Private Equity

• More QE could distort rather than deliver (FT)
• Soros Buying Gold as Record Prices Seen on Stimulus (BBG)
• EU Leaders Face Greek Aid Gap in Brinkmanship With IMF (BBG)
• Weak data point to bigger economic drag from Sandy (Reuters)
• Shirakawa Pushes Back With Criticism of Abe Unlimited Easing (BBG) But... but... Bernanke??
• French Downgrade Widens Gulf With Germany as Talks Loom (BBG)
• Japanese Poll Shows LDP Advantage Ahead of Election (WSJ)
• BOJ in the Balance as Next Government Picks Top Posts (BBG)
• Exchanges Get Closer Inspection (WSJ)
• Greece edges closer to €44bn bailout (FT)
• Japan Government to Spend 1 Trillion Yen on Next Stimulus (BBG)
• China’s Richest Woman Divorces Husband, Fortune Declines (BBG)

Perhaps one of the most interesting aspects of the just announced Hostess liquidation, one that will be largely debated and discussed in the media, or maybe not at all, is the curious cast of characters and the peculiar history of this particular bankruptcy. Some may not be aware that the company's Chapter 11 (or colloquially known as 22) bankruptcy filing this January, which today became a Chapter 7 liquidation, was the second one in the company's recent history, with Hostess, previously Interstate Bakeries, emerging from its previous protracted multi-year bankruptcy in 2009. What is curious is that its emergence had all the drama of a anti-Mitt Romney PAC funded thriller, with a PE firm, in this case Ripplewood holdings, injecting $130 million in order to obtain equity control of Hostess as it was emerging last time. There were also more hedge funds, investment banks, strategic buyers, politicians involved in this particular story than one can shake a deep fried numismatic value Twinkie at. More importantly, however, as America has been habituated following the last season of the reality TV show known as the presidential election, if Private Equity then "bad." Only this time there is a twist: because it wasn't really PE that was the pure evil in the Obama long-term campaign, it was associating PE with Republicans, and thus: with jobs outsourcing. And here comes the Hostess twist: because Tim Collins of Ripplewood, was a prominent Democrat, a position which allowed him to get involved in the first bankruptcy process in the first place, due to his proximity with the Teamsters' long-term heartthrob Dick Gephardt (whose consulting group just happens to also be an equity owner of Hostess). In other words, the traditional republican-cum-PE scapegoating strategy here will be a tough one to pull off since the narrative collapses when considering that it was a Democrat who rescued the firm, only to see it implode in a trainwreck that has resulted in the liquidation of a legendary brand, and 18,500 layoffs.

• Don't jump to conclusions over general, Pentagon chief says (Reuters)
• Bad times for generals: Pentagon demotes 4-star General Ward (Reuters)
• Investors Pay to Lend Germany Money (WSJ)
• Noda will no longer be watching... watching: Japan PM honors pledge with December 16 vote date, to lose job (Reuters)
• New China leadership takes shape (FT)
• Hispanic Workers Lack Education as Numbers Grow in U.S. (Bloomberg)
• Quest for EU single bank supervisor stumbles (FT)
• Anti-austerity strikes sweep Europe (Reuters)
• Amazon faces new obstacles in fight for holiday dollars (Reuters)
• SEC Expands Knight Probe (WSJ)
• Singapore’s Casinos Lose Luster as Gaming Revenue Decline (Bloomberg)
• Amid Petraeus sex scandal, Air Force to release abuse report (Reuters)
• Geithner’s Money Fund Overhaul Push Sparks New Opposition (Bloomberg)

Now that The Show is over, we are left with the equivalent of a Sunday morning hangover following a binge of promises and lies. After the Supreme Court upheld the PPACA, a spate of mergers rippled through the managed health care realm, to ostensibly cope with smaller profit margins and  ‘compliance costs.’  But really, it’s because each firm wants to corner as much as possible of the market, in as many states as it can, to garner more premiums and control more disbursements and prices at the upcoming insurance ‘exchanges.’ Meanwhile the more hospitals are viewed as profit centers, the more their Chairmen will cut costs to maximize returns, and not care quality. They will seeks ways to sell underperforming assets, programs or services and reduce the number of nonessential employees, burdening those that remain. And if insurance companies can manage doctors directly, they can control not just costs, but treatment – our treatment. It’s not an imaginary government takeover anyone should fear; but a very real, here-and-now insurance company takeover, to which no one in Washington is paying attention.

