. . . .
.
For six straight quarters,
money has been pouring out
of LM's domestic equity
mutual fund, and there
have been net outflows in
four of the last seven
quarters in the whole
mutual fund division...
that's the redemption
song.
Since LM makes money
taking a cut of the assets
they manage, this is most
surely terrible news for
them...
. . . .
.
But selling LM isn't our only
conclusion here.
It's definitely a big
conclusion, especially today,
with the stock up for all the
wrong reasons... It's up because
State Street (STT),
a very good firm, is taking care
of its sub-prime problems.
But STT is an asset manager, and
it's gaining monies, and putting
the litigation risk behind it.
I believe that LM is not doing
either of those things. It
has a ton of this structured
investment vehicle product...
it's got a ton of exposure to
that... I know, it made
some write downs, but no, that's
the last thing we expected from
a firm with such a great
reputation.
Frankly, we - meaning me - were
aghast... We thought we were
investing with Tiffany. It
turns out we were shopping in a
home shopping cubic zirconium
production...
And that's not even mentioning
the fact that
Citigroup (C*)
owns 7% of LM's shares
outstanding and Vikram Pandit,
the new CEO... he's got to be
itching to sell... especially
with the stock up so much today.
C* needs the money.
They've got to pay for that
dividend, and I think Pandit
will dump his LM shares, even
before he contemplates cutting
the dividend.
But, as I said, this Sell Block
is about more than just LM...
This is about what LM's funds
will have to sell, because of
the redemptions.
Even though Bill Miller's
performance hasn't been any good
this year, he does own some
worthwhile stocks. And,
because he's going to have to
sell, I believe, to meet the
redemptions, you could get some
great buying opportunities...
On the other hand, he's going to
have to sell some real clunkers
too. I don't want you to
think about those. As a
matter of fact, I want you to
get out of them before he
crushes them with his redemption
song.
. . . .
.
The sells?...
Legg Mason Value Trust,
the huge flailing flagship
fund, run by Bill Miller,
has some big positions in
some real stinkers...
including
AIG (AIG)...
They've got Countrywide
(CFC)...
If you want to own CFC,
you should own the
preferred... don't you
dare own the common. And
then one that I really
think is...well, I'm
trying to be polite, but
it's very difficult, which
is Capital One
(COF)
- sell, sell, sell!
I don't like these stocks,
and the fact that they're
probably going to be hit
by some huge institutional
selling here, in response
to Miller's investors
clamoring for their money
back... makes me want to
tell you to use any
strength to get out...
. . . .
.
But his selling should
also create some buys...
He could knock down
Eastman Kodak (EK),
which he has a huge
position in, represents
7.2% of their shares
outstanding... We're
on record liking EK.
If Bill Miller's a seller
of EK, I'd buy it.
They own 5.1% of Google (GOOG)...
Now maybe that's why the
stock's going down.
Maybe he's knocking it
down to pay some of the
redemptions. It
makes sense right?
It's a big $600 stock.
That's definitely a deal
that I'd take...
They own 1.2% of
Unitedhealth
(UNH*)...
UNH* I own for
my charitable trust...
I'm up nicely on it.
If he knocks that stock
down to $54, I'd be a
buyer of it... It
could happen.
How about
Sprint Nextel
(S),
which he owns?...
Now that stock is all the
way down to $13
We've hated it all the way
down but, at this level...
He owns 1.7% of it.
It's too cheap, especially
if Tim Donahue is given
some money to be able to
take it over, which is
what should happen.
That would definitely be a
buy. At $13...
$12... I want to own the
stock.
. . . .
.
When this kind of thing
happens... when a
high-profile manager,
running tens of billions
of dollars, starts to
falter, and gets hit with
redemptions, there are
opportunities, and there
are stocks to avoid.
Bill Miller is just about
the highest profile guy
out there, so this is
really going to create
some serious negative
pressure on a lot of
stocks, but the most
important one is Legg Mason
(LM).
. . . .
.
The Bottom Line!:
Legg Mason
(LM)'s
troubles aren't LM's
alone... Don't wait for
Bill Miller to sell his
AIG (AIG)
or his Countrywide
(CFC)
or his Capital One
(COF).
Do take advantage if he
knocks down Kodak (EK)
or
Sprint Nextel
(S)
or Google (GOOG)
or UNH
(UNH*)...
and, hey... if you
actually like LM, you
should wait for
Citigroup (C*)
to sell at least a chunk
of it before you would
possibly
pull the trigger.
How long are they going to
kill our profits?
