Fin/Inv

More taxpayer money well spent. Then again, the Federal Reserve discovering that the nation's balance sheet is the next repository of worthless and unmanageable residential mortgages (gasp) courtesy of the Fed's own actions would have been worth the price of admission.

 

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And I mean it.

Certainly you expected substantially the same thing... no?

Dubai, 30 November 2009: Dubai World (“Dubai World”) and its subsidiaries (the “Group”) would like to update their lenders on recent developments relating to their debt obligations.

Following a detailed review of the Group’s liquidity and capital structure, Dubai World has concluded that it should immediately consider alternatives in respect of the debt obligations of certain entities within the Group.

The proposed restructuring process will only relate to Dubai World and certain of its subsidiaries including; Nakheel World and Limitless World. The process will not include Infinity World Holding, Istithmar World and Ports & Free Zone World (which includes DP World, Economic Zones World, P&O Ferries and Jebel Ali Free Zone), all of which are on a stable financial footing.

The total value of debt carried by the companies subject to the restructuring process amounts to approximately US$26 billion, of which approximately US$6 billion relates to the Nakheel sukuk.

Read it all here.

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The CBO has now given the Senate bill a clean bill of, um, health on both its budget impact and its impact on families.

Hey, Slopers - join me in signing this petition against the so-called "Let Wall Street Pay for the Restoration of Main Street Act of 2009" tax, which will penalize people like you and me simply for the act of trading. The link to the petition is here.

 

Don't say the market is unkind to Goldman. First the firm's employees are about to rake in all time record bonuses. Then, courtesy of of a rocking bear market rally, top-tick Goldman is about to get the hell out of dodge in another GS Capital Partners LBO, Adesa, basically a vehicle auction firm, which the firm bought in conjunction with Kelso in 2006. And who gets to pocket the underwriting fee? Why, Goldman. No way is the squid going to let any capital leave the firm. As for the company: prepare to own a 10x EV/EBITDA Craigslist knock off which will spew $100 million in free cash flow on a good year (and with consumers waiting for Cash for Clunkers 2 thru 100, don't expect a whole lot of car auction activity any time soon).

In an amended S-1 filed earlier, KAR Holdings (the HoldCo for Adesa) disclosed the details of its upcoming IPO. The company, with Goldman as lead left underwriter (and with upcoming Buy recommendations to follow the IPO courtesy of 10 co-managers to secure an even better price for Goldman to dump remaining shares), will sell 23 million shares between $15 and $17/share.

More details from the red's Use of Proceeds:

We intend to use $276.8 million of the net proceeds from this offering to repay and/or repurchase amounts under one or more of our senior subordinated notes, fixed senior notes and floating senior notes, which may include a tender offer for cash or the redemption of notes pursuant to the optional redemption provisions described under “Description of Certain Indebtedness — Senior Notes — Optional Redemption” and “Description of Certain Indebtedness — Senior Subordinated Notes — Optional Redemption.”

We also intend to use $64.1 million of the net proceeds from this offering, together with approximately $200 million of cash on hand, to repay $250 million of outstanding borrowings under our senior secured term loan, which matures on October 19, 2013, pay $3.6 million of senior secured term loan amendment fees and pay $10.5 million of termination fees to our Equity Sponsors in connection with the termination of our financial advisory agreements with each of them. (more cha-ching for Goldman).

The firm reports $383.7 million of LTM EBITDA. Pro Forma debt will be $2 billion and the market cap at the mid point of the offering range will be another $2 billion (based on 130 million shares), for roughly $4 billion in EV. So 10x+ EV/EBITDA for what is a essentially commodity service. Throw in $120 million in CapEx and $150 million in interest expense and you have a barely positive $100 million FCF company, garnering a ludicrous #Ref FCF multiple. Sounds like another brilliant idea out of 85 Broad. The cost: sponsors put in $1.1 billion in a mix of cash and equity, acquiring the company for $2.7 billion. Not a bad return for three years.

