valuecfa

It was in somebody's notes i read from a meeting. Cumming-We had a successful run in Argentina before. How do you protect yourself from export taxes— pray. This may not be politically correct, but, Argentina is a wonderful country it’s only problem is that it’s full of Argentines.” He want on to comment that the company had a great portfolio of assets, but that the economic coniditions in Argentina were terrible. If my memory is right, mgmt takes 10% of the company's net income. Also, if my memory is right LUK had more ownership in the company that owned CRESUD, than in Cresud. I think it was called IFIS, and if my memory is right once again, it was a cheaper purchase for LUK than CRESY, and it avoided the mgmt. fee.

Worth looking into the compensation structure. As LUK says. It is a great set of assets, but too bad it is run by the Argentinians.

Okay, I'll be the one to say it. I'm not necessarily one for conspiracy theories 8)(and was biting my tongue the first time the site was hacked), but I think it is fair to say that one likely option has to do with all the negative, yet accurate, attention Sardar Biglari & Biglari Holdings have been getting on this board recently, which is likely one of the larger forums on the net that shareholders use to discuss and stay up-to-date on Biglari Holdings. I'm also not necessarily suggesting someone at Biglari Holdings is doing this (well maybe i am a little ;)) to bring down the site prior to voting, though when hundreds of millions of dollars are on the line (over time), people have done much, much worse to influence shareholders. It could just as easily be a disgruntled shareholder in Biglari Holdings that still holds a good number of shares, that has rode the company's share price down. I have a creeping feeling it will get taken down a 3rd time as long as the comments stay up. Though i could be totally way off base. :-\

What Cardboard said. :D I haven't looked at the Q yet to know exactly what you are referring to, but seems you are saying they wrote down LVLT. This would be just an adjustment of carrying value to fair value. Given their ownership %, I believe LVLT was an equity method accounting item, and not available-for-sale. So this wouldn't be an adjustment from comprehensive income to net income. It was a write down of the carrying value listed on the balance sheet. As for the timing. I don't know. Perhaps the auditors tested it and upon a fall in share price decided impairment was necessary. Though i thought this would have been done at the end of the year. Perhaps the timing is for tax purposes. Can't tell ya for sure. Edit: just checked FFH's ownership level of LVLT... Looks like it is an available for sale security (not equity method as i noted above), and this is just shifting from other comprehensive income to the income statement.

ValueCarl, You are asking the wrong person about silicon economics. LVLT's economics is something that i don't understand well. Perhaps i will get around to reading the company's 10-k one day, but i have a feeling i still won't get it.

If they have pricing power then inflation may help them up until the point it is time for them to refinance their debt. Then inflation will kill them. Inflation of course is good for high debt companies (with appreciable assets) over the near term as their assets grow in value (while their liabilities in the form of debt stay fixed), yet it is terrible for high debt companies when it comes time to roll over that debt. I think many forget to factor in refinance rates in high inflationary environments.

Just think of the counter party risk on Greece Sovereign CDS sold by a Greek Bank. And nobody knows the true exposures. No one knows who all the participants/counterparties are. This will weigh on the entire European banking sector, and has the possibility of creating another CDS domino effect. When are they finally gonna ban these things?

I don't know about NBG specifically, but i have read that the some of the largest sellers of Greece default protection have been the Greek Banks themselves.

Appreciate the SD comments. I have been following this one fairly closely in recent weeks. Did Sam happen to have any other pertinent details about their SD investment?

http://www.zerohedge.com/article/sp-downgrades-greece-junk-full-obituary-enclosed

http://www.hoisingtonmgt.com/pdf/HIM2010Q1NP.pdf

Personally, out of the limited, diversified options listed i would choose to be in short term corporate debt (instead of a broad market equity fund or treasuries), if i were forced on a macro call that would be locked in for 2 years from today's date. I believe the general equity market to be overvalued by approx. 15%-20% (That's not to say i expect a correction of that magnitude to occur. Time could very well make up my perceived valuation gap.). I believe emerging markets in general to be a bit more overvalued than the US. And i don't feel comfortable or smart enough to make an interest rate call over the next few years. Of course in real life i am mostly invested in a non-diversified basket of equities, about 40% cash (and currently having difficulty finding more than a few places to deploy it), and 20% in short term corporate debt.

