Deja Vu All Over Again: Fannie, Freddie Would Need Another $190 Billion Bailout When Things Go SouthSubmitted by Tyler Durden on 04/30/2014 11:43 -0400
While it will come as a surprise to exactly nobody, certainly nobody who understand that the US financial system is no better financial shape than just before the Lehman crash as nothing has been fixed and everything that is broken has been merely swept under the rug (for details see Paul Singer's explanation posted last night) of epic-er leverage, the news that when (not if) the US economy succumbs to a severe economic downturn Fannie and Freddie would require another taxpayer funded bailout, one of $190 billion or even more than the first $187.5 billion-funded nationalization of the GSEs, can only bring a smile to one's face.
Speaking at The Brooking Institution on April 12, Reserve Bank Of India Governor Raghuram Rajan - no stranger to controversial truthiness (as we have noted here and here) - made clear his views on the rest of the world's central bankers as he concluded, "the first step to prescribing the right medicine is to recognize the cause of the illness. And, when it comes to what is ailing the global economy, extreme monetary easing has been more cause than cure. The sooner we recognize that, the stronger and more sustainable the global economic recovery will be."
The bankruptcy of Energy Future Holdings, aka TXU, aka the largest LBO ever has been long in coming. As we previewed it most recently in September of last year, "if there was one deal that epitomized the last credit bubble, aside from the Blackstone IPO of course, it was the ginormous, $45 billion 2007 LBO of TXU, now Energy Future Holdings... the time to pay the piper for the last credit-fuelled binge has arrived and inevitable bankruptcy of this landmark deal is now just days away." It turned out it was more like months away, but it finally arrived, and moments ago, TXU finally succumbed to (lack of) cash flow reality, when it filed for a prepackaged Chapter 11 bankruptcy on Tuesday morning after months of negotiations with creditors aimed at speeding the restructuring of the private-equity backed utility's debt load of more than $40 billion. While it is unclear just how much total debt the company will ultimately restructure, it is likely that the final number will be greater than Enron's, making this also the largest ever non-financial bankruptcy in history.
While institutional investors and money managers have a very specific list of worries when it comes to their "financial concerns" such as Fear Of Missing Out (FOMO), monthly/quarterly performance and redemption requests, losing top traders, what the year end bonus will be, order fill slippage, being frontrun by HFT algos, what the Fed chairwoman may say any given day, whether it is 3:30pm or if it is a Tuesday, ordinary Americans have a far simpler list of concerns. According to a recent Gallup poll, the one thing that has most Americans very/moderately worried is "whether or not they have enough money for retirement."
As Its Domestic Cash Plunges By Record To Early 2010 Levels, Apple Prepares Massive $17 Billion Bond OfferingSubmitted by Tyler Durden on 04/28/2014 11:17 -0400
While Apple's earnings report last week left little to be desired, one of the more notable observations was that the company's cash hoard, relentlessly rising until now, had seen its first quarterly dip since Lehman, declining by $8 billion from $158.8 billion to $150.6 billion. Which was to be expected: since the technological company has not had much success with "growthy" innovation since the arrival of Tim Cook, it has been forced to become an activist investor's favorite piggybank, buying back and dividending record amounts of cash. In fact, perhaps the most notable feature of its earnings release was that AAPL would boost its buyback plan by 50% to $90 billion. One small problem: as everyone knows, when it comes to shareholder friendly actions, Apple can only rely on its domestic cash hoard. What this simply means is that after making the history books with the biggest ever, $17 billion bond offering 12 months ago, Apple is about to issue a whole lot more of debt.
The 21st century is still young, but it has already presented the United States with a series of internal and external challenges. History tells us that when one hegemon is in decline, international relations become more complex and uncertainties increase the risks. We may be in such a period today.