Congratulations Goldman on pulling another fast one out of where the sun don't shine. Better hope that IPO window doesn't close again. Oh wait, you are the market - how could we have doubted you.

From CNBC: Dubai World to Restructure About $26 Billion of Debt

Dubai World said it would try to restructure about $26 billion of debt, far less than the nearly $60 billion in total liabilities that the Dubai government's investment arm had as of August.
...
"Creditors need to take part of the responsibility for their decision to lend to the companies," said Abdulrahman al-Saleh, director general of Dubai's Department of Finance.

Hmmm ... that statement could apply to mortgage lenders in the U.S. too.

While everybody is focused on the relatively small issue in Dubai (it's a lot smaller then AIG after all), the Chicago PMI reported a fantastic number at 56.1 today. New orders remained strong and inventories were weak. Strong combination for future growth. The estimates were around 53 with expectations of a drop from 54.2 last month. So the number was up with expectations for a mild drop.The

Ben Bernanke’s confirmation hearing before the Senate Banking Committee for his reappointment as Fed chairman is scheduled for this Thursday.

When CEOs preside over disasters, they are fired. Captains go down with their ships.

And Bernanke needs to be replaced.

He was a major architect of the policies that created the crisis.

He ignored signs of the severity of the developing crisis and failed to prepare for obvious dangers, like the collapse of an investment bank.

He has turned the Fed into an off-balance sheet funding vehicle of the Treasury to circumvent constitutionally-mandated budgetary procedures.

He has fought all efforts to examine the central bank’s conduct in the rescue operation.

Before, during, and after the crisis, he has put the interests of banks ahead of those of ordinary citizens.

He needs to go. Tell your Senator that this vote matters to you and he needs to vote no on Bernanke. Enlist the support of like-minded colleagues and friends to deliver the same message. Keep it simple and to the point. Bernanke has failed at his job. The US public deserves and needs better.

Please sign http://StopBailoutBen.com/

Be certain to concentrate your calls and e-mail messages on the members of the Senate Banking Committee, who are:

Christopher J. Dodd Chairman (D-CT)

Tim Johnson (D-SD)

Jack Reed (D-RI)

Charles E. Schumer (D-NY)

Evan Bayh (D-IN)

Robert Menendez (D-NJ)

Daniel K. Akaka (D-HI)

Sherrod Brown (D-OH)

Jon Tester (D-MT)

Herb Kohl (D-WI)

Mark Warner (D-VA)

Jeff Merkley (D-OR)

Michael Bennet (D-CO)

Richard C. Shelby Ranking Member (R-AL)

Robert F. Bennett (R-UT)

Jim Bunning (R-KY)

Mike Crapo (R-ID)

Bob Corker (R-TN)

Jim DeMint (R-SC)

David Vitter (R-LA)

Mike Johanns (R-NE)

Kay Bailey Hutchison (R-TX)

Judd Gregg (R-NH)

My apologies for being MIA most of this trading session but I have been working. Today’s tape has kept us in the sideways grind we’ve been enduring for weeks now. A hard run up followed by a sell off, followed by sideways action and as I’m typing this the tape is pushing back up again hard. Seems any remaining fear among investors has quickly dissipated - plus poor ole’ bucky just keeps asking for punishment. Time for a wave count:

What’s mostly important about this chart is that we have remained below the lower boundary of that channel going back to early August. Should we drop from here (orange) a lot of support awaits around the 1050 mark. Let’s zoom into this a bit:

Quite frankly - things are a bit messy right now. The best way to count it at this early stage is that we are either in some Frankenstein triangle (greeen) or we are whipsawing around on our way down to shake out the weak hands (orange).

I’m a bit split right now actually. My daily RSI_EMA suggests that we are on our way down and that we should continue until we reach the 20-30 cluster which would also coincide with the SPX 1050 support zone shown above. However, we seem to be consolidating and the dip buyers are already swarming in. NYSE A/D ratio is currently at 0.94, which is mildly bearish and I just can’t shake that inkling that another ramp attempt is in the works. Supporting that suspicion is also the Zero Lite which is completely flat at this point.

