Archive - Aug 2010 - Blog entry

Despite strong opposition from Canada's largest public pension funds, Magna International said it will move ahead with a deal to have founder Frank Stronach give up control over the auto parts giant. In all, the payout is valued at roughly $1 billion – an unprecedented 1,800% premium and dilution compared to other conversion deals.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain

A round up of recent news. Don't read it if you don't want to know ...

In today’s Crony capitalist economy, the political system is bought outright by the large multinational corporations via various lobbying efforts/ corporate donations. These multinationals then receive kickbacks in the form of deregulatory policies and other tax loopholes, which permit them to further expand their power and influence.

Merger mania is definitely back in the Tech sector. However, the more intriguing story (or rumor) is when news broke on Sunday night that Cisco (CSCO) has made an offer to acquire Skype before they complete their IPO.

This is one to watch.

CRE porn (about as sexy as the industry gets): Mrs. High End Condotel cum Condo Market is reintroduced to Mr. Gravity and their swinging partners, Mr. Supply and Mrs. Demand!

Note for you imaginative guys: A Latin or English linking word, which can be either the preposition with or a conjunction meaning when, because, or although.

A quick review of how accurate we were in our highly contrarian calls (don't call me a Permabear) for the year 2010.

Research in Motion's flagship product was obsolete upon launch and is getting discounted by 50% two weeks after release while competing handsets can't stay on the shelves at FULL price. RIM needed a home run with this product, and instead it struck out. This portends very bad things for the share price in the medium to long term, sans a buyout/takeover.

In the brave new world of behavioral targeting, your PC may know more about you than you want. Sharing your personal data with a few “buddies” like Facebook, Google, and MySpace. Worried about privacy? Privacy, shmivacy. I bet the IRS would like to know.

In today’s world of trillion dollar bailouts, $2-4 billion doesn’t sound like much, so let’s give some perspective here… in its golden days, Lehman Brother’s market cap was roughly $47 billion. So you’re talking about bets equal to an amount between five and 10% of its market cap. Not exactly chump change.

And Lehman had no idea where it was or how much it really owed.

Mind you, we’re only addressing Lehman’s options and futures derivatives, we’re completely ignoring its mortgage backed securities, collateralized debt obligations (CDOs), and other Level 3 assets. Options and futures are literally the “tip of the iceberg,” the most visible portion of the behemoth that was Lehman’s off balance sheet derivative issues. After all, these are regulated securities unlike most derivatives.

While everyone is terrified about the next Black Swan, the Black Sloth that I've been warning policymakers about is spreading as millions face the dire prospect of pension poverty...

Consensus earnings estimates for 2011 and 2012 are still greater than $95 and $108, respectively, at the same time that GDP estimates are plummeting (although still don’t face the harsh economic reality). To put these figures into perspective, analysts were forecasting a near 20% decline in earnings at the market’s trough. Today, expectations are for 22% growth in the year ahead.

We show an example of this optimism below.

Accounting is so boring. And so important.

The “Sunshine Pumper Strategists” are out in full force today, with earnings yields on stocks spiking higher than those available on bonds. So we were pleased to see that Ron Griess at The Chart Store provided us with a couple of charts this morning that illustrate this relationship (or lack thereof) over time. Ron’s long term perspective is critically important here, as any monkey can easily pick out a few bananas that accurately predict the market at any given moment in time.