Tuesday, June 30, 2009
Michigan Prisons For Rent
Finally an industry Michigan can dominate...
Michigan to California: Send us your prisoners
Financially strapped states consider a 'mutually beneficial' deal.
CHICAGO (Reuters) -- Michigan has to close prisons to save money. California's are bursting at the seams.
Both states are struggling with huge budget gaps.
Now, Michigan Governor Jennifer Granholm has offered California some of the state's prisons that are slated to close at a yet-to-be-determined cost.
In a letter Monday to California Governor Arnold Schwarzenegger, Granholm formally offered to house California inmates, noting their "mutual interest in resolving budget and corrections problems, perhaps in one fell swoop."
"I believe this opportunity has great potential and could be mutually beneficial at a time when states need to rely on each other like never before," Granholm, a Democrat, wrote to her Republican counterpart.
A copy of the letter was provided to Reuters.
"It would allow California to address some of its immediate needs for additional prison beds and prisoner preparation for release and would permit some of Michigan's very talented correctional and program staff to continue working as they face the likelihood of layoff," she added.
Michigan's corrections department announced earlier this month plans to close several prisons this year in order to save $120 million.
California faces lawsuits over the poor state of its prison health system, which a panel of federal judges has concluded is largely the result of state prisons filled to twice their capacity.
Schwarzenegger last week said California's state government could not afford to spend $2 billion to upgrade prison health facilities while preparing for potentially deep spending cuts to education and state health programs to help fill a $24.3 billion state budget shortfall.
Schwarzenegger's office has proposed easing prison overcrowding by transferring inmates who are undocumented immigrants to federal custody.
Prison officials in California, which already has more than 7,000 inmates housed in private correctional facilities in Arizona, Tennessee, Mississippi and Oklahoma, are intrigued by Granholm's offer, said Seth Unger, a spokesman for California's prison system.
"We are interested in exploring the possibility if Michigan can offer the same level of security at competitive cost," said Unger, adding that a team from California's prison system will travel to Michigan next month to review the offer in greater detail.
A spokeswoman for Granholm said talks about prison space began between the two states earlier this month.
Michigan to California: Send us your prisoners
Financially strapped states consider a 'mutually beneficial' deal.
CHICAGO (Reuters) -- Michigan has to close prisons to save money. California's are bursting at the seams.
Both states are struggling with huge budget gaps.
Now, Michigan Governor Jennifer Granholm has offered California some of the state's prisons that are slated to close at a yet-to-be-determined cost.
In a letter Monday to California Governor Arnold Schwarzenegger, Granholm formally offered to house California inmates, noting their "mutual interest in resolving budget and corrections problems, perhaps in one fell swoop."
"I believe this opportunity has great potential and could be mutually beneficial at a time when states need to rely on each other like never before," Granholm, a Democrat, wrote to her Republican counterpart.
A copy of the letter was provided to Reuters.
"It would allow California to address some of its immediate needs for additional prison beds and prisoner preparation for release and would permit some of Michigan's very talented correctional and program staff to continue working as they face the likelihood of layoff," she added.
Michigan's corrections department announced earlier this month plans to close several prisons this year in order to save $120 million.
California faces lawsuits over the poor state of its prison health system, which a panel of federal judges has concluded is largely the result of state prisons filled to twice their capacity.
Schwarzenegger last week said California's state government could not afford to spend $2 billion to upgrade prison health facilities while preparing for potentially deep spending cuts to education and state health programs to help fill a $24.3 billion state budget shortfall.
Schwarzenegger's office has proposed easing prison overcrowding by transferring inmates who are undocumented immigrants to federal custody.
Prison officials in California, which already has more than 7,000 inmates housed in private correctional facilities in Arizona, Tennessee, Mississippi and Oklahoma, are intrigued by Granholm's offer, said Seth Unger, a spokesman for California's prison system.
"We are interested in exploring the possibility if Michigan can offer the same level of security at competitive cost," said Unger, adding that a team from California's prison system will travel to Michigan next month to review the offer in greater detail.
A spokeswoman for Granholm said talks about prison space began between the two states earlier this month.
Monday, June 29, 2009
Aluminum Corp. to Chinalco
China's acquisitions of natural resource companies continue at a blistering pace.
Anglo American reported in talks with Chinalco
But Chinalco vice president says he's unaware of any deal in the works
LOS ANGELES (MarketWatch) -- London-based mining giant Anglo American Plc. is in talks to sell a major investment stake to Aluminum Corp. of China, according to a British media report Sunday, although at least one executive is quoted separately as saying no such deal is planned.
The Sunday Telegraph said that Anglo American /quotes/comstock/23s!e:aal (UK:AAL 1,769, +9.00, +0.50%) is to open talks with China's state-owned aluminum producer -- better known as Chinalco -- and at least one unidentified Middle Eastern investor about a partnership that could see it inject hundreds of millions of dollars into MMX, Anglo's Brazilian iron-ore business.
The negotiations are at an early stage, and there is no certainty that a deal will be reached, the report said, citing people close to the situation.
However, a later report from Dow Jones Newswires quoted Chinalco Vice President Lu Youqing as saying he was unaware of any talks with Anglo.
It cited earlier remarks by Lu saying Chinalco wasn't interested in iron-ore ventures for the time being, preferring to focus on base metals projects.
The report Sunday also said Anglo is seeking to lure John Parker to serve as chairman, replacing outgoing board chief Mark Moody-Stuart, who has served as Anglo's chairman since 2002.
Parker was offered the post last year before a boardroom split between Anglo's South African and British directors stymied the appointment, according to the report, which added that, this time, Parker would only accept the nomination with the unanimous backing of the board.
Anglo American reported in talks with Chinalco
But Chinalco vice president says he's unaware of any deal in the works
LOS ANGELES (MarketWatch) -- London-based mining giant Anglo American Plc. is in talks to sell a major investment stake to Aluminum Corp. of China, according to a British media report Sunday, although at least one executive is quoted separately as saying no such deal is planned.
The Sunday Telegraph said that Anglo American /quotes/comstock/23s!e:aal (UK:AAL 1,769, +9.00, +0.50%) is to open talks with China's state-owned aluminum producer -- better known as Chinalco -- and at least one unidentified Middle Eastern investor about a partnership that could see it inject hundreds of millions of dollars into MMX, Anglo's Brazilian iron-ore business.
The negotiations are at an early stage, and there is no certainty that a deal will be reached, the report said, citing people close to the situation.
However, a later report from Dow Jones Newswires quoted Chinalco Vice President Lu Youqing as saying he was unaware of any talks with Anglo.
It cited earlier remarks by Lu saying Chinalco wasn't interested in iron-ore ventures for the time being, preferring to focus on base metals projects.
The report Sunday also said Anglo is seeking to lure John Parker to serve as chairman, replacing outgoing board chief Mark Moody-Stuart, who has served as Anglo's chairman since 2002.
Parker was offered the post last year before a boardroom split between Anglo's South African and British directors stymied the appointment, according to the report, which added that, this time, Parker would only accept the nomination with the unanimous backing of the board.
Credit Cards on Life Support
Buffett was late to the party last time around and the market seems to have passed him by. The real question regarding credit cards is how have these companies held out so long?
The Next Major Financial Crisis
by: Marc Courtenay June 28, 2009
Warren Buffett doesn't see the "green shoots" Ben Bernanke and other bullish investors have spoken of in recent months. In fact, the billionaire investor believes the economic picture will grow darker before things improve.
"Everything I see about the economy is that we have had no bounce," Buffett told CNBC anchor Becky Quick in a televised interview Wednesday. "There were a lot of excesses to be wrung out and that process is still under way, and it looks to me that it will be under way for quite awhile. In the annual report, I said that the economy would be in shambles this year and probably well beyond, and I think that is true."
From our vantage point, the nearly $1 trillion in outstanding U.S. credit-card debt could be the next major crisis to roil the economy... Losses on U.S. credit cards rose above 10% of the total loans outstanding in May – a new high in the 20-year history of the Moody's Credit Card Index, and the sixth-consecutive monthly record.
The mounting losses are forcing banks to bail out off-balance-sheet entities they use to package hundreds of billions of dollars of credit-card loans into securities. The total losses are very hard to estimate and most likely exceeds earlier estimates.
Read More Here: http://seekingalpha.com/article/145751-the-next-major-financial-crisis?source=hp_mostpopular
The Next Major Financial Crisis
by: Marc Courtenay June 28, 2009
Warren Buffett doesn't see the "green shoots" Ben Bernanke and other bullish investors have spoken of in recent months. In fact, the billionaire investor believes the economic picture will grow darker before things improve.
"Everything I see about the economy is that we have had no bounce," Buffett told CNBC anchor Becky Quick in a televised interview Wednesday. "There were a lot of excesses to be wrung out and that process is still under way, and it looks to me that it will be under way for quite awhile. In the annual report, I said that the economy would be in shambles this year and probably well beyond, and I think that is true."
From our vantage point, the nearly $1 trillion in outstanding U.S. credit-card debt could be the next major crisis to roil the economy... Losses on U.S. credit cards rose above 10% of the total loans outstanding in May – a new high in the 20-year history of the Moody's Credit Card Index, and the sixth-consecutive monthly record.
