The Fed’s serial bubble machine has not only bestowed massive speculative windfalls on the 1%, but it has also fostered a noxious culture of plunder and entitlement in the gambling casinos of Wall Street. After each thundering sell-off during the bust phase, crony capitalist gamblers have been gifted with ill-gotten windfalls during the Fed’s subsequent maniacal money printing spree. In this context comes Bruce Berkowitz “scolding” and firing “salvos” at Washington from the front page of the Wall Street Journal.
Tesla has just announced it intends to issue a $1.6 billion convertible note offering "for the development of a "Gigafactory" and a "Gen III" vehicle." While not that unusual - and of course, why not take advantage of low cost financing and a surging momentum in your stock - what we did find at least intriguing was the underwriters included Morgan Stanley. This is the same firm (though we would be very sure that Chinese walls ensured total lack of knowledge) that doubled their price target (from $153 to $320) for TSLA yesterday (following the analyst's now almost clairvoyant questions during the earnings conference call). Paging Henry Blodgett?
If our inner self, our essence, is not centered and at peace, at best we will be ineffective and at worst just a miserable person.
"As we and others have said, the Fed is overly reliant upon models that do not account for real-world elements of instruments, markets and traders in the derivatives age. Models cannot possibly take into account unpredictable interactions among huge positions and traders in new and very complicated instruments. Thus, the Fed should be careful, humble and conservative. Instead, it is just blithely plowing ahead as if it knows exactly what is going on. Intelligent captains sail uncharted waters with extra caution and high alert; only fools think that each mile they sail without sinking the vessel further demonstrates that they are wise and the naysayers were fools. This is a formula for destruction. The crash of 2008 should have been smoking-gun evidence of the folly of this approach, but every mistake leading up to the crash, especially excessive and “invisible” leverage and interest rates that were too low, has been doubled down upon in the years since."
Alan Greenspan's Modest Proposal: Fix Broken Economic Models By... Modeling Irrational "Animal Spirits"Submitted by Tyler Durden on 01/02/2014 15:26 -0400
We leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, but we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words. On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists." On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past." So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.
Analyst expectations for top line growth in the back half of 2013 continue to fade, and worries over a looming “Revenue recession” grow commensurately. As ConvergEx's Nick Colas notes, the first quarter of 2013 posted an average negative 0.6% revenue comparison for the 30 companies of the Dow Jones Industrial Average, and Q2 (with a few companies left to report) looks to be +0.3%. But back out the financials, and he points out that the number goes negative to the tune of (0.3%). Analysts are still chopping away at their back half expectations, now down to 1.9% for Q3 and 2.1% for Q4 2013. Those are down from 4-5% expected comps back in March, so the trend is still clearly not our friend. As we have pointed out previously, equity markets have been powered by multiple expansion year-to-date, but, as Colas asks (rhetorically) do you really want to pay up at this point in the business cycle for still declining expectations?
- Vocal billionaire activist IRR - 150x: Icahn bought $1 billion of AAPL stock, seeks $150 billion buyback (BBG)
- BlackBerry Said to Have Sought Buyers Since 2012 (BBG) - for a phone or the entire company?
- IPhone Fingerprint Reader Talk Boosting Biometric Stocks (BBG) - also, the NSA will need to grow its Utah data center
- UPS Jet Crashes in Birmingham, Ala. (WSJ)
- America's Farm-Labor Pool Is Graying (WSJ)
- Hong Kong Lowers Storm Signal as Typhoon Closes on China (BBG)
- Indian submarine explodes in Mumbai port (FT)
- BofA Banker Sued by Regulator Later Joined Fannie Mae (BBG)
- Software that hijacks visits to YouTube uncovered (FT)
- Chinese Billionaire Huang Readies Iceland Bid on Power Shift (BBG)
- China to launch fresh pharmaceutical bribery probe (Reuters)
- Defeat at J.C. Penney Hurts Ackman as Performance Trails (BBG)
That concept of the Chinese Dream "came just in time" and will "benefit the world"
Does it really make any sense at all that Bernanke would leave gold to trade in an open and transparent market? Hardly. Consider. The Fed has conjured multiple trillions of digital dollars out thin air in the last five years. These efforts have propped up the Treasury market, the domestic TBTF banks, the foreign TBTF banks, the ECB, the BOE, every European sovereign bond market, the RMBS market, the CMBS market, the equity market, the housing market and the entire industrial and soft commodity complexes, to name a few. Since the price of gold we see on our Bloomberg screens is set via derivatives and overwhelmingly settled in USD, the ability for central banks and bullion banks to manipulate the price of gold is way too easy. All the bullion banks have to do is coordinate (as in LIBOR), sell in size and punish anyone in their way. Take losses? No problem, more fiat can be conjured post-haste. So long as no one is taking physical delivery, the band(k) plays on. (Actually, physical demand delivery IS becoming a major new problem for the banks but this is a topic for a different note.) A quickly rising gold price upsets this fiat-engineered, centrally planned, non-market based recovery. Gold left to its’ own devices would signal the unwinding the rehypothecated world of shadow banking where latent monetary inflation goes to summer (think of it as the monetary Hamptons where only the Wall Street elite get to play). Most importantly, it would signal a huge lack of faith in the US dollar. A currency backed by nothing more than faith in central banking.
