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<div class="KonaFilter image-container float_right"><div class="image on-image"><a href="http://www.youtube.com/watch?v=o8Peyy2WcCM">YouTube</a></div></div>Last night <keyword id="364147" type="COMPANY" weightage="60" keywordseo="Fairholme">Fairholme</keyword> Capital Management announced that it had a proposal for buying <keyword id="68386" type="CITY" weightage="60" keywordseo="Fannie-Mae">Fannie Mae</keyword> and <keyword id="88966" type="CITY" weightage="60" keywordseo="Freddie-Mac">Freddie Mac</keyword>'s entire mortgage-backed security business, bringing in $52 billion in new private capital.
This morning, the fund's CEO, Bruce Berkowtiz, was on CNBC explaining its plan.
"We don't have to be greedy, we don't need federal support," he told CNBC's David Faber. "We can give the president what he wants, we can give Congress what it wants... It seems pretty obvious."
Berkowitz <a href="http://www.nasdaq.com/article/berkowitz-it-doesnt-pay-to-bet-against-america-low-pe-stocks-cm287518">is known for his</a> <a href="http://www.nasdaq.com/article/berkowitz-it-doesnt-pay-to-bet-against-america-low-pe-stocks-cm287518">"communication gift"</a>, and for taking a significant role in the restructuring of Bank of America and AIG in the aftermath of the financial crisis.
He's also known for having had a wild ride over the last few years. In 2010 Morningstar named him <a href="http://www.businessinsider.com/the-obsessive-habits-of-bruce-berkowitz-morningstars-manager-of-the-decade-2012-2">'The Mutual Fund Manager of the Decade</a>." In 2011, investors were redeeming their money in droves after the fund had a miserable year.
But now Berkowitz is back on the upswing. At the beginning this year Fairholme <a href="http://www.bloomberg.com/news/2013-01-30/fairholme-closes-funds-to-new-investors-after-rebound.html">closed funds to new </a>investors, <a href="http://finance.yahoo.com/news/fairholme-reopens-investors-205000211.html">later reopening in August.</a>
Now here's what we know about Fairholme's Fannie/Freddie plan - The fund would raise $34.6 billion in exchange for preferred stock. The fund also wants $17.3 billion from preferred stock holders in a rights offering.
For the first five years of Fairholme's ownership of the insurers, it would pay no dividends or distributions with new, locked in capital. It may also decide to scrap the names Fannie and Freddie.
As Faber pointed out in the CNBC interview, it is unclear if the government would approve of this plan. At the same time, there is a desire in Washington to unwind Fannie and Freddie and change the way housing is insured in this country entirely.
"This proposal is about the future," Berkowitz said, later adding, "We are apolitical, we will do it any way government wants."
Both Fannie and Freddie's stock are up 7% on the news.

A Mutual Fund Wants To Buy Fannie Mae And Freddie Mac Lock, Stock, And Barrel

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Getty Images/ Joe ParraBruce Berkowitz.</div></div></div><a href="http://markets.businessinsider.com/stock/SHLD-Quote">Sears Holdings</a>' largest shareholder just gave up his seat on the company's board. The embattled retailer's stock is plunging on the news. The company <a href="http://searsholdings.com/press-releases/pr/2061">announced on Monday</a> that Bruce Berkowitz is will leave <a href="http://markets.businessinsider.com/stock/SHLD-Quote">Sears</a>' board of directors, effective October 31. He joined nearly two years ago, in February 2016.Berkowitz also serves as the Chief Investment Officer of Fairholme Capital Management, which is the second largest holder of Sears shares and one of the last to hold out as the company struggles for a turnaround. Fairholme has lost 89% of its assets since its peak in 2011 as of June, <a href="https://www.wsj.com/articles/fund-manager-makes-contrarian-bet-loading-up-on-sears-1498734001">according to the Wall Street Journal,</a> in part as Sears shares have plunged as it has shuttered stores, fired staff, and warned investors that it may not be able to remain in business long-term.Berkowitz has remained one of Sears chairman and CEO Eddie Lampert's stalwart backers through the company's tumultuous times, and Berkowitz supported Lampert's plan to spin off valuable Sears assets like real estate and the company's Craftsman brand. Craftsman sold earlier this year for $900 million to Stanley Black &amp; Decker, which provided a sizable bump to the company's bottom line for the year."I wish the company and its associates all the best as Sears Holdings continues to execute on its strategic priorities," Berkowitz said in prepared remarks. He did not give a reason for why he was stepping down.Sears' stock is down nearly 9% in early trading Monday, and are down over 90% since Fairholm first became a shareholder in late 2005. <div class="KonaFilter image-container display-table"><div><div class="image on-image">Markets Insider</div></div></div> <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/scott-galloway-predicts-amazon-nordstrom-amc-scripps-acquisition-2017-10">Scott Galloway correctly predicted Amazon would buy Whole Foods - here's who he thinks Amazon should acquire next</a></h3> <div> </div> </div>

One of Eddie Lampert's most loyal backers is leaving Sears and the stock is tanking

<div class="KonaFilter image-container display-table"><div><div class="image on-image">AP</div></div></div><ul class="summary-list"><li>Two Sears board directors have hired an investment bank to look into deals made by the company's former CEO Eddie Lampert before the company filed for bankruptcy. </li><li>The directors are questioning the ways the company separated its real-estate and Sear's businesses under Lampert's watch. </li><li>The directors say that doing so caused Sears to lose several valuable assets. They are consulting with the investment bank on whether Lampert's actions constituted legal actions against him. </li><li>Lampert is currently owed $2.6 billion by Sears due to his hedge fund, ESL Investments, infusing the company with billions of dollars when its profits were being affected by <keyword id="6354851" type="UNKNOWN" weightage="100" keywordseo="retail">retail</keyword> giants Walmart and Amazon. </li><li>Lampert is now looking to buy Sears in a bankruptcy auction under the terms that it will be in a stabler financial condition. </li></ul>(Reuters) - Two Sears board directors have hired investment bank Evercore to scrutinize deals that were led by former Sears Chief Executive Eddie Lampert with the US retailer before it filed for bankruptcy protection, people familiar with the matter said on Friday.The deals, including separations of Sears' businesses and real estate, may come under examination in bankruptcy proceedings, with creditors claiming the transactions stripped the retailer of valuable assets. Billionaire Lampert is the largest shareholder and creditor of Sears through his hedge fund, ESL Investments Inc."ESL supported the board's decision to authorize the review," a spokesman for Lampert's hedge fund said. "These types of analyses are customary and ESL is confident that the subcommittee will confirm that the transactions involving ESL were on fair and reasonable terms and approved under appropriate corporate governance procedures,"Sears, which filed for Chapter 11 bankruptcy on Oct. 15, and Evercore declined to comment.Sears directors Alan Carr and Bill Transier, who joined the retailer's board earlier in October, would work with Evercore to examine the deals and decide whether there are grounds for any legal action against Lampert, according to bankruptcy-court papers filed last week and the sources who asked not to be identified because Evercore's role is not yet official.In addition to the directors, Lampert will also likely face probing from Sears' unsecured creditors' committee, a group selected by a government bankruptcy watchdog in most cases, the sources said. The committee includes Sears' landlords, the US government overseeing its remaining pensioners, vendors and representatives for bondholders.In addition to the directors, Lampert will also likely face probing from Sears' unsecured creditors' committee, a group selected by a government bankruptcy watchdog in most cases, the sources said. The committee includes Sears' landlords, the US government body overseeing its remaining pensioners, vendors and representatives for bondholders.Lampert arranged Sears' merger with discount chain Kmart in 2005. Since then, he has led numerous deals involving the retailer, including separating roughly $2.7 billion of its real estate into Seritage Growth Properties.In recent years, ESL has extended rescue loans to Sears as it lost billions of dollars and fell behind in the competition with discount retailer Walmart and e-commerce company Amazon.com. Lampert is now owed about $2.6 billion by Sears and owns close to half the company.Evercore's hiring remains subject to court approval. The committee has also hired law firm Paul, Weiss, Rifkind, Wharton &amp; Garrison to help review the deals, according to court filings.Sears is also trying to secure financing in bankruptcy in an effort to avert liquidation. The retailer delayed a hearing on a loan Lampert was in talks to lead, and did not provide a new date, according to court documents.<h2>Long history of deals with Sears</h2>Andrew Dietderich, an attorney representing Sears creditor Fairholme Capital Management, said the company's many deals over the years resulted in a slow-motion bankruptcy."These cases are the last mile in a multi-year liquidation, one that happened without court supervision," Dietderich said in US Bankruptcy Court in White Plains, New York last week. Bruce Berkowitz, Fairholme's founder, stepped down from Sears' board in 2017.Creditors can claim that transactions put together before a bankruptcy deprived them of value and preempted court proceedings that are meant to determine their repayment."All of the transactions that took place here, your honor, took place with the strictest of corporate governance oversight," ESL attorney James Bromley said at last week's bankruptcy-court hearing, adding that Fairholme representatives served on the Sears board and signed off on multiple transactions.Lampert is now proposing to buy financially healthier Sears stores in a bankruptcy auction, after making offers to buy the company's real estate, appliance brand Kenmore and home services business outside of court earlier this year. <div class="margin-top"> <h3>NOW WATCH: <a href="https://www.businessinsider.com/oysters-still-alive-eaten-raw-vibrio-vulnificus-2018-9">Raw oysters can still be alive when we eat them, but not for the reason you may think</a></h3> <div> </div> </div>

