KJP

This is an interesting problem for clothing retailers, or anyone else that sells seasonal goods. How far in advance does the typical clothing retailer acquire inventory, e.g., by mid-March I assume most winter clothing is already gone. Is the mid-March inventory primarily spring or summer clothes? Either way, it seems like there is going to be alot of out-of-season clothing around. Would off-price discounters benefit from that? Also, someone's going to have to eat most of that. Will brands take some of it back?

Job title/description: Founding partner of firm Industry you work in: Law City and Country: Philadelphia, PA, USA area (live 20 miles from Philadelphia, office in Center City) Anything expected or unexpected from being forced to work from home: I'm around 40 with 1+ hour commute. The option of working from home a few days per week is very appealing. But when I was 22 and just starting my first post-college job in New York, I would never have signed up for working all day from my cramped, dingy and dimly-lit apartment. As for office space now, I still need it for client meetings, depositions, etc. For those reasons, downtown office space isn't going away for law firms. The prime office space law firms need has shrunk over time as the number of secretaries declines and firm-wide back-office functions are moved off-site to cheaper locations. On the other hand, at a top law firm, every lawyer -- even a new associate -- expects to have an exterior office with windows. That leaves alot of dead space in the interior of squarish floor plates that used to be occupied by secretaries. Newer buildings with differently shaped floor plates that minimize interior, windowless space help address this problem. More broadly, depending on what they do, I think people just starting out in their fields could be making a big mistake by working primarily from home. For professional service firms where business generation (or internal politics) is ultimately what separates the top earners/owners from middle management, you need to build as many connections as possible, and it's easier to do that when you're physically present in the same area as the people you should get to know. That's less of an issue if you're already 40 or 50 years old and have an established reputation and client base.

Perhaps single-family housing, driven by new family formation. People are spending alot of time at home with their significant others, which probably doesn't hurt family formation. In the meantime, housing sales have ground to a halt, and I assume single-family construction is slowing down (or perhaps stopping) in many areas of the country. Of course, buyers need money to buy a house.

You don't predict that natural gas demand will crater. So, regarding (3), why is gas production going to get hit? I understand why associated gas may decrease and potentially decrease substantially. But the US has plenty of high-quality areas for gas-directed drilling, and won't those areas be helped by a decline in associated gas?

That's interesting. From what i read a lot of lower-income people losing their jobs right now, will actually have more money coming in than before (combination of unemployment and the check from Mnuchin). How fast do you get an unemployment check after you file in the US. There might be some cash flow mismatch, but my impression was that for a couple of months most people will be able to scrape by. It could be a other wrinkle they this crisis leads to a further destruction of the middle class. Let’s say you have a couple earning 200k/ year in 2019, you get zero Covid-19 check. 200k is a lot in some parts of the country but not they much in others. If now both lose their jobs, they could be worse off than a low income family actually. The group you're describing is also one of the groups most likely to be forced to sell investments at the bottom, tap retirement accounts, etc. That won't help their long-term net worth.

Many District Attorney's offices in major metropolitan areas now have specialized units that focus on identity theft or the broader category of white collar crime. Contact them directly. I believe this is the relevant Fulton County unit: https://www.atlantafultoncountyda.org/services/prosecution-units/white-collar-crime-unit/

Do you know how I know you don't live in Texas? Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%. Maybe even higher in Austin... But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus. I believe a tariff would be pretty well received. Do you think most people value long-term intangible things like "energy independence" over higher prices at the pump? Will tariff revenues be used to offset a cut in the gasoline tax? (I assume tariffs would also be imposed on refined products.) More broadly, if a large percentage of oil production in the US were shut-in (and new drilling went essentially to zero), how long would it take to restart that shut-in production and how much damage would there be to reservoirs? It seems to me that we'd do more to preserve our energy independence by leaving it easily accessible in the ground and taking advantage of foreign sellers willing to sell us oil at very low prices. How many times have you been to the pump last couple of weeks? This tariff would not be forever. For right now, I think it will make a lot of sense to trump (not necessarily make sense to many of us). My comment was directed at the validity of the reference to "energy independence," not whether or not Trump will actually impose a tariff. As you imply, there are other reasons that Trump might favor a tariff, such as protecting big donors from the oil patch. I suspect the claim of "energy independence" will be used to sell any such action to the public. But is that claim factually valid? That's what I'm trying to get at.

