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Investing in Macro Tipping Points
QUARTERLY SMII "CALLS" |
EXPECTED MACRO DEVELOPMENT |
INVESTMENT STRATEGY |
INSIGHT |
Q1 2014 |
UKRAINE & the PETRO$$ |
Global Shift in LNG Balance |
Vehicle: Gazprom (OGZPY)
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Q2 2014 |
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Collapse in Select REITs |
Vehicle: S&P Retail SPDR (XRT)
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Q3 2014 |
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Slowing Central Bank Liquidity |
Short Equities (Nasdaq / Russell 2000) ONLY with Death Cross Confirmations

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ECB T-LTRO Impact |
Short EURUSD Cross

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2H 2014 |
GLOBAL EVENT RISKS |
FLIGHT TO PERCEIVED SAFETY |
US$ STRENGTH

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THESE ARE NOT RECOMMENDATIONS - THEY ARE MACRO COMMENTARY ONLY - Investments of any kind involve risk. Please read our complete risk disclaimer and terms of use below by clicking HERE |
"BEST OF THE WEEK "
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INVESTMENT INSIGHT
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MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Sept 28h- Oct. 4th, 2014 |
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CHINA BUBBLE |
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GLOBAL RISK - China's Economic Reporting Possibly a Deception
China’s sharp declines in home prices have revived questions about the quality of its economic data.
While it’s easy to dismiss China’s snafu with abruptly declining home prices as addressable in a post-Soviet command-style economy, this is hardly the only pressing question. The list is growing.
- The pro-democracy demonstrations in Hong Kong,
- The potential removal of the PBOC governor,
- Accusations that Tianhe Chemicals Group a large chemical company is a fraud,
- An uncovering of fake trade finance deals worth $10 billion and
- The manipulation of national output sta tistics, all serve to undermine an under- standing of present economic conditions.
If there is still any confusion about the reliability of China economic data the chart, below, should put all doubt to rest. It shows the ratio of China exports to Hong Kong over Hong Kong imports from China.
The figures don’t add up and China mainland exports are either overstated by 33 percent or Hong Kong imports are deeply under-reported. Other indicators are also warning of problems.
VALIDITY CHECK: ENERGY
One method to conduct a “consistency check” popular among financial analysts is to compare energy use to official China GDP. China’s total year-on-year energy consumption was up 13.7 percent at the end of February and is now minus 1.5 per- cent.
VALIDITY CHECK: LUXURY GOODS
Another check on China’s health is to use the prices of a luxury good that has benefited from China demand. Using the leading wine benchmark, the LivEx Wine Investment Fund, the share price has declined 12 percent year-over-year and 27 percent over the past three.
It’s clear China’s economic figures are internally inconsistent and although alternative methods are imperfect, they also cast doubt on the data quality.
WHY IS THIS REALLY IMPORTANT?
IF THIS WRONG, THEN THE WORLD IS IN BIGGER TROUBLES THAN MOST REALIZE!
NOTE THE "BRICS" SHARE ABOVE - The Group Accumulating GOLD Rapidly!
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10-02-14 |
GLOBAL RISK
CHINA |
6 - China Hard Landing |
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MACRO News Items of Importance - This Week |
GLOBAL MACRO REPORTS & ANALYSIS |
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WARNINGS - "Trend for investing in assets with borrowed money could run out of control."
Record world debt could trigger new financial crisis, Geneva report warns 09-29-14 The Guardian
Concerted effort required to tackle economic woes as slow growth and low inflation cause global debts to balloon
"POISONOUS COMBINATION" - Spiralling Debt & Low Growth
Global debts have reached a record high despite efforts by governments to reduce public and private borrowing, according to a report that warns the “poisonous combination” of spiralling debts and low growth could trigger another crisis.
Modest falls in household debt in the UK and the rest of Europe have been offset by a credit binge in Asia that has pushed global private and public debt to a new high in the past year, according to the 16th annual Geneva report.
The total burden of world debt, excluding the financial sector, has risen from 180% of global output in 2008 to 212% last year, according to the report.
The study by a panel of senior academic and finance industry economists accuses policymakers in many countries of failing to spur sustainable growth by capitalising on historically low interest rates while deterring exuberant lending.
ANOTHER KEYNSEIAN RECOMMENDATION
It called for Brussels to
- Write off the debts of the eurozone’s worst-hit countries and
- Urgently embark on a “sizeable” programme of electronic money creation or quantitative easing to push down long-term interest rates.