- As scandals mount, White House springs into damage control (Reuters)
- Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
- JPMorgan Chase asks Bloomberg for data records (Telegraph)
- Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
- Syrian Internet service comes back online (PCWorld)
- Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
- Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
- Factory Ceiling Collapses in Cambodia (WSJ)
- Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
- Snags await favourite for Federal Reserve job (FT)
- James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)
Third Point Q1 Holdings Update: Reduces YHOO, AIG Stakes, Adds New Stakes In Virgin Media, Tiffany And B/E AerospaceSubmitted by Tyler Durden on 05/15/2013 17:05 -0400
With Paulson's star long gone down, there are few remaining "new generation" hedge fund wunderkinds, especially in a world in which the best performing hedge fund is Federal Reserve Capital LLC - Onshore Fund. One among them is Third Point's Dan Loeb, who continues to be one of the best performing hedge fund managers for the 4th year in a row. He just filed his Q1 13F, amounting to $5.3 billion in disclosed long equity positions, which are summarized below. Of note are the following changes:
- New stakes in Virgin Media ($538MM), Tiffany ($188MM), Anadarko ($105MM), Thermo Fisher ($99MM), Cabot Oil and Gas ($84MM), Hess ($72MM) and others. Some of these overlap with the initiations of David Tepper and David Einhorn especially Hess: did some "idea dinners" take place in Q1 we were not aware of?
- Fully exited stakes in Tesoro, Morgan Stanley, Nexen, Symantec, Herbalife, Illumina, Coke, PVH, Abbott Labs and others.
- Reduced positions in Yahoo, AIG, New Corp, Murphy Oil, Delphi, Lyondell and others
- Added to stakes in International Paper, Abbvie, Dollar General, Constellation, and Ariad
- Pope steps down, citing frailty (Reuters)
- Japan’s economic minister wants Nikkei to surge 17% to 13,000 by March (Japan Times)
- Venezuelan devaluation sparks panic (FT)
- Rajoy releases tax returns, but fails to clear up doubts over Aznar years (El Pais)
- Companies Fret Over Uncertain Outlook (WSJ)
- Home Depot Dumps BlackBerry for iPhone (ATD)
- Kuroda favors Abe's inflation target, mum about BOJ role (Kyodo)
- A Cliff Congress May Go Over (WSJ)
- U.S., Europe Seek to Cool Currency Jitters (WSJ)
- Radical rescue proposed for Cyprus (FT)
- Franc Is Still Overvalued, SNB’s Zurbruegg Tells Aargauer (BBG)
- Northeast Crawls Back to Life After Crippling Blizzard (WSJ)
“Here we go again”
US Tries To Wrest Control Of Hostess Liquidation As Management Seeks To Pay $1.75 Million In "Incentive" BonusesSubmitted by Tyler Durden on 11/19/2012 18:07 -0400
The Hostess bankruptcy liquidation, the result of a bungled negotiation between the company, its equity sponsors, its striking workers, and the labor union, over what has been defined as unsustainable benefits and pension benefits, is rapidly becoming a Ding Ding farce. The latest news in what promises to be an epic Chapter 22 fight is that the judge, pressured by various impaired stakeholders, among which none other than the US trustee, is that the bankruptcy Judge Robert Drain has ordered the company and its unions to seek private mediation to attempt averting what the company has already said is an inevitable unwind of operations. More to the point, and as we predicted on Friday, if there is an outright purchase of the company, it will be a standalone entity, without its unions: Hostess will draw strategic buyers and private-equity investors for its brands, Rayburn said, without naming potential bidders. The company is “more attractive” to buyers without the unions, he said. In other words, if the Union had hoped that their workers would be retained by the purchasing entity, their dreams just got shattered. But while the Union may be sad, it is about to add another emotion to its arsenal: blind fury. Because it is here that things get truly surreal. As the US Trustee, a Justice Department official responsible for protecting creditors, disclosed, as part of the winddown of Hostess, wants to pay as much as $1.75 million in incentive bonuses to 19 senior managers during the liquidation.
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.