Sears directors tap Evercore to examine former CEO Eddie Lampert's deals

<div class="KonaFilter image-container display-table"><div><div class="image on-image"><a href="https://www.youtube.com/watch?v=jPaxIztRRCA">Bloomberg</a>Former Sears director Bruce Berkowitz says the retailer "wrecked" his hedge fund's performance.</div></div></div><ul><li>Bruce Berkowitz, a former Sears director and one of its biggest defenders, says the company's losses "wrecked" his hedge fund's performance. </li><li>"Sears realized billions of dollars from asset sales, as we predicted, but I did not foresee the operating losses that have significantly reduced values," he wrote in a letter to investors. </li><li>The letter marks the first time Berkowitz has spoken out about Sears since quietly leaving its board in October. </li></ul> Hedge fund manager Bruce Berkowitz <a href="http://www.fairholmefundsinc.com/Reports/Funds2017Annual.pdf">came out swinging against Sears</a> after quietly leaving its board of directors four months ago.Berkowitz, who has long been one of Sears' biggest defenders and remains its second-largest shareholder, wrote in a letter to investors on Monday that Sears "wrecked" the performance of his hedge fund, Fairholme Capital Management. "Although markets reached new highs in 2017, there was not much to celebrate as the securities of Sears Holdings Corporation ('Sears') and Sears Canada wrecked the Funds' performance," Berkowitz wrote. "Sears realized billions of dollars from asset sales, as we predicted, but I did not foresee the operating losses that have significantly reduced values. "Getting the asset values largely correct, but missing the company's inability to stop retailing losses, has been hugely frustrating and fatiguing for me to watch," he added. "Today Sears is a much diminished position and nowhere as relevant to our financial position."Berkowitz stepped down from Sears' board in October. In a statement at the time of his departure, a Fairholme Capital Management spokesperson said Berkowitz was leaving because he had "achieved his objective" on the board."Mr. Berkowitz believed that his board service would enable him to better communicate Fairholme's perspective in substantially greater depth and detail than would otherwise have been the case," the representative said. "Mr. Berkowitz believes that he has achieved that objective."Sears told<a href="https://www.bloomberg.com/news/articles/2017-10-16/sears-sinks-as-key-investor-berkowitz-plans-to-leave-board"> Bloomberg</a> at the time that Berkowitz and Sears' CEO, Eddie Lampert, were still in good standing. "Mr. Lampert and Mr. Berkowitz have a longstanding partnership and continue to have great respect for each other," the company said.Berkowitz first invested in Sears in 2005 and he has been one of its fiercest defenders over the years despite its continuing losses.Sears' sales are down 45% since early 2013, its debt load has spiked to over $4 billion, and the company is losing well over $1 billion annually. Berkowitz reiterated his belief in Sears as recently as July 31, in a semi-annual report to investors."Investors may disagree on the exact path forward for Sears, but the company owns many valuable assets and there is huge value in optimizing all of them," he wrote. Berkowitz has been <a href="https://www.sec.gov/Archives/edgar/data/1056831/000091957418000429/d7793325_13g-a.htm">selling off Sears shares</a> since leaving the board but he's still the company's second-largest shareholder behind Lampert.<div id="categorypromo" style="border:1px solid silver; min-height:90px; padding:10px;vertical-align:top;"><a href="http://read.bi/retail-2018"></a>EXCLUSIVE FREE SLIDE DECK: The Future of <keyword id="6354851" type="ORGANIZATION" weightage="100" keywordseo="Retail">Retail</keyword> 2018 by the BI Intelligence Research Team. <a href="http://read.bi/retail-2018">Get the Slide Deck Now »</a></div> <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/amazon-go-grocery-walk-out-technology-store-phone-app-no-lines-cashiers-2016-12">Take a look inside Amazon's grocery store of the future - there are no cashiers, registers or lines</a></h3> <div> </div> </div>

One of Sears' biggest defenders just revealed why he abruptly cut ties with the company