Right. This is contrary to a normal investment approach or strategy. Say your investment strategy is not long-term based, or bottom up. Assume you are forced to be boxed in. Say it is based on a 1 to 2 yr investment time horizon, and no further. Think of this as more of a short term prediction, and not necessarily a real life strategy. I'm trying to get a little more sentiment then: equities are going higher or lower. Or expectations of inflation or deflation. Some might predict inflation and not necessarily invest in commodities, for example. Think macro prediction with a little meat behind it. What's that guy's name from Euro Pacific that predicted the US crash, yet still lost a fortune during the crash, b/c emerging markets fell along with it, and dollar rose. I realize it is not in the vast majority of the boardmembers' (or any sane person's) DNA to invest in this top down, all in approach. Example: Someone might say Commodities (b/c they believe an inflationary environment is imminent) or Emerging Markets (b/c they have further to go) or Real estate (b/c it has supposedly bottomed) or corporate bonds (b/c you expect flat yields and are willing to take a bit of risk to get some yield over cash) Someone might say Equities b/c they are undervalued or Treasuries (b/c of deflationary expectations or a highly overvalued equity market) or Cash (b/c every market level appears fairly valued or they want ultimate margin of safety with no bet necessarily on interest rates) etc.

edit: Commodities added. Assume futures (other than commodities), call/put options, shorting, CDS, other derivatives, sovereign debt, junk bonds, other country specific investments, etc... are not options. Impractical as it may seem. There are plenty of other categories deliberately left out. Just the ones listed above in the original post.

Say you couldn't invest in a stock specific, non-diversified portfolio. Say you are forced to choose the best investment category for the right now given all the current market valuations, interest rates, expectations, etc. Assume you could only invest either 100% in a single category, or 50% in one category and 50% in another. Further, assume a 2 yr lockup. I'm curious what the general sentiment is right now on more of a macro level for this board. Which category(ies) would you choose: A)Treasuries (10 yr) B)Cash C)Corporate Bonds (b/t BBB - AAA) (2-4 yr maturity) D)S&P500 fund E)Diversified Real Estate fund F)Emerging Markets G)Commodities Which would you choose? Remember, you have to invest in a diversified index type fund in either of the above categories (no other choices). What's your call?

Parsad, A current co-worker and I always assume we will start a partnership one day in the future, so naturally I'm a bit curious in the process (capital raising, how they are set up, fees, etc). Do you guys outsource all your back-office stuff (redemptions, deposits, distributions, statement mailings, NAV calculations, keeping track of partnership interests, etc.) If so I'm curious what the ballpark fees would be for that back-office stuff would be, for say a $3 -10 million partnership fund. Do the folks you use charge a percentage of AUM for this service? Was your prime broker very helpful regarding the process of capital raising, suggestions for which firms to use for back-office support in your area, etc.)?

There are various websites that list new SPACS. Some even provide an alert service to send them to your email. Beware the SPAM though. As for the guidance, I would just be aware of all the risks involved. The obvious one is that it is basically a blank check company. Also, the majority of the value is in the warrants attached the common units. When decoupled, the common units would likely get diluted away upon a deal. And the warrants can come up worthless upon no deal in the required time frame listed in the SPAC's 424B filing. I've only dabbled in them once many years ago. I actually got a very nice return on the warrants, but I was lucky, b/c i really had no idea all the risks involved at the time (I didn't know what i was doing, just got lucky). Also most all SPACs have a forced redemption provision whereby, the profits on the warrants can be capped. The management team of a SPAC typically receives 20% of the equity in the vehicle at the time of offering, exclusive of the value of the warrants. The unique benefits are the special rights of shareholders to vote in approval or rejection of the deal and the ability for investors to regain most of their funds, typically greater than 98%, if the SPAC fails to generate an acquisition. As valuegeek mentioned, sometimes you can find SPACs that are trading below cash in trust amount.

