Private Equity

• China Industrial Output Growth Slows Sharply In April (WSJ)
• Indian industrial output shrinks unexpectedly (AFP)
• China’s Inflation Moderates, Adding Room for Easing (Bloomberg)... a nickel for every "imminent RRR-cut" prediction
• Drew Built 30-Year JPMorgan Career Embracing Risk (Bloomberg)
• Spain Offered Time to Curb Deficit (FT)
• France Entrepreneurs Flee From Hollande Wealth Rejection (BBG)
• Venizelos Eyes Unity Deal After Agreement With Democratic Left (Ekathimerini)
• Berlin Reaches Out to the Periphery (FT)
• Bernanke Speaks About Risks From End of Pro-Growth Plans (Bloomberg)

You know I saw this one coming 3 years ago, didn't you??? This ain't the end of the story either. You heard it hear first, again!

Out of nowehere, JPM announced 40 minutes ago that it would hold an unscheduled 5pm call to coincide with the release of its 10-Q. Rumors were swirling as to why. The reason is as follows:

• JPMORGAN SAYS CIO UNIT HAS SIGNIFICANT MARK-TO-MARKET LOSSES - "Fortress balance sheet" at least until Bruno Iskil gets done with it.
  
• JPMORGAN SAYS LOSSES ARE IN SYNTHETIC CREDIT PORTFOLIO - but, but, net is NEVER, EVER Gross.
• JPM WOULD NEED $971M ADDED COLLATERAL IF RATINGS CUT ONE-NOTCH
• JPM WOULD NEED $1.7B ADDED COLLATERAL IF RATINGS CUT 2 NOTCHES - how about three notches?
• JPMORGAN: MAY HOLD SOME SYNTHETIC CREDIT POSITIONS LONG TERM - "Level 3 CDS FTW"
• "As of March 31, 2012, the value of CIO's total AFS securities portfolio exceeded its cost by approximately $8 billion"

As a reminder, the CIO unit is where Bruno Iksil was making $200 billion-sized bets. Basically JPM has suffered massive losses at its CIO group most likely due to its IG/HY positions held by Iksil.

Here I issue an old school challenge to Goldman Sachs, both the Morgans, and the tabloidal MSM in regards to the Facebook IPO and simple fundamental valuation!!! Have at Thee!

• Greek pro-bailout parties lack majority, final poll results (Reuters)
• Greek Election Gridlock Raises Risk for Bailout, Euro Future (Bloomberg)
• Socialist Hollande ousts Sarkozy as French leader (Reuters)
• Merkozy End Means Franco-German Gulf; Greek Voters Rebel (Bloomberg)
• Election swing leaves Greece teetering (Kathimerini)
• Merkel's Coalition Appears to Suffer Loss in German State (WSJ)
• The Only Solution to the Eurozone Crisis (FT)
• Cameron Faces Clamour From Party Right (FT)
• Falcone’s LightSquared Said to Get Week Credit Extension (Bloomberg)
• Hungary plans three-year, 15 billion euro IMF deal: state sec (Reuters)
• Putin pledges unity on return to Kremlin (Reuters)

Europe is about to begin its "Audacity of Hope" moment.  I'm not sure how markets will react on Monday to the various results.  My best guess is that after an initial sell-off we see a rebound.  European politicians will start to say the "right" things about working with the new governments.  "Growth" will be the most commonly used word.  Equities “LOVE” growth. If there is one thing equity markets love, it is the talk of growth, stimulus, of more money being spent. .. Why is everyone so willing to believe Europe can achieve growth?  Let's assume that no one ever tried for growth before (though seriously, most policies implement in past 15 years had growth as at least part of the rationale).  What experience does Hollande have in creating growth?  If growth opportunities are so easy to spot and identity why do we pay 2 and 20 to hedge funds and private equity?... That is the harsh reality.  Identifying opportunities just isn't that easy.  Figuring out what projects will generate returns that pay for themselves is difficult.  A political body with many competing agendas is hardly likely to do better than companies whose whole goal is to find growth opportunities.  Corporations have no shortage of cash right now, they have a shortage of growth ideas. .. "Growth" which is really just code for spending, will be a failure.  The credit markets will see it sooner than equities, but equities will eventually see it too.  Saying you are going to become an actress is really easy.  Moving to L.A. in an effort to become an actress is a bit more difficult but still relatively easy.  Becoming an actress is really hard!  Growth won't buy years.  It might not even buy months. Like so much else through the entire crisis, the markets are willing to suspend their disbelief on the back of attractive headlines.  In the end, the actual plans disappoint.  Not because the politicians aren't good at making plans, but because the original announcements never had a chance of being implement and the suspension of disbelief (or critical thinking) was the market's real mistake.