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Getty Images</div></div></div><ul><li>Sears' sales are down 45% since early 2013, its debt load has spiked to over $4 billion, and the company is losing well over $1 billion annually. </li><li>To meet its obligations, Sears has been selling off valuable brands and properties.</li><li>Now its pool of assets is dwindling, increasing the risk of a bankruptcy, analysts say.</li><li>Kmart, in particular, is at risk of shutting down, as it loses market share fast.</li></ul> Wall Street analysts have made the same prediction every year for nearly the last decade: Sears is imminently going bankrupt. But the retailer has managed to stay afloat with loans from its CEO, the sale of valuable real estate, and the slow dismantling of its exclusivity over some big American brands.This year is no different. Sears' pool of assets is shrinking and its core business is showing no signs of improvement, making the possibility of a bankruptcy or restructuring seem more likely than a turnaround at this point, according to Christina Boni, vice president at Moody's Investors Service."Continuing to fund shortfalls is becoming more challenging, particularly as Sears continues to bleed its asset pool," Boni told Business Insider. "This increases and elevates the risk of a bankruptcy."The company's latest effort to prove critics wrong comes from recent deals to sell its DieHard and Kenmore brands on Amazon.Kmart is a different story. Analysts say the discount chain, also owned by Sears Holdings, is in danger of shutting down entirely. Kmart faces intense competition from successful discount retailers, not to mention Walmart and Amazon. As the business dwindles, Sears has been shutting down Kmart stores far more rapidly than its namesake stores, and<a href="http://www.businessinsider.com/sears-is-laying-off-workers-to-stay-in-business-2017-1"> laying off full-time workers at the stores that remain open</a>.Sears said it remains focused on improving its performance and enhancing its liquidity, and that it expects to reach positive adjusted earnings before interest, taxes, depreciation and amortization next year. "Our Chairman and CEO Eddie Lampert stated at the May 10, 2017 Annual Shareholders' Meeting that 'We are fighting like hell' and doing everything in our power for Sears and Kmart to succeed. That remains true," Sears spokesman Howard Riefs said. "This year we executed a strategic restructuring program that achieved our annualized cost savings target of $1.25 billion through the simplification of our organizational structure, streamlining of operations and closure of under-performing stores."Moving forward, we will continue to sharpen our focus on our best Sears and Kmart stores, best categories, and best members, as we will build on the momentum of our actions to date and be better equipped to support our continued transformation."<h2>Sears is losing money as sales tumble</h2><div class="KonaFilter image-container display-table"><div><div class="image on-image">Business Insider/Skye Gould</div></div></div>Sears is hemorrhaging money. Sales are down 45% since early 2013, its debt load has spiked to over $4 billion, and the company is losing well over $1 billion annually. To meet its obligations, Sears has been selling off brands and properties and its CEO, who owns almost half the retailer's shares, has been lending the company money to pay off its debt. The company has also delayed an upcoming loan repayment to give it more time to turn business around.In search of new sources of revenue, Sears announced a deal this week to start selling its DieHard-branded products - such as car batteries, jump starters, and tires - on Amazon's website. The retailer also started selling its Kenmore-branded appliances on Amazon this year. The Amazon deals followed the outright sale of Craftsman, another Sears brand, to Stanley Black &amp; Decker for about $900 million to be paid out over three years. <div class="KonaFilter image-container display-table"><div><div class="image on-image">Business InsiderA Kmart store in Eureka, California.</div></div></div>The deals should give the company access to new customers and revenue. But the strategy is also a major blow to Sears' stores, which had previously sold those brands almost exclusively along with Sears.com.Sears' stores are already under pressure from plunging sales. Same-store sales at the company's Sears and Kmart stores fell 17% and 13%, respectively, in the most recent quarter. The company has closed nearly 400 Sears and Kmart stores since the beginning of the year, and it's planning to close another 63 stores in January. The January closures will leave Sears with 1,041 stores, down from 3,510 just six years ago. Investors have applauded Sears' efforts to rapidly close unprofitable stores. But sales have shown no signs of rebounding. "Despite its significant efforts to reduce its stores, it has not materially improved its weak operating performance to date," Boni wrote in a recent research note.Kmart's business in particular is at risk, given its "meaningful market share erosion and estimated reduction of stores in excess of 30% this year," Boni said. Two years ago, Kmart had 941 stores. After the upcoming round of closures, it will have just over 500. <div class="KonaFilter image-container display-table"><div><div class="image on-image">Business Insider/Samantha Lee</div></div></div>Boni said Kmart is succumbing to the rapid growth of discount stores like Dollar General, which opened 1,000 stores this year, and the growing competitiveness of other major players like Walmart, which has been investing billions of dollars in price reductions, grocery improvements, and higher wages for employees.Kmart's relative weakness in food sales is particularly concerning because a strong grocery offering drives shoppers to visit more often and increases the chances that they will purchase items in other categories, she said."Kmart is going more head-to-head with the Walmarts and Targets of the world, which means it has to do well in food business," she said.Lampert addressed concerns about Kmart's business last year, saying, "there are no plans and there have never been any plans to close the Kmart format.""In fact, we've been working hard to make Kmart a more fun, engaging place to shop, powered by our integrated <keyword id="6354851" type="ORGANIZATION" weightage="100" keywordseo="Retail">retail</keyword> innovations and Shop Your Way," he wrote in a blog post. "To report or suggest otherwise is irresponsible and is likely intended to do harm to our company to the benefit of those who seek to gain advantage from posting these inaccurate reports."<h2>Sears suppliers cancel contracts and Lampert blames the media</h2><div class="KonaFilter image-container display-table"><div><div class="image on-image">ReutersSears CEO Eddie Lampert (left).</div></div></div>Some Sears suppliers have <a href="http://www.businessinsider.com/r-without-insurance-some-vendors-balk-at-stocking-sears-shelves-2017-8">exacerbated the retailer's problems</a> this year by threatening to <a href="http://www.businessinsider.com/sears-supplier-concerns-about-possible-bankruptcy-2017-5">cancel contracts and demanding new payment terms for orders</a>. Amid these problems, merchandise inventory at Sears has fallen to $3.4 billion as of October 28 from $5 billion the previous year. Sears has attributed the decline to its transformation to an online-oriented business model.Lampert responded to the supplier troubles earlier this year by blaming the news media in a <a href="http://www.businessinsider.com/sears-ceo-opens-up-about-bankruptcy-potential-2017-5">rare interview</a> and <a href="http://www.businessinsider.com/sears-sues-craftsman-vendor-it-says-is-cancelling-its-contract-2017-6">publicly threatening to sue two of its top tool vendors.</a>The conflict with one of the vendors, One World Technologies, <a href="http://www.businessinsider.com/sears-resolves-feud-with-one-world-tool-supplier-2017-6">was later resolved out of court</a>. Along with suppliers, several top executives at Sears have also fled the company within the last year.Among the departures since last December were John Moore, formerly Sears' head of retail services, Alasdair James, Kmart president and chief member officer, Jeffrey Balagna, formerly Sears' executive vice president, Joelle Maher, formerly Sears' president and chief member officer, and Jason Hollar, Sears' former chief financial officer.The company also lost its second-largest shareholder and board member, Bruce Berkowitz, in October. Berkowitz, the chief investment office and founder of hedge fund Fairholme Capital Management, has long been one of Sears' and Lamperts' biggest cheerleaders. The company's stock tumbled more than 15% immediately following his departure.A spokesperson for Fairholme told <a href="https://www.bloomberg.com/news/articles/2017-10-16/sears-sinks-as-key-investor-berkowitz-plans-to-leave-board">Bloomberg</a> at the time that Berkowitz left the board because he had achieved his objective there."Mr. Berkowitz believed that his board service would enable him to better communicate Fairholme's perspective in substantially greater depth and detail than would otherwise have been the case," the representative said. "Mr. Berkowitz believes that he has achieved that objective."<h2>Sears is expected to continue closing stores in 2018</h2>Going forward, Sears is expected to continue to look for ways to cut costs and monetize its assets by closing additional stores - particularly Kmart locations - and focusing more on its online business, called Shop Your Way. "Our Shop Your Way membership program and Integrated Retail Strategy remain a key focus for us in order to meet the needs of our members," Lampert said in a recent statement.But analysts seem skeptical that Sears, once the nation's largest retailer, can make a comeback.Neil Saunders, the CEO of GlobalData Retail, an industry research firm, said Sears will either undergo a dramatic restructuring or fall into bankruptcy next year. "At the end of the day, the business is not sustainable," Saunders said. "Sales continue to tumble, losses continue to mount, and there is no sign that the finances are improving. Put simply, the business as it stands is not viable." <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/bud-light-dilly-dilly-viral-commercial-super-bowl-campaign-2017-12">What 'Dilly Dilly' means - and how Bud Light came up with its viral campaign</a></h3> <div> </div> </div>

Sears is teetering on the edge of bankruptcy and Kmart could be its first casualty

<div class="KonaFilter image-container float_right"><div class="image on-image">Oxford Said Business School</div></div><keyword id="1150206" type="PERSON" weightage="60" keywordseo="Bill-Ackman">Bill Ackman</keyword>'s hedge fund Pershing Square has taken a 9.77% stake in mortgage insurer <keyword id="88966" type="CITY" weightage="60" keywordseo="Freddie-Mac">Freddie Mac</keyword>, according to <a href="http://www.sec.gov/Archives/edgar/data/1026214/000119312513443208/d630961dsc13d.htm">a government filing.</a>
This after yesterday Bruce Berkowitz of Fairholme Capital Management announced that he and other investors were willing to buy and recapitalize <a href="http://www.businessinsider.com/berkowitz-wants-to-buy-fannie-freddie-2013-11">Freddie Mac and its sister company Fannie Mae.</a>

Bill Ackman's Pershing Square Reports 9.8% Stake In Freddie Mac

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">REUTERS/ Brendan McDermid</div></div></div>Finance Insider is Business Insider's midday summary of the top stories of the past 24 hours.To sign up, scroll to the bottom of this page and click "Get updates in your inbox," or <a href="http://www.businessinsider.com/newsletter/prime-finance?IR=T&amp;utm_source=businessinsider&amp;utm_medium=finance_insider&amp;utm_term=finance_insider_leadgen_text_link&amp;utm_content=leadgen_text_link&amp;utm_campaign=finance_insider_leadgen_link">click here.</a>There is a phrase on Wall Street for the practice of firing senior traders and salespeople and replacing them with younger talent.It is called "juniorization," and it has been pretty prevalent over the past few years as banks have sought to cut costs. It is now <a href="http://www.businessinsider.com/juniorization-is-helping-wall-street-cut-costs-2016-3">starting to freak some people out on Wall Street. </a>In other news, Fitch Ratings is sounding the alarm on a threat building inside the <a href="http://www.businessinsider.com/fitch-warns-on-chinese-wealth-management-2016-3">$34 trillion Chinese banking system</a>, Valeant has named <a href="http://www.businessinsider.com/valeant-adds-independent-board-directors-2016-3">3 new members to its board</a>, and a big <a href="http://www.businessinsider.com/credit-trading-difficulties-on-wall-street-2016-3">trading business is haunting Wall Street.</a>The Harbor Investment Conference took place on Tuesday. Here are the top headlines:<ul><li>Hedge fund manager Whitney Tilson, the founder of Kase Capital, is <a href="http://www.businessinsider.com/whitney-tilson-reenters-lumber-liquidators-short-2016-3">shorting specialty flooring retailer Lumber Liquidators again.</a></li><li>Bruce Berkowitz, the founder of Fairholme Capital, slammed the US government <a href="http://www.businessinsider.com/bruce-berkowitz-on-fannie-mae-and-freddie-mac-2016-3">over its handling of Fannie Mae and Freddie Mac.</a></li><li>Activist short-seller Ben Axler, the founder of long-short equity hedge fund Spruce Point Capital Management, <a href="http://www.businessinsider.com/ben-axler-idea-at-harbor-conference-2016-3">said he is short Planet Fitness.</a></li></ul>Jeff Gundlach also held his latest webcast on markets and the economy, called "Connect the Dots," on Tuesday. Here is <a href="http://www.businessinsider.com/jeff-gundlach-webcast-march-8-2016-3">everything you need to know about that.</a>Lastly, the word "disruption" is routinely used when Wall Street analysts discuss Tesla. And there's a problem with that - <a href="http://www.businessinsider.com/tesla-isnt-disrupting-anything-2016-3">a big problem: Tesla isn't disrupting anything.</a>Here are the top Wall Street headlines at midday:<a href="http://www.businessinsider.com/video-game-etf-launch-2016-3">There's a new ETF that will let you bet on the future of video games</a> - It's easy to get invested in beating a video game.<a href="http://www.businessinsider.com/bernanke-what-china-should-do-2016-3">BERNANKE: Here's what China should do to solve its 'trilemma'</a> - Is the no-devaluation strategy a good one for China? If it is, what does China need to do to make its exchange-rate commitments credible?<a href="http://www.businessinsider.com/aberdeen-asset-managements-luke-bartholomew-on-the-effects-of-deflation-2016-3">ABERDEEN: We're worried that deflation could trigger a wave of unemployment across Europe</a> - The Eurozone officially fell into deflation again in February in spite of the best efforts of the European Central Bank (ECB).<a href="http://www.businessinsider.com/barclays-bankers-are-now-working-out-in-their-suits-between-meetings-2016-3">Barclays is telling its bankers to exercise like crazy between meetings</a> - Barclays has bought fully into the high-intensity fitness fad by encouraging its bankers to use new exercise technology between meetings - in their suits.<a href="http://www.businessinsider.com/r-ex-jpmorgan-adviser-gets-five-years-in-prison-for-embezzling-20-million-2016-3">An ex-JPMorgan broker just got 5 years in prison for stealing from customers</a> - A former JPMorgan Chase investment adviser was sentenced to five years in prison on Tuesday.<a href="http://www.businessinsider.com/american-airlines-pilots-embarrassing-apologize-2016-3">American Airlines pilots: We are tired of apologizing for our embarrassing company</a> - American Airlines had a banner year in 2015, reporting a stellar $6.3 billion in profit.<a href="http://www.businessinsider.com/michael-phelps-new-under-armour-commercial-is-fantastic-2016-3">Michael Phelps broke down in tears when he first saw his new Under Armour commercial</a> - Under Armour unveiled the latest installment of its Rule Yourself campaign, dropping a gripping 90-second commercial of Olympic swimmer Michael Phelps.

Wall Street is ditching experienced traders, and it could backfire when markets go haywire

<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div>Shares of Fannie Mae and Freddie Mac opened down around 38% and 39% respectively after investors lost a suit to change who collected the profits from the two mortgage insurers' dividends.
Since the financial crisis, the U.S. Treasury has been collecting almost all of Fannie and Freddie's profits as part of the government's bailout deal with the companies. 
A bunch of top investors - like Pershing Square's Bill Ackman, Fairholm's Bruce Berkowitz, and Perry Capital's Richard Perry - then sued the government for breach of contract and illegally taking profits that, they argued, should have been theirs.
There are around 20 related cases still making their way around the Courts with $33 billion worth of Fannie and Freddie profits at stake, <a href="http://www.bloomberg.com/news/2014-09-30/fannie-freddie-investor-suits-over-treasury-dividend-thrown-out.html">according to Bloomberg.</a>
But losing this first case does not bode will for the others. That's why we're seeing shares selling off in a deluge.
 
Check out the carnage in the charts below:
<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div> 
 
<div class="KonaFilter image-container display-table"><div><div class="image"></div></div></div> 
The biggest loser here is Ackman's Pershing Square. The fund held over 63.5 million shares of Freddie and 115 million shares of Fannie according to government filings.
Ackman disclosed his position last November, after Berkowitz went public with his position on the insurers. 
Berkowitz said right-out that he and other investors were willing to buy the Fannie and Freddie and recapitalize them as private companies.
That idea was not well-loved in Washington. Former Treasury Secretary Hank Paulson told Business Insider that investors seeking to make a profit from Fannie and Freddie were taking "a calculated, educated risk that the government's not going to do what needs to be done," <a href="http://www.businessinsider.com/paulson-on-post-crisis-mess-in-finance-2014-1#ixzz3Eu3BGO3y">said Paulson.</a>

Fannie And Freddie Shares Are Collapsing, And That's Bad News For Some Big Hedge Funders

<a href="http://www.businessinsider.com/category/retail-apocalypse"></a>ReutersThe Westfield mall in San Diego<ul><li> Sears is closing stores and turning them over to Seritage Growth Properties. The stores are being leased out to higher-end businesses like Whole Foods and Pottery Barn.</li><li>Seritage and Sears are both run by the same man, billionaire Eddie Lampert.</li><li>Investors once saw Seritage as a way to profit from Sears decline, but now they're worried that it will struggle to keep pace if Sears goes bankrupt.</li></ul>A bustling San Diego mall that's home to high-end stores like Nordstrom, Tiffany, and Restoration Hardware is defying the decline of shopping centers across the US and undergoing a massive $700 million expansion.One store in the mall - <a href="http://markets.businessinsider.com/stock/SHLD-Quote">Sears</a> - won't survive long enough to reap the benefits of the redevelopment.Desperate for cash, Sears Holdings sold the property in 2015, along with dozens of other prime locations, signing deals to rent the space from its new owner. Now the company that bought those outlets is pulling the plug on San Diego store, which has been an anchor of the Westfield UTC shopping center for more than 40 years. <a href="http://markets.businessinsider.com/stock/SRG-Quote">Seritage Growth Properties</a>, the real-estate investor, has already siphoned off a chunk of the store and leased it out to Williams-Sonoma and Pottery Barn Kids. This summer, it will take over the rest. It's a lucrative move for Seritage. As Sears retreats from one of its most promising locations and fires dozens of employees, Seritage says it can triple the rent by turning the space over to the new high-end tenants. This same scenario is playing out across the country, as Seritage picks up the pace of its takeovers of Sears stores. Seritage also reached new agreements in April to take over the entire Sears store at Aventura Mall in Miami, Florida - one of the<a href="http://www.cnbc.com/2015/06/08/-per-square-foot.html?slide=8"> most profitable malls </a>in the country - and at malls in Dallas, Texas; Carson, California; and Charleston, South Carolina. It has already leased partial space in 123 Sears stores to other tenants, and it has completely taken over 24 stores. <h2>'Widely anticipated demise'</h2>It is no secret that Sears is in crisis. Under the control of Chief Executive Eddie Lampert, the stores have suffered from years of underinvestment and sales have collapsed - falling by half since 2007. Lampert has at various points, either directed billions of dollars to share buybacks that only benefit investors - draining the business of vital resources - or focused on a loyalty membership strategy that has yet to prove its value even after several years. Lampert and his hedge fund own 58% of Sears - the value of a stake that has dwindled as the share price has fallen over the years. Sears, once America's largest retailer, now has a market value of about $1 billion. Seritage is worth more, closer to $1.4 billion. If Seritage can profit from Sears' retreat from brick-and-mortar retail, that's good for Lampert. In addition to being Sears CEO and largest shareholder, he is Seritage's chairman and his hedge fund owns about 40% of the real estate investor's limited partnership, as well as 8.5% of the voting power in its common stock. He has also recently <a href="https://www.sec.gov/Archives/edgar/data/923727/000119312517056498/d280646dsc13da.htm">extended</a> credit to Seritage that it will use to redevelop the Sears stores. Seritage and Sears declined to comment for this story.Business Insider/Sarah JacobsA Sears store inside the Woodbridge Center Mall in Woodbridge, NJ. The fact that Lampert stood on both sides of the real estate sale as CEO of Sears and chairman of Seritage has already prompted a lawsuit. The suit said that the Sears stores were worth far more than $2.7 billion and that Lampert stood to benefit regardless thanks to his dual roles at the companies. Lampert, Sears' board of directors, and Seritage settled the lawsuit for $40 million this year. But lately, analysts and investors have started to worry about Seritage too. Analysts say the speed at which Sears is unraveling could actually imperil Seritage, because it would lose a key tenant - which is responsible for about 60% of Seritage's rental income - much faster than it anticipated and may not have the resources to redevelop stores fast enough. Bets against the stock are also rising.Seritage is "in a race to hasten redevelopment of former Sears-leased space in order to prepare for its lead tenant's widely anticipated demise," Floris van Dijkum, managing director at Boenning and Scattergood wrote in a recent note. "While management continues to deliver strong releasing spreads and attractive returns, we see a looming cash shortfall without a major capital raise."<h2>Lampert's brainchild</h2>APSears CEO Eddie Lampert.After creating Seritage, Lampert orchestrated a massive real-estate deal in 2015, in which Sears sold 235 stores and interest in an additional 31 stores to Seritage Sears raised $2.7 billion from the sale and rented back the store space from Seritage.The transaction, known as a sale-and-leaseback agreement, is relatively common, especially among traditional retailers looking to raise money from valuable real estate that they have owned for decades.Sears needed the deal. The retailer was at the end of its rope with net losses ballooning to more than $8 billion in the five years leading up to the transaction so the $2.7 billion payment gave Sears a new lifeline. Under its lease terms with Sears, Seritage has the right to recapture half or all of the space in the Sears and Kmart stores it owns, and then turn that space over to a new tenant. It has rented space to new tenants - like Whole Foods, Dick's Sporting Goods, and AMC- in more than 140 of these already.Seritage can also get paid when Sears exits a lease early. If base rent outweighs earnings over a 12-month period, Sears can break the lease - but has to pay Seritage a full year of rent to do so.Sears, which is closing more than 150 stores this year, exercised this right on 17 stores last September, filings show. The bet that Seritage can profit from Sears real estate has drawn some deep-pocketed backers. Bruce Berkowitz's Fairholme Capital, a longtime Sears investor, owns 12% of the company's shares and billionaire investor Warren Buffett holds a 7% personal stake. "A very important fact is that Seritage clearly proves the point about the value of the real estate remaining at Sears," <a href="http://www.fairholmefundsinc.com/Documents/PublicConferenceCall20161118.pdf">Berkowitz told Fairholme investors </a>on a conference call last November. <h2>Over the edge</h2>Skye Gould The agreement with Seritage, while bailing out Sears, also pushed many stores into loss-making territory once they began paying rent and as sales failed to rebound, according to a former Sears executive who asked to remain anonymous for fear of legal retribution for speaking about the company."Sears is paying hundreds of thousands of dollars in rent per store, when before, Sears owned these properties," the executive said. "A lot of the stores are now unprofitable because of that."On top of paying rent to Seritage, Sears reimburses the company for taxes and maintenance on the stores it owns.These payments totaled <a href="https://searsholdings.com/press-releases/pr/2033">$194 million in 2016 and $133 million in 2015.</a> Meanwhile, Sears has been burning through cash at a rate of more than $1 billion per year and selling off real estate and other assets to stay afloat.Stores have been laying off employees, cutting bonuses, and slashing work hours to stanch the losses. "The team has been beaten down," the executive said. "They haven't gotten raises or bonuses in God knows when."<h2>Seritage struggles</h2>With this backdrop, what might've been seen as an opportunity for Seritage, is now being flagged as a risk. The company's shares have fallen more than 24% in the last year amid expectations of a possible bankruptcy filing by Sears. Short interest in the stock - that is trades placed by investors who are betting it will decline further - have reached the highest level in its history, according to Matthew Unterman, Director at <a href="https://www.s3partners.net/Research/BestWorst6.php">S3 Partners</a>, a financial analytics firm. "Even including all signed not open leases, [Seritage] would have a $12 million shortfall if Sears stopped paying rent," writes Dijkum, the Boenning and Scattergood director. "Thus, an imminent bankruptcy could leave the company owned by bondholders with equity holders potentially wiped out."So Seritage has a huge incentive to recapture as many Sears stores as possible as quickly as possible - especially in high-traffic malls like Westfield UTC - and turn them over to new, higher-paying tenants. Sears pays Seritage about $4.45 per square foot in rent, whereas Seritage's non-Sears tenants are paying about $15.23 per square foot, according to Seritage. SeritageThe location of Sears in the Westfield UTC mallIf Seritage can keep turning over Sears stores to new tenants - therefore reducing its reliance on Sears for rental income - before a possible Sears bankruptcy, then the company could turn out to be a good long-term bet. But some investors are giving up on that idea, worried that Seritage's timeline to capitalize on Sears' assets is shrinking.Mohnish Pabrai, managing partner of Pabrai Investment Funds purchased Seritage shares for his funds about a year ago and recently sold them all, according to <a href="http://www.barrons.com/articles/lamperts-seritage-strategy-could-lead-to-long-term-gains-1492836691">Barron's</a>. "If Sears doesn't file until 2020, Seritage is fine," he told Barron's. "It is possible they are fine if there is a late-2019 filing. Any filing before that means taking extraordinary measures." <h3>More from Hayley Peterson:</h3><ul><li><a href="http://www.businessinsider.com/the-tidal-wave-of-store-closures-is-far-from-over-2017-5" rel="nofollow">The tidal wave of store closures is far from over (JCP)</a></li><li><a href="http://www.businessinsider.com/mcdonalds-is-making-an-unprecedented-move-to-win-back-lost-customers-2017-5" rel="nofollow">McDonald's is making an unprecedented move to win back lost customers (MCD)</a></li><li><a href="http://www.businessinsider.com/macys-might-shut-down-more-stores-2017-5" rel="nofollow">Macy's may shut down even more stores (M)</a></li><li><a href="http://www.businessinsider.com/aldi-is-lowering-prices-and-opening-more-stores-walmart-2017-5" rel="nofollow">Aldi is unleashing a billion-dollar price war - and it should terrify Walmart</a></li><li><a href="http://www.businessinsider.com/macys-is-copying-tj-maxx-2017-5" rel="nofollow">Macy's just confirmed the end of department stores as we know them (M)</a></li></ul> <h3>NOW WATCH: <a href="http://www.businessinsider.com/twitter-mocking-doves-new-body-shaped-soap-bottles-trolling-memes-real-beauty-marketing-2017-5">People are trolling Dove on Twitter for releasing new soap bottles for different body types</a></h3> Please enable Javascript to watch this video

Sears CEO's master plan to profit off the demise of his stores is taking a turn for the worst

Sears' CEO blames the media for company's decline - but his obsession with Wall Street set it up for failure

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Getty Images/ Joe Parra</div></div></div>Florida-based equity fund manager Bruce Berkowitz, the founder of Fairholme Capital, slammed the US government over its handling of Fannie Mae and Freddie Mac.It's what some people are going to eventually call "The Big Lie," he said, referencing the best-selling Michael Lewis book and Oscar-winning film "The Big Short." Berkowitz spoke during a Q&amp;A with Bill Ackman, founder of Pershing Square, at the Harbor Investment Conference at the AXA Equitable Building in Midtown Manhattan on Tuesday. Ackman owns common stock of Fannie and Freddie. During the financial crisis, mortgage guarantors Fannie and Freddie needed massive bailouts and were taken over by the government.It has been seven years since the financial crisis and the companies are still in a state of conservatorship. Today, the government-sponsored enterprises make billions in profits (about $15 billion collectively), all of which goes directly to the Treasury. Some of that money has been used to pay down the deficit, Berkowitz said. And none of it goes to the shareholders.Berkowitz, who owns preferred shares of both Fannie and Freddie and some common stock, said Fannie and Freddie should have been "a replay of AIG." AIG nearly failed during the financial crisis and had to be bailed out by the US government. The insurance giant re-IPO'd in 2011 and by the end of 2012 the Treasury <a href="https://www.treasury.gov/press-center/press-releases/Pages/tg1796.aspx">had sold its remaining shares. </a>"The question is: Why wasn't it a replay?" Berkowitz said.Berkowitz is among a group of investors who have filed a lawsuit against the US government over Fannie and Freddie.On the litigation side, a big part of the fight centers around what it means to be a conservator, Berkowitz said."A conservator is someone who is supposed to conserve and preserve and take care of an estate the same way that a doctor is supposed to build a healthy patient. And the government has argued, 'No, no, no. We can do whatever we want as a conservator. We can take the money, we can give it to our cousin, we can put it in a pile, we can light it on fire, we have dictatorial powers...You cannot stop us from doing anything.' Our argument is, 'You're supposed to be a conservator, right, you're supposed to be like a doctor who's supposed to help the patient and you're saying oh you're a doctor and you can kill the patient and that's OK because you have the right to kill the patient. You have the right to take the patient's organs and sell them to somebody else for money. That's fine. That's pretty stupid, OK. It's illogical. It doesn't work that way. That's a big part of the fight."It's hard to fight the government, he added. "They're being very stubborn over stuff that's pretty stupid."As part of the litigation, they have received over 1 million documents that they can't look at. Only their lawyers can see them. There are about 10,000 documents they're seeking, but the government won't give them to the courts, he said."They claim it's about national security. They claim it's executive privilege....We've seen this in other instances where you're guilty you just claim 'You can't see it. National secret. We can't show you that we're wrong. You can't see it.'"He expects in the next couple of months they'll get to these documents. He also said that it's a complicated story."There are thousands and thousands of facts. And in some ways, that's bad because it makes the story more confusing," he said. "And there are other stories involved here. Of course this all picks up from 'The Big Short.' And now we're into what some people are going to call 'The Big Lie' as to what's going on." He added that they need to get more people to understand that it's important."Because think about it-If we don't win, what does it mean for the ownership of any security?" he said. "I mean ownership become an illusion. If some type of regulated entity can be taken over by a few misguided narcissists in the government in order to help somebody do something for their own personal gain, what does it mean to own a bank stock? What does it mean to own an electric utility? Because after all, Fannie and Freddie are just utilities and they should be treated as utilities with a cost-plus model." Berkowitz said at some point we'll find out "how crazy this whole cover up is." <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/end-of-restaurant-tipping-2016-2">The days of restaurant tipping are dying</a></h3> <div> <div> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="41eHQ3eDop1mR-TJUbJQ9iuJT1QafRIP" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> </div> </div> </div>

BRUCE BERKOWITZ: People are going to call this 'The Big Lie'