The mounting losses are forcing banks to bail out off-balance-sheet entities they use to package hundreds of billions of dollars of credit-card loans into securities. The total losses are very hard to estimate and most likely exceeds earlier estimates.
Read More Here: http://seekingalpha.com/article/145751-the-next-major-financial-crisis?source=hp_mostpopular
Friday, June 26, 2009
The Golden Dragon
"We've got a situation where Geithner is smiling and has no choice but to stress the credibility and stability of the US financial and economic system, while the creditors [such as the Chinese] smile back and say they believe him, while at the same time giving hand signals to their reserve managers to get rid of these things [U.S. Treasuries]." - Neil Mellor, Bank of New York-Mellon
Thursday, June 25, 2009
On Commercial Real Estate
Think for yourself - easier said than done here in the cave known as the third rock from the sun. If you have not read the Trial and Death of Socrates and are not familiar with "The Allegory of the Cave," the video below will give you a quick, nitty-gritty on the alternate reality/denial we all choose to live in. If you have, feel free to skip it.
Lessons from philosophy 101 slapped me in the face again yesterday while making the mistake of watching more than a minute of a major news network commentator at one time. They had a political analyst on that had put Americans through a series of tests which recorded their reactions to images including George Bush, Barack Obama, the Iraq War and other politically charged photos. It was a cave moment that reminded me that we are trained at a young age through popular culture to define ourselves socially and internally through our political alignment and grouping. Naturally, democrats were fiercely against George Bush and Iraq as Republicans were fiercely against Barack Obama and the bailout. The real tragedy was that there were no statistics that tracked those equally appalled by each set of images or linking both parties to the peril our country is currently in.
As someone who earns his daily bread in the commercial real estate market, I can say with full authority that the stories being printed are mere techne and shadows of the real problem which we have yet to look in the eye. There are tens of millions of square feet of income producing real estate (what it "is" on bank books) that was built to be investment grade (income producing)that are are virtually WORTHLESS - or in many cases WORTH LESS than nothing...they carry stiff environmental charges. The entire cities of Detroit and Cleveland fall into this category and this is not a joke. The Southwest is being taken back by the desert as well - for reference, look into the major casino failures in Las Vegas, ghost malls and stalled projects on the strip...2 years ago one of the most "prestigious" retail markets in the world featuring Ferrari and Lamborghini dealerships in the lobbies of hotels.
CRE Distressed Auctions Coming, 90%-Off Minimum Bids
Posted by Tyler Durden at 6:46 PM
And so reality, and realty, starts to catch up (with commercial real estate at least, if not with the market). Bloomberg reports that Sperry Van Ness and Guardian Real Estate Services LLC will conduct auctions on various commercial real estate properties in California, Idaho and other western states. Among the properties to be auctioned off include an apartment complex on the Wilshire corridor and land in Rancho Cucamonga (famous for nothing, except being host to America's biggest liquor store Liquorama). The kicker: minimum bids will be over 90% off of peak market values. So if you are a tenant in some crappy mall in the inland empire and are paying roughly this much to SPG or GGP, you may want to consider just buying for the same money you would pay for one year's rent. Oh, and Merrill - all those REIT rent calculations... feel free to throw them out of the window.
For all interested strip mall tenants for whom Brazilian waxing provided to be a bumper cash crop last year, you can get info on the auction here.
(and no, this is not a sponsored post - it is useful to see what this kind of toxic garbage goes for these days)
This guy has the credibility of the people from the "Cash 4 Gold" commercials.
U.S. called new emerging market for real estate
NEW YORK (Reuters) - Brazil, Russia, India and China move over. There's another emerging market for commercial real estate opportunities.
"Now that the meltdown has happened, the new emerging market is the United States," Tom Shapiro, president of real estate investment firm GoldenTree InSite Partners, said on Tuesday at the Reuters Global Real Estate Summit in New York.
The U.S. commercial real estate crash, in which prices are down more than 20 percent and are expected to fall 40 percent to 50 percent, has created a landscape of what is expected to be a land of vast opportunity for those with cash.
"I think there's going to be the best opportunity to make money in the last 20 years in real estate in the U.S.," Shapiro said.
GoldenTree InSite stopped investing in U.S. real estate in early 2006 and has focused most of its attention and cash on Brazil, where it has invested in residential and office properties.
But with about a $1 billion to use, it is poised to return to the U.S. market and take advantage of the right projects that need or will need money when they come up short.
"We are just at the point now where we are seeing some very interesting entry points on certain transactions," he said.
New York-based GoldenTree InSite is an opportunistic real estate company that invests funds raised from pension funds and other institutional investors.
Shapiro said his firm not only considers location but places more weight on the merits of an individual project.
"We're more about finding the right project in the right location," he said. "We're not looking for shotgun shots. We're looking for rifle shots."
Still, Shapiro said his firm likes big cities, such as Los Angeles and New York where downtrodden commercial real estate markets tend to rebound strong.
"San Francisco right now is a pretty interesting place to think about because San Francisco is a very diversified economy," he said.
He also mentioned residential land and hotels are of note because they are bottoming out.
"There's a lot of projects, whether it be development or operating properties, or properties that need to be renovated that were done with the best of intentions but relied on increasing fundamentals, rents working and not having construction overruns," Shapiro said.
GoldenTree InSite has not yet committed any funds to a new U.S. investment. It is not only evaluating what project to invest in, but how to enter the deal -- via equity, mezzanine financing or by buying distressed senior mortgages. Depending on the position of the financing, investment could be bought at 20 cents or 30 cents on the dollar.
For U.S. investing, GoldenTree InSite is likely to add leverage to its existing capital but will use it carefully, Shapiro said.
Lessons from philosophy 101 slapped me in the face again yesterday while making the mistake of watching more than a minute of a major news network commentator at one time. They had a political analyst on that had put Americans through a series of tests which recorded their reactions to images including George Bush, Barack Obama, the Iraq War and other politically charged photos. It was a cave moment that reminded me that we are trained at a young age through popular culture to define ourselves socially and internally through our political alignment and grouping. Naturally, democrats were fiercely against George Bush and Iraq as Republicans were fiercely against Barack Obama and the bailout. The real tragedy was that there were no statistics that tracked those equally appalled by each set of images or linking both parties to the peril our country is currently in.
As someone who earns his daily bread in the commercial real estate market, I can say with full authority that the stories being printed are mere techne and shadows of the real problem which we have yet to look in the eye. There are tens of millions of square feet of income producing real estate (what it "is" on bank books) that was built to be investment grade (income producing)that are are virtually WORTHLESS - or in many cases WORTH LESS than nothing...they carry stiff environmental charges. The entire cities of Detroit and Cleveland fall into this category and this is not a joke. The Southwest is being taken back by the desert as well - for reference, look into the major casino failures in Las Vegas, ghost malls and stalled projects on the strip...2 years ago one of the most "prestigious" retail markets in the world featuring Ferrari and Lamborghini dealerships in the lobbies of hotels.
CRE Distressed Auctions Coming, 90%-Off Minimum Bids
Posted by Tyler Durden at 6:46 PM
And so reality, and realty, starts to catch up (with commercial real estate at least, if not with the market). Bloomberg reports that Sperry Van Ness and Guardian Real Estate Services LLC will conduct auctions on various commercial real estate properties in California, Idaho and other western states. Among the properties to be auctioned off include an apartment complex on the Wilshire corridor and land in Rancho Cucamonga (famous for nothing, except being host to America's biggest liquor store Liquorama). The kicker: minimum bids will be over 90% off of peak market values. So if you are a tenant in some crappy mall in the inland empire and are paying roughly this much to SPG or GGP, you may want to consider just buying for the same money you would pay for one year's rent. Oh, and Merrill - all those REIT rent calculations... feel free to throw them out of the window.
For all interested strip mall tenants for whom Brazilian waxing provided to be a bumper cash crop last year, you can get info on the auction here.
(and no, this is not a sponsored post - it is useful to see what this kind of toxic garbage goes for these days)
This guy has the credibility of the people from the "Cash 4 Gold" commercials.
U.S. called new emerging market for real estate
NEW YORK (Reuters) - Brazil, Russia, India and China move over. There's another emerging market for commercial real estate opportunities.
"Now that the meltdown has happened, the new emerging market is the United States," Tom Shapiro, president of real estate investment firm GoldenTree InSite Partners, said on Tuesday at the Reuters Global Real Estate Summit in New York.
The U.S. commercial real estate crash, in which prices are down more than 20 percent and are expected to fall 40 percent to 50 percent, has created a landscape of what is expected to be a land of vast opportunity for those with cash.
"I think there's going to be the best opportunity to make money in the last 20 years in real estate in the U.S.," Shapiro said.
GoldenTree InSite stopped investing in U.S. real estate in early 2006 and has focused most of its attention and cash on Brazil, where it has invested in residential and office properties.
But with about a $1 billion to use, it is poised to return to the U.S. market and take advantage of the right projects that need or will need money when they come up short.
"We are just at the point now where we are seeing some very interesting entry points on certain transactions," he said.
New York-based GoldenTree InSite is an opportunistic real estate company that invests funds raised from pension funds and other institutional investors.
Shapiro said his firm not only considers location but places more weight on the merits of an individual project.
