http://freundinvesting.com Freund Investing, LLC is an Investment Advisor Firm that provides Investment & Portfolio Management services for individual and institutional clients. Thu, 27 May 2010 12:53:25 +0000 http://backend.userland.com/rss092 en An interesting tidbit I heard from Michael de la Merced on his twitter page [1]: William Ackman, who made a fortune betting that General Growth Properties (NYSE: GGP [2]) emergence from bankruptcy would leave shareholders mostly intact, has recently purchased 150 million shares of Citigroup (NYSE: C [3]). Mr. Ackman didn't elaborate on his purchase, which he announced at the Ira Sohn 2010 conference, but I imagine in the next few weeks he will do just that. Stay tuned. [1] http://twitter.com/m_delamerced [2] http://finance.yahoo.com/q?s=ggp [3] http://finance.yahoo.com/q?s=c http://freundinvesting.com/2010/05/27/ackman-purchases-150mm-shares-of-c/ General Growth Properties (NYSE: GGP [1]) has had quite an extraordinary few years. A little less than a year ago, it became one of the largest victims of the financial crisis, filing for chapter 11 bankruptcy protection. Being the second largest U.S. mall operator in the country, right behind mall giant Simon Property Group (NYSE: SPG [2]), it's demise brought further panic and uncertainty into the real-estate market.a For General Growth shareholders, it was total defeat. The company's stock had sunk to below $1 in anticipation of the filing, from it's heyday highs of more than $50, and didn't budge much after the filing was announced. For the founding family of General Growth - the Bucksbaums - it was a sad day in the company's storied history, going all the way back to 1957 when two brothers Martin and Matthew Bucksbaum decided to expand their family's grocery business and build a shopping center in Cedar Rapids, Iowa. The Bucksbaums owned (and still own) around 25% of the outstanding shares. Along with the Bucksbaums, there was another very large shareholder: William Ackman of Pershing Square. Mr. Ackman also owned around 25% of the outstanding shares, and was instrumental in pressuring General Growth to file for bankruptcy. At the time, shareholders likely resented Mr. Ackman for the filing, but in hindsight, Mr. Ackman turned out to be one of the best things that could have happened to the company. Why? Because not only is General Growth preparing to exit bankruptcy, shareholder value appears to be fully intact, which is extremely rare for companies exiting bankruptcy. How did this happen? While I am not a bankruptcy lawyer, nor do I have special training in bankruptcy proceedings, I do know that when companies file for bankruptcy, they are typically insolvent. That is, their assets do not exceed their liabilities. When your assets do not exceed your liabilities, shareholders are typically the first group to get wiped out. Bondholders and other creditors are paid out first. Let me provide an example: Let's say you own a bicycle worth $100 (your assets) that you bought for $150 (your liabilities) a year ago with money borrowed from two sources: a bank (loaned $100) and your friend (loaned $50). You don't have a job, and can't pay anyone back with cash. Luckily you have the bike which is worth $100. In this example, legally the bank is at a higher tier than your friend, and must be paid back first. You are insolvent, the bank takes your bike, is made whole, and your friend loses his entire investment of $50. Consider the above scenario, only that the bank is comprised of bond and other secure and unsecured debt holders, and your friend represents the shareholders as a whole. A typical bankruptcy is just like this. Shareholders almost always get wiped out. But in this case, shareholders are not getting wiped out. Why? Because General Growth is not insolvent. Their assets exceed their liabilities. Due to the extraordinary disruption in the credit markets, General Growth had to file for bankruptcy because they were illiquid, not insolvent. Let's take the above example again, but with you being illiquid rather than insolvent. Let's say you own a bicycle worth $200 (your assets) that you bought for $150 (your liabilities) a year ago with money borrowed from two sources: a bank (loaned $100) and your friend (loaned $50). You owe the bank $10 per month, and your friend $5 per month. Normally, you'd borrow this money from your parents, but they recently cut you off. So now you can't make the payments on time. Rather than defaulting on your loan and having your $200 bike taken away, you file for bankruptcy to stop the bank (and your friend) from harassing you while you figure out a way to make the payments. You go into bankruptcy, develop a plan to pay back the money you borrowed (perhaps you renegotiate with your bank to pay $5 per month, and with your friend to pay $2.50 per month). When the plan is agreed upon, you emerge from bankruptcy and everyone will still get their money. Best of all you, get to keep your assets (the bike). Granted, the bank and your friend might get their money back later than anticipated, but they're still getting it back, which they're happy about. This is exactly the situation