Do you know how I know you don't live in Texas? Fair enough. Everyone outside of Texas hates oil companies. But even there the number has to be close to 50%. Maybe even higher in Austin... But I think most Americans like energy independence and recognize the national security aspect. Especially post-coronavirus. I believe a tariff would be pretty well received. Do you think most people value long-term intangible things like "energy independence" over higher prices at the pump? Will tariff revenues be used to offset a cut in the gasoline tax? (I assume tariffs would also be imposed on refined products.) More broadly, if a large percentage of oil production in the US were shut-in (and new drilling went essentially to zero), how long would it take to restart that shut-in production and how much damage would there be to reservoirs? It seems to me that we'd do more to preserve our energy independence by leaving it easily accessible in the ground and taking advantage of foreign sellers willing to sell us oil at very low prices.

Nobody has ever been opposed to infrastructure spending. It just never happens. Anybody can explain why? (I'm fine if it's in Politics section). I've heard bipartisan support to infra spending for hmmm 10+ years now? And nothing? Why? It's neither party's top priority. There's also a philosophical difference between the parties in how it should be done. Dems generally favor full government spending and then government ownership of the assets built. GOP likely favors "public-private partnerships" that would end up with the assets in private hands.

Mine is probably down 75% to just groceries and cell/broadband/streaming service bills. Other anecdotes: 1. Various Facebook debates about whether you should continue to pay people who regularly provided you with various services, e.g., cleaned your house, but are no longer able to do so. These people likely have no other income and their ability to claim unemployment is unclear to me. 2. Some daycares/private pre-schools still expecting full payment even though no in-person classes (the stated reason is to continue paying teachers), some asking for half-pay, some not asking for any payment. Many pre-schools/daycares are having virtual classes via Zoom 3. The weather has been quite poor the last few days (cold rain), but otherwise the local public outdoor tennis courts have been quite busy 4. No longer any expectation that K-12 public schools will reopen this year 5. Local universities are starting to prepare for the possibility of online classes for the 2020-21 academic year 6. People remain quite orderly and polite, despite having to stand in line six feed apart outside in the rain to wait their turn to enter Trader Joes 7. National and regional law firms are cutting partner pay/draws, eliminating 401(k) match, etc. to avoid layoffs of staff, but I doubt that will last for months

I agree on both points. Given the size of the pensions here, and how they impact reported financials, I'm doing more reading to understand how they work. As for price, I believe current prices still reflect a bullish take on future military spending, in contrast to the multiples you had in 2011/12.

Regarding the FAS/CAS adjustments I mentioned in the first post, after reading a few of the 10-Ks for these companies, I believe it works like this: Pension costs associated with US government contracts represent reimbursible costs ultimately paid for by the government. The timing of those payments are governed by the government's accounting standards, known as "CAS". These companies rely on CAS when they report their segment operating figures. So, the segmental net sales, COGS, and operating profit reflect real-world CAS reimbursements. The company's consolidated audited financials, however, must be reported according to GAAP, which has different cost recognition principles. Thus, GAAP pension expense and CAS pension expense on the income statement can vary widely, but should converge over time. The CAS/FAS adjustment to "other income" reconciles the GAAP annual pension expense to the CAS pension expense embedded in the reported COGS. Thus, in years where the CAS figure is higher than the FAS figure (as in recent years), the reconciling entry will be positive and increase reported earnings, and vice versa in years that FAS is lower than CAS. I believe the CAS numbers, i.e., the pre-CAS/FAS adjustment, a better reflect the underlying business economics. I'm particularly interested in whether others agree or disagree and why. Actual cash contributions to the pension plans are governed by a different set of ERISA rules, as modified by the Pension Protection Act of 2006. So, that requires its own analysis, separate from what is recorded on the annual income statement. There's a discussion of the pension issue in this VIC write up and its comment thread: https://www.valueinvestorsclub.com/idea/LOCKHEED_MARTIN_CORP/7341821351 Note that back at the time of that writeup, Lockheed's most recent CAS/FAS adjustment was negative, rather than positive, as reflected in the writeups chart. Also of note is the multiples at which these companies once sold for. There are several VIC writeups of these companies from 2011/12 showing much lower multiples than are available today, even after the recent declines, apparently out of fear of upcoming defense budget cuts. In addition to the Lockheed writeup above, see: https://www.valueinvestorsclub.com/idea/HUNTINGTON_INGALLS_IND_INC/1604269707 https://www.valueinvestorsclub.com/idea/GENERAL_DYNAMICS_CORP/8583285979