"We're more about finding the right project in the right location," he said. "We're not looking for shotgun shots. We're looking for rifle shots."
Still, Shapiro said his firm likes big cities, such as Los Angeles and New York where downtrodden commercial real estate markets tend to rebound strong.
"San Francisco right now is a pretty interesting place to think about because San Francisco is a very diversified economy," he said.
He also mentioned residential land and hotels are of note because they are bottoming out.
"There's a lot of projects, whether it be development or operating properties, or properties that need to be renovated that were done with the best of intentions but relied on increasing fundamentals, rents working and not having construction overruns," Shapiro said.
GoldenTree InSite has not yet committed any funds to a new U.S. investment. It is not only evaluating what project to invest in, but how to enter the deal -- via equity, mezzanine financing or by buying distressed senior mortgages. Depending on the position of the financing, investment could be bought at 20 cents or 30 cents on the dollar.
For U.S. investing, GoldenTree InSite is likely to add leverage to its existing capital but will use it carefully, Shapiro said.
California on Short Fuse
Don't limit your escape from paper to just CA munis.
A warning bell on California muni bonds
As sure as the sun will set on the Golden State, analyst Martin Weiss says California is going to default.
By Jon Birger, senior writer
Last Updated: June 25, 2009: 12:29 PM ET
NEW YORK (Fortune) -- Known for his early warnings on Bear Stearns and Lehman Brothers, analyst Martin Weiss of Weiss Research is now sounding the alarm about state of California municipal bonds.
In a new report, Weiss has some rather blunt advice for California muni investors: "Sell all California paper now!" His reasoning? California is facing a $24 billion budget gap with no obvious way to close it.
The state has appealed to Washington for a federal bailout, but it got a cool response from the Obama Administration. The next step is draconian cuts in state services and payroll, but Weiss says that will only deepen the "depression" in California, where the unemployment rate is 11.5%, by further cutting into tax revenue.
Read More Here: http://money.cnn.com/2009/06/25/pf/california_bonds_trouble.fortune/index.htm?postversion=2009062512
A warning bell on California muni bonds
As sure as the sun will set on the Golden State, analyst Martin Weiss says California is going to default.
By Jon Birger, senior writer
Last Updated: June 25, 2009: 12:29 PM ET
NEW YORK (Fortune) -- Known for his early warnings on Bear Stearns and Lehman Brothers, analyst Martin Weiss of Weiss Research is now sounding the alarm about state of California municipal bonds.
In a new report, Weiss has some rather blunt advice for California muni investors: "Sell all California paper now!" His reasoning? California is facing a $24 billion budget gap with no obvious way to close it.
The state has appealed to Washington for a federal bailout, but it got a cool response from the Obama Administration. The next step is draconian cuts in state services and payroll, but Weiss says that will only deepen the "depression" in California, where the unemployment rate is 11.5%, by further cutting into tax revenue.
Read More Here: http://money.cnn.com/2009/06/25/pf/california_bonds_trouble.fortune/index.htm?postversion=2009062512
7 Reasons Why GM Will Face Flop...Again
I don't think anybody doubts that the "new GM" is destined for failure - other than those that buy into the new propaganda commercials. This on the heels of news that GM's production of the Chevy Volt is not expected to ever be profitable.
"Let's be honest" - your cars are crap.
7 Reasons Why the New GM Might File for Bankruptcy
By: Jason Matthew
Despite shedding billions in bondholders' debt, paying creditors pennies on the dollar, winning UAW concessions, cutting thousands of employees, dealers, manufacturing facilities and obtaining $50 billions in financing/loans from the Treasury, GM’s (GMGMQ.PK) bankruptcy plan may not work.
The road to bankruptcy has been long and the reasons for this failure much longer. A review of restructuring plan reveals incredible cost reduction efforts but more importantly what GM/Treasury have deliberately decided not to change. GM’s current bankruptcy plans may not secure GM’s future and could ultimately lead to a bankruptcy repeat.
Seven reasons why the new GM could re-file for bankruptcy:
1.) $1400 in per vehicle costs went untouched to ensure re-election and voter satisfaction rather than shareholder value.
The day GM filed for bankruptcy, GM owed pensions to more than 650,000 individuals. In 2004, GM publicly stated pension costs amounted to $695 a vehicle. GM is selling nearly 1 million less vehicles and retiree pool and grown significantly over the last years yielding an estimated $1400 per vehicle pensions cost. GM is not addressing this cost burden via bankruptcy.
This administration (Treasury) knows the 55+ age demographic is the most active voter base with the highest voter turnout, so the Treasury and politicians have deliberately chosen not to upset this voter base by not reducing pension obligations. Adjusting executive pension packages has a nominal relative impact and illustrates the selective (wealth discriminatory) bankruptcy practices.
2.) Bankruptcy court ruling did not establish labor rate parity with Toyota (TM) or Honda (HMC).
The government made it clear whom it stood behind when it reorganized GM. According to Financial Week, the labor movement spent $385 million to elect Obama and other Democrats. Nobody writes such large checks without expecting something: this was payback time. Has a company ever emerged from bankruptcy without union labor rate reductions? UAW conceded flat wages and additional health care cost burdens but are these actions really differentiated from non-bankrupt Fortune 500 companies?
3.) Reducing dealer count will have nominal impact on GM’s cost structure yet significant downside impact on market share.
GM is absolutely “overdealered” but eliminating 3,000 dealers is not the way increase market share. 1000+ dealers were eliminated over the last 5 years and little evidence exists to support a sales or share increase in a given market area post dealer termination. Improving dealer throughput cannot be cured simply by cutting competition.
Second, GM had an opportunity to re-evaluate their distribution network and “change the game.” The exclusive dealer franchise business model is flawed and “sister” vehicle development worse. GM could have established an all GM retail experience in metro markets and selected the best dealer operators, instead they cut and believe survivors will sell more.
Does anyone believe a Buick GMC store will attract the best investors/dealer operators compared to Honda? Dealer reduction plans do not address viability concerns of a standalone Buick GMC or Cadillac store.
Finally, a human element exists with people that lost dealer jobs and residents of the markets that GM decided are not viable. This is not a small number and many will not remain brand loyal. Consumers will undoubtedly be inconvenienced for service and pay higher prices due to less competition.
4.) Government and UAW as majority owners = poor management.
The U.S. government and the UAW will be majority owners in the New GM. GM and the Government both took on excessive debt and promised to much to too many yet one (government) is dictating terms to the other. Labor unions are primarily political creatures, the politics of organized labor could force GM and to stay in bureaucratic methods and lead to limited operational leverage.
In the future, will the UAW vote yes to a pay cut? Many are to blame but the fingerprints of this administration are all over the labor/pension elements of the restructuring plan.
5.) GM will be at a strategic competitive disadvantage with no ability to financially engineer sales with 0% loans and extend consumers credit.
GM no longer has controlling interest in its main financing arm, GMAC. For years GMAC would finance customers that most banks would not. GMAC is now a bank holding company and will only support 0% loans and financial incentives with significant GM cash payments/subsidies. Ford (F) and other manufactures will have a weapon of sub-vented financing rates to pump sales while GM will be forced to match with huge cash expenses to support similar marketing programs.
6.) GM Europe operations will only get worse, supply base is weaker than the U.S. and surviving brand equity is weak.
European and Asian suppliers use credit insurance to support automotive business unlike the US. In November 2008, the big three European credit insurers – Euler Hermes, Atradius and Coface – stopped writing policies for suppliers trading with GM and Ford. In absence of insurance the supply base for Europe will undergo dramatic changes over next few years, which only further add complexity.
Second, GM sold Saab and Opel, its premier European brands. Apple pie and Chevrolet do not resonate with Europeans and neither Chevrolet or Cadillac have established brand equity with consumers.
7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today.
A senior administration official stated the new guidelines will cost automakers $1,300 per vehicle, a move that could cost automakers $13 billion to $20 billion annually. GM’s expected compliance costs will be around $3 billion annually. The new GM will not have retained earnings so GM must generate ate least $3 billion in free cash flow to fund compliance investments alone. GM’s newer products such as the Chevy Malibu, CTS and the newly designed 2010 Buick Lacrosse are second to none but energy compliance will likely cripple new product development when GM needs it most.
In fairness, Toyota has two vehicles that meet proposed standards but the point of differentiation is Toyota has proven the ability generate operating cash flow and execute capital investment projects.
For years, GM denied bankruptcy as an option when the reality was that it would take more than a bankruptcy ($50B in Government support). Former GM executive, Alfred Sloan wrote in his 1965 memoir, My Years With General Motors
Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized in the market.
GM clearly did remember those words and for a moment will emerge from bankruptcy a stronger, leaner new GM.
Unfortunately this experience may be short lived and the cumulative mistakes of on-going restructuring efforts may lead to a bankruptcy repeat.
Disclosure: I do not hold positions in General Motors or other automotive firms.
"Let's be honest" - your cars are crap.
7 Reasons Why the New GM Might File for Bankruptcy
By: Jason Matthew
Despite shedding billions in bondholders' debt, paying creditors pennies on the dollar, winning UAW concessions, cutting thousands of employees, dealers, manufacturing facilities and obtaining $50 billions in financing/loans from the Treasury, GM’s (GMGMQ.PK) bankruptcy plan may not work.
