Thursday, December 31, 2009

The minimum wage finally falls in a state.

In CO, the minimum wage, indexed to the cost of living, fell for the first time in history.

Read it, here.

Thursday, December 24, 2009

'Old Man Potter' the theaving value investor.

In honor of this Christmas, I have been watching 'It's A Wonderful Life'. Having not watched the movie in it's entirety since I was a little kid, I never really remembered the specifics of the run on the bank, where 'Old Man Potter' offers to buy all the shares of the local building & loan for 50 cents on the dollar... and is actually in a position to do so!

The townspeople and George make him out to be a theif and cheat in light of this (which is understandable given the man's implied history)... Certainly, in regard to the building and loan buyout, one could see him as a shrewd businessman, who is no different than the activist investors in Kingsway Financial that bought back the company's debt for significantly less than par.

Later, in a true display of moral ineptness, which seems to be otherwise normal for Potter; he pulls a Bernie Madoff, and quite literally steals from the building and loan. Ah, the true evil of man is caught on film!

Merry Christmas to all (except Mr. Madoff).

Tuesday, December 22, 2009

Rand and Trey... an update.

The newest poll has Rand Paul edging out a win over Trey Grayson by a mere 19 points... WOW. This looks really good. Heck, even one of my staunchly anti-republican friends has registered as a Republican so that he can vote for Rand in the primary.

Meanwhile, Paul continues to go on shows and campaign like crazy; in the linked example, quite literally, on the other end of the state, in a super small town. He is also accepting any debate that is thrown his way. Meanwhile Trey Grayson is sending out family Christmas cards that celebrate horses and tweets about Coach Cal and UK's basketball team getting 2000 wins...

It will be interesting to see what Mitch McConnell does after seeing this poll.

Disclosure: Long Rand Paul for US Senate. :)

Monday, December 21, 2009

Steak 'n Shake: Attempting to enter the insurance industry.

Here are some quick thoughts:

Sardar Biglari and Steak 'n Shake just announced that they are attempting to buy all remaining shares of Fremont Michigan Insuracorp. To sum this up, with some estimates that I have quite literally jotted down on he back of an envelope and have thought about for only a few minutes... this is a good deal for share holders of BOTH companies.

If the buyout goes through, SNS will be spending UNDER $13 million in cash; they already own about 10% of the company, are only paying 1/2 the remaining $38.59 million in cash (or $19.3 million), AND will get the $6.75 million in cash that Fremont has on the books... Leaving the cash out of pocket expense for ~$12.5 million.

In the past 4 quarters, FMMH earned about 2.56 million, so SNS would be getting a great deal on the company at ~5x earnings (if ONLY the cash of the deal is taken into account). Add back in the company's depreciation of $1.489 million and the multiple gets even better. Add in the dilution of SNS shares and the deal still seems to make a great deal of sense.

Keep in mind, that there will be cost cutting, as there will be synergies of the 2 companies. Who knows- if franchising picks up with SNS stores, maybe Fremont will underwrite some of the P&C on the locations? Fremont will also lose it's CEO in the deal, so, there would be addition savings of about $.25 million in addition, contracts and pay may come down with the other executives; though, it wouldn't be a surprise if they actually get a slight raise.

Fremont shareholders will be getting precious liquidity, cash, and part ownership in a great/growing/profitable company.

Ultimately, I feel quite comfortable with the deal; and will be interested to see what Fremont does. Certainly, the market, which is presently valuing the stock at $.15 cents ABOVE the offer, seems to think that SNS will beef up it's offer.

This deal will leave SNS with just under $40 million in cash and a credit line to deploy into other companies or assets. Again, this is good for everyone, especially the shareholders of FMMH, as the growth prospects of SNS are incredible.

Disclosure: Long SNS. This is not advice. DO YOUR OWN RESEARCH!

BTW: For all of you last minute Christmas shoppers (or people that need that 'little something extra'), SNS is giving out a $5 dollar gift card, with the purchase of $20 dollars in gift cards; which is what I am getting for quite a few of the people on my shopping list... I certainly suggest that you do the same! :D

Saturday, December 19, 2009

When Legislation Becomes Vote Buying

In regard to the recent developments in the soon to be law medical insurance debate, it has become apparent that our legislators are not so much about passing reforms, but rather, selling their votes. It is somewhat ironic that what is generally considered to be something limited to back door whiskey deals in Appalachia is now up front, center, and above water in our capital.

As this is the case, Nebraska Senator Ben Nelson has used his filibuster busting vote to 'reform' the insurance industry in exchange for a concession on abortion and the federal government picking up the tab for some medicare costs in his state.

"Officials said the federal government would pick up Nebraska's entire cost of a Medicaid expansion in the bill. Other states will have to begin picking up a portion of the added expanse beginning in 2017."

It is good to know that the feds are letting Warren Buffett's state not pick up the tab for services, at the expense of the rest of us (well, they are paying a little bit, through their federal taxes, but, certainly, less as a proportion). I will also wonder if the deficit reduction spoke of, is due to the federal government passing on a lot of costs to the states... It does seem like a good way to ponzi-scheme our way out of deficits.

This, just bolsters my argument.

Sunday, December 13, 2009


Not being a member of the VIC, I don't have access to their database. I had sent in my long case for SNS a few months back, in late June when it was trading at ~9 bucks a share... despite making what I thought was a valid case, I was rejected. :(

I now see that there is a short case on the page, which I am assume revolves around the company's high P/E, exposure to commodity prices (since they don't hedge), and what I like to refer to as the company's 'phantom debt' of over $110 million; debt that is made up of future lease payments (per GAAP), which isn't what I would consider to be interest bearing. Regardless, I would love nothing more than to read the write up, as I would love to hear another short case made (especially if it is of VIC quality)!

Anyway, I was curious if someone would be willing to send me a copy of the SNS short thesis?

Disclosure: Long SNS

EDIT: Wow, in light of the comment I got, I feel dumb, as I realized that I had already read the thesis at the very link that was given to me- when the thread on the Corner of Berkshire and Fairfax was started! Furthermore, simply typing in "sns short vic" would have given me the link I wanted... This is a good lesson for me to keep in mind for next time. :)

To put it simply, I disagree with most of the points made in the article. While the value of the company's real estate has deteriorated and probably doesn't have great upside in the near future, due to the high potential of a commercial real estate crash; I still think that the cash flows that will come out of the company will be quite significant, and think that the company is still quite cheap.

SNS price falling after earnings release?

Apparently, SNS IS going to be falling in price after the earnings release tomorrow... I thought that you might find the link interesting (found via InfoNgen)

While I have no idea what will the results will be, I am pretty sure that they will be good. More later, after I have read Sardar Biglari's Chairman's Letter.

Disclosure: Long SNS

Saturday, December 12, 2009

Nova: The Trillion Dollar Bet

Here is the first of several Nova videos that are on the Longterm Capital Management debacle. I remember stumbling upon it on KET on a Sunday evening in when I was in middle school. Even then, I thought that the whole situation was one of the neatest things in the world. It may well have been one of the moments in my life that shaped me into being the contrarian value investor that I am today! :)

While I do think that some of the video is missing, the jist of it is there.

One thing that I didn't understand the first time that I watched it, and still don't get, is how much credence they still seemed to give the the Black-Scholes option pricing formula.

Principles be damned!