Tidbits

[ValueArb]

52 minutes ago, Sweet said:

That I’ve noticed it’s price action leads the general market ever so slightly - I not recently.  

 

There is a hypothesis that liquidity needs determines short term price action. When more people need cash than they need more savings, general market prices will decline as sellers outnumber the buyers. When the inverse is true it will rise.

 

And there is a corollary that when liquidity is high money first flows to the most speculative investments because their values are less knowable, at the same time investors are flush and more willing to gamble. For example most won't overpay for GM because its long record gives good reason to believe it will trade in a relatively tight earnings multiple range. But those people may happily overpay for Tesla because its much shorter track record demonstrates that it can trade at almost any multiple. So crypto is like the ultimate expression of that theory, without any binding valuation metrics to hold it down and a history replete with massive bull runs, its catnip for investors flush with cash looking for outsize returns. 

 

If these hypothesis are true, they also work in reverse. When liquidity tightens, people sell the most speculative positions first, so crypto and tech stocks would trail the market. 

 

Not sure how well the data actually matches these hypothesis, the real world is complex and messy with millions of independent agents making independent decisions and being driven by other factors besides a simplistic liquidity == gamble-gamble mental model. So it would be surprising if the effect was so strong to be irrefutable, but anecdotally there is plenty of evidence that can be cherry picked post hoc to support it FWIW.

[Spooky]

32 minutes ago, ValueArb said:

So crypto is like the ultimate expression of that theory, without any binding valuation metrics to hold it down and a history replete with massive bull runs, its catnip for investors flush with cash looking for outsize returns. 

 

Agree with this - it seems like a decent gauge of the "animal spirits" in the market.

[KJP]

Catalyst Bancorp (CLST) isn't a particularly well positioned or well run bank.  But (i) it's overcapitalized, (ii) in October it will be 3 years post-conversion, (iii) it has been and continues to sell at a significant discount to book, (iv) it has consistently bought back shares and just authorized another repurchase, and (v) the CEO owns some shares and would get ~$1 million in change of control payments.   

 

Most of the points above can be seen in yesterday's earnings release:  https://catalystbank.investorroom.com/2024-05-02-Catalyst-Bancorp,-Inc-Announces-2024-First-Quarter-Results-and-Approval-of-New-Share-Repurchase-Plan

Edited May 3 by KJP

[Saluki]

This came on my radar because I own shares in Enphase, and TJ Rodgers, who runs it, is also involved in some other things, like a struggling small cap solar installation company. 

 

REPEAT - Complete Solaria Names T.J. Rodgers CEO (yahoo.com)

 

I don't think I've ever seen such an interesting press release.  Here's a sample: 

 

T.J. Rodgers closed, “Messrs. Kapp and Rubenstein, I built and ran a real, operating semiconductor company for an industry-record 34 years. I don’t need or want your help. I want your knee off of my neck, so I can breathe. If you don’t free us by converting your debt to equity, as I have, I will resign shortly thereafter and allow investors to observe and cringe at Carlyle’s organ-harvesting methods in action.”

 

Rodgers added an epilogue, “While I was spending Sunday night writing this press release, I received an email from Carlyle at 10:06 EDT from Sanket Patel, another Carlyle employee I’ve never heard of. Patel warned me that my recent threatened press release (i.e. the above) might “necessitate legal action by Carlyle.” Make my day. I would relish telling my Carlyle stories in detail – under oath – to a jury of my peers in a public trial.”

 

 

[ValueArb]

1 hour ago, Saluki said:

This came on my radar because I own shares in Enphase, and TJ Rodgers, who runs it, is also involved in some other things, like a struggling small cap solar installation company. 

 

REPEAT - Complete Solaria Names T.J. Rodgers CEO (yahoo.com)

 

I don't think I've ever seen such an interesting press release.  Here's a sample: 

 

T.J. Rodgers closed, “Messrs. Kapp and Rubenstein, I built and ran a real, operating semiconductor company for an industry-record 34 years. I don’t need or want your help. I want your knee off of my neck, so I can breathe. If you don’t free us by converting your debt to equity, as I have, I will resign shortly thereafter and allow investors to observe and cringe at Carlyle’s organ-harvesting methods in action.”

 

Rodgers added an epilogue, “While I was spending Sunday night writing this press release, I received an email from Carlyle at 10:06 EDT from Sanket Patel, another Carlyle employee I’ve never heard of. Patel warned me that my recent threatened press release (i.e. the above) might “necessitate legal action by Carlyle.” Make my day. I would relish telling my Carlyle stories in detail – under oath – to a jury of my peers in a public trial.”