The road to bankruptcy has been long and the reasons for this failure much longer. A review of restructuring plan reveals incredible cost reduction efforts but more importantly what GM/Treasury have deliberately decided not to change. GM’s current bankruptcy plans may not secure GM’s future and could ultimately lead to a bankruptcy repeat.
Seven reasons why the new GM could re-file for bankruptcy:
1.) $1400 in per vehicle costs went untouched to ensure re-election and voter satisfaction rather than shareholder value.
The day GM filed for bankruptcy, GM owed pensions to more than 650,000 individuals. In 2004, GM publicly stated pension costs amounted to $695 a vehicle. GM is selling nearly 1 million less vehicles and retiree pool and grown significantly over the last years yielding an estimated $1400 per vehicle pensions cost. GM is not addressing this cost burden via bankruptcy.
This administration (Treasury) knows the 55+ age demographic is the most active voter base with the highest voter turnout, so the Treasury and politicians have deliberately chosen not to upset this voter base by not reducing pension obligations. Adjusting executive pension packages has a nominal relative impact and illustrates the selective (wealth discriminatory) bankruptcy practices.
2.) Bankruptcy court ruling did not establish labor rate parity with Toyota (TM) or Honda (HMC).
The government made it clear whom it stood behind when it reorganized GM. According to Financial Week, the labor movement spent $385 million to elect Obama and other Democrats. Nobody writes such large checks without expecting something: this was payback time. Has a company ever emerged from bankruptcy without union labor rate reductions? UAW conceded flat wages and additional health care cost burdens but are these actions really differentiated from non-bankrupt Fortune 500 companies?
3.) Reducing dealer count will have nominal impact on GM’s cost structure yet significant downside impact on market share.
GM is absolutely “overdealered” but eliminating 3,000 dealers is not the way increase market share. 1000+ dealers were eliminated over the last 5 years and little evidence exists to support a sales or share increase in a given market area post dealer termination. Improving dealer throughput cannot be cured simply by cutting competition.
Second, GM had an opportunity to re-evaluate their distribution network and “change the game.” The exclusive dealer franchise business model is flawed and “sister” vehicle development worse. GM could have established an all GM retail experience in metro markets and selected the best dealer operators, instead they cut and believe survivors will sell more.
Does anyone believe a Buick GMC store will attract the best investors/dealer operators compared to Honda? Dealer reduction plans do not address viability concerns of a standalone Buick GMC or Cadillac store.
Finally, a human element exists with people that lost dealer jobs and residents of the markets that GM decided are not viable. This is not a small number and many will not remain brand loyal. Consumers will undoubtedly be inconvenienced for service and pay higher prices due to less competition.
4.) Government and UAW as majority owners = poor management.
The U.S. government and the UAW will be majority owners in the New GM. GM and the Government both took on excessive debt and promised to much to too many yet one (government) is dictating terms to the other. Labor unions are primarily political creatures, the politics of organized labor could force GM and to stay in bureaucratic methods and lead to limited operational leverage.
In the future, will the UAW vote yes to a pay cut? Many are to blame but the fingerprints of this administration are all over the labor/pension elements of the restructuring plan.
5.) GM will be at a strategic competitive disadvantage with no ability to financially engineer sales with 0% loans and extend consumers credit.
GM no longer has controlling interest in its main financing arm, GMAC. For years GMAC would finance customers that most banks would not. GMAC is now a bank holding company and will only support 0% loans and financial incentives with significant GM cash payments/subsidies. Ford (F) and other manufactures will have a weapon of sub-vented financing rates to pump sales while GM will be forced to match with huge cash expenses to support similar marketing programs.
6.) GM Europe operations will only get worse, supply base is weaker than the U.S. and surviving brand equity is weak.
European and Asian suppliers use credit insurance to support automotive business unlike the US. In November 2008, the big three European credit insurers – Euler Hermes, Atradius and Coface – stopped writing policies for suppliers trading with GM and Ford. In absence of insurance the supply base for Europe will undergo dramatic changes over next few years, which only further add complexity.
Second, GM sold Saab and Opel, its premier European brands. Apple pie and Chevrolet do not resonate with Europeans and neither Chevrolet or Cadillac have established brand equity with consumers.
7.) 35-MPG energy requirements in 2016: GM currently has one vehicle that meets that standard today.
A senior administration official stated the new guidelines will cost automakers $1,300 per vehicle, a move that could cost automakers $13 billion to $20 billion annually. GM’s expected compliance costs will be around $3 billion annually. The new GM will not have retained earnings so GM must generate ate least $3 billion in free cash flow to fund compliance investments alone. GM’s newer products such as the Chevy Malibu, CTS and the newly designed 2010 Buick Lacrosse are second to none but energy compliance will likely cripple new product development when GM needs it most.
In fairness, Toyota has two vehicles that meet proposed standards but the point of differentiation is Toyota has proven the ability generate operating cash flow and execute capital investment projects.
For years, GM denied bankruptcy as an option when the reality was that it would take more than a bankruptcy ($50B in Government support). Former GM executive, Alfred Sloan wrote in his 1965 memoir, My Years With General Motors
Any rigidity by an automobile manufacturer, no matter how large or how well established, is severely penalized in the market.
GM clearly did remember those words and for a moment will emerge from bankruptcy a stronger, leaner new GM.
Unfortunately this experience may be short lived and the cumulative mistakes of on-going restructuring efforts may lead to a bankruptcy repeat.
Disclosure: I do not hold positions in General Motors or other automotive firms.
China Ups Natural Gas Purchases
China is making a point to invest in contracts directly and controlling the production of natural resources through direct acquisitions of corporations (not just stock) - effectively skirting western middle men.
China sign landmark deal to buy 40 billion cubic meters of Turkmen natural gas annually
ALEXANDER VERSHININ, Associated Press Writer
3:33 AM PDT, June 25, 2009
ASHGABAT, Turkmenistan (AP) — China signed a 30-year deal to increase purchases of natural gas from Turkmenistan by 30 percent, state media reported Thursday — a landmark agreement for Beijing as it competes with Moscow for access to Central Asia's energy wealth.
No value was announced for the deal, which also marks another step forward in Chinese efforts to find long-term, stable energy supplies.
Chinese Vice Premier Li Keqiang met with his Turkmen counterpart Wednesday to sign the contract, which increases gas deliveries to 40 billion cubic meters (52 billion cubic yards) annually, the state-run newspaper Neutral Turkmenistan reported.
Work on a 7,000-kilometer (4,300-mile) pipeline from Turkmenistan to China is expected to be finished by the end of the year.
"This agreement is very important for ensuring a stable, long-term and adequate supply of gas for this pipeline," Li said at an official signing ceremony, according to the newspaper.
China has also committed to lending Turkmenistan's state gas company $4 billion on preferential terms, the newspaper reported.
No details were given, but Turkmen media last month reported that China had promised to lend $3 billion to develop the vast South Yolotan natural gas field close to the Afghan border. An independent audit by a British company last year said the field may be one of the five largest in the world.
The deals come amid strained relations between Turkmenistan and Russia, which usually buys most of the Turkmen gas for onward sale in Ukraine and Europe.
Earlier this year, Russia moved to reduce its gas imports from Turkmenistan because of plunging demand and prices in Europe.
The two countries have also sparred over a blast in April that damaged a major pipeline that transports Turkmen gas to Russia. The route has been repaired but supplies have not resumed amid mutual recriminations over the cause of the explosion.
Li also signed an additional deal for state-owned China National Petroleum Corporation to take gas from the Bagtyyarlyk field near Turkmenistan's border with Uzbekistan, the newspaper reported. The Turkmen government believes the field holds up to 1.3 trillion cubic meters (1.7 trillion cubic yards) of gas. CNPC was awarded the license to explore and develop the field in 2007.
Turkmenistan has long exported nearly all its gas to Russia, with the exception of a small amount sent to Iran.
Some international experts have voiced doubt that Turkmenistan could meet all its supply obligations, but the government insists there is enough gas to supply all buyers.
Turkmenistan estimates its total reserves at more than 20 trillion cubic meters (26 trillion cubic yards), but international experts have questioned that figure.
China sign landmark deal to buy 40 billion cubic meters of Turkmen natural gas annually
ALEXANDER VERSHININ, Associated Press Writer
3:33 AM PDT, June 25, 2009
ASHGABAT, Turkmenistan (AP) — China signed a 30-year deal to increase purchases of natural gas from Turkmenistan by 30 percent, state media reported Thursday — a landmark agreement for Beijing as it competes with Moscow for access to Central Asia's energy wealth.
No value was announced for the deal, which also marks another step forward in Chinese efforts to find long-term, stable energy supplies.
Chinese Vice Premier Li Keqiang met with his Turkmen counterpart Wednesday to sign the contract, which increases gas deliveries to 40 billion cubic meters (52 billion cubic yards) annually, the state-run newspaper Neutral Turkmenistan reported.
Work on a 7,000-kilometer (4,300-mile) pipeline from Turkmenistan to China is expected to be finished by the end of the year.
"This agreement is very important for ensuring a stable, long-term and adequate supply of gas for this pipeline," Li said at an official signing ceremony, according to the newspaper.
China has also committed to lending Turkmenistan's state gas company $4 billion on preferential terms, the newspaper reported.
