Packer16

If you look at the high cost parts of most value chains (distribution and US labor), there is surplus supply leading to continued deflation. The parts where there is inflation (some commodities) are a small portion of most value chains. Packer

JEast -- Thx for the SSW insight. I was able to switch some of my nearly fully valued triple-net lease REIT in to this undervalued income play. If you like the radios, you may also want to check out some of the smaller cable plays like SURW, LNET and MCCC (although the later has alot of debt its cost is incredibly cheap (6%)). In looking at some of the other IPPs, it appears that they all trading at pretty tight MVIC/MW value of $480 - $515 except Mirant and RRI (which on the $185 to $220/MW) range primarily due their high coal exposure. NRG does the best job of converting MWs to EBITDA. One of the key uncertainties is what is a coal plant worth and what will be the effect of potential global warming legislation. Packer

I took a quick look at NRG and it appears cheap at 5.4x FCF and around 5.0x EBITDA. It also has been repurchasing shares and Warren owns a good chuck. Any thoughts? TIA. Packer

I mistyped there. You need to subtract changes in net working capital to account for the additional cash required to support current assets less current liabilities with a required amount of cash. Packer

Another important adjustment is adding back any acquisition related amortization (as this is a non-cash charge) and changes in working capital (in this case it is not significant but in some industries it is). Packer

Frontier is a good company in a declining industry. I looked at this firm (as I like recurring revenue models and live in one of Frontiers largest markets - Rochester, NY) also but found other similarly priced firms with better growth prospects. Pro-forma the Verizon acquisition, the firm trades 4.3 to 4.6 times FCF and 4.2 to 4.5 times EBITDA. This firm is in a much less commodity driven industry than SFK. Given the declining nature of the revenue stream (primarily residential and business access lines), this inexpensive but not cheap. Other firms who I think are as cheap but also have some growth include SSW, SURW, TWC, CCMM and MCCC. Packer

Shaw sounds like an interesting story but the price is too high for me @ 7.5x EBITDA when you can buy TWC @ 6.0x EBITDA, SURW @ 4.5x EBITDA and MCCC @ 3.8x FCF. Packer

This may be a prudent strategy but at today's prices ($3.99 per share with $1.07 TTM adjusted for higher interest rate FCF) not much has to go right for the stock to go up. If the revenue does pick up it is an additional bonus. In addition, SALM has put together a conservative radio/internet audience that a Fox competitor or Fox may want to buy to increase reach in this space. I was also going to send an e-mail to management to consider repurchasing shares at these levels with excess cash flow versus redeeming debt. Packer

Has anyone looked at these recently? As far as I can see SALM and SGA appear cheap (3.7 and 4.4 x FCF) with modest amounts of debt (5.6 and 4.0 x EBITDA). With the health care debate, mid-term elections and the Supreme Court ruling as tailwinds it appears for the next 12 months these firms should have a good tailwind. It also appears that many (including Morningstar) have left these for dead based upon a macro thesis of substitution which I have had time understanding. I can understand it for newspapers but not Radio/TV. Any counter cases would be welcome. TIA. Packer

These may be good arb plays but I have yet to hear of a successful SPAC purchasing an undervalued company. Has anyone seen one? All the incentives are for managment to do a deal at all costs. Typically, the founders warrants only come into exsitence if a deal is done. Packer

My understanding is that if there is a change of control, all the historical NOLs are limited to the AFR rate times the equity value of the transaction per year. This in effect reduces the NOL significantly upon sale. Packer

I have been looking at both ISCA and TRK. Both look like great moat businesses with TRK slightly cheaper than ISCA on a FCF basis. Has anyone else looked at these firms? Packer

I am encouraged too but I am waiting for the details to see if it is real reform or reform in name only. Obama is good at getting everyone to agree on a top level concept (Health Reform for example) but he appears to be swayed in the details to such an extent by special interests and the concept of making history that the original idea is transformed into a special interest bill that may not be better than the status quo. I also am concerned that he has not built political capital to make people comfortable in making hard decisions and has surrounded himself with political yes men who are driven by politics versus good policy. Packer

In the asset management area, you can get a pretty good spread of AUM multiples from the publicly traded firms. The firm's who have more fixed income are going to trade at lower % of AUM because the fees they charge are less than equity and alternative investment managers. Some recent transactions include: Neuberger Berman sale to Barclay's and Ashton to AMG. Packer

The issue I see is that we all know real rates are going to go up with more borrowing, so, the only way that bond prices go up is if deflation more than offsets the rise in real rates. I don't think we are going to have very much inflation as the highest cost portion of most value chains are not increasing in price but I do think real rates will increase interest rates. Packer

Daytripper, I think oldye answered your question. Hallmark has an internally managed portfolio that has made some pretty good moves (out of treasuries in 2008 and into munis) and equity positions in good cash flow business that Newcastle has investments in like Pizza Inn. They also have a combined ratio below 100 and have had this historically and their sales regions appear to be regions of the country that is growing. This looks more like a mini-Berkshire given its positive float. Packer

