Sunday, November 19, 2017

The Dice are Rolling in Mall Land

Last May we wrote "Thus if private equity or sovereign wealth funds don't come in soon to scoop up the apparent bargain, the Street, as I argued, is way off." (https://shulmaven.blogspot.com/2017/05/a-new-look-at-mall-reit-valuations-part.html) Of a sudden, after a long period of sustained discounts to Street estimates of net asset value the dice are starting to roll in Mall Land. First Brookfield Property Partners offered to take in the 64% of GGP that it doesn't already own with a  cash and stock offer valued at $23/share. To be sure the offer was well above the $19/share the stock was trading at, but still well below the $28/share of value ascribed by the Street. As of this writing GGP is trading about 3% above the Brookfield offer price.

We then found out that hedge funds Starboard Value and Third Point have taken a position in Macerich causing its stock to rise from the mid-50s to the mid-60s, still below the $73 valuation estimated by the Street. Further Elliott Management, a $30 billion hedge fund, has taken a position in Taubman that elevated its stock price from the high 40s to the mid-50s again well below the $85 Street valuation. Remember the hedge funds are intermediaries and are ultimately looking for a final buyer like Brookfield to take them out. If no final buyer appears they will find themselves with dead money positions that will be sold back to the market.

Sitting on the sidelines watching and waiting are David Simon of Simon Property Group, the largest mall owner and Jonathan Gray of Blackstone, the largest private equity firm in the real estate arena. How they respond could very well be despositive as to how the price discovery process works out.

My guess is that the potential buyers of mall companies and/or mall assets are looking for what they perceive to be a bargain and with the Street still estimating mall cap rates in the 4-5% range, they will not find a bargain at those prices. Simply put the bid-offer spread is too wide, and as result I do not foresee transactions at anywhere close to the offer side of the market. But again, as we noted in May, time will tell.





Wednesday, November 8, 2017

Donald the Destroyer

The Republicans are reaping what they sowed by getting into bed with Donald Trump in 2016. Simply put Donald Trump is systematically destroying the Republican Party. In Virginia a weak Democratic gubernatorial candidate won by 9 points and perhaps more importantly the Democrats wiped out a 36 seat Republican majority in the Virginia House of Delegates. In New Jersey the Republican leaders (Kean and Bramnick) in the legislature were reelected by unusually close margins and local Republican officials went down across the state as the Democrats reclaimed the governorship from Chris Christie's failed regime. And in New York the Republican County Executive lost his job in Westchester County.

What last night's election showed is that Donald Trump is not playing in the wealthy suburbs of of Washington D.C., New York and Philadelphia. His very unpresidential behavior against a backdrop of removing the state and local tax deductions and his opposition to gun control means that across America's suburbs the Republicans tied to Trump are going to lose big next year and no matter how artful the district maps were drawn the Democratic Party is now the odds-on favorite to take the House of Representatives in 2018. Thus instead of being its savior Donald Trump has become the destroyer of the Republican Party.



Sunday, October 29, 2017

An Open Letter to Paul Ryan and Mitch McConnell

Dear Paul and Mitch,

I know both of you have very tough jobs in that you have to deal with a president who his own secretary of state called a “fucking moron” and who has an approval rating of 38%. Yes, I know President Trump is still popular within the Republican Party, but he remains an impulsive 14 year old boy in the body of a 70 year old man. And he his failing in the most fundamental role a president has that of uniting the country. To the contrary he is dividing our country to an extent not seen since the Civil War and I was around during the Vietnam era.  You know it and I know it, but what are you going to do about it? Look for guidance in the words of Senators Bob Corker and Jeff Flake.

You have to think where President Trump is taking our country and the republic for which it stands. It is not a pretty sight. You have to get beyond the vote on the tax bill and the next Supreme Court appointment and think what your children will think of you twenty years from now. You do not want to be known as moral eunuchs who stood by as everything you believed in turned to shit.  Let me leave you with a thought as I paraphrase Mark 8:36, “For what shall profit a political party if it gains the White House and the Congress and suffers the loss of its soul.”