 

 

 

 

TJ Rodgers is a national treasure.

[hasilp89]

8 hours ago, Saluki said:

This came on my radar because I own shares in Enphase, and TJ Rodgers, who runs it, is also involved in some other things, like a struggling small cap solar installation company. 

 

REPEAT - Complete Solaria Names T.J. Rodgers CEO (yahoo.com)

 

I don't think I've ever seen such an interesting press release.  Here's a sample: 

 

T.J. Rodgers closed, “Messrs. Kapp and Rubenstein, I built and ran a real, operating semiconductor company for an industry-record 34 years. I don’t need or want your help. I want your knee off of my neck, so I can breathe. If you don’t free us by converting your debt to equity, as I have, I will resign shortly thereafter and allow investors to observe and cringe at Carlyle’s organ-harvesting methods in action.”

 

Rodgers added an epilogue, “While I was spending Sunday night writing this press release, I received an email from Carlyle at 10:06 EDT from Sanket Patel, another Carlyle employee I’ve never heard of. Patel warned me that my recent threatened press release (i.e. the above) might “necessitate legal action by Carlyle.” Make my day. I would relish telling my Carlyle stories in detail – under oath – to a jury of my peers in a public trial.”

 

 

wow never heard of the guy but he really went after Rubenstein. Thanks for sharing.

[Sweet]

I thought this was an interesting thread and echo’s my own thoughts - that not selling great businesses is so important:

 

 

 

Their 13F is as you would expect:

https://whalewisdom.com/filer/akre-capital-management-llc

 

 

Speaking of 13Fs I think Berkshire files tomorrow and we could find out the identity of his secret purchase 

[ValueArb]

On 5/13/2024 at 10:44 AM, Saluki said:

This came on my radar because I own shares in Enphase, and TJ Rodgers, who runs it, is also involved in some other things, like a struggling small cap solar installation company. 

 

REPEAT - Complete Solaria Names T.J. Rodgers CEO (yahoo.com)

 

I don't think I've ever seen such an interesting press release.  Here's a sample: 

 

T.J. Rodgers closed, “Messrs. Kapp and Rubenstein, I built and ran a real, operating semiconductor company for an industry-record 34 years. I don’t need or want your help. I want your knee off of my neck, so I can breathe. If you don’t free us by converting your debt to equity, as I have, I will resign shortly thereafter and allow investors to observe and cringe at Carlyle’s organ-harvesting methods in action.”

 

Rodgers added an epilogue, “While I was spending Sunday night writing this press release, I received an email from Carlyle at 10:06 EDT from Sanket Patel, another Carlyle employee I’ve never heard of. Patel warned me that my recent threatened press release (i.e. the above) might “necessitate legal action by Carlyle.” Make my day. I would relish telling my Carlyle stories in detail – under oath – to a jury of my peers in a public trial.”

 

 

 

I just skimmed Complete Solaria's 10K, and wow, TJ has his work cut out for him. I understand they've reduced costs significantly this year, but it's a mess. 

[Saluki]

1 minute ago, ValueArb said:

 

I just skimmed Complete Solaria's 10K, and wow, TJ has his work cut out for him. I understand they've reduced costs significantly this year, but it's a mess. 

 

Yes, I looked at briefly and put it in the too hard pile.  It would be more investable at a higher price if they can get themselves sorted, but they laid off most of their employees, and Carlyle has their nuts in a vice.  The other investor agreed to convert their debt to equity, but it's contingent on Carlyle doing the same.  I don't think it's gamesmanship, I think the bond covenants prevent them from issuing new shares or debt without Carlyle's approval.  So they can't buy more panels for their backlog without cash, but C won't let them borrow more or issue shares.  And it looks like it's in C's interest to let it go under so they can "harvest the organs".  Maybe the warrants $0.03 might be interesting.  

 

I thought about starting a post on it, but it's such a small cap and it's got so much hair on it, that it's not worth it.  If C converts the debt into equity it will give them some room to maneuver, but TJ said he's not putting more money in and he's not interested in working for Carlyle for free.  He can't stand them.  He's a billionaire and could literally buy this whole company with his spare change, but he's not going to do it with Carlyle putting their two cents in. 

