Sunday, July 31, 2011

Washington Makes A Deal.

Horray! Washington stuck a deal, and while we are still running budget deficits, at least we won't default on our debt. While I am sure that my favorite senator will vote against the bill, it is a good thing for us, especially when considering how bad a default could have been.

I would liken our debt problem/Keynesian spending binge to that of a long time addict on heroin. You simply can't take the addict off of heroin, you have to ween them off using other drugs... likewise, pulling $1.5 trillion dollars out of the economy (roughly, our deficit) would be disastrous, even if it is borrowed or printed money.

With that said, it is vitally important that we balance the budget and start paying off our debt, and soon at that. While I am abhorred by the state of our federal government, I am not so blinded by ideology to actually believe a cold turkey solution is desirable.

EDIT: I probably didn't make my point clear enough. My big fear, is that immediately balancing the budget will create so much short term pain that it will make for an unpredictable ballot revolution (the likes of which that put Rand Paul into the Senate, would look like nothing), which, could potentially make our society (and the world) unstable... It is my belief that a stable society is an important thing, and when you have an ideology that is not wholly mainstream (say, the TEA Party) exerting such a control over the whole country, it can make for some dangerous and undesirable reactions in the other direction.

We have been threading the needle for a long time, and, there is no doubt that getting out of debt is necessary, but, I believe that we need to do so in a responsible manner.

Friday, July 29, 2011

The 2011 Syms Annual Meeting: A Preview.

This doesn't even begin to touch the surface of what happened.

More to come later.

Disclosure: I am long shares of Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Tuesday, July 26, 2011

Being Addicted To Your Cell Phone.

From here.


You gave it a pet name. It knows more about you than your mother does. Sometimes you even sleep with it. In fact, you're so attached to it that being separated for only a few minutes could send you into a panic.

Watching people who get their first smartphone, there's a very quick progression from having a basic phone you don't talk about to people who love their iPhone, name their phone and buy their phones outfits," said Lisa Merlo, director of psychotherapy training at the University of Florida.

Merlo, a clinical psychologist, said she's observed a number of behaviors among smartphone users that she labels "problematic." Among them, Merlo says some patients pretend to talk on the phone or fiddle with apps to avoid eye contact or other interactions at a bar or a party. Others are so genuinely engrossed in their phones that they ignore the people around them completely.

"The more bells and whistles the phone has," she says, "the more likely they are to get too attached."

Michelle Hackman, a recent high school graduate in Long Island, NY, won a $75,000 prize in this year's Intel Science Talent Search with a research project investigating teens' attachment to their cell phones. She found that students separated from their phones were under-stimulated -- a low heart rate was an indicator -- and lacked the ability to entertain themselves.

I can relate... I had dinner at a friends house, and, after walking in, I realized that I had forgot my phone in my truck. I felt naked, and immediately walked out of conversation with good company to get it. I might have a problem. :)

SVU Has A Good Quarter.

SuperValu apparently had a pretty good quarter, after the stock price taking a beating over the past few days. I am continually amazed by how mis-priced the security seems to be- especially when considering how big it is... If it were a small company, I wouldn't be shocked but, this thing is about the biggest that I have done anything with in the past few years... an astounding market cap that stands right around $2 billion dollars.

Disclosure: I own SVU LEAPS (call options). This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Monday, July 25, 2011

FBSY: Not Integrating With Customers.

From here:

Many people who grew up in this region have vivid memories of trudging a few steps behind their mothers as they searched the endless racks of the stores for deals, or of the ubiquitous presence of pedestrians carrying Filene’s Basement’s trademark “I just got a bargain!’’ bags in the area. Now, longtime customers are complaining that, instead of offering designer clothes at cut-rate prices, the Basement has become just another discount store.

The company needs to right the course, and fast, at that. If not, it will go the way of other retailers, where it is liquidated... but, that probably wouldn't be so bad, as the company sits on a mound of valuable real estate.

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Thursday, July 21, 2011

Syms Buys For Time In Court.

In an effort to go against shareholder requests and not disclose documents, Syms has filed the following in court.

Disclosure: I am long shares of Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Wednesday, July 20, 2011

Syms Evaluates It's Real Estate.

From here:

Syms Corp. SYMS -1.40% announced today that its Board of Directors has engaged the services of Cushman & Wakefield, the global commercial real estate advisory firm, to work with Rothschild and advise the board as the company explores and evaluates various potential strategic alternatives.

There is no defined timeline for this strategic review and there can be no assurance that the review of strategic alternatives will result in any specific action or transaction.

It's nice to see that the company is finally listening to the minority shareholders of the company and may actually be trying to do something with their real estate, other than use it to subsidize it's broken retail business.

It is great that the guys at Esopus Creek are keeping pressure on the company. If it were not for them exercising their rights, the company would likely be trading for substantially less than it is at present. Additionally, with the company actively reviewing the options that are available to it, it seems that they see a lot of potential possibilities for the company... I am sure that any of the ones that Rothschild and Cushman & Wakefield present will do better for shareholders than the previous attempts to run a retail business that simply doesn't have the resources to compete with the big players like TJ Maxx, Marshall's, Men's Wearhouse, Gordman's, and many others.

