Stocks continue to make new highs – five consecutive days of higher highs in the Dow. The Trump administration continues to make new news. And the Fed continues to become less important. Those have been the themes of the week.
Today was the deadline for all big money managers to give a public snapshot of their portfolios to the SEC (as they stood at the end of Q4). So let’s review why (if at all) the news you read about today, regarding the moves of big investors, matters.
Remember, all investors that are managing over $100 million are required to publicly disclose their holdings every quarter. They have 45 days from the end of the quarter to file that disclosure with the SEC. It’s called a form 13F.
First, it’s important to understand that some of the moves deduced from 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends.
Now, there are literally thousands of investment managers that are required to report on a 13F. That means there are thousands of filings. And the difference in manager talent, strategies, portfolio sizes, motivations and investment mandates runs the gamut.
Although the media loves to run splashy headlines about who bought what, and who sold what, to make you feel overconfident about what you own, scared about what they sold, anxious, envious or all a combination of it all. The truth is, most of the meaningful portfolio activity is already well known. Many times, if they are big stakes, they’ve already been reported in another filing with the SEC, called the 13D.
With this all in mind, there are nuggets to be found in 13Fs. Let’s revisit how to find them, and the take aways from the recent filings.
I only look at a tiny percentage of filings—just the investors that have long and proven track records, distinct approaches, and who have concentrated portfolios. That narrows the universe dramatically.
Here’s what to look for:
Clustering in stocks and sectors by good hedge funds is bullish. Situations where good funds are doubling down on stocks is bullish. This all can provide good insight into the mindset of the biggest and best investors in the world, and can be a predictor of trends that have yet to materialize in the market’s eye.
For specialist investors (such as a technology focused hedge fund) we take note when they buy a new technology stock or double down on a technology stock. This is much more predictive than when a generalist investor, as an example, buys a technology stock or takes a macro bet.
The bigger the position relative to the size of their portfolio, the better. Concentrated positions show conviction. Conviction tends to result in a higher probability of success. Again, in most cases, we will see these first in the 13D filings.
New positions that are of large, but under 5%, are worthy of putting on the watch list. These positions can be an indicator that the investor is building a position that will soon be a “controlling stake.”
Trimming of positions is generally not predictive unless a hedge fund or billionaire cuts by a substantial amount, or cuts below 5% (which we will see first in 13D filings). Funds also tend to trim losers into the fourth quarter for tax loss benefits, and then they buy them back early the following year.
As for the takeaways from Q4 filings, the best names had built stakes in financials. That’s not surprising given that the Trump win had all but promised a “de-Dodd Franking” of the banking system, especially with the line-up of former Goldman alum that had been announced by late December.
The other big notable in the filings: Warren Buffett’s stake in Apple.
Remember, as we headed into the Brexit vote last year, the broad market mood was shaky. Markets were recovering after the oil price crash, and the unknowns from Brexit had some running for cover. Meanwhile, some of the best investors were building as others were trimming. They were buying energy near the bottom. They were buying health care. And while many were selling the most dominant company in the world, Warren Buffett was buying from them. The guy who has made his fortunes buying when others are selling, did it again with Apple. He was buying near the bottom last summer, and in the fourth quarter he ramped up big time, more than tripling his stake to a $6.6 billion position.
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Last week we talked about how a visit to Trump Tower was becoming a good predictor of a success for your stock.
Goldman continues to build representation in the Trump administration with the latest addition, Gary Cohn (current COO and President of Goldman Sachs) as the National Economic Council Director. And hedge funder Anthony Scaramucci, a Goldman Sachs alum and current member of the Trump transition team, is rumored to be in the running for a role in the administration. Goldman’s stock continues to rise, as the best performer in the Dow Jones Industrial average since Election Day (up 31%).
And remember, we talked about the visit last week of Masayoshi Son, the Japanese billionaire and majority stake holder in Sprint. Sprint is up 32% since election day.
So now we have the latest, and one of the most important cabinet appointments, Rex Tillerson, who will be Secretary of State. He’s the Chairman and CEO of Exxon Mobil, the biggest energy company in the country and one of the largest publicly traded companies. Exxon was up 2% today, and is up 9% since the election — better than the broader market, but not quite as good as the stocks of some other Trump Tower visitors.
This is a very interesting pick. Given that the President-elect has openly talked about using oil as an economic weapon (on Iraq… “we should have taken the oil”). We now have one of the world’s most respected experts in oil, and in negotiating around oil, charged with stabilizing the middle east and relations with Russia (to name a few). And given that the hot spot of global instability surrounds countries (or regimes) that are highly dependendent on oil revenue (funded by oil revenue), we have a guy that could credibly utilize leverage emerging U.S. supply, and global demand of the developed world, as a bargaining chip. His appointment/presence may also end up yielding a stable oil price environment going forward (tempering the manipulation of price extremes by OPEC).
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Stocks continue to print new highs. And many continue to doubt the rally (as they have for much of the post-crisis recovery).
They continue to say stocks are priced for perfection, implying that stocks are expensive, and/or that investors are assuming a perfect Presidency from Trump. But remember, we’ve talked about the massive fundamental and technical performance gap that has still yet to be closed, dating back to the 2007 pre-crisis peak. I did this analysis again just a few days after the election. You can see it here: “The Trump Effect Will Make Stocks Extraordinarily Cheap.”
Now, a few days ago, we talked about buying the stocks of the guests of Trump Tower. Goldman comes to mind, as the Wall Street powerhouse has been well represented in the Trump plan, including the new Treasury Secretary appointment. Goldman is the best performing Dow stock over the past month. And we talked about the meeting with Japanese investor, Masayoshi Son, at Trump Tower this week. Son’s gigantic (80%+) stake in Sprint is up 11% sinceTuesday.
With that said, the billionaire activist investor, Carl Icahn, has been out doing interviews the past two days. Let’s talk about Icahn, because there is perhaps no one investor that should benefit more from the Trump administration. Remember, Icahn was an early supporter for Trump. He’s been an advisor throughout and has helped shape policy plans for the President-elect.
What has been the sore spot for Icahn’s underperforming portfolio the past two years? Energy. It has been heavily weighted in his portfolio the past two years. And no surprise, he’s had steep declines in the value of his portfolio the past two years.
But Icahn doesn’t see his energy stakes as bad investments. Rather, he thinks his stocks have been unfairly harmed by reckless regulation. For that, he’s fought. He’s penned a letter to the EPA a few months ago saying its policies on renewable energy credits are bankrupting the oil refinery business and destroying small and midsized oil refiners. And now his activism looks like it will pay off. Yesterday we got an appointee to run the EPA that has been vetted by Icahn (as he said in an interview today) — it’s an incoming EPA chief that was suing the EPA in his role as Oklahoma attorney general. Safe to assume he’ll be friendly to energy, which will be friendly to Icahn’s portfolio.
Icahn’s publicly traded holdings company is already up 28% from election day (just one month ago). But it remains 56% off of the 2013 highs. This is the portfolio of an investor (Icahn) with the best track record in history (30% annualized for almost 50 years). IEP might be one of the best buys in the market.
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With Thanksgiving behind us, we a few key events ahead for markets before we can put a bow on things and call it a year.
As things stand, the S&P 500 is up around 8%, right in line with the long term average return (less dividends). Yields are around 2.3%. That’s right about where we left off at the end of 2015 (following the Fed’s first move higher on rates since the crisis).
We may find a round trip for oil as well before the year it over. On Wednesday, we’ll finally hear from OPEC on a production cut. Remember, it was late September when we were told that the Saudis were finally on board for a production cut, to get oil prices higher and to stop the bleeding in the oil revenue dependent OPEC economies.
As we’ve discussed, it was Saudi Arabia that blocked a cut on
Thanksgiving day evening two years ago. And that sent oil into a spiral from $70 to as low as $26. Importantly, cheap oil has not only represented a threat to global economic stability but it’s been deflationary. The threat to stability and the deflationary pressure is what has kept the Fed on the sidelines, reversing course on their rate hike projections for this year, and then, conversely, becoming progressively more and more dovish since March.
You can see in this graphic from the Fed last December (2015) after they decided to hike for the first time coming out of the crisis period.
Source: Fed
The majority view from Fed members was an expectation that the Fed funds rate would be about 1.375% at this point in th year (2016). As we know, it hasn’t happened. As of two months ago, the Fed was expecting rates to be at just 1.00% by the end next year.
This makes this week’s OPEC decision even more important, given the market’s and Fed’s expectations on the path of monetary policy at this point.
If OPEC does as they’ve indicated they will do this week, by announcing the first production cut in oil in eight years, it could send the price of oil back to levels of two years ago — when the oil price bust was started that Thanksgiving day. That’s $70.
And $70 oil would play a huge role in where rates go next year, in the U.S., and in Europe and Japan. The inflationary pressures of $70 oil could put the Fed back on a path to hike three to four times in the coming year (as they intended coming into 2016). And it could create the beginning of taper talk in Europe and Japan.
If we consider that possibility, it makes for a remarkably dramatic change in the global economic outlook in just five weeks (since the Nov 8 election). As Paul Tudor Jones, one of the great macro traders of all-time, has said: “the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” An OPEC move should cement the top in bonds.
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Stocks continue to new highs today. But with the holiday approaching, the big focus is oil. It was two years ago on Thanksgiving day evening that the Saudis blocked a move by their fellow OPEC members to cut production, to put a floor under oil prices around $70. Oil plunged in a thin market and never looked back.
Of course, we traded as low as $26 earlier this year. That proved to be the bottom in that OPEC rigged oil price bust, which was intended to crush the competitive U.S. shale industry.
It worked. The emerging shale industry was brought to its knees and we’ve seen plenty of bankruptcies as a result. But OPEC countries have been hurt badly too, taking a huge hit to their oil revenues. That put some heavily oil dependent economies on default watch. So it finally became clear that cheap oil was a big net negative, not just for the U.S. economy, but for the global economy. The risk of continued fallout in the oil industry was a direct threat to the financial system and, therefore, a risk to another global economic crisis.
With that, we head into next week’s official OPEC meeting with expectations set for a first production cut in eight years. And we have the below chart, which would suggest that we could see oil back in the $70 area next year.
In 1986, the mere hint of an OPEC policy move sent oil up 50% in just 24 hours. They’ve more than hinted this time around, but the markets remain skeptical. That skepticism should serve to exacerbate the speed and magnitude of a move higher if they follow through.
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Yesterday we talked about the missing piece in the pro-growth rally in markets. It’s oil. A pick-up in demand and growth, tends to also accelerate demand for oil.
But the market is holding out for the November 30 OPEC decision. They’ve told us they plan to cut. The inventories have jumped in recent weeks, suggesting producers are ramping up production into a cut (taking advantage while they can). And Russia’s energy minister said today he thinks OPEC members will agree to terms on a production cut by the November 30 meeting.
With that, oil spiked this morning, but fell back from the highs — still hanging around the $45 area.
Today I want to talk about the performance of small caps over the past week compared to the broader market. If we consider a Trump economy where regulation will be peeled back, a few areas come to mind as being among winners:
Banks: Banks have been crushed by Dodd Frank, made into utility companies. This is the legislation that responded to the global financial crisis — where banks had become hedge funds, taking massive-leveraged-speculative bets against their deposit base. When the black swan event occurred, they became exposed and were bailed out to keep the financial system alive. Those days should never return, but the pendulum swung too far in the other direction on Dodd Frank. In a Trump economy, risk taking will almost certaintly return to the banking system again. The XLF, bank ETF, is up 10% in the past week.
Energy: The energy industry has been crushed under the weight of clean energy policies. Billionaire Carl Icahn, one of Trump’s biggest advocates and once thought to be a candidate for Treasury Secretary, penned a letter to the EPA a few months ago saying their policies on renewable energy credits are bankrupting the oil refinery business and destroying small and midsized oil refiners. Icahn happens to own a controlling stake in one, CVR Energy (CVI). The stock is up 30% in the past week.
Small caps: The common theme in the above two industries is that all companies have been hurt, but the burden of increased regulation hasbeen far a greater economic and financial cost to small companies. That’s why the Russell 2000 (small cap index) is racing higher in the President elect Trump era. The small cap index is outperforming the S&P 500 by 5 to 1 since Tuesday of last week.
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As you might recall, since I’ve written this daily note starting in January, I’ve focused on a few core themes.
First, central banks are in control. They’ve committed trillions of dollars to manufacture a recovery. They’ve fired arguably every bullet possible (“whatever it takes”). And for everyone’s sake, they can’t afford to see the recovery derail – nor will they. With that, they need stocks higher. They need the housing recovery to continue. They need to maintain the consumer and growing business confidence that they have manufactured through their policies.
