Bain

After this year's presidential campaign, private equity and certainly Bain Capital, will likely be the last entity that those pandering to populist agendas will go to advice over the future of the business cycle in broad terms, and the future of US labor, most certainly including outsourcing, in narrow terms. And Goldman - that staunch defender of the superiority of capital over labor - will hardly be confused as ever taking the role of workers in any discussion. Which is why we read the following interview by Goldman's Hugo Scott-Gall with Bain Capital partners Michael Garstka and Alan Bird on such topics as corporate restructurings and the future of outsourcing with great interest, as it is very much unlikely that any of the conventional media sources would carry it. And while one may have ideological biases in whatever direction, the truth as presented previously, is that US private equity is a massive "behind the scenes" juggernaut, whose portfolio holding companies account for a whopping 8% of US GDP, and is directly and indirectly responsible for tens of millions of currently employed US workers! At the end of the day, it may well be that what private equity firms such as Bain think about the future of US labor prospects is the most important thing that matters for the future of the so very critical US unemployment rate. Which is why we present, for your reading pleasure, the somewhat unorthodox interview below...

We will have much more to say on the grandiose return of CLOs in the next few days (those who were not in high school during the peak of the credit crisis, so most of today's "traders", recall these peak credit bubble contraptions quite well) but for now we just wanted to bring to our readers' attention that yet another $625 million CLO has just priced, this time from Sankaty, courtesy of Morgan Stanley. Anyone needing confirmation that the credit bubble is back with a bang, need look no further than the table below.  We look forward with amusement once the confused peanut gallery, aka CTRL-C/V majoring "financial media" (where even the somewhat more qualified are about to be "synergized" following news that the FT is pushing hard with a sale), realizes that Sankaty is Bain Capital's $20 billion credit affiliate hedge fund, especially if the election goes for Romney, and goes all aflutter googling what a CLO is and what it means for the flood surge level of liquidity in the market (but, but, Bernanke is printing it all for the children... and housing).

"Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire." Strauss & Howe wrote these words in 1997. They understood the dynamics of how generations interact and how the mood of the country shifts every twenty or so years based upon the generational alignment that occurs as predictably as the turning of the seasons. The last generation that lived through the entire previous Crisis from 1929 through 1946 has virtually died off. For those who doubt generational theory and believe history is a linear path of human progress, I would point to the last week of chaos, disarray, government dysfunction, and misery of those who didn’t prepare for Superstorm Sandy, as a prelude to the worst of this Crisis. The lack of preparation by government officials and citizens, death, destruction, panic, anger, helplessness and realization of how fragile our system has become is a perfect analogy to our preparation for this Fourth Turning. The regeneracy of the nation will occur during the next presidential term. The mathematical impossibility of sustaining our economic system is absolute.

First, The Economist, now the man who owns the terminal that global finance uses each day to chat with one another, and occasionally to check the real time price of ESZ2 (if certainly not quite as much this year, and last, as desired). Mike Bloomberg's driving catalyst to chose the way he did? Climate change. Because to some it is the economy, to others: the number of cloudless sunny days in St Barts. The question for employees of Bain now: do they immediately disconnect their BBG terminals, or wait until next Wednesday.

If you often wonder why ‘free market capitalism’ feels like it is failing despite universal assurances from economists and political pundits that it is working as intended, your intuition is correct. Free market capitalism has become a thing of the past. In truth free market capitalism has been replaced by something that is truly anti-free market and anti-capitalistic. The diversion operates in plain sight. Beginning sometime around 1970 the U.S. and most of the ‘free world’ have diverged from traditional “free market capitalism” to something different. Today the U.S. and much of the world’s economies are operating under what I call Monetary Fascism: a system where financial interests control the State for the advancement of the financial class. This is markedly different from traditional Fascism: a system where State and industry work together for the advancement of the State. Monetary Fascism was created and propagated through the Chicago School of Economics. Milton Friedman’s collective works constitute the foundation of Monetary Fascism. Today the financial and banking class enforces this ideology through the media and government with the same ruthlessness of the Church during the Dark Ages: to question is to be a heretic.   When asked in an interview what humanities’ future looked like, Eric Blair, better known as George Orwell, said “Imagine a boot smashing a human face forever.”

