FCharlie

Hello. If anyone out there has any experience owning rental property with partners inside of an LLC or a corporation, how do you value the business in the event that one partner wants to exit, dies, or is forced to exit due to divorce? I am setting up an LLC with two other people and we need to create language in the operating agreement to handle this possibility. Obviously it could be valued at cost in the beginning, and perhaps for a few years. Going forward, the two scenarios that come to mind are 1) Paying for BPO's (Broker Price Opinions) on properties to account for market value of property instead of cost of property. 2) Having a predetermined valuation, such as X times cash flow or net operating income. Any thoughts would be appreciated here. Thanks

Hi, I own residential rental property 50/50 with a partner. If we sold the property, is there a rule about how it gets reported on taxes? Could either of us choose to report the sale and capital gain to the IRS or do we have to split it 50/50? This property is in the United States.

So if I resubmit the application, appearing as aggressive as possible, wouldn't they notice that I just applied and wasn't aggressive on the prior applications? I hate to switch brokers, Merrill Lynch gives you free trades once you have $50,000 in your accounts, Plus they give you a 50% bonus on your credit card cash rewards. It's so lucrative to be there, I'd hate to leave over this.

Should I just keep applying until I am accepted? I answered "18 years" to my experience with stocks. "10 years" experience with options.

I have been rejected by Merrill Lynch after attempting to change my cash brokerage account to a margin account. They won't tell me specifically why, but they hinted that one time it was because I checked a box for "seldom" regarding my trading activity. Then, I resubmitted a new one with "active" and they rejected it again, saying they were skeptical of my net worth. I followed up by explaining the sources of my net worth, to which they replied that I would qualify. Then the next day, they call and say I was rejected again and they won't tell me why. Has anyone had difficulty obtaining a margin account with Merrill Lynch? I'm not even attempting to trade on margin, I simply want to take a margin loan out to buy real estate, which they said I was free to do. I haven't ever heard of anyone rejecting margin loans. After all, they are secured by the securities in the account. What gives?

Kroger can be added to the list: http://articles.dailypress.com/2014-02-17/business/dp-nws-kroger-kmart-20140217_1_sears-holdings-gas-station-kroger-co

Weyerhaeuser is, in my opinion, the best way to play a rebound in timber and home building. Plum Creek is cheaper on a price per acre of land but has no where near the upside that WY has simply because Plum Creek is much more of a pure play land holder and Weyerhaeuser, in addition to having millions of acres of land, has a huge amount of lumber mills, pulp and cellulose fibers plants, a newspaper joint venture, and they also are one of the largest home builders in the country. Weyerhaeuser's net income benefits about $4.5 million monthly pre tax for every $10 increase in the price of lumber and OSB. This is just in their lumber business. So, if lumber were $100 higher and holds for a year at that price, the pre tax income benefit to WY's wood products division would be about $540 million annually. In the old days of a strong housing market, WY was generating huge amounts of cash in lumber, pulp, home building, and timber. The land value alone on WY is about $18/share. If you go back and look at even the worst of times, WY's share price didn't fall much further than $16-18 per share. At that point you would essentially be buying timber at liquidation value and getting everything else for free.

Perhaps you are correct and they can drain Trillions without an issue. I hope that's what happens. I do not wish for economic chaos or a currency collapse. I just don't see how we get out of the situation we are in without a crisis. The Fed can move rates up, but what would that do to the Treasury when they can't borrow at 1% anymore? I'm young and don't remember the early 1980's so I don't know how it played out when Fed Funds were in the mid teens. The national debt back then was much much smaller. Look how quickly the banks failed when small percentages of Trillion dollar balance sheets moved against them. And in the event that we simply end up with moderate inflation, then commodities should simply rise with that. All of this gets back to my point that I don't see many reasons for silver to fall significantly. The investment legends are quick to point out that if you cover the downside, the upside takes care of itself. That's all I'm thinking here.

There aren't a lot of people using gold or silver coins for trade, but gold and silver coins will always be accepted and valued in the world. They could be sold for a currency that hasn't been devalued. Bank of America has served me with a couple of 50% corrections since it became my largest position! That didn't deter me. Gold is recycled. Silver is often trashed. You can find miniscule amounts of silver in soap, bandages, on catheters, in medicine, in cell phones, in computers, in mirrors. These things end up in the garbage. Gold ends up at the refinery. It could be many years, next year, or never when the U.S. has a crisis. If it's many years or next year, the opportunity to buy silver or gold at today's prices would evaporate so quickly that people wouldn't be able to buy enough to make a difference. If it never happens, GREAT! All my other investments, stocks and real estate will be just fine.