So, be on guard - the odds for trading these gyrations are horrible at the current time. Since we heading into X-Mas season liquidity will start draining quickly after the final EOM rush. So, anything could happen and unless the bears are able to finally gain some ground this might be nothing but some sideways consolidation before a final push higher. When it breaks it will break - and as of the final day of November the bears yet have to force the hand of the bulls since the beginning of March - the onus is on the market to confirm a trend change. But for the record - on a more long term basis this market is rolling over and it’s only a matter of time until we see a fast break of the eternal stair step pattern to the upside. But it might not happen until January, be prepared to roll your December and even your January puts into more longer term ones unless we see some downside soon. And even then it might be good medicine to buy yourself more time.

Finally, if you haven’t had a chance - please check out my weekend post - some very important long term charts in there.

DISQUS UPDATE: I just received this from disqus support:

Sorry for the inconvenience.  This issue has been fixed.  Our ISP was doing maintenance, and to avoid downtime we placed a new machine online, which was logging an incorrect IP address for some users which happened to match the same incorrect IP address in your blacklist.

If any of you continue to have problems posting here please email me [admin at evilspeculator dot com] and don’t forget to include your disqus ID.

One indicator I like to follow during the trading day is the relative performance of small caps and emerging market stocks (EEM; chart above) relative to the large cap indexes, such as the Dow Jones Industrials and the S&P 500 Index. When traders are operating with a risk appetite, they tend to buy the more speculative small caps and emerging market stocks to take advantage of their beta. When traders are risk averse, they seek the safety of blue chip, large cap stocks.

So far today, small caps and emerging market stocks have been relative underperformers. That has been one factor that has led me to question the vigor of the afternoon bounce in stocks.
.

Below we highlight how often the Dow has had positive returns by month over the last 100 years. As shown, the Dow has had gains in December 71% of the time, which is the best month by a wide margin. The next closest months are January and August at 63%.

Today is a strangely boring day, and I was having trouble thinking of what else to talk about. So - what the heck - I decided to find out which of my positions was the strongest performer so far. The answer is Protective Life, symbol PL, which is down about 25% from where I shorted it. This is my favorite kind of chart - - one where I can just keep updating the stop and hopefully watch it grind down for as many months as possible.

 

Via Focus.com, we have this interesting map of where the Fortune 500 are located:

click for ginormous map

Apparently someone in the world cares about Dick Bove's prophetic effluvium. Either that, or the worst contraindicator in the stock market (buy Lehman, 'nuf said) believes that nowadays, (following in the footsteps of other financial pundits), it is much better to be famous for being famous, than for being right, or in Dick Bove's case, wrong. Either way, for those who actually seem to derive stock trading advice out of intellectual titans like Bove et al, your lives are above to get much more difficult, as Bove is about to go RIAA on your ass. Whatever happened to Bove's threat that he would be providing instanalysis much less (and many hoped, not at all) after his disastrous read of Wells results earlier got him in hot water following a CNBC appearance. For an even playing field, it only makes sense that Dick Bove no longer publishes or "analyzes" anything anymore, period.

Dow Jones reports "Research by prolific banking analyst Dick Bove won't be as widely available for at least the rest of the year and possibly longer, as his employer aims to preserve its value. " More on this loss of "value" to mankind:

Selected reports will be available to the media on a case-by-case basis. But the full research reports will no longer be readily available to reporters and other non-clients, Bove said Monday.

"The information is getting to [people] who are not paying," Bove, of Rochdale Securities, told Dow Jones Newswires by phone Monday. "It's weakening our whole approach to how we want to price the product."

Broad distribution is being ended for at least the rest of 2009 and is under review for afterward, so that "paying customers will recognize they are getting a unique product," Bove said.

