(from Markit)
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Friday, January 30, 2009
Streamlining Update: Another 2,110 at Caterpillar Shown The Door
Let's say you work at Caterpillar and survived the Jan. 26 pinkslipapalooza in which 5,000 got canned... You party, spend a boatload to still have a job, maybe even hit up the Peoria gentleman's establishments... then - ooops, company announces "we were just getting started." Today CAT announced it kinda missed 2,110 people it had planned on sacking but somehow their pink slips got lost in the outbox. This time the layoffs are at the company's Aurora, Decatur and East Peoria facilties. At this rate we assume the next round of pink slips should come in at about 3 days.
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Another Major Leg Down In Real Estate Coming Up?
Thanks to FT Alphaville for catching these bad boy charts. The article discusses the formation of serial bubbles in housing and equities in most countries except in Japan, where the bubbles were synchronized. And based on a historical ratio of house prices to stock market levels, either real estate still has a long way to drop or markets are due for a significant rally; as to which is more likely, reference any day's headlines.
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Early Jan 30 Headlines
- GDP: Q4 annualized report out at 8:30 am: Consensus at -5.5%, Actual at -3.8%: someone forget to carry the 1? Anyone know what if any seasonal adjustments go on here?
- Much more on Fortress (Bloomberg)
- Barclays says 40% of Japan's investors see risk of US Default (Bloomberg)
- Are Wall Street bonuses about to go extinct (Bloomberg)
- Russia budget deficit may drain stabilization fund (Moscow Times)
- Ireland outlook cut to negative by Moody's, CDS becomes most expensive in eurozone at 263(Bloomberg here and here)
- Strikes spread across UK (Guardian)
- Station Casinos nears bankruptcy (Bloomberg)
- Mary Schapiro to receive up to $25 million in benefits after leaving FINRA (NY Post)
- Weill ends Citi consulting job, gives up millions (Bloomberg)
- More on Istithmar's amusing attempt to sell Barney's at 2x fair value (NY Post)
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Thursday, January 29, 2009
Late Thursday Headlines
- Obama calls bonuses shameful, Dodd to seek legal recourse (Bloomberg)
- Bloomberg to cut $1 billion worth of services to reduce budget (CBS)
- Blagojevich removed from office (WSJ)
- IMF considering issuing bonds raise money (WSJ)
- Obama to wait and see on TARP 2 effectiveness before pursuing "aggregator bank" concept (Bloomberg)
- Chinese premier defends currency policy (FT)
- Ruble keeps on plummeting as bank does not get involved (Moscow Times)
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Is Fortress Investment Group On The Edge Of Insolvency?
How the mighty have fallen. According to Bloomberg, Fortress (ticker: FIG), which was the first hedge fund to IPO in the heydays of the credit bubble in the summer of 2007 is trying to raise $80 million to fund margin calls associated with its investment in Gagfah, a German residential property operator, as well as two other real estate investment funds, Eurocastle and Nationstar. Allegedly the margin calls have occurred at the Fortress Investment Fund III, a $2 billion real estate pool raised in 2004, however as Fortress (whose shares last traded at $1.34/share or a 93% drop from its IPO) has already called all the capital from Fund III, according to Bloomberg, it is likely that there is essentially no cash left anywhere in the organization for intercompany transfers.
Oregon Investment Council, which manages $60 billion, and already has a sizable stake with the manager, is considering whether or not to bail the firm out and on what terms. According to Fortress "$80 million will allow the fund to hold investments until prices rebound, potentially yielding a three to five times return on the new capital invested." Judging by how the CMBS market is acting these days, a promise of a "five times return" on any real estate fund, is definitely fit for a stand up comedy routine on late night TV. Sphere: Related Content
Oregon Investment Council, which manages $60 billion, and already has a sizable stake with the manager, is considering whether or not to bail the firm out and on what terms. According to Fortress "$80 million will allow the fund to hold investments until prices rebound, potentially yielding a three to five times return on the new capital invested." Judging by how the CMBS market is acting these days, a promise of a "five times return" on any real estate fund, is definitely fit for a stand up comedy routine on late night TV. Sphere: Related Content
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Goldman Prices $2 Billion 10 Year Notes Without FDIC Backing
In what many expected to be a test of whether financial companies can raise capital without the implicit guarantee of the government, Goldman managed to price $2 billion of non-FDIC insured notes at 500 bps over comparable treasuries. In absolute terms, the notes priced with a 7.5% coupon to yield 7.779%. While the rate is high, the fact that it could even price is notable as all capital raises by financial institutions in recent months were backed by the full faith of the Federal Reserve's printing presses. The pricing is even more remarkable as today GS stock is down a little over 5%.