I honestly have no idea what the inflation impact would be from being dropped as the reserve currency of the world. The main concern I have is that we cannot, under any circumstances I can see, balance our budget. I don't even think we could get close. I can't see how the Fed drains liquidity fast enough to stop inflation once the economy gets heated up. Yes the easy answer is to say they raise rates through open market operations, but 3 or 4% higher interest rates would be a disaster to the budget when your debt is $20 Trillion. Once that disaster becomes reality, I go back to my original question, which is how does the Fed drain Trillions in liquidity without a crisis. Combine that boondoggle with the scarcity of silver, the underinvestment in precious metals, the reality that in a crisis people tend to throw money directly at precious metals, and I *think* a strong case can be made to own silver. I do appreciate all the responses so far.

I recognize there is minimal inflation today. How does the Federal Reserve drain Trillions of liquidity when things turn around? Is it possible to do this without creating a crisis? Who's the bidder for mortgage backed securities with 3% mortgages behind them if the Fed becomes a seller? How many years can the United States run a $1 Trillion deficit without anyone questioning the $US Dollar as a reserve currency? I'm looking for information as opposed to presenting a case for buying silver so feel free to expand on any reasons why it wouldn't work out over a period of say, eight, nine or ten years.

As a means to hedge against potential inflation that results from excessive QE and an exponentially growing U.S. national debt, are there any of us here building physical silver positions? My logic here would be that the monies paid for Social Security, Medicaid, Medicare, and any other entitlements currently exceed all tax receipts, the U.S. national debt is currently $16+ Trillion, and if budget projections end up as expected (They usually end up worse than expected), the United States is facing a decade of $1 Trillion deficits. Not sure of the exact statistic, but I think 10,000 baby boomers each day sign up for Social Security. Wow! At some point, the owners of U.S. Treasury securities will not want negative return investments. At some point, we will probably face a currency crisis. When? No idea. This could go on for many more years or we could face a crisis in 2013. Other reasons to own silver: Commodities tend to run in 20 year super cycles. We are only a decade into this one. Industrial demand for silver for solar, cell phones, computers, etc should continue to consume supply. A large amount of silver is consumed and disposed of as opposed to gold, which is mostly used for jewelery and coins and gold is rarely tossed into landfills. Precious metals, even with their decade long bull run, are still mostly unloved. Most people don't own gold or silver, and if masses decided to go in, there's simply not enough size or liquidity for people to own silver. If 200 million people woke up tomorrow decided to buy eight ounces of silver bullion each as a small $250 investment, those 200 million people would overwhelm global production two times over. That's 1.6 billion ounces of demand against 800 million of annual production, but actually against it's more like 8 times the actual amount of silver available for investment since again, most silver is consumed by industry. Seems like there are a lot of reasons silver can keep rising and not so many reasons that it could fall. The reasons that exist that would hurt silver prices would really boil down to the U.S. government getting it's finances in order, drastically cutting the deficit which would support a strong dollar. Likely? I think no. Thoughts?

So, first off, I've done very little research on this one and I'm sorry if I'm missing something obvious, but has anyone out there spent any significant time studying the JP Morgan situation where they supposedly are short 3.3 billion ounces of silver? My gut feel is that there has to be something to this story that the conspiracy guys aren't acknowledging. Any thoughts?

This brings up a never ending discussion. Should a business be valued based on it's assets or liquidation value, or should it be based on some multiple of it's income stream. I always seem to get stuck in the lonely camp of thinking liquidation value should be a minimum value, even if earnings are not great. These examples come to mind: Bank of America.. At one point, very recently, BAC was $5 with a $20 book value. Aig.. At one point, AIG was a $20 stock with a $60 book value Weyerhaeuser.. This was a $15 stock during the housing bust even though their timberland holdings were worth closer to $20 per share and they owned over fifty factories, they had a very profitable pulp business, and they are a top 20 home builder. Sears Holdings.. This has been a $30 stock more than once, even though they have inventory, net of accounts payable, of over $50 per share. What is the value of their real estate? Not sure exactly but when they sell fourteen stores for $440 million cash I think it's safe to say their real estate is worth more than it's book value. Book value of real estate for SHLD is $75 per share. Berkowitz thought $90 was conservative and that was with 125 million shares. And while they do have debt that I'm not counting, I'm also not counting any value for Land's End, Craftsman, Kenmore, or Die Hard. These companies obviously have had earnings problems. Bank of America because of Countrywide. Weyerhaeuser because of a depression in housing. Sears because it's a mess... but all of these still manage to produce cash. So, should Loews be valued on it's earnings or it's liquidation value? Is Bank of America worth 7 times earnings or it is worth liquidation value? What if their liquidation value is double or triple the current stock price? Why does it cost less to buy Sears than it would cost to buy everything they have for sale?

