On Whole Foods, McDonald's and New Banking Fears

Whole Foods Attacks Its Base
Apparently Whole Foods (WFMI) CEO John Mackey has not learned the real political lesson from Karl Rove. Instead, Mackey chose to regurgitate Rove’s false rhetoric on healthcare reform in a long winded editorial in The Wall Street Journal “The Whole Foods Alternative to ObamaCare”. I won’t repeat the details here.

Mackey’s Darwinist vigor to destroy and swallow his competition has lead to Whole Foods' unquestionable success. Entrepreneurs become successful either by feeling invincible or being paranoid. Legend is that Intel (INTC) is the success of the paranoid. When Intel started becoming too fat and happy David (AMD) took a nice size slice out of Goliath. The last few years returned Intel to its roots.

Recently I wrote “WFMI Moves from Whole-Paycheck to Partial Paycheck”, convinced that Mackey was developing a healthy sense of paranoia by steering the company back to its core values. I confess that I spoke too fast. Mackey’s healthcare editorial tells me that he still retains an unhealthy sense of invincibility.

Mackey’s Darwinist theory of healthcare is surely to antagonize his highly educated, one might even say elitist target audience. How could a customer willing to spend extra so that the farm workers get fair wages not want health insurance for all? Yet Mackey is calling for the uninsured and uninsurable to kneel at the mercy of philanthropists or just do without healthcare and die as martyrs. After all, he says healthcare is no more a right than food or shelter.

It’s interesting that when I watch the most unruly and disrespectful participants in this month’s political town hall meetings I see only the most obese and unhealthy. Granting those any health insurance at all runs counter to both Mackey’s Darwinist and personal responsibility doctrines.

Trouble is Mackey doesn’t really understand how Rove got George Bush, Jr. elected president twice. Rove would espouse any policies that galvanized the base, his personal morals were irrelevant. Unfortunately, Mackey’s core values are as superficial as Rove’s. And I believe Whole Foods customers will revolt.

The real question is did Whole Foods board of directors approve an outburst by the CEO that was clearly against the shareholders interests?

Charles Schwab meets McDonald's
The Wall Street Journal’s “McDonald's Profit Declines” reports some dissention in the land of McCafés (MCD). Sensing fear from Charles Schwab’s (SCHW) animated commercials warning about discussing a complex trade with an inexperienced broker, “some franchisees … voiced concern over how well equipped the stores are to handle complicated coffee orders.” Fortunately, my trades are never so complex that I would need Schwab’s services and I actually stopped drinking coffee.

Banks at Liquidation Value
Bloomberg’s “Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil” reports that Regions Financial’s (RF) loans were worth $22.8B less than book value and shareholder equity was just $18.7B. This was a footnote disclosure in the 10Q according to Bloomberg. Bank of America’s (BAC) discrepancy was $64.4B and Wells Fargo (WFC) $34.3B.

The fair-value gaps are based on the accounting distinction between loans held for investment and loans held for sale. Loans held for investment can optionally be fair valued, but traditionally are valued at historic cost (less impairments and reserves).

Bloomberg is also reporting “Toxic Loans Topping 5% May Push 150 Banks to Point of No Return”. While the government told us that the nation’s top 19 financial institutions are “guaranteed” not to fail, Bloomberg has screened a list of 150 publicly traded banks with non-performers over 5% and almost 300 at 3% or more. Bank failures when non-performers reach 5% are not imminent if reserves are adequate, but trouble is implied.

How scary are these stories? First, liquidating value of loans should not be a key metric as long as the banks can reasonably be viewed as going concerns. Almost no businesses, whether financial or industrial, has a positive liquidating value without goodwill. However, I do give value to the investment risk in banks topping 5% non-performing loans or being inadequately reserved. Bloomberg alerted me to this regulatory benchmark.

Disclosures: Author is long BAC, INTC, RF and WFC.

Comments

[markmc440:]

Enjoy free markets while you can.

Health Care IS NOT a right. Nothing provided by man can possibly be a right. What about the rights of individuals to have a man made creation before that creation existed? Life, Liberty, the earth are inailiable rights.

Up 99% off March Lows and 19% overall. I like America and I love business and the free market system. It works for anyone willing to get off their but and put a bit of effort into it. Rove Rocks.

Aug 16 06:06 AM

[User 207783:]

Steinberg needs to stick to the facts, and quit writing articles which are much more about his own ultra-liberal politics and much less about finance. He would do well to take his own advice and realize that most of us who invest are conservative or middle-of-the-road politically. He might also actually READ the current version of the healthcare reform bill: Mr Obama's views and proposals are Orwellian, especially as regards the value of senior citizens!


On Aug 16 06:06 AM markmc440 wrote:

> Enjoy free markets while you can.
>
> Health Care IS NOT a right. Nothing provided by man can possibly
> be a right. What about the rights of individuals to have a man made
> creation before that creation existed? Life, Liberty, the earth
> are inailiable rights.
>
> Up 99% off March Lows and 19% overall. I like America and I love
> business and the free market system. It works for anyone willing
> to get off their but and put a bit of effort into it. Rove Rocks.

Aug 16 09:11 AM

[Trex:]

He only sees the obese and elderly. That says it all. He only sees what his liberal eyes want to see. Obamacare is DOA.