It said unless policymakers kept a lid on risks in the financial system, especially overvalued property and stock markets, a trend for investing in assets with borrowed money could run out of control.
The Geneva report, which is commissioned by the International Centre for Monetary and Banking Studies, follows a study earlier this year by the Bank of International Settlements (BIS), which diagnosed the same problem, but said risky borrowing could only be discouraged by higher interest rates.
The Geneva report instead argued a concerted effort to tackle the after-effects of the crisis was needed to mitigate a “poisonous combination of high and rising global debt and slowing nominal GDP [gross domestic product], driven by both slowing real growth and falling inflation”.
FAILED GOVERNANACE
Arguing that the European central bank had taken several mis-steps in efforts to orchestrate a broader revival, it said: “Further procrastination in implementing these by now urgent policy measures would risk, in the medium term, the resurgence of pressures on the sustainability of the eurozone itself.
DE-LEVERAGING HAS NOT OCCURRED
“Contrary to widely held beliefs, the world has not yet begun to de-lever and the global debt to GDP ratio is still growing, breaking new highs.”
A lack of sustainable growth dates to the 1980s, according to the Geneva economists, who document the rise of debt-fuelled household and government spending over the past 30 years. After the financial crisis, debts increased dramatically in the west, but efforts to reduce them have been outstripped by a rise in borrowing across Asia.
CHINA'S BORROWING BINGE A MAJOR CONCERN
Similarly to an earlier BIS report, the Geneva economists are particularly worried by a borrowing binge in China, which they said Beijing should reduce, though this would slow growth and have a negative knock-on effect on global recovery.
Luigi Buttiglione, co-author of the report and head of global strategy at the Brevan Howard hedge fund, said: “Over my career I have seen many so-called miracle economies – Italy in the 1960s, Japan, the Asian tigers, Ireland, Spain and now perhaps China – and they all ended after a build-up of debt.”
A mix of moderate debt reduction, low interest rates and huge monetary stimulus in the UK and US were praised in the report, though with a health warning that increased central bank debt and a reliance on rising household indebtedness could undermine the recoveries.
The International Monetary Fund, which meets in Washington next week, has aligned itself with the thinking behind the Geneva report. It has advocated that governments maintain low interest rates and embark on fiscal stimulus where necessary to maintain growth and prevent deflation.
However, it is expected to voice concerns that public sector borrowing in China, mainly by local authorities and state enterprises, has reached unsustainable levels.
IMF WARNS ON SPECULATIVE INCENTIVES
Chistine Lagarde, the IMF’s director general, is expected to warn that slowing global growth could encourage investors to take bigger, riskier bets to maintain their income, undermining the stability of the recovery.
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09-30-14 |
GLOBAL RISK |
GLOBAL MACRO |
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Market Analytics |
TECHNICALS & MARKET ANALYTICS |
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REGRESSION TO THE MEAN - Historically Proven Approach
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10-01-14 |
PATTERNS |
ANALYTICS |
GLOBAL BREADTH - Steady Deterioration
A steady global deterioration in equities. A strengthening US$ is not going to help the banner S&P 500 contribution
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10-01-14 |
PATTERNS |
ANALYTICS |
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THESIS |
2012 - FINANCIAL REPRESSION |
2012
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REGULATORY CAPTURE & COLLUSION - Proof the Financial Regulators are No Longer Regulating
Proof the Wolves Guard the Hen House
The full ProPublica story can be found here.
Taped Conversations Between Carmen Segarra & Goldman Sachs
Corporate largeness inevitably generates government partnerships. This means that modern Western societies are mercantilist – run by a handful of individuals who circulate between the top posts of government and the leadership of private-sector multinationals. Within this context it is not surprising to find that the New York Fed is an ineffective regulator of the financial powerhouse Goldman Sachs. The process is called "regulatory capture".
- Monopoly central banking concentrates decisions on the value and volume of money in the hands of a few.
- Corporate personhood allows individuals running large companies to avoid responsibility for their actions.
- I suppose I should add a third element into the mix ... patent law and copyright.