• Jefferies to be bought by Ian Cumming's Leucadia in an all-stock deal for $3.59 billion or about $17/share (WSJ)
• FBI Scrutinized on Petraeus (WSJ)
• Identity of second woman emerges in Petraeus' downfall (Reuters)
• SEC staffers used government computers for personal use (Reuters)
• Japan edges towards fifth recession in 15 years  (FT)
• Europe Finance Chiefs Seek Greek Pact as Economy Gloom Grows (BBG)
• Americans Say Europe Lesson Means Act Now as Austerity Will Fail (BBG) - of course it would be great if Europe had ever implemented austerity...
• Greece battles to avert €5bn default  (FT)
• You don't bail out the US government for nothing: No Individual Charges In Probe of J.P. Morgan (WSJ)
• Israel Warns of Painful Response to Fire From Gaza, Syria (BBG)
• Greece's far-right party goes on the offensive (Reuters)
• Don’t fear fiscal cliff, says Democrat  (FT)
• Apple Settles HTC Patent Suits Shifting From Jobs’ War (BBG)
• Man Set on Fire in Argentina Over Debt (EFE)
• Iraq cancels $4.2-billion weapons deal with Russia over corruption concerns (Globe and Mail)
• An Honest Guy on Wall Street (Bloomberg)

• Greek Aid Payment Call Won’t Be Made Next Week, EU Official (Bloomberg)
• Eurozone faces brinkmanship on Greece (FT)
• Pressure Rises on Fiscal Crisis (WSJ)
• The JC Penney massacre continues (BBG) - In other news, any minute now Bill Ackman will get that 15x return...
• SEC left computers vulnerable to cyber attacks (Reuters) cue "back door Trojan" jokes
• Former Goldman trader accused of fraud (FT)
• Elizabeth Warren's Inadvertent Best Friends: Wall Street and Republicans (BusinessWeek)
• Zurbruegg Says Managing SNB Currency Reserves Is Major Challenge (BBG)
• Obama ally leads push on fiscal cliff (FT)
• Britain threatens to block banking union (FT)
• PBOC’s Zhou Says China’s Economy Improving as Data Due (Bloomberg)
• China slaps duties on steel tube imports (FT)
• Obama to Make Statement on Economic Growth, Cutting Deficit (Bloomberg)

"Capitalists seem almost uninterested in Capitalism" is how Clayton Christensen describes the paradox of our recovery-less recovery. In an excellent NYTimes Op-ed, the father of the Innovator's Dilemma comments that "America today is in a macroeconomic paradox that we might call the capitalist’s dilemma." Business and investors are drowning in Fed-sponsored liquidity (theoretically, capital fuels capitalism) but are endowed with what he calls the Doctrine of New Finance - where short-termist profitability guides entrepreneurs away from investments that can create real economic growth. We are trying to solve the wrong problem. Our approach to higher education is exacerbating our problems. There is a solution, it's complicated, but Christensen offers three ideas to seed the discussion.

• Obama-Romney: Breaking the Tie (BBG)
• Fiscal cliff looms over campaign climax (FT)
• Tough Calls on Deficit Await the Winner (WSJ)
• Election Likely to Leave Housing Unmoved (WSJ)
• Regulator Investigating Rochdale Trading (WSJ)
• Greeks Plan Strikes On Eve of Votes (WSJ)
• China Communists consider internal democratic reform (Reuters)
• Wen urges Asia-Europe co-op to promote world economy (China Daily)
• Italy Said to Reject Bad Bank That May Boost Ties to Sovereign (BBG)
• IMF warning adds to French economy fears (FT)
• Europe, Central Bank Spar Over Athens Aid (WSJ)
• Unlimited Lending May Help Weaken the Yen, BOJ Official Says (BBG)
• PBOC Official Says U.S. Election Won’t Impact Yuan Level (BBG) - Just the USD level to which it is pegged