Aug 16 10:27 AM

[alphamack:]

Health care is not a right. We should provide basic care for the mentally and/or physically infirm, but for all others it should be considered a living expense along with everything else a person needs to survive.

Aug 16 12:53 PM

[loraine turner:]

Whether health care is a right or not is a philosophical question, however every citizen has a right that their government makes sure that there is a viable health and educational system. The rising costs of health care are making the system become exclusive and reducing dramatically American competitiveness. Even though you have insurance, if you become unemployed or seriously ill you will either loose your insurance or face huge costs. As America's workforce looses it's jobs to overseas workers,the middle class is shrinking and that leads to the question of who will be the customers of Whole Foods or the greedy Insurance Companies who control the health care system. I was brought up in the UK and still have family who enjoy the health services of the NHS. The NHS while not perfect does provide a viable system to all. Most of the criticism that I have heard lately in the USA against the NHS is ludicrous. America does not need to copy the NHS but does need to seriously reform its system to be more human and beneficial to it's users. By the way the word social is not a dirty word. There has has to be a healthy mixture of private and social systems for any country to survive and provide all it's citizens and not just the wealthy few the good life.

Aug 16 02:08 PM

[robert.b.fe...:]

I didn't finish the article as it devolved into a liberal diatribe. There may have been some valuable information in the article, I will never know because I couldn't get past the noise. Senior Democrats in the house and senate have come out and said that the "Public option." will not be in the final legislation. Secretary Sebillius also stated that the government program being excluded wasn't a deal breaker. Therefore your health insurance stocks may be safe for the moment. As allways keep your stops tight and your reserve currency in gold.

Aug 16 07:39 PM

[Anonymous 2:]

Re baks at liquidation value...
It would be interesting to know
if
(A) the hedge fund mangers who are now long Financials have seen or evaluated the fundamental flaws described by independent analyst Reggie Middleton in his past few months of research on Wells Fargo Bank AND/OR
if
(B) the management of Wells Fargo bank have had an opportunity to refute or at least address the comments which Reggie provides in his bearish forecast of Wells fargo bank.

Perhaps professional hedge fund buy side analysts and investment firm sell side research analysts might ask the WFC management about their views about such observations

seekingalpha.com/artic...

Much to my regret, I was "unable" to take Reggie seriously after I retired from Bear Stearns in winter of 2006.
Reggie was among the first who initially identified a number of "macro" problems with the fundamentals of Bear Stearns as company as well as the management.
I had a bunch of "restricted shares" I could not sell (when it was in the 160 level) as well as some options and shares in my deferred comp plan which still (August 2009) have not been issued to me. But he did persuade me to at least hedge with covered calls and long puts. I still lost a mid 6 figure portion of my retirement budget but the hedge only helped me on a relative basis.
Thus, after a few years of continuing to follow him, I believe that his research should be considered as "value added" by those who are serious long term value investors.

Aug 16 08:23 PM

[jackooo:]

How about universal health care for animals? They need it more then stupid Americans.

Aug 17 12:07 PM

[paul:]

Steinberg has over dosed on Obama Kool Aid. What is it about common sense he doesn't comprehend?

Aug 17 04:34 PM

[DroolingElmo:]

Steinberg is consistently off target. Once again he not only misses the target but kills several innocent by standers.

Read his other posts for a good laugh.

Aug 17 05:04 PM

[User 476985:]

Michael is correct. John Mackey's success in managing his Corporation up to now has made him arrogant. He understands nothing about health care, yet he thinks he can tell the country what it should do in this regard. The United States is the only developed country that doesn't provide universal coverage, and has the highest cost with the worst results, yet the suckers who are about to lose their jobs are convinced up to the moment that they lose their jobs and the health insurance that they have tied to their jobs provides the best care.
Mackey should be fired from his job because he doesn't understand his customer base, which is overwhelmingly composed of intelligent progressives who know that the country's very survival depends on health care reform and universal coverage. I have long been a Whole Foods customer, but I like many of its customers will never shop there again until Mackey is fired from his job. I refuse to support a company headed by some one who if fighting against the interests of the average citizen. I have also been an investor in Whole Foods, but would now advise anyone who is an investor in the company to get out now, because whatever your mistaken ideas on health care might be, the fact of the matter that the customer base of Whole Foods does not agree with Mackey's views and as they learn of them (boycot pickets are in front of the stores now), they will desert the company, and there goes the stock price.

Aug 25 05:14 PM

[wallyman:]

mackey and WFMI kick ass...the idiots who are boycotting the one of the only grocers who actual sells food made from natural (read "healthy") ingredients will end up fat and less healthy from preservatives, hormones, high fructose corn syrup, etc..good riddance you idiots.

this aint about mackey, its about
being against obama....WFMI has the lowest costs of healthcare
of any comparatively sized company and people are mad about it?
i guess the union bosses do have a lot of sway....go away please
you idiots.....

Aug 25 08:44 PM

[Tokyo Picker:]

Whole Foods up 20% since this article and that's before the buy-cott gets into full swing. Steinberg, don't let your weirdo politics get in the way of whatever brain you have, butthead.

Sep 09 12:05 PM