May 27, 2009
I went to various meetings the week starting May 11, 2009. These notes are hardly thorough. Yet, these are the takeaways I found interesting.
Leucadia (LUK) meeting on Monday May 11, 2009
IMC = Ian M Cumming, COB and CEO
Joe = Joseph S. Steinberg, COO
1. Americredit - LUK owns 26%, "another mutual fund, whom I respect, owns a similar amount." IMC. I think Fairholme is the mutual fund.
2. Ian's mannerisms are very cool. He makes gestures, simulates surfing, just having fun up there in a physically animated fashion. "Accountants are insane." IMC
3. Asked if they are going into "hard assets." Ian and Joseph looked at each other. "Do you know what a hard asset is?" "No Ian, I don't." Ian asks the board. The board or Ian responds, "Ivory."
4. Interesting discussion on Deferred Tax Assets (DTA). Ian of course thinks they are total bullshit, Joe agrees. Said accountants are insane and can't explain it. Accountant, upon invitation of IAN, chose not to give his views on it. Joe said, Deferred Tax Assets should be ignored. I disagree. I don't put credence in them for book value, but it is good to know that they exist (could be a future benefit). Interesting that LUK has never paid corporate tax. Very interesting.
5. Asked about the $1.8B of debt coming due within 10 years. "We will do our best with it." Or something like that.
6. "Don't pay attention to credit agencies, they blew everything." IMC Yet, they do have all that debt. I wouldn’t write off credit agencies and their current usefulness. Especially when you also put Egan Jones into the equation.
7. "Revert to cash thinking." IMC He was referring to perceived discussion of Net Operating Losses, Deferred Tax Assets, etc. Always good to reconcile to cash.
8. Like Pershing, Wintergreen was a mistake as well. Different circumstances though.
Here are some past Leucadia Notes of ours:
Thursday May 14, 2009 Vornado (VNO) Annual Meeting.
Steve Roth CEO and COB (yet, he resigned as CEO the next day, still keeping the job of COB), was the sole speaker.
“We are in a period of extraordinary financial stress in the United States. The capital markets are frozen. They are uncertain and difficult to navigate through. The capital markets might once again get more hostile.” I asked if he could elaborate on that statement. He declined, only to mention that based on his thoughts mentioned above, he felt it prudent to do a rights offering several weeks ago. The rights offering done a few weeks ago, was at a fraction of VNO’s $133 price, several years back (2/2007).
I asked if he would give an update on Cap rates. He said, “They are rising.” I asked, Do you think that cap rates going back hundreds of years were probably always in a range. Yet, the low single digit cap rates from 2003 - 2007, seem historically very low. He said something like, “I’m not paid to predict cap rates. I won’t comment on the past.” I asked if monies were available at $250M and above, since VNO mentioned that during December 2008 $250M and above was impossible (see links below). He said, “Capital markets have very little if any liquidity right now.” I asked if Loan To Values (LTV’s) are changing. I reminded him that last year he said LTV’s were at 60% to 65%, and in December 2008, Vornado mentioned at the Wachovia CRE conference it was now more like 50% to 60%. He said, “All I will say is that lending markets stink right now.” I asked if he would comment on NYC rent prices. He said, he wouldn’t get into detail, but vacancies were rising. Yet, he mentioned the positive of all this, is that projects were either stopped or not brought on line in NYC CRE, hence supply will eventually become constrained. He did not know when that would be. He was asked when credit markets will start opening up. He said “I am not a fortune teller. Yet, we did a rights offering at a price that is much lower than it used to be, and we thought that was smart money to take.”
He then told me, “In regards to your questions, which I really won’t answer, but they are pretty good questions, I will say one thing, and I think you will like my answer. Credit Markets suck, but there will be opportunities in the future.” I think he was referring to what Sam Zell (his friend) was saying about being able to buy quality CRE at much less prices than today’s, once foreclosures start happening in CRE.
This is what Sam Zell recently said, “We all drank too much Kool-Aid. Between 2003 and 2007, 50% of all commercial real estate traded. It ended up being over-leveraged. All cash buyers like Calpers played the leverage game instead of buying for cash. Very few who bought from 2003 to 2007 are above water. You can call it credit crunch, seller’s strike, buyer’s strike, either way you have more debt than you have value. We won’t see new equity players until the banks foreclose. It’s going to be a couple to three years before the ownership structure changes. Prices are down 25% to 30% on what’s sold. The reality is there ain’t much trading. One of the great lessons of Confucius is bankruptcy courts don’t respect maturities. That’s your General Growth (Properties) story. Sales occur when there are prospects. Tell me where the prospects are? I’m happy to buy a hotel when you can tell me the President will stop pissing on conventions. If owners have no equity, owners have no incentive to do anything. Who’s going to put up tenant improvement money? Publicly held REITs have gone down 65%, arguably too far. That’s real daily pricing. You have a lot of loans at floating rate, you don’t miss payments at 1-2%.”
During March of 2009, Steve Roth said, “Even so, it was challenging to detect hope among the veteran CEOs in attendance. Interest rate spreads are still way too high for the economy to recover quickly and property prices are at a 10-year low.”
Here are some old links to past Vornado discussion I have had:
Friday May 15, 2009 Sequoia Fund Meeting (SEQUX)
I will keep these notes fairly vague and brief. In the past, Sequoia has asked that the meeting should not be blogged, since they will produce a transcript in the not to far future. They didn’t mention that this time (or I didn’t hear it), and here are some notes, which do not go into too much detail. Once the transcript comes out, I think it will be a very valuable read. I also wanted to mention, that I met what appeared to be a very knowledgeable and nice guy. We had an excellent discussion, and if by the long shot chance you are reading this, it was a genuine pleasure to speak with you.
http://www.sequoiafund.com/ - You can find old reports and look for 2009 meeting transcript at some point.
Robert Goldfarb and company seem incredibly genuine, generous and competent, with and about their work.
They discussed how it is difficult if not impossible, to ascertain normalized earnings power for companies right now. There is no macro or micro clarity to determine what businesses will generate in earnings, growth or such. Robert Goldfarb said, “I can’t remember a time when visibility was this low. It would be like a pilot flying through dense fog without instruments.” “There are signs of life in the USA, but they are on a ventilator, yet we need to get off the ventilator.” During the meeting, he seemed to genuinely believe that the US will once again prosper. He thinks there is future strength in many areas of manufacturing. Yet, great over-capacity in Detroit.
Again, watch for the transcript. Here are older transcripts.
Here are some notes of mine on Sequoia over the years: