Goldman Sachs

Dell Supposedly In LBO Talks, Stock Soars

Moments ago Bloomberg broke news that $19 billion market cap Dell may be in talks to go public. The result was a 10% surge in the stock that halted the stock as a circuit was triggered. Of course, there was a headline caveat that "LBO TALKS MAY NOT LEAD TO A DEAL." Which is not improbable: at $19 billion market cap, the equity check would be substantial for any consortium of buyers, not to mention the debt. Then again this must be the New Normal LBO announcement, where PE firms "leak" news of a going private deal just so they get to pay an even higher 20% premium to a closing stock price.  But the truly hilarious part is that the entire multi-trillion market jumped as if stung following the news. And that is what passes for efficient markets these days. Unless, of course, the "here come the LBOs" thesis is now in play.

Frontrunning: January 14

  • Guess who doesn't believe in the "great rotation out of bonds and into stocks": Abe Aids Bernanke as Japan Seen Buying Foreign Debt (BBG)
  • AIG Sues Federal Reserve Vehicle in Dispute Over Lawsuit Rights (WSJ)
  • JPMorgan Said to Weigh Disclosing Whale Report Faulting Dimon (BBG)
  • Ugly Choices Loom Over Debt Clash (WSJ)
  • Credit Suisse to cut bonus pool by 20 percent (Reuters)
  • Brazilian Bikini Waxes Make Crab Lice Endangered Species (BBG)
  • EU redrafts plan for bank rescue funding (FT)
  • JCPenney stock plunges after bad holiday (NY Post)
  • Regulator Comments Buoy Shanghai Stocks (WSJ)
  • Japan voters back PM Abe's efforts to spur growth, beat deflation (Reuters)
  • Cameron averts row over Europe speech (FT)
  • Swatch Buys Harry Winston Jewelry Brand for $1 Billion (BBG)

Even Goldman Says China Is Cooking The Books

That China openly manipulates its economic data, especially around key political phase shifts, such as one communist regime taking over for another, is no secret. That China is also the marginal economic power (creating trillions in new loans and deposits each year) in a stagflating world, and as such must be represented by the media as growing at key inflection points (such as Q4 when Europe officially entered a double dip recession, and the US will report its first sub 1% GDP in years) as mysteriously reporting growth even without open monetary stimulus (something we have said the PBOC will not engage in due to fears of importing US, European and now Japanese inflation) is critical for preserving hope and faith in the future of the stock market, is also very well known. Which is why recent market optimism driven by "hope" from Alcoa that China is recovering and will avoid yet another hard landing, and Chinese reports of a surge in Exports last week, are very much suspect. But no longer is it just the blogosphere that is openly taking Chinese data to task - as Bloomberg reports, even the major banks: Goldman, UBS and ANZ - are now openly questioning the validity and credibility of the goalseek function resulting from C:\China\central_planning\economic_model.xls.

FleeceBook: Meet JP Morgan's Matt Zames

Previously, in our first two editions of FleeceBook, we focused on "public servants" working for either the Bank of International Settlements, or the Bank of England (doing all they can to generate returns for private shareholders, especially those of financial firms). Today, for a change, we shift to the private sector, and specifically a bank situated at the nexus of public and private finance: JP Morgan, which courtesy of its monopolist position at the apex of the Shadow Banking's critical Tri-Party Repo system (consisting of The New York Fed, The Bank of New York, and JP Morgan, of course) has an unparalleled reach (and domination - much to Lehman Brother's humiliation) into not only traditional bank funding conduits, but "shadow" as well. And of all this bank's employees, by far the most interesting, unassuming and "underappreciated" is neither its CEO Jamie Dimon, nor the head of JPM's global commodities group (and individual responsible for conceiving of the Credit Default Swap product) Blythe Masters, but one Matt Zames.

US Q4 GDP: From 2.5% To Sub 1% in Under Six Months

Look forward to hope being forced to surge even more to offset for this cut by nearly 50% ot the consensus Q4 GDP estimate of 1.5% prior to today. And while we wait for Bloomberg to compile today's massive downward revision to economic growth, this is how Q4 GDP tracking estimates looked like in the past 6 months before today's downward revision which will take the consensus line to 1% or under.

A Record $220 Billion "Deposit" Injection To Kick Start To The 2013 Market

When people talk about "cash in the bank", or "money on the sidelines", the conventional wisdom reverts to an image of inert capital, used by banks to fund loans (as has been the case under fractional reserve banking since time immemorial) sitting in a bank vault or numbered account either physically or electronically, and collecting interest, well, collecting interest in the Old Normal (not the New ZIRPy one, where instead of discussing why it is not collecting interest the progressive intelligentsia would rather debate such trolling idiocies as trillion dollar coins, quadrillion euro Swiss cheeses, and quintillion yen tuna). There is one problem, however, with this conventional wisdom: it is dead wrong.  Tracking deposit flow data is so critical, as it provides hints of major inflection points, such as when there is a massive build up of deposits via reserves (either real, from saving clients, or synthetic, via the reserve pathway) which can then be used as investments in the market. And of all major inflection points, perhaps none is more critical than the just released data from today's H.6 statement, which showed that in the trailing 4 week period ended December 31, a record $220 billion was put into savings accounts (obviously a blatant misnomer in a time when there is no interest available on any savings). This is the biggest 4-week total amount injected into US savings accounts ever, greater than in the aftermath of Lehman, greater than during the first debt ceiling crisis, greater than any other time in US history.