I'm wondering if anyone here views BAC as a forever holding?? I think anyone who was able to buy BAC at $4,$5, $6, $7 is sitting on something very similar to Philip Morris Companies, Inc back in 1999/2000. This would be the old Philip Morris that included Kraft, Nabisco, Miller Brewing, PM International, and PM Capital. This was a $20 stock with a 9% dividend. No one wanted it and it was in the $20's for years. Today those pieces are worth $150 and your dividend yield would be approaching 35% The sentiment shift on this will not be something that happens overnight. BAC could compound 20%+ for decades. Why would anyone sell that? Just curious. Did Buffett ever sell any AXP shares? I'd view BAC in the same category as American Express and Philip Morris. By the time BAC is $20, book value may be $30. By the time BAC's $30, book value could be $40. This can go on forever. The dividend could rise annually for the rest of our lives beginning in 2013. Sorry if I'm sounding overly hopeful here, I'm only 35 years old. I wish I had more Philip Morris back in 2000... And I say that even though I had over 25% of my portfolio in it.

I'm sure someone will respond by saying Bank of America's real problem was Countrywide, and that's very true, but consider this: Bank of America, from 2009 through today, has recorded net charge offs of almost $100 Billion Meanwhile, over this same time period, Bank of America has recorded a GAAP profit of over $8 billion. The business, Bank of America, has absorbed enormous losses but at the end of the day, it has remained profitable. This $8 billion of profits include huge goodwill write downs. The real pain to common shareholders comes from the massive dilution of their equity in the business. As it appears the dilution is essentially over, and BAC approaches a point of achieving Basel III well ahead of schedule, the logical next step is a decade of share repurchases. There is no need for any acquisitions, no need for balance sheet growth, and there is a limit on dividends. My hope is that ten years from today, BAC's share count is back to the old, pre-crisis share count, and we are sitting here with a $60-70 book value. Is this what most on here envision? When things finally begin to improve I'm going to have to constantly remind myself not to sell too early. I made an unfortunate mistake coming out of the 2009 crisis and sold too many companies purchased at dream prices after they had doubled, not holding on for the 300%-400% gains that would have followed. (Domino's Pizza at $6, Cheesecake Factory at $6, International Paper at $7, AutoNation at $7, Domtar at $20)

A couple of things that I notice from the small amount of time I've looked at this: In the 10Q they say During the first quarter 2012 we repurchased 6.1 million shares for an aggregate cost of $50 million, including fees.Through May 1, 2012, we repurchased an additional 2.6 million shares at an aggregate cost of $20.9 million, including fees, for a cumulative total of 290.8 million shares at a cost of $3.7 billion, including fees. It looks like the buybacks were mostly done at much higher prices, and the company was mostly out of the buyback market while the stock was at the lows. Also, depreciation is much, much higher than capex. What is behind that? Finally, a question.... What services does Xerox provide that a newbie to the stock might not realize? Thanks for the idea, and by the way... In my opinion, while massive dividend increases may force the stock higher, I think the most responsible thing to do if your stock is truly undervalued is to consistently buy it in the market, day in, day out, year after year, while increasing the dividend every year... Philip Morris Intl. may be the best example of this I know of. Earlier someone mentioned Safeway. Safeway, based on it's free cash flow, could pay out a 15% dividend yield and still have cash flow to repurchase 6% of it's shares annually at these prices. Of course with a 15% dividend the stock price would probably double, but I would rather see them do what they are doing, which is pay a 3.5% dividend and repurchase 10-20% of their shares annually. If the market doesn't give them credit, keep buying. Eventually the market will give them credit. There are examples in history of stable companies that are out of favor that repurchase stock at rates that would essentially take the company private in less than ten years. It doesn't last as long as the underlying business is okay. Eventually the stock will move up. Even AutoZone's stock didn't budge for years when they first began buying. It took years and 40% fewer shares to really make it move. Safeway is now approaching 50% of shares retired in 4 1/2 years. The price hasn't budged. It will.

I thought the topic "What business would you buy if price didn't matter" was a great idea. I have an idea along the same lines. What business would you buy, (Price does matter here) if you were looking for a starting point for a Berkshire Hathaway, Leucadia, Loews, Sears Holdings style company? You will be the controlling shareholder. You control capital allocation. You can buy anything you want with the excess capital or free cash flow that your business produces. Everyone loves what Warren Buffett has done with his textile mills, what the Tisch brothers did with movie theaters, and perhaps while people may not love what Eddie Lampert has done with Kmart, most do respect how he came to control the 4th largest retailer with only $700 million of bonds of then bankrupt Kmart.... So what do you think? If you were to take a large equity position in a public company and use it as a platform to make external investments.... What would you buy?

