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Weekend Edition

The Best of The S&A Digest
Saturday, September 13, 2008

Mexican billionaire Carlos Slim, the world's second-richest man, bought a 6.4% stake in PSIA pick New York Times Co., making him one of the media company's largest shareholders.
 
The New York Times is struggling. Ads are down 14% this year and shares have slumped 32% in the past 52 weeks. But it's still a dominant brand. And Carlos Slim has proven he can make money with dominant brands. He made his fortune running the largest cellular and fixed-line telephone companies in Latin America.
 
The New York Times may be able to turn itself around, but other newspaper empires just aren't going to make it. In Porter's latest issue, out yesterday, he recommends shorting one of the biggest names in old media. Bankruptcy's a "virtual certainty," and he expects the stock to fall nearly in half over the next year.
 
Porter's last two short recommendations – Fannie and Freddie – made his PSIA readers more than 60%. 
 
We all know Wall Street is crooked, but this is ridiculous...
 
Citigroup, the biggest loser in the credit crisis, recently paid $18 million in refunds and settlement charges for stealing $14 million from customers' credit-card accounts. The bank had an "account sweeping program" that automatically removed positive balances from customers' accounts. If a customer double paid a bill by mistake or returned a purchase, Citigroup took the positive balance without notification – outright theft.
 
In its defense, Citi said it voluntarily stopped the program in 2003. In a statement, it added, "We take issue with the state's characterization of our conduct and the parties' voluntary settlement."
 
One of the major points David Einhorn raised when presenting his short thesis on Lehman was that Wall Street banks pay out 50% of gross revenues in compensation – an absurd amount. And even with the economy crumbling beneath it, Wall Street is still paying big numbers.
 
In a Monday report, financial industry analyst Meredith Whitney said revenues for Wall Street firms have declined 63% in the first half of the year, but compensation costs have only declined 24%. And noncompensation costs, like travel and entertainment, have actually risen 25%.
 
Bloomberg tells us the lawyers for former Enron investors will get about $688 million in legal fees for recovering approximately $7.2 billion from Enron's lenders, auditors, and directors.
 
The Enron lawyers worked 280,000 hours and made just over $2,400 an hour. They worked out settlements with Bank of America, Citigroup, JPMorgan Chase, Canadian Imperial Bank of Commerce, Lehman Brothers, Arthur Andersen, Kirkland & Ellis, and Enron's former outside directors, among others.
 
Porter sent a note along about the Enron settlements, asking, "Why is it that in our culture if you commit a big enough crime and can afford to pay a big enough fine, it's as if you haven't done anything wrong?"
 
European banks HSBC and Standard Chartered will be the first overseas banks to incorporate local operations in Vietnam. The State Bank of Vietnam recently awarded each bank a license to open wholly owned units in the country.
 
Forty foreign banks account for less than 15% of total lending in Vietnam, and local incorporation will give HSBC and Standard Chartered a huge jump on the competition. Only 10% of the country's population holds bank accounts.
 
Ken Heebner, manager of the wildly successful CGM Focus Fund, already proved he's king of the mutual-fund world. He outperformed every other U.S. fund over the past 10 years, returning 24% a year.
 
But he's tired of the paltry mutual-fund compensation – collecting about 1% on assets under management. Heebner announced he's seeking up to $5 billion to start his first hedge fund. In addition to earning more money – hedge funds get a cut of assets under management and performance – a hedge fund would grant Heebner more freedom to buy and sell all kinds of assets.
 
We believe few managers are worth what hedge funds cost and would caution against giving almost anyone your money under these terms. But Heebner might just be worth it. Click here to read Steve's take on Heebner.
 
Regards,
 
S&A Research




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