Archive - Feb 16, 2010

As of January 1, 2010, Icahn Capital LP had $5.8 billion under management. Icahn Partners LP and Icahn
Fund Ltd. (collectively, “the Funds”) continue to be focused on a handful of core activist positions. As of
December 31, 2009, the Funds’ five largest long positions (equity or debt) represented an exposure of
approximately 68% of the Funds’ NAV, and the ten largest long positions (equity or debt) represented an
exposure of approximately 94% of the Funds’ NAV. The Funds had 17 long equity positions and 14 long
credit positions at quarter end.

Minneapolis Fed's recently appointed president Narayana Kocherlakota had his first public speech before the Minnesota Bankers Association. His remarks on the economy were significantly much more cautious than some of the other Bernanke sycophants. While the Fed President espouses the need for bank regulation by the Fed (to be expected, the inverse would be equivalent to mutiny), Kocherlakota is much less sanguine than his Fed colleagues about the prospects for the $1+ trillion in excess reserves and how these may lead to (hyper)inflation in the future. His remarks that the only way to fix the debt excesses: increased taxes and debt monetization (even more so than to date), should let many readers reconsider just how appropriate the Fed is to regulate a system which never changes but keeps on keeping on, changing absolutely nothing in its policy approach, and merely hoping that a rising stock market (with or without its invisible hand) is sufficient to fix everything.

If anyone tells you there is such a thing as a stock market, laugh in their face. It is just the JPYEUR pair, whose every single tick pushes the various computer signals to buy buy buy (and pray to whatever binary gods are in vogue that there isn't a volume spike, else it becomes sell sell sell). Don't buy it? Credit is unchanged - IG and HY are basically flat, while FINLs are wider on the day. Following last night's Shirakawa commentary that the BOJ is now powerless to fight deflation, the carry trade is back on full bore, with the Yen getting crushed. The Record numbers of euro shorts is not helping, which, as expected is causing a scramble for the exit. Lastly, some channel musings on where long-term support and resistance levels will ultimately play out.

HOENIG: ACTING NOW TO CUT DEBT MOST RESPONSIBLE COURSE

HOENIG: WLD BE MISTAKE TO DO NOTHING ABOUT MOUNTING DEBT

HOENIG: INFLATION IN ARGENTINA WILL ALMOST CERTAINLY INCREASE

HOENIG: CAN'T AVOID SHORT-TRM PAIN IN FIXING ECON FUNDAMENTALS

HOENIG: IF FISCAL DEBT GOES UNADDRESSED,CURRENCY WEAKENS

HOENIG: HIGH PRIVATE DEBT TO CONTRIBUTE POL PRESSURE ON FED

HOENIG: FISCAL OUTLOOK ALSO THREAT TO FED INDEPENDENCE

Flows are very low today after the long weekend in the US. Despite the noise created by Greece and its SPV Titlos Plc, risk is well bid today following our theme since Friday 02/05 of a corrective return of risk appetite. S&P futures keep grinding higher while not really inspiringly so. We keep looking at the 1,100/1,107 zone to consider fresh shorts again, until then we remain neutral with a bullish bias expressed ever since we reached 1,051 on the downside. - Nic Lenoir

An AP article which has been syndicated throughout the web, making such reputable outlets as CNBC, reports this interesting tidbit:

Japan also reduced its holdings of U.S. Treasuries, cutting them by
$11.5 billion to $768.8 billion in December, but that amount was still
more than China's December total of $755.4 billion.

That's interesting, because the AP must know something that the US Treasury does not. Because you see "reducing" and "cutting" seems to imply the official November number of $757.3 billion was higher than the December number of $768.8 billion. Yes the difference was $11.5 billion... But in the wrong direction. We share the sentiment though - what's a couple dozen billion between market manipulating central banks.

We surely hope the AP will note this minor $23 billion delta...And the difference between a + and a - sign.

How the Middle Kingdom Became the World’s Largest Exporter. Is it possible that Obama’s stimulus program is reviving China’s economy more than our own? A free floating Yuan today would be at least 50% higher than it is today.
(CYB)

Nothing good to see in the credit card arena. Capital One's January annualized net charge offs hit a record 10.41%, while 30-Day delinquencies stayed at the highest of the past 3 months. Then again with entire countries defaulting, it really is a shocker than neither of these numbers is at 100% yet (or higher, courtesy of sound GAAP accounting principles). If Greece can be bailed out, surely that payment for the 7th $2,000 plasma TV can be buried under the rug, thank you IMF.