Arguably, more millionaire money was made during the Great Depression than at any time in history. Well, if that's true then it looks as if history may be poised to repeat itself. The question is, who will be ready?

While much of the panel's discussion is the somewhat typical growth, recovery, global diversification mantra of a homogenized investment community, The Milken Institute's 'Reading The Tea-Leaves' panel was dominated by some deeper thoughts from John Rutledge of Safanad SA. John sees the world not as a series of equilibria like any and every mainstream economist but the exact opposite with earthquakes and tsunamis capable of occurring at any time. In three-and-a-half minutes, Rutledge analogizes investing today as "living on the crust of a molten marshmallow" and notes that 'investing' to him now is "trying to figure out situations in which some stupid policy has created a big wedge between returns on different assets that causes people to redeploy capital" and that is what moves prices. Claiming that the two most destructive inventions of the twentieth century were Modern Macroeconomics and Modern Portfolio Theory (which have caused more loss of wealth than anything else he knows), the optimistic father-of-six goes on to discuss the three storm systems that must be navigated in the world currently: 1) Europe; 2) China's growth; 3) the extraordinary growth of Central Bank balance sheets. He concludes with some insights into why not to own bonds and what bonds say about scarcity of future cash-flows, and sees the greatest risk today is that "investors are mentally unprepared for the world we invest in"

• Europe focus of global May Day labour protests (BBC)
• Occupy movement's May Day turnout seen as test for its future (Reuters)
• BofA to Cut From Elite Ranks, will fire 2000 (WSJ)
• Man Group Has $1 Billion Outflows; Shares Slide on Cash Concern (Bloomberg)
• Obama Fails to Stem Middle-Class Slide He Blamed on Bush (Bloomberg)
• Berlin insists on eurozone austerity (FT)
• This must be really good for AMZN's 1.5% operating profit margins: Microsoft muscles in on ebooks (FT)
• Ohio Union Fight Shakes Up Race (WSJ)
• How to Lose $7.8 Billion and Still Be Top of the Rich List (WSJ)
• Hollande Seen Bowing to Debt Crisis in Socialists’ Balancing Act (Bloomberg)
• BP profit falls as Gulf spill costs still weigh (Reuters)

• Only the cattle cars are missing: Greece opens detention camp for immigrants as election looms (Reuters)
• China really wants that Iran oil - China mulls guarantees for ships carrying Iran oil (Reuters)
• U.S. eyes testy China talks, Chen backer expects Chinese decision (Reuters, FT)
• Possible arsenic poisoning probed in death of coroner's official (LA Times)
• Europe’s Anti-Austerity Calls Mount as Elections Near (Bloomberg)
• Law firm Dewey dumps executive; talks with rival end (Reuters)
• Greek bank appeals for fresh equity (FT)
• Banks seek to put pressure on small rivals (FT)
• Obama falls short of meteoric expectations abroad (Reuters)

• Fed Holds Rates Steady, But Outlooks Shift (Hilsenrath)
• Has Obama Stacked the Fed? Not Really (Hilsenrath)
• High Court Skeptical of Obama’s Use of Power as Campaign Starts (Bloomberg)
• Europe Seen Adding Growth Terms to Budget Rules as Focus Shifts (Bloomberg)
• China Reaches Out to Its Adversaries Over Rare Earths (WSJ)
• Iran Says It May Halt Nuclear Program Over Sanctions (Bloomberg)
• Europe Shifts Crisis Focus to Growth as Merkel Backs Draghi Call (Bloomberg)
• Merkel Wants Rules for Raw Material Derivative Trade (Reuters)
• Evercore Profit Falls 62% as Investment Banking Expenses Rise (Bloomberg)