The Secret Goldman Sachs Tapes 09-26-14 Michael Lewis Bloomberg
And for those who are time-constrained, and would rather just read the Cliff Notes (the ending should be known to everyone by now), here is Michael Lewis with an op-ed in Bloomberg summarizing the banker-controlled farce the entire US system has devolved to:
"The Secret Goldman Sachs Tapes"
Probably most people would agree that the people paid by the U.S. government to regulate Wall Street have had their difficulties. Most people would probably also agree on two reasons those difficulties seem only to be growing: an ever-more complex financial system that regulators must have explained to them by the financiers who create it, and the ever-more common practice among regulators of leaving their government jobs for much higher paying jobs at the very banks they were once meant to regulate. Wall Street's regulators are people who are paid by Wall Street to accept Wall Street's explanations of itself, and who have little ability to defend themselves from those explanations.
Our financial regulatory system is obviously dysfunctional. But because the subject is so tedious, and the details so complicated, the public doesn't pay it much attention.
That may very well change today, for today -- Friday, Sept. 26 --- the radio program "This American Life" will air a jaw-dropping story about Wall Street regulation, and the public will have no trouble at all understanding it.
The reporter, Jake Bernstein, has obtained 47½ hours of tape recordings, made secretly by a Federal Reserve employee, of conversations within the Fed, and between the Fed and Goldman Sachs. The Ray Rice video for the financial sector has arrived.
First, a bit of background -- which you might get equally well from today's broadcast. After the 2008 financial crisis, the New York Fed, now the chief U.S. bank regulator, commissioned a study of itself. This study, which the Fed also intended to keep to itself, set out to understand why the Fed hadn't spotted the insane and destructive behavior inside the big banks, and stopped it before it got out of control. The "discussion draft" of the Fed's internal study, led by a Columbia Business School professor and former banker named David Beim, was sent to the Fed on Aug. 18, 2009.
It's an extraordinary document. There is not space here to do it justice, but the gist is this: The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems.
Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them.
The report quotes Fed employees saying things like, "until I know what my boss thinks I don't want to tell you," and "no one feels individually accountable for financial crisis mistakes because management is through consensus." Beim was himself surprised that what he thought was going to be an investigation of financial failure was actually a story of cultural failure.
Any Fed manager who read the Beim report, and who wanted to fix his institution, or merely cover his ass, would instantly have set out to hire strong-willed, independent-minded people who were willing to speak their minds, and set them loose on our financial sector. The Fed does not appear to have done this, at least not intentionally. But in late 2011, as those managers staffed up to take on the greater bank regulatory role given to them by the Dodd-Frank legislation, they hired a bunch of new people and one of them was a strong-willed, independent-minded woman named Carmen Segarra.
I've never met Segarra, but she comes across on the broadcast as a likable combination of good-humored and principled. "This American Life" also interviewed people who had worked with her, before she arrived at the Fed, who describe her as smart and occasionally blunt, but never unprofessional. She is obviously bright and inquisitive: speaks four languages, holds degrees from Harvard, Cornell and Columbia. She is also obviously knowledgeable: Before going to work at the Fed, she worked directly, and successfully, for the legal and compliance departments of big banks. She went to work for the Fed after the financial crisis, she says, only because she thought she had the ability to help the Fed to fix the system.
In early 2012, Segarra was assigned to regulate Goldman Sachs, and so was installed inside Goldman. (The people who regulate banks for the Fed are physically stationed inside the banks.)
The job right from the start seems to have been different from what she had imagined: In meetings, Fed employees would defer to the Goldman people; if one of the Goldman people said something revealing or even alarming, the other Fed employees in the meeting would either ignore or downplay it. For instance, in one meeting a Goldman employee expressed the view that "once clients are wealthy enough certain consumer laws don't apply to them." After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement -- to which the regulator replied, "You didn't hear that."
This sort of thing occurred often enough -- Fed regulators denying what had been said in meetings, Fed managers asking her to alter minutes of meetings after the fact -- that Segarra decided she needed to record what actually had been said. So she went to the Spy Store and bought a tiny tape recorder, then began to record her meetings at Goldman Sachs, until she was fired.
(How Segarra got herself fired by the Fed is interesting. In 2012, Goldman was rebuked by a Delaware judge for its behavior during a corporate acquisition. Goldman had advised one energy company, El Paso Corp., as it sold itself to another energy company, Kinder Morgan, in which Goldman actually owned a $4 billion stake, and a Goldman banker had a big personal investment. The incident forced the Fed to ask Goldman to see its conflict of interest policy. It turned out that Goldman had no conflict of interest policy -- but when Segarra insisted on saying as much in her report, her bosses tried to get her to change her report. Under pressure, she finally agreed to change the language in her report, but she couldn't resist telling her boss that she wouldn't be changing her mind. Shortly after that encounter, she was fired.)