I agree. I bought more JPM this morning as well. Jamie also said that with this disclosure the company could be in the market repurchasing stock as soon as today. Remember in the annual letter he boldly said the closer they got to tangible book value the more aggressive they'd be with the buyback. One would have to assume they'd be perfectly willing to repurchase 7.5% of the company right here. I want to buy alongside them, so I did.

A better economy = higher S&P 500 and higher interest rates. I asked the C.F.O. at the annual meeting about the pension. He said a 1% change in interest rates would impact pension liability by "about $500 million" SHLD has put hundreds of millions into the pension over the years, and the liability has grown. Why? They keep lowering the discount rate and the S&P 500 is lower today than five years ago. It's perfectly reasonable to expect the inverse as things continue to improve. That pension liability is over $20 per share. 1/3 of the stock price.

Are you taking account a decline in sales/profitability? Or are you assuming that the stores will continue to sell at their current level? Do you think their brands will keep their current market share with a smaller store footprint? I'm taking into account an increase in profitability because almost 200 stores are closing. Hard to imagine SHLD is closing profitable stores. I think their brands will increase market share because they are being sold in multiple places, Costco, Ace Hardware, etc.

$1.1 billion of that debt is seasonal. Only $2 billion of LT debt Pension liability is material, but it's based on projections and discount rates. A 1% change in interest rates would lower that pension deficit by $500 million. The stock market also should continue to improve as the economy continues to improve. Show me 4% Fed Funds and a decent housing market/economy, and SHLD's pension liability will vanish. In the meantime, what's happening today, is that SHLD needs to fund it's pension with $310 million this year. My point is simple. If closing almost 200 stores will bring the core business back to profitability, enough to fund the pension, then why would the business not be undervalued with up to 70% of it's market cap in cash and huge assets still on the books?

It will be interesting to see if SHLD continues to repurchase stock now that they have a huge pile of cash, and if so, at what prices will they repurchase stock. If you look at the remaining business, you're still talking about 700+ owned stores, billions of owned inventory, Craftsman, Die Hard, Kenmore, and one would assume a profitable business. If the business can simply generate enough cash to fund the pension (which implies GAAP profits of zero given the level of depreciation vs. cap ex)... If the business can fund the pension from operations, then at some point, having 70% of your market cap in cash, huge remaining assets, and some level of free cash flow is going to explode this stock higher.

$270 as a percentage of today's market cap is 4.5% Sears Canada is selling 3 store leases for $170 million $170 as a percentage of today's market cap is 2.9% Sears is offering Land's End for $2 billion $2 billion as a percentage of today's market cap is 33.8% Sears is offering it's Dealer Stores in a rights offering, and expects $450 million in proceeds $450 million as a percentage of today's market cap is 7.6% Sears is planning inventory reductions of $500 million from the closure of hundreds of stores $500 million as a percentage of market cap is 8.4% Sears has $750 million in cash as of the end of 2011 $750 million as a percentage of today's market cap is 12.7% Total cash and expected cash $4.14 billion ($270m, $170m, $2,000m, $450m, $500m, $750m) $4.14 billion as a percentage of today's market cap is 70.1% Sears needs to put $310million into it's pension this year. Sears and Kmart are closing 173 stores during the first half of 2012. If one logically assumes the 173 stores that close are unprofitable, one would logically assume the remaining business will be profitable again. If we assume that the remaining business generates enough cash to fund the pension, it would seem SHLD is very interesting here, at $55

IR won't share the presentation, however Seeking Alpha has a transcript of it, and Edgar Online has a select group of slides in an 8K filing earlier this month. http://seekingalpha.com/article/415981-safeway-inc-2012-guidance-update-call-mar-06-2012 http://www.sec.gov/Archives/edgar/data/86144/000008614412000009/ex9928-kinvestorconference.htm I don't have an opinion about WalMart and California. I think the property development idea is brilliant, they discuss it in great detail in the investor conference. The beauty here, is the free cash flow. It's a 16% free cash flow yield today. It should be more like 20-24% next year based on the level of share repurchases at today's prices. That's the draw here. This company is so cheap that you really don't need to worry about specific details such as what Blackhawk is worth, or why ID sales are flat. In my world, cash is the only thing that matters. Safeway is flooding shareholders with cash and Wall Street is asleep at the switch. It doesn't get better than this