that General Growth was in. The only wild card was whether all the parties involved would accept a deal so that General Growth could emerge. Now that General Growth was in bankruptcy, they re-structured many of their debts and the stock climbed out of the doldrums and into the upper-single digits in late 2009. By this time, shareholders seemed to be voting with their wallets that General Growth would emerge from bankruptcy without wiping them out. Then came Simon In February 2010, Simon Properties Group came out with an un-solicited bid to buy General Growth for $10 billion, which equated to around $9 per share for all General Growth shareholders. To the shareholders, this was outstanding news, and confirmed that General Growth did indeed have substantial value. Anyone who bought shares of General Growth below $1 were sitting very pretty now with a floor of $9 per share. General Growth laughed the bid off, rejecting it almost immediately. At this point, the shares were trading around $13. I purchased shares of General Growth for both myself and my clients, figuring the floor is roughly $9, and the ceiling was anywhere from $15-$50. I came to this conclusion by taking into account Simon's notoriously conservative bidding practices, General Growth's prompt dismissal of the bid, Mr. Ackman's own valuations that put the stock between $15 and $30, and my own valuations that, when discounted to today from 10 years out, General Growth could be worth as much as $50 (including all future dividends that must, by law, be paid out to shareholders). That is, of course, assuming that no dilution will take place upon exiting bankruptcy. That's quite an un-realistic assumption, so I pegged the range to be between $15 and $25. At $13, with a floor of $9 and a ceiling of $15-$25, the risk-to-reward was too good to pass up. Then came Brookfield After the Simon bid of $9 per share, a new bid quickly circulated in the rumor mill. This rumored bid, which was later confirmed to be true, was presented as a stalking horse bid. A stalking horse bid is a bid which defines a minimum bid from which all future bidders must bid higher. Mr. Ackman partnered up with Brookfield Asset Management (NYSE: BAM [3]) to put together a counter-bid to Simon's paltry $9. The Brookfield deal was valued at roughly $15 per share of General Growth. To the shareholder's delight, a new floor of $15 had been set. And so here we are Since the Brookfield stalking horse bid (which has yet to be approved by U.S. Bankruptcy Judge Allan Gropper), there have been rumors swirling around, focused specifically on Simon raising its' bid to counter the Brookfield stalking horse bid. From my view, Simon has everything to gain and very little to lose by even paying $25 for General Growth. I'm not even sure shareholders would accept that bid, figuring that General Growth would be worth far more as a stand-alone, dividend paying REIT. As General Growth edges closer and closer towards emerging from bankruptcy, I believe the risk-to-reward is still too good to pass up. Especially at today's price of $16 and change. With a floor set at $15, and a company worth potentially $25 (or more as a stand-alone), I'm adding to my positions. In addition, there's a relatively short time-line to wait for  the value to be realized: the stalking horse bid is set for approval by April 19th, and bidders will want to get their bids in before that to reduce the cost of the warrants associated with the bid. I encourage you to perform your own due diligence of General Growth as an arbitrage play. If that doesn't work out, and it emerges as a stand-alone, the arbitrage play of $25 may seem like a pittance. Either way, and as always, do your own research and do not take my position as a recommendation to buy, sell, or do anything else. Freund Investing [4] Managing Member Ryan Freund [5]holds a position in General Growth Properties, as do his clients. Freund Investing has a solid Disclosure Policy [6]. [1] http://finance.yahoo.com/q?s=GGP [2] http://finance.yahoo.com/q?s=SPG [3] http://finance.yahoo.com/q?s=bam [4] http://freundinvesting.com/ [5] http://freundinvesting.com/about [6] http://freundinvesting.com/disclosure http://freundinvesting.com/2010/04/12/attractive-arbitrage-play-general-growth/ More often than not, corporate insiders know far more about the health of the economy than the average investor. Presumably, it's because they have access to high level sales numbers, customer sentiment, inventory levels, and a whole host of information that is not easy to come by. When confidence abounds, business is doing well, and customers are satisfied, insiders buy. When things are looking bleak, insiders sell. So what are insiders doing right now? They're selling. Big time. According to Charles Biderman, CEO of TrimTabs, an independent research firm, the average insider selling ratio, that is, number of sellers divided by the number of buyers, is around 7. That means there are typically 7 times more sellers than buyers on any given day. There are a number of reasons the number is so high, one being that many employees are paid in stock, and sell immediately when the stock