Thursday, February 25, 2010

The Battle of the Mall Operators

By Eric Jackson

RealMoney Contributor

2/25/2010 9:30 AM EST

It's been interesting watching the emerging battle between Simon Property Group (SPG - commentary -Trade Now) and Brookfield Asset Management (BAM - commentary - Trade Now) over General Growth Properties.

General Growth filed for bankruptcy-court protection last year. Simon Property came out a week ago with an offer for the entire company, which would help it put a stranglehold on the high-end mall business in the U.S. Yesterday, however, word leaked out that Brookfield was helping General Growth to restructure and emerge from bankruptcy as two new companies. Brookfield has the upper hand in this battle, and its investors seem to like what they are hearing.

A year ago, no one wanted to be in the business of running malls. Consumers were in a bunker mentality, dimming the prospects for retailers. Traffic to malls was plummeting. The mall owners were stuck with commercial real estate that was dropping in value from its highs in 2007, and mountains of debt had to be rolled over at some point in the future.

It was this terrible macro environment, plus a coming liquidity crunch, that drove high-end mall operator General Growth into bankruptcy last April. This was a still-solvent company that couldn't roll over its debt.


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Wednesday, February 24, 2010

Goldman Needs Financially Savvy Directors

By Eric Jackson, Senior Contributor02/24/10 - 09:11 AM EST

Stock quotes in this article: GS , MT , CL , FNM , MDT , SLE

Goldman Sachs(GS Quote) had a great 2009.

The results were so good that Directorship Magazine named Lloyd Blankfein its CEO of the Year for 2009 and one of its 100 most influential voices in the board room at an awards dinner last fall. The award recognizes a CEO's achievements during the year but also a company's board for having done an exemplary job of company oversight.

Despite Goldman's many successes, its board shouldn't be held up as a role model for others, as the case of a departing Goldman director last week illustrates.

Goldman is one of the best managers of risk of any large company in the world. In a business, where the bulk of their earnings come from trading, they have successfully learned to manage risks daily.

Arguably, any company's last backstop for risk management is its board of directors. Ultimately, the buck is supposed to stop with the CEO and the executive management. The CEO gets hired and fired by the board, who agrees on key hires and sets compensation for the executive team and signs off on the company's financial statements and its internal risk management policy.

Since Enron's blowup, the concept of "board independence" has been required of all boards. If we have a majority of sufficiently independent directors in place, the thinking goes, they will be able to better monitor a CEO and a management team.

In practice, many CEOs have selected people who meet the independence standard but come from outside the industry of the company on whose board they serve. Even worse, some CEOs have chosen directors from the nonprofit world or academia, with no business experience at all.


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Thursday, February 18, 2010

Taking the Other Side on Seabridge

By Eric Jackson

RealMoney Contributor

2/18/2010 8:59 AM EST

There are two sides to every story -- or at least there should be.

Over the weekend, Bill Alpert of Barron'sprofiled two junior gold miners: NovaGold Resources (NG - commentary - Trade Now) and Seabridge Gold (SA - commentary -Trade Now). Both are Canadian gold prospectors with $1 billion market capitalizations. Both are at development stage. As such, there are no revenues and earnings to peg valuations to. Investors have only the estimates of gold deposits to go on, and the article makes the point that these estimates are not yet a hard science.

Yet the article goes on to point out a number of potential problems with Seabridge Gold without telling the other side of the story. I hold a long position in Seabridge, so I obviously see this topic through that lens. Nevertheless, I want to rebut some of the problems of the Barron's article.

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Wednesday, February 17, 2010

Corporate Governance Role in Meltdown

By Eric Jackson, Senior Contributor

02/17/10 - 06:00 AM EST

Stock quotes in this article: TYC

What role did board governance play in the financial meltdown of 2008? According to John Gillespie and David Zweig, co-authors of a new book called "Money for Nothing," it was a major one.

Gillespie, a former Lehman banker, a co-founder of, maintain that boards were asleep at the switch or simply failed to act to protect some of our largest companies to fail or inadequately protect themselves. Some 57 million American households own stock in public companies. Their interests are supposed to be protected by boards. Instead, their holdings plummeted in value, and then, as taxpayers, they were forced to bail out many of these same companies. I spoke to the authors last week, and excerpts of the interview follow.

TheStreet: What do you think of Mary Schapiro's performance as head of the SEC?

Gillespie: The expectations for her were really low. I've been pleasantly surprised. She's increased disclosure requirements, beefed up enforcement and instituted an Investor Accountability Office. She's also throwing out non-broker votes counting in favor of a vote for management starting this proxy season.

Zwieg: I've been disappointed in her delaying a decision about giving investors a right to nominate directors to boards (the proxy access rule). The longer she waits, the more investors' money is being used by companies' management and lawyers to fight shareholders' interests on this rule.

TheStreet: How do you beef up enforcement at the SEC?

Gillespie: It's really tough. A career person at the SEC makes 180K in annual salary but they have to be as good as the top person at Wachtell.

Zweig: Who else is going to do enforcement if not the SEC? The ratings firms? Accounting firms? I don't think so. We'd like to see a small transaction tax on all stock trades go toward beefing up of SEC enforcement.

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Thursday, February 11, 2010

HWD: Sell the Family Jewels

By Eric Jackson
RealMoney Contributor

2/11/2010 9:55 AM EST
Click here for more stories by Eric Jackson

Harry Winston Diamonds (HWD - commentary - Trade Now) conjures up visions of the fabulously expensive jewelry stores in New York and Beverly Hills famous for draping Hollywood starlets in diamonds and pearls for the Academy Awards. But if you think the stock is a smaller version of Tiffany (TIF - commentary - Trade Now), you're way off. Harry Winston is one of the most unusual (and perhaps nonsensical) business combinations you'll find. And while the time of year might prompt you to go out and get something sparkly for your loved one, you might want to hock this particular gem.