A huge contributor to their effort is higher stocks. And higher stocks only come, in this environment, when people aren’t fearing another big shock/ big shoe to drop. The central banks have promised they won’t let it happen. To this point, they’ve made good on their promise through a number of unilateral and coordinated defensive maneuvers along the way (i.e. intervening to quell shock risks).
The second theme: As the central banks have been carefully manufacturing this recovery, the Fed has emerged with the bet that moving away from “emergency policies” could help promote and sustain the recovery. It’s been a tough road on that front. But it has introduced a clear and significant divergence between the Fed’s policy actions and that of Japan, Europe and much of the rest of the world. That creates a major influence on global capital flows. The dollar already benefits as a relative safe parking place for global capital, especially in an uncertain world. Add to that, the expectation of a growing gap between U.S. yields and the rest of the world, and more and more money flows into the dollar… into U.S. assets.
With that in mind, this all fuels a higher dollar and higher U.S. asset prices. And when a dollar-denominated asset begins to move, it’s more likely to attract global speculative capital (because of the dollar benefits).
With that in mind, let’s ignore all of the day to day news, which is mostly dominated by what could be the next big threat, and take an objective look at these charts.
U.S. Stocks
Clearly the trend in stocks since 2009 is higher (like a 45 degree angle). Since that 2009 bottom in stocks, we’ve had about 4 higher closes for every 1 lower close on a quarterly basis. That’s a very strong trend and we’ve just broken out to new highs last quarter (above the white line).
U.S. Dollar
This dollar chart shows the distinct effect of divergent global monetary policy and flows to the dollar. You can see the events annotated in the chart, and the parabolic move in the dollar. Any positive surprises in U.S. economic data as we head into the year end will only drive expectations of a wider policy gap — good for a higher dollar.
Oil
We looked at this breakout in oil last week after the OPEC news. Oil traded just shy of $50 today. That’s 17% higher since September 20th.
Oil trades primarily in dollars. And we have a catalyst for higher oil now that OPEC has said it will make the first production cut in eight years. That makes oil a prime spot for speculative capital (more “fuel” for oil). And as we’ve discussed in recent days, weeks and months… higher oil, given the oil price bust that culminated earlier this year, is good for stocks, and good for the economy.
What’s the anti-dollar trade? Gold. As we discussed yesterday, gold has broken down.
If we keep it simple and think about this major policy divergence, we have plenty of reasons to believe a higher dollar and higher stocks will continue to lead the way.
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As we headed into the holiday weekend, stocks were sitting near record highs, yields were hanging around near record lows, and oil had been sinking back toward the danger zone (which is sub $40).
In examining the relationship of those three markets, each has a way of influencing the outcome and direction of the others.
First, the negative scenarios: A continued slide in oil would soon sink stocks again, and send yields (the interest rate outlook) falling farther. Cheap oil, in this environment, has dire implications for the energy business, which has a cascading effect, starting with banks, which effects credit and the dominos fall from there.
What about stocks? When stocks are falling, in this environment, it’s self-reinforcing. Lower stocks, equals souring sentiment, equals lower stocks.
What about yields? As we’ve seen, lower yields are supposed to promote spending and borrowing. But, in this environment, it comes with trepidation. Lower yields, especially when much of the world’s government bond markets are in negative yield territory, is having a stifling effect on economic activity, as many see it as a signal of another recession coming, or worse.
Now, for the positive scenarios. Most likely, they all come with intervention. That shouldn’t be surprising.
We’ve already seen the kitchen sink thrown at the stock market. From a monetary policy standpoint, the persistent Fed jockeying through much of the past seven years has now been handed over to Japan and Europe. QE in Europe and Japan continues to promote stability, which incentivizes the flow of capital into stocks (the only liquid alternative for return in a zero and negative interest rate world).
And we’ve seen them influence oil prices as well, through easing, currency market intervention, and likely the covert buying of oil back in February/March of this year (through China, ETFs via the BOJ or an intermediary Japanese bank). Still, OPEC still swings the big ax in the oil market, and it’s been OPEC intervention that has rigged oil prices to cheap levels, and it looks increasingly likely that they will send oil prices higher through a policy move. The news that Russian and Saudi Arabian might coordinate to promote higher oil prices, sent crude 5% higher on Monday.