vests, but that's not really all that important. What is important is that the average is 7, and that in November of 2008, before the panic sell-off, the number had spiked to 24. What's even more important is that right now, that number is 30. Insiders are selling off more than they did just two months after Lehman Brothers collapsed. We were still looking into the abyss at that point. Even though I am bearish on the overall economy for the next few quarters, I was shocked to see such a high ratio of insider selling. It's probably time to start taking profits off the table and moving towards a more conservative portfolio, with a large swath in cash. http://freundinvesting.com/2009/09/09/insider-selling-raises-red-flags/ It is my hope that one day the financial media will stand up on high moral ground and tell the investing public - those who are losing (or have lost) everything they own - the truth. Instead, they are misleading individual investors daily with "green shoots" and deceptive journalism. Read this article from CNBC (owned by General Electric [NYSE: GE [1]]) carefully: Durable Goods in Surprise Jump; Jobless Claims Dip [2]. Then read the article again with my emphasis in bold and my analysis in between the sections: "New orders for long-lasting manufactured goods saw their biggest gain in 16 months in April and fewer workers filed for new jobless benefits last week, according to official data on Thursday that suggested the deep recession was abating. The Commerce Department said new orders for durable goods rose 1.9 percent, the biggest percentage advance since December 2007. However, March orders were revised sharply lower, falling 2.1 percent from the previously reported 0.8 percent decline." March orders were revised down significantly to nearly 3x the level they were reported previously. How can we possibly believe the Commerce Department's 1.9% estimation when they got it so very wrong last month? I promise you the April numbers will be revised in June, and they will not be pretty. But it sure makes a good headline for CNBC, right? The article continues: "A separate report from the Labor Department showed initial claims for state unemployment insurance dropped by 13,000 to a seasonally adjusted 623,000 in the week ended May 23, falling for a second straight week. However, the number of people staying on benefit rolls after drawing an initial week of aid increased 110,000 to a higher-than-forecast 6.79 million in the week ended May 16." To put it another way, people who are losing their jobs are not finding new ones and the number was, of course, higher-than-forecast. But that would be too negative to put in the title of the article; instead they'll simply bury it in the text. "U.S. stock index futures pared gains after the data. Treasury debt prices briefly pared gains, while the dollar was flat. 'The data is consistent with the view that the rate of contraction is slowing, but we are still working our way through a recession. We haven't hit a bottom yet,' said James Masi, chief fixed income strategist at Stifel Nicolaus in Baltimore. The reports were the latest in a series that have raised optimism that the 17 month recession was starting to ease. Data on Wednesday showed an increase in the sales of previously owned homes. But high unemployment, underscored by the Labor Department report showing that continued claims have set record highs in every week since Jan. 24, indicate that any recovery after the recession will be painfully slow. Continuing claims are now more than double the level they were a year ago." Unemployment continuing to set record highs each week is an incredibly ominous sign of the dire economic situation we're facing. Let me shed light on something for you all who have been brainwashed by the financial media and government agencies: The unemployment rate during the Great Depression maxed out at around 25%. As of December 2008, the government, and kowtowed by the financial media, reported that the unemployment rate is around 7.8%. What they don't tell us is that they've changed the way they account for unemployment since the Great Depression. But wait, don't fear, that measurement is still around. Indeed, it was the official measurement during the Clinton administration. As of December 2008, using the same measurement used during the Great Depression, unemployment was nearly 18%. And that was before record highs we've seen so far in 2009. It is very likely we're nearing 20% now, not-so-far away from the Great Depression highs. Check out this graph [3]. Pretty scary, right? No wonder the government and it's media partners want to keep a lid on reality. Freund Investing [4] Managing Member Ryan Freund [5] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [6]. [1] http://finance.yahoo.com/q?s=ge [2] http://www.cnbc.com/id/30979091 [3] http://static.seekingalpha.com/uploads/2009/1/29/saupload_sgs_emp_thumb1.png [4] http://freundinvesting.com/ [5] http://freundinvesting.com/about/ [6] http://freundinvesting.com/disclosure/ http://freundinvesting.com/2009/05/28/cnbc-misleads-on-durable-goods-jobless-claims/ Ignore everything you hear on television. Especially