By the way, twacowfca & Cardboard. Just so i don't mess you up on the math if you attempt to value NOLs in other companies... I just used an arbitrary plug amount of 5% as the LT tax-exempt rate for the determining the value of the NOLs in the example I gave. The LT Tax-Exempt rate for a particular month, used under Internal Revenue Code section 382 to compute the annual limitation on the utilization of corporate net operating loss carryovers following any "change in ownership" during such month, is equal to the highest adjusted LT rate for that month and the prior two months. So currently, that rate you would use would actually be 4.03%, and not 5%. It's quite a difference. Just thought i would point that out. Cheers.

Sorry for the delayed response ValueCarl. This is one dramatic tale that has been going on for nearly a decade. It was a little difficult keeping up with all the history and drama involved with Icahn trying to attain the NOLs all these years. A special exception to the Section 382 limitation rules applies when the ownership change results in a sufficient number of historic creditors and/or shareholders owning the new stock of the reorganized debtor. This is the Section 382(l)(5) Bankruptcy Exception. If the L5 Exception applies then there is no annual limit on the use of NOLs. Icahn owned the majority of the company's pre-bankruptcy bank debt and term loans. This gave him control of the equity up on reorganization, while preserving the NOLs. Under the tax laws, a shareholder who owns 80% or more of a company may use its NOLs to reduce the tax burden of other, profitable, companies in which the shareholder holds more than an 80% interest. When XO first emerged from bankruptcy, Icahn owned more than 80% of the Company's equity. Icahn used approximately $450 million of XO's NOLs in 2003 and 2004 to reduce the tax liability of other Icahn-controlled companies. However, Icahn fell below the 80% threshold when he failed to participate in an offering of XO stock in January 2004 because he assumed minority shareholders would not be interested in the offering. Icahn then began his efforts to get back his prized NOLs over the next several years, being blocked time and again by lawsuits sprung by minority shareholders, despite Icahn having control of the board of directors. The majority of the rest of this can be found in filings, by minority shareholders: According to filings, Icahn's re-attempt to take XO's NOLs began in or about September 2007. During the preceding months and years, XO's Icahn-controlled Board had failed to take advantage of an extraordinarily liquid credit market to refinance its long-term debt, the majority of which Icahn owned. Instead, the Board had approved an aggressive capital expenditure program but failed to identify the financing for that program. Icahn's strategy of having the Company incur substantial additional expenditures while leaving in place its sizeable debt (owed largely to Icahn) would force the Company into dire financial straits -- and provide an excuse for the self-dealing transaction Icahn would offer to save the Company in exchange for its NOLs. In September 2007, the Board created a Special Committee to consider its financing alternatives. The Special Committee and the Company had their own financial advisors. Both sets of financial advisors recommended that any equity financing be conducted through an equity rights offering and that it be open to as many participants as possible, not just current investors such as Icahn. The Special Committee also initially recommended that "a rights offering be conducted only if Mr. Icahn agrees to a standstill agreement (or other comparable arrangement) that would limit his equity ownership, after any offering, to not greater than 75%." This agreement would have served the specific purpose of keeping Icahn below the 80% threshold so that he could not take the Company's NOLs for his own use. Icahn agreed with the rights offering plan, but not on the terms recommended by the financial advisors. He first insisted that it be a preferred rights offering of a size that would dwarf any similar rights offering in recent years -- and that was multiples beyond the size recommended by the financial advisors. A preferred rights offering of this size would serve Icahn's strategic purpose: it would so dilute minority shareholders as to dampen any interest in participation and actually exclude participation by some minority shareholders, thus nearly guaranteeing that Icahn would exceed the critical 80% threshold. Although the financial advisors cautioned against Icahn's proposal, the Special Committee ultimately capitulated to his demand. Disregarding the financial advisors' advice, the Special Committee also ignored three different prospective investors who made unsolicited approaches to the Company to provide funding that could have kept Icahn below the 80% threshold (without acquiring any Company assets other than stock). On July 25, 2008, the transaction with Icahn was consummated. The Company issued hundreds of millions of dollars in new preferred stock that Icahn purchased in exchange for cash and retirement of the Company's Icahn-owned debt. Icahn's stake in XO went up to approximately 85% (on a fully-diluted basis). Icahn obtained the Company's NOLs subject to the Amended Tax Allocation Agreement. I found the following filing to be extremely revealing as to the incredible alleged tactics Icahn went through to attain the company's NOLs. It is amazing to sometimes see what goes on behind the curtain: http://sec.gov/Archives/edgar/data/1111634/000089742309000265/exhibit991.htm

