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Waldo Mushman

Waldo Mushman
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  • Illegal Products Could Spell Big Trouble At Lumber Liquidators [View article]
    Now I am being dismissive. Your silly DTPA won't get anywhere and LL probably has 10 of those sort of cases filed every week. Most retailers recognize these nuisances as a part of doing business. Irate customers with an inflated sense of importance clog the legal system with petty complaints and they are routinely tossed out.

    I wish you the best and I hope you get some satisfaction but your activities will go totally unnoticed by the market, the shareholders and probably LL itself. The stock remains an indifferent short sale.

    John
    Jun 25, 2013. 02:28 PM | 3 Likes Like |Link to Comment
  • Illegal Products Could Spell Big Trouble At Lumber Liquidators [View article]
    XZ -

    I am afraid I am a bit jaded. Dealing with some of the Chinese stocks that didn't even have a business was eye opening. LL seemingly has real stores and real money. Contrast that starting point to Sino-Forest who didn't actually own any forests. Regulators are relatively indifferent to outright fraud so poor product quality is unlikely to wind them up. If poor products were of great import half of the NYSE names would be zeros.

    John
    Jun 23, 2013. 10:25 AM | Likes Like |Link to Comment
  • Illegal Products Could Spell Big Trouble At Lumber Liquidators [View article]
    My point is to show how easily the charges can be refuted with some simple PR. The underlying financial realities will not be itemized and will very likely sink into some sort of suspense fund - amortized over 4 or 5 years.

    I looked at the name as a possible short and it seems to be a fairly weak play. LL is very unlikely to see any material revenue drop due to this issue. It is also unlikely that any litigation will get traction. I expect that the macro issues of new home count, sales per store, operating margins, etc will drive this train and the problems you identify are predictive of a JCP type descent into mediocrity. In 34 years.

    And I think you misunderstand - they aren't going to test a damn thing. They are going to say the did and who is going to call them out on it? Next we can start a national movement against Dairy Queen for under sprinkling the Jimmies.

    Hopefully I am not sounding overly dismissive but suggesting BK and a rain of consumer fury is a bit overwrought. Equally unlikely is any material impact on either the top or bottom line based on regulatory enforcement. The key reason this doesn't work as a short is that they can be brilliantly successful without the formaldehyde. That chemical is not a key ingredient to anything they do and they can (easily) and will (quickly) eliminate that concern.

    John
    Jun 21, 2013. 10:31 PM | 2 Likes Like |Link to Comment
  • Illegal Products Could Spell Big Trouble At Lumber Liquidators [View article]
    And next week......

    "Issues regarding formaldehyde levels in one of our products has prompted us to do a thorough company wide test of all of our inventory. We have already done a sample test at the site that drew the public attention and the problem has been identified and corrected. We expect system wide inspections to require approximately 90 days and less than 1 cent per share revenue impact. This actually presents us with an opportunity to introduce our newest line of green flooring endorsed by Pope Benedict and Bono.

    Your claims are unfortunately easy to defend against and the corrective action they can take seems fairly straightforward. Looks like a tough short to me. I am afraid most shoppers (and all HF's) will ignore consumer criticism if they get a deal.

    Very impressed with the work.
    John
    Jun 20, 2013. 03:06 PM | 4 Likes Like |Link to Comment
  • Texas Pacific Land - The Ultimate Buy And Hold Stock [View article]
    This whole thing is very interesting but it seems to be a likely disaster for investors.
    1. There is no mechanism for completely terminating the trust and liquidating it.
    2. Officers are well paid, hold the position for life and have zero motivation to close the doors on their candy store.
    3. The 1/128th royalty interests are tiny - less than 1%. The 1/16th interest is only 6%. Virtual certainty that they are both ORRI's and carry no executive rights. Overrides are much less valuable than controlling mineral rights.
    4. Predictable scenario is for the large holders to distribute at some point of diminishing return (soon??). (PS - is share repurchase required to be open market?) There is no reason not to issue another tranche of sub-class shares. Scarcity of shares can be controlled as desired by the major holders and the officers need the paper to shuffle.
    5. Your land valuations are extremely suspect and I believe high by a factor of 4. And the valuations are meaningless unless the trust completely liquidates which seems very unlikely.
    6. If you devolve this entity into a royalty trust and value it exactly like all the other royalty trusts - return and reserve life - you have a ~$20.00 stock. Whether the royalty is being distributed to the shareholders in the form of cash or in the alternate buy back form, the net economic results are virtually identical.

