Archive - Sep 2013

When the half life on your stock boost from dumping your CEO is measured in days (especially when coupled with less than brilliant M&A transactions) what do you do? Why... resort to the oldest trick in the book: dividend and buyback (most likely leveraged)

*MICROSOFT SETS $40 BILLION BUYBACK, BOOSTS DIVIDEND 22%

It seems ValueAct is active already - and doing all they can to cover the FUBAR move in Nokia. But  - for all those buying on this news - this is merely extending the time-period of a prior buyback program - so just the dividend boost of 22% (23c to 28c with expectations of a shift to 26c) counts.

If the Fed was looking for any confirmation as it entered its two day meeting that its monetary machinations are boosting inflation, at least according to the BLS' hedonically, seasonally-adjusted CPI indicator, it did not get it. August CPI just printed at a measly 0.1% increase from July, below the 0.2% expected, and down from 0.2% last month. This was the lowest monthly increase in overall inflation since May, and the biggest miss to expectations in 4 months. On a Y/Y basis overall prices roses 1.5%, below the expected 1.6% and well below the 2.0% inflation in July. Core inflation excluding food and energy rose 1.8% in line with the expected number, and higher than the 1.7% a month ago. Perhaps the best news is that according to the BLS, "the index for nonalcoholic  beverages declined in August, falling 0.1 percent." It is unclear what if any hedonic adjustments were used in this particular calculation. As a reminder, the Fed has been "targeting" 2.0% inflation, and failing. So since in the Fed's eyes inflation continues to not be an issue, how long until the Fed proceeds to target NGDP, unanchors inflation expectations, and finally launches Bernanke's helicopter as we speculated recently?

With Syria now quickly fading from the headlines and Wall Street believing that Yellen is a "shoe in" for the Fed, what headwinds still remain for the markets ahead...

European recovery propaganda may be humming (for the latest proof see today's German ZEW sentiment index which soared from 42.0 to 49.0 matching the all time high in the Dax), but when it comes to the actual economy - that place where commerce is conducted and where supply and demand curves intersect, the situation has never been worse. And not only unemployment which is at a persistently record high for the Eurozone, but actual transactions, in this case in the form of car sales. As AP reports, for the first eight months of the year, passenger car sales in the European Union were off 5.2% to 7.84 million compared with the same period last year, the European Auto Manufacturers' Association said Tuesday. That's the lowest January-August figure since the group started keeping track in 1990.

• Less Tapering Becomes Tightening Credit No Matter What Fed Says (BBG)
• Yellen Is Now Top Fed Hopeful (WSJ)
• Syria - A chemical crime, a complex reaction (Reuters)
• More ECB collateral: Wrecked cruise ship Costa Concordia raised off rocks in Italy (Reuters)
• Aging Boomers Befuddle Marketers Eying $15 Trillion Prize (BBG)
• Abe Turns Pitchman, Says Japan Is Now A Buy (WSJ)
• Ex-JPMorgan Employees Indicted Over $6.2 Billion Loss (BBG)
• Barack Obama blinked first in battle for Lawrence Summers (FT)
• Berlusconi to support Italian government in video message: sources (Reuters)
• How China Lost Its Mojo: One Town's Story (WSJ)

Overnight trading started with Asian markets continuing where yesterday's S&P 500 fizzle ended, wishing Summers could withdraw from Fed running again, as both the Nikkei and SHCOMP were well lower by the close. Perhaps all the easy multiple-expanding, headline-driven money is made, or perhaps economic fundamentals will finally start having to justify a 17x multiple on the S&P (a good is good regime for those who may be too young, or old, to remember), but overnight US futures were dull, and no doubt anticipating today's start of the "Most important FOMC meeting ever", which concludes tomorrow with an announcement by the Fed of what and how much (if any) tapering it will commence with an eye toward halting QE next summer, although more realistically what will happen is an Untaper being announced before then. While the start of the FOMC meeting is the main event, today we get CPI, TIC flows and the NAHB housing market index. Today's POMO is another modest $1.25-$1.75 billion in the long-end sector.

