Kevin Hollins

Merkel on Falkenstein's 'Finding Alpha: When Risk and Return Break Down'

A very thoughtful review; thanks for sharing.

With More CRE Defaults on the Way, Would-Be Acquirers Need Policy Help

CBTeas:

I agree that at cheap prices there are plenty of buyers. Where I respectfully disagree is with the notion that there are willing lenders ready to make loans at terms that make economic sense. That is why we continue to see REITs tap the bond market rather than using the private loan market, which is where over 80% of the (still overwhelmingly private) CRE market sources debt.

Perhaps I was unclear. I don't believe there is no market for toxic assets; quite the contrary. We have better opportunities than we have seen in years, but a lack of financing means that we have fewer *actionable* opportunities in the absence of even very conservative underwriting and leverage. When acquisitions must be financed with 100% equity, simply fewer are possible.

I would rather not prop up artificial prices either; I'm just trying to be realistic about the politics involved. At the moment, banks are disincentivized to move assets. To face the ugly truth and arrive at true market values requires, in the absence of some other form of regulatory relief, allowing a string of bank failures that exceeds the political will available today.

So, in the absence of political will, it seems worthwhile to at least explore a means by which banks can move the assets and lend by another means without, as you duly note, having their equity wiped out. It does not solve the problem fictitious accounting, as you note. Maybe if more politicians and regulators were investors...

Thanks for reading!


On Aug 13 08:33 AM CBTeas wrote:

> You are missing the biggest difference between today's real estate
> crisis and the one that created the RTC: in the prior crisis, real
> estate prices were allowed to fall to their logical bottom without
> any artificial government interference to prop up pricing.
>
> Right now, TALF, PPIP, etc... is actually making the problem worse
> by avoiding getting assets marked to TRUE market. The mistake you
> and every government official are making is to say there is no market
> or financing for assets. Nothing could be further from the truth!
> At cheap prices there are both plenty of buyers and willing lenders.
>
>
> But the problem: the equity in most of the top tier banks would be
> wiped out. So we have a banking system in denial. Don't believe
> it when you read that "there is no market for toxic assets." The
> problem is the banks just don't like the prices they are offered.
> There is a market for every real estate asset out there--just as
> there was in the RTC days.
>
> Even what you are proposing is to prop up artificial prices. Let's
> do what was done in RTC days: get to the bottom, and encourage buyers
> into the market, not discourage buyers from stepping up.

Underneath Berkshire Hathaway's Headline Numbers

Excellent post, and a useful case study as to why GAAP figures are a starting point, but insufficient by themselves.

Berkshire Hathaway Meeting and Derivatives..some ideas

Nice post. Cheers for offering the strategies and explaining them in such an accessible way.

Who Should Be Taxed?

Until there is political will in this country to debate a wholesale revision to the tax code itself, any debate about tax increases is bound to degenerate into class warfare (see the comment re "spoiled brats" above). The FairTax is worth consideration, as is a flat tax. Of course, finding the political will is difficult, but there is a way--call a joint session of Congress, lock all the doors, and tell them they can come out after they've competed their own tax forms. Auditors will be standing by at the doors to check their math. Voila--tax reform!

Weighing Bed Bath & Beyond's Risk/Reward

Thoughtful article. Thanks for sharing your thoughts.

Value Investors, Remember Margin of Safety

Sometimes the best way to double your money is to fold it in half and put it back in your pocket.

For a value investor, determining whether to buy or sell is necessarily preceeded by an analysis which, as JasonC notes, usually includes a discounted estimate of future cash flows. How any investor can confidently make that calculation at this point in time is what has me stumped.

What are the actual assets and liabilities worth, with one being written down and the other being accrued for each quarter in such meaningful amounts?

I have due respect for Mr. Miller, but I wonder if perhaps he is using a different calculator on this one.

MCG Capital: Squeaking By?

Nicholas: Thanks so much for following and writing about this issue. We have been long for some time and have a similar read of the filings. I was wondering if Einhorn's book would effectively cast a shadow over all BDCs (the accounting for which seems by its nature very hard to peg). We take comfort in the depth of the management team and await hopefully for the gears to begin turning again.