The last time we checked on the (funding) status of America's real presidential race - the one where America's uber-wealthy try to outspend each other in hopes of purchasing the best president money can buy - the totals were substantially lower. With November 6 rapidly approaching, however, the scramble to lock in those record political lobbying IRRs is in its final lap. And thanks to the unlimited nature of PAC spending, look for the spending to really go into overdrive in the next 2 weeks as the spending frenzy on the world's greatest tragicomedy hits previously unseen heights.

• U.S. Military Is Sent to Jordan to Help With Crisis in Syria (NYT)
• IMF Weighing New Loans for Europe (WSJ)
• Romney Targets Obama Voters (WSJ)
• China’s Central Banker Won’t Attend IMF Meeting Amid Island Spat (Bloomberg)
• Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’ (Bloomberg)
• German media bristles at hostile Greek reception for Merkel (Reuters)
• The End Might Be Near for Opel (Spiegel)
• IMF sounds alarm on Japanese banks (FT)
• Cash Tap Stays Dry for EU Banks (WSJ)
• Goldman in Push On Volcker Limits (WSJ)
• IMF Vinals: Further Policy Efforts Needed to Gain Lasting Stability (WSJ)
• King signals inflation not primary focus (FT)

Confirming a move that will surprise exactly no one, the firm which is best known in the world for two things: i) arbitraging the gullibility of its clients, and ii) flipflopping faster than anyone when the narrative demands it, the WSJ reports that Goldman Sachs has mutated from Obama's biggest financial backer 4 years ago on Wall Street, to one of the most stingiest firms. "Employees at Goldman donated more than $1 million to Mr. Obama when he first ran for president. This election, they have given the president's campaign $136,000—less than Mr. Obama has collected from employees of the State Department. The employees have contributed nothing to the leading Democratic super PAC supporting his re-election. By contrast, Goldman employees have given Mr. Romney's campaign $900,000, plus another $900,000 to the super PAC founded to help him." In other words Goldman has just voted with their wallets, and the bottom line is "Strong Sell" with price target One Term.

• Rajoy’s Deepening Budget Black Hole Outpaces Spain’s Cuts (Bloomberg)
• ECB May Need to Cut Rates Given Deflation Risk, IMF Says (Bloomberg)
• Global Recession Risk Rises (WSJ)
• Romney Leads Obama in Pew Likely Voter Poll After Debate (Bloomberg)
• IMF Sees Global Risk in China-Japan Spat (WSJ)
• Republicans shift tone on taxing the rich (FT)
• Romney casts Obama's foreign policy as weak, dangerous (Reuters)
• Europe Salutes Greek Budget-Cutting Will, Raising Aid Prospects (Bloomberg)
• U.S. Downgrade Seen as Upgrade as U.S. Debt Dissolved (Bloomberg)
• IMF Says Most Advanced Nations Making Progress Reducing Deficits (Bloomberg)
• Eurozone launches €500bn rescue fund (FT)

• Draghi Says Next Move Not His as Spain Resists Bailout (Bloomberg)
• EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout (Bloomberg)
• Merkel to Visit Greece for First Time Since Crisis Outbreak (Bloomberg)
• Fed's Bullard warns inflation won't ease U.S. debt burden (Reuters)
• Walmart Workers Stage a Walkout in California (NYT)
• Natural Gas Glut Pushes Exports (WSJ)
• BOJ Refrains From More Stimulus as Political Pressure Mounts (Bloomberg)
• Big funds seek to rein in pay at Wall Street banks (Reuters)
• Hong Kong Luxury Sales Fall as Chinese Curb Spending (Bloomberg)
• Dave and Busters Pulls IPO due to "Market Conditions" (Reuters) - so market at anything but all time highs now is market conditions?
• Weak U.S. labor market looms ahead of elections (Reuters)
• Glut of Solar Panels Poses a New Threat to China (NYT)

