Myth465

I agree with TX. The problem seems to be unsolvable. Household income needs to go up. We are all out of tricks. First wives went to work, then credit cards, then homes as atms. If Americans all of a sudden get prudent, and everyone else stays prudent (Germans, Asians) or broke (ROW) then aggregate demand will free fall. I tend to agree with Krugman, Stiglitz, and Roubini. The Economist's special report was on this and talked about Koo also. Roubini says the Austrians are cruel and wrong in the short run but will be proven correct in the long run. The way I see it is you can cut spending, have unemployment spike, and have the paradox of thrift destroy the governments balance sheet and ability to repay debt. Or you can keep spending till the economy rejuvenate then inflate away the debt. Neither option has a good exit policy, but the Austrians dont really have a plan, and their medicine wont reduce the deficit. If unemployment spikes higher then the deficit will go up due to less receipts to the government. It will also be a political nightmare. Spending + inflation seems to be the sanest way to deal with this. It seems like the optimal solution is a well designed high return spending program, combined with reduced military spending / global retrenchment to reduce the debt. Too bad no one is talking about that.

I think this was or could have been part of the plan. Offerings usually drag a stock down unless they are done fast, this is why I never really understood the discount, its more like an anchor.

I tend to believe the Film Maker. Havent seen the film, but have seen several interviews and have seen him light the water coming from his sink on fire. I think it will be a big mess one of these days.

No prob, I have learned so much on this board. FFH leaps have more than made up for anything I have offered. Loews 10k is garbage. I found it best to look at the businesses separately. CNA - Crappy but improving insurer. Trades significantly under book. They have a Chubb CEO who is trying to fix it. $40 billion portfolio, I think its worth book LT, but not now with great insurers trading under book. They should sell the runoff and buy Surety. DO - Great cash flow, industry is under stress at the moment. Trades significantly down from highs and the gulf issues is a blip in the records. They will move the rigs or drill in the US. The CEO says they are working on moving their deep water assets right now. I also think with Loews directing them they will be buying back stock or making acquisitions given the weakness in the industry. BWP - Cash cow, will generate extremely high returns once the IDRs kick in. Very stable business. Highmount - Paid a high price but still a great asset. If nat gas gets over $8 they will look like geniuses. Hotels - Too small to matter, poor cash flow, great locations and net worth. Cash - Just waiting to be allocated. --- Many argue about the discount to NAV but that discount will always exist. Its not worth pursuing unless you do a stub and short out the public components. I call Loews a double double, you get a double discount especially now. All of their businesses are under pressure (except BWP). So you are getting 2 separate discounts, a pile of cash, and skilled allocators in a choppy market. --- Interest rates are what the Tisches worry about. CNA will suffer due to the huge bond portfolio but will be able to invest the new float to earn a great return. I think they may sell some of the runoff to reduce the float at CNA (reaching for yield by buying MBS early into the crash). I think in 2008 they got hit with weakness at CNA and also said they couldnt / didnt deploy cash due to the rapid downturn (too much uncertainty) followed by the rapid upturn (prices rose too fast). I am excited because they can put some cash to work at DO now with the selloff there and are raising cash for something inmo. They have sold bits of highmount and BWP. --- I only hold a small piece of Loews right now. I want more and want my FFH back after hurricane season. BRK is too big inmo for a poor guy like me.

This is exactly what I think. This is a blue chip knocked down but not a steal given the situation. Also we could have a perfect storm at some point in the gulf. One is forming now and one may hit by August before the well is capped - http://www.foxnews.com/scitech/2010/06/25/hurricane-season-building-gulf/?test=latestnews

I like Rogers alot. He is straight to the point. You are right, he has been saying the same thing for a number of years, and I agree with his thesis on fiat money. I however havent invested in gold or commodities (outside of oil). I just dont understand them that much and dont feel comfortable with futures. I think Rogers is trying to protect his money, I dont have much and am trying to make some so I prefer stocks. Rogers seems to have a firm understanding of the market and I like to get his input from time to time. Like you I have a decent cash level, about 14% to pickup stocks on those deep down days. --- SD I dont follow, what were you getting at. With Statoil.

I think its prudent and I have been thinking alot about this over the last few weeks. I think what you are doing is A trading value, and B investing with a catalyst. Its something I want to do more and more of given the markets volatility. I think you have core positions that you hold in good value ideas (FUR, LRE, L, BRK, FFH, Est.). Then you have trading positions where you invest with a catalyst or on downturns and look to trade out of when you have gains. I want to have core positions that I hold until intrinsic value and then buy more on downturns in trading accounts that I sell out of once the stock has rebounded. This could be done with shares or options.

