AMR Insanity; Germany's Greek Gifts; Buffett's Tax Dodge; Mason's Dilemma; Yet More HP Hysteria.
5. AMR Insanity
We here at the Dumbest Lab have long deemed buying airline shares a dubious enterprise considering the sky-high rate of bankruptcies in the sector. Investing in flat-out bankrupt airlines like AMR(:AAMRQ.PK), well, that's just plain dumb in our opinion.
Not that it's stopping a select group of schmucks mind you.
As pointed out by TheStreet's eagle-eyed airline reporter Ted Reed, shares of AMR Corp., the parent company of American Airlines, popped nearly 18% Tuesday on heavy volume, despite the fact that the stock is all but worthless. AMR traded up 8 cents to close at 53 cents, its highest price since Aug. 17. By contrast, shares in Delta(:DAL) and United(:UAL) were flat.
The New York Stock Exchange delisted American, which had traded under the AMR symbol, on Jan. 5. Trading then moved to the OTC Bulletin Board and Pink Sheets Electronic Quotation Service with the shares getting a new symbol, AAMRQ.PK.
Nevertheless, while the company's stock now trades on the pink sheets, the shares are anything but in the pink. The existing shares have no intrinsic value and are certain to become worthless when the American bankruptcy case ends.
"It is possible that some traders believe AMR shares may benefit from the possibility that American pilots will approve a tentative contract agreement that has been endorsed by the Allied Pilots Association," theorizes Reed. "The miscalculation here is that pilots will receive newly-issued shares, not the ones that currently trade."
Some long-time Dumbest readers may remember that a similar phenomenon occurred following GM's(:GM) bankruptcy, when shares of its post-bankruptcy shell company continued to trade under the moniker Motors Liquidation. A slew of misinformed investors drove over the cliff in that case, convinced until the very end that their GM shares had actual value.
This time, however, the suckers are leaving on a jet plane. And we know full well they won't be back again.
4. Germany's Greek Gifts
This week's debt deal between Eurozone and IMF leaders is not Greek to us at all. No matter how they spin it, it's clearly a freaking default!
After weeks of tense negotiations, Greece's lenders agreed to a debt reduction package Tuesday, opening the door for the cash-strapped country to receive desperately needed new loans and, above all, keep it in the European Union. The resulting plan will purportedly slice Greek debt by more than 40 billion euros with the projected goal of cutting it to 124% of gross domestic product by 2020. Greece will receive 43.7 billion euros in four installments starting in mid-December once the deal is approved by the requisite national parliaments.
"Tomorrow, a new day starts for all Greeks," Greek Prime Minister Antonis Samaras told reporters in Athens.
Hey Samaras, you stay out of this buddy! This has nothing to do with you. In fact, you weren't even in Brussels when the rest of these big-wigs were deciding your people's economic future. Maybe the next time you need money to stay afloat -- which at this pace looks to be around the 2013 German election -- you'll get a seat at the children's table if you are lucky.
Why are we calling this latest measure a default even though the Europeans refuse to do so?
Simple. Greece's EU creditors are lowering the interest rate on their old loans by a full percentage point, extending the maturity of the loans from the EFSF bailout fund by 15 years to 30 years and giving the country a 10-year interest repayment deferral.
We repeat: 100 basis points less to pay, 15 more years to pay it and no interest for a decade.
By Zeus's beard that's one heckuva deal! Try asking your banker for mortgage relief like that and see how far you get. You'll get laughed right out of your foreclosed living room.
Still, our European friends apparently intend to plow on with the charade and refuse to simply forgive the Greeks their debts. German Finance Minister Wolfgang Schaeuble told the press that it was legally impossible for Germany wipe away debts while simultaneously offering new loan guarantees. Likewise, German lawmaker Gerda Hasselfeldt negated the idea of a Greek debt "haircut" now and forever.
Get off it Gerda. We both know this is purely a case of semantics and your constituents surely do as well.
