Replies to post #3041 on Zeev's Turnips Patch-No Politics (ZEEV)

[Bruce A Thompson]

Tantal,

Apology accepted. I agree that you should be wary of any tout made on the threads. I first mentioned this stock about a month ago when I noticed the high dividend rate. ALD has been low level on my radar since.

I have found that it is a closed end investment company and as such, passes the profits untaxed through to the shareholders. This is how they can pay such a high dividend rate. And why they have to. It is also a very large company with a 40 year track record. That means that if the shorts take them on, it is just gravy for the new investors that will be looking at larger and larger returns.

On the plus side, there is no convertible debt for the shorters to use to leverage their position from. This means that they have only the market to short from. (101.9 mm shrs outstanding 34.859 mm held by inst & insiders) The company also has had a substantial dividend reinvestment or DRIP following so those registered shares further reduce the shares available to short.

Basicly, the only short bash they can use to drive the stock price is that ALD formerly used Anderson as the auditor. ALD fired Anderson and hired KPMG to re-audit and KPMG pronounced them clean.

It is an interesting attack by the hedge funds. First, establish a short position then declare them crooks for using AA. Follow up by bringing in the class actions.

I don't think it will work here. Even if it does drive the stock price down, a dividend yeild in the 8's or 9's is just too attractive not to have in the core. If the price goes lower, the yield in the 10's will make it a no brainer.

The talking heads are saying that dividends are the future for this secular bear.

BT

[Bruce A Thompson]

Darryl,

I just finished reading the Greenlight report that bashes ALD.

http://www.greenlightcapital.com/ald/alliedcapital.pdf

What it all boils down to is that Greenlight claims that, since ALD doesn't use "mark to market" to valuate their portfolio, they are committing a fraud.

ALD is doing mezzanine financing and loans and investments in private and small business. By definition, these are the same as sub-prime in the mortgage business. Mark to market accounting simply does not work for them. Booking the entire profit for a deal before it pays the "muntlies" would force the proforma profits up and cause future income to be impared if and when loans subsequently defaulted. This skews the profits and cash flow figures and creates huge percieved value that simply does not exist. Ask anyone who remembers the CTYS-CTYSC-CYYS fiasco. Mark to market is also one if the big things that got Enron in trouble.

I believe that Greenlight is using this gray area of accounting to raid the wrong company.

Bt

[Math Junkie]

I'm not trying to make anyone sound stupid - just trying to understand the logic. I thought you answered my questions very well. Thanks also to Bruce for providing additional info.

[michalel97123]

Richard,
Interested in your views on shorting at least as it relates to hedge funds. Every time i posted regarding the pimco view that either hedge funds should be under the same rules as mutuals and that their shorting is killing companies by forcing rating agency to lower ratings when bonds come under attack.
STandard answer here is that pump and dump bulls did the same thing in 1999-2000. I dont doubt that was true but shorting uses borrowed stock. If you owned amat for example a hedge fund could borrow your shares to short thus driving down the price. I understand the liquidity arguement but that could be accomplished without the hedge funds doing this in an uncontrolled fashion. Do you have views on this? mike