I don't want to spoil the revelations of "This American Life": It's far better to hear the actual sounds on the radio, as so much of the meaning of the piece is in the tones of the voices -- and, especially, in the breathtaking wussiness of the people at the Fed charged with regulating Goldman Sachs. But once you have listened to it -- as when you were faced with the newly unignorable truth of what actually happened to that NFL running back's fiancee in that elevator -- consider the following:
1. You sort of knew that the regulators were more or less controlled by the banks. Now you know.
2. The only reason you know is that one woman, Carmen Segarra, has been brave enough to fight the system. She has paid a great price to inform us all of the obvious. She has lost her job, undermined her career, and will no doubt also endure a lifetime of lawsuits and slander.
So what are you going to do about it? At this moment the Fed is probably telling itself that, like the financial crisis, this, too, will blow over. It shouldn't. |
09-29-14 |
THESIS |
FINANCIAL REPRESSION

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FLOWS - Liquidity, Credit & Debt
The global economy has been unable to recover from the economic crisis that began in 2008. The following chart explains why.

The blue line shows the ratio of total credit to GDP in the United States. From 1950 to 1980 that ratio averaged around 150% of GDP. After 1980, however, credit began to grow much more rapidly than the economy. Consequently, credit to GDP expanded from 150% of GDP to 370% in 2008. It is easy to understand how rapid credit growth causes the economy to expand. When credit increases consumers have more money to spend; businesses become more profitable and expand their investments; the government receives more tax revenues and can spend more; and asset prices keep inflating, causing a wealth effect that allows even more consumption. For nearly three decades, therefore, credit growth drove economic growth in the United States, and the expanding US trade deficit drove the global economy.
Now notice the red line that runs from the top left to the bottom right. It represents the Federal Funds Rate, the interest rate set by the Fed. It has declined very sharply since the early 1980s, when it peaked at 18%. As the Fed cut interest rates, borrowing became more affordable and the reduction in borrowing costs explains why credit was able to expand so dramatically.
By 2008, the Federal Funds Rate had already been reduced to 2%, near the all-time low. When Lehman Brothers collapsed and AIG, Fannie Mae and Freddie Mac had to be nationalized, the Fed slashed the Federal Funds Rate to zero percent. But even that did not bring about a revival of credit growth and the economy contracted by 8.2% during the fourth quarter of that year.
At the beginning of 2009, the Fed, unable to cut interest rates any further (0% is the floor), introduced a new, unorthodox monetary policy tool to stimulate the economy: Quantitative Easing. Since then, the Fed has injected $3.5 trillion of newly created money into the financial markets by acquiring government bonds and mortgage-backed securities. As a direct result of that policy, household sector net worth increased by $25 trillion (or by 45%) between 2009 and the end of 2013. That increase in wealth enabled the economy to grow, albeit at an unusually weak rate averaging around only 2% a year over the past four and a half years. Credit growth, which had been the driver of economic growth, has yet to recover, however. The ratio of total credit to GDP has remained flat at approximately 350% since 2010.
The third round of QE is scheduled to end next month. Moreover, the Fed has signaled that it is likely to begin increasing the Federal Funds Rate by the middle of next year. The end of QE 3, in itself, represents a tightening of monetary policy. By ending the injection of newly created money into the financial markets, the Fed will be removing the one thing that above all others has generated economic growth in recent years. It is uncertain that the economy will continue to grow without it.
The odds of a new recession will become very much greater if the Fed actually does begin raising the Federal Funds Rate. The cost of borrowing would increase and that would cause credit growth to slow and the ratio of credit to GDP to decline. A reduction in credit growth would deal a severe setback to the economy.
It is difficult to see how the economy will begin to grow again unless credit growth accelerates. However, it is difficult to see how credit growth could pick up given the very high level of credit to GDP that we already have. In order for the US economy to take on more debt, either the number of people employed must expand or wages must increase. Neither of those things is happening on a great enough scale to allow the American public to service the interest expense on more debt. The US labor force participation rate is declining, median income continues to fall and average hourly earnings are increasing by less than 1% a year in real, inflation-adjusted, terms.