In light of this, it will be interesting to see what happens in the coming court case. Regardless, I don't see how any adviser with 1/2 of a brain won't recommend that the company closes the Trinity store and sell it off for development. That seems to be the bare minimum that the company can do. Don't believe me? Check out the logic that Esopus Creek used in their 13D.

A suitable candidate for such development might include your 42 Trinity Place (“42 Trinity”) location in lower Manhattan, a footprint which enjoys over 170,000 square feet of buildable space based upon our research.

And just to illustrate the enormous value that has yet to be unlocked by the Company, on April 17, 2008, just four days ago, New York City property records revealed that a nearby parcel located at 8 Stone St., having approximately 100,000 buildable square feet and the same zoning characteristics as 42 Trinity, sold for over $60 million to a hotel developer. This transaction equates to $600 per buildable square foot thus implying a valuation for 42 Trinity at $102 million.

Furthermore New York City tax records estimate 42 Trinity’s net operating income at just $1.351 million dollars per year. Thus an asset worth an estimated $102 million is generating a meager 1.32% of annual income.

Disclosure: Long SYMS. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

How Smart Kids Are Actually Stupid.

The following is from one of my favorite blogs: Farnam Street.

David Foster Wallace in Consider the Lobster

A SNOOTlet is a little kid who's wildly, precociously fluent in SWE—Standard Written English—(he is often, recall, the offspring of SNOOTs). Just about every class has a SNOOTlet, so I know you've seen them — these are the sorts of six-to-twelve-year-olds who usewhom correctly and whose response to striking out in T-ball is to shout "How incalculably dreadful!" The elementary-school SNOOTlet is one of the earliest identifiable species of academic geekoid and is duly despised by his peers and praised by his teachers. These teachers usually don't see the incredible amounts of punishment the SNOOTlet is receiving from his classmates, or if they do see it they blame the classmates and shake their heads sadly at the vicious and aribtrary cruelty of which children are capable.

Teachers who do this are dumb. The truth is that his peers' punishment of the SNOOTlet is not arbitrary at all. There are important things at steak. Little kids in school are learning about Group-inclusion and -exclusion and about the respective rewards and penalties of same and about the use of dialect and syntax and slang as signals of affinity and inclusion. They're learning about Discourse Communities. Little kids learn this stuff not in Language Arts or Social Studies but on the playgroun and the bus and at lunch. When his peers are ostracizing the SNOOTlet or giving him monstrous quadruple Wedgies or holding him down and taking turns spitting on him, there's serious learning going on. Everybody here is learning except the little SNOOT—in fact, what the SNOOTlet is being punished for is precisely his failure to learn. And his Language Arts teacher — whose own Elementary Education training prizes "linguistic facility" as one of the "social skills" that ensure children's "developmentally appropriate peer repport," but who does not or cannot consider the possibility that linguistic facility might involve more than lapirdary SWE — is unable to see that her beloved SNOOTlet is actually deficient in Language Arts. He has only one dialect. He cannot alter his vocabulary, usage, or grammer, cannot use slang or vulgarity; and it's these abilities that are really required for "peer rapport," which is just a fancy academic term for being accepted by the second-most-important Group in the little kids life. If he is sufficiently clueless, it may take years and unbelievable amounts of punishment before the SNOOTlet learns that you need more than one dialect to get along in school.

...The point is a little A+ SNOOTlet is actually in the same dialectal position as the class's "slow" kid who can't learn to stop using ain't or bringed. Exactly the same position.One is punished in class, the other on the playground, but both are deficient in the same linguistic skill — viz., the ability to move between carious dialects and levels of "correctness," the ability to communication one way with peers and another way with teachers and another with family and another with T-ball coaches and so on.

And you wonder why I occasionally throw in words to my posting like: "hmmm", "ain't", "gonna", and the occasional assortment of profanity... It's so I don't get beat up! Duh. ;)

Just bought the book. Should be a good read.

Corporations Bringing Food To the Un-Fooded.

From here:

Walmart, the largest food retailer in the United States, will take part in an announcement with the first lady at the White House on Wednesday afternoon. Supervalu Inc (SVU.N) and Walgreen Co (WAG.N) are also participating.

All three chains announced plans to open stores in so-called "food desert" parts of the country, where people lack access to grocery stores and their fresh produce and meats. According to data provided by Supervalu, there are more than 23 million people, including more than 6 million children, live in U.S. food deserts.

This should work well for society as well as shareholder's wallets. Everyone wins. Hooray!

To put in perspective the 250 Save-a-lots that Supervalu plans to open: this alone will increase the company's store count by more than 10% in the next 5 years... AND they tend to be really good stores for the company to own/operate/franchise.

Disclosure: I own LEAP call options of SVU. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

The Syms Lawsuit Gets Juicier.

From here:

Esopus Creek Advisors -- a New York hedge fund that has sued Syms for access to the embattled company's books and records -- has asked a judge to order ex-Syms CFO Seth Udasin to give testimony in the brewing legal dispute.

Udasin, who resigned July 8 after just 13 months as Syms' finance chief "for personal reasons," couldn't be reached for comment yesterday.

Esopus Creek, which has raised questions about Syms' management and its recent efforts to sell the company, argued in a July 14 motion in a New Jersey court that it could get some answers from Udasin.

This gets more and more interesting, every single day.

Disclosure: I am long shares of SYMS. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Tuesday, July 19, 2011

The Future Of Nevada Gold & Casinos, & Sitting On My Ass...

The statement above is one of my favorite quotations, and is actually something that I wrote on the inside of my front door with permanent marker... just so I have to look at it virtually everyday (I can have a thick skull, and really wanted the point to sink in). I believe that this quote can be applied to one of my favorite investment ideas at the moment: Nevada Gold (UWN).

It seems that the problem with how value investors in regard to their investing in Nevada Gold, is that they generally look through it's previous financials and talk about how terrible results have been, then, they talk about how terrible their debt load is. However, if you would ask that same value investor how they should value a company, the likely answer would be "Well, you calculate all future cash flows and discount them to the present." The problem, is that for whatever reason, when looking at this company, they don't seem to ever heed their own advice!

Nevada Gold is a company that has under gone one of the largest transformations that I could imagine. If you look at the assets it presently has, very few were there when present management took over just a few years ago; they have been on a buying and development spree, which should be getting ready to pay off greatly. While last quarter they only earned 2 cents a share, I believe that they are getting ready to do much better, and that the future possibilities are not valued into the price of the stock. In fact, I will argue that the coming year's worth of earnings are not valued into the stock, as it is trading at ~16x forward earnings- provided that they earn 10 cents a share over the next year... This is a scenario which I believe is achievable, especially if you exclude any potential one time charges which may be related to items such as acquisition costs.

Before I go on talking about the future of the company, here is a recent interview with Bob Sturges (the CEO of Nevada Gold). It's about an hour long and is well worth a listen. It can eliminate (literally) hours of scuttlebutt and industry readings. Plus, it goes to show just how competent of a CEO he is. I challenge anybody to find a management team of a company that is this small, which is also as good at these guys... In fact, it wouldn't be a stretch to say that management is in the top tier of the entire gaming industry.

Now that you listened to the radio show, lets take a look at how the newly acquired casinos are preforming...

Here is the data from the card rooms located in Washington State for 2009, 2008, and 2007.

If you look at just the 6 casinos that make up "Washington II", they had revenue of $34 million in 2009 (before being owned by Nevada Gold), with a significant amount of operational losses... This year, they are making UWN money and doing so with marginally more revenue. According to their most recent filing, the company generated $29.6 million in additional revenue from the Wasington II casinos when coupled with the restaurants and the ATMs that came with them (in a period of just over 9 months). Considering that 2009 was murderous for the revenue of many casinos and that the ones that were bought by Nevada Gold came from bankruptcy, it is amazing what they have been able to accomplish. In many of the properties, the revenue figures had been dropping off since at least 2007. Looking at the ebb and flow of the various casinos in Washington, it is easy to get a good feeling for things to come.

When looking at the the results of Washington II for 2010 (the year ending April 30th) the casinos generated $34.9mm in revenue and made $1.6 million. While it could be said that the recent profitability of the company is related to an increase in revenue, this is not wholly the case. The company has stated conference calls that it laid off administration that came with the recent acquisitions. I would imagine that a lot of the previous revenue decreases were due to the financial distress of the previous owners (you can't employ top notch people and reinvest in the properties if you are in or getting ready to go into bankruptcy). Additionally, Nevada Gold makes all of it's employees go through hospitality training to make the gaming experience as good as possible for clients-they take your money with a good demeanor about them, I suppose! Additionally, the company has better tracking software and rewards programs, which will help integrate the properties and increase future profitability. Now that the casinos are solidly profitable, it is reasonable to think that the company can attract even more patrons.

Lets look at the revenue figures for the state, looking at card room revenue for the past few years, which end in December.

Number of card rooms: 82
Revenue: $57.8 million

Number of card rooms: 91
Revenue: $56.5 million

Number of card rooms: 98
Revenue: $62.5 million

Number of card rooms: 101
Revenue: $72.4 million

Number of card rooms: 103
Revenue: $71.25 million

When looking at these numbers, it seems that the company will be able to grow revenues in a way that beat the average casino. The industry has obviously been consolidating over the past few years and when looking at the data of card rooms, last year over 1/2 of them lost money (a lot of which, are now owned by UWN). Given the amount of previous losses, it seems that there may be more consolidation... When coupling this, with the fact that industry revenues have room to grow as the economy improves, this should bode very well for Nevada Gold.

Since the company has been preforming admirably, it rightfully feels able to take on more responsibility. They recently signed a contract on a new casino which, they announced closing on today (July 19th). Owning the Red Dragon Casino gives them a monopoly in the Mount Lake Terrace market. Previously, the casino went from earning $.66mm on just over $6mm in revenue in 2007, to loosing ~1/2 a million dollars in 2009 on $4.3mm in revenue. They paid $1.25 million for it... If they can do to this casino what they did and are doing with the others, it is entirely possible that this allocation will be bought for roughly the cash flow that it generates in just a couple of years! It should be more profitable due to lower administrative costs and advertising efficiencies, alone.

When a company is turning around as rapidly as this one is, lenders often take note. In the interview I posted above, Sturges notes that the company is in talks with numerous well known lenders. If the company is able to lower their interest on debt payments (presently, they pay in excess of 10% in some cases), it would be very good for the company's bottom line. Additionally, it would free up cash for another acquisition. Even if the company doesn't restructure it's debt it has over $5 million in cash on hand and looks as if it will generate well more than the $4 million it needs to pay off all the debt that matures next summer. Even if for some reason either of these scenarios don't play out, the company owns a few buildings and a whole lot of land, which, could be sold off to generate cash (the land is presently listed for sale). As I mentioned earlier, I think that the Red Dragon acquisition shows just how confident the company is that it will be able to make good on it's obligations that, and the new casino should generate some cash in the next year, which won't hurt at all. Potentially, it could generate cash close to amount used in the cash portion of the purchase: a paltry $400K.

If the company's history of acquisitions proves to hold true in the future, every additional acquisition that the company does will bode extremely well for results. This is especially true in the Washington market, where they already have the best infrastructure in the state to take on more projects. Casinos that don't make sense for virtually any other operator to run can work quite well for UWN... and if the numbers that Washington state is putting out are any indication, there are not going to be very many operators in a position to bid against Nevada Gold- I certainly doubt that many have the competencies that UWN possesses in regard to running a large and growing organization. One major advantage that the company has as a public entity, is the ability to issue stock for acquisitions.

Normally, value investors are weary of a company using stock to acquire additional business with, given it's dilutative effects. In the instance of Nevada Gold, I think that it can, is, and will continue to work quite well. If the company is trading at a multiple of EBITDA (or, any combination other metrics you feel is valid when calculating intrinsic value) that is higher than that of the entity that they are acquiring, I would support them using nothing but stock to purchase other operators with, as, it would make my shares more intrinsically valuable. They have stated in numerous conference calls that they will remain diligent in their acquisitions... Honestly, when they talk of competitors doing irrational things and their philosophy of acquiring entities, they sound about like Warren Buffet or Prem Watsa would if he were a gaming executive. Don't believe me? Check out the conference calls for yourself... Plus, you will get the pleasure of hearing my voice during a few of the Q&As. ;)

If the company earns 10 cents a share in the next year, the stock is essentially trading at 16x the coming years earnings. I believe that this is has the potential to be a conservative estimate. I also think that 16x earnings for a company that is constantly improving and has so many options available to it, is dirt cheap. Here is a list of potential catalysts: Restructuring of debt (very likely), payment of the Buena Vista note (too far out to know), development of the Las Vegas Motor Speedway project (I'd imagine, better than a coin flip), legalization of video slots in Washington (?), a new management contract, more mini-casinos, improvement in the Washington gaming market, a mega acquisition in Nevada or elsewhere, sale of the land in Colorado, or any other event, it spells good news for the company and likely, the stock price.

There are a lot of other things that I like about Nevada Gold. The management team is top notch. The stock (and company) and company are small with a ton of room to grow. If it continues to grow, analyst coverage could help it gain exposure (and in turn, price and liquidity). Additionally, if it makes it to the size where it will be invested in by indexes, ETFs and the like, that could make for a nice pop in demand for shares. Once it has a full year where it earns money, I would imagine that the investing public and more mutual funds will be a lot more willing to look at and invest in the company as well. I figure that we will have a profitable previous year's worth of reporting in 2 quarters (or, for the period that ends this October), which based on last year's filings, will be reported in December... Which is fine with me. It has made it easy for me to buy shares without a lot of competition.

While not a typical Graham style investment, you could likely sell the company off piece by piece and have a decent protection of principle, where, you likely wouldn't lose much (and potentially, would make money). This is Phil Fisher growth, with a ton of catalysts that are not factored into the stock price, and has downside protection-all for very reasonable price... All I have to do now is sit on my ass. ;)

Disclosure: I am long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Friday, July 15, 2011

North Dakota: The State That Isn't.

Hopefully, when I go on anti-government tangents, I don't sound like this...

Here's the story: Back in 1889, North Dakota was carved out of the Dakota Territory and admitted to the Union at the same time as South Dakota. Or so everyone thought.

But the state founders who drafted the constitution left out the key requirement that the governor and other top officials take an oath of office, putting the state constitution in conflict with the federal one. So Rolczynski has been arguing for the last 16 years that the omission made the state illegitimate.

The whole story, here.

Syms New 10Q

Here, we see that Syms actually made money last quarter! Horray! While the NY Post stated that it was largely caused by cost cutting, it should be noted that the company made over $6 million on the sale of real estate. If you take that out, the company lost money, but, not a company killing amount.

Some notes:

The company repurchased shares at a very opportunistic price:
On March 9, 2010, the Company purchased 150,196 shares of the Company’s Common Stock from the Sy Syms Revocable Living Trust at a price of $8.04 per share. The purchase was approved by a committee of the Board consisting solely of the independent members of the Board. The price approved by the committee, after consultation with a financial consultant and counsel, represented a 5% discount to a thirty day volume weighted average price.
While I don't know if they did this for reasons of capital allocation (and frankly, I kind of doubt it) this worked out really well for shareholders. Even though there are some options that may erase this repurchase, it will reduce the overall dilution. To put this in perspective, if the company sold the shares on the open market at today's price, they would net well over half a million dollars in gains... Additionally, I believe that they raised the intrinsic value of the company by even more.

Based on the income statement, it looks like they netted a gain of just under $6.5 million on the sale of the Rockville property and a small parcel in Georgia that was condemned for road construction. I would imagine that this road construction will ultimately be good for the store and was a good, if not lucky way to monetize some un-utilized real estate. Additionally, income was helped out by cost cutting efforts (largely, staffing), which, I have previously highlighted the potential effects of. I think that there will be more to come in the way of cost cutting.

In other Syms related news, the company's Senior VP/CFO/CAO resigned. He is being replaced with a guy named Gary Binkoski, as interim CFO, and an insider is being moved up to the CAO position. While the reason that we have for Seth Udasin is stated as "personal reasons" it seems that we are getting a heck of a replacement with Binkoski; the guy was a higher-up at "Limited Too," has M&A experience, and specializes in turnarounds and restructurings- not a bad thing for Syms to have on board! It seems that they may be serious about doing things correctly.

It should be noted that if Marcy Syms makes an effort to take the company private (as, the new hire may indicate), she can do it in a way that is very desirable; she already owns more than have of the company. She really only needs to get the cash to buy ~45% of the shares. Additionally, if she does this, she can sell off some of the real estate and her new company will have no debt... Just another way to think about this play. While results for the last quarter were not great I still have high hopes for the company. Syms stores grew sales ~11% whereas Filene's seemed to cause the majority of the fall in revenue, indicating a problem with Filene's, which may be left over from the bankruptcy.

Finally, the company re-scheduled it's annual meeting to Friday, July 29th. This seems to be an admittion to one of the points that Esopus Creek brought up in their suit against the company. I can't imagine that this would bode well for them in court- especially since the SEC requires company's to give a 30 day notice (which wasn't done). Maybe the judge will like that they are making effort to turn things around, and right the things that they messed up... who knows?

I recently emailed Marcy Syms, asking her to forego the court case, in favor of simply turning the books over to Esopus Creek. While I have yet to hear back, it is my hope that the company can save itself not only the legal fees, but also the negative press that this is sure to generate. I also believe that the guys at Esopus can offer a fresh perspective on the matters that face the company.

The court case is set to be at 1:30 on August 1st, and will be heard by Judge Olivieri.

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.

Thursday, July 14, 2011

Nevada Gold's Golden Quarter.

After reading the company's press release, annual report, and listening to their conference call, I am quite happy with the progress the company has made.

The company noted that it is working with multiple parties to refinance it's debt. While the cash flows from their properties are great, a refinance would help out, as it would likely significantly lower their interest rate; a 4% drop on $15 million in debt would essentially add $600K in cash flow. Additionally, if they use cash flow to pay off their debt, numbers will look a lot better. They have well over $5 million in cash on hand, and should be generating well over $4 million in the next year, just from casino operations; as a result of this, I have little worry about them being able to pay their debts or being able to refinance it. In the event that they refinance it, they will be free to use their cash in other ways (to continue acquisitions!).

Do yourself a favor and look at the cash flow statement. It is an impressive site to behold, and should continue to improve as they integrate operations and add more.

Their land in Colorado is being reassessed by appraisors; already knowing something about the land, I expect for them to drastically lower the asking price. Which is just as well, I would almost rather the company have even just a million dollars (less than 1/3 what it is on the books for) to pay debt off with than the hassle of owning it- which is frankly, a stretch in my mind). At this point, the company is doing an incredible job buying casinos and turning them around. If they can continue acquiring casinos with the economics of their previous acquisitions, then they need access to as much capital (even debt) as they possibly can.

Speaking of acquisitions... The company is coming along with getting it's gaming license in Nevada. They have been looking for and at casinos to purchase in and out of Nevada. As I wrote here, depending on what they can find, it has the potential to be quite good for the stock. Given their track record, I have no fear about them making a bone headed acquisition decision.

In regard to video slots, the legislation didn't pass, but, will likely be brought up during the next session (this winter). The budget in Washington is in bad shape, and revenues simply are not where they need to be. When I talked with a higher ranking member of the Washington Legislature a few weeks ago, he didn't seem to think that it was a slam dunk, but, was optimistic about the prospects. While I personally don't add anything to the intrinsic value of UWN for the likelihood of this new revenue, if it does happen... wow.

Rightfully so, the industry is going to be lobbying, but, you can rest assured that the Native American casinos will lobby against the efforts (as they will, no doubt lose money from such legislation).

On the call, there was a question asked about dilution of shares in respect to acquisition. Let me be clear, that if they continue to buy properties at such low prices, I would be content with them only using stock! Reason being that have been buying them for a lower EBITDA multiple than the stock trades at, so, it is a better deal for shareholders... This especially holds true once they get in their and work their magic on ops. I look forward to seeing what the company can do with their newly announced acquisition- they will have a monopoly on mini-casinos in the city!

Again, this stock has a ton of potential. There is huge upside that isn't factored in if they acquire something. They have a development project and a big account receivable that seemingly no one thinks the company will never receive a cent from. Additionally, the potential for favorable legislation is completely discounted. The company isn't even expensive based on present operations alone! I think that eventually, coverage will pick up as the company grows. There are a ton of catalysts for the stock and I am presently quite pleased to be a shareholder.

Disclosure: I am long UWN. This is not advice of any kind. Always to a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Tuesday, July 12, 2011

Lobbying, Charities, & My $5 Thousand Dollar Pledge.

From here:

As Boeing lobbied against a rival aerospace company to win a $35 billion government contract, its activities included a curious donation: $10,000 to the Johnstown, Pa., Symphony Orchestra.

The orchestra was a favorite cause of Rep. John Murtha, the late Pennsylvania Democrat who, as a gatekeeper for the Defense Department's budget, held a lot of influence over Pentagon contracting.

Boeing ultimately won the contract to build a new military refueling tanker, after the company and its competitor donated to organizations held in favor by key Pentagon generals and lawmakers like Murtha.

One has to wonder the net benefit to society with such donations. While I am sure that a symphony is a worthy cause, I can't help but wonder if our country would be better off without so much deficit spending. I am often shocked at just how cheap it is to get our politicians to whore themselves out to pass legislation that isn't necessarily good...

If it just takes $10 grand to sway a $35 billion dollar contract, I will donate $5,000 dollars to the favorite charity of the politician that can enact legislation to solve our debt problem in the next decade. I would imagine that I am not the only voter that would be willing to do this. Plus, I would probably contribute to your future re-election campaign(s) as well.

Disclosure: None.

Monday, July 11, 2011

Sooo... I got the self checkout thing wrong.

Looks like SuperValu isn't getting rid of self check outs as I had posted earlier.

From here:

SUPERVALU (NYSE:SVU -News) today clarified that it is not removing the self check-out lanes from the 460 ALBERTSONS stores that it owns and operates in Idaho, Oregon, Montana, Nevada, Southern California, Utah, Washington state and Wyoming.

During 4th of July week, several publications throughout the country ran an announcement that Albertsons LLC, a separate entity that owns and operates 217 stores in Arizona, Arkansas, Colorado, Florida, Louisiana, New Mexico, Texas and Utah, decided to remove self check-out lanes from its stores. ALBERTSONS stores owned by SUPERVALU will continue to provide self check-out lanes for the convenience of its customers.

“Despite many incorrect reports, ALBERTSONS stores owned by SUPERVALU will continue to operate self check-out lanes,” said Lilia Rodriguez, ALBERTSONS Spokeswoman. “Since this story broke last week, our customers have called us and we learned first-hand that they want and appreciate the convenience of self check-out lanes.”

Disclosure: I own SVU LEAP call options. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about. As this shows, I do get things wrong!

How Would Jim Cramer Have Done Against Tulips?

Jim Cramer on Warren Buffett and Gold (H/T to Liberty for the link):

Now, since he suggests you should ask Warren Buffett "how have you done in the past 10 years against gold?" lets get an idea... Gold, went from about $265/oz to north of $1,500/oz. The book value (which, can help you gather intrinsic value) of Berkshire Hathaway, went from just under $63 billion to almost $163 billion. Obviously, the price of gold far out preformed BRK by almost any metric you use. However, the problem here, is that it is possible to calculate the intrinsic value of Berkshire Hathaway, and almost impossible to calculate that of gold.

To me, the intrinsic value of gold should be roughly whatever price a logical market would assign to it only if it was used for wealth creating activity. For example; wiring houses (if it got cheap enough, you could add it to copper), use in electronics, jewelry, dentistry and the like. If gold is only an inflation hedge, and is a true store of value (which, a lot of people argue never changes) then there is presently not much in terms of real "wealth creation" stemming from gold, unless you consider somebody buying it for more than you did, in a ponzi-scheme of sorts, sustainable form of real wealth creation (which wreaks of the logic of the housing bubble a few years back).

In light of the ridiculous question posed by Cramer, I will ask this: "Why doesn't anybody ask Jim Cramer how he preformed against tulips during the Tulip Bubble?"

The logical answer, is simple: Jim Cramer didn't compete with tulips a few centuries back and Buffett doesn't compete against gold. When investing with Buffett, you are essentially looking at the returns Berkshire can generate, which, Buffett can directly influence (he needs to weigh sitting on cash, or allocating it). When looking at gold, you are essentially only looking at what other people are willing to pay for it in the future; the price of gold doesn't perfectly reflect exactly what central banks and such do, but rather, what a whole lot of people think might happen, and even then, there is nothing to make sure that they are right.

It's kind of like apples and oranges. They are both sort of round and are fruit, but really, are quite different. Conversely, while you can buy both gold and Berkshire in a securitized form, at the end of the day, gold is a metal which can only occasionally be used to generate cash- and generally only at the sale of the asset. Berkshire is a company that almost always generates cash (most of the time, on a daily or even minute by minute basis) and has the infrastructure to continue generating said cash.

Besides, if things get so bad that Berkshire (in it's present form, so as to throw out any spin off or potential debt scenarios) implodes and ceases to exist and gold goes through the roof due to some unforeseen event, I would imagine that most people won't be able to collect on their gold due to government seizure or counter party risk. So, in a doomsday scenario (which is what a lot of gold investors say they use it for), would it really make a difference?

Now, to Jim Cramer's credit, at the end of the video, he suggests that people should just admit that they "don't get" gold. Well, I will... I don't get gold; I don't understand why people pay for something that they generally can't see or hold (a lot of the gold ETFs, anyone?), I don't understand crowd or central bank psychology well enough to make an informed decision about the demand for gold, and I certainly don't see why we dig it up in some third world country, just to bury it in a rich one... and that is why I will never invest in gold at anything close to this price.

Disclosure: None. But, I am ready for a bunch of angry emails that defend Jim Cramer and call me an idiot. ;) Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Google+: Facebook's Black Swan.

Wow... Google+ is soooooooo much better than Facebook. Google actually seems to care that there are things that I want to share with the people I hang out with, that I might not want to (or find necessary) share with people that I went to high school with and have not talked to in the better part of a decade. Or, rather that there is a big difference between people that I have met one time and my family. While Facebook always sort of did a bastardized version of this, it was really hard to do, and not lacked much customization. I look forward to seeing what all Google can do with the network. As anyone who knows much about Google, knows that they do a ton of cool stuff with Google Labs.

This is undoubtedly going to force Facebook to change a ton or die off like xanga, myspace, and the many others. Frankly, I think that this is further evidence of why I love the investment style of Ben Graham and generally shy away from development companies. I sleep so much better at night owning parts of companies that can liquidate for more than I buy them for (International Baler or Syms), trade at such a low earnings multiple that they could likely survive such an event and get my money back (SuperValu), is growth at a nice price (Nevada Gold), or, have a huge moat that likely won't change in the future (Steak 'n Shake, Pepsi, or, while I have never invested in it, Coca-Cola).

Granted, there are always exceptions to the rule, but, this is clear: value investment works, not only on a theoretical level, but also in practice. For more on hidden risks (which, is what Google+ was, and probably still is), check out one of my favorite books: The Black Swan. I think that it is interesting that Microsoft's Skype acquisition went from looking stupid when announced, to being brilliant when they announced a partnership with Facebook, to now looking almost futile. Crazy times to live in.

There is no doubt that Google has enormous potential to grow. I am astounded at how many people, after reading a friends status which is to the effect of "I have Google+ invites... want one?", comment on the status "what is Google+?" When they simply could have Googled what it is... These people, who for whatever reason don't highlight a word with their mouse, right click, and then click on the "search Google" bar (which is actually less work than typing out the question, then reading any future response), are what will be great huge for the company's numbers. I have a feeling that numerically, they make up most web users, a small amount of traffic, but, the greatest growth potential for usage.

With all of this said, I don't know that I can/will own Google and feel very comfortable. Unless it trades under 10x earnings in the near future (and on no news), there is simply too much low hanging fruit out there that I would rather allocate investment capital toward. Even if Google's price did get cut in half, I would probably buy LEAPS, rather than the stock. In passing on Google, I fully admit that I may be missing out on huge returns, and that it may well become one of my greatest investment blunders... But, given all that I don't understand about the company and industry when compared to the price that it is trading for, at least I will be able to sleep at night.

If there is one thing that capitalism (and various religious texts) has taught us, it is this: all things come to an end. Will Google outlast Facebook? I have no clue. But I do know that I will enjoy watching from the sidelines.

Disclosure: I one LEAP call options of SVU. I am long IBAL, UWN, and SYMS. I have no other positions of any company that I mention in this article. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about.

EDIT: After looking at it some more, it seems that it has combined everything that was great about Facebook, Twitter, Linkedin and has none of the bad. It is kinda cool that you have the option to approve your friends tagging you in certain pictures... Really, all that Google needs to do is get a way to sync up all the info from your other accounts, and they will do really well with it.

Again, I say, with much more conviction: "Facebook, you are going to have to adapt, or die."

Some SuperValu Stores Drop Self-Automated Check Outs.

From here:
One of Supervalu Inc.'s grocery store chains is getting rid of automated self-checkout lanes and going back to traditional lanes staffed by employees... "We just want the opportunity to talk to customers more," Albertsons spokeswoman Christine Wilcox said. "That's the driving motivation."
It may cost more, but, the person to person interaction may help the stores... plus, I would imagine that theft would go down. Only time will tell.

Disclosure: I own LEAP Call Options of SVU. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Friday, July 8, 2011

SYMS Makes Some Money.

The 10Q has been out since last night. They made money. More to come on this and the coming court case soon.

Disclosure: Long SYMS. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Wednesday, July 6, 2011

There's More Bourbon Than People in Kentucky

From here and of particular interest to me, as I live in the heart of bourbon country :)

"...there is so much bourbon coming out of Kentucky right now, that the number of barrels storing the stuff--4.7 million to be exact--surpasses the states population of 4.3 million people."

Friday, July 1, 2011

Munger Slams Ayn Rand... And My Thoughts On Mortgage Interest Tax Credits.

From here:

Munger used the meeting to fault ex-Lehman Brothers Holdings Inc. CEO Richard Fuld and to call for effective financial regulation. Munger, a Republican, praised Elizabeth Warren, the adviser who was appointed by President Barack Obama to set up the Consumer Financial Protection Bureau, and said there was too little oversight under ex-Federal Reserve Chairman Alan Greenspan.

Greenspan, who was chairman from 1987 to early 2006, nurtured a devotion to free markets in part through his association with Ayn Rand, the novelist and philosopher who espoused laissez-faire capitalism. Greenspan told Congress a month after Lehman’s 2008 failure that a “once-in-a-century credit tsunami” had engulfed financial markets and conceded his free-market ideology shunning regulation was flawed.

I wish that I would have attended this. If anyone has video, please send me a link to post. I went to the Westco meeting after the last VIC West, and frankly, learned more from Munger in a few hours than I learned in an semester's worth of a college class.

Need I digress...

While I am a fan of Ayn Rand, a lot of people don't understand her philosophy. I think a lot of said mis-understanding is highlighted here (even if the story may not be true). Many people assume that objectivists can more or less, only care about money. Regardless, when you have an economy that is so heavily regulated as ours is, policy makers should be smart in how you go about de-regulating it. Mis-steps can be quite disastrous. For example, while we have previously reduced taxes to 'get the government off our backs' we never reduced spending... and are now, and in the future, going to deal with a bunch of the misguided attempts of dumb-ass republicans to 'save the country'.

When mis-steps are made, it often makes the public swing their opinion in the opposite way, sometimes, quite drastically. Another great example of something that may do this in the future, is getting rid of the mortgage interest tax credit. While eliminating it would get rid of an artificial stimulus to the housing market, not having it would hurt so many Americans that they would decry the party responsible for it (something like 2/3 of Americans own homes). The ironic thing here, is that it would actually benefit landlords to have it eliminated, as it would get rid of competition for houses and reduce the financial incentives for buying, rather than renting... Additionally, since interest payments are a business expense, the landlords cash flows would likely be un-effected by a repeal of the market altering legislation.

Tis an interesting time to be alive.

Geithner Leaving Obama For Chanos?

Here, we learn that Timothy Geithner may be leaving the Obama administration...

I suppose that he has decided that he can not do any more damage to the economy, so, his services are best suited in the private sector, where they can be more fully appreciated. I hear rumors that there is a broader conspiratorial plan where the soon to be former Treasury Secretary is going to become an employee of Jim Chanos' Kynikos hedge fund. In the plan, Chanos will devise a way to get Geithner to head up a company or country that he is short, so that he can make his (short) investment realize it's full potential. ;)

Disclaimer: Any plans of conspiracy are made up and nothing more than satire.

Esopus Creek Sues Syms.

So... It looks like the "keeper of the gate" argument that I espoused here, here, and here- in regards to Esopus Creek keeping Syms from doing anything too crazy is playing out... Syms is being sued by Esopus Creek so that Esopus Creek can go through the books of the company. In their formal complaint, Esopus uses various examples of what appears to be mis-management of the company to build a case...

This may well end turn out to be the start of one of the bigger developments for the company in recent memory... especially if it ends up making the exploration of strategic alternatives go a bit better.
Esopus & Syms Court

It will be interesting to see what happens. Here is a NY Post article on the suit. Do doubt, this will be one of the more interesting annual meetings ever.

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regards to anything that I say, do, write, or so much as even think about.