"In Friday’s Comments, we wrote that the napkins suggested support in the S&P was “way down around 1058/1063”. The sharp opening selloff took the S&P to an intra-day low of 1062.97 before they circled the wagons. For today, we’ll stick with the 1058/1063 support. Resistance looks like 1083/1088 and then 1093/1097. The dominance of the dollar was so evident that I was stunned from time to time to see brokers getting calls from trading desks inquiring “what turned the market?” Talk about not seeing the forest for the trees. The Dow closed two-thirds off the lows. That allowed the first up week in the last five. Not quite a resounding victory for the bulls, but a welcome respite at least." - Art Cashin

A quick preliminary read of the Simon proposal to acquire GGP for $10 billion, via Bank of America, indicates a cap rate of 8% "assuming growth of 3.5% on top of the annualized NOI stream." The offer values GGP at $9/share, including $3 for the land business. As readers will recall there has been a difference in opinions between Hovde and Ackman on GGP's value, the first of which gets an "implied equity value of $5.73 per share at a 7.5% cap rate and negative $5.03 per share at an 8.5% cap rate which after incorporating the conversion of the unsecured debt into equity at price of $6 per share, the implied equity value is $5.94 per share at a 7.5% cap rate and $3.62 per share at an 8.5% cap rate," while Ackman is a tad more ambitious: "based on cash NOI (not adjusted for lease termination fees, tenant allowances, maintenance capital expenditure) for LTM ending Sep 2009, Ackman values GGP at $23.7, $32.0 and $41.6 per share at cap rate of 7.21%, 6.71% and 6.21%, respectively." Seems like Hovde is just a little bit closer in his valuation (assuming no overbid). The OCC supports the Simon offer as they get taken out at par.

Gradually we are getting confirmation that Chinese "posturing" about offloading US debt is all too real. The most recent TIC data confirmed the Treasury's greatest nightmare: China is now dumping US bonds. In December China sold $34.2 billion of debt ($38.8 billion in Bills sold offset by $4.6 billion in Bonds purchased), lowering its total holdings $755.4 billion, the lowest since February 2009, and for the first time in many years relinquishing the top US debt holder spot to Japan, which bought $11.5 billion (mostly in Bonds, selling $1.4 billion Bills) bringing its total to $768.8 billion. Also, very oddly, the surge in UK holding continues, providing yet another clue as to the identity if the "direct bidder" - as we first assumed, these are merely UK centers transacting primarily on behalf of China as well as hedge funds, which are accumulating US debt under the radar. UK holdings increased from $230.7 billion to $302.5 billion in December: a stunning $70 billion increase in a two month span. Yet, with the identity of the UK-based buyers a secret, it really could be anyone... Anyone with very deep pockets.

RANsquawk 16th February US Morning Briefing - Stocks, Bonds, FX etc.

It appears as if SPG offered a reasonable acquisition premium over what we feel is reasonable for GGP. Ackman's (publicy disseminated) valuations were apparently in the stratosphere (and our analysis clearly demonstrated this point) while Hovde was a little pessimistic. I'll leave it up to the readers to determine who was the most accurate regarding GGP both on the short side going down (I think I was the only one declaring a position publicly) and on the long side going up (I did not have a position).

• Russian President Medveded recommends to Papandreou that Greece seek aid from IMF and WB (Kathimerini, h/t Paul)
• Are Goldman and Paulson partnering to profit from the downfall of an entire country/continent? (LittleSis)
• Weigh in on the FDIC proposal on executive pay (HuffPo, h/t David)
• Otmar Issing, former ECB executive and current Goldman Sachs advisor: Europe cannot afford to rescue Greece (FT) and Simon Johnson's take down (Baseline Scenario)
• Bazooka time: Henry Paulson thinks he is qualified to give advice on how to regulate banks (NYT)
• Spain has fingers crossed as it comes on deck with 15 year bond sale (Bloomberg)

• Asian stocks, copper, Aussie Dollar rise as earnings boost confidence in recovery.
• Australia and China committed to starting negotiations on an “open skies” accord.
• Bank of Japan may refrain from easing credit even as deflation intensifies.
• Possible European debt crisis is seen pushing US Dollar to its highest point in 9 months.
• EU finance ministers are uniting to oppose Pres. Obama’s Banking overhaul.
• Indian inflation accelerated to 8.56% in January, up from 7.31% in December and 4.95% a year ago.
• Japan stays ahead of China as world's second-biggest economy as 4Q GDP strong.