Tuesday, September 21, 2010


A competitive environment in which we all use our best abilities to perform our jobs usually produces the most effective results.

Investors must understand that “Wall Street” is selling a product. That product is defined as research. The research reports are often prepared by young people recently out of school and generally with no industrial background. Over my years on “Wall Street”, I have always found that analysts are constantly changing.

In a recent research report a brokerage firm referred to sales information they had obtained from a service called SportScan. We checked and were told the service costs a minimum of $30,000 per year. This information was in no way available to the general public.

The SEC, over and over again, speaks of a “level playing field”. Clearly, those individuals/firms that possess this type of information have information not available to the public and are able to make investment decisions based upon this expensive subscription service.

I happen to not believe in the concept of level playing field – there’s no such thing. It’s about time investors knew that decisions are made in a competitive environment and that some people will always have more information than others.


The Obama administration has been using the political technique of blaming everything negative on President Bush.

FACT: President Roosevelt called for everyone having a house. That’s where it started.

FACT: After our country was attacked on September 11, 2001 the stock market pretty much rose until its peak in about April/May 2007.

FACT: Obama announced his presidential candidacy in February 2007.

FACT: From that point onward the market declined to a low.

FACT: As President Obama’s popularity began to fall, the market has risen.

Let the facts speak for themselves.

Monday, September 20, 2010


I remember the day when the standard of living would rise modestly every year. That was also the time when no one would mess with an American tourist just because they may or may not have gone 10 foot this way or that way.

There was a news item recently that Lockheed Martin might be selling 60 billion dollars worth of planes to Saudi Arabia. We have very few major defense companies. It is only a matter of time when free shareholder owned companies decide to go elsewhere because it is obvious the markets from the rest of the world are so much bigger than America’s and probably more profitable. We will then lose control of our premier defense companies.

I remember meeting the Chief Financial Officer of US Steel many years ago. He boldly stated “We are US Steel – nothing can touch us.” Stay tuned…

Thursday, September 9, 2010


In the last few months the stock Skechers has been under tremendous pressure. The stock price has dropped in half despite the fact the company reported strong earnings and sales in the most recent quarter. This afternoon a report was issued by Susquehanna Financial Group and the stock was put under even more pressure based on a very serious reduction in next year’s earnings estimates.

Understanding the concern for legal liability we particularly noted the choice of words in the report. It was almost as if they were writing a legal document and absconding any responsibility for their choice of words and opinions. Here are some of the vague comments we noted:
  • “Based on conversations with retailers and SportScan POS data, we have concerns over sluggish volume trends” (We would like to know the name of the retailers they spoke to and which people at these retailers they spoke to. We would like to know what they mean about “we have concerns” as everyone has concerns; and what they mean by sluggish volume trends when almost all retail sales are sluggish these days).
  • “That event may not have been as strong” (In any forecast there is always the chance something “may not have been”. Where is the concrete numbers to make this assumption?)
  • We suspect there is some risk to 4Q and FY11 sales and earnings” (What in the world do they mean by “we suspect and some risk” – there is always some risk and we can always suspect something).
  • “Valuations may assume the worst” (Where is the data for this assumption?)
  • Leading us to believe that sales during the event may have come in below original expectations” (Did the management of the company indicate that sales have come in below expectations, if so, where? Why then was their third quarter revenue and earnings estimate maintained?)
  • “Given increasing promotions we believe early fall sell-through was not meeting original expectations” (Is there any concrete proof to this assumption?)
  • “We expect margin pressure” (Looking at their own calculations they really have no decline in the gross margin – they seem to be approximately the same. The entire earnings estimate decline is based upon increased SGA – where did that assumption come from?)
  • “We would expect cancellations to affect SKX in 4Q.” (What factual data are you basing your conclusion upon – actual cancellations that have occurred?)
  • We believe it will be very difficult to anniversary this growth spike and expect both divisions to see declines at least through 2Q.”(We notice in their report there is no quarterly breakdown for 2011 and obviously after such rapid growth last year despite a recession it is obvious the rate of growth would slow down.)
  • “The toning trend still has life. While we expect growth to slow, we believe the toning category remains very viable moving forward. “(Oxymoron…this statement has no depth to it and allows the analysts to protect themselves from any upside…Obviously if they mean by viable that it will continue to grow are they forecasting that Skechers share of market will be declining?)

At the conclusion of the report the analyst cites the risks to the upside as “1) a significant rebound in the toning category in fall and holiday leading to less promotions and cancellations; 2) better than expected 1H11 toning sales, particularly internationally where growth is expected to continue; 3) a swift pullback in marketing and other SG&A expenses; and 4) an unexpected share repurchase authorization or special dividend. Downside risks to our thesis include: 1)a worse than expected fall off in the toning category; 2)increased competition leading to market share losses; 3)a greater than expected increase in marketing expenditures; and 4)worse than expected international growth.”