Very unique indeed. Which is why the man seems to send out a constant stream of tweets on an almost daily basis.

 

We fell sad for not only CNBC viewers who no longer see Mr. Bove's bullish expression on TV (we obviously meant that he tends to be bullish, not that he looks like a bull), but for Mr. Bove's throng of almost 330 followers on Tweeter who will likely also be denied any pearls of financial wisdom going forward. Presumably these are the same people who needed today's downgrade by Bernstein of AIG to sell their shares in the bankrupt company. By the way, we do not find it too surprising that Mr. Bove seems to himself derive intellectual capital out of such content providers as Research Recap and StockTwits.

It doesn't take much to panic markets when it comes to Iran. Case in point: Crude futures just about 45 minutes ago:

 

 

13:39 ET: 5 UK Nationals Held In Iran After Yacht Seized In Gulf (Dow Jones)  (YOWSERS!)

 

13:55 ET: UPDATE Five U.K. nationals are being held in Iran after the Iranian navy seized their yacht, which may have strayed into Iranian waters in the Gulf en route from Bahrain to Dubai, the Foreign Office said Monday. The incident happened Nov. 25, when "a racing yacht owned by Sail Bahrain and crewed by five British nationals, was stopped by Iranian naval vessels," the office said in a statement. (Dow Jones)  (Oh.)

Can you imagine what this will look like if anyone actually shoots at something over there?

What I see is years of terrible job markets, combined with political paralysis.

Rdan

How does Congress keep track of such things, if at all, and again who reads these things except those willing to be wonks or lobbyists?

Sen. Chris Dodds Proposed Financial Overhaul Bill can be found at the link.

Huffington Post notes that de novo is back from Treasury:

Despite bipartisan consensus on Capitol Hill that the size and interconnectedness of major financial institutions poses a grave risk to the system as a whole, Senate banking reform legislation includes a provision that will help them get even bigger. The provision -- long desired by the big banks -- would allow them to open new branches in states regardless of local laws. This is known as de novo branching. The provision was first put forward by the Treasury Department in the financial regulation reform bill that it sent to Congress. House Financial Services Committee Chairman Barney Frank (D-Mass.) initially included the provision in his bill, but removed it after a Democratic committee member, Rep. Alan Grayson of Florida, asked that it be taken out. [...] But weeks later, when Senate Banking Chairman Chris Dodd unveiled his new financial reform package, the de novo language popped up again -- a verbatim copy of the Treasury language. That had observers scratching their heads at the resilience of the language. The conformity to Treasury's wording was no coincidence. "That was just something we pulled straight from the administration's proposal," Kirstin Brost, a spokesman for Dodd's banking committee, told HuffPost. ...

With the recent development of stocks no longer following every tick of the DXY, it appears the algos have been now reprogrammed to speculate much more aggressively in gold. As Zero Hedge first speculated over a month ago, the Fed's excess liquidity is no longer making its way into the broken stock market, and instead is reorienting toward smaller speculative markets such as gold. As the chart attached demonstrates, the inverse correlation from any dollar weakness is magnified in gold, while stocks continue drifting aimlessly. Then again this is merely an intraday observation. Look for the algos to be tweaked promptly as traditional correlations seek to get reestablished.

Among the most prophetic voices prior to the economic crash was UCLA economics professor Harold H. Somers, who warned in 1991 that revisions to the tax code would increase leverage, which could lead to economic disaster:

The result is to tilt the well-worn playing field even more in favor of leveraging, leading to the possibility of another leverage frenzy and debacle at some time in the future.

Professor Sommers explained:

The complete history of the causes of the junk bond debacle of 1989 and 1990 is yet to be written. But the tax incentive must have a prominent place in any comprehensive work. This comment applies to long-term debt where the interest deduction can be a major factor; short-term debt may be dominated by other considerations.