<div class="KonaFilter image-container display-table"><div><div class="image on-image">Reuters/Mike Nudelman/Business InsiderA Sears store in Canada.</div></div></div>The American corporation has been transformed by globalization and new technology. But equally powerful is the belief that on Wall Street and in boardrooms the sole responsibility of a corporation is to maximize profits for shareholders. Starting this week, Business Insider teams up with public radio's "<a href="http://features.marketplace.org/priceofprofits/">Marketplace</a>." Our series, <a href="http://www.businessinsider.com/price-of-profits">"The Price of Profits,"</a> tells the story of how this idea changed the US and our lives.Sears has survived two world wars and the Great Depression. But after a decade under the control of a former Goldman Sachs executive turned hedge fund manager, the 130-year-old retailer is imploding.Sales have fallen by half since 2007, and the company is burning through cash, closing stores, and slashing jobs in an attempt to stanch the bleeding. Even after it raised $3 billion by spinning off assets last year, it ended 2015 with less cash than it started with.The man in charge of Sears, Edward S. Lampert, has blamed the company's decline on <a href="http://www.businessinsider.com/sears-chairman-says-retail-is-hurting-2016-2">shifts in consumer spending</a>, the rise of e-commerce, and unseasonably warm winter weather. And while other retailers are also struggling, analysts take the demise of Sears, which owns Kmart, as a matter of when, not if. What sets Sears apart from other suffering retailers is something that's not as easy to understand: Lampert's obsession with putting shareholders before everyone else, which has been attributed to his dual role as the company's chief executive and its largest investor. But in that position, Lampert has suffered along with other investors.<div class="KonaFilter image-container display-table"><div><div class="image on-image">APSears CEO Eddie Lampert.</div></div></div> When Sears was flush with cash, it took the form of billions of dollars of share repurchases, even if it meant the stores suffered years of underinvestment. Repurchases, or <a href="http://www.businessinsider.com/whats-a-buyback-and-why-do-some-investors-hate-them-2016-6">buybacks</a>, are common among cash-rich companies, but also derided in some corners as a waste of a company's resources as they only serve to create the appearance of improving earnings.In the early days, Lampert was unapologetic about this. According to an executive at the company then, Lampert was genuine in his belief that Sears could be run differently than other retailers and that the shares were being acquired at a bargain price. "Unless we believe we will receive an adequate return on investment," he wrote in a 2007 <a href="https://searsholdings.com/invest/chairmans-letters/march-2007">letter to investors</a>, "we will not spend money on capital expenditures to build new stores or upgrade our existing base simply because our competitors do. If share repurchases or acquisitions appear to be more productive, then we will allocate capital to those options appropriately."<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div> And for years Lampert concluded that share buybacks were the best use of the company's money. They continued even through the financial crisis, and totaled $5.8 billion between 2005 and 2010, sometimes at prices as high as $170 per share. Sears' earnings in the same period were $3.8 billion.Now that Sears is short on cash and faces mounting debt, Lampert has turned from buybacks to dismantling what was once America's largest and most successful retailer, says David Tawil, president of New York-based Maglan Capital. Tawil has spent his career working in corporate restructuring and bankruptcy proceedings. Sears spun off its Lands' End brand to investors in 2014 and is exploring "alternatives" that could include sales of Kenmore appliances and Craftsman tools."Eddie has orchestrated for himself, and for the benefit of shareholders, the most protracted liquidation in history," Tawil said in an interview with Business Insider.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>A Sears spokesman, Howard Riefs, said the spinoffs were meant to create shareholder value and to fund Sears' turnaround.<h2>Wall Street superstar</h2>Lampert got his start at Goldman Sachs, working in the New York-based bank's risk-arbitrage department. He left the bank after four years and in 1988 started a hedge fund, ESL Investments, at 26 years old.For a time he was a Wall Street superstar. BusinessWeek compared him with Warren Buffett. That's because Lampert had an incredible track record as an investor. ESL Investments generated annualized returns of more than 20% per year for 20 years, marking one of the strongest long-term investment records in history, according to a 2013 <a href="http://www.wsj.com/articles/SB10001424052702304096104579240320972834520">Wall Street Journal article</a>.Through ESL, Lampert gained control of Kmart in 2003 and he combined it with Sears in 2005 to create Sears Holdings in an $11.5 billion deal. ESL, long one of Sears' largest shareholders, now owns about half of the company.It was soon after he took the reins at Sears, first as chairman, that Lampert began the share buybacks. In his annual letters to Sears shareholders, Lampert defends buybacks as a way to provide "liquidity" (or a buyer) for shareholders who are looking to sell, and increase ownership of the company for investors who hold on.But to critics, they are simply a financial maneuver to drive up per-share earnings and create the illusion that a company is doing better than it really is.With the buybacks came cuts in spending on the retailer's stores, as well as reduced promotions and advertising, despite Lampert's promises to revive the company.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>Lampert "had a perspective that the retail industry as a whole was too sales-oriented and not enough profit-oriented," one former high-level Sears executive told Business Insider. The executive asked not to be identified discussing private matters."He wanted to demonstrate to the world that you could reduce advertising and inventory investment - and yes, sales would fall to some new normal - but you would have a more profitable business," the former executive said.At the time, Lampert believed in the long-term success of Sears, according to the executive. When he was buying the stock at $170, more than $150 per share above where it is today, he thought it was a better capital investment than store upgrades, because it was his theory that the stock would never be cheaper. Lampert had high hopes for himself and for Sears."I want to be known as a great businessman," he <a href="http://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert/">said</a> in 2006, shortly after the Sears acquisition. His greatest fear, he said, was that he wouldn't live long enough to complete all his goals."He was completely confident that he was going to be the next Warren Buffet," the former executive told Business Insider. "He felt that he had created a long-term winner in Sears and it would be his Berkshire Hathaway."That is not how it has worked. The focus on investors, and the decision to spend on buybacks while cutting back on stores, has meant the company has been unable to keep up with shoppers.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>"The retail industry is predicated on serving the customer, valuing the customer, listening to the customer, and ultimately giving the customer what she wants - and it's the employees who deliver this. Anything less is a recipe for terminal illness, if not suicide," says Robin Lewis, a 40-year retail consultant and CEO of industry publication <a href="http://www.therobinreport.com/">The Robin Report</a>. "Clearly, in the case of Sears, Eddie Lampert has turned a completely blind eye to this truism, and has been bleeding the company to a long and slow but well-managed death for the sole benefit of major investors and himself."Under Lampert, Sears failed to invest in major capital improvements, such as store maintenance or new store concepts. <a href="http://money.cnn.com/2006/02/03/news/companies/investorsguide_lampert/">Fortune</a> recounted a 2005 strategy session between Lampert and the top two-dozen executives of the company:As Lampert slashed spending in-store improvements, "the stores began going down," a 41-year Kmart store employee who was laid off in February told Business Insider.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>When Lampert took over, company executives visited stores and told workers they were no longer allowed to discuss any problems the stores were having, according to the employee."When they quit asking and started telling you how it should be run according to corporate standards, the stores began to go down," the employee said. "There is no morale in any of the stores."An employee of a Sears store in Elyria, Ohio, told Business Insider that his store is falling apart."The walls and floors in my store are all beat to hell ... the roof leaks, the escalator and the elevator break down frequently, but 'Fast Eddie' doesn't want to spend money on the stores," the employee said.Sears spokesman Howard Riefs denied that employees are discouraged from giving feedback."One of our cultural beliefs as a company is to embrace feedback," Riefs said. "We have a variety of ways that associates can give authentic feedback - even anonymously, so we would disagree with that suggestion."Lampert has defended his decision to spend billions on share buybacks and other financial maneuverings over store reinvestments."I was criticized for not investing enough in the stores," Lampert <a href="http://www.wsj.com/articles/SB10001424127887323706704578228230474184530">said in 2013</a>. "My point of view is we couldn't invest in everything."<div class="KonaFilter image-container display-table"><div><div class="image on-image">Sears</div></div></div> Investors bought into his strategy, at first. In 2006, Sears' stock rose roughly 45%, to $156.Then quarterly sales started declining in early 2007, and the stock followed suit.Many Sears executives were expecting Lampert to eventually refocus on investing in stores and advertising. When that didn't happen, some employees began to grow concerned."There was a feeling of, 'OK, now we have to invest and compete,' through some combination of advertising and promotion," the former Sears executive said. "But it became clear that he either didn't know how or didn't want to spend the money."At that point executives began leaving the company. "He had an enormous amount of turnover at all management levels," Tawil said. Since March 2007, Sears' shares have dropped 90%. Over the same period, sales have been cut in half, from $50.7 billion in 2007 to $25.1 billion in 2015.<div class="KonaFilter image-container display-table"><div><div class="image on-image">Andy Kiersz/Business Insider</div></div></div> To raise money, the company started selling its real estate and spinning off brands like Sears Hometown and Outlet stores. So far, Sears' most iconic brands, like Kenmore and Craftsman, have been spared. But even those may now be sold, <a href="http://www.businessinsider.com/sears-home-appliance-business-declining-2016-5">the company said in May</a>.In one of its biggest real-estate transactions to date, Sears launched and spun off a real-estate investment trust, Seritage Realty Trust, to execute sale/lease-back agreements for 266 Sears and Kmart stores. The deal helped Sears raise about $2.7 billion, most of which was quickly burned through to pay off debt.Meanwhile, Sears has been cutting costs by closing hundreds of stores and laying off hundreds of thousands of employees. In 2007, Sears had 3,418 stores and 315,000 employees in the US. The company now has 1,672 stores and 178,000 employees.Lampert's strategy of underinvesting in stores and selling off assets "starved capital and management resources from the retail business, leaving it unable to respond and adapt to the needs of the evolving consumer and marketplace," Lewis said.The stores are now shells of what they once were."The majority of stores now border on disgraceful and show a complete lack of retail standards and proper store management," said Neil Saunders, the CEO of retail consulting firm Conlumino. "The impression is of a retailer that has completely given up, and this is something consumers notice."But there was one party that was benefiting at least for some time from this strategy: shareholders."All of this adds up to a big cash-in on any leftover financial value - that's being squeezed out of declining consumer value - for Eddie and his investors, who are the only ones that count," Lewis said.Bruce Berkowitz of Fairholme Capital Management told <a href="http://dealbook.nytimes.com/2013/12/05/investors-pull-back-from-lamperts-fund-2/?_r=0">The New York Times</a> in 2013 that Lampert's spinoffs had helped deliver about $10 a share in assets to Sears shareholders, even as the stock price was tanking. At the time, Fairholme owned about 20% of Sears shares.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>But not all Lampert's investors bought into the strategy. Many investors fled his hedge fund, ESL Investments, between 2007 and 2013, according to The Times."Investors are heading for the exits, discouraged by the declining fortunes of Mr. Lampert's signature stake in Sears Holdings," The Times <a href="http://dealbook.nytimes.com/2013/12/05/investors-pull-back-from-lamperts-fund-2/?_r=0">wrote</a> in 2013.The fund managed more than $15 billion near its peak in 2006. Last year, the total was less than<a href="http://www.adviserinfo.sec.gov/IAPD/Content/Common/crd_iapd_Brochure.aspx?BRCHR_VRSN_ID=380445"> $3 billion, according to a company filing</a>. A spokesperson for ESL declined to comment.At this point, it seems as if Lampert has all but given up on trying to turn sales trends around at Sears, and instead he's trying to extract every last bit of value out of the business through financial maneuvers.In the most recent quarter, Sears' sales dropped 8.3% to $5.39 billion. Kmart same-store sales dropped 5%. In announcing earnings, the company revealed that its chief financial officer, Robert Schriesheim, would be leaving Sears to "pursue other career opportunities."Lampert said the retailer had a rough start to the year because of warmer than expected winter weather.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>"The weather conditions had a cascading effect on many retailers, leading to reduced spending and heavy discounting on winter clothing and related items," he wrote in a letter to shareholders in February.Lampert also said the retailer has been unfairly criticized."Because of Sears and Kmart's longstanding history and cultural impact, we are targeted for criticism when our results are poor," he wrote.But analysts say a turnaround is impossible at this point and that Sears' has lost its most loyal customers.The department store has traditionally attracted female shoppers age 55 and older, but that demographic is now choosing to shop elsewhere, according to a study by <a href="http://prosperdiscovery.com/sears-the-good-the-bad-and-the-ugly/">Prosper Insights &amp; Analytics</a>. Most women would now rather shop at Goodwill than at Sears, the survey found.In women's clothing alone, the share of shoppers who prefer Sears dropped 53% from January 2006 to January 2016, according to the same survey. Sears has also lost considerable ground in categories such as sporting goods, linens and bedding, home improvement, and electronics.<div class="KonaFilter image-container display-table"><div><div class="image on-image">SearsA Sears in Richmond, Virginia, May 2016.</div></div></div>Perhaps most concerning is Sears' losses in home-appliance sales, which has traditionally been one of the company's strongest categories and biggest opportunities for growth."This was one of the main areas contributing to the decline - in spite of the fact that across retail as a whole this category grew strongly over the first part of this year," Saunders wrote in a note to clients in May. "That Sears is unable to make gains in categories which are growing, and in which it has a more established presence, highlights its main issue: it has fallen out of favor with American shoppers who continue to abandon the chain at a fairly alarming rate."It's a "dire" situation for Sears, according to Goodfellow. As older shoppers left Sears, the company failed to attract new, younger customers.The end for Sears is now "very, very near," according to Lewis. That Sears still exists is "a tribute ... to Lampert's genius at extracting value while keeping the patient alive."Said Tawil:"Normally businesses like this fail and get sold off in pieces in bankruptcy," Tawil said. "This has been the greatest out-of-court liquidation in the history of our nation."<a href="http://www.businessinsider.com/price-of-profits">"The Price of Profits,"</a> our series with Marketplace, looks at what happens when profits become a company's product. For more, visit <a href="http://priceofprofits.org/" target="_blank" data-referer-safe="1" data-referer-original-href="http://priceofprofits.org">priceofprofits.org</a>.

