Restructuring The Entire Portfolio – Raising Cash (update)

Alright, at around noon today, I looked around and said, “You know what? I’m out”. It’s not that I’m calling a top (I’m not). In fact, I think we go higher. But what’s coming for me?

My positions have really just slothed it up this last week or two. They’ve been sucking wind and I’m not going to suffer it.

And what comes after March? The summer?

I’m not waiting around for the summer, to watch gasoline prices, European stupidity, a budget crisis, 2014 HCR implementation jitters, the press crisis of choice (it’s sort of an option play on their part), US impaired foreign exchange rates and God-knows what else I missed rob my hard won gains.

I absolutely trounced this winter; I was all over this rally back in November when everyone was boarding up their windows. And I’ve got the winnings to show it.

The largest sale came from CCJ – I love that position and the uranium market, but I’m not dumb. It was hanging out at >25% of assets…and a little closer to 30%, if you follow me…

So I cleaned it up and paired it off to 20%, even. Then I went to work on the rest of my holdings.

I sold some shares of CCJ, AEC, CLP, RGR, and BAS.

I did not sell any BXG, EUO, AGQ or physical silver

Cash stands at 30%. Average position size is 6% of assets – overweight CCJ, silver (physical and products) and BAS.

Right around 2007 began a rough time for Bluegreen. The company was thrown into a drag from the housing crisis. Fascinatingly, if there was one industry that could possibly have been in a worse position in 2008 than constructing, selling, or financing housing, it was probably constructing & selling luxury condominiums, then slicing them up into complex financial instruments and selling those pieces to middle class citizens without bothering to check credit or salary data…THEN packaging those obligations into complex financial securitizations and selling THOSE off to wallstreet.

Say hello to the Timeshare industry, folks…

But right around 2007, a guy named John Maloney took the helm of Bluegreen as CEO and President. I’ve talked to some of Bluegreen’s employees, and they seem to have nothing but praise for the guy. Like Schlumberger’s Gould or Ford’s Mulally, there doesn’t seem to be a whole lot of doubt about who’s in charge, or that he’s done a terrific job.

Under Maloney, the company increased focus on not just selling these timeshares, but selling them to the right kinds of people – namely, people that could actually afford them. He also put emphasis on being honest about the pros and cons of the product, and simplifying the portfolio of off-balance sheet finances (which are still present but decreasing quickly).

By these moves, the company has seen an incredibly low default rate on these mortgages. And it’s a cash cow – the company earned $1.00 a share in 2012 on its own. It earned $0.75 in 2011, before restructuring the business. For the last two to three years, BXG has been using a cash generating machine to really restructure, cutting out business lines that were holding the main operation back.

Today, barely 5% of mortgages are distressed, and employees tell me that 40% of all prospective customers they invite to their presentations are making a purchase.

As of September 2012 the company has assets of just over a billion dollars, and because of a large credit line that was extended to them they’ve done a good job of rebalancing the debt terms and lowering interest rates. Actually, I think Levan (the board member trying to buy the company) was the one who extended the credit. With that money the company restructured over $250 million of liabilities (almost one third of their debt).

By all of this, the company is worth about $10 a share clean a clear. I impaired their books by 10-20% just in case something is wrong (lots of off-balance sheet fidgeting) and I’m still getting about $7-8. This company has no premium baked into the pie.

And with earnings of $0.75-1.00, the company has a price to earnings of 10-13X. Really not very expensive, especially considering that revenues last year jumped by ~15%. Or that all the heavy lifting needed to get this company into a shareholder money press seems to have already been done.

Now, the company is complicated. They like to pull the housing bust especial – their mortgages are packaged into CMBS products then securitized and sold off to investors; sound familiar?

So I checked the state of affairs of their SPE’s. It looks like they’re baking in allowances on their loans of 10-20%, depending on where you’re digging. And what’s the actual rate of defaults their packaged securities have been experiencing?

For loans that were originated after Maloney took charge, the loans have been defaulting at 6.5%…

The guy did solid work. Delinquency rates are even lower. And the company has a good focus on keeping this financial garbage under tight control. It’s paying off.

So here’s a company that is really fairly priced, is growing quickly, and just doesn’t have much in the way of a premium baked into the share prices (even after the run up from the buyout announcement). Also, the more shady sides of the business seem pretty clean, after I pry them open, if not also improving.