As I have written before, I believe that our economic system should be called Creditism instead of Capitalism because credit growth has been THE driver of economic growth for decades. I hope this discussion on the relationship between interest rates, credit and economic growth helps to explain my fear that Creditism is in crisis and, perhaps, incapable of generating any further economic growth.
To learn more about how the global economic crisis will affect you, subscribe to my video-newsletter, Macro Watch:
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10-03-14 |
THEMES
FLOWS |
FLOWS

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RETAIL - Relentless Squeeze On The America Pocketbook
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10-04-14 |
RETAIL CRE |
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WARREN BUFFETT - Launches Consolidation of US Automotive Family Dealerships
Warren Buffett Buys New-Car Retail Chain 10-02-14 WSJ
Warren Buffett wants to sell you a car.
The billionaire investor on Thursday agreed to buy America’s fifth-largest auto retailer and use it to launch a consolidation of the highly fragmented business.
His Berkshire Hathaway Inc. BRKA +1.21% would acquire an about $8 billion retail business with operations from Florida to California, and use it to snap up family-owned dealerships elsewhere. The retailer, which will be named Berkshire Hathaway Automotive, can leverage Berkshire’s other companies to provide car sales, financing and related services.
His move comes as car-retailing is poised to undergo significant changes that provide greater efficiencies. Dealer profits have been rising as auto makers culled less financially stable businesses during last decade’s financial crisis. Customers also have embraced the Web to shop for cars, cutting dealer overhead costs.
“We’re certainly thinking big and would like to grow the business,” said Jeff Rachor, president of Phoenix-based Van Tuyl Group, which Berkshire agreed to acquire in an all-cash deal. The purchase price wasn’t disclosed.
Mr. Rachor, who will become Berkshire Hathaway Automotive’s chief executive, said the new company intends to pursue dealer acquisitions in the South and Midwest where Van Tuyl already has stores, relying on its new owner’s deep pockets. He estimated there are about 5,000 dealerships that have the scale that match its acquisition goals.
Van Tuyl, a closely held business that was founded in Kansas City nearly 60 years ago, owns dealerships that now sell about 240,000 vehicles a year. The company has been controlled by Larry Van Tuyl, the founder’s son who will become chairman of the new business.
The deal comes amid ongoing consolidation in the industry. Publicly traded giants, including Florida-based AutoNation Inc. AN +2.90% and Oregon-based Lithia MotorsInc., LAD +4.10% have been snapping up smaller retail chains, often run by families who have been selling cars for generations.
The new company is positioned to provide car buyers financing and insurance. Berkshire Hathaway is a major lender and its Geico insurance arm could gain access to customers as they need new auto insurance. Mr. Rachor said the retailer has studied starting its own auto finance arm that could lessen reliance on third-party lenders such as Ford Motor F +0.21% Credit or Ally Financial Inc. ALLY +1.79%
“Financing is such a big deal, and Berkshire has a very low cost of capital. They’ll make a lot more money off this,” said Jeff Matthews, a Buffett-watcher and author of “Secrets In Plain Sight: Business & Investing Secrets of Warren Buffett.” Car dealers typically earn bigger profits on finance plans and service contracts than they do on selling new or used automobiles.
The push into the car-dealership market mirrors Mr. Buffett’s recent pushes into newspapers and real-estate brokerages. In both businesses, Berkshire has been snapping up assets across the U.S. Five years ago, Berkshire’s only 100%-owned media holding was the Buffalo News. Now, the list of newspapers it owns fills an entire page in Berkshire’s annual report. In the same report, Berkshire’s count of real-estate agents at its various brokerages topped 20,000—and the company has been steadily announcing more acquisitions all year long.
With Berkshire’s cash hoard of more than $50 billion, Mr. Buffett has said he is on the hunt for “elephants”—his word for big companies worth tens of billions of dollars that can add significantly to Berkshire’s earnings.
This deal appears to be a modest-size purchase. David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business, said a comparison of Van Tuyl’s revenue to publicly traded peers suggests the price tag may have been about $3 billion.
Mr. Rachor said Mr. Buffett isn’t done spending on the business. “Berkshire gives us access to virtually unlimited capital and permanent capital,” he said. “The resources that will be available are clearly a competitive advantage.”
In many ways, the Van Tuyl Group acquisition is typical of Mr. Buffett’s deals: a family-owned business with strong prospects that is in the middle of a generational transition. Many companies in his stable of businesses, which includes retail and manufacturing companies, came to Berkshire this way. In 2008, Berkshire agreed to buy industrial company Marmon in stages from Chicago’s billionaire Pritzker family as they were untangling family-owned assets after the death of Jay Pritzker, the family patriarch.
