Dear old Fannie & Freddie

Fannie Mae and Freddie Mac are synonymous with the US housing bubble and the following credit crunch and banking collapse. They were a direct player in lending money to those who couldn't afford housing and were among the first institutions to go down the tubes.

Directors were cooking their books to make their balance sheet look good and as we know they would have disappeared if not for that nice man Barrack Obama bailing them out with borrowed money.

I knew they were still around in some capacity but I had no idea they were still up to their old tricks.

An email from their PR people to me (not sure why it was sent, it was unsolicited):

Resource Center: 1-800-732-6643

Contact: Jason Vasquez

202-752-2878

Number: 5065

Date: June 17, 2010

Fannie Mae Launches New Series of “Five Step” Guides to Help Educate Homeowners and Potential Home Buyers

First Three Tip Lists Focus on Home Buying, Housing Counselors and Mortgage Modification Scams

WASHINGTON, DC -- Fannie Mae (FNM/NYSE) today launched the first three in a series of “Five Step” guides, offering useful information for current homeowners, those interested in purchasing a home and homeowners who may be struggling with their current mortgage. Each guide focuses on a different topic and provides five specific tips.

The first three guides released today provide tips on the following subjects:

· Actions to Take Before Buying a Home - As the housing downturn has shown, homeownership is about more than buying a home. It’s important to make sure you can keep your home over the long-term. Fannie Mae offers five steps to help those thinking about buying a home select the right house for them and understand the affordable financing options that can help make homeownership a long-term success.

· How Housing Counselors Can Help – Whether you’re thinking about buying a home or you’re a current homeowner, Fannie Mae highlights five key ways housing counselors can help make homeownership successful for you. Housing counselors offer professional advice, ensuring you can sustain your home purchase over the long term and providing guidance if unforeseen circumstances make it difficult for you to continue paying your mortgage.

· Protect Yourself from Mortgage Modification Scams – Mortgage modification scams can occur when unscrupulous people prey on borrowers who are struggling to keep their homes. While they promise to help, the people who perpetuate mortgage scams do little to no work, charge excessive fees, and use tactics that often put the homeowner at greater risk of losing their home. If you’re modifying your mortgage or facing foreclosure, Fannie Mae offers five keys ways to protect yourself from mortgage rescue scams.

The guides are available at http://www.fanniemae.com/kb/index?page=home&c=fivesteps.

###

Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.

It seems Fannie is still chasing those individuals who are unable to pay off housing over the long-term and therefore it wont be long before the 2008 crash and what followed will happen again.

Fannie of course was set up after the Great Depression in the early 1930s and Freddie in the 1970s, to do exactly what it is doing today.

I am not surprised by the stupidity of the repetition of this nonsense but am constantly amazed that the consequences of not learning from the past are forgotten so quickly.


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Serving Two Masters, Yet Out of Control: Fannie Mae and Freddie Mac by Peter J. Wallison
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c Share Investor 2010

The History Of: Hallenstein Glasson Holdings Ltd

Hallenstein Glasson Holdings Ltd [HLG.NZ] (minus the Glasson part) has certainly been part of my childhood and growing up everything from school uniforms to first serious "shirts and pants" were purchased at a Hallenstein store in the main street of Hastings, Heretaunga Street.

That history seems to have rubbed off on me somewhat and 40 or so years latter I own shares in the company my parents used to buy stuff from.

HLG is part of Kiwi culture and history and it is remarkable that through the years since its establishment by Bendix Hallenstein in Dunedin in the late 1800s and to this day, HLG remains part of the Kiwi lexicon.

A piece in Stuff.co.nz out this morning goes into a bit more detail about the history of HLG and is interesting reading for those interested in New Zealand retailing and the history of business in general:

His first store opened in the Octagon in 1876, accepting cash only and advertising a single garment at a wholesale price – about 25 per cent on cost. He also opened shops in Christchurch and Timaru later that year, and in Wellington and Oamaru the year after. Through 1878 and 1879 the business opened shops in Auckland, Napier, Ashburton, Wanganui, Invercargill, Nelson, New Plymouth and Thames.

By 1900 there were 34 Hallenstein shops nationwide – only four fewer than exist today.

In 1883, the company's 350 staff moved into a new purpose-built factory in Dunedin. Soon after, Mr Hallenstein seeded an employee fund from which the interest was used to pay for medicine for staff.

When the Rev Rutherford Waddell gave his sermon on "the sin of cheapness" and called for a royal commission, "at a big public meeting", according to the history of Hallensteins, "Bendix Hallenstein supported him, declaring his sympathy with the movement and stating that he and his partners would sooner give up manufacturing than carry it on at the starvation rates being offered by contractors". Read more here.

The ability of a retailer to develop itself out of the Otago gold rush and still exist in 2010 is no mean feat and just goes to show what a business can do when it offers good product to its customers and runs the back office as frugally and cunningly as HLG did and still does.


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c Share Investor 2010

Share Investor discusses Convention Centre proposals with Sky City CEO Nigel Morrison

I have been very critical of the plans that Sky City Entertainment Group [SKC.NZ] have for either expansion of their present convention centre or the building of a new one. They are known money losers.

With this in mind I sat down with CEO Nigel Morrison yesterday and discussed the details and various proposals along with a few sidebars along the way. It is the first time I have met him personally, previous interviews have been conducted via email questions.

Here is what I can tell you at present about SKC's convention centre plans, there is detail that Nigel had to keep to himself.