You really are beating that Straw man down. If you dont understand what the board is turned off about by now, then I dont think you ever will (Tip - Its not about $900k or $100k, Also Kobe doesnt get 25% of all future growth of the Laker franchise. There is a different between owner and employee - both are the later). I think Jordan would have deserved a percentage of profits, especially if he could play for decades and the team was re-named the Chicago Air Jordans! I think that new dynamic models of compensation tying long-term compensation with shareholder value are needed. It may not be the most efficient method but its more on par than typical salary + bonus + stock options. If the guy creates a little value then he'll make less than the average CEO and if he creates a lot of value he'll make more, but so will shareholders! How many CEO's have walked away with millions while creating no real value? I think your logic is deeply flawed, and hope its never adopted by Corporate America. It likely will because its an ingenious way of getting rich without doing much. Pick a metric that adds no value to the owners, then manipulate that metric and get paid. Current corporate governance sucks but your desired changes dont improve upon it. If he issues a bunch of shares to acquire companies Biglari makes out like a bandit. If he falls at everything he still gets a million a year. Where im from thats quite a bit of change and more than alot of CEOs. 2 wrongs (CEOs getting millions for doing nothing and this horrible comp structure) dont make a right. Also read his letters. He is nothing more than a Hypocrite and a liar. Now he is likely committing securities fraud to try to ram through his desired comp plan instead of letting the owners decide if they like it. You are essentially advocating that all companies need to be public hedge funds. How bout a guy gets stock to tie his interest to owners or even better how bout a guy buys stock? Good luck, Its hard to make good deals with bad people. But thats what makes a market.

I like SU, CNQ, Canadian Oil Sands but you are right they too may have environmental issues. I dont own them. ---- I think Jim Rogers has good advice relating to BP. I have found the same with problem companies. They are slow to trade up and you can buy them at fairly low prices once all the bad news is out. ATSG is a good example. http://jimrogers-investments.blogspot.com/2010/06/cnn-money-video-interview-buy-silver.html

I would pick them over CNA, but not over Loews.

You really are beating that Straw man down. If you dont understand what the board is turned off about by now, then I dont think you ever will (Tip - Its not about $900k or $100k, Also Kobe doesnt get 25% of all future growth of the Laker franchise. There is a different between owner and employee - both are the later).

Thanks for the data, I am a big Loews fan and think this new volatility will be quite profitable for them. Big opportunities with Cash / Market Downturn, DO, and CNA.

DAMN. I dont know much about Tennis but I know this is impressive. I think the draws in Soccer are what keep it from becoming popular in American. The very thought of a draw is Un American.

Cardboard you bring up some really good points and I share several of your concerns. I like following you because you focus much more on downside than me. Its tough because I think this will work out by December (Share price increase based on debt reduction / increased earnings, or a sell) or I fear we will trout along like any commodity producer (rallying on price increases, and falling when prices reduce). I think BK risk is gone though. This was more of a trade for me. Commodity producer, survives the downturn, restructures, commodity increases due to factors (Chile, Strikes, Demand / Supply). I thought I could capture the spread while the market digested the new info. When the earth quake and strike hit I thought it was a perfect storm and figured Q1 and Q2 would show a nice windfall. With the high prices we are probably at best near the top of a plateau and sooner or later prices will head down. Holding for much longer will require me to change my thesis and will make this more of a long term investment. Still tough to sell until I know what Management had in mind / what things look like without the debt and post conversion. I respect Management for what they have done, and figure they have some sort of plan. It looks like simply selling the US business will put them on better ground. I ignored this thread from $4 down to cents and dont want to be one of the ones repeating that round trip. After the Q2 release I will have to rethink my thesis, I am also hoping to get a decent run rate at that point, but Q3 would be better for that. ---- I think a long term outlook for any commodity is a useless endeavor. Look at oil. Over the next 10 years I am 100% sure it will be higher. That wouldnt have helped at all over the last 2 years. I think you buy when its in the tank and folks are losing money. When people start projected out years on end you sell. Unless you have a serious Macro view / outlook based on something tangible. I feel ok about Pulp with India and China coming online, but have no idea where its going once the supply that was taken offline is cut back on. I would guess supply and demand will stabilize, then inventories rebuild, then prices start to go down. I think we have at least a few quarters.

Honestly that is probably my favorite Buffett trait and one I try to Emulate. I also really like this quote. Nicholas Butler - "The one serious conviction that a man should have is that nothing is to be taken too seriously."

This is whats funny to me. People claim to want free markets but cant see that this market isnt and cant be free. It just doesn't work. When things go bad the Government is always forced to step in. As Stiglitz says there are 2 types of Countries in this world. Those that have a Government guarantee of Finance and know it, and those that do but dont know it. Ask Iceland. Also I cant blame those guys, its what any of us would do. I have rarely seen anyone fall on their sword due to principles. The quote we are all Keynesians now rings a bell. Now the Politicians arguing for "free markets" at this point in the game sort of disgust me. At best they are Corporatist (I prefer Corporate Cronies), far different from Capitalist.

This is what I thought. Which brings us to another Buffett quote. "Wait for a fat pitch and then swing for the fences." Do you really need to know the weight to know someone is fat. But it all depends on how much capital you are managing. Kraft seems like a fine deal if you are running hundreds of millions or want to hold onto your money. If you are building it I would look elsewhere. With that said sale side research can be helpful for us working stiffs (not in the investment community). Great summary of an idea. I used some with regard to Coastal Energy.