No details were given, but Turkmen media last month reported that China had promised to lend $3 billion to develop the vast South Yolotan natural gas field close to the Afghan border. An independent audit by a British company last year said the field may be one of the five largest in the world.
The deals come amid strained relations between Turkmenistan and Russia, which usually buys most of the Turkmen gas for onward sale in Ukraine and Europe.
Earlier this year, Russia moved to reduce its gas imports from Turkmenistan because of plunging demand and prices in Europe.
The two countries have also sparred over a blast in April that damaged a major pipeline that transports Turkmen gas to Russia. The route has been repaired but supplies have not resumed amid mutual recriminations over the cause of the explosion.
Li also signed an additional deal for state-owned China National Petroleum Corporation to take gas from the Bagtyyarlyk field near Turkmenistan's border with Uzbekistan, the newspaper reported. The Turkmen government believes the field holds up to 1.3 trillion cubic meters (1.7 trillion cubic yards) of gas. CNPC was awarded the license to explore and develop the field in 2007.
Turkmenistan has long exported nearly all its gas to Russia, with the exception of a small amount sent to Iran.
Some international experts have voiced doubt that Turkmenistan could meet all its supply obligations, but the government insists there is enough gas to supply all buyers.
Turkmenistan estimates its total reserves at more than 20 trillion cubic meters (26 trillion cubic yards), but international experts have questioned that figure.
Wednesday, June 24, 2009
China Torching Dollars
China is spending its US Dollars faster than Uncle Ben can print them and moving into the "natural resources" currency described below.
China’s Got a New Currency… and It Sure AIN’T the Dollar
By: Graham_Summers
That new currency is natural resources.
Throughout 2009, China has been buying up natural resources, commodities, and other real assets at a break-taking pace: copper imports hit a record 329,000 tons in February, only to be eclipsed by a new record of 375,000 tons in March.
The copper story is just the latest and most obvious display of China’s new currency binge. The Chinese have been buying up mines, metal ore (57 million tons of iron in April alone), and other resources for years now. The headlines were right under the world’s collective nose, but no one was thinking “diversification away from the dollar.” Instead they were thinking, “purchases needed to fuel economic growth.”
Truly, it wasn’t until the world noticed that China was still buying commodities in record amounts even after its economy took a hit that the media began to connect the dots.
Here’s a few dots to consider
Feb.10, 2009: China buys Oz Minerals, the world’s second largest zinc miner for $1.7 billion
Feb. 12, 2009: China buys $20 billion worth of Rio Tinto, one of the three largest iron ore producers, giving it the potential to raise its stake to 19%.
Feb. 24. 2009: China buys 16% of Fortescue Metals an Australian iron ore company.
April 1, 2009 China buys $46 million worth of Terramin Australia’s lead and zinc supplies in Algeria.
April 15, 2009: China buy 51% of Ontario’s Liberty Mines: a nickel producer.
Read More Here: http://www.marketoracle.co.uk/Article11392.html
China On Energy/Mineral Roll
Chinese firm to buy Addax Petroleum for $8.3B
By Lisa Schmidt, Calgary HeraldJune 24, 2009
CALGARY - Canadian-Swiss oil and gas producer Addax Petroleum Corp. is being acquired by China Petroleum Corp. in a deal valued at $8.3 billion.
China Petroleum Corp, known as Sinopec Group, is China’s largest producer and supplier of oil products and major petrochemical products. Under the agreement announced Wednesday, Sinopec will pay $52.80 per Addax share, a 47 per cent premium to the stock price on June 5, when Addax confirmed it was in negotiations with an unnamed buyer.
Addax produced 134,730 barrels of oil per day during the first quarter, primarily from Nigeria, as well as its operations in the Middle East.
The company also recently announced first international oil exports from the Taq Taq field in the Kurdistan region of Iraq, which it and joint partner Gelen Enerji of Turkey expect to flow 100,000 barrel per day.
China’s ability to access cash reserves has made it a bidder on international oil opportunities, such as in Syria, Russia, Libya and Canada.
Sinopec this year upped its stake in the Northern Lights oilsands project to 50 per cent. It was one of three deals made in Canada since 2005, when CNOOC invested in oilsands junior MEG Energy Corp.
In addition to Sinopec’s purchase of a stake in Northern Lights, CNPC bought oilsands leases it has not yet developed.
Sinopec and other Chinese companies have been considering overseas acquisitions of oil and gas assets worth as much as $12 billion US, the South China Morning Post has reported, citing unidentified industry sources.
By Lisa Schmidt, Calgary HeraldJune 24, 2009
CALGARY - Canadian-Swiss oil and gas producer Addax Petroleum Corp. is being acquired by China Petroleum Corp. in a deal valued at $8.3 billion.
China Petroleum Corp, known as Sinopec Group, is China’s largest producer and supplier of oil products and major petrochemical products. Under the agreement announced Wednesday, Sinopec will pay $52.80 per Addax share, a 47 per cent premium to the stock price on June 5, when Addax confirmed it was in negotiations with an unnamed buyer.
Addax produced 134,730 barrels of oil per day during the first quarter, primarily from Nigeria, as well as its operations in the Middle East.
The company also recently announced first international oil exports from the Taq Taq field in the Kurdistan region of Iraq, which it and joint partner Gelen Enerji of Turkey expect to flow 100,000 barrel per day.
China’s ability to access cash reserves has made it a bidder on international oil opportunities, such as in Syria, Russia, Libya and Canada.
Sinopec this year upped its stake in the Northern Lights oilsands project to 50 per cent. It was one of three deals made in Canada since 2005, when CNOOC invested in oilsands junior MEG Energy Corp.
In addition to Sinopec’s purchase of a stake in Northern Lights, CNPC bought oilsands leases it has not yet developed.
Sinopec and other Chinese companies have been considering overseas acquisitions of oil and gas assets worth as much as $12 billion US, the South China Morning Post has reported, citing unidentified industry sources.
Like Rats From a Sinking Ship...State Politicians Battling to Save Themselves
State shutdowns loom as deadlines near
At least 19 states still have to approve their fiscal 2010 budgets before next Tuesday. If they don't, staffers might not be paid and services might shut down.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- One week and counting. An unprecedented number of states have only days left to pass their fiscal 2010 budgets.
At least 19 states are still hammering out their spending plans as the recession wreaks havoc with their finances and sparks fights between governors and lawmakers. If spending plans aren't approved, state workers may not receive their paychecks and some government offices may shut down.
"A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."
Some 46 states end their fiscal years on June 30 and all but one require balanced budgets be adopted.
States are struggling to close shortfalls totaling $121 billion for fiscal 2010 as the recession decimates tax revenues.
Read More Here: http://money.cnn.com/2009/06/24/news/economy/Clock_ticking_on_state_budgets/index.htm?postversion=2009062412
At least 19 states still have to approve their fiscal 2010 budgets before next Tuesday. If they don't, staffers might not be paid and services might shut down.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- One week and counting. An unprecedented number of states have only days left to pass their fiscal 2010 budgets.
At least 19 states are still hammering out their spending plans as the recession wreaks havoc with their finances and sparks fights between governors and lawmakers. If spending plans aren't approved, state workers may not receive their paychecks and some government offices may shut down.
"A lot of states are coming down to the wire," said Todd Haggerty, research analyst for the National Conference of State Legislatures. "More than what's typical. The unprecedented economic situation is creating a lot of difficulty this year."
Some 46 states end their fiscal years on June 30 and all but one require balanced budgets be adopted.
States are struggling to close shortfalls totaling $121 billion for fiscal 2010 as the recession decimates tax revenues.
Read More Here: http://money.cnn.com/2009/06/24/news/economy/Clock_ticking_on_state_budgets/index.htm?postversion=2009062412
State Layoffs On The Rise
The next line of bull out of Washington will be that the last stimulus wasn't big enough - as opposed to facing the facts that nothing the federal government can do will help the economy (other than leaving it alone).
States slash jobs despite stimulus $$
Weakening economy forces states to lay off workers even as officials implement stimulus programs designed to create and save jobs.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Virginia's Department of Transportation is putting $694.5 million in stimulus funds to work repairing the state's roads and bridges. But that money won't save the jobs of nearly 1,500 of the agency's workers.
Facing a $2.6 billion budget shortfall over the next six years, the department is laying off a thousand full-time staffers over the next 18 months. Another 450 part-time workers were already let go.
States across the nation are laying off workers, even as they deploy billions of dollars of stimulus funds meant to stabilize the economy by creating or saving jobs.
Governors and legislatures are scrambling to close gaping shortfalls in their budgets as the recession decimates tax revenues. Having already cut spending and raised taxes and fees, officials increasingly are eyeing their payrolls as a way to balance their budgets.
Government jobs have long been considered secure, especially since many workers are in unions. Even during recessions, the cuts often aren't as deep.
Read More Here: http://money.cnn.com/2009/06/09/news/economy/states_lay_off_workers/index.htm?postversion=2009061011
States slash jobs despite stimulus $$
Weakening economy forces states to lay off workers even as officials implement stimulus programs designed to create and save jobs.
By Tami Luhby, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- Virginia's Department of Transportation is putting $694.5 million in stimulus funds to work repairing the state's roads and bridges. But that money won't save the jobs of nearly 1,500 of the agency's workers.