The similarities between 2007 and 2014 continue to pile up. And you know what they say - if we do not learn from history we are doomed to repeat it. Just like seven years ago, the stock market has soared to all-time high after all-time high. Just like seven years ago, the authorities are telling us that there is nothing to worry about. Unfortunately, just like seven years ago, a housing bubble is imploding and another great economic crisis is rapidly approaching.
For most of Canada's existence, it has been regarded as the weak neighbor to the north by most Americans. Well, that has changed dramatically over the past decade or so. Back in the year 2000, middle class Canadians were earning much less than middle class Americans, but since then there has been a dramatic shift. At this point, middle class Canadians are actually earning more than middle class Americans are. The Canadian economy has been booming thanks to a rapidly growing oil industry, and meanwhile the U.S. middle class has been steadily shrinking. If current trends continue, a whole bunch of other countries are going to start passing us too. The era of the "great U.S. middle class" is rapidly coming to a bitter end.
The most important chart from AAPL's earnings release is the one showing Apple's total cash and cash equivalents, for the simple reason that for the first time since before the Lehman collapse, Apple actually burned through cash, or $8.2 billion to be precise, which brought the company's cash hoard to just over $150 billion.
Too much testosterone in the room? Heard that all before. It’s the adolescent-like traders that were battling with levels of testosterone and cortisol, pounding on their chests like Tarzan swinging through the trees in the jungle of the financial markets that brought the world down too.
What a better way to celebrate the rigged markets that are telegraphing a "durable" recovery, than with a Credit Suisse report showing, beyond a reasonable doubt, that when it comes to traditional bricks and mortar retailers, who have now closed more stores, or over 2,400 units, so far in 2014 and well double the total amount of storefront closures in 2013, this year has been the worst year for conventional discretionary spending since the start of the great financial crisis!
A mix of military reluctance and willingness to use financial weapons was evident before the First World War, as it is now in Ukraine. Countries' efforts to protect their financial systems often centred on increased banking supervision and, in many cases, enlarging the central bank's authority to include the provision of emergency liquidity to domestic institutions. But this belief fuelled excessive confidence among those responsible for the reforms, preventing them from anticipating that military measures would soon be needed to protect the economy. Instead of being an alternative to war, the financial arms race made war more likely – as it may well be doing with Russia today.
As we reported last night, whether as a result of Snowden revelations and NSA blowback by BRIC nations, or simply because the global economy is contracting far faster than rigged and manipulated markets worldwide will admit, IBM's Q1 revenues not only missed consensus earnings, but dropped to their lowest level since 2009. And yet, IBM stock is just shy off its all time highs and earnings per share have been flat if not rising during this period, leading even such acclaimed investors who never invest in tech companies as Warren Buffett to give IBM the seal of approval. How is that possible? Simple: all that investment grade companies like IBM have done in the New Normal in order to preserve the illusion of growth, is to use cash from operations, or incremental zero-cost leverage, to fund stock buybacks. In essence a balance sheet for income statement tradeoff. However, that "great stock buyback gimmick" as we call it, is finally coming to an end.
Moments ago Goldman reports its first quarter earnings, which beat expectations that had been drastically lowered into this quarter. Specifically, total Q1 revenue printed at $9.33 billion, beating expectations of $8.66Bn, while EPS, which declined 6% from a year ago, also beat Estimates of $3.49 at $4.02. Looking at the key operating segments, the all important FICC revenue was $2.85Bn, also above the sharply reduced estimate of $2.63Bn, while IB was $1.78Bn, more than the Wall Street estimate of $1.52Bn. That was the good news. The bad news: Goldman's first quarter results were the worst since the Lehman crisis, and just to put the critical FICC group's revenues in perspective: at $2.9 billion they were less than half what FICC recorded in Q1 2010 when people apparently still traded.
“Bail-in” means that the bank’s owners - the shareholders, and creditors - the bondholders and now even depositors, will be line to absorb losses banks will incur, before outside sources of finance may be called upon. Deposit confiscation cometh ...