I’ve been sporadically posting about the debt disaster in which the global economy is mired. But this morning, as the futures were lock limit down, instead of particularly caring one way or the other, I spent my time making pancakes and pondering the election, specifically, why 527’s have not come to McCain’s aid.
Here’s a little good news to help deal with 401k losses.
We all know what happened in 2004, Rove and company savaged Sen. Kerry on what should have been his strength, his service in Vietnam. The Swift Boat ads and attacks redefined, or maybe defined, Kerry. This unholy alchemy made the draft dodging, drunk driving, Mission Unaccomplished candidate into some sort of swaggering hero while the real war hero was redefined, or defined, as a lightweight, serial exaggerator, among other things. Obama should have been easy pickings for such a propaganda machine.
But the 527’s, and the 501 (c)’s could not gain any altitude this year. Partly because there is a palpable apathy to McCain, partly because Obama has been prepared to defend himself and define McCain, partly because the rule changes concerning the 527s, but for my money, in large part the absence of these vehicles stems from the fact that the deep pocketed backers needed to fund these vehicles have been losing huge amounts in the markets.
Harold Simmons, who helped create the concept of leveraged buyouts (LBO) back in the early 1970’s and who was a major funder for the Swift Boat campaign, has run into hard times. It seems Mr. Simmons has lost about US$2.7 billion over the past year, but I would argue his holdings have plunged even more as he and the trusts he controls have used the relaxation of ownership rules to in effect prop up the price of companies he owns:
After not buying a single share of Valhi last year, Simmons recently has become the biggest trader of the stock, with trusts he controls accounting for over 10.5% of its trading volume this year, according to SEC filings.
Insider share purchases have traditionally served as a signal to the market that a company's prospects are good because, the reasoning goes, no one else has the level of insight into future developments a senior executive does. Often, those purchases reverse stock slides and give a shot of confidence to other owners.
Because Valhi is 95% owned by Simmons trusts and other insiders, any buying Simmons does of Valhi at a higher price can produce a gain, at least on paper. Simmons' aggressive open-market purchases of Valhi have had the effect of popping the price until recently (see chart), when Valhi's stock price dropped to under $10 from a 52-week high of $32.47.
Ordinarily Simmons would run into regulatory issues buying as much stock as he has lately. But on September 19, the day the SEC suspended short sales on what would amount to over 1,000 stocks, it also suspended much of rule 10b-18, which governs the amount of stock companies and corporate insiders can purchase.
The killer quote is quietly hilarious and a fine example of the Republican math that got us into this mess:
A question that merits some thought is how much exactly is a share of Valhi worth? A sum-of-the-parts valuation - adding up the value of a holding company's various equity stakes in its operating units and then dividing that by the number of shares - suggests that Valhi stock isn't exactly a storehouse of hidden value...
The value of Valhi's stakes in its public operating units is just north of $831 million. Subtract the $667.3 million of preferred stock (which carries legal rights above common stock in the capital structure) and holding company debt, add in the company's cash and the $67 million estimated value of WCS, and divide by the 114 million Valhi shares outstanding and you get a net asset value of $1.44 per share.
So, we have a stock trading around $10, that is legitimately worth a buck fifty, to be generous.
Using Simmons as a proxy for would be 527 benefactors, the silver lining to this economic malaise is that the would be backers of anti Obama attack ads just don’t have the money to waste on McCain.