The company is a combination of two old businesses, brought together because of a family feud. The Harry Winston retail diamond business passed into the hands of Harry's sons, Ron and Bruce, when he died in 1978. The two soon became involved in a long-running legal battle over ownership. Bruce, who'd initially shown no interest in the family trade, objected to the way Ron ran the business, not least the amount Ron started paying himself. Suits and countersuits were filed. Ron made several buyout attempts of Bruce's stake, but to no avail.

Finally, in 2000, private equity firm Fenway Partners bought out Bruce's stake in the business for $44 million. Three years later, Fenway decided to cash out and sold its stake to Aber Diamond Corp. of Canada, along with an option to buy the entire company. Aber completed the full takeover of Harry Winston in 2006 and took on the name, changing its own ticker to HWD.

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Wednesday, February 10, 2010

Information on the book: "Money for Nothing"

I recommend the book "Money for Nothing" by John Gillespie and David Zweig. Here is some more info on the book:

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Corporate Governance in Sad Shape

By Eric Jackson, Senior Contributor

02/10/10 - 06:04 AM EST

Stock quotes in this article: SHAW , CCE , MHCG , WB

A new book documenting how poor the state of corporate governance is in America -- and how it was a major cause of the financial meltdown -- will make you sick.

Money for Nothing, authored by former Lehman Brothers banker John Gillespie and founder David Zweig, lays out a compelling case for how CEOs and their minions have subverted the purpose of boards to oversee management and made them their lapdogs.

The book outlines numerous solutions to fix this problem. If they weren't so sensible, they might have a chance of being implemented.

We've now lived through two different stock market crashes in the last decade, and we learned each time in retrospect how poor a job boards did to protect the companies they served.

We thought we learned our lesson after Enron and Worldcom when Sarbanes-Oxley was implemented in part to improve corporate governance.

But, if taking your shoes off for TSA screeners is "security theater" designed to make us feel safer -- even if we're not -- Sarbanes-Oxley was the governance equivalent.

The stories of poor governance that fill the book would make you laugh, if they didn't cause you to be outraged.

Gillespie and Zweig discuss former Merrill Lynch CEO Stan O'Neal, who eliminated anyone from his board and management team who disagreed with him. Instead, he packed eight of the 10 directors with his friends, including John Finnegan, a friend of O'Neal's for 20 years who headed the Merrill compensation committee, and Alberto Cribiore, who had once tried to hire O'Neal and who was also put on the compensation committee.

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Friday, February 05, 2010

Microsoft Will Make You Money

RealMoney Contributor

2/5/2010 10:45 AM EST

After releasing one of the strongest quarters in years last month, Microsoft (MSFT - commentary - Trade Now) -- like several other stocks this earnings season -- has been sold off. With Thursday's selloff, the stock was down to around $28 after getting up close to $32 three weeks ago. Yet there are numerous reasons to go long Microsoft at these levels, especially considering what's going on in the rest of the market.

Microsoft has been the Rodney Dangerfield of large-cap stocks for a while now -- it gets no respect. It's hard to believe that this stock got down to below $15 less than a year ago at the March lows. Since then, it's up 82%. For those who've owned the stock over that time, they've also received a fat dividend (currently just under 2%), which will only go up considering that the company continues to throw off cash -- Microsoft had $34 billion in cash stockpiled as of the most recent quarter.

The argument last year -- and still an argument that Microsoft bears use now -- is that this is a stock that has no growth prospects. It reported its first decline in quarterly sales year over year in the third quarter of 2009. Its online services business has continued to lose money and is still nowhere compared with Google (GOOG - commentary - Trade Now) in search.

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Wednesday, February 03, 2010

Brooksley Born Should Be In, Geithner Should Be Out

By Eric Jackson02/03/10 - 06:00 AM EST

Stock quotes in this article: JPM , AIG , BAC

When Scott Brown won Ted Kennedy's senate seat a few weeks ago, it was a shot across the bow of President Obama from independent voters. Two days later, the president responded by announcing the "Volcker Rule" which will put more restrictions on commercial banks to get out of investing activities and focus more on lending money to their customers.

The president's response showed that he's done a poor job in his first year in office of keeping the support of "independents" -- so-called because they don't permanently define themselves as Republicans or Democrats.

The president understands that, unless he starts winning back these independents and fast, he will face a 1994-style rebuke from voters at this fall's mid-term elections. From a financial reform perspective, he must show voters that he's not a toady to Wall Street -- and I expect he will replace secretary Geithner with Brooksley Born, the former head of the Commodity Futures Trading Commission who sounded the alarm on credit default swaps long before the housing crisis swallowed the economy.

Brooksley Born
Brooksley Born, former chairwoman of the Commodities Futures Trading Commission

Why replace Geithner? Although it's now common to Monday morning quarterback the dark days of September 2008, questioning how government officials forced a shotgun marriage of Bear Stearns withJPMorgan Chase(JPM Quote), let Lehman Brothers go under, swooped in to rescue AIG(AIG Quote), and then forced through Bank of America's(BAC Quote) purchase of Merrill Lynch, the fact is -- at that time -- the financial world was careening out of control. I don't fault Geithner's crisis decisions (although they certainly were not all perfect).

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