It’s a company I would own for a good while, provided they keep up the performance. The American public is shifting away from the McMansion frame of mind and starting to ask themselves “what am I doing?” Everywhere, an emphasis on living simply but to the fullest and happiest is taking over. That means less square footage, more vacations and marble and fine dining, provided within one’s salary and with financial security. That’s what people want now. So it’s a solid buy.

Just one problem – the chairman Levan is taking the company private, right?

Well, maybe. You see, Levan is also being investigated by the SEC for shady securities dealings around the time of the housing crisis. His entire reputation – including his ability to chair a company – is at stake. And the deal has already failed once.

I want to see this deal fail. I want the company to stay public. I would warn you that if it does, the stock may initially fall back to the $5 range it was trading at before the buyout offer. But, I think this whole affair has put attention to the company, and that it was mispriced at that level.

If it falls like that, I would take my lumps and double down.

If Levan perseveres and manages to take BXG private, I’ll collect 2% and go on my way.

Alright, I’ve reached the conclusion that I won’t have time to sit down and just carve out the entire culmination of my thoughts on BXG and what drove me to buy the name. I don’t have the uninterrupted gap of time to make that happen – and it needs to get done.

So instead we’re taking the modular construction approach here; I’m carving this thing up into pieces and I’ll let you assemble it all when I’m done.

The introduction to the name is as follows: Bluegreen is a timeshare corporation. They weren’t always timeshare, they used to be just a regular real estate company of some kind, if I’m remembering, but then in the 90’s they got into timeshare in a big way. They sort of pioneered the modern timeshare concept, taking the real estate deed/title holder model but building an exchange based travel agency on top of it, so you could go to other owner’s properties at different times of the year – before, you were restricted to the destination you purchased at the time you purchased for.

Alright, so Bluegreen got absolutely rocked in 2008/2009. But they had some management changes and the operation was cleaned up spectacularly. I’ll get into that in more intricate detail later.

Now, the company presently has limited upside of $10 a share…exactly. That’s because the chairman of BXG, an, er…interesting figure by the name of Alan Levan with possible Jeffrey Fastow-type tendencies has accepted an all cash offer to take the company private from a financial group by the name of BankAtlantic Bankcorp (BFCF), which is also chaired by, um…Alan Levan. BFCF presently owns 51% of Bluegreen stock.

The offer was originally for 8 shares of BFCF for every 1 share of BXG, but that was headed for a complete shutdown so Levan changed the offer for what is now a pure cash play.

Now, in my next piece I’ll get more detailed on the possible developments I see with the offer and the company in a minute, but I’ll leave you with this to start: at the current $10 offer, with the stock trading for ~$9.80, there’s a simple arbitrage here that nets about 2%.

In my next post, I’ll argue that that’s probably the minimal outcome and explain what I’d rather see happen.

Chavez is now officially dead for real – as opposed to the fake news reports that have been making the airwaves once every few months – ironically it seems he died in Cuba’s “stellar” medical program, of a respiratory infection.

No, Cuba, you’re supposed to “clean” your instruments. “Clean”…

Well, hah! What do you expect for free?

I’d like to say this marks a turning point in Venezuelan history; a triumphant moment where a once-great culture can pull itself out of the gutter and rebuild after almost twenty years of garish incompetence.

I’d like to say that, but I’m just too smart for that sort of thing…

You see, there is nothing special about Hugo Chavez. Nothing. He was the dominant monkey to emerge from a primordial game of survival. His rise was circumstantial, charged by a sharp smile and a knack for knowing how to tell everyone, one on one, exactly what they wanted to hear. And now that he is dead, my only real satisfaction is knowing that he died young (one second early for every life he helped ruin I’d like to think).

His legacy is a power vacuum. You see, like most jackasses, Chavez believed himself irreplaceable. That is folly. Our betters come behind us, catapulted by our efforts today. Chavez belittled his people and convinced them they needed him, concentrating all power, publicity and wealth to himself – a megalomaniac of the highest order.

And now that ‘irreplaceable’ man is very dead.

The office that he left behind is unparalleled in power and has zero accountability attached to it. No culpability whatsoever – I mean, the man promised infrastructure spending back in the nineties and yet Venezuela has had rolling blackouts twice a day for a decade.

