Monday, May 31, 2010

Advancing Technology, Plastics, Global Warming, and Our Great Grandkids.

Historically, on this blog, I have not talked about future events (other than inflation) too much, as they are pretty hard to predict. This evening, I think that I will make an exception, as I am making what I will refer to as a 'counter prediction'.

Using one of my favorite websites; stumbleupon.com, I found 2 rather interesting articles. The first was about technological predictions that didn't come true. The second, was about a high schooler that discovered some microbes that eat plastics. Frankly, it seems that we tend to overstate what we think we know, and then come up with some really cool things, that blow our minds. If there is any truth to these plastic eating microbes, it would dispel what I learned in school about plastic being with us for what might as well be forever, accumulating in the Pacific.

Tying these 3 things together, it seems to me that when faced with total annihilation that climate change that Al Gore seems to think we face, we will be able to figure out some way to cool the planet down. If not, then we melt the ice caps, loose some land to the ocean, and my descendants (which, if my ancestry is a predictor of the future, should live in roughly the same area I do), will be a few hours closer to the beach... all while having the use of cheap fossil fuels and warmer weather. It seems like a win-win to me! ;)

Having yet to read Super Freakonomics, I am looking forward to hearing what they say about climate change- I hear that they present an overly simple way to fix the problem.

As always, partly serious, but mostly in jest.

Friday, May 28, 2010

Two rights being wrong and organ donation.

Here is something that I found on Greg Mankiw's Blog. Adding an (unfortunately morbid) thought, I will say that it the sale of a dead relative's organs would be a great way for poor families to cover burdensome funeral expenses that can cause financial ruin.

Anyway, here is the article.

Users of my favorite textbook know that it includes, in Chapter 7, a case study on whether kidneys should be traded in a market. Today's NY Times has a related article.

The paper's so-called "Ethicist" is dealing with this situation:

1. Person A receives a kidney transplant as a donation from person B.
2. A short time later, person B is having financial troubles and her home may go into foreclosure. Person A is considering giving her some money to help out.

So what does the "Ethicist" say about all this? Apparently, both of these gifts are noble acts, worthy of the highest praise and admiration. Unless, that is, there is some reason to think they are linked together. In that case, the reallocation of resources (kidney, cash) would be a despicable market transaction.

I suspect that few economists would concur. Indeed, the essence of market transactions is a kind of reciprocal altruism, enforced by contract. It might be nice if the world could work using pure altruism alone, but that seems highly unrealistic. The sad truth is that under the Ethicist's code of conduct, we have more deaths and more foreclosures than necessary, all in the name of fairness.

Thursday, May 27, 2010

David Einhorn NYT op ed

Any time that David Einhorn speaks or writes, I enjoy taking it in. Here is his newest piece. Thanks goes out to 'lennie_88' for this one.

Basically, we're screwed. I really enjoyed the line about Modern Keynesianism working really well until it doesn't. having seen the statistic before, I was also freshly re-appalled at the sight of an average federal government worker making $120K/year, or, roughly 2x what us mere mortals can muster.

Wednesday, May 26, 2010

The gold(s) that may be, and may not be, in a bubble.

Here is a WSJ on the matter.

As I pointed out in a former post (which is actually one of my favorites), there are a ton of things that I readily recognize that I just don't understand; valuing gold is one of them. Despite 'not getting it', I still think that we should make any effort possible to back our currency with something tangible. My preference, being as part of a basket of commodities, is the only thing that really makes much sense to me.

Speaking of 'gold' that I am pretty sure that I do know how to value, there is a company called Nevada Gold (UWN) that I am a big fan of. They are taking on an expansion plan that involves buying mini casinos with cash and notes (the debt is on terms that I like), at 3-5 times EBITDA. Administrative expenses are high, but, they have a heck of a management team in place. In addition, they have a bunch of experience in casino management and are making their acquisitions more efficient almost immediately. when purchasing the most recent batch of mini casinos, they are integrating them into their network of similarly situated locations. It looks they are being smart enough to avoid the dreaded Winner's Curse.

From where I sit, it's pretty interesting stuff.

Disclosure: I am long shares of Nevada Gold (UWN). This is not investment advice. Do your own research before doing anything related to anything that I so much as think about, let alone write on here... :)

Friday, May 21, 2010

Wesco Meeting

My dad forwarded this MF write up to me, and I think that it is a pretty good representation of the Wesco meeting. I may not even post notes on it now. Regardless, I highly suggest attending the meeting it is a good 3 hour lecture, and in my opinion, is better than virtually any of the classes I took in college.

Charlie Munger is a national treasure; we should put him on a coin or something.

Thursday, May 20, 2010

a music post...

As much as I hate to say it, I really like this band...

Since this blog gets the most hits when I talk about investments, I am guessing that the average age of readers is high enough that it will sound like nothing but noise. ;)

The only reason that I bring this up, is because I will be listening to el ten eleven during future annual report reading- I figure without lyrics or vocals to concentrate on, it will be good background music. For whatever reason, when I listen to music with lyrics, reading SEC filings just doesn't work out that well.

Steak 'n Shake (or rather, Biglari Holdings) 2010 Annual Meeting Notes. Part 1.

As (sorta) promised, here are part of my notes from the 2010 Steak 'n Shake (now, fortunately, 'Biglari Holdings'). If there is one thing to be gathered from this meeting, it is that the company will now, more or less be a hedge fund/holding company hybrid, and that Sardar Biglari will be there for a long time. Which quite frankly, I think is great.