    The magic trick here is to presume that there is some terminal point for the valuation. I don't believe that will happen and the appropriate metric to judge TPL by is the net cash flow. Using O&G rules of thumb this company is hugely overvalued.

    John
    Jun 2, 2013. 11:50 AM | 5 Likes Like |Link to Comment
  • Buffett's Dangerous Advice About Bonds [View article]
    Rather self serving, No?

    You suggest that leveraged closed end funds - priced above asset values - in illiquid junk and foreign paper - with huge management loads - can be used as a counter to Buffet's argument.

    You aren't recommending bonds as an asset class you are pitching the personal trading skills of Gundlach and Gross. The hoary rule of age = bond % needs to be tempered with some current realities. The return on liquid assets is historically low. Is the risk equally low?

    The fed has systematically and effectively kept a lid on interest rates. Anyone expecting that to continue indefinitely is delusional and will be disappointed. Inflation may well be tame at the moment but it is a very rational scenario to foresee a spike that would wipe out years worth of interest and major portions of the capital. History offers abundant examples of sovereign/corp debt paid with revalued currency. And that revaluation is largely taken from the hides of bond investors.

    Products such as the managed overnight fund pools are swell but little more than money market funds. Not sure if I would classify them as "investing in bonds".

    I notice that you have a fancy suit and a tie and you are pitching your book. Buffett may well bring the immortality perspective to the investment but you have to be hoping all those 80 year olds will die soon and not be around to criticize your performance over the next 5 or ten years.

    This is not a fair factoid....but....Vang... offers 28 bond funds. YTD only 4 of them returned greater than 1% return and 9 actually lost money. Hmmmm....I wonder what the "risk" was for the S&P returning ~17%.

    John
    May 27, 2013. 11:14 AM | 12 Likes Like |Link to Comment
  • CITIC Capital's Take Private Deal For AsiaInfo-Linkage: Is This An LBO The Chinese Way? [View article]
    ASIA is a stone cold fraud. Back in the days when the SAIC filings made by the company to regulators in China were still available. I got copies of all 12 -14? companies filings. It has been exhibited countless times that the financials filed in China are accurate and rarely agree with the SEC docs. In ASIA's case they were grossing less than 1/6th of the amount reported in the US and they were losing money.

    The ugly stories continue to dribble out indicating that many of these China frauds have been "protected" by the Chinese government and the politicians associated with the companies. The problem with any of the left over sticky boogers is that they are untradable. The price is completely removed from any market considerations and an investor is completely at the mercy of unknowable schemes.

    Small bit of advice...."Forget about it Jake, its Chinatown."

    John
    May 16, 2013. 07:31 PM | Likes Like |Link to Comment
  • Spyglass Resources: With A 15.5% Yield The Market Wrongly Expects Certain Failure [View article]
    Appreciate the work on this name. I am intrigued largely due to Buchanan's involvement. Don't know a thing about him other than his results with PVX. The question I hope you can shed some light on is why did he put this deal together? To make the question more pointed - Is there an onerous management agreement in place and/or is there a blizzard of performance based warrants.

    Clearly I should do the DD myself but I am not well versed in Canadian regulatory filings and am not having any success in locating an answer. Ignorance is bliss.

    John
    May 10, 2013. 03:59 PM | 3 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    Everyone continues to dance around the elephant in this room.

    Why pay cash money for puts at a price far above the current market?

    Gas trades at $4.25. Selling puts at a $6.00 strike price requires out of pocket cash $2.00 - today. Exercise the put in three years and you still net the $4.25 market after the return of the $2.00 you prepaid. The transaction fees erode the margins significantly, puts cash in a dead account, and contributes nothing to the risk control.

    The transaction is transparently an accounting ploy. It makes no economic sense.

