Eddie Lampert, Yesterday’s News

The cult of Eddie Lampert is a relatively recent phenomena, stoked by the likes of Jim Cramer, who has never met a Goldman Sachs alum he did not like. But Main Street is getting an expensive lesson in idol worship given the recent implosion in the shares of Sears Holdings (SHLD-NYSE).

The hedge fund community was hailing Lampert as the next Warren Buffett as early as 2002-'03; the big money assumed that Lampert was a genius, and that he would turn Sears into the next Berkshire Hathaway. That was the thesis, in a nutshell. A young analyst in my office was so enamored with Eddie circa 2003 that we bought him a blow up sex toy stenciled with Eddie's name for him to fornicate with, and to point out the folly of his ways. While I never found out if he consummated his relationship, we made our point. Love on Wall Street can be a dangerous thing, as you tend to throw impartiality out the window.

Of course, Eddie's kidnapping episode only added to his mystique as he outwitted the dim bulbs who used his credit card to order a pizza to the motel where they had him bound and gagged. Lampert's hubris seemed to take flight soon after;; his small staff of analysts chafed at his arrogance, and he famously proclaimed that he, alone, had the acumen to allocate the firm's capital.

(SHLD) One-Year, legendary, but only for its decline

Eddie’s shareholder base soon swelled with other portfolio managers who seemed to be fond of reading their own press clippings, including Bill Miller and Bill Ackman. Miller’s fall from grace has been more horrifying than Lampert’s, and while Ackman deserves kudos for taking down the bond insurers, the same young analyst who idolized Lampert circa 2003 recently called Ackman “the worst long-picker” on the Street; clearly Sears has not treated him well and the timing of his position in Target Corp. looks to be suspect as well; hiding behind a long-term thesis is a sorry excuse for a lousy entry point on the stock.

Of course, shooting against these guys can be hazardous to your health. Shorts have long complained that trading in shares of Autozone defied logic from time to time, and that the stock was being manipulated by the cult of Eddie.

Perhaps those were sour grapes from people on the wrong side of the trade, but other folks have noticed the funky price action in the Eddie complex, and that the cartel might be on their last legs:

When I was trading shares last year, I tried shorting Sears a few times. Not a smart move. Sears trades like Amazon, another retailer with a high shareholder concentration and large short interest.

A handful of shareholders–Lampert, Legg Mason, Fairholme, Pershing Square and Perry Capital–control almost 75% of Sears’ outstanding shares. Couple this with a sizeable share buyback program and you get an erratic,volatile stock.

On a day when everything says Sears should be down, you often will get a dramatic late day run-up that probably is part buying and mostly short-covering.

This morning, in spite of the much-worse-than-expected earnings announcement, the stock was up in premarket trading. No surprise there. It was off 3.6% for the day. But this stock will truly break down only when a large shareholder or two bails

Yes, Eddie’s shareholders can vote with their feet.

Unfortunately for Eddie, he is a bit more married to the stock, and might soon find himself very alone as his buddies bail and the cement continues to dry around his feet.
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Mean Street: Sears’ Wall Street Seduction
Deal Journal
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What a difference a year makes:

June 2007

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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

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