Other Berkshire watchers said that Mr. Buffett likely was drawn to the Van Tuyl family’s reputation and its strong relationships with other car dealers.
Lawrence Cunningham, a professor at George Washington University Law School, said the prominence Mr. Buffett gave to the “cultural fit” with Berkshire was notable.
“As far as I recall, Berkshire press releases have never made an acquisition’s cultural fit so prominent and explicit,” said Mr. Cunningham, who has collected Mr. Buffett’s writings in a book titled, “The Essays of Warren Buffett.”
The deal signals a continuation of Berkshire Hathaway’s latest efforts to build a brand name in fragmented industries. In recent years, the Omaha, Neb., conglomerate bought dozens of local newspapers, most of which are housed under BH Media Group. A unit of Berkshire Hathaway Energy that owns real-estate brokerages and for years operated under local brand names also began using a unified brand in recent months: Berkshire Hathaway HomeServices.
Mr. Buffett is also familiar with the auto industry through Berkshire Hathaway’s 2.1% stake in General Motors Co. GM +1.75%
The acquisition “is a validation that auto retail is a solid, long-term investment,” AutoNation CEO Michael Jackson said. Mr. Jackson, who runs the nation’s biggest auto retailer, says the U.S. auto sales boom still has room to run.
Berkshire Hathaway is buying into an industry where the number of independent shops is dwindling. The U.S. new-car dealership count dwindled to about 17,700 last year, from about 30,800 in 1970, according to the National Automobile Dealers Association. The consolidation was helped along in 2009 when hundreds of dealerships were closed during the bankruptcies of Chrysler and GM.
The survivors are enjoying a booming business. Auto sales are tracking at near-decade highs, and demand for trucks, luxury cars and sport-utility vehicles is sizzling. And having survived the U.S. auto industry’s painful restructuring in 2008-2009, many dealers also are benefiting from strong used-car prices.
“Some of these dealers are flush with cash,” said Cliff Banks, president and founder of The Banks Report, which tracks the auto-retail business.
The high concentration of family ownership in the auto-retailing business means the industry remains highly fragmented, with publicly traded companies controlling only about 8% of the revenue.
As many of the founders of the smaller businesses get older, they have been cashing out and selling to bigger groups.
Erin Kerrigan, founder and managing director of Kerrigan Advisors, a dealership merger-and-acquisition consultant, called the deal “a harbinger of what’s to come.”
Investor Says He Plans to Buy More Dealerships Over Time
Berkshire Hathaway plans to buy Van Tuyl Group, the fifth largest auto dealership firm in the U.S. WSJ's Erik Holm has the details
AutoNation Welcomes Buffett to Car Retailing AutoNation CEO Mike Jackson today welcomed investor Warren Buffett’s foray into the auto retailing business, as well he should. AN shares, and stocks in other publicly-listed car dealership chains, are powering ahead today after Mr. Buffett said he plans to buy Van Tuyl Group, an $8B a year closely-held dealership chain with 100 franchises in 10 states. AN up 4.3% at $51.20 after reporting strong 3Q sales. (joseph.white@wsj.com)
Plenty of Mileage for Buffett in New Cars He may be an octogenarian, but Warren Buffett is still trying to break the speed limit. Berkshire’s purchase of Van Tuyl, which was America’s biggest privately owned auto dealership, is intended to be just a 1st step in the space. A roll-up strategy is Buyout 101, but BRK.B’s move looks particularly well-timed. As a “Heard on the Street” column earlier this week laid out, structural forces--chiefly demographic and behavioral--mean the recovery in U.S. vehicle sales the past few years is reaching its natural limit. When growth slows, one response is to fight for market share--a reality that’s starting to weigh on auto makers. The other move is finding inefficiencies and squeezing them into profits. The business is ripe for consolidation: there were some 17,700 dealerships operating in 2013, of which more than half sell fewer than 400 new vehicles/year. The average profit margin? A princely 2.2%--pretax. Buffett should find plenty of mileage in this deal. (liam.denning@wsj.com; @liamdenning)
Market Talk is a stream of real-time news and market analysis that is available on Dow Jones Newswires
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10-04-14 |
RETAIL CRE |
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Tipping Points Life Cycle - Explained
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