This is getting very interesting with the lifting of the drilling ban.

Looking at BP, self insuring doesn't seem to work too well when your market cap is over $100 billion either :). Lol, good point. It seems to be a bad option either way.

You are definitely right, a few non majors drill offshore in deep water. They are call options on successful drilling, and do offer great upside should they hit a nice find. My guess though is that changes going forward with them thinking about removing the liability caps, I think ATPG may have big problems because they will have a hard time finding affordable insurance for deep water drilling, and I am not sure how self insuring will work when your market cap is less than a billion. Eric, Talked about the high risk high reward prospects, earlier in the thread. Basically currently you can wild cat and if you win you keep the upside, if you loose taxpayers get the downside. ATPG has a place in portfolios just like BP does, but not in mines.

They are basically betting the farm in my opinion. They have the cash to drill the wells, but alot has to go right. Note if they had a spill they would be toast immediately. Also smaller companies tend to take minority stakes in wells, to minimize risks. Day rates on deep water rigs run $350k - $450k. Not to mention all of the other things that have to be bought, and other suppliers that have to be paid. Also you have to keep in mind that not all wells work. What happens if you just spend $30 - $60 million and drilled a dry hole? If I were investing in smaller companies I would keep it on the shallow water / land. Drilling the hole is not the problem, its all the risks associated with it.

Free markets. BP has a US Sub and Oil and Gas profits are generally reinvested, into more drilling here in the US. So the money from this well would have went into another well, somewhere in the gulf to reduce the tax bite. Some is sent home for dividends, but BP probably has a fairly large US share holder base. Cardboard is right people see a cash flow number but need to keep in mind that only 30% of BPs production is American based and the other cash flow is generated elsewhere. Not all of it can be pulled out and sent home to the parent or US sub due to tax and currency conversion issues. Each sub needs its own working capital and has its own budget and tax situation. BP also still pays all of the state, federal, and local taxes associated with drilling and finding oil and gas, so its really no loss. The only difference is that some of the money is sent to UK shareholders. Check out the presentations by Contango oil and gas to get a better feel for why people drill. Taxes are a huge reason why oil and gas companies tend to keep reinvesting their profits. ---- Also as you can see with Deep Water only the super majors can really do it. With rig day rates / costs hitting $1 million dollars a day its high risk, high reward. That leaves BP, XOM, Total, Shell, Conoco, and maybe 2 or 3 other companies. Finally they dont have any where else to go. They have invested tons of money into Latin America and had a lot reserves nationalized. Drilling is restricted in Brazil, Venezuela, Mexico and large parts of the Middle East. Africa has nationalization risks as well. Mexico and the UK have peaked and are on the decline as well. Leaves the US, Canada, and a few other countries. Countries are cutting them out. You can start a national oil company, contract with Schlumberger / Haliburton for the expertise, and cut the majors out. Instead of getting 20% in taxes / leases you keep all of the upside. Then you can use all of the CF to finance your government (Venezuela / Middle East). Majors have either drilled offshore or bought minor junior producers to replenish reserves. Great for them, but bad for the world wide energy supplies. Deep water and unconventional reserves (Tight, Shale, Tar Sands) are where the big finds will be.

Coastal Energy is a much better buy than BP but is a small cap / junior so ....... , I prefer Thailand governmental risk to US Bloodlust REN, SD, XOM, and dozens of other names are probably also better. There are so many oil and gas names from $200 million to $200 billion which are safe and cheap. People appear to be very contrarian and love to scan the headlines. I am quite comfortable saying I dont know what the liability is for BP, I dont know what BP is worth, and I dont know if it will turn out to be a good investment. I do know that every bit of evidence that has surfaced has showed that BP showed wreck-less disregard and choose profits over safety. Every evidence also seems to show that the Management team is incompetent. Evidence also shows that the Government, and American public are pissed off, neither tend to be good business partners when they are upset. I dont like dodging steam rollers, and will fish out my nickles in another pond. It however is fun as hell to watch. -------------- To date just about every calculation regarding spill costs has been wrong. http://www.marketwatch.com/story/bp-spill-costs-hit-2-billion-debt-offer-due-2010-06-21?reflink=MW_news_stmp There is your strong balance sheet / cash flow. NEW YORK (MarketWatch) -- BP said Monday its costs arising from the continuing oil spill in the Gulf of Mexico hit the $2 billion mark as the environmental disaster reached the grim 60-day mark and as the oil major reportedly set plans to float $10 billion in debt.

If mines come through, probably. I have 4 stocks I think will do great over Q2, this is one of them. Then again, I thought the same at Q1. $1.01 vs $1.16 seems to be a no brainier though we could get back to trading down. Will definitely wait to see where the share price is on the last few days. ---- What about you, you seem fairly bullish.

Thanks very interesting.