What is involved is essentially the shield against income tax that is provided by corporate debt compared with the shields that are provided for equity by the income tax rules …

Former President of the St. Louis Federal reserve Bank – William Poole – agrees in a new paper:

A straightforward fix for excessive leverage can be achieved through the tax system. Companies borrow, in part, because they believe that debt capital is cheaper than equity capital. That is certainly the case under the U.S. corporate tax system because interest is a deductible business expense in calculating income subject to tax whereas dividends are not deductible.

Excessive leverage is highly destabilizing to the financial system (see this, for example). If a simple fix to the tax code could substantially reduce leverage, I’m all for it.

Poole recommends the gradual phasing-in of changes to the tax code to reduce leverage:

Interest deductibility could be phased out over the next 10 years. Next year, 90 percent of interest would be deductible; the following year, 80 percent would be deductible, and so forth, until interest would no longer be deductible at all. The same reform would apply to all business entities; partnerships, for example, should not be able to deduct interest if corporations cannot.With this simple change, the federal government would encourage businesses and households to become less leveraged. We have learned that leverage makes not only individual companies more vulnerable to failure but also the economy less stable. We use tax laws all the time to promote socially desirable behavior; eliminating the deductibility of interest would reduce the risk of failure of large companies—especially, large firms—and thereby reduce the collateral damage inflicted by such failures.

Vat's OK, then?

Click on graph for larger image in new window.

Unfortunately the data for this index only goes back to 2002.

Note: Any reading below 100 shows contraction for this index. The index is a year-over-year index, so the headline index might be slow to recognize a pickup in business, but the underlying details suggests ongoing weakness.

From the National Restaurant Association (NRA): Restaurant Industry Outlook Improved Somewhat In October as Restaurant Performance Index Posted First Gain in Three Months

[T]he National Restaurant Association’s ... Restaurant Performance Index (RPI) ... stood at 98.0 in October, up 0.5 percent from its September level. However, the RPI still remained below 100 for the 24th consecutive month, which signifies contraction in the index of key industry indicators.

“Although restaurant operators continue to report soft same-store sales and customer traffic levels, they are somewhat more optimistic about improving conditions in the months ahead,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators reported a positive six-month economic outlook for the fourth consecutive month, and the proportion planning for capital expenditures rose five percentage points.”
...
The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 96.5 in October – up 0.4 percent from September and its first improvement in three months. However, October still represented the 26th consecutive month below 100, which signifies contraction in the current situation indicators.

Restaurant operators reported negative same-store sales for the 17th consecutive month in October, with the overall results similar to the September performance. ...

Customer traffic also remained soft in October, with operators reporting net negative traffic for the 26th consecutive month. ...

Although sales and traffic levels remained soft, operators reported a modest uptick in capital spending activity.
emphasis added

Inquiring minds note a huge shift in consumer attitudes towards credit cards. Please consider Cash is king for holiday shoppers.

Cash was king for consumers who shopped over the Thanksgiving weekend, according to survey results released on Sunday, and that factor could have cost retailers additional sales.

Only 26 percent of people who shopped over the weekend said they used credit cards for their purchases, according to a poll conducted for Reuters by America's Research Group.

"That's an amazing shift in consumers' habits," said Britt Beemer, founder of America's Research Group.

A total of 39 percent said they used cash, while the remaining shoppers used debit cards, the survey showed.

Consumers shunning credit cards is a bad sign for retailers, since people who buy gifts with a credit card tend to spend anywhere from 20 to 40 percent more on the gift, Beemer said.

Every Retailer Wants To Be A Discounter

The National Retail Federation has this Black Friday Verdict: Number of Shoppers Up, Average Spending Down.

As the closely-watched Black Friday weekend winds down, a National Retail Federation survey conducted over the weekend confirms the expected: more people spent less. According to NRF’s Black Friday shopping survey, conducted by BIGresearch, 195 million shoppers visited stores and websites over Black Friday weekend*, up from 172 million last year. However, the average spending over the weekend dropped to $343.31 per person from $372.57 a year ago. Total spending reached an estimated $41.2 billion.