I'm not surprised. This has already been litigated in Pennsylvania. The day after the Governor ordered all non-essential businesses (including gun shops) closed, various parties petitioned the Pennsylvania Supreme Court to enjoin that order as applied to, among others, gun shops: http://www.pacourts.us/assets/files/page-1305/file-8694.pdf A few days later, the Court denied the petition with respect to gun shops, but there were three dissenters: Majority opinion: http://www.pacourts.us/assets/files/page-1305/file-8710.pdf Dissent: http://www.pacourts.us/assets/files/page-1305/file-8709.pdf Shortly thereafter, the Governor revised his closure order to permit gun shops to continue to operate with certain restrictions: https://www.fox43.com/article/news/health/coronavirus/gun-shops-reclassified-as-life-sustaining-businesses/521-b8d38d12-0438-4410-9488-7e8fbc5ce993

Defense contractors have fallen alongside everything else. On the theory that (ii) their primary customer (U.S. government) will keep paying, and (ii) neither Trump nor Biden (nor Cuomo 2020) will push for defense spending cuts in the near future, I've started looking at them. I have no background knowledge, so these are some initial, first-pass, relatively uneducated thoughts. I welcome comments and insights about the industry generally, specific companies listed below, or other companies I should add to the research list. General industry thoughts: Overall, it looks like strong, stable cash flows and some of the most dominant competitive positions you will find, e.g., BWXT in naval nuclear reactors and Huntington Ingalls in aircraft carriers. The other IT/systems companies may have as big or bigger moats, but that's not as easy for me to assess one way or the other. Many companies have significant pension liabilities, but the U.S. government is on the hook for most of it. So, the balance sheet entry probably isn't a big concern. There do, however, appear to be some differences in how the companies account for these pensions (FAS/CAS adjustments) in their discussions of operating income. I need to look at that further. BWX Technologies (BWXT) – Dominant in nuclear reactors for US Navy ships -- may have no real competition here; also has ancillary nuclear businesses (commercial reactors; radioisotopes; remediation; space/NASA) ; even with recent share price decline, it’s trading at 16x EV/EBIT General Dynamics (GD) – Gulfstream is ~$1.5 billion EBIT non-defense segment – doubt there are long-term injuries due to Covid, unless we have deep recession/depression; rest of the business looks like very strong defense, such as Electric Boat – dominant general contractor for construction of US Navy submarines (Virginia and Columbia class); trading around 10x EBIT; recent cash flow from ops has lagged due to slow payment on 1 international contract on which it received $500 million in January 2020 (see note H to Item 8 in 2019 Annual Report); capital allocation weighted towards dividends; levered at ~2.5x EBIT; large bump in backlog due to Virginia class subs, Block V Raytheon (RTN) – Large information systems, sensors, cybersecurity and missile businesses (both offense and defense); 30% international; very strong recent bookings growth; merger with United Technologies targeted to close in 2020 (haven’t looked at implications of this); very little net debt ($4.3 billion cash; $4.7 billion debt); appears to trade at 8.5x EBIT but significant CAS pension adjustment in operating earnings; better cash flow than GD, due in part to GD’s receivable issue Huntington Ingalls Industries (HII): Largest US Navy shipbuilder, maintainer, modernizer – aircraft carriers (sole source), amphibious assault ships, destroyers, subs (likely second to GD; duopoly that splits contracts); big recent backlog growth from USN orders (e.g., 2 aircraft carriers; looking to grow IT, unmanned systems, and remediation services; “Technical Solutions” segment has low single-digit margins – why?; exiting high point in CapEx cycle (shipyard expansion) – should see big ramp in FCF as a result; trading at ~13.5 EBIT (without accounting for CAS adjustment); levered ~2x EBIT Nothrup Grumman (NOC): Haven't looked at it yet Lockheed Martin (LMT): Haven't looked at it yet