As for yields, this is where the Fed is having a tough time. They want yields to slowly climb, to slowly follow their policy guidance. But the world hasn’t been buying it. When they hiked for the first time in December, the U.S. 10 year yield went from 2.25%, to 2.30% (for a cup of coffee) and has since printed new record lows and continues to hang closer to those levels than not (at 1.53% today). Lower yields makes it even harder for them to hike because it’s in the face of weaker sentiment.
Last week, we looked at the U.S. 10 year yield. It was trading in this ever narrowing wedge, looking like a big break was coming, one way or the other, following the jobs report on Friday. It looks like we may have seen the break today (lower), following the week ISM data this morning.
What could swing it all in the positive direction? Fiscal intervention.
As we discussed on Friday, the G20 met over the weekend. With world government leaders all in the same room, we know the geopolitical tensions have been rising, relationships have been dividing, but first and foremost priority for everyone at the table, is the economy.
Even those opportunistically posturing for influence and power (i.e. Russia, China), without a stable and recovery global economy, the political and domestic economic outlook is bleak. So we thought heading into the G20 that we could get some broader calls for government spending stimulus was in order.
The G20 statement did indeed focus heavily on the economy. They said, “Our growth must be shored up by well-designed and coordinated policies. We are determined to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth. Monetary policy will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth. Underscoring the essential role of structural reforms, we emphasize that our fiscal strategies are equally important to supporting our common growth objectives.”
Keep an ear open for some foreshadowing out of Europe to promote fiscal stimulus – the spot it’s most needed. That would be a huge catalyst for “risk assets” (i.e. commodities, stocks, foreign currencies) and would probably finally signal the top in the bond market.
After a fairly quiet August, we have a full docket of central meetings in the weeks ahead, starting this week. The European Central Bank meets on Thursday.
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This time last month, the famed oil trader—and oil bull—Andy Hall was dealing with a sub-$40 oil market again. And he was again explaining losses to investors in his multi-billion dollar hedge fund.
A guy that has made a career, and hundreds of millions of dollar in personal wealth, picking tops and bottoms in oil, had entered 2016 coming off his worst year ever. And 2016 started even worse.
I’ve talked about the oil price bust extensively, at the depths of the decline in January and February. While most were glorifying the benefits of a few extra bucks in the pockets of consumers from low gas prices, we walked through the ugly outcome of persistently low oil prices. It would be another global financial crisis, as failing energy companies and defaulting oil producing countries would crush banks, and the dominos would fall from there. Unfortunately, the central banks don’t have the ammunition to pull the world back from the edge of disaster for a second time.
With that, central banks stepped in with more easing in the face of the oil price threat, and oil bounced sharply.
Hall’s fund bounced sharply too, running up nearly 25% for the year, by the end of June. But he gave a lot of it back by the time July ended. And now, again, oil is closer to $40 than $50. Thanks to a report yesterday, that oil supplies were bigger than expected, the price of crude has fallen 10% since Friday of last week.
Hall was the CitigroupC +0.13% oil trader who made billions of dollars for the bank energy trading arm, Phibro, in the early-to mid-2000s. He was one of the first to load up on oil futures in 2002, when oil was sub-$30, on the thesis that a boom in demand was coming from China.
He reportedly made $800 million in profits for Citi in 2005 from his original bullish bet. He then made more than $1 billion in 2008 for the bank, as oil prices soared to $147 a barrel and then abruptly crashed. He profited handsomely from both sides, earning a payout from Citi of more than $100 million.
So he’s a guy that has been very right about turning points, and big trends. And he’s been pounding the table for much higher oil prices. He thinks oil prices are in for a “violent reversal” (higher). With an important OPEC meeting scheduled for later this month, Hall, in a past investor letter, reminded people how powerful an OPEC policy shift can be. In 1986, the mere hint of an OPEC policy move sent oil up 50% in just 24 hours.
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Yesterday, SandRidge Energy was yet another energy company to file for bankruptcy this year. Many hear bankruptcy news and think of failed companies. But in plenty of cases, it’s more about opportunism than it is about desperate last acts.
Before we talk about the SandRidge story, we want to give some bigger picture context.
As we discussed a few months ago, the oil price bust, while many thought would be a positive for the economy, because it puts a few bucks in the pockets of consumers, has actually been a huge net negative, because it has brought the energy industry to its knees.
If oil stayed at $26, the shale industry in the America would be done. All of the associated businesses (transportation, logistics, refining, housing, marketing, etc.) – done. Hundreds of thousands of jobs were lost already, and probably millions would have followed. Guess who lends money to the energy sector? Banks. The financial system would once again have been in widespread crisis.