Facing a $2.6 billion budget shortfall over the next six years, the department is laying off a thousand full-time staffers over the next 18 months. Another 450 part-time workers were already let go.
States across the nation are laying off workers, even as they deploy billions of dollars of stimulus funds meant to stabilize the economy by creating or saving jobs.
Governors and legislatures are scrambling to close gaping shortfalls in their budgets as the recession decimates tax revenues. Having already cut spending and raised taxes and fees, officials increasingly are eyeing their payrolls as a way to balance their budgets.
Government jobs have long been considered secure, especially since many workers are in unions. Even during recessions, the cuts often aren't as deep.
Read More Here: http://money.cnn.com/2009/06/09/news/economy/states_lay_off_workers/index.htm?postversion=2009061011
Tuesday, June 23, 2009
5th Largest Economy in World Running Out of Time
California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.
The dominoes of default are in motion with each state taking out the next. California is but the first in a long line of implosions which may culminate with the federal government defaulting on its obligations.
California's Economy Collapsing
By: Martin Weiss
Washington and Wall Street seem to be treating California as if it were a sideshow in the financial circus of these turbulent times.
It’s not.
California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation’s largest high-tech center.
California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.
And it’s collapsing.
Major California counties are ground zero in the continuing mortgage meltdown:
Los Angeles County with 5.32 percent of mortgages 90 days past due … Monterrey County, 8.02 percent … Imperial, 8.13 … San Bernadino, 8.66 … Madeira, 9.21 … San Joaquin, 9.53 … Riverside, 10.2 … Merced, 10.57 … and more!
California’s inventory of foreclosed homes is skyrocketing. Home prices are plunging. And the impact of surging unemployment is just beginning to show up in the data …
Worst Unemployment in 64 Years
The state’s unemployment rate has surged to 11.5 percent, the worst since World War II.
Last month, California lost 68,900 jobs. And since July 2007, it has lost 859,000 jobs, including 739,500 just in the past 12 months.
Even if the economy recovers, an unlikely scenario in my view, economists agree that California will continue to be slammed by layoffs, at least through the end of this year and probably well into 2010.
And even assuming a national recovery, UCLA’s Anderson Forecast projects an average unemployment rate of 12.1 percent from this fall through next spring.
What about without a national recovery? California’s jobless could go beyond 15 percent.
Worse, if you include part-time workers seeking full-time work plus workers who have given up looking entirely, it could reach 25 percent, exceeding the worst national unemployment levels of the Great Depression.
“Our wallet is empty. Our bank is closed. And our credit is dried up.”
These are not the words of a Dr. Doom in New York or a forlorn banker in Georgia. They represent the confession of Governor Arnold Schwarzenegger before a rare joint session of the California legislature … and with no exaggeration!
The state faces a stunning $24.3 billion budget deficit, even assuming no significant deterioration in the economy from this point onward. And the state has lost virtually all hope of President Obama declaring, “California is too big to fail.”
California State Treasurer Bill Lockyer tried to make that argument to Washington, and did so with great vigor. But he was rejected. After the long line-up of failed companies with hat in hand in recent months — on the steps of Congress or the White House lawn — some folks in government finally appear to have learned how to just say “no.”
“You’re on your own,” is the message from the president to the governor. “Beyond your share of the stimulus package, that’s it! No more!”
Result: The inevitability of massive state cutbacks, including large numbers of state jobs getting axed — all while the California jobless rate is already 11.5 percent.
How many state jobs are in jeopardy? Right now, Schwarzenegger is proposing laying off 5,000 state employees, as well as slashing education and social welfare programs. But the Anderson Forecast projects that Schwarzenegger’s budget cuts will eventually result in 64,000 job cuts from state government plus countless private-sector and local government jobs.
Massive Downgrades Coming
California’s credit rating is already the lowest among all U.S. states.
But with Moody’s, S&P, and Fitch still greatly influenced by massive conflicts of interest, it’s not nearly low enough.
And sure enough, on Friday, Moody’s tacitly admitted as much, announcing that it may have to cut California’s rating by several notches in one fell swoop!
Standard & Poor’s put California on watch for a possible downgrade a few days earlier. Fitch did the same May 29.
The big problem: Once downgraded, California’s rating is likely to fall below the minimal level legally required for most money market funds, forcing these funds to dump California paper posthaste.
Moody’s wrote:
“If the Legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July. … Lack of action could result in a multi-notch downgrade.”
But lack of action is precisely what Sacramento is now becoming most famous for. In fact, in their latest scuffle, Democrats proposed a budget that would raise $2 billion from cigarette taxes and oil companies. But the governor promptly vetoed the plan. So now Sacramento is in a new, escalating battle over the deficit just weeks before the state is expected to run out of cash to meet payroll and other bills.
State officials continue to insist that a state default is unthinkable … much like GM executives said their bankruptcy could never happen.
In my view, there is a very HIGH probability that California will default.
It’s obvious its debt merits a junk bond rating from every Wall Street rating agency.
And it’s equally obvious that the ratings agencies are artificially inflating the rating, stalling downgrades, and grossly understating the risk to investors.
My recommendations:
1. If you wait for Moody’s or S&P to act, it could be too late. Even if you can’t get what you might consider a good price, sell all California paper now!
2. Seriously consider dumping all tax-exempt bonds. I know the income is better than equivalent Treasuries. But if California defaults, it could set off a chain reaction of bond price plunges and defaults throughout the municipal bond market.
3. Don’t underestimate the impact California’s depression is having — and will continue to have — on the rest of the U.S. economy. At $1.8 trillion, the state’s GDP is so large, any further deterioration could wipe out every so-called “green shoot” in the national economy seen to date.
4. Stay safe, with a big portion of your nest egg in cash, tucked away in short-term Treasury bills … and with a very modest portion in gold, as an insurance policy against a dollar decline.
Good luck and God bless!
Martin
The dominoes of default are in motion with each state taking out the next. California is but the first in a long line of implosions which may culminate with the federal government defaulting on its obligations.
California's Economy Collapsing
By: Martin Weiss
Washington and Wall Street seem to be treating California as if it were a sideshow in the financial circus of these turbulent times.
It’s not.
California is home to the largest manufacturing belt in the United States and to Silicon Valley, the nation’s largest high-tech center.
California is America’s most populous state with 38 million people. Its GDP of $1.8 trillion is the largest in the U.S. Its economy is bigger than those of Russia, Brazil, Canada, or India.
And it’s collapsing.
Major California counties are ground zero in the continuing mortgage meltdown:
Los Angeles County with 5.32 percent of mortgages 90 days past due … Monterrey County, 8.02 percent … Imperial, 8.13 … San Bernadino, 8.66 … Madeira, 9.21 … San Joaquin, 9.53 … Riverside, 10.2 … Merced, 10.57 … and more!
California’s inventory of foreclosed homes is skyrocketing. Home prices are plunging. And the impact of surging unemployment is just beginning to show up in the data …
Worst Unemployment in 64 Years
The state’s unemployment rate has surged to 11.5 percent, the worst since World War II.
Last month, California lost 68,900 jobs. And since July 2007, it has lost 859,000 jobs, including 739,500 just in the past 12 months.
Even if the economy recovers, an unlikely scenario in my view, economists agree that California will continue to be slammed by layoffs, at least through the end of this year and probably well into 2010.
And even assuming a national recovery, UCLA’s Anderson Forecast projects an average unemployment rate of 12.1 percent from this fall through next spring.
What about without a national recovery? California’s jobless could go beyond 15 percent.
Worse, if you include part-time workers seeking full-time work plus workers who have given up looking entirely, it could reach 25 percent, exceeding the worst national unemployment levels of the Great Depression.
“Our wallet is empty. Our bank is closed. And our credit is dried up.”
These are not the words of a Dr. Doom in New York or a forlorn banker in Georgia. They represent the confession of Governor Arnold Schwarzenegger before a rare joint session of the California legislature … and with no exaggeration!
The state faces a stunning $24.3 billion budget deficit, even assuming no significant deterioration in the economy from this point onward. And the state has lost virtually all hope of President Obama declaring, “California is too big to fail.”
California State Treasurer Bill Lockyer tried to make that argument to Washington, and did so with great vigor. But he was rejected. After the long line-up of failed companies with hat in hand in recent months — on the steps of Congress or the White House lawn — some folks in government finally appear to have learned how to just say “no.”
“You’re on your own,” is the message from the president to the governor. “Beyond your share of the stimulus package, that’s it! No more!”
Result: The inevitability of massive state cutbacks, including large numbers of state jobs getting axed — all while the California jobless rate is already 11.5 percent.
How many state jobs are in jeopardy? Right now, Schwarzenegger is proposing laying off 5,000 state employees, as well as slashing education and social welfare programs. But the Anderson Forecast projects that Schwarzenegger’s budget cuts will eventually result in 64,000 job cuts from state government plus countless private-sector and local government jobs.
Massive Downgrades Coming
California’s credit rating is already the lowest among all U.S. states.
But with Moody’s, S&P, and Fitch still greatly influenced by massive conflicts of interest, it’s not nearly low enough.
And sure enough, on Friday, Moody’s tacitly admitted as much, announcing that it may have to cut California’s rating by several notches in one fell swoop!