It is idiotic to announce a potential quarantine before doing it. It creates nothing but a mass hysteria. If you need to quarantine, quarantine, but don’t say talk bout it before. Grossly incompetent. Yes, it's like announcing that you're considering closing all banks ...

What are your favorites now?

LICT Corp. Volvere PLC IES Holdings -- $27 million cash, no debt, undrawn $100 million revolver maturing 2024, but cyclical construction business Rosetta Stone Daily Journal Park Aerospace Pason Systems -- challenging business environment Micro-caps with Good balance sheets, but unlikely to be used (several cash boxes here) Advant-E (ADVC) Pacific Healthcare (PFHO) Tandy Leather Factory (retailer, so 2020 highly uncertain) The Reserve Petroleum Company (business obviously challenged)

Schwab aus better for OTC stock than Fidelity. Fidelity allows to buy some OTC stocks, but many are restricted. Thanks. I will give Schwab a try.

Based on some comments in this thread two years ago, I opened an account at Fidelity to keep open the option of buying non-reporting OTC securities. I tried to place a few stink bids today via Fidelity on LICT and ADVC and couldn't do it. For some reason I could place one on LAACZ after filling out a waiver form. So, now I've had no luck at both Merrill and Fidelity with many OTC companies, even ones that publish audited financials on their websites like LICT. I've previously had trouble buying them through Interactive Brokers as well. So, anyone have current recommendations for a US resident on the best broker to buy this type of stuff through?

You're absolutely right. But like the post-GFC period, government debt to GDP will presumably jump higher again. The question no one seems to know is how high that ratio can go. Indeed, is it even a relevant metric? My understanding is that the last time debt to GDP was this high was post WWII: https://tradingeconomics.com/united-states/government-debt-to-gdp [i believe the U.S. government also has much higher off-balance sheet liabilities now than it did then.] Debt/GDP fell quite quickly for various reasons, including, I believe, a few bouts of high inflation: https://tradingeconomics.com/united-states/inflation-cpi (Of course, high real GDP growth, helped higher population growth rates than we have today.) So, today we appear to be going toward higher government debt to GDP ratios than we had post-WWII, higher off-balance sheet government liabilities, with significantly lower population growth. I don't know where all of that leads, but I don't think it's ultimately headed towards a free lunch. If you want to go through history, I think Britain is the best example. It had debt to GDP ratios higher than this for most of its history. I looked and couldn't find charts going very far back. Since 1975 the UK appears to have generally followed the US: https://tradingeconomics.com/united-kingdom/government-debt-to-gdp But I assume you're talking about going much further back.

You're absolutely right. But like the post-GFC period, government debt to GDP will presumably jump higher again. The question no one seems to know is how high that ratio can go. Indeed, is it even a relevant metric? My understanding is that the last time debt to GDP was this high was post WWII: https://tradingeconomics.com/united-states/government-debt-to-gdp [i believe the U.S. government also has much higher off-balance sheet liabilities now than it did then.] Debt/GDP fell quite quickly for various reasons, including, I believe, a few bouts of high inflation: https://tradingeconomics.com/united-states/inflation-cpi (Of course, high real GDP growth, helped higher population growth rates than we have today.) So, today we appear to be going toward higher government debt to GDP ratios than we had post-WWII, higher off-balance sheet government liabilities, with significantly lower population growth. I don't know where all of that leads, but I don't think it's ultimately headed towards a free lunch.