What kind of person is attracted to such a title?

And so, the next con artist is out there somewhere…preparing roaring and empty speeches…brushing up on what they think the near illiterate people want to hear…planning for all the wonderful things they’ll gift themselves from the public treasury, that grand reward for that good work they haven’t done…

Prepare yourselves. Soon to follow will be the dramatic calls from the indefensible sympathizers here in the US. Dull burdens of society like Sean Penn will soon be out and about, shining gold on Chavez great ‘legacy’ of “wanting to help people”. “Wanting to help people” is all they have – mostly because they’re too dumb to actually help people. They can’t let that go; what would be left for them?

But what should upset you is the murmur that will be coming from more sensible folks. The kind of folks who ought to know better…

They will ask the question, “is now the time to invest in Venezuela?” in much the same way they asked, “is now the time to invest in Russia?” in the early 90’s, even though it wasn’t clear that Russia was even a place (much less not-the-USSR). Chastise these men and women without delay – such baseless speculation can only bring suffering to themselves and those around them.

Even his death brings nothing for Venezuela. Because he left behind a mighty opportunity for the worst of mankind, and a population too weak, pitiful and sad to do anything about it. That is Chavez’ true legacy – that of a sycophant and a self-aggrandizer.

But there was nothing uniquely important about Chavez himself, and the banal can easily fill his shoes, if fortune and chance should allow it.

The monkey-knife-fight succession plan is about to commence…

I was beat down almost a percent today thanks to BAS and CCJ imploding. That is the trouble with those stocks; anyone wishing to own them should accept the huge down spikes implicitly.

However, today was without question a huge win for higher prices. The market smacked down every shot the shorts tried to take, then ran them back for layups.

Ignore the news flow for a minute…this market is now controlled solely by the Federal Reserve and free money. It has to go somewhere, because everyone with direct access to the trough knows it’s worthless. So it goes directly into equities and bonds.

For the moment, it isn’t going into commodities. I somewhat suspect foul play on the part of the Fed, and have no qualms about distributing conspiracy theories; Bernanke is twisting the arms of banks to prevent commodity prices from running higher. He can easily hold the discount window over their heads, and couple it with threats from the Treasury.

Ben watched the commodity market call his bluff for two years straight – I know because I was part of it, bidding up metals and oil first, then shorting the red lining. Both times the ramp in commodities (oil prices specifically) caused the economy to stall. What better way to make his policies stick than to blackball any bank that tries to play the commodity market with free money?

China is in the news today, which is stupid. The reports on the vacant malls and cities is at least four years old. If you just found out about this, you have nothing on the table. Sorry to be blunt – China is definitely in trouble, but when will the consequences finally catch up with them? Two years? Three?

I’m actually betting China holds it together much longer, like until their population uncontrollably contracts and retirees start forcing down the rolls on a working generation too small to handle it…a la these population control policies they so unwisely pursued.

Finally!

Citing runaway deficits and long-term debts Detroit could never repay on its own, Gov. Rick Snyder today pulled the trigger and announced he will appoint an emergency financial manager for the state’s largest city.

Read here:

It is about time somebody stepped up and smacked down this city and the incompetent fools who “run” it. You would think 30 years of rampant corruption and blatant unethical conduct would be grounds enough – a ‘mandate from heaven’ – for anyone in any leadership position in the State at large to annex this God-forsaken place without debate; but no, we had to spend the last three years in what is essentially bankruptcy, pretending like any of us cared what JoAnn Watson ‘thinks’ (believe me I use that term real loosely).

Sorry folks, but there is no “absolute right” to self governance. Particularly if you make bad decisions, squandering resources and destroying credit in the name of the public – your credibility is attached to those things. The rest of us should not have to suffer while you roll around in the mud, dragging us down into a state of rancor with you.

Detroit is simply not suited for pure democracy…because Her people are too stupid. A democracy cannot adequately function when half the population can barely read. I appreciate that many people in Detroit are very poor and need help; however, “help” is not placing those people in delicate positions of power where lots of other citizens depend on them.

I care about Detroit’s poor. I do not care about Detroit’s poor’s ideas for fixing their own condition.

I welcome the authoritarian wielding absurd levels of zero oversight, no contest declarations. This city is already on its knees; time to cut out the cancer and begin the real rebirth – through fire.