Archive - Nov 2012 - Story

For anyone interested, here is the presentation that Autonomy and its infamous banker, Frank Quattrone (currently of Qatalyst - a bank best known for "borrowing" the templates and stylesheets of the investment banks its current employees previously worked at - and previously of "extended Wall Street sabbatical" which was cancelled so he would bring such quality deals as the sale of Palm to HPQ and, of course, Autonomy to HPQ) used to pitch Autonomy to Oracle, which led to a less than hospitable response by multi-billionaire Larry Ellison.

Few would argue that markets are almost entirely apathetic to even the worst and most negative of headlines in this post-crisis world. As we noted earlier, it seems we are 'shell-shocked' at a 'recovery' that UBS describes as 'not exactly an uplifting experience' – global growth went straight from 'collapse' to 'mid cycle' without ever enjoying the healing properties normally associated with a one to two year recovery process. For economists, one interesting question is whether this 'new normal' is unduly influencing economic sentiment. We would somewhat expect traders/managers to be behaving in an increasingly agitated manner; jumping at sudden noises, overreacting to shifts in economic data and generally exhibiting signs of stress, economic hysteria, and volatility. In reality, both consumers and businesses have become quite blasé about the economy. Sentiment is actually a lot less volatile than the economic circumstances would normally suggest it should be, and so (via UBS) we present 'The Indifference Indicator' to track just how 'subdued' regions have become.

What is the latest state of play that has the biggest support from all parties? It appears that the plan which is now back in play, is one which Greece had previously nixed, namely a partial Greek bond buyback of the private bonds at a discount to par: with numbers currently rumored anywhere between 25 cents and 50 cents on the euro. And even if Greece agrees with this proposal, there is a question of where Greece will get the money for this distressed debt buyback? After all Greece is completely broke, and any new cash would have to be in the form of loans, as not even the most nebulous interpretation of the Maastricht treaty would allow an equity investment, or to use the proper nomenclature, "a fiscal investment" into Greece. But the kicker is when one traces the use of funds. Because what is will happening is a payment not to Greece, obviously, but to its creditors: entities which for the most part are hedge funds, and which have bought up GGB2s in the mid teen levels as recently as 4 months ago (recall Dan Loeb's major position in Greek bonds).

A mass exodus from ignorance and organized opposition to tyranny is the dream of every freedom loving person within the Liberty Movement today.  We would like nothing better than to put an end to the expanding establishment police state in the most peaceful manner possible. The reason why peaceful and popular activism almost never occurs successfully falls not only to the establishment elites who seek out and abuse power; there are others who share in the blame.  Regardless of the age, the culture, or the social conditions, there is ALWAYS a percentage of the general populace that embraces the totalitarian dynamic. They are not only useful idiots; they are conscious participants in the process of pacification and enslavement of their own society. During the blackest moments of mankind, they are the willing tools of oppression.  As America faces down wave after wave of fiscal difficulties, a government gone rogue with false left/right politics, and policies that disregard civil liberties for the sake of centralized authority, so the statist thugs of our time will soon flow out of the dark recesses of our society. We all know them when we see them, but do we really understand what makes them tick?  Here are some common psychological attributes of the overzealous statist; the failings and inadequacies that make him what he is...

Following yesterday's news that the Hostess mediation with its workers has collapsed, formalized earlier today, we get the next update which will likely make for a less than happy thankgsiving for a whole lot of former workers:

• HOSTESS CEO SAYS MUST TERMINATE 15,000 EMPLOYEES TODAY

We wonder if this surge in initial claims reported next week will also be attributed to Sandy?

A funny thing happened in the fall of 2010. Global equity markets went from the relatively 'normal' reflection of fundamental trends in earnings to an entirely disconnected 'keep equity valuations high at all costs' centrally-planned environment divorced of fundamental support (no matter how many times we are told 'stocks are cheap'). What happened and who broke the markets 'saved the world'?

And the Israeli update: ISRAEL HAS AGREED TO TRUCE IN GAZA, BUT WILL NOT LIFT BLOCKADE -ISRAELI SOURCES

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This is not the first time we have had rumor of a ceasfire between Hamas and Israel, but this one may be for real. If only briefly. From Reuters:

• CEASEFIRE BETWEEN HAMAS AND ISRAEL AGREED -PALESTINIAN OFFICIAL WITH KNOWLEDGE OF TALKS

Oil appears unwilling to wait for any confirmation from the Israeli side and promptly slides.

Forget for one moment that the region is mired in a recession-to-depression state; wipe from memory the faltering capital base of the EFSF/ESM mechanisms; dismiss the overnight failure of a Greece agreement; ignore Schaeuble's dismissal of any joint-and-several liability; all you need to do is buy in Europe. Buy dips, buy rips, buy bad news, buy good news - s'all good. Sovereign debt spreads continue to compress on the week - Portugal -99bps and Spain -26bps for example (and GGBs soared on buyback hope). Equity and credit markets have just gone 'Birinyi-rule'-like from lower left to upper right this week without pause or contemplation. Whether EURUSD dips or rips, whether oil prices dip or rip; you buy risky stuff with both hands and feet. Meanwhile LTRO-encumbered bank spreads are underperforming and Swiss 2Y rates deteriorated today.