And as for the Greek people, we are pleased they received this latest round of aid. We know times are tough there and austerity is anything but a hoot. Hopefully this will provide some short-term relief while they try and turn things around.
That said, they better not get too used to these repeated bailouts. We may not be the Oracle of Delphi, but we can clearly see that they better beware of Germans bearing gifts.
3. Buffett's Tax Dodge
On the plus side, at least he didn't bring up his secretary's taxes again.
In an op-ed titled "A Minimum Tax for the Wealthy" in Monday's New York Times, billionaire Warren Buffett repeated his call for America's richest individuals to pay higher taxes. The so-called Oracle of Omaha waded into the fiscal cliff budget battle, positing that wealthy investors like him would never turn down a potentially profitable investment because of the prospect of higher taxes.
Buffett, whose fortune of approximately $46 billion ranks him as the second richest American behind his buddy Bill Gates, also suggested that Congress enact a 30% tax rate on incomes between $1 million and $10 million, and 35% on amounts above that.
"A plain and simple rule like that will block the efforts of lobbyists, lawyers and contribution-hungry legislators to keep the ultrarich paying rates well below those incurred by people with income just a tiny fraction of ours. Only a minimum tax on very high incomes will prevent the stated tax rate from being eviscerated by these warriors for the wealthy," opined Buffett, who added that he supports President Obama's proposal to eliminate the Bush tax cuts for high-income taxpayers, but at $500,000 not $250,000. (In case you were wondering, Buffett's salary in 2011 was $100,000 and his total compensation from Berkshire Hathaway slid in just under that half a million mark at $491,925.)
Great Warren! Thanks for the reminder. It's been so long since the election that we almost forgot how folks like Mitt Romney and yourself are not paying your fair share. Now if you really want to assuage your guilt, why don't you put your billions where your mouth is and write a damn check to Uncle Sam. It's time to pony up or shut up already.
Look, we don't begrudge Buffett his opinions. This is an apolitical column and we truly have no view on his tax ideas one way or the other. They may very well be exactly what this country needs right now. Furthermore, as our long-time readers know full well, we have no great love for the billionaire class. In fact, we publicly pummel them every week when they step out of line.
Seriously, we don't hate the plutocracy. We're just tired of Buffett's hypocrisy.
He called derivatives "financial weapons of mass destruction" and then sold billions worth of long-dated put options across a slew of equity indexes. He ridiculed investors who "fondle" gold, yet not even a decade ago Berkshire Hathaway(:BRK-B) accumulated more than 37% of the world's known silver supply.
Wait, there's more.
Despite being the ratings agency's biggest shareholder, he told Congress during its hearings over Moody's(:MCO) massive negligence during the financial crisis that he didn't "even know where they're located".
He attacked ABN Amro for making "a dumb credit bet," while defending his sweet investment in Goldman Sachs(:GS), a firm that paid hundreds of millions in fines for selling toxic mortgage bonds to unknowing customers.
And speaking of defending the dishonest, who can forget when Buffett exonerated his former deputy David Sokol from a clearly questionable -- and probably illegal -- insider trade in Lubrizol prior to Berkshire purchasing the company?
Well, Buffett can forget the Sokol episode of course. That's always been his prerogative, right? Basically, he says whatever he wants and then and does whatever he wants, even if the two don't necessarily match up.
And that same two-facedness pops up once again in this latest round of finger-wagging over taxes. Despite his public pleas for the rich to pay more in taxes, as Harvard professor Greg Mankiw rightly pointed out this week, Buffett has been a serial tax avoider his whole career.
He doesn't pay a dividend, so neither he nor his investors have to pay taxes on that income. He doesn't sell stock, so he doesn't pay capital gains taxes either. And he is giving away most of his vast fortune to charity, so he gets a deduction at the full market value of the stock he donates, most of which is unrealized capital gains.
Finally, as Mankiw blogged, "When he dies, his heirs will get a stepped-up basis. The income tax will never collect any revenue from the substantial unrealized capital gains he has been accumulating."
What more can we say? Frankly, we find the whole thing rather taxing.