Hedge Fund "gating", or the forced administrative limit on how much money hedge fund investors can redeem at any given moment, is one of those bad memories that most wish could remain dead and buried with the peak of the credit crisis, when virtually every hedge fund was swamped with redemption requests as impatient LPs couldn't wait to get what was left of their money back. However, the problem for hedge funds, in addition to underperforming the market substantially for a 5th year in a row, with almost all hedge funds now returning far less than the broader market (which continues to successfully defend the 1400 barrier every day) especially after October when the two biggest hedge fund darling stocks GOOG and AAPL finally reincountered gravity, is that their LPs have once again gotten restless and are now again actively seeking their money back from underperformers. Sadly, it was thus only a matter of time before the "gates" returned. As of this weekend they have.

Defending the indefensible? In the past weeks, there has been a 'revival' of news related to high-profile inside trading cases. Insider trading is accurately pictured in that great movie called "Wall Street", by a famous line of Gordon Gekko to Bud Fox. Gordon said: "If you’re not inside, you are outside". Gordon was right. If only people understood that this is just a natural thing... It has nothing to do with ethics. Yes, we know that there is something in our argument that may not make sense to you... and we dare to guess that it is because you expect fairness when you invest your savings in a public security (i.e. a stock or a bond). But in all honesty…have you ever asked yourself why you expect fairness? We are not implying people should not trust those who issue or market these securities. But if they do, they should recognize that there is the risk that they may suffer a loss due to insider trading. Public securities, ceteris paribus, should trade at a discount to private securities, to compensate for the risk of lack of control and transparency. Yet, today, the opposite applies.

• U.S. Super Storm’s Record Flooding Lands Blackout Blow (Bloomberg)
• Sandy Carves a Path of Destruction Across the U.S. East Coast (WSJ)
• Losses May Exceed Those of 2011 Storm (WSJ)
• Hurricane Sandy Threatens $20 Billion in Economic Damage (Bloomberg)
• Huge fire in Sandy's wake destroys dozens of NYC homes (Reuters)
• Possible levee break in New Jersey floods three towns (Reuters)
• Apple Mobile Software Head Forstall Refused to Sign Apology (WSJ)
• Stagflation in Spain (Bloomberg)
• German Oct. Unemployment Rose Twice as Much as Forecast (Bloomberg)
• A declining Japan loses its once-hopeful champions (WaPo)
• Unable to copy it, China tries building own jet engine (Reuters)
• Obama Signs Disaster Declarations for NY, NJ (YNN)

• Greece Faces Need for Additional Assistance: €30 billion (WSJ)
• Greeks fail to agree on bailout terms (FT)
• The report that got the NYT banned on the Chinese interweb: Billions in Hidden Riches for Family of Chinese Leader (NYT)
• Bo Xilai: China parliament expels disgraced politician (BBC)
• Japan Adds Stimulus Amid Threat of Bond-Sale Disruption... $9.4 billion (Bloomberg)
• Hubbard Said to Prefer Treasury Chief to Fed If Romney Wins (Bloomberg)
• 9 More Banks Subpoenaed Over Libor (WSJ)
• Romney raises $112m in 17 days (FT)
• Amid Cutbacks, Greek Doctors Offer Message to Poor: You Are Not Alone (NYT)... no, we are all broke
• Muni Downgrades Top 2011 Total on Weak Economy: Moody’s (Bloomberg)
• Ireland urges ECB to commit to bond-buying (FT)
• Cameron and Clegg unite in EU demands (FT)

Before the campaign contributors lavished billions of dollars on their favorite candidate; and long after they toast their winner or drink to forget their loser, Wall Street was already primed to continue its reign over the economy. For, after three debates (well, four), when it comes to banking, finance, and the ongoing subsidization of Wall Street, both presidential candidates and their parties’ attitudes toward the banking sector is similar  – i.e. it must be preserved – as is – at all costs, rhetoric to the contrary, aside. Obama hasn’t brought ‘sweeping reform’ upon the Establishment Banks, nor does Romney need to exude deregulatory babble, because nothing structurally substantive has been done to harness the biggest banks of the financial sector, enabled, as they are, by entities from the SEC to the Fed to the Treasury Department to the White House.

How does Facebook's investor prospects look now, after a healthy dose of reality? Ha! Muppet Mania!!!!

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.