• Merkel Pushes Back Against Hollande Call to End Austerity Drive (Bloomberg)
• ECB's Draghi throws crisis ball back to governments (Reuters)
• Greek Bank Chief Warns of a Possible Euro Exit (WSJ)
• China’s Wen Says Economy Will Maintain Robust Expansion (Bloomberg)
• North Korea's nuclear test ready "soon" (Reuters)
• Hong Kong Peg Architect Says Convertible Yuan `Long Way Off’ (Bloomberg)
• Hollande seeks wider EU fiscal pact (FT)
• Gavyn Davies: Why UK GDP continues to lag the G7 (FT)
• U.S. Lost AAA on Danger of Liquidity Crisis, S&P’s Kraemer Says (Bloomberg)

Are y'all ready to dump your hard earned recession cash into that heavily Goldman recommended, high growth social networking stock? Can't 'ya just taste those IPO profits, pre-Euro bubble burst???

• China’s Biggest Banks Are Squeezed for Capital (NYT)
• Greeks detect hypocrisy as Dutch coalition stumbles (Reuters)
• Hollande Blames Europe’s Austerity Plan for Le Pen’s Rise (Bloomberg)
• In a Change, Mexico Reins In Its Oil Monopoly (NYT)
• China Tire Demand Slows as Economy Decelerates, Bridgestone Says (Bloomberg)
• Social Security’s financial forecast gets darker; Medicare’s outlook unchanged (WaPo)
• Fed’s 17 Rate Forecasts May Confuse More Than Clarify (Bloomberg)
• Senate to vote on array of Postal Service overhaul proposals (WaPo)
• Weidmann Says Bundesbank Is Preserving Euro Stability (Bloomberg)

Aubrey McClendon is no amateur when it comes to shady personal transactions involving his company, nat gas giant Chesapeake: Back in October 2008, just after the financial crisis erupted, he was forced to sell more than 31 million Chesapeake shares for $569 million to cover margin calls generated from buying CHK stock just prior on margin. The company’s stock fell nearly 40 percent the week of McClendon’s share sales. McClendon issued an apology but the company’s credibility with many shareholders suffered significantly. It looks lie the story is repeating itself, only this time the margined security is not company stock, but company loans. As Reuters reports in a must read special report "Since he co-founded Chesapeake in 1989, McClendon has frequently borrowed money on a smaller scale by pledging his share of company wells as collateral. Records filed in Oklahoma in 1992 show a $2.9 million loan taken out by Chesapeake Investments, a company that McClendon runs. And in a statement, Chesapeake said McClendon’s securing of  such loans has been “commonplace” during the past 20 years. But in the last three years, the terms and size of the loans have changed  substantially. During that period, he has borrowed as much as $1.1 billion – an amount that coincidentally matches Forbes magazine’s estimate of McClendon’s net worth." Ah yes, net worth calculations, which always focus on the assets, but endlessly ignore the liabilities (as Donald Trump will be first to admit). But ignore that: what is more notable here is the circuitous way that McClendon basically lifted himself by his, or rather CHK's bootstraps: all the loans are collateralized by his 2.5% working interest in new CHK wells drilled every year. In essence a roundabout way of generating "cash" by hypothecation, and levering into an "upside" corporate case. Should CHK however incur asset impairments, and/or if the current price of gas stays at or $2.00, then not only will CHK be gutted but so will the asset quality securing the private loans to the CEO, which on top of everything have no covenants ("There are no covenants or obligations in my loan documents or mortgages that bind Chesapeake in any way," McClendon wrote in an email to Reuters.) and thus no stakeholder protections. Is it any wonder then that CHK is getting creamed as of right now as investors are once again reminded that CHK may not quite play by the rules?