We sat down at the Rebo Cafe just off Federal Street.

On the extension of the present convention centre located in the Sky City Grand Hotel complex Mr Morrison indicated that shareholder money would be spent on upgrading and allowing for more delegates beyond its present capacity but costs would be hopefully mitigated by increased revenue from foot traffic to the casino (via the current footbridge) and patronage to a number of bars and eating establishments to be developed in the Federal Street precinct. Some Council money will also be used to fund this expansion and there are negotiations underway at present as to how much that will be.

Interestingly Nigel would not be opposed to being a landlord in respect of any food and beverage outlets developed and for existing operators in other parts of the city to occupy spaces in Sky City owned real estate.

A very exciting possibility exists in Federal Street (see power-point slide illustrations & SKC submission to Auckland City Council for more detail) to lever off patronage there and get customers to the door of the casino. The Auckland Casino has been pretty much flat revenue wise over the last few years and Nigel indicated that this was the best use of shareholders money to enable the possibility of growth again, more attractions means more revenue in theory.

In terms of the National Convention Centre, which would be built on Hobson Street next to TVNZ, if it went ahead, around $400 million would be spent developing it, with the bulk of the money coming from the taxpayer, with a relatively small input from Sky City shareholders.

I had previously thought that the bulk of the funding would come from SKC but to leverage off the taxpayer in this way would be a major benefit for the company (sadly the benefit to the taxpayer is a negative one)

Nigel himself admitted many convention centres make little or no margin - they in fact tend to lose money - and also indicated that the rationale for getting into both their convention proposals was that that had to return a net income on investment of at least 15% before they went ahead. This 15% margin would come from increased patronage to the casino floor and the bars and food offerings that the company are keen on expanding.

Off the topic of convention centres Nigel indicated that the Australian casino sector was likely to consolidate over the next couple of years with Tabcorp Ltd [TAH.ASX] a company under a fair amount of pressure as its Victorian gaming/wagering licenses expire.

Mr Morrison indicated that the Sydney casino Star City was the jewel in the crown in terms of gaming in Australia and while well run, its potential was not being fully exploited.

SKC has paid down a considerable amount of debt over the last year or so, with a capital raising in 2009 so far contributing the bulk of that. Mr Morrison indicated that his company has a balance sheet and credit resources that would make it open to any opportunity to purchase the right gaming assets at the right price should a shake up in the Australian gaming sector arise and he seems confident that this will happen in the next few years.

Nigel knows the Australian gaming sector well and has almost 20 years experience in this industry.

On the possibility of expansion of the casino sector in New Zealand he doesn't see the likelihood that Government would relax the present restrictions allowing more competition but that if it did (after a suggestion that Wellington would be a good place for a casino) they would be interested in a casino in at location.

Little indication of how well the second half of 2010 has gone from Nigel (2 weeks until year end) but if there is any indication at all results are tracking to a record profit of between $126-132 million and that has been forecast by SKC management itself.

I think given cost reductions, a sale of the cinema assets and reduced interest costs on paid down debt the profit is likely to be on the higher side of this estimate, if not higher.




Disclosure: I own SKC shares in the Share Investor Portfolio


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c Share Investor 2010

Burger Fuel 2010 Full Year Profit Analysis

I pointed out last week that Burger Fuel Worldwide [BFW.NZ] 2010 full year profit should be better than the 2009 result because of the surge in the growth of the fast food sector over the last couple of years and they have done better, with a narrower loss of just over half a million.

The vast bulk of revenue for this franchising company still comes via direct sales from company owned stores rather than royalties from franchisees but these royalties should rise as the company expands in the Middle East where it has done exceptionally well.

In New Zealand same stores sales for franchisee/company owned stores increased by just over 5%. When a new store in Mission Bay is included this increase amounts to over 12%. A good result but on a par with the likes of Restaurant Brands Ltd [RBD.NZ] which increased sales in the 2010 year by just under 5% (see 2010 Annual report for details)

No stores were opened in New Zealand during 2010 and it appears saturation point may have been reached with 27 stores a reasonable number given the size of the premium end of the fast food market that BFW operates in.

A big worry for Burger Fuel management will be its two beach-head stores in Sydney, Australia one of which is situated in Kings Cross.

There was much fanfare about the Kings Cross store being a hugely visible entry into OZ, with big expansion plans, with an emphasis by management on the marketing possibilities that the high exposure site had for foreign visitors to the "Cross" spreading the Burger Fuel word on a global scale.

Well that hasn't happened and as I pointed out in 2007 the store operating costs would be a huge burden on sustainable profitability and that, unfortunately, has turned out to be the case.

Looking at the 2011 year the company is set to grow in the Middle East but just get by in New Zealand.

Australia will be a big burden on such a small company and management will need to focus on costs or consider picking up sticks across the ditch. There is more and slicker competition in the gourmet burger business in Sydney than back on home turf.

Expansion of the company will be further hamstrung by its ever decreasing cash in the bank and as management have said they are relying on expansion of units rather than same store sales to get to profitability.

Shareholders can only hope.


Key Points from BFW 2010 Full Year

1. $552,983 loss - 22% better than last year.

2. $8,722,000 up 17% on 2009

3. Cash reserves down 25% to 1,159,000

4. Earnings per share -1.04c VS -$1.34 last year

5. 2 new stores in Dubai & Saudi Arabia doing well.

6. Australia failing to fire and with significant overheads mounting.

7. 210,000 shares issued to directors during the year.


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c Share Investor 2010