Retail numbers come out today, I would be very cautious before buying into anything right now. We may be down big today.

CEGE

I know I've talked to a couple of you about CEGE and now it may be my next play, I have a limit order in at .27 right now (I was looking for a drop of approx. 10% after open).  I'm not invested in biotech and the word on the street is that a buyout is likely.  Any opinions on this stock (Todd, Brad)?

Hedge Fund Liquidation

Hedge Funds are starting to liquidate amid falling commodity prices, massive amounts of hedge-fund redemptions and seizing up of the credit markets.  Tontine Associates plans to liquidate two STOCK hedge funds after both lost more than 2/3 of their value this year.  

The only options for raising cash for these funds is to sell the funds' investments privately or push the companies it has a majority share in to sell itself.  

This may be the start of the unwinding of many funds.  I have already seen the CDO market come to a halt and maybe T can speak to the Hedge Fund activity lately. 

The bottom line is this cannot be good for stocks.  When stock funds unwind they must sell their holdings (stocks).  This will put a downward pressure on the market and will do so with large volume. 

Two plays here:  

SDS -- Double short the S&P for the time being.  Wait to see what happens with the funds and world market and hedge your bets.

VIX -- If these funds do start selling their holdings the volume will be through the roof.  While the VIX only measures volume on options, it is still a good indicator and should move with the increased volume in the market.

--Brad  

GM

Brad: Patinkin this is a blog about investment ideas ... not a way for u to try and boost ur net worth by telling ur friends to buy a stock u have a huge position in and artificially inflate the price!

No I'm just kidding. However, BD yours isnt a bad idea. I still stand by the premise that this shouldn't be a long term investment but it could get a spike if the government does step in. I did it with Bear and make some loot but you need to be sure your watching it every day.

Josh: First off, I'd stear clear of the equity markets at large right now. Corporate debt and leveraged buy out debt is trading at an average of 60-70 cents on the dollar right now and this is stuff that historically gets paid out first in a bankruptcy scenario when equity gets whiped out. You just have to be careful in selecting who has liquidity issues given the frozen capital markets as opposed to solvency issues given the recession.

GM? May as well piss upwind after a long night of drinking, it would be an easier mess to clean up. $7 billion in cash burn last quarter and the full effects of the recession haven't even raped auto sales as completely and totally as the 4th quarter most likely will.

Just so I understand completely; you've rested your investment thesis on the thought that the government is going to step in and take a big equity position or lend direct to the firm, correct? They better do so quick, GM itself has said if auto sales continue to trend downward, they run out of money next month. You really think our Federal government can effect anything that quickly? We've been hearing about the bank bail out and the TARP plan for two months now, nothing has actually happenned.

That said, I do see the rhyme to your reason. Strong political forces at play. Two iconic symbols of American stewardship of international industry are on the verge of collapse. Half a million jobs, strong labor unions and the State of Michigan are going to go full court press on the Federal Government.

The reason why I say no way on GM is; if the Feds can't make the bail out work, you are looking at Chapter 7 my friend, no creditor is going to try and steer that company through these difficult times with that kind of cash burn. I'm only inclined to go long on penny stocks where the company is profitable but looking for chapter 11 protection to help them deal with capital hungry creditors.

Good candidate, General Growth Properties. Just closed at .3786 a share... pathetic. Here is a company that is profitable, earnings after interest this year and before non-cash impairments will top $900m. THE COMPANY IS VALUED AT $120M TODAY!! Why? Huge debt load maturing this quarter and next year. Yes, GGP may have to declare Chapter 11, but only because they can't refinance debt given the credit markets, despite having top notch mall assets. If GGP does declare chapter 11, they make their creditors whole on every dollar when selling the entire portfolio at a multiple of 10 times cash earnings. Malls, in the last 5 years, have sold between a 15-20 multiple. In my opinion, there is more than $15 a share in value at GGP right now even in a bankruptcy liquidation scenario. You do the math.

jp

Brandon: Makes sense but I should clarify. I'm not looking at GM as a long term investment necessarily. I'm banking on government action which will cause a jump in price even if the company isn't ultimately sustainable.

However, JPMorgan analysts rated GM bonds a buy today. They believe that GM has enough sources of liquidity to cover them until 2010. That is taking into account economic weakness over the next 2 and a half years. Analysts at another firm said they expect GM to benefit from additional govt loans.

Agreed we are talking huge risk, but big upside potential.

Brad: Men,

I think a blog/email chain is a great idea. Here are my ideas/suggestions:

GM is a risky play. The government may bail them out but that doesn't mean the investors are saved. A lot of times the government will wait until the company is bankrupt and then make some sort of deal (see Lehman). Therefore, the bondholders have the first claim to funds, then pref. share holders and then the common stock holders. This means that they must have enough capital to go around to get to the holders of common stock (which isnt likely). This makes GM a very risky play considering they have made it clear they aren't liquid enough to make it through 2009.

Even with the $50B proposed bailout, there still isn't enough money to pay back common stock holders. $25B goes straight to the UAW to pay for pensions and healthcare. Then the other $25B is spit between the three companies. That is barely enough to cover salaries and costs; again, leaving no money for common stock holders. This is not to mention the fact that the $25B is "supposed" to be used for R&D towards alternative energy initiatives.

Any way you look at it GM is an extremely risky play. The best you can hope for is no bankruptcy, the economy to rebound quickly and consumer spending to pick up, a government bailout and a shift in consumption towards American cars. As the resident Detroiter I cannot sit here and recommend GM stock.

As of right now I only have one suggestion. Buy the S&P. It has a triple bottom at 900 and has only broken through that threshold twice. The great part is even if it tests the 5 year low (848 on Oct. 27) that is only 50 points or about 5% down from where we are now. This leaves a great opportunity to get in at or around the low. If it continues to dip then buy more and lower your cost basis. Bottom line is this isn't a risky play ... the US markets will come back and will do so strong. This is a basket so the risk is minimal and the upside is pretty apparent. The other great aspect of this is that you don't need to touch it. Buy it now and don't even look at it for 5 or 10 years. This is a great move for young professionals like ourselves.

Suggestions: FSMKX , VFINX


Phil: What is the (and Phil) all about? Your right, I should not be classified as a Gentleman rather a member of the hierarchy referred to only as Sir.

Not a bad call on the GM, although it could go down to 0 however, not likely. Yahoo stock not a bad stock also, with the brilliant minds at Microsoft, think its at $11 but I think it will get down to $7 then buy.

You could always invest in GGP stock!


Brandon: For those risky investors. I'm going to go out on a limb and call GM my pick of the day. It's a bet on the government actually infusing bailout $$... but even if they decide to take an equity stake I think that there is major upside considering its current trading levels. Politics are obviously in play here, can they really drive Detriot any further into the third world?

Under my ethical obligation of full disclosure, as of this morning I am a proud holder of GM stock. Let's hope it stays that way.

Welcome

We have a legit name, now we just need some legit ideas.  Again, this is our forum to discuss the market and investment ideas.  I am going to post our discussion from today to keep the thoughts flowing.