I have decided in light of the fact that my near complete write up got inadvertently deleted, that I will break this up into what will likely be 3 parts; it not only serves my style and situation in a better manner, but will be something new to try on this blog. At the end of the series, drop me a line and let me know if you like getting them all at once or in pieces better- I might take it into consideration for the next set that will come from the VIC West and Wesco. ;)

The meeting started at 1PM; beforehand, I got the chance to meet some new people and to chat with old friends- always a good time. For all of this article, I will keep my own opinions to a minimum, despite the fact I heard little (if anything) that I didn't like. Everything that I type is as close to a quote as I can give you, as I respected the 'no recording devices' request at the meeting; with that said, I will disclose that I am relying on my hand written notes.

There was a presentation given by Biglari, with Cooley at his side, of the new structure of the company. In addition, they also showed a video of the new prototype Steak 'n Shake locations. I was pretty impressed with the video and building as a whole, but was audibly offended when the video had the song 'Clocks' by Coldplay playing... but need I digress. :)

The footprint went from what used to be 4,200 sq ft, down to 3,200 sq ft, mainly by the elimination of office and locker space, while only reducing the number of seats in the restaurant from 97 to 94. Opening expenses went form $2.2 million to $1.5 million. With that said, these things look GREAT. The lay out is a lot more inviting, there are many more diverse seating arrangements (due to the increased use of tables, rather than booths), and a kitchen that is proudly displayed to the customer- the grill and shake mixer are front and center for all to see. Truly, this will be a much more entertaining restaurant for consumers. The outside has also been revamped in a way which is much more visually appealing, while still maintaining the retro look that SNS is famous for. Outside, there are are also tables with umbrellas.

If I understood correctly, the 3 new units that will be constructed via franchisees in Virginia and Georgia will be prototype units. Additionally, there will be a SNS location inside of a casino in Las Vegas (during the only break in the meeting, I heard a consultant saying that they wouldn't have done the deal had there not been potential for more units) and a franchisee in Denver. It was reiterated that there could be a total of 2,000 stores in the US, with many more abroad- which there has been interest in from various parties. The company will also be constructing one on the land that is owned by Western Acquisitions on 'the loop' of San Antonio; a great sign that headway is being made with the plot that was bought a while back.

As always, Biglari talked of maximizing cash flows, not earnings; talked of his love for franchising; hates capital intensive businesses and obsolescence.

New in his schpeal, was that the company was 'a liquidity provider', letting companies compete for the capital of the company, and that he likes to use other people's money; not really a new thought for any one that knows anything about the company, but new to the presentation and comments, none the less. Biglari stated that he liked insurance, better than money management, as the demand for insurance is recession resistant, risk is generally pretty diversified, and the obvious use of float. He doesn't like the debt that many insurers have. In addition, he quipped that he cherishes the hunt for an insurance company; which surely must be welcomed words for people worried about him being trigger happy with acquisitions. Biglari made it certain that anyone investing in the company should view it as a hedge fund, and noted that the board was discussing the idea of buying his hedge fund; obviously, this was pretty good foreshadowing to more recent events. At the meeting no one seemed to upset by the idea; now, it seems that I am the only person in front of a keyboard that isn't calling for Biglari's head on a platter; this, despite the fact that I do feel poorer after the pay package announcement- mainly because I don't think that Biglari is the type of person to sandbag shareholders due to lack of compensation.

In addition he made it known that he likes for all of the company's debt to be offset by cash. He cautioned about relying on same store sales, rather than sustainable cash flows, stating that the recent linear trajectory could not be sustained. One plus about SNS paying all of it's earnings to the parent company, is that restaurants generally have negative working capital requirements, as they have a negative cash conversion cycle, when absent of the reinvestment of capital. To put to rest all of the concerns about cap ex being understated: there are repairs that are made which don't show up in the income or cash flow statements, Biglari specifically stated that keeping the restaurants looking nice, through painting and replacement of booths and such, was "non-discretionary".

As we now know, shareholders overwhelmingly approved the name change from Steak 'n Shake to Biglari Holdings. Apparetnly, there was only 1 letter sent in regard to the name change, which, apparently came from Sanjeev Parsad- a guy that I have a tremendous amount of respect for (who said that he sent it in his forum, his name didn't come up at the meeting). Regardless, Biglari and Cooley didn't seem to phased, and joked about a vocal minority... Cooley went so far as to, rightly say, that since everyone has an name, and most have actually named another person, that they view often themselves as being an expert on naming things! Biglari added that if an artist created his masterpiece, that it would be absurd to ask him to not put his name on it. I will go on the record and say that I presently have, and never really much of an issue with the name change.

Q&A (or, rather, the ones I feel like writing about)

1)Some guy from the Humane Society talked about using cage free eggs, not once, but 2 times in the Q&A session. Each time, Biglari gave a very good answer, as a response. I was quite impressed actually; not only with the conviction that the questioner has to such a useless cause, but also in regards to Biglari's sincere and thoughtful response- I probably would of told the guy to go to Hell. Basically, he said that the company wasn't doing anything illegal and that unless it would generate returns for shareholders, it didn't matter what he thought about the matter.

The gentleman from the Humane Society pressed on later in the meeting by asking why SNS wouldn't use the cage free eggs since WalMart, Costco, and a host of other companies do. Sardar stated that they don't do things simply because others are, and that at the moment, since breakfast represents such a small amount of revenues, that they wanted to raise profitability of that section of the business. With that said, they didn't think it would do well. On a more personal note, I don't care what kind of torture that the egg vendors of the company put chickens through; I just want for SNS to have a damned good and tasty product, that customers get a great deal on, which generates superb legal returns for the owners of the company.

More to come later... :)

Sunday, May 2, 2010

VIC West.

Tomorrow, I am going out to LA for the VIC West and Wesco meetings. Notes for both will eventually get posted. If anyone is out there, feel free to drop me a line: it's the name of the blog (with no spaces) @gmail.com

And by the way, if you happen to see the most under dressed guy in the room, that's prolly gonna be me. :)