Morning Actions

Bought a little Lafarge and Industrias Bachoco in to the morning’s decline. Eliminated Group 1 Automotive, and began the acquisition of a little microcap trading below book value with no debt. The integrating theme here is holding onto businesses that don’t need external financing, and selling businesses that require external financing, starting with companies that haven’t been hit that badly yet.

Could the existing financing troubles spill over into auto financing and auto floorplan financing? That’s possible, though I don’t see the transmission mechanism now. The potential trouble with Group 1 (aside from a balance sheet with high intangibles), is that changes in financing terms could dent their earnings stream. Now, I know that the automakers are highly motivated to move the metal, and will aid the financing process, but I don’t think they can be relied on in entire, unless they only selling for Honda and Toyota, which have superior balance sheets.

The moves so far this morning are cash neutral. We will see how that changes as the day progresses.

Full disclosure: long LR IBA