Cerburus: Does the "Forever" Trade Hold?

We agree with Cerberus Partner, Tim Price, saying ``Auto sales aren't going down every year forever.'' But we have one question? Does the Cerberus Private Equity model have "forever" modeled into the risk management parameters of their investment?

This is classic duration mismatch, and it certainly is not a unique problem to Cerberus. They're actually on the short list of funds whose process we respect, but they brought on a CEO who didn't do macro at Home Depot, and he certainly doesn't do it for Chrysler.

Today, Bloomberg featured a grim recap of Nardelli's reign as CEO of Chrysler and it makes for compelling reading.

Presented as a timeline reaching from the decision by Cerberus partners to install the former Home Depot leader to save the firm last August with much fanfare to the ugly reality of the present.

With the company on track to lose $1.6 Billion in 2008, Nardelli is betting that a complete overhaul of the product line will revive the brand. Among his initiatives is a new Dodge Ram set to go on sale in September. With satellite TV, a car like ride, an bin in the cargo box for hauling 10 cases of beer, the new truck gets only 15 mpg in the city and has a sticker price with options of greater than $40,000.

With every other major Manufacturer abandoning the gas guzzling SUV's and trucks (and closing the facilities that manufacture them) to embrace fuel efficient models and hybrids Nardelli's new Ram initiative is, to say the least, contrarian.
  • John Casesa -``With the company using this much cash and with high gas prices, Chrysler has months, not years, to establish alliances to get products it doesn't have''. Casea predicts Chrysler is unlikely to survive as a free-standing car company.
  • Kimberly Rodriguez, Grant Thorton - predicts Nardelli and Feinberg will try to pilot Chrysler as a smaller company or sell it whole or piecemeal in the next two years. ``They're just trying to get through month to month without writing a big check.''
  • Keith Bachman, Aberdeen Asset -Cerberus's stake in Chrysler is worthless unless Nardelli can pull off a turnaround. ``I consider Cerberus's equity an out-of-the-money call option that may or may not achieve value.''
  • John Murphy, Merrill Lynch ``Chrysler's product pipeline severely lags the industry,...this is an active decision by new owners to rationalize the product portfolio in advance of a breakup or sale.''
  • John Gunning, Manassas Dodge - ``You can't, in six months, or a year, or 18 months, change the product line,'' Gunning says. ``Until we come to grips with that, we are not going to be a viable company.''
  • Jerome York, Kerkorian advisor -``The long-term history of these alliances, in many cases, is not good'' -referring to JV with Chery, Volkswagen & Nissan.
  • Consumer reports -For 2008, only 2 of 21 Chrysler vehicles are among recommended models, compares with 17 of 21 for Toyota and 5 of 8 for Hyundai.

The Bloomberg article contains painfully blunt assessments of Nardelli and the company's prospects from industry observers:

Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more