Whitney Tilson on the market is misunderstanding Lumber Liquidators’s announcement; Berkshire meeting notes; Munger on interest rates; Baby Buffett: Will Bill Ackman resurrect the ghost of Howard Hughes; Weinreb; Twinkie’s Comeback; Stocks vs. bonds since 1997; Sheryl Sandberg’s tribute Some really great notes on Berkshire meeting see them below

Whitney Tilson on Lumber Liquidators

1) I published my 15th article on Lumber Liquidators this afternoon – see below. Here’s a summary:

  • Lumber Liquidators announced three pieces of news this morning that are being misinterpreted by the market as positive developments, but they’re not.
  • What we have witnessed in the past 67 days has, I believe, been a frantic attempt to engineer a massive cover-up – and today’s announcement means that this has failed.
  • The company needs to immediately take a number of steps to do right by customers.
  • I view the stock’s rise today as a gift, so I materially increased my short position this morning.

A pdf file with all 15 articles (plus a table of contents) is posted at: www.tilsonfunds.com/LLTilsonarticles.pdf

Notes from Berkshire meeting

2) After my last email, a bunch of folks sent me their notes from the Berkshire meeting (thank you!), plus here is a link to the notes on the WSJ blog: http://blogs.wsj.com/moneybeat/2015/05/02/live-analysis-the-2015-berkshire-hathaway-annual-meeting/

I haven’t had a chance to go through them, so I’ve posted all of them – you’ll have to figure out which one(s) you want to read (in alphabetical order):

Whitney Tilson: Munger’s comments from The Daily Journal 25th annual meeting

[drizzle]3) Here’s what Munger had to say at the annual meeting of The Daily Journal on March 25th about “persistent negative interest rates on certain government bonds”:

Q: One of the more peculiar things that we see in the markets today is the existence of persistent negative interest rates on certain government bonds. I’m wondering if you just have any thoughts around that.

Mr. Munger:  This has basically never happened before in my whole life. I can remember 1½ percent rates. It certainly surprised all the economists. It surprised the people who created the life insurance industry in Japan, who basically all went broke because they guaranteed to pay a 3% interest rate. I think everybody’s been surprised by it, including all the people who are in the economics profession who kind of pretend they knew it all along. But I think practically everybody was flabbergasted.

I was flabbergasted when they went low; when they went negative in Europe – I’m really flabbergasted. How many in this room would have predicted negative interest rates in Europe? Raise your hands.

[No hands go up]

That’s exactly the way I feel. How can I be an expert in something I never even thought about that seems so unlikely. It’s new territory….

Q: Are there any specific unintended consequences that you are concerned about now that we’ve had such a prolonged period of low interest rates, which are clearly altering folks’ risk behavior?

Mr. Munger:  I think something so strange and so important is likely to have consequences. I think it’s highly likely that the people who confidently think they know the consequences – none of whom predicted this – now they know what’s going to happen next? Again, the witch doctors.

You ask me what’s going to happen? Hell, I don’t know what’s going to happen. I regard it all as very weird. If interest rates go to zero and all the governments in the world print money like crazy and prices go down – of course I’m confused. Anybody who is intelligent who is not confused doesn’t understand the situation very well.

If you find it puzzling, your brain is working correctly.

Whitney Tilson on Bill Ackman

4) Bill Ackman is on the cover of the latest issue of Forbes, out today, in an article about how he and David Weinreb (Chariman and CEO, respectively) are building a powerhouse at Howard Hughes Corp. (HHC). I certainly agree, as it’s my largest position – I’ve owned it since the day it first started trading on Nov. 9, 2010 as a spin-off from General Growth Properties when it emerged from bankruptcy, and it’s more than quadrupled since then. Here’s an excerpt from the article:

because of Gotham’s failures, Pershing Square pledged to its partners not to invest directly in private companies–including real estate.

This created a dilemma because real estate has always been his sweet spot. “It is an asset class I understand, and we have made a fortune in it,” says Ackman, who isn’t known for modesty. “I don’t know that I’ve ever made a bad real estate investment.”

The financial crisis of 2008 presented the solution that led to Howard Hughes. As markets were descending into turmoil, Ackman bought up 25% of struggling mall REIT General Growth Properties at a fire sale, helped steer it into a managed bankruptcy and then cherry-picked certain undeveloped assets from the carcass, an unwanted hodgepodge that rivals dubbed “Sh-tco.” General Growth turned out to be his greatest investing triumph, with a 130-fold gain on his stock, amounting to a $3.7 billion profit for his hedge fund. “Sh-tco” turned into the Howard Hughes Corp., a $6 billion vehicle that has seen its stock climb 300% since it was spun off–and allowed Ackman back into the real estate game unfettered.

One of Howard Hughes’ most valuable assets is on Bill Ackman’s home turf: Manhattan’s South Street Seaport…

…In 2002 he reconnected with Ackman via a cold call. Seven years later, with the real estate market languishing, Weinreb began talking to Ackman about launching a fund to buy up distressed properties. The discussion eventually morphed into Weinreb taking charge of Ackman’s plan for Howard Hughes.

Weinreb’s background in turnarounds is what made the Las Vegas project so enticing. The mall was abandoned in 2007, as the real estate market began to sicken. Until a year ago it was fallow, with concrete and rusting steel columns sitting atop wasteland purchased by reclusive business tycoon and aviator Howard Hughes in the 1950s to avoid taxes (see sidebar). “We’re the largest landholder in a constrained market,” says Weinreb. “It was self-evident that Downtown Summerlin would have a bright future when the market recovered.”

More tantalizingly, Howard Hughes owns 200 acres of barren desert to the east, which is slated for 4,000 residential units and 1.4 million square feet of office space. And another 5,600 acres to the west and south, which will become increasingly valuable if Ackman’s projections, which call for Summerlin’s 100,000 population to double, come to fruition.

Control is important in all of the duo’s master plans. Besides its Las Vegas real estate and planned community, Howard Hughes also owns the Woodlands, a 28,400-acre planned community on the outskirts of Houston conceived in the 1960s by shale gas pioneer George Mitchell, as well as parts of James Rouse’s planned community in Columbia, Md. It also owns Ward Village, a 60-acre plot of coastal land in Honolulu, where the company has already broken ground on two luxury towers that are more than 80% sold.

Instead of pawning off projects to joint venture investors, Ackman and Weinreb are doubling down. One of Weinreb’s first moves, in fact, was spending $118 million on a deal in 2011 to buy out the 48% interest Morgan Stanley held in the Woodlands. They also decided to retain the 25 million square feet of strategic

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