Just when you think that the worst has come, been and gone, there will be more stuff hitting the fan in the very near future and that should serve as a lesson to the next head of the Federal Reserve that central banks don’t usually necessarily have the people in mind when they take things over and end up doing a pitiful job.

The prices of the metals were down sharply last week. Was this manipulation? As you’ll see below, the picture in silver is astonishing.

The always-truthful and ever-trustworthy Tokyo Electric Power Co. has released a statement that says "Typhoon Man-Yi caused no major damage at Fukushima." That's great news - if it's true - but the follow-up to that is perhaps a little more concerning. As Kyodo News reports, TEPCO has released the excess rainwater, that has collected between the barriers around radioactive storage tanks, into the ocean. We are reassured though, as officials stated that the level of radioactive substances in the accumulated rainwater was below allowable limits at 30 becquerels per liter (except The Tokyo Times reports some was emitting 170,000 becquerals per liter). All good then...

As more details emerge about today's suspected Washington Naval Base shooter, we find something else curious. AFP reports that Aaron Alexis had been working as a defense IT subcontractor for computer giant Hewlett Packard, according company officials said. Aaron Alexis, a former naval reservist, had been employed by a firm working on an HP contract to upgrade equipment used by the US Navy and Marine Corps, HP spokesman Michael Thacker said in an email. "Aaron Alexis was an employee of a company called 'The Experts,' a subcontractor to an HP Enterprise Services contract to refresh equipment used on the Navy Marine Corps Intranet (NMCI) network."

A decisive tipping point in the evolution of American capitalism and democracy - the triumph of crony capitalism - took place on October 3, 2008. That was the day of the forced march approval on Capitol Hill of the $700 billion TARP (Troubled Asset Relief Program) bill to bail out Wall Street. This spasm of financial market intervention, including multi-trillion-dollar support lines provided to the big banks and financial companies by the Federal Reserve, was but the latest brick in the foundation of a fundamentally anti-capitalist régime known as “Too Big to Fail” (TBTF). It had been under construction for many decades, but now there was no turning back. The Wall Street bailouts of 2008 shattered what little remained of the old-time fiscal rules. There was no longer any pretense that the free market should determine winners and losers and that tapping the public treasury requires proof of compelling societal benefit.

Seth Klarman's Baupost Group will be returning money to investors at year-end. As II Alpha reports, though the amount has yet to be determined, this would be only the second time the hedge fund has returned money in the firm's 31-year history. With the world of asset managers, as we recently noted, increasingly become herd-like beta-chasers, it seems Klarman - just as he noted earlier in the year - will return capital unless investment opportunities dramatically increased - and that hasn't happened.

One would think Laura Dimon, the daughter of one James Dimon, would be on familiar terms with such concepts as bonds, capital structure and finance (especially the more arcane substrata thereof). After all the father of the graduate from the Columbia School of Journalism (author of such previous pieces as "The Last Office Taboo for Women: Doing Your Business at Work" which examines "the lengths women go to avoid getting caught in the stall") is none other than the CEO of the largest bank in the US, best-known for such "one-time items" as constantly recurring legal charges associated with financial innovation gone horribly wrong (today's rumor of a $750MM settlement over the bank's London-based prop trading group being a case in point). As it turns out, one may be mistaken...

Now the Apple-Gold relationship is just getting silly...

The number whispered on Wall Street is $10 billion (or $14-$15 if you ask The Saudis), but potential investors in the micro-blogger’s IPO will need more to go on than simple valuation math and guided judgment.  As ConvergEx's Nick Colas notes, Tech firms are particularly dependent on innovation and human capital for their viability. So while Twitter may come out with a double-digit billion dollar IPO, Colas points out the most important question – Is it actually worth buying there?  The bottom line to the success of thriving tech companies (historically names such as Amazon, Google and Apple) is that they consistently and reliably build products that people want to purchase and use.  Colas explores multiple avenues to determine whether Twitter has the engine to do this, or whether it could emerge more “Groupon” than “Google” in the public company tech arena – and the answer lies in how you weigh the pros and cons of our top 10 points related to the social network’s IPO.