Indicatively, GS 5-year CDS last traded around 275, after hitting an all time high of 620 the day after Lehman filed Chapter 11. Sphere: Related Content
Indicatively, GS 5-year CDS last traded around 275, after hitting an all time high of 620 the day after Lehman filed Chapter 11. Sphere: Related Content
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Intelsat New Bond Issue Faring Very Well In Weak Credit Market
Intelsat came to market in a Goldman Sachs syndicated bond offering for $400 million of 8.875% Senior Notes due 1/2015. The B3/BB- issue for reference entity Intelsat Subsidiary Holding Company, had been upsized from $200 million, and was snapped up due to its original issue discount, pricing at 88.5% for an 11.6% yield. The proceeds will be used to pay down existing debt. The bonds subsequently rose to around 92 despite a declining HY market, with the HY11 index dropping 2 points to 74.5.
This is yet another datapoint that the HY primary market is alive and well as PMs are sitting on piles of cash which they are willing to invest in reasonably risky names.
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Why Gasparino Is the True Heart and Soul of CNBC
Earlier today Charlie got into a heated discussion over bonuses and after blowing his lid threw a nice juicy F-bomb in prime time TV to accentuate his point. For those who missed the amusing exchange, check this Clusterstock link. Next up, MC Cabrera wardrobe malfunction? We recommend a CNBC 15 second delay.
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Treasury Update: 30-Year Massacre V2
30 Year down 200bps to 117.25, for 3.52%. TBT longs happy again
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Private Jet Maker Textron Down 30% on Horrendous Results and Outlook
Textron, the owner of business jet maker Cessna, posted atrocious results early today. Stock was down 30% at last check... This is unfortunately in line with our expectations that nothing good awaits the private jet maker and its peers.
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What Is Perella Weinberg's Compensation Structure?
As Dealbook reported previously, Perella Weinberg, the advisory/investing company headed by former Morgan Stanley Chairman of Investment Banking Joe Perella, has been retained by the FDIC to "advise on transactions and strategies to stabilize the banking system, and also on the proper way to dispose failed institutions and how to handle delinquent securities assumed from banks, as well as the creation of the aggregator bank." As these are essentially the core components of whatever the ultimate strategy to extricate us of the current (mini) depression, it seems that U.S. taxpayers need to be kept in the loop on this one a little more actively. Jason Cave, senior advisor to FDIC Chairwoman Sheila Bair said Perella would "bring a different perspective, to make sure our process is fully informed, that we've considered all possibilities."We agree that the wealthiest Italian American has experience working with toxic assets, as he advised on the Bank of America takeover of MBNA and is likely quite familiar with the acquiring company, which as we all know, is currently in a world of toxic pain.
But back to the disclosure issue - as Perella Weinberg will be paid to essentially shut down banks and other institutions, and thereby lead to even more job losses, it only makes sense to fully disclose the firm's compensation structure to make sure that its interests are not 180 degrees misaligned with those of the people who are potentially about to be sacked by Mr. Perella. Furthermore, Mr. Perella is the proud owner of Xerion Capital, a distressed billion dollar hedge fund, which he acquired a little over a year ago. While we have no doubt there are some substantial Chinese walls in place at the company's HQ at 767 Fifth Avenue, it might make sense to disclose what all the holdings of this hedge fund are, to avoid "conflicts of interest."
Jason Cave has denied to disclose Perella's compensation structure. We suggest the FDIC follow in Tim Geithner's steps from last night, and start providing long overdue transparency to the process of "bailing out" the U.S.
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Bill Gross Saying U.S. Should Buy Cheap Assets, Maybe Even PIMCO Bonds
Bill Gross, manager of PIMCO, the largest bond fund in the U.S., issued his February investment outlook today. His main argument is the following "To PIMCO, the remedy for this deflationary deleveraging and mini-depression is simple and almost axiomatic: stop the decline in asset prices." (ed. "mini" depression? Looks like Bill won't go full Rosenberg on this one). Without saying anything new, Gross is advising the Treasury, Central Bank, i.e. the U.S. taxpayers, to buy cheap assets (presumably ones in which Bill is axed himself). Not surprisingly, PIMCO was one of 4 funds picked in December to purchase mortgage-backed securities, and one of the managers selected to run the CP funding facility, and of course, was a top contender to purchase toxic debt under TARP before Hank Paulson scrapped that idea. In the spirit of increasing transparency, it is interesting just how much of these securities Bill has purchased ahead of time for his own book?But we digress. Bill concludes "PIMCO’s advice to policymakers is as follows: you can’t bail out everyone, yet economic recovery is not possible unless certain critical asset sectors are not only reliquefied, but rejuvenated in price. Capitalism at its philosophical and practical center depends on credit, and while new loans can be and are being advanced via the banking system, it’s a much more difficult task to force shadow banks to lend. That lending depends on securitization which in turn depends on stable and eventually higher asset prices than currently exist."