We could go on about this report but we are very suspicious about the overall intention of these analysts in announcing this downgrade, late in the trading day, and certainly and most importantly considering the price of the stock and its recent volatility and downward trend. We have to wonder what the analyst’s true motives were with a stock selling at 8 times earnings on their lowered estimate, a company with literally no debt, and a company that seems to have created a brand name.

For the benefit of public shareholders who may not be privy to as much information as is supplied to, for example, hedge funds, we think it would appropriate, under the circumstances for this research firm to answer the following questions about their Skechers report.

  • Have any of the clients of the firm been either shorting this stock or buying puts on this stock?
  • Have the analysts had any contact with clients that are shorting this stock?
  • Does the parent company or these analysts, through its subsidiaries, have any relationship with Skecher’s competitors?
  • Has there been any financial dealing by the parent firm and/or its subsidiaries with a competitive firm to Skechers?
  • Does the firm expect to do business with any competitor to Skechers?
  • What is the record of the analysts who have written this report and gone to such extremes to write with such legalese and have come out with this report after the stock price has already gone in half?

We also noticed the appendix to this “timely” report which stated in part at the top of what if refers to as “IMPORTANT DISCLOSURES”:

“SFG and/or its affiliates beneficially own 1% or more of the securities of the subject company.
SIG, its affiliates and/or its principals may have been long or short positions in securities or related issues mentioned here. SIG, its capacity as specialist and/or market maker, may execute orders on a principal basis in the subject securities. Information presented is from sources believed to be reliable, but is not guaranteed to be accurate or complete. The research analyst primarily responsible for this report attests that the views expressed accurately reflect his or her personal views and that no part of his or her compensation was, is, or will be related to any specific views in any research report.”

Yes we own this stock. We have no way of knowing if anything we have said in the above blog is of any relevance whatsover. It is meant to represent our own personal feelings and questions and should be evaluated by anyone with the use of their own intelligence and analytical ability. Isn't it about time that analysts have to do with their own money exactly what they may be implying that other investors should do. Stay tuned…

Friday, September 3, 2010


For quite a few years the eulogies of Sanford Bernstein appeared on the AllianceBernstein webpage. It seems that after Lew Sander’s departure from the firm, where he was escorted out by security, the eulogies about the founder were removed from the corporation’s website.

I decided to search my files and read the eulogies that were published in a special booklet that was sent to me by Roger Hertog in 2005 with a hand written note saying “You were there…”

Upon rereading what I originally thought was an emotional and positive eulogy; this rereading directed me to a new conclusion. I think I now can understand why the eulogies may have been removed from the Alliance website considering the professional conduct expected from today’s executives.

After all, look at what just happened to Mark Hurd of Hewlett Packard. I am not saying I support the decision of the Hewlett Board of Directors in any way shape or form, but Mark Hurd’s transgressions seem to be a lot less debilitating than those of Bernstein, with the possible exception of the expense account fiasco.

Reviewing Roger Hertog’s eulogy we came upon the following choice of words:
1. “Everyone had a Zalman story. Some are humorous, some inspiring, and some are even terribly embarrassing.”
2. “He smoked big, ugly-stinky-cigars, maybe a dozen a day.”
3. “He was hungry for life and had a voracious appetite-for food, for sex, and for achievement.”
4. “He was totally uninhibited talking about his life and yours. From the most personal details between a husband and wife...”
5. “These conversations, more like monologues, would be filled with a constant stream of sexual allusions and profanities.”
6. “In a flash of impulse, he (Bernstein) literally jumped on the table-all 200 pounds of him-and was suddenly peering down from above. It was outrageous-this giant of a man was walking up and down this table pointing out numbers with the toe of his shoe.”
7. “He could be angrier than any person I knew.”

Lew Sander’s used the following statements in his eulogy about Bernstein.
1. “Sandy seemed to thrive on turbulence. Tranquility, consensus, made him anxious.”
2. “He liked to stir up the pot.”
3. “He adopted a lexicon consistent with this feature of who he was. It was one of hyperbole, extremes, sexual analogues wherever they seemed germane-no, let me revise that-sexual analogues whether they were germane or not. And of course, expletives to punctuate his point…”
4. “The sexual analogue, of which there hundreds.”
5. “I will miss him. Not all of him…”

What are the secrets that have been hidden? All of the eulogy commentaries seem to be related to thirty years ago. Why wasn’t there any recent commentary in the eulogies? Did he just disappear into religion? From the lack of any new information on Bernstein, is it possible he had an illness before his lymphoma or was he just relegated to a figurehead in some negotiation after I left the firm. In any case, I wonder if they would remove the Bernstein name totally from the AllianceBernstein website if they could. Stay tuned…

Shepard Osherow. All Rights Reserved