Sure, I don't mind looking into it. I've got a lot going on today though (slammed at work right now and my sister is having a baby tonight & I volunteered to help out), so I'll try to get back to you tomorrow on XO. I took a quick peek and it looks like a bankruptcy exception (which is kinda hard to pull off). I'll look more into it later. It does look interesting reading material.

If you wanna see a funny case check out Cosine Comm. About $600 million in fed & state NOLs, and a $19 million market cap. lol edit: I should note that i don't really think it is a good investment. I just thought that it was kinda interesting for this company to have that much nols and such a small company.

A joint venture would work okay for Clarus. Their NOLs would only help them though (in proportion to their ownership in the JV), and not the other party involved in the venture (like SNS). The best thing for Clarus is to buy a good, immediately profitable company on the cheap, and soon. They have the cash to make the NOLs worthwhile. I remember looking at Clarus a few months ago, and then putting them on the shelf, and forgot about it. I can't remember the expiration schedule off-hand, but if the majority is fairly far out, then this is the type of company that could get a lot of value out of their NOLs. Edit: Out of curiosity I just check to see if they at least have the good sense to protect their NOLs, and they do. Of the approximately $228 million of net operating losses available to offset taxable income, approximately $211.9 million does not begin to expire until 2020 or later. So they have plenty of time, so long as they don't cash burn in the meantime (or make an overvalued acquisition).

Your welcome. Though this is just the cliff notes version. It can get a a lot more complicated in various scenarios that can change the outcome (continuity of business and various other rules with their own testing periods, bankruptcy exceptions which are very hard to comply with, classification of stock vs. asset purchase, ownership change occurring in chapter 11, troubled debt trading prior to ownership change, etc). But i think you get the idea.

What would be the point? They would lose much of their NOLs. If i were a shareholder I would rather see the company do a cheap acquisition insead.

That would still trigger an ownership change. It would trigger an annual limitation on the NOLs. They wouldn't loose them all. The new owner would acquire some of their NOLs, but much would be lost. For the sake of simplicity, i'll show you an example: Hypothetical Company has NOL’s of 115 Goes through an ownership change Company’s equity one month prior was $90 Annual deduction = 90*5% = 4.5M Even if you can take all over 20 years 20(4.5) = 90M PV (@ 10%) = 4.5(8.51) = 38.3M Vs. taking all of 115 next year 115/1.1 = 104.5M So, the difference caused by the ownership change in this case was quite significant. In general, the lower the market cap in conjunction with the higher the NOLs, the more that will be lost upon an ownership change. So if you ever see a tiny company with say a $10 million market cap and $1 billion in NOLs, then an ownership change would wipe out almost all the NOLs. If a $1 Billion company with the same amount of NOLs goes through an ownership change, then they will lose some of the NOLs, but not loose them all as would be the case in the smaller company. Also, keep in mind that in this example the 38 million is the PV of the NOLs. However, an NOL is only worth about 35% of each dollar of NOL (and then discounted to the present value). So the ACTUAL value of the 115 million in NOLs, adjusted for ownership change, and then discounted to the PV of 38 million, in this example would be about $13 million. And it is only even worth that if they manage to earn a profit.