I think a way to look at speculation is a negative expected or at most a break even expected value for an idea or in a situation where you cannot determine the odds. I think it useful to think of this factor as a spectrum from an investment (high odds of success) to a speculation (either low odds of success or not determinable odds of success). With this framework to one person a security could an speculation (CDS to most of us) or an investment (to FFH). Packer

I think the CDS in isolation is a speculation to you and me but in the context of FFH's total portfolio it was a value investment to them. The degree of speculation is dependent upon the price paid. The price FFH paid made the speculation at a different price more of an investment. I think Graham points this out in the Intelligent Investor that the price paid is what makes a security an investment or a speculation. In essence, FFH was purchasing for very little money long-term put options on bonds of firms they knew had questionable underwriting policies. They knew that these firms were going to blow up the primary risk was when and by purchasing long-term puts from sellers who were motivated they mitigated some of their risk. Since this was in their circle of competence to them it appeared more like an investment but to others it may appear a speculation because it is outside our circle of competence. Packer

I believe the CDS bet was a value investment not a macro bet. The rationale for purchase was that these instruments were the cheapest securities available at the time and had some call option characteristics which protected the downside. As for Tilson, he has alright performance for his hedge fund given he can short. His returns for T2 are as follows: 2005 - 4.2%, 2006 - 23.8%, 2007 - (5.3%) and 2008 - (24.1%). The 2009 numbers are not out yet. These beat the S&P 500 but are not in the league of Bruce Berkowitz or other well known value investors. Some of his picks are truly value based, like REXI, but other are speculative growth, like IRDM. I was surprised in looking at IRDM how dependent upon future growth the investment really is (the return on any future satellite replacement cost is very low given the current level of cash flow and the only reason it appears cheap is that the satellites are at end of life and will require alot of maintenance cap-ex in the next few years) and there are other cheaper less growth dependent satellite firms like Asiasat and APT Satellite. Packer

UCP, I understand your points but I think they are based on an assumption of permanently higher energy prices. Although in the near and mid term I believe this is true over the longer term I think energy prices will fall. I just don't think spending money and risking a currency collapse (due to high foreign ownership of our debt) is worth the long-term loss on projects whose positive NPV is based upon permanently higher energy prices. Packer

I agree that there are differences but the following are my points. My point is that a non-inventory but debt delevering situation takes longer to find a new equilibrium and all gov't intervention is doing is pushing off the day when that equilibrium will be reached and growth can begin again. This idea that gov't can make up for lost demand is silly (especially given our large amount of debt). Do we want to destroy our currency by spending money to prop demand to debt-inflated levels which are not sustainable without gov't intervention? The result will be that we will eventually reach a lower equilibrium (less GDP) but with alot more debt and not much to show for it. This is where the comparison to Japan comes in - they invested in many negative NPV projects (bridges & museums etc.) and their GDP has still fallen and now they have more debt (however much of it is internally funded which has prevented a currency collapse - preventing the market discipline that would have reduced spending long ago) This may make some sense if you have some positive NPV projects (i.e. infrastructure projects in China and gov't works programs in Depression) but in the US there are few of these. As an example is the high speed rail projects. In some cases this may make sense but one plan is to build a high speed rail from Buffalo, NY to New York City. This is silly. Where are the riders going to come from? Business travelers already take planes because they are faster and have more convenient times. That leaves leisure travelers. I know upstate NY is a nice place but a doubt that leisure travel can economically support this line. I think most of the high NPV gov't projects in the US are already done or in the budget already. Other negative NPV projects include green energy production (not research) subsidies (which encourage building of uneconomic projects) and energy conservation projects (whose economic value is dependent upon high energy prices). Alot of these projects are feel good projects that make the gov't look like they are doing something versus actual performing positive NPV projects. Packer

I agree that it is not over. Typically these types of recessions (debt induced) take at least 4 - 5 years with no gov't intervention (1893-1898) and much longer with intervention (Japan 1990 - ?, US 1929 - 1945). The current crew has done some intervention (primarily monetary with some fiscal) and there appears to be well heeded resistance to current and future spending (which only pushes off the new equilibrium). I think this health care fiasco (new entitlements with taxes that will never be collected) is the event that will break the camels back. What happens to the dollar and LT real interest rates will tell us how close the US is to the precipace. Packer

I am surprised that there is no push for seperation of banks from investment banks/securities firms. This is the answer to the problem that none of the current players wants because it will no longer let the banks core business subsidize the more risky businesses and there may be more competition, the real source of wage deflation. Volker is only one I have heard talk aboiut this but he seems to have dropped off the face of the earth as Summer and Gietner (protectors of the status quo) continue with this make believe financial reform (much like what health care reform has turned into). Packer

My dyslexia must be kicking in the ticker is VRTS (Virtus Investment Managment) Packer

I got in in the low 5s and averaged down to the low 4s over the past year. LXP still only sells for 5x FFO versus 13x for most other office/retail REITs so there is still upside. The one REIT that is cheaper is FUR 2.7x FFO excluding cash and investments with a great capital allocator to invest the cash. Packer