We have long been pounding the table on what in our view is the biggest detriment to any future growth for not only corporate America, but the entire US (where, sadly, government investment IRRs just happen to be negative - a fact that most won't understand until it is too late, especially not self-anointed economic wisemen whose only solution to everything is "do more of the same" yet who thought the utility of the Internet would be eclipsed by that of the fax machine): the complete lack of capital expenditures at the corporate level, and lack of (re)investment spending. It turns out that, however, that there is more to the story, and as the following chart from SocGen's Albert Edwards shows, not only are companies using up what actual free cash flows they have for such stupid stock boosting gimmicks such as harebrained M&A (just look at the recent fiasco between HP and Autonomy to see how rushed M&A always ends), and of course buybacks, but they are now levering to the hilt to do even more of this. The last time they did this? The golden days of the credit bubble.

We know it may appear unduly harsh to discuss America's self-destructive dietary "monster Id" right before the Thanksgiving day feasting, but when is it more appropriate? There are a great many disconnects between reality and what Americans believe out of convenience ("no snowflake feels responsible for the avalanche") or propaganda, but perhaps none is more visible than the disconnect between what we're collectively doing to our health with the food we consume. The Chinese have an apt saying" "Disease comes through the mouth," meaning disease comes from what we eat. There are several parts to the food-illness disconnect.

If you aren't thoroughly confused, confounded and outright disgusted by the newsflow supposed to represent the US economy, you aren't paying attention. Because two weeks after the preliminary UMich print was supposed to come at 82.2, instead soaring to 84.9, or the biggest beat of expectations in 5 years, we get the final UMich number, which missed expectations of a 84.5 read and plunged to 82.7, the biggest miss of expectations in 4 years. Of course, this makes sense: two weeks ago we had the euphoria associated with a new old president, and hope that 4 more years may fix this country. Two weeks, and the biggest market drop in one year later, enthusiasm has been doused just a tad. And adding insult to injury, 1 Year inflation expectations rose from 3.0% to 3.1% - just as the spectre of declining asset prices has reared its ugly head, yet this is well below the 2.8% expected for 5 year inflation -  as a reminder, in 5 years the Fed's balance sheet will be between $6 and 10 trillion. Boy is everyone in for a surprise...

Presented with little comment except to note that the implied volatility of the S&P 500 has collapsed back to its realized volatility - it would seem markets have become highly complacent, once again, about the short-term future.

HP said that more than $5bn of yesterday's gargantuan write-down was due to "serious accounting improprieties" but as Bloomberg's Jonathan Weil states "the numbers don't make sense". With only $3.5bn of total assets on their balance sheet as Q2 2011, a $5bn 'fraud' would seem tough to swallow - and HP has far from forthcoming on any details. Perhaps the fault lies within (as opposed to without) as Weil notes HP recorded $6.6bn of goodwill (the plug between market price and the above-market price HP paid) - which was later revised to $6.9bn; now HP is writing down that goodwill - and blaming it on financial fraud from Autonomy. "HP didn't record the goodwill because it was lied to by Autonomy. HP recorded the goodwill because it knew Autonomy's identifiable assets were worth much less than it paid." It seems to Weil (and to us) that HP's management want the 'obvious-to-the-world write-downs required for goodwill and intangibles' post such a huge 'over-pay' to appear to be someone else's fault.

No, really. The LDP, as most know by now, will take over at the December 16th elections as the next party in charge of Japan, at least until the early elections 3-6 months later, when power will shift once more, as the great Keynesian basket case experiment proves ungovernable yet again.  But in the meantime, there will be much humor, such as this...

At the beginning of World War II, the term "shell shock" was banned by the British Army, though the phrase "postconcussional syndrome" was used to describe similar traumatic conditions. Pick whichever words you like but lately it seems to me that the world’s investors are in this state of economic reaction; shell shocked. Yes, France is downgraded, no decision about Greece, no truce in Gaza, Spain joining Alice in the rabbit hole, recession in Europe, America fiddling about with no resolution in sight and “ho hum, ho hum pass the cookies if you please.” The world’s central banks have manufactured the money, we have enough sloshing about to invest it, corporate earnings are down, well, nevermind, we have to do something with the stuff so we may as well put it somewhere and the investment world lulled into lethargy by all of the shells that have flown overhead and landed nowhere. It is like the investment world is on Xanax where the sea is perceived as dead calm, regardless of the eight foot swells. It all seems very reminiscent of the blase attitude in Spring 2008 to no-doc loans and CDO-cubeds.