2013 - Macro Deja Deja Vu

Ever feel like we have been here before? Overwhelmed by the chatter that this time is different and the 'recovery' is self-sustaining? Join the crowd (and Goldman). Their MAP indicator - which tracks both absolute (up/down) and relative (beat/miss) moves in macro-economic data - is once again at a level that in the last two years has perfectly marked the tipping point in expectations and absolute macro performance. While the markets (in their infinite wisdom) appear convinced - just as they were in 2007 - perhaps 4 weeks in a row of weakening claims and a gross downward revision of Philly Fed is a glimpse that it really is no different this time.

Frontrunning: January 9

  • A Bold Dissenter at the Fed, Hoping His Doubts Are Wrong (NYT)
  • China and Japan step up drone race as tension builds over disputed islands (Guardian)
  • How Mario Draghi is reshaping Europe's central bank (Reuters)
  • Merkel Economy Shows Neglect as Sick Man Concern Returns (BBG)
  • US oil imports to fall to 25-year low (FT)
  • China Loan Share at Record Low Shows Financing Risks (BBG)
  • Dimon Says Some JPMorgan Execs ‘Acted Like Children’ on Loss (BBG) - children that reveleased who 'excess reserves' are truly used
  • Fed injects new sell-off risk into Treasuries (FT) - really? So the Fed will stop monetizing the US deficit some time soon?
  • Obama aide presses Republicans to accept more tax revenues (Reuters)
  • Ex-SAC analyst named 20 alleged insider traders (FT)
  • BOJ easing bets help dollar regain ground vs yen (Reuters)
  • Goldman Sachs Said to Be Part of Fed-Led Foreclosure Settlement (BBG)
  • Venezuela postpones inauguration for cancer-stricken Chavez (Reuters)

Deja Broke: Presenting The Treasury's Options To Continue Pretending The US Is Solvent

The debt limit was formally reached last week, and we expect the Treasury's ability to borrow to be exhausted by around March 1 (if not before) and while CDS are not flashing red, USA is at near 3-month wides. Like the previous debt limit debate in the summer of 2011, the debate seems likely to be messy, with resolution right around the deadline. That said, like the last debate we would expect the Treasury to prioritize payments if necessary, and Goldman does not believe holders of Treasury securities are at risk of missing interest or principal payments. The debt limit is only one of three upcoming fiscal issues, albeit the most important one. Congress also must address the spending cuts under sequestration, scheduled to take place March 1, and the expiration of temporary spending authority on March 27. While these are technically separate issues, it seems likely that they will be combined, perhaps into one package. This remains a 'very' recurring issue, given our government's spending habits and insistence on its solvency, as we laid out almost two years ago in great detail.

Daily US Opening News And Market Re-Cap: January 8

Equity markets recovered from a lower open following press reports overnight by eKathimerini that the country’s main banks are considering requesting additional funds for their recapitalization and edged higher throughout the session after sources at Hellenic Financial Stability Fund said that there no indications that Greek banks need more recap funds. In addition to that, Xinhua reported that chance of China RRR cut is increasing for January, citing industry insiders for RRR cut forecast. This follows on from the reports in ChinaDaily last week, which suggested that a small interest rate cut at the right time could substantially decrease financing costs and improve expectations for profitability, citing researchers from the China Development Bank, the State Information Center and the Shanghai Securities News who have worked together to forecast key economic indicators and policies in 2013. The risk sentiment was also supported by well subscribed debt auctions from the Netherlands, Austria, Greece and Belgium. As a result, peripheral bond yield spreads are tighter by around 5bps in 10s. Going forward, market participants will get to digest the latest NFIB, IBD/TIPP and Consumer Credit reports. The Fed is due to conduct Treasury op targeting Oct'18-Dec'19 (USD 3.00-3.75bln) and the US Treasury is also set to auction USD 32bln in 3y notes.

X-12 Arima Is Back: A Look At ADP's "Seasonal Adjustment" Protocol

You know it: our old friend the BLS's very own Arima X-12 makes a very unexpected appearance. Why a private entity, the ADP, which has no links to the Bureau of Labor Statistics is using the same adjustment process used by the government agency, to divine its final, seasonally adjusted number, especially when it refuses to disclose its unadjusted data, is anyone's guess. Or is the ADP number now nothing but a reinforcing surrogate to double the credibility of the BLS data, whose credibility in recent months has also hit unseen lows? It certainly would explain the recent revision in ADP methodology, and the fact that administration sycophant, Moody's Mark Zandi is now the "brains" behind this meaningless number (not to mention the resulting humiliation for all those who had though that ADP data, like that from the NAR, is even remotely credible).