Rick Ackerman: True Bottom Lies Far, Far Below……Ditto On That One

Posted By on August 31, 2009

By: Rick Ackerman

Rick’s Picks

Monday, August 31, 2009

“Phenomenally accurate forecasts”  

Because we never shared investors’ wild enthusiasm for Cerberus, its near-collapse in recent days hardly came as a shock. The once-huge private-equity firm specialized in distressed assets at a time when even the bluest of blue-chip companies – the name Lehman Brothers springs to mind – have fallen into mortal peril literally overnight. Cerberus’s biggest gambles were in GMAC and Chrysler. The latter company’s future looked as bleak to us five years ago as it did in May, when the automaker went belly-up. What could Cerberus CEO Stephen Feinberg have been thinking?

Chrysler’s death rattle coincided with the supposed comeback of the hemi-head engine, an older technology that made it possible to achieve higher fuel economy without re-inventing the engine. Just before the Big Three went careening off the road, Chrysler’s top sellers were big, powerful and, arguably, ugly.  Is it possible Cerberus thought the well-hyped cachet of Chrysler cars with the hip-hop crowd would revive America’s love affair with muscle cars?  In any case, $4 gas doomed the affair before it even warmed up. In fairness to Cerberus, it should be noted that someone even smarter than they, namely Kirk Kerkorian, got seduced by Chrysler. However, Kerkorian and his partner, Lee Iacocca, miraculously avoided losing their shirts after making an abortive $4.5 billion bid. Cerberus evidently thought it had the white knight role down pat, but instead found notoriety as a greater fool.

East Side Benchmark

The surprise is that Cerberus still has any assets left. Clients reportedly plan to withdraw $5.5 billion, or 71 percent of the company’s funds, but that will leave an estimated $2.2 billion to gamble with. We don’t envy Cerberus the task of picking winners from amongst the many investables available these days at seemingly attractive prices. If Cerberus does live to fight again, we wouldn’t be surprised to see the firm make the same mistake again, buying assets that have fallen in value by perhaps 30%-40%  but which still have a great deal further to fall. Into this category we would put high-end residential real estate, mall-heavy REITs, and the shares of any retailer selling goods other than survivalist staples. We hold to our prediction that East Side co-ops that once sold for $10 million eventually will change hands for $250,000 or less. To any investor looking to buy the bottom, that is one possible benchmark we would suggest applying. By that time, the very idea of investing in anything is likely to induce nausea in the relative handful of potential stakeholders who remain. If they buy anyway, they’re the contrarians we’d bet on.


Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick’s Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick’s Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

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