Oil producing countries like Venezuela and Russia would have defaulted. When a biggie like Russia goes, it has systemic ramifications. That event would have likely pulled the leg out from under the teetering European debt crisis chair. From there, Greece would have gone, and Italy and Spain would have probably defaulted. The European Monetary Union would have then finally succumbed to the unmanageable weight of the crisis.
To sum up, cheap oil would have been far worse than the sub-prime crisis. And this time, central banks and governments would have had no ammunition to fight it.
But, central banks stepped in to remove the “cheap oil” risk. The Bank of Japan intervened in the currency markets, and oil bottomed that day. China followed by ramping up bank lending. And Chinese institutions have been big buyers of commodities since. Then the ECB rolled out bigger and bolder QE. And the Fed removed two projected rate hikes from the table. All of this coordinated to directly or indirectly put a floor under oil. Today, oil is up 85% from levels of just three months ago.
So this begs the question: Why is an energy company like SandRidge, a company that has been surviving through the decline in oil prices, cutting production/cutting jobs, now filing bankruptcy? This is AFTER oil has bounced 85% and oil supply has just swung from a surplus to a deficit. And some of the best oil traders in the world are projecting oil prices back around $80 by the end of the year. Why would they throw in the towel now and not in February?
Back in February, SandRidge management missed a debt payment, opting to exercise a 30-day grace period. It was at that stage that the ultimate negotiation should have come with debt holders. Option 1): Restructure debt and perhaps dilute current shareholders by offering debt holders common shares. That gives the company time to ride out the storm of the oil price bust. And it gives all stakeholders a chance to see much better days. Option 2): Close the doors and liquidate assets, and creditors get cents on the dollar.
Instead, SandRidge management and directors negotiated more runway so that they could get to Option 3): the homerun lottery ticket.
In this option, oil prices recover and the company can begin producing profitably again, and brighter days are ahead. But if they rush to file Chapter 11 bankruptcy, while the business fundamentals remain depressed, they can win big. By swapping new stock for debt, the company gets freed of the noose of debt, and the debt holders exchange a piece of paper that was once worth pennies on the dollar, for common stock in a super-charged debt-free company.
That sounds like a win-win. The company continues to operate as normal. Management and the board keep their jobs (and likely their golden parachutes). And former debt holders can make a lot of money.
Who pays the price? Shareholders (the owners). Old shareholders of SandRidge stock have no say in the collusion between SandRidge leadership and creditors. So the owners of the company have their interests effectively stolen by a backroom deal and given to debt holders. And within the bankruptcy laws of Chapter 11, shareholders have no leverage. But who are some of the biggest and most effected shareholders? Employees.
SandRidge has over 1,000 employees. Let’s assume that, like many publicly traded companies, employees of SandRidge have been incentivized to buy company stock as part of their 401k plan (common practice). They have already seen their stock go from $80 to pennies. But now, as an insult to injury, they will continue working to enrich new shareholders while their board of directors have chosen to wipe out their interests.
And sadly, the common stock of companies like SandRidge (which was one of the most shorted stocks on the NYSE) are often shorted heavily by those that own the debt, in efforts to drive the company into Chapter 11, so that they can orchestrate precisely what’s happening today. The stock price gets cheap, then delisted from a major exchange, then credit ratings get downgraded, then banks cut credit lines, and voila, the company find itself in a liquidity crunch and turns to restructurings.
A huge factor in this “homerun option” for the board and creditors is for the company to continue operating as normal. If employees in this Chapter 11 situation would strike, maybe shareholders could have a seat at the negotiating table when these “pre-arranged” reorganization deals are cut. Still, that’s the leverage they hold to derail such a deal.
Consider this: In the depths of the real estate bust, billionaire activist investor Bill Ackman stepped in and bought beaten down shares of General Growth Properties, a company in bankruptcy because it couldn’t access credit. The company had strong assets and strong cash flow (as does SandRidge), but was dependent on a functioning credit market, which was broken at the time. As the largest shareholder, he battled in the board room for the shareholder. He helped management access liquidity and he convinced all stake holders that keeping equity holders intact would result in the biggest outcome for everyone. He was right, and when the credit markets recovered, GGP shares went from 20 cents to over $20 a share.
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