[ValueArb]

I've added Complete Solaria to my watch list, I'm curious to see how their cost cuts play out. If TJ can stabilize them so that BK is off the table and future dilution predictable I might bite. I would never bet against TJ, and always root for him.

[ValueArb]

Whoops, missed this. Carlyle capitulated, TJ raises the flag on another victory but still need to see how the business responds to loosening the leash.

 

https://finance.yahoo.com/news/complete-solaria-signs-term-sheet-120000656.html

[Sweet]

Interesting article from John Huber about big tech capex and how it may impact future earnings:

 

https://basehitinvesting.substack.com/p/big-tech-capex-and-earnings-quality

[Sweet]

Is anyone here looking at office REITs or commercial real estate more generally?  I think it’s worth exploring the pros and cons of making a longer term bet in this space.

 

It’s the one sector that hasn’t had a post pandemic bounce.  I keep hearing people saying there is another shoe to drop but there is a decent chance we are close to a bottom. 
 

Banks are rolling debt tied to office buildings rather than eating the losses in the hopes the sector turns.  Some of these office spaces are being sold for housing development.  Other buildings are being sold at a huge discount.
 

But I have to ask how much worse can it get here?  If you think a lot worse why?  
 

Rate rises would be bad, AI is possibly a drag, another recession would certainly be bad in the short term but ironically good long term (see below).

 

I know of those office jobs will never return again but I don’t believe office real estate is going to stay empty forever.  I also think the working from home trend will reverse when the labour market swings in the favour of employers again who demand workers return to offices i.e. recession and rise in unemployment.

 

I was looking at some REITs that specialise in office real estate.  Boston Properties, Inc. (BXP) are Kilroy Realty Corporation(KRC) are trading at 2009 lows - that’s compelling to me.

 

https://finance.yahoo.com/quote/BXP/
https://finance.yahoo.com/quote/KRC/

 

I found during the oil bust that it’s often better to pick the higher quality plays.  Alexandria Real Estate Equities, Inc. (ARE) is at 2018 prices and about 40% off the highs.

https://finance.yahoo.com/quote/ARE/

 

Plus you are getting decent yields on these which reinvested might make for good returns.

I’ve only just starting looking at this and i’ll post more thoughts are I dig in further.

[Gamecock-YT]

extend and pretend works.....until it doesn't anymore. I'm interested in the space but giving my lack of knowledge on the space, it'd take a big washout to get me comfortable investing in it. 

[Sweet]

3 hours ago, Gamecock-YT said:

extend and pretend works.....until it doesn't anymore. I'm interested in the space but giving my lack of knowledge on the space, it'd take a big washout to get me comfortable investing in it. 

What if we have already seen the big wash out?

 

We are four years into this bear market.

 

And as you hint at, extend and pretend might work.  If the excess supply of commercial real estate is taken off the market the demand problem will solve itself.

 

Edited May 18 by Sweet

[Gamecock-YT]

1 hour ago, Sweet said:

What if we have already seen the big wash out?

 

We are four years into this bear market.

 

And as you hint at, extend and pretend might work.  If the excess supply of commercial real estate is taken off the market the demand problem will solve itself.

 

 

I don't have to swing.....

 

What's the saying about generals always fighting the last war, especially if they won? 

 

You haven't really seen any bankruptcies in the space, sure some of the big names handed back the keys to places, but there hasn't been the big shake out you would expect to see in a highly levered business where the cycle has turned. 

[SharperDingaan]

The reality is that the sector is overbuilt most everywhere, and much of the stock needs to be written down in a big way. For most it means that asset write-downs will trigger debt covenant defaults, unless replacement new equity can be raised via new share issuance at rock bottom prices, and material dilution. So extend and pretend, 'cause if one BK's the game is over for all of them. How many IB's went down within 4 months of the Lehman's collapse ??? 

 

If you simply opened a new REIT and just bought a building (at a suitable deep liquidity discount), you would have a much better proposition and at a lot less risk. No shopping, until the vultures come down from the trees.

 

SD

 

 

Edited May 18 by SharperDingaan

[Sweet]

No question there is further pain, write-downs on property, defaults etc.

 

However vacancy rates are not staggered consistently among properties, it’s the old commercial buildings that have highest vacancy rates, new ones less so.  As ever quality will matter.  This article highlights some of the differences and where the squeeze points are:

https://www.brookfield.com/news-insights/insights/misunderstood-us-office-market
 

This could be a slow car crash that continues for a couple of years. The refinancing of debt seems to be an average of 5-10 years and many of those loans will need refinanced at higher rates.

