Thursday, November 29, 2007

Sears and Ackman

I'd assume Pershing Square is going to get even a bit more publicity the next few days. Yesterday William Ackman announced on CNBC that he would donate his future share of his bet winnings against the mortgage insurers to charity. I'd like to see a ton of money go to The Robin Hood Foundation, but the merry men at Pershing would be better off picking up more shares of Sears, than picking on the mortgage insurers.

Intellectually their argument is sound, except for one caveat. What happens if housing prices stabilize and start going up? Mr. Ackman assumes that by next June, Ambac Financial (ABK 23.41) will be broke. So how is it, that a billionaire can give money to the Pershing Square Foundation and be lauded? His bet only pays off if the poor and sub-prime are displaced, and home values continue their spiral downwards, affecting millions more than his contribution to the charities would benefit. I want the other side.

ABK's stock price looks to me like it has hit a double bottom. Mortgage assets are long tail, and hedge funds are notoriously fickle and short term orientated. Mr. Ackman's firm, which picked up 5 million shares of Sears last quarter at about $140 a share has stated that Sears assets are worth well in excess of $200 a share. I wouldn't be surprised if he picked up more shares of Sears at 104. He also owns a slug of Target and has been agitating for changes there.

He owns Sears and guess it's worth $220 or so. He wants Target to change. Personally, I've never had a bad retail experience at Target. It looks like to me he publicly defends his positions. But why own retail if housing is going to hell in a handbasket? Does that make sense? Neither does his bet, or the publicity surrounding it.

But then, again I liked the Sermon on the Mount:

"So when you give to the poor, do not sound a trumpet before you, as the hypocrites do in the synagogues and in the streets, so that they may be honored by men. Truly I say to you, they have their reward in full. But when you give to the poor, do not let your left hand know what your right hand is doing."