Sears' obsession with Wall Street is killing the retailer for good

<div class="KonaFilter image-container display-table float_right"><div><div class="image">REUTERS/Rick Wilking Legg Mason's Bill Miller</div></div></div>A new profile of Bill Miller hit the Wall Street Journal yesterday and boy is it a doozy. If I were teaching a course on behavioral investing, and had lost access to all of the curriculum's text books for a week, I could probably get by just on pull-quotes from this piece. 
Something happens to investors when they get around a stock picking manager who's managed to string together a few years of market outperformance - they become giddier than a drunken bachelorette party hanging on the neck of a Vegas magician who happens by their table at the bar (I've seen this in real life, long story).
For the uninitiated - Bill Miller's Legg Mason Value Trust shattered every record on the books by trouncing the S&amp;P 500 for fifteen straight years between 1991 and 2005. And then the fund demolished all the benefit of that fifteen years of outperformance within a two-year period, between 2007 and 2009. It hardly needs to be said that the vast majority of the Value Trust's assets came in toward the top of this record streak - meaning the average dollar invested became a loser even despite all the glory of the track record on its surface.
The entire article is hilarious - through no fault of the reporter, Kirsten Grind, or the subject, Miller himself - whom I regard as a brilliant, if flawed icon of the investment management business. The story here just inadvertently exemplifies every single flaw and fallacy of the investor mentality.
I mean, the headline alone:
<a href="http://www.thereformedbroker.com/wp-content/uploads/2014/06/Screen-Shot-2014-06-30-at-9.36.53-AM.png"></a>
And now, a running list of our flaws as investors - which find a way to manifest themselves even when we think we're aware enough to get them under control:
1. We're confusing brains with a bull market, ascribing some sort of meaning to Bill Miller's "comeback":
<blockquote>
Over the last three years, though, Mr. Miller's Legg Mason Opportunity Trust has outperformed 97% of the mutual funds in its category, according to research firm Morningstar Inc. It was No. 1 in 2012 and second-best in 2013. Its total return of 67% last year trounced the S&amp;P 500 stock index's 32% jump.
</blockquote>
As though anyone making big bets on a concentrated portfolio in one of the greatest stock rallies of all time couldn't have done this.
2. We're acting as though Miller's behavior during the crisis wasn't true of almost all long-only value managers:
<blockquote>
Lots of mutual-fund managers took a beating during the crisis, but none so publicly as Mr. Miller. As his Legg Mason Capital Management Value Trust fund sank to the bottom of the rankings, fleeing investors shrank its assets to $2.8 billion from $21 billion. He refused to on shaken financial firms like Bear Stearns Cos. and American International Group Inc., which were then nearly wiped out.
</blockquote>
With all due respect, value investors don't cut losses when they're running money in the public eye - they double down and "ignore price", focusing on value and why "the market is wrong." Third Avenue's Marty Whitman blew up in the crisis, as did Fairholme's Bruce Berkowitz, as did almost all of the other "legendary" value mutual fund managers.
3. We're lauding Miller for his guts and having balls - with other people's money:
<blockquote>
His resurgence largely reflects more of the same: steadfastness in his beliefs, a stock-picking strategy dominated by big bets on beaten-down companies, and comfort taking risks that frighten away other investors.
</blockquote>
4. Investors, who fled the fund en masse, are back to throwing money at Bill Miller, now that he's gotten his groove back.
<blockquote>
Opportunity Trust brought in a net $189 million last year, the fund's first increase since 2007, and money has kept coming in so far this year, boosting total assets to $2.2 billion.
</blockquote>
Classic performance chasing behavior. He'll be back up at another peak in AUM just as his performance is about to mean-revert back down to the category average or just as the global economy is once again set to explode into a million pieces again. Dollar-weighted mutual fund returns are always hilarious.
5. This time is different:
<blockquote>
Since the horrible losing streak, Mr. Miller has read a pile of books and research papers about crises in hopes of getting a better grip on what happened.
</blockquote>
That should do the trick.
6. No comment:
<blockquote>
Before the crisis hit, he attracted $1 billion to $1.5 billion a year in new investor money. Legg Mason didn't publicly disclose his pay, but Mr. Miller's annual salary likely topped $10 million. In 2006, he bought a 235-foot yacht called "Utopia."
Bridget Hughes, a mutual-fund analyst at Morningstar, says Mr. Miller was "so famous" among investors, "and then everything just fell apart."
</blockquote>
The Morningstar analyst quoted neglects to mention that Value Trust's backward-looking rating on the fund at the time was undoubtedly "Five Stars".
7. Industry professionals aren't immune either - Legg Mason got out of "the Bill Miller business" at the bottom and left him with a smaller role at the firm and a less important fund to manage:
<blockquote>
Value Trust rebounded sharply, but it was too little, too late. In 2011, Legg Mason named a successor to Mr. Miller, saying the move was part of a long-term succession plan hatched before the crisis.
</blockquote>
8. Bill Miller is betting big once again:
<blockquote>
He says he is trying to take advantage of "blindingly obvious" trends. One-third of the Opportunity Trust fund's portfolio is invested in financial firms, with another 14% tied to the housing market.
</blockquote>
If it works out, he will be a genius again and double his assets under management. If it doesn't, well, brokers will "manage the manager" by firing the fund and just start recommending a new one. There's very little downside for everyone involved. Except the investors.
Same as it ever was.
Source: <a href="http://online.wsj.com/articles/mutual-fund-king-bill-miller-makes-comeback-1404095931?tesla=y&amp;ref=/home-page&amp;cb=logged0.25346220983192325" target="_blank">Mutual-Fund King Bill Miller Makes Comeback (Wall Street Journal)</a>

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