 

So I get it.  It’s not a slam dunk.

 

However I suspect there is good money to be made at these prices.  A 50% + drawdowns in any sector is rare and it’s worth considering whether the pervasive doom and gloom is justified.

 

I mentioned above, some of these REITs are trading at 08/09 lows.  Is it really that bad out there?
 

My back of the envelope bull case:

 

- office work is not dead even if wth is here to stay at some level

 

- excess inventory will get wound down and the supply problem will fix itself in time

 

- companies will default and fail but overall I think we will muddle through

 

No position btw.  Talking out loud.

[Gregmal]

Office was never a great asset class and it was a joke to see 4-5 cap prints for the better part of 2014-2019. Meanwhile grade A grocery traded for 7-8 and warehouse near double digits. Both the Wall Street crowd, and the academics, just had no clue what they were doing because they were still living in the 1980s. 

[Sweet]

Looks like the rise in capital requirements for big banks is going to be cut:

https://www.wsj.com/finance/regulation/dimon-led-bank-ceos-to-fend-off-tougher-capital-rules-b647756d#
 

 

[ValueArb]

Is it still April 1st? This is so hilarious it doesn't seem real to me.

 

https://www.bloomberg.com/news/articles/2024-05-20/seafood-chain-red-lobster-files-for-bankruptcy-protection-lweh7tpj?srnd=homepage-americas

[KJP]

The Inhibrx transaction should close soon:  https://inhibrx.investorroom.com/2024-05-10-Inhibrx,-Inc-Announces-Updated-When-Issued-Trading-Date-for-Anticipated-Spin-Off

 

You get cash, shares in a SpinCo*, and a CVR.  Depending on where the SpinCo trades, it looks like you're getting a decent CVR fairly cheap. 

 

*Although the record date for the spin is May 17, an earlier press release stated that the the publicly traded shares will trade with the rights to the spinoff until the distribution.  So, I believe if you buy in the open market today you still get the spin. 

[Haryana]

https://seekingalpha.com/article/4689725-fairfax-financial-compelling-investment-opportunity-for-decades-to-come

"Did you know that Warren Buffett and Prem Watsa both started Berkshire and Fairfax at the age of 35 years
old?
Berkshire was started by Warren Buffett in about 1965 when Warren Buffett was 35 years old, while Fairfax
was started by Prem Watsa in 1986 when Prem Watsa was 35 years old.
Similar to Charlie Munger being a mentor and investment partner to Warren Buffett at Berkshire, while less
well known, Tony Hamblin was the mentor and investment partner to Prem Watsa at Fairfax. This is also
where Hamblin Watsa came from.
Coincidentally, Charlie Munger passed away in November 2023 while Tony Hamblin passed away in
October 2023. It is very unfortunate that the investment community lost two bright stars in just two months."

 

[giulio]

Not sure where to post this. I would like to collect the feedback of the forum members, and maybe provide some food for thought as well.

First column is net returns, second is gross, third is S&P500.

What would you think of this investor? Does this record stand out? Inception is Jan 1st 2000.

I have a ton of doubts about this investor...managing $100M in 2019 not sure now.

What I see is 

• a very "convenient" start date to compare yourself against the index
• huge numbers in 2020, 2021 and 2023, fuck up in 22 -> red flags
• more or less market performance excluding 2020-2023 and 2000-2003

Yet, I see him presented as "an extraordinarily thoughtful investor", "who’s beaten the S&P 500 over the last 24 years", obviously mentioning Peter Kaufman and Charlie Munger....

If you know his name please don't share it now, do it later.

 

 

[Sweet]

2 hours ago, giulio said:

Not sure where to post this. I would like to collect the feedback of the forum members, and maybe provide some food for thought as well.

First column is net returns, second is gross, third is S&P500.

What would you think of this investor? Does this record stand out? Inception is Jan 1st 2000.

I have a ton of doubts about this investor...managing $100M in 2019 not sure now.

What I see is 

• a very "convenient" start date to compare yourself against the index
• huge numbers in 2020, 2021 and 2023, fuck up in 22 -> red flags
• more or less market performance excluding 2020-2023 and 2000-2003

Yet, I see him presented as "an extraordinarily thoughtful investor", "who’s beaten the S&P 500 over the last 24 years", obviously mentioning Peter Kaufman and Charlie Munger....

If you know his name please don't share it now, do it later.

 

 

I wouldn’t invest based on these numbers.