CNBC (owned by GE [1]). While they're busy pumping the markets, this is what's happening in the real world (from Bloomberg [2]): "Borrowers such as Dayton, whose 2004 compensation was almost 10 times the median U.S. household income, are becoming trapped by the same issue facing the poorest subprime homeowners: falling home prices erase equity and make it impossible to sell or refinance without losing money. The number of U.S. homes valued at more than $729,750, the jumbo-loan limit in the most affluent areas, entering the foreclosure process jumped 127 percent during the first 10 weeks of this year from the same period of 2008, data compiled by RealtyTrac Inc. of Irvine, California, show. The rate rose 72 percent for homes valued at less than $417,000 and 78 percent for all homes, RealtyTrac said." By the way, notice that Goldman Sachs (NYSE: GS [3]) put Bank of America (NYSE: BAC [4]) on its "conviction buy" (strong buy) list Monday (the cause of the rally), and today we find that Bank of America is selling 13 billion worth of stock on the public at the inflated price (because of Goldman's cheerleading). Pretty crazy, huh? The banks are trying to keep each other alive! But the massive dilution (20% from BACs recent offering) will eventually destroy most of shareholders. What's next for in the dilution game for BAC shareholders? Conversion of private preferred shares to common shares; another 20% dilution at least. And don't even tell me the banks will be earning their way out; S&P 500 profits have shrunk by 90% [5]. Yes, 90%. No way they'll earn their way out of this. If you're a BAC shareholder, I'd highly suggest re-thinking (read: sell) your position at the gift price of $11 (compliments of Goldman Sachs). I'd also suggest being in cash for a while until earnings start to come back, but that certainly won't happen unless people stop losing their jobs. Freund Investing [6] Managing Member Ryan Freund [7] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [8]. [1] http://finance.yahoo.com/q?s=ge [2] http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a5750zUcnEEs [3] http://finance.yahoo.com/q?s=gs [4] http://finance.yahoo.com/q?s=bac [5] http://www.ritholtz.com/blog/2009/05/sp-500-earnings-decline-90/ [6] http://freundinvesting.com/ [7] http://freundinvesting.com/about/ [8] http://freundinvesting.com/disclosure/ http://freundinvesting.com/2009/05/19/ignore-everything-you-hear-on-tv/ The widely discussed stress tests were published yesterday evening and showed that capital shortfalls of some of the largest banks were significant. Bank of America (NYSE: BAC [1]), Citigroup (NYSE: C [2]), Wells Fargo (NYSE: WFC [3]), and 7 others were being asked to raise roughly $75 billion in order to shore up their balance sheets. This "test" was meant to see how the top 19 banks would hold up in a worsening economy; using both an opitimistic and pessimistic set of assumptions. I want to focus primarily on the pessimistic assumptions for now; specifically the assumption that the unemployment rate for 2009 would be at 8.9%. Well, Mr. Geithner, just this morning there were 539,000 layoffs in April, which brought the total unemployment rate for 2009 (thus far) to 8.9%. Uh-oh. We are now facing the most stressful situation the stress test assumed 7 months before the end of 2009, with layoffs occurring at blistering speed each month (though they have slowed). It's my estimation that an unemployment rate of 10% is far more likely in 2009, which represents a 12% increase over the worst case assumptions of the stress test. Now I'm not entirely sure what this would do to the capital requirements for the largest banks, but I am sure that it's worse than we are being told. Obviously I don't mean to insinuate we're being lied to, rather the set of assumptions were overly optimistic. I am making sure my clients [4] are well protected against the real worst case scenario and highly suggest you do the same. Freund Investing [5] Managing Member Ryan Freund [6] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [7]. [1] http://finance.yahoo.com/q?s=bac [2] http://finance.yahoo.com/q?s=c [3] http://finance.yahoo.com/q?s=wfc [4] http://freundinvesting.com/about/investment-advisory-services/ [5] http://freundinvesting.com/ [6] http://freundinvesting.com/about/ [7] http://freundinvesting.com/disclosure/ http://freundinvesting.com/2009/05/08/geithner-worst-case-scenario-is-now-here/ It's official; General Motors (NYSE: GM [1]) common shares are in their final death throes. Just a few moments ago, General Motors indicated it's intention [2] to seek a 1-for-100 reverse split on its common stock. If you're wondering what a reverse split is, Investopedia [3] has a fairly accurate definition and example: Investopedia Definition [4]: A reduction in the number of a corporation's shares outstanding that increases the par value of its stock or its earnings per share. The market value of the total number of shares (market capitalization) remains the same. Investopedia Example [5]: For example, a 1-for-2 reverse split means you get half as many shares, but at twice the price. It's usually a bad sign if a company is