Ok, we get it and we like it, but as hard as we try, we can't help being cynical in asking just how much of a benefit for his investors (and himself personally) would Bill reap as the U.S. uses taxpayer money to purchases these "cheap" security classes.
The full letter is here. Sphere: Related Content
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Breaking News: SVPs and MDs at UBS To Get No Bonuses
CNBC just broke the news that Senior VPs and Managing Directors will get no bonuses this year, and next year the bulk of bonuses will be in stock. Lastly, there will be a bonus clawback provision: If UBS has a loss over a three year period, no bonuses at all will be paid.
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Artridis On A Cool-Sounding Roll
When we inducted Artridis Barracuda in our "coolest name of all time" hall of fame, we had no clue just what a powerhouse this fund is. Turns out the intellectual capital behind the company, in addition to coming up with insanely cool sounding names, also knows how to turn a profit. Artridis, which is Singapore's biggest hedge fund firm, apparently has $4.5 billion in AUM, manages the $2.4 billion Artridis AB2 Fund managed by Stephen Diggle and Richard Magides, and the $1.8 billion Barracuda. The two funds returned 35% and 27%, respectively. The fund's strategy apparently is volatility, which the managers capture via options, warrants and converts.We are disappointed to hear that names of some of the other funds are rather pedestrian, with examples such as Nada Market Neutral Fund and the Asian Convertible Bond Fund... Definitely not as exciting as, say, Scoop Management. Nonetheless, we wish barracuda lots of success in capturing volatility for years to come. Sphere: Related Content
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New Issuance Negative Basis Trades at All Time Wides
In another take on the previously discussed basis trade topic, a curious statistic that few have paid attention to is the significant premia new issues have offered to existing comparable CDS spreads on the same issuer. The definition of the new issue premium is the spread of the new issue versus the matched maturity CDS spread. Whether it is a function of the basis spread aberrations in the secondary market, or just a method to incite existing CDS holders, or any other potential purchasers to purchase new issues (with a free hedge) is not sure, but seems to be the norm over the past several months.
Empirically, new issue premia have increased over the past 6 months, and even as spreads have tightened overall, some of the most recent market new comes have come at record wides to their corporate CDS: John Deere priced 333 bps wide to its comparable CDS on January 19, and Casino Guichard priced 326 bps wide on January 22.
As Felix Salmon of Portfolio.com, pointed out it might make sense to entice the government to purchase these kinds of low- to mid-grade securities and not only in the secondary market via negative basis trades but in the primary market itself, especially as they can be completely hedged thru maturity, and on top of that make regulators happy by purchasing a non-naked CDS-cash bond pair trade.
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December New Home Sales Insanely Low: 331,000 Annualized
"New home sales drop to lowest level on record", down 14.7% from 388,000 in November (revised)
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Who Says Nobody is Issuing Debt
A statistic that may surprise some, is that January 2009 has seen a record amount of new Investment Grade issues: $104 billion so far. This easily surpasses the 2008 total of $83 billion. Granted, of this tally $61 billion is FDIC-guaranteed paper, but the $43 billion non-financial balance is still much higher than the $28 billion comparable in 2008 and $11 billion in 2007. Even more surprising is that 56% of new issues were BBB rated, up from 25% in December. This is summarized below:
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And while the high yield market is not quite as active as the HG market, it is starting to ramp up. So far in January (and this excludes yesterday's $700 million in deals from Chesapeake (BB) and Inergy(B+)), there has been $4 billion issued in 6 deals. This compares to one deal in October (MGM), none in November and two in December (KSU and EP). New issue prices continue to reflect distressed levels, with new issuance spreads over 1,000 bps, and coupons in 8-9% range.
One other statistic: all bonds issued in the past 4 months were issued at a discount to par, with January discounts varying from 7-11 pts, pushing yields 200bps from par levels to an average of 11.8%.
As for secondary market levels: the HY BB index is averaging about 13.3% yield, while single Bs are at 16.7%.
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Early Jan 29 Headlines
- Economy on the brink: durable goods orders plummet, unemployment benefits hit record high (Bloomberg here and here)
- Citi follows in Merrill footsteps, cancels boondoggles, cuts down on trips (NY Post)
- Ford burns $5.5 billion in cash, changes tune, might need bail out after all (Bloomberg)
- Sexual harassment cases at Lazard likely about to surge (NY Post)
- Why is the chairman of an agriculture committee allowed to propose how to regulate CDS market? (Bloomberg)
- Fortune Brands sees less golfers, Moen buyers, whacks 2009 guidance to $2.00-$2.50, consensus $3.54, stock pummeled (PR)
- And a little more on the upcoming death of all things private equity (FT Alphaville)
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