KMI and the $1 club

Kinder Morgan’s CEO has voluntarily taken $1 in salary for a very long time.  The chief operating officer, Steven Kean, looks like he will follow in his boss’ footsteps.  Kean will still get paid stock so his overall compensation won’t be as low as Richard Kinder’s.  Still, I think it reflects very well on management’s integrity.  From the proxy statement:

In 2013, Mr. Kean made a similar request to Mr. Kinder to change his annual base salary to $1. Mr. Kean also requested that he receive no annual bonus from us or any of our affiliates. As a result, Mr. Kean’s total compensation consists of a restricted stock grant received in 2013 which is subject to six-year cliff vesting, dividend equivalents paid on that restricted stock, and benefits available to our U.S. employees generally (such as healthcare, life insurance and 401(k) plan benefits). There are no plans at this time to grant additional restricted stock to Mr. Kean until the vesting terms of his 2013 grant have been met.

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The not so pretty side of Altius Minerals

I have a large position in Altius.  But sometimes it is good to invert and to look at why your positions aren’t great ideas.  Here are some things about Altius that deserve examination:

1. Altius owns shares in Alderon (and has a valuable royalty on Alderon’s flagship Kami project).  Alderon pays for stock promotion.  The way this paid promotion is disclosed may be improper.
2. It is hard to time if the Kami mine  is economic.
3. Alderon engages in your typical junior mining bullshit.
4. Altius voluntarily bought shares of Virginia Mines, a company which pays for stock promotion.
5. Some of Altius’ corporate presentations are on the promotional side.

Sturm, Ruger accounting notes

Ruger is a rapidly growing company with incredibly high returns on capital (over 60%).  This is a follow-up to my original post on the company.

Generally speaking, their accounting is conservative.

Liberty/Malone update

In my opinion, there continues to be opportunities in Liberty Media (LMCA/B).  It is a wonderful business with excellent managers at a fair price.

LMCA closed today at $135.25.

Ocwen/Altisource update and links

Lately, the share prices of OCN and ASPS have dropped around a third since the beginning of the year.  This is presumably due to the negative press coverage that Ocwen has been receiving due to its regulatory problems.

1. Ocwen reached a settlement with the Consumer Financial Protection Bureau (CFPB), authorities in 49 states, and the District of Columbia.  Many articles in the media have reported that the settlement amount was $2.125B ($2B in principal reductions to homeowners and $125M in cash).  This is misleading.  Ocwen likely would have provided at least $2B in principal reductions anyways without the settlement.  As for the cash settlement, Ocwen only pays part of it.
2. Wells Fargo’s sale of MSRs to Ocwen has been blocked by the New York State’s Department of Financial Services (DFS).  (The DFS was not party to the settlement mentioned above.)
3. The press has reported speculation that MBS investors might sue Ocwen.  I believe that this is misleading because such lawsuits would be silly.  While the contracts that structure securitizations have problems, Ocwen has not breached their contractual obligations.  As a servicer, Ocwen is allowed to modify mortgages and to reduce the principal on mortgages.  When it comes to principal reductions, Ocwen’s incentives are aligned with investors.

(Altisource/Ocwen) Mortgage servicing rights overview

Lately, Ocwen has been receiving a lot of bad press due to its problems with regulators.  Both Ocwen and Altisource have seen their share prices tank.  I think that the selloffs are overdone.  If anything Ocwen should have sold off worse than Altisource.

Here’s my take on the situation.

Kinder Morgan Inc (KMI): You sell, I’ll buy

Richard Kinder, the CEO of KMI, is a brilliant operator and a brilliant capital allocator.  He is a self-made billionaire with a net worth of roughly $9B.

This is a company with good economics, great management, and a reasonable valuation.  The company is buying back its shares and its warrants.  Kinder has come out and said that the company is undervalued.