forced to reverse split - firms do it to make their stock look more valuable when, in fact, nothing has changed. A company may also do a reverse split to avoid being delisted. So what does this mean for GM shareholders? Well, if you own 100 shares at today's closing price of $1.85, and if the reverse split were to happen tomorrow, your 100 shares would now be shrunken down to 1 share worth $185. Far more often than not, especially for companies in facing serious trouble (as GM is), the $185 share price post-reverse split will drop fast and hard. As far as I'm concerned, if you're invested in GM, get out now. At $1.85 per share, the price is insanely overvalued. If you want American car manufacturing exposure, choose Ford (NYSE: F [6]). They aren't treating their shareholders like dirt, and they actually have a viable business model without the support of the government. Freund Investing [7] Managing Member Ryan Freund [8] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [9]. [1] http://finance.yahoo.com/q?s=gm [2] http://www.cnbc.com/id/30586625 [3] http://www.investopedia.com [4] http://www.investopedia.com/terms/r/reversesplit.asp [5] http://www.investopedia.com/terms/r/reversesplit.asp [6] http://finance.yahoo.com/q?s=f [7] http://freundinvesting.com/ [8] http://freundinvesting.com/about/ [9] http://freundinvesting.com/disclosure/ http://freundinvesting.com/2009/05/05/gm-1-to-100-reverse-split/ Many individual investors select stocks, bonds or mutual funds solely to create a diversified portfolio. Buying based only on diversification will deliver only average performance (at best). If you possess the skills and are prepared to put in the necessary time and hard work to become a top 20% performer, then why accept being mediocre? If there are insufficient quality investments available, then be patient and wait for the right opportunity. Diversification is good for limiting risk (to an extent); it's awful for maximizing return. I've always had deep respect for Jim Rogers. Once again he garners my respect when he hits the nail on the head with regards to diversification. The following is an excerpt from this article [1]: Diversification is something that stock brokers came up with to protect themselves, so they wouldn't get sued for making bad investment choices for clients, says commodities bull Jim Rogers. "Henry Ford never diversified, Bill Gates didn't diversify," Rogers told Business Week. "The way to get rich is to put your eggs in one basket, but watch that basket very carefully. And make sure you have the right basket." ... Diversification is the end result of applying asset allocation strategies, which derive from modern portfolio theory, an offshoot of economics from the early 1950s. Asset allocation holds that investors should combine various asset classes that do not correlate perfectly to achieve a diversity that protects some asset classes when others are adversely affected. "There is a saying that you have to concentrate to get rich and diversify to stay rich, and over the past couple of years that has not worked,” Paul Vaillancourt, senior vice-president of Franklin Templeton Investments, told Canada.com. “I don't want to say diversification is a myth, but it is overdone." Another saying comes to mind when I think about diversification: "The fool says: 'Do not put all your eggs in one basket.' Which is just another way of saying, 'Scatter both your money and your attention.' The wise man, however, says: 'Put all your eggs in one basket, and then watch the damn basket.'" The only question becomes, how does one choose the right basket and have the ability to watch it like a hawk? The answer: get a professional investment advisor [2] to do it for you. That's what they're paid to do. [1] http://moneynews.newsmax.com/streettalk/rogers_diversification/2009/04/22/205873.html [2] http://freundinvesting.com/about/investment-advisory-services/ http://freundinvesting.com/2009/04/22/jim-rogersdiversification-is-a-scam/ Warren Buffett's Berkshire Hathaway Corp (NYSE: BRK-A [1]) disclosed today that it had increased his Burlington Northern Santa Fe Corp. (NYSE: BNI [2]) stake by nearly 16%  with the purchase of more than $271 million worth of BNI shares on the open market in the past 5 days. Burlington Northern, whose stock has plunged 21% since Buffett's last investment in October 2008, engages primarily in the freight rail transportation business. It transports various products and commodities, including consumer, industrial, coal, and agricultural products. The shipments of consumer products include automotive, such as motor vehicles and vehicle parts. The company also offers transportation services for industrial products, including construction products, such as clays, sands, cements, aggregates, sodium compounds, and other industrial minerals; building products comprising lumber, plywood, oriented strand board, particleboard, paper products, pulpmill feedstocks, wood pulp, and sawlogs; petroleum products, such as liquefied petroleum gas, diesel fuels, asphalt, alcohol, solvents, petroleum coke, lubes, oils, waxes, and carbon black; chemicals and plastic products, including