Yours truly,


David Shulman

Wednesday, October 25, 2017

My Amazon Review of Nelson DeMille's "The Cuban Affair: A Novel"

Cuba Libre

I rarely review best-selling novels, but in the case of Nelson DeMille’s “The Cuban Affair: A Novel” I will make an exception. The book is a great read, perfect for the beach or a long airplane ride. DeMille’s protagonists are Mac MacCormick an Afghan War vet who operates a chartered boat out of Key West, his Vietnam Vet first mate Jack Colby and the sensuous Sara Ortega, the grand-daughter of a Cuban √©migr√©.

The story revolves around Ortega’s attempt to retrieve land titles, jewelry and a boatload of cash thought to be hidden away in Cuba. She along with other anti-Castro Cubans recruit MacCormick and Colby to remove the treasure from Cuba. Along the way we get a sense of how dire the conditions are in Cuba along with the ever present police spying. Of course MacCormick ends up in bed with Ortega. And it wouldn’t be an adventure in Cuba without the involvement of the CIA.


It is a fun book to read and I recommend it highly to all but those readers who have a fondness for the Castro regime. One quote from Colby sticks in my head, “It is better to have a gun and not need than to not have a gun and need it.”

Wednesday, October 11, 2017

My Amazon Review of Glenn Frankel's "High Noon: The Hollywood Blacklist and the Making of an American Classic"

High Noon in Hollywood

I recently attended a screening of “High Noon” with Glen Frankel giving a short talk. I forgot how good this 1952 movie is. In his book Glen Frankel tells the story of the making of this low-budget black and white movie, his protagonist the screen writer Carl Foreman, the producer Stanley Kramer, the star Gary Cooper, the composer Dimitri Tiomkin,  and the very strong female roles of Grace Kelly and Katy Jurado against the backdrop of the growing “red scare” in Hollywood. Who knew Dmitri Tiomkin, a Ukrainian Jew,  wrote the musical score for such westerns as “Red River,” “Duel in the Sun,” “Giant,” “Gunfight at the O.K. Corral and of course, “High Noon.”  Frankel notes that Tiomkin’s biographer likened him to putting a musical score to the classic western paintings of Frederic Remington and Charles Russell. He also discusses how the movie’s theme song “Do Not Forsake Me Oh My Darlin” became such a big hit.

But Frankel is not only interested in the creation of this classic, he is also interested in the role of the Communist Party in Hollywood and the blacklist that was to come in the late 1940s and early 1950s. Screenwriter Carl Foreman was a communist for a while and then abandoned the Party, but he along with the Hollywood 10 (screen writers who refused to talk before the House Un-American Activities Committee and were jailed) refused to name names and ended up in exile in England.

In Frankel’s view “High Noon” is an allegory to Foreman standing up to the committee. Gary Cooper as Marshall Kane successfully stands alone as the townspeople abandon him to face four returning outlaws seeking revenge. The townspeople represent those in Hollywood who cringe in the face of the committee, many of whom were like the liberals Dore Schary, Elia Kazan and Ronald Reagan (a big liberal at the time).  The story brings to mind Henrik Ibsen’s “An Enemy of the People” where the bravest are the ones who stand most alone.

Frankel is clear-eyed when he discusses the perfidy of the American Communist Party in the late 1930s and the early 1940s. But somehow he seems to me to be way to forgiving of the Hollywood communists. He leaves out that Moscow targeted the New Deal, the C.I.O., the defense industry and Hollywood as pathways for subversion. The Hollywood 10 writers were following orders from Moscow and were working towards bringing Soviet Communism to America. They weren’t all that successful, but the intent was clear. I wonder if instead of being communists they were Nazis would Frankel have been so forgiving? Yes it was a bad time and yes civil liberties were being trampled upon and yes the fears of the public were legitimate. Frankel recognizes this when he cites the Venona transcripts which describe Moscow’s control of American Communism.