Shoppers’ destination of choice over the past weekend seemed to be department stores, with nearly half (49.4%) of holiday shoppers visiting at least one, a 12.9 percent increase from last year. Discount retailers took an uncharacteristic back seat, with 43.2 percent of holiday shoppers heading to discount stores over the weekend and another 7.8 percent heading to outlet stores.** Shoppers also visited electronics stores (29.0%), clothing stores (22.9%), and grocery stores (19.6%). As millions of shoppers gear up for Cyber Monday, one-fourth of Americans shopping over the weekend (28.5%) were shopping online.

“In an economy like this one, every retailer wants to be a discounter,” said Tracy Mullin, NRF President and CEO. “Department stores have done an admirable job touting both low prices and good quality, which are important requirements for holiday shoppers on a budget.”

Changing Attitudes Towards Debt

That shift away from Credit Cards usage comes from several primary sources:

1) consumers shunning credit cards over higher interest rates
2) Job losses
3) Boomers headed into retirement scared half to death about a lack of savings
4) Banks curtailing credit and lowering card limits in response to rising defaults

Those four points represent changing consumer attitudes towards debt and borrowing, and banks' attitudes to credit and landing. Changing attitudes is the key idea.

Now, after the shift is well underway .....

Self-Serving Fed Infomercials

True to form with regulators, they are always too little too late. In an effort to boost its sagging image, you can look forward to Fed Infomercials, playing soon at movie theaters near you.

5 Tips for Getting the Most from Getting the Most from Your Credit Card

1. Pay on Time
2. Stay below your credit limit
3. Avoid unnecessary fees
4. Pay more than the minimum amount
5. Watch for Changes in your account

The Fed is on a publicity campaign to boost its image.

"Get Information You Can Trust"



The above clip is at the end of the Fed's infomercial on credit card usage.

If you think the Fed is concerned about you, you are sadly mistaken. Although, the Fed is concerned about excessive credit card defaults, that concern is for the banks, not for you.

Moreover, credit card tips is not the real message of the Fed's infomercial. The no-so-hidden message "Get Information You Can Trust" (from the Fed) is what the Fed really wants to get across.

One thing you can trust is that any infomercial from the Fed will be self-serving propaganda.

I repeat what I said in Ben Bernanke Pleads For His Job; My Response to Bernanke

Bernanke: The Fed played a major part in arresting the crisis, and we should be seeking to preserve, not degrade, the institution's ability to foster financial stability and to promote economic recovery without inflation.

Mish: Ben, you sound like an arsonist taking credit for helping put out a fire, before the fire is even out, after you lit the match and tossed on the gas in the first place. For all the problems you have caused, don't you at least have the decency to show a little humility?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Well, apparently there is at least one thing that former Vice President Dick Cheney and Nobel Prize winning economist (and unofficial White House adviser) Paul Krugman have in common. They both feel the same way about deficits – they don’t matter.

On yesterday’s This Week with George Stephanopoulos, Krugman made what sounded like an off-hand remark, one that almost didn’t even seem worth saying as it was so obvious to everyone in the room (except maybe George Will).

From the ABC transript:

Important political fact, which is that whatever you would do with the deficit, the public won’t notice. In 1996, a majority of Republicans thought that the deficit had increased under Clinton, even though we had in fact been on an incredible run. So no, I mean, the deficit doesn’t matter. The economy matters. And that’s why somehow or other, Obama has got to get jobs being created.

Yes, I know. The national debt is now over $12 trillion, not the $11.5 trillion as depicted above. No one really seems to care – $11 trillion, $12 trillion, $20 trillion?

It’s only money.

Tim Iacono is a retired software engineer and writes the financial blog “The Mess That Greenspan Made” which chronicles the many and varied after-effects of the Greenspan term at the Federal Reserve. Tim is also the founder of the investment website “Iacono Research” that provides weekly updates to subscribers on the economy, natural resources, and financial markets.