Standard & Poor’s put California on watch for a possible downgrade a few days earlier. Fitch did the same May 29.
The big problem: Once downgraded, California’s rating is likely to fall below the minimal level legally required for most money market funds, forcing these funds to dump California paper posthaste.
Moody’s wrote:
“If the Legislature does not take action quickly, the state’s cash situation will deteriorate to the point where the controller will have to delay most non-priority payments in July. … Lack of action could result in a multi-notch downgrade.”
But lack of action is precisely what Sacramento is now becoming most famous for. In fact, in their latest scuffle, Democrats proposed a budget that would raise $2 billion from cigarette taxes and oil companies. But the governor promptly vetoed the plan. So now Sacramento is in a new, escalating battle over the deficit just weeks before the state is expected to run out of cash to meet payroll and other bills.
State officials continue to insist that a state default is unthinkable … much like GM executives said their bankruptcy could never happen.
In my view, there is a very HIGH probability that California will default.
It’s obvious its debt merits a junk bond rating from every Wall Street rating agency.
And it’s equally obvious that the ratings agencies are artificially inflating the rating, stalling downgrades, and grossly understating the risk to investors.
My recommendations:
1. If you wait for Moody’s or S&P to act, it could be too late. Even if you can’t get what you might consider a good price, sell all California paper now!
2. Seriously consider dumping all tax-exempt bonds. I know the income is better than equivalent Treasuries. But if California defaults, it could set off a chain reaction of bond price plunges and defaults throughout the municipal bond market.
3. Don’t underestimate the impact California’s depression is having — and will continue to have — on the rest of the U.S. economy. At $1.8 trillion, the state’s GDP is so large, any further deterioration could wipe out every so-called “green shoot” in the national economy seen to date.
4. Stay safe, with a big portion of your nest egg in cash, tucked away in short-term Treasury bills … and with a very modest portion in gold, as an insurance policy against a dollar decline.
Good luck and God bless!
Martin
United Airlines Should Go Out of Business
United Airlines may just be the most poorly run organization in the country. Whether it be $15 bag check fees, obesity charges, late and canceled flights, lost bags or the inability to run at a profit the organization wreaks of incompetence and failure at every level. The layoffs should start with the CEO, COO, CFO and every other officer of the company that has presided over their disaster of existence in the past 10 years. The only certainty is that they have 100% success rate at pissing off their customers.
United Airlines to trim more flight attendants
600 positions targeted; carrier seeks volunteers to take unpaid leaves
By Julie Johnsson | Tribune reporter
June 23, 2009
United Airlines will cut 600 additional flight attendant jobs, starting Aug. 31, as it struggles with two side effects of the recession: lower-than-anticipated attrition and a steep drop in air travel.
Most major U.S. carriers have unveiled new plans to lay off employees in recent weeks as economic turbulence depresses revenue while higher oil prices raise expenses, threatening the airline industry's financial viability.
The move by Chicago-based United, announced Monday, means that the carrier will pare 2,150 jobs from its workforce of 13,500 flight attendants this fall, a 16 percent reduction.
Read More Here: http://www.chicagotribune.com/business/chi-tue-united-flight-attendantsjun23,0,3695784.story
United Airlines to trim more flight attendants
600 positions targeted; carrier seeks volunteers to take unpaid leaves
By Julie Johnsson | Tribune reporter
June 23, 2009
United Airlines will cut 600 additional flight attendant jobs, starting Aug. 31, as it struggles with two side effects of the recession: lower-than-anticipated attrition and a steep drop in air travel.
Most major U.S. carriers have unveiled new plans to lay off employees in recent weeks as economic turbulence depresses revenue while higher oil prices raise expenses, threatening the airline industry's financial viability.
The move by Chicago-based United, announced Monday, means that the carrier will pare 2,150 jobs from its workforce of 13,500 flight attendants this fall, a 16 percent reduction.
Read More Here: http://www.chicagotribune.com/business/chi-tue-united-flight-attendantsjun23,0,3695784.story
Friday, June 19, 2009
Some thoughts on silver
Thursday, June 18, 2009
LBO/M&A Black Matter
Black Matter makes up more than 80% of all matter in the universe - except you can't see it. Like this mysterious substance, the failed leveraged buyouts and mergers and acquisitions which made up the overwhelming majority of extreme leverage and debt in the past 10 years have gone unnoticed. The finger of blame has been squarely pointed at sub-prime homeowners instead of singling out the mega financial casino transactions that have created the black hole of debt.
Let's take the GMAC transaction as an example - valued at nearly $17 billion. This is roughly equal to 85,000 single family homes at $200,000 - two or three of these bunk deals is a metropolis of 1,000,000 people foreclosed on.
Following up on a post earlier this week, please find below a more detailed description of the real elephant in the bailout room - leveraged buyouts and the mega bubble they created. The content was taken from Wikipedia.
The third private equity boom and the Golden Age of Private Equity (2003–2007)
As 2002 ended and 2003 began, the private equity sector, had spent the previous three two and a half years reeling from major losses in telecommunications and technology companies and had been severely constrained by tight credit markets. As 2003 got underway, private equity began a five year resurgence that would ultimately result in the completion of 13 of the 15 largest leveraged buyout transactions in history, unprecedented levels of investment activity and investor commitments and a major expansion and maturation of the leading private equity firms.
The combination of decreasing interest rates, loosening lending standards and regulatory changes for publicly traded companies would set the stage for the largest boom private equity had seen. The Sarbanes Oxley legislation, officially the Public Company Accounting Reform and Investor Protection Act, passed in 2002, in the wake of corporate scandals at Enron, WorldCom, Tyco, Adelphia, Peregrine Systems and Global Crossing among others, would create a new regime of rules and regulations for publicly traded corporations. In addition to the existing focus on short term earnings rather than long term value creation, many public company executives lamented the extra cost and bureaucracy associated with Sarbanes-Oxley compliance. For the first time, many large corporations saw private equity ownership as potentially more attractive than remaining public. Sarbanes-Oxley would have the opposite effect on the venture capital industry. The increased compliance costs would make it nearly impossible for venture capitalists to bring young companies to the public markets and dramatically reduced the opportunities for exits via IPO. Instead, venture capitalists have been forced increasingly to rely on sales to strategic buyers for an exit of their investment.
Interest rates, which began a major series of decreases in 2002 would reduce the cost of borrowing and increase the ability of private equity firms to finance large acquisitions. Lower interest rates would encourage investors to return to relatively dormant high-yield debt and leveraged loan markets, making debt more readily available to finance buyouts. Additionally, alternative investments also became increasingly important as investors sough yield despite increases in risk. This search for higher yielding investments would fuel larger funds and in turn larger deals, never thought possible, became reality.
Certain buyouts were completed in 2001 and early 2002, particularly in Europe where financing was more readily available. In 2001, for example, BT Group agreed to sell its international yellow pages directories business (Yell Group) to Apax Partners and Hicks, Muse, Tate & Furst for £2.14 billion (approximately $3.5 billion at the time),[19] making it then the largest non-corporate LBO in European history. Yell later bought US directories publisher McLeodUSA for about $600 million, and floated on London's FTSE in 2003.
Resurgence of the large buyout
Marked by the two-stage buyout of Dex Media at the end of 2002 and 2003, large multi-billion dollar U.S. buyouts could once again obtain significant high yield debt financing and larger transactions could be completed. The Carlyle Group, Welsh, Carson, Anderson & Stowe, along with other private investors, led a $7.5 billion buyout of QwestDex. The buyout was the third largest corporate buyout since 1989. QwestDex's purchase occurred in two stages: a $2.75 billion acquisition of assets known as Dex Media East in November 2002 and a $4.30 billion acquisition of assets known as Dex Media West in 2003. R. H. Donnelley Corporation acquired Dex Media in 2006. Shortly after Dex Media, other larger buyouts would be completed signaling the resurgence in private equity was underway. The acquisitions included Burger King (by Bain Capital), Jefferson Smurfit (by Madison Dearborn), Houghton Mifflin[20][21] (by Bain Capital, the Blackstone Group and Thomas H. Lee Partners) and TRW Automotive by the Blackstone Group.
LBOs are back, only they've rebranded themselves private equity and vow a happier ending. The firms say this time it's completely different. Instead of buying companies and dismantling them, as was their rap in the '80s, private equity firms… squeeze more profit out of underperforming companies.
But whether today's private equity firms are simply a regurgitation of their counterparts in the 1980s… or a kinder, gentler version, one thing remains clear: private equity is now enjoying a "Golden Age." And with returns that triple the S&P 500, it's no wonder they are challenging the public markets for supremacy.