Despite my disagreements, Frankel has written an excellent book that tells us how a great movie was made and the fears that bestrode liberal Hollywood in the 1950s.





Sunday, October 8, 2017

My Amazon Review of Diana B. Henriques' " A First-Class Catastrophe: The Road to Black Monday, The Worst Day in Wall Street History

The Sorcerer’s Apprentice

On October 19, 1987, the very day of the crash that brought stocks down by 22%, I was flying to Colorado Springs to present a paper at the annual Q Group conference. Many of those in attendance were in up to their eyeballs in the quantitative finance that was putting the market decline into overdrive. New York Times reporter Diana Henriques has written an intriguing story about the plumbing of the financial markets where conflicting regulators, the rivalry between the cash market in New York and futures market in Chicago, and the emergence of quantitative finance in the form of portfolio insurance/dynamic hedging forced the stock market to turn in on itself much like the sorcerer in the Hall of the Mountain King.

She tells a very good story about the personalities that fueled the rivalry between the SEC and the Commodity Futures Trading Commission and its parallel rivalry between the New York Stock Exchange and the two Chicago futures exchanges, the “Merc” and the Board of Trade. The upshot driving the controversies was that, contrary to what most people expected, the futures market drove the cash market, a phenomenon that the regulators were not ready for.

She also is very good describing the academic and business origins of portfolio insurance where the theories of two Berkeley business school professors, Hayne Leland and Mark Rubinstein merged with the business smarts of John O’Brien to form Leland O’Brien Rubinstein & Associates (LOR) to market their new product. By the way, I overlapped with Rubinstein in the UCLA finance Ph.D. program in the early 1970’s. At its core the problem with portfolio insurance is that it required a continuous trading in the cash, futures and options markets. A breakdown in anyone of these markets would trigger a massive dislocation. None of this mattered when only a few investors were engaging in the dynamic hedging necessary to insure a stock portfolio, but once it became popular among pension managers the assumption of continuous markets became questionable. By way of example when all is calm, fire insurance is readily obtainable, but when the whole city is burning down, there are very few sellers of fire insurance. That is precisely what happened on October 19th.

Henriques rightly notes that the real risk to the system occurred a day later when trading halts in both the cash and futures markets occurred. The markets were rescued by the newly installed Fed Chairman Alan Greenspan acting as lender of last resort and the timely buying of an obscure index product by traders Stanley Shopkorn (a friend) of Salomon Brothers and Bob Mnuchin of Goldman Sachs.

Although Henriques is very good at describing the drama of the minute by minute trading on the exchanges she glosses over the big macroeconomic causes of the crash.  It was part and parcel of the great 1980s bull market that took the Dow Jones Industrial Average up from 776 in August 1982 to 2722 just five years later.
In fact the Dow Stood at 1890 as 1986 drew to a close and then skyrocketed to 2722 in less than eight months, a gain of 44%. So no one should be surprised that a correction occurred. Indeed if you were in a coma for most of the year and you woke and saw that the market closed at 1739 on October 19th it would have been logical to surmise that not a whole lot happened in 1987.

The mid-1980’s bull market was fueled by the 1985 Plaza Accord that was designed to lower the value of the dollars by dramatically increasing global liquidity, a Fed easing cycle in 1986 caused by a collapse in the price of oil, and the emergence of leveraged buyouts. By October of 1987 all three of these factors were called into question as the Fed began a tightening cycle in early 1987, a very public currency dispute between the U.S. and Germany broke out into the open thereby questioning the Plaza Accord and Congress was considering proposals to limit the tax deductibility of interest deductions associated with leveraged buyouts. Thus the stock market had every reason to go down. What portfolio insurance and the regulatory cacophony did was put the decline into overdrive.


Thus I wish Henriques would have devoted her writing talents to place what happened in 1987 into a broader macroeconomic context. But make no mistake much of the regulatory issues she discussed remain with us today and were partially responsible for the 2008 meltdown.