Wednesday, September 26, 2007

Whole Foods' Competition
Publix is opening a separate store (presumably the start of a new chain), GreenWise, that sounds like a Whole Foods - about 40,000 square feet (smaller than a typical Publix but just the size of a Whole Foods), at least half the produce organic, heavy on prepared foods, and many items not found in a regular Publix - in South Florida. Here is an article describing the new store. The Government's bid to keep Whole Foods from merging with Wild Oats always seemed misguided to me and this new concept shows the speciousness of the Government's case against the merger.

Tuesday, September 25, 2007

Long Slog
I bought the old QQQ sometime in 2000, after NASDAQ was well off its highs of 5,000 and was trading near 2,100 or 2,2oo. I thought I was getting a bargain with the index more than 50% off its highs - little did I know. I am finally close to breakeven with the NASDAQ near 2,700. (I did not know at the time the disparity between QQQ (now QQQQ) and the NASDAQ itself.) I have clients that I bought QQQQ for in the mid-to upper-$20s and $30s per share that have fared much better than I.

Wednesday, September 19, 2007

Good News
I love Zillow. Real Estate agents hate it. Glad to see it is getting additional financing.

Tuesday, September 18, 2007

More Piedmont
Piedmont Office Realty Trust, the newly named Wells Real Estate Trust, filed to go public earlier this year. Today, with the Fed's 50 bps rate cut, REITs as a group shot up 5%. I hope Piedmont goes public soon as the market is saying that the rate cut benefits REITs. I am not sure the impact, if any, of the lawsuit noted below on the IPO. Piedmont's charter calls for liquidation if it does not go public by the end of January 2008. The new $500 million line of credit is not the actions of a company planning on liquidating in under five months. According to someone at Wells, the REIT's portfolio appraised between $8.50 and $9.00 per share late last year. I am curious if the IPO valuation will be higher than these appraised values and the last solicitation price of $9.30 per share in July 2007 by an outside firm looking to by 25 million shares.
Piedmont's Press Release Omission
I checked this morning to see whether Piedmont has had its IPO. It has not, but a press release (and corresponding 8-K filing) touted a new $500 million line of credit the REIT has with Wachovia Bank and JP Morgan. After reading the press release I read the 8-K and it did discuss the new line of credit. The press release did not mention one item in the 8-K I thought was important - another lawsuit from an investor angry about the amount of compensation paid to Leo Wells during the REIT's management internalization. Here is an excerpt from the 8-K that discloses the new lawsuit:

Donald and Donna Goldstein, Derivatively on behalf of Nominal Defendant Wells Real Estate Investment Trust, Inc. vs Leo F. Wells, III, et al.

On August 24, 2007, a stockholder of the Registrant filed a putative shareholder derivative complaint in the Superior Court of Fulton County, State of Georgia on behalf of the Registrant against, among others, one of the Registrant’s previous advisors, Wells Capital, Inc., and a number of the Registrant’s current and former officers and directors.

The complaint alleges, among other things, (i) that the consideration paid as part of the internalization of the Registrant’s previous advisors (the “internalization transaction”) was excessive; (ii) that the defendants breached their fiduciary duties to the Registrant; and (iii) that the internalization transaction unjustly enriched the defendants.

The complaint seeks, among other things, (i) a judgment declaring that the defendants have committed breaches of their fiduciary duties and were unjustly enriched at the expense of the Registrant; (ii) monetary damages equal to the amount by which the Registrant has been damaged by the defendants; (iii) an order awarding the Registrant restitution from the defendants and ordering disgorgement of all profits and benefits obtained by the defendants from their wrongful conduct and fiduciary breaches; (iv) an order directing the defendants to respond in good faith to offers which are in the best interest of the Registrant and its shareholders and to establish a committee of independent directors or an independent third party to evaluate strategic alternatives and potential offers for the Registrant, and to take steps to maximize the Registrant’s and the

shareholders’ value; (v) an order directing the defendants to disclose all material information to the Registrant’s shareholders with respect to the internalization transaction and all offers to purchase the Registrant and to adopt and implement a procedure or process to obtain the highest possible price for the shareholders; (vi) an order rescinding, to the extent already implemented, the internalization transaction; (vii) the establishment of a constructive trust upon any benefits improperly received by the defendants as a result of their wrongful conduct; and (viii) an award to the plaintiff of costs and disbursements of the action, including reasonable attorneys’ and experts’ fees.

The REIT has had another lawsuit related to the internalization and I am not sure if this is a re-hash of that earlier suit that did not get class certification.
If Only Its Partnerships' Investors Were This Lucky
Petroleum Development Corp's (PETD) stock jumped almost 10% today (9/18/2007). Since 2003 its stock is up nearly ten times. Nice. PETD sponsors oil and gas limited partnerships that offer investors tax write-offs and distributions for an extended period - usually fifteen years or more. The programs are royalty offerings so investors' distributions are their return of and return on investment. Very few of PETD's offerings have returned investor capital to date and to call its deals anemic is unfair to other anemic investments. It is safe to say that investors in PETD stock have done better than any investor in a PETD oil and gas partnership. Remember this: It is better to invest in the entity that is receiving cheap equity financing than the entity that is providing the cheap equity financing.
The End of Non-Bank Lenders
Here is an article on more trouble at mortgage companies from Reuters via Yahoo Finance. I link to it only because it has become clear (to me) that the non-bank mortgage companies are doomed. The big banks don't like the competition and flexibility these firms offer and the financial system's problems are now concentrated in these non-bank mortgage companies. The Fed's cut in the discount rate only benefited big banks as these are only firms that can borrow from the Fed's Discount Window. Many of the big bank's financial problems originate in the mortgages made by the non-bank mortgage companies that the big banks bought, packaged and syndicated. Don't expect any institution to throw these non-bank firms a life-line, unless it's in the form of a fire-sale buyout offer.
Elaborate Scam
There is an interesting article in the September 17th issue of The New Yorker. The article was written by Mark Singer and details a minor British pianist from the 1950s who had a late-life renaissance and became the fancy of classical music world. There was only one problem, the renaissance was a scam orchestrated by the pianist's husband who copied existing piano works and credited the works to his wife. Eventually, like all frauds, the truth came to light, but not before many esteemed music critics fell for the bogus pianist. I relate this story because in due diligence much of the analysis is based on information provided by sponsors. If someone is going to cheat it is going to be hard, initially, to detect the scam. If the sponsor gets a following, which is likely as scam artists tell a good story and investment advisors and broker/dealers love a good story, which is easy to relate to clients during the sales process, the unraveling will cause pain for investors, advisors and broker/dealers.

Thursday, September 13, 2007

Greenspan Speaks
Former Fed Chairman Alan Greenspan said he became aware of the subprime mess in late 2005:
Former Federal Reserve Chairman Alan Greenspan admits he “didn’t really get it” that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.
The quote above is from today's Wall Street Journal and was extracted from an upcoming CBS 60 Minutes interview with Greenspan. I am not going to pick on Greenspan because I think he did a great job as Fed Chairman. But it is strange, or maybe just coincidental, that his concerns started to arise just after housing prices crested in the summer of 2005. I find it hard to believe that he did not know the level and exotic nature of the subprime mortgage market until late 2005. I guess as long as real estate was rising and the subprime borrowers could refinance into other mortgages the subprime market was not a problem. I do believe that the leveraged economy - i.e. leveraged consumer - has been the primary monetary policy of the Bush administration. This was fueled by low rates and the explosion in home borrowing.

Friday, September 07, 2007

Housing Help
The interest rate on the ten-year Treasury is below 4.40% this morning. This is going to help the housing market - or at least slow the downward spiral.