caustic soda, chlorine, industrial gases, acids, polyethylene, polypropylene, and polyvinyl chloride; and food and beverages, such as canned goods and perishable food items, as well as cotton, salt, rubber and tires, and miscellaneous boxcar shipments. Buffett's railroad bets have been devastated by both the economy and sinking energy prices, the latter of which erodes the competitive fuel saving benefits of transporting goods via rail. Buffett's latest purchase indicates that he believes oil prices are not going to stay this low for very long, which I believe most economists would agree with. If you believe Buffett knows what he's doing, you could ride Buffett's coattails and invest in Burlington Northern (which Buffett now owns 20% of), knowing full well he will guard his $4.6 billion investment vigorously. Who knows, It might be one of the best (and safest) bets on the market today. Not to mention you get a solid 2.5% dividend while you wait for the economy to turn around. Freund Investing [3] Managing Member Ryan Freund [4] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [5]. [1] http://finance.yahoo.com/q?s=brk-a [2] http://finance.yahoo.com/q?s=bni [3] http://freundinvesting.com/ [4] http://freundinvesting.com/about/ [5] http://freundinvesting.com/disclosure/ http://freundinvesting.com/2009/01/20/buffett-buys-more-burlington-northern/ In an article I wrote back in April of 2007 [1],  I assigned blame to various individuals, industries, and institutions for the financial and mortgage meltdown that led us to the current financial mess we find ourselves in. One such perpetrator has received a significant amount of flak recently, and some suggest they should be restructured or even eliminated altogether. I am speaking, of course, of the credit rating agencies, such as Moody's Corp. (NYSE: MCO [2]), Fitch's, and Standard & Poors - which is owned by The McGraw-Hill Companies (NYSE: MHP [3]). Through further research, I compiled a list of options we have for dealing with the credit rating agencies. Option 1: Restructure Them In a January 3rd New York Times op-ed, columnists Michael Lewis and David Einhorn rail against the rating agencies [4]: "End the official status of the rating agencies. Given their performance it’s hard to believe credit rating agencies are still around. There’s no question that the world is worse off for the existence of companies like Moody’s and Standard & Poor’s. There should be a rule against issuers paying for ratings. Either investors should pay for them privately or, if public ratings are deemed essential, they should be publicly provided." Those are some pretty harsh words, Mr. Lewis and Mr. Einhorn, but as a professional investment adviser [5] I happen to agree with you. Issuers buying ratings from rating agencies to sell investors securities is akin to an individual (issuer) buying a credit score (rating) from Experian (rating agency, who is competing with other rating agencies for business) then going to any number of banks (investors) to apply for a loan (security). As you can imagine, the individual wants a good credit rating from Experian, and Experian desperately wants the individuals' business, so their incentives are aligned. But what about the bank's incentive? Their incentive is to make sure their money is safe, but they only have this Experian rating to rely on. Too bad for the bank. Option 2: Eliminate Them I like Mr. Lewis and Mr. Einhorn's ideas, but I found another viewpoint that I might like even more. Financial blogger Paul Kedrosky [6] takes it one step further and suggests [7] that rather than restructuring these entities, we should do away with them altogether. Mr. Kedrosky correctly points out that there is no regulatory oversight for equities, which begs the question: Why don't we just let the private investors rate these securities, like they do with equities? Sure,  private investors don't always value equities perfectly, but obviously rating agencies don't either. Option 3: Increase Oversight Yuck. I don't even want to think about this option. But if any of you think this one is a good option, please share your thoughts. Option 4: Do Nothing I doubt many of you think that we should do nothing. The credit rating agencies really messed up and led investors to slaughter by not recognizing (or perhaps willfully ignoring) risks in the products they rated. But again, I'm willing to hear any opinion out. Freund Investing [8] Managing Member Ryan Freund [9] holds no position in any of the companies mentioned in this article. Freund Investing has a solid Disclosure Policy [10]. [1] http://freundinvesting.com/2008/04/07/the-mortgage-mess-blame-game/ [2] http://finance.yahoo.com/q?s=MCO [3] http://finance.yahoo.com/q?s=MHP [4] http://www.nytimes.com/2009/01/04/opinion/04lewiseinhornb.html [5] http://freundinvesting.com/ [6] http://paul.kedrosky.com/ [7] http://finance.yahoo.com/tech-ticker/article/153423/Why-We-Should-Kill-the-Credit-Rating-Agencies [8] http://freundinvesting.com/ [9] http://freundinvesting.com/about [10] http://freundinvesting.com/disclosure http://freundinvesting.com/2009/01/06/abolis-credit-rating-agencies-some-say-yes/