Wait. There is one thing left to be said.
Need to borrow a pen, Mr. Buffett?
2. Mason's Dilemma
Andrew Mason would fire Andrew Mason if Andrew Mason thought Andrew Mason was the wrong person for the job.
How do we know that for sure?
Because Andrew Mason told us of course!
Groupon's(:GRPN) CEO spent some time talking about his favorite subject -- himself -- at a Business Insider conference in New York this week. In response to rumblings that the company's directors would be discussing his performance during a regularly scheduled board meeting, Mason replied that it would be "weird" if they did not.
"It would be more noteworthy if the board wasn't discussing whether I'm the right guy for the job," said Mason. "If I ever thought I wasn't the right guy for the job, I'd be the first person to fire myself."
That's fair. But it also got us thinking about what it would take for Groupon's founder to sign his own pink slip.
Clearly it's not the stock's performance. Groupon stock has lost 85% of its value since the company went public at $20 last November. Heck, the stock traded as low as $2.60 earlier this month and Andrew still didn't say farewell. Nope, it can't be the stock.
Nor can it be his ability to generate earnings or meet Wall Street estimates. Groupon reported a net loss of $2.98 million in the third quarter. Sales rose 32% to $568.6 million, missing the $591 million average analyst estimate. Operating cash flow decreased 35% year over year to $42.1 million. Meanwhile, all-important international revenue fell 10% from the second quarter. So it can't be the earnings, sales or cash flow that would cause Andrew to oust Andrew either.
Could it be an accounting restatement? Losing Starbucks CEO Howard Schultz as a board member? Getting blitzed at a town-hall style company gathering and telling his troops, "Sorry, too much beer?"
Nope. Nope. And (burp) nope. Mason did all those dirty deeds as well and still kept himself employed.
Oh brother, what a brainbuster! We are at a total loss. Too bad there is only one man who can solve this puzzle.
1. Yet More HP Hysteria
Just when we thought we were out of Hewlett Packard's(:HPQ) wacky world, they pull us back in!
You may remember that last week we featured an all-HP version of our Dumbest list on the heels of the company's $8.8 billion writedown of its Autonomy division. HP CEO Meg Whitman accused Autonomy of "serious accounting improprieties" prior to HP's $10.3 billion purchase last year, and as a result we stuffed our weekly countdown with two years of HP highlights, or, should we say, lowlights.
It was the first time we ever focused an entire column on a single company and we really thought we had seen the last of the troubled tech giant for a while. Seriously, how much dumb stuff can happen to a single company in a span of two years?
Alas, like Lindsay Lohan popping up on Page Six of the New York Post, HP seems determined to grace our Dumbest list with each and every step downward. Last week it was the writeoff itself. This week it's the escalating war of words between HP and Mike Lynch, the former chief executive officer of Autonomy Corp.
In a letter to news organizations, Lynch pressed HP's board for "immediate and specific explanations" of its claims, adding that "Autonomy's finances, during its years as a public company and including the time period in question, were handled in accordance with applicable regulations and accounting practices."
Oh man, or should we say, oh woman! He went right over Meg's head to the board with that challenge. We thought Mike would be lawyering up by now, but that just is not the case. Lynch does not think he's lynching himself at all by going public with his defense. Now that's moxie for you Meg!
Or utter insanity. We don't know yet.
HP, for its part, is not taking the bait. The company replied to Lynch's request Tuesday by saying it will take legal action against "parties involved" at the appropriate time.
"While Dr. Lynch is eager for a debate, we believe the legal process is the correct method in which to bring out the facts and take action on behalf of our shareholders," HP said in an emailed response. "In that setting, we look forward to hearing Dr. Lynch and other former Autonomy employees answer questions under penalty of perjury."
To be perfectly honest, we look forward to it too folks. We thought we could break the HP habit, but clearly we can't. This slow motion train wreck just keeps sucking us in. And as long as it does, you can count on us covering it.
--Written by Gregg Greenberg in New York.