What's your take on their tenant base? I imagine it's quite full of smaller companies since they don't talk about tenants I've never seen a breakdown of their tenants by size or credit quality. But on what they have said, and the types of companies that use warehouses in the places they have them, I don't think it's all smaller companies. See, for example, slides 5 and 15 here: http://www.griffinindustrial.com/assets/uploads/files/Investor%20Presentation%20-%20November%202018.pdf Thank you for the response. It looks like slide 5 is talking about tenants in the markets they operate in, not tenants in their buildings. from slide 15: "Key locations for national or international companies (regional/super-regional distribution)" nice but the next line is "For smaller tenants, the property may be a tenant’s sole or mission-critical location" so it's a bit of a wash. It's also under the Aquisition Strategy slide so not necessarily indicative of current tenants. The lack of any tenant profile disclosure is disconcerting. If you had very creditworthy tenants, you would be highlighting it. Yes, the slides refer to tenants in the markets, not their tenants specifically. I agree with you that if they had all investment-grade tenants, they'd say so. The broader point, however, is that these types of assets are (or at least were pre-corona) in demand, particularly Lehigh Valley and likely Charlotte and Orlando.

What's your take on their tenant base? I imagine it's quite full of smaller companies since they don't talk about tenants I've never seen a breakdown of their tenants by size or credit quality. But on what they have said, and the types of companies that use warehouses in the places they have them, I don't think it's all smaller companies. See, for example, slides 5 and 15 here: http://www.griffinindustrial.com/assets/uploads/files/Investor%20Presentation%20-%20November%202018.pdf

IYR: maybe just buy all of them, though I think towers and data centers are expensive since they are the ones almost completely unaffected and/or helped by all this; I thought they were expensive before too. CUZ: trophy Atlanta Austin Charlotte office 8-9 cap, 4x levered JBGS: low leverage on asset basis, 5x on income, HQ2 focused DC metro 7-8 cap, office and apartments , huge land bank ALEX: 7 ish cap, 15% ground lease, 15% industrial 70% retail on Hawaii, long entitlement, low retail sq foot per capita, high rents, has what some would consider high leverage, its well termed, fixed rate and stated use of all cash flow is delevering VNO: see thread DEI: 7 ish cap, office and apartments in Honolulu and LA, lots of small tenants (lawyers hollywood agents, real estate complex) so a bit more sensitive oerhaps, no position EQR: Sam Zell high quality apartment REIT, down 40% or so, not super super cheap, but high quality ESS: high quality Washington / Cali multi family off a lot, no position yet NEN: illiquid class B multi family in Boston area, partnership structure, 7-8 cap (half of PMV on asset basis) with heavy single asset long term fixed rate leverage EQC: see thread, cash box / SPAC, benefits from turmoil GRIF: see thread FRPH: see thread, actually been using as a source of cash on up days because it isn’t as diversified and has a lot of cash development exposure as percentage of assets, but its still a larger position than most of these. KIM: 10% ish yield, 7-8x FFO, beautifully termed out balance sheet, people at the very least have been going to the grocery, I don't love it though because I don't love retail, super small starter SPG: if you're going to owna mall, might as well own the best one down 2/3 in a month, no position MAC: Unless you want to buy the other that may make it and trades for 2x FFO, no position the vegas/casino landlord REITs look cheap, but I haven't had the time Great list/summary. Thanks for posting. I'd add the following to the list: HHC: See the thread the DREAM complex in Canada: DREAM Unlimited -- see thread -- mother ship, asset manager and real estate developer, has direct on-balance sheets office/retail assets primarily in the Toronto area, indirect ownership of the same via units in managed funds, large western Canada (e.g., Calgary, Saskatchewan metros) land holdings that are being developed into residential suburbs over time, and a grab bag of other assets DREAM Office -- office REIT focused on Toronto with favorable management contract terms due to a transaction a couple of years ago (see thread) DREAM Alternatives -- Over the last few years this has shifted from a yield vehicle to a development vehicle for various DREAM projects I assume we're using "REIT" very broadly to cover companies whose primary business is owned and leading real property. In that case, FRPH probably no longer qualifies (vast majority of value is now cash/bond, aggregate royalties and DC multi-family development/land parcels, rather than NOI of existing assets).

Great question, with no obvious answers. Assuming there is some limit here, the other alternative is an effectively slow motion default via inflation. But where on whom an increased tax burden would fall is unclear.