    John
    May 10, 2013. 02:03 PM | 3 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    I am afraid I have seen no "positive views" of LINE, BRY, or LNCO that doesn't hinge on the manufactured dividend. I believe that my contention that they are POS oil companies is unrefuted.
    I am an experienced small player.... Texas Operator License #685819.

    John
    May 10, 2013. 12:07 PM | 1 Like Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    My mention of the options is backwards. They are paying premiums for IN the money puts. LINE pays a cash premium above the market price to get a particular strike price. The only people agreeing to buy LINE's gas at $2.00 above the market are people who have been paid $2.25 to do so. Couple of years roll around and a major portion of the price LINE receives is the same money they paid. The reason it is so flakey is that there is no rational reason to pay the premium. LINE could just as easily sell the puts at market and keep the premium in the bank. Rather than a commitment to buy the gas at $6.00 they have a commitment to buy the gas at $4.00 and an extra $2.00 in the bank.
    There seems to be a very strong correlation between the amount of prefunded puts and anticipated distributions. Conversely there is a very poor correlation between projected production and the amount that has been covered under the puts. HMMMM? Must be a coincidence.
    John
    May 9, 2013. 07:38 PM | 1 Like Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    Small gathering lines are deminimus in the world of big MLPs. The trunk lines covering thousands of miles under the ever appreciating easement make them damn near bullet proof. IMHO Some of the lines are probably worth more as scrap then they cost to lay 40 years ago. And far more than the depreciated basis.

    John
    May 9, 2013. 07:13 PM | 1 Like Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    Uh.....I thought it was an LLC.

    If everyone would take off the blinders of the distribution and judge it as an O&G play I don't think anyone could recommend it. The tax law (likely endangered) allows the illusion of substantial return. Very reasonable to judge LINE as an annuity or other similar financial product but it is a miserable oil play.

    Can't see the name as a short...yet. The day the House starts talking about MLP's (or LLC's) as tax preference items with middle America sized caps ($25,000 annually?) is the day these start to plunge.

    John
    May 9, 2013. 06:58 PM | 3 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    Elliot -

    I think you are completely wrong on this call. LINE is a poster child for creating oil wealth with financial ploys rather than with oil field expertise. The smoking gum is the return of the put premiums as cash distributions to the unit holders. There is no supportable reason to pay the premium for the OTM puts. If your goal is hedging you simply buy the ITM's and use the extra cash to buy production.

    I am a big fan of Bronte and took a look at their work. I used to own LINE but I bailed about 2 years ago when they started having such huge divergence between the market price and the strike price on the puts. It was -and is -extremely poor cash management by any measure.....unless your goal is to create an illusion of high returns.

    I have significant involvement in the O&G industry and I decided to scan LINE's inventory of wells in Texas. All of them. In a nutshell they own trash. The collection is 80-90% strippers or worse. A couple of big wells look good but the overwhelming majority is junk.

    I have to hand them major kudos for the BRY acquisition. BRY has 100 year old heavy oil fields that are marginal at best. Using the LNCO slight of hand to create a bump in the cash flow was brilliant. It doesn't change the reality that LINE is now a worse oil company by far. They were pretty poor before but they really stink now.

    LINE is a self liquidating asset and a cheap option on the price of oil. Investors at this juncture should not expect getting all their money back. Value this beast with common O&G metrics and it is extremely overpriced.

    Big picture issue is that they are a depleting MLP asset (vs the pipelines) and grow exclusively through redeploying borrowed money.

    John
    May 9, 2013. 02:35 PM | 9 Likes Like |Link to Comment
  • Ocean Rig Trades 50% Below Book Value [View article]
    The self interest by Economou might be the major plus in this thesis. Conversion to an MLP would provide him immediate capital, access to new equity and the improved likelihood of refinance. In addition the MLP structure regularly provides the "management" arm of the partnership 50% of the upside. Economou could follow the Richard Kinder plan and effectively own 50% of the new MLP as an individual in addition to the DRYS ownership.

    New MLP's are getting gobbled up by the market indifferent to the blatant flaws and outrageous fee structures.

    Looks to me like a reasonable shot when and if the MLP starts to jell.

    John
    Mar 19, 2013. 12:12 PM | Likes Like |Link to Comment
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