Lately, it has become particularly fashionable to bash private equity, especially among those workers in the employ of the state. The argument, in as much as capitalism can be summarized in one sentence, is that PE firms issue excess leverage, making bankruptcy inevitable (apparently those who buy the debt are unaware they will never get their money back), all the while cutting headcount to maximize cash flow (apparently the same PE firms don't realize that their investment will have the greatest terminal value to buyer if it has the highest possible growth potential, which means revenue and cashflow, which means proper CapEx investment, which means streamlined income statement, which means more efficient workers generating more profits, not less). The narrative ultimately culminates with some variation on a the theme that PE firms are responsible for offshoring jobs. While any of the above may be debated, and usually is especially by those who have absolutely no understanding of finance, one thing is certain: when it comes to bashing PE, America's public workers should be the last to have anything negative to say about Private Equity, and the capital markets in general. Why? Because when it comes to fulfilling those promises of a comfortable retirement with pensions and benefits paying out in perpetuity, always indexed for inflation, and otherwise fulfilling impossible dreams, who do America's public pension fund administrators go to? The very same private equity firms that have suddenly become outcast number 1.

Ouch ...

• Obama, Romney tiptoe around housing morass as they woo voters (Reuters) ... just as ZH expected
• Poll Finds Obama in Better Shape Than Any Nominee Since Clinton (Bloomberg)
• Romney on Offense, Says Obama Can’t Help Middle Class (Bloomberg)
• Fed’s Fisher Says U.S. Inflation Expectations Rising (Bloomberg)
• Citigroup Warns Irish Investors to Plan for Losses (Bloomberg)
• Central Banks Flex Muscles (WSJ)
• China says U.S. auto trade complaint driven by election race (Reuters)
• Brussels sidesteps China trade dispute (FT)
• How misstep over trading fractions wounded ICAP's EBS (Reuters)
• Ex-CME programmer pleads guilty to trade secret theft (Reuters)
• Income squeeze will persist, says BoE (FT)
• South African miners return to work, unrest rumbles on (Reuters)

Stocks in Europe traded lower throughout the session, as market participants reacted to another round of weak data from Asia. In particular, China’s imports fell 2.6% on the year in  August vs. Exp. 3.5%, underpinning the need for policy easing measures from the People's Bank Of China. Some of the weakness in equity space was also attributed to profit taking following last week’s gains. Spanish bonds continued to benefit from the ongoing speculation that the government will seek a full scale bailout. As a result, SP/GE 10y bond yield spread is tighter even though there is an outside chance that the constitutional court vote in Germany will delay this. On the other hand, IT/GE and NE/GE bond yield spreads are wider, reflective the upcoming issuance, as well as elections. EUR/USD and GBP/USD, both seen lower on the back of touted profit taking, as well as pre-positioning into near-term risk events mentioned above. Commodity linked currencies are also weaker, weighed on by the weaker data from China, which also showed that imports of crude oil hit a 22-month low. In terms of notable stocks news, Glencore said it will not improve its offer for Xstrata after the company raised offer for Xstrata to 3.05 from 2.8.

• Jobs Gauge Carries Election Clout (WSJ)
• Draghi Lured by Fractious EU Leaders to Build Euro 2.0 (Blooomberg)
• Rajoy stance sets stage for EU stand-off (FT)
• China Approves Plan to Build New Roads to Boost Economy (Bloomberg)
• Hollande faces questions on tax pledge (FT)
• Putin Looks East for Growth as Debt-Ridden Europe Loses Sheen (Bloomberg)
• Strike Grounds Half of Lufthansa's Flights (Spiegel)
• The weakest will win in the euro battle (FT)
• Hilsenrath: Fed Economic, Interest Rate Forecasts Will Include 2015 Outlook (WSJ) - because he just figured that out
• Obama Presses Plan for U.S. Resurgence (WSJ)
• Hong Kong to Restrict Sales of Homes at Two Sites to Locals (Bloomberg)
• Drought Curbs Midwest Farm-Income Outlook, St. Louis Fed Says (Bloomberg)