By 2004 and 2005, major buyouts were once again becoming common and market observers were stunned by the leverage levels and financing terms obtained by financial sponsors in their buyouts. Some of the notable buyouts of this period include:
* Dollarama, 2004
The U.S. chain of "dollar stores" was sold for $850 million to Bain Capital.[23]
* Toys "R" Us, 2004
A consortium of Bain Capital, Kohlberg Kravis Roberts and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses.[24]
* The Hertz Corporation, 2005
Carlyle Group, Clayton Dubilier & Rice and Merrill Lynch completed the $15.0 billion leveraged buyout of the largest car rental agency from Ford.[25][26]
* Metro-Goldwyn-Mayer, 2005
A consortium led by Sony and TPG Capital completed the $4.81 billion buyout of the film studio. The consortium also included media-focused firms Providence Equity Partners and Quadrangle Group as well as DLJ Merchant Banking Partners.[27]
* SunGard, 2005
SunGard was acquired by a consortium of seven private equity investment firms in a transaction valued at $11.3 billion. The partners in the acquisition were Silver Lake Partners, which led the deal as well as Bain Capital, the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners, and Texas Pacific Group. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco at the end of the 1980s leveraged buyout boom. Also, at the time of its announcement, SunGard would be the largest buyout of a technology company in history, a distinction it would cede to the buyout of Freescale Semiconductor. The SunGard transaction is also notable in the number of firms involved in the transaction. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally
As 2005 ended and 2006 began, new "largest buyout" records were set and surpassed several times with nine of the top ten buyouts at the end of 2007 having been announced in an 18-month window from the beginning of 2006 through the middle of 2007. Additionally, the buyout boom was not limited to the United States as industrialized countries in Europe and the Asia-Pacific region also saw new records set. In 2006, private equity firms bought 654 U.S. companies for $375 billion, representing 18 times the level of transactions closed in 2003.[30] Additionally, U.S. based private equity firms raised $215.4 billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by 22% and 33% higher than the 2005 fundraising total.[31] However, venture capital funds, which were responsible for much of the fundraising volume in 2000 (the height of the dot-com bubble), raised only $25.1 billion in 2006, a 2% percent decline from 2005 and a significant decline from its peak.[32] The following year, despite the onset of turmoil in the credit markets in the summer, saw yet another record year of fundraising with $302 billion of investor commitments to 415 funds.[33]
* Georgia-Pacific Corp, 2005
In December 2005, Koch Industries, a privately-owned company controlled by Charles G. Koch and David H. Koch, acquired pulp and paper producer Georgia-Pacific for $21 billion.[34] The acquisition marked the first buyout in excess of $20 billion and largest buyout overall since RJR Nabisco and pushed Koch Industries ahead of Cargill as the largest privately-held company in the US, based on revenue.[35]
* Albertson's, 2006
Albertson's accepted a $15.9 billion takeover offer ($9.8 billion in cash and stock and the assumption of $6.1 billion in debt) from SuperValu to buy most Albertson's grocery operations. The drugstore chain CVS acquired 700 stand-alone Sav-On and Osco pharmacies and a distribution center, and a group including Cerberus Capital Management and the Kimco Realty Corporation acquired some 655 underperforming grocery stores and a number of distribution centers.[36]
* Equity Office Properties, 2006 – Blackstone Group completes the $37.7 billion[37] acquisition of one of the largest owners of commercial office properties in the US. At the time of its announcement, the Equity Office buyout became the largest in history, surpassing the buyout of HCA. It would later be surpassed by the buyouts of TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).
* Freescale Semiconductor, 2006
A consortium led by the Blackstone Group and including the Carlyle Group, Permira and the TPG Capital completed the $17.6 billion takeover of the semiconductor company. At the time of its announcement, Freescale would be the largest leveraged buyout of a technology company ever, surpassing the 2005 buyout of SunGard.[38]
* GMAC, 2006
General Motors sold a 51% majority stake in its financing arm, GMAC Financial Services to a consortium led by Cerberus Capital Management, valuing the company at $16.8 billion.[39] Separately, General Motors sold a 78% stake in GMAC Commercial Holding Corporation, renamed Capmark Financial Group, its real estate venture, to a group of investors headed by Kohlberg Kravis Roberts and Goldman Sachs Capital Partners in a $1.5 billion deal. In June 2008, GMAC completed a $60 billion refinancing aimed at improving the liquidity of its struggling mortgage subsidiary, Residential Capital (ResCap) including $1.4 billion of additional equity contributions from the parent and Cerberus.[40][41]
* HCA, 2006
Kohlberg Kravis Roberts and Bain Capital, together with Merrill Lynch and the Frist family (which had founded the company) completed a $31.6 billion acquisition of the hospital company, 17 years after it was taken private for the first time in a management buyout. At the time of its announcement, the HCA buyout would be the first of several to set new records for the largest buyout, eclipsing the 1989 buyout of RJR Nabisco. It would later be surpassed by the buyouts of Equity Office Properties, TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).[42]
* Kinder Morgan, 2006
A consortium of private equity firms including Goldman Sachs Capital Partners , Carlyle Group and Riverstone Holdings completed a $27.5 billion (including assumed debt) acquisition of one of the largest pipeline operators in the US. The buyout was backed by Richard Kinder, the company's co-founder and a former president of Enron who was ousted after a dispute with Enron’s founder, Kenneth L. Lay.[43]
* Harrah's Entertainment, 2006
Apollo Management and TPG Capital completed the $27.39 billion[37] (including purchase of the outstanding equity for $16.7 billion and assumption of $10.7 billion of outstanding debt) acquisition of the gaming company.[44]
* TDC A/S, 2006
The Danish phone company was acquired by Kohlberg Kravis Roberts, Apax Partners, Providence Equity Partners and Permira for €12.2 billion ($15.3 billion), which at the time made it the second largest European buyout in history.[45][46]
* Sabre Holdings, 2006
TPG Capital and Silver Lake Partners announced a deal to buy Sabre Holdings, which operates Travelocity, Sabre Travel Network and Sabre Airline Solutions, for approximately $4.3 billion in cash, plus the assumption of $550 million in debt.[47] Earlier in the year, Blackstone acquired Sabre's chief competitor Travelport.
* Travelport, 2006
Travelport, which owns Worldspan and Galileo as well as approximately 48% of Orbitz Worldwide was acquired from Cendant by The Blackstone Group, One Equity Partners and Technology Crossover Ventures in a deal valued at $4.3 billion. The sale of Travelport followed the spin-offs of Cendant's real estate and hospitality businesses, Realogy Corporation and Wyndham Worldwide Corporation, respectively, in July 2006.[48][49] Later in the year, TPG and Silver Lake would acquire
Travelport's chief competitor Sabre Holdings.
* Alliance Boots, 2007
Kohlberg Kravis Roberts and Stefano Pessina, the company’s deputy chairman and largest shareholder, acquired the UK drug store retailer for £12.4 billion ($24.8 billion) including assumed debt, after increasing their bid more than 40% amidst intense competition from Terra Firma Capital Partners and Wellcome Trust. The buyout came only a year after the merger of Boots Group plc (Boots the Chemist), and Alliance UniChem plc.[50]
* Biomet, 2007
The Blackstone Group, Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs Capital Partners acquired the medical devices company for $11.6 billion.[51]
* Chrysler, 2007
Cerberus Capital Management completed the $7.5 billion acquisition of 80.1% of the U.S. car manufacturer. Only $1.45 billion of proceeds were expected to be paid to Daimler and does not include nearly $600 million of cash Daimler agreed to invest in Chrysler.[52] With the company struggling, Cerberus brought in former Home Depot CEO, Robert Nardelli as the new chief executive of Chrysler to execute a turnaround of the company.[53]
* First Data, 2007
Kohlberg Kravis Roberts and TPG Capital completed the $29 billion buyout of the credit and debit card payment processor and former parent of Western Union[54] Michael Capellas, previously the CEO of MCI Communications and Compaq was named CEO of the privately held company.
* TXU, 2007
An investor group led by KKR and TPG Capital and together with Goldman Sachs Capital Partners completed the $44.37 billion[37] buyout of the regulated utility and power producer. The investor group had to work closely with ERCOT regulators to gain approval of the transaction but had significant experience with the regulators from their earlier buyout of Texas Genco.[55]
* BCE
On July 4, 2008, BCE announced that a final agreement had been reached on the terms of the purchase, with all financing in place, and Michael Sabia left BCE, with George Cope assuming the position of CEO on July 11. The deal's final closing date is scheduled for December 11, 2008. With a value of $51.7 billion (Canadian), this is now the largest buyout in Canadian and worldwide history.
Let's take the GMAC transaction as an example - valued at nearly $17 billion. This is roughly equal to 85,000 single family homes at $200,000 - two or three of these bunk deals is a metropolis of 1,000,000 people foreclosed on.
Following up on a post earlier this week, please find below a more detailed description of the real elephant in the bailout room - leveraged buyouts and the mega bubble they created. The content was taken from Wikipedia.
The third private equity boom and the Golden Age of Private Equity (2003–2007)
As 2002 ended and 2003 began, the private equity sector, had spent the previous three two and a half years reeling from major losses in telecommunications and technology companies and had been severely constrained by tight credit markets. As 2003 got underway, private equity began a five year resurgence that would ultimately result in the completion of 13 of the 15 largest leveraged buyout transactions in history, unprecedented levels of investment activity and investor commitments and a major expansion and maturation of the leading private equity firms.
The combination of decreasing interest rates, loosening lending standards and regulatory changes for publicly traded companies would set the stage for the largest boom private equity had seen. The Sarbanes Oxley legislation, officially the Public Company Accounting Reform and Investor Protection Act, passed in 2002, in the wake of corporate scandals at Enron, WorldCom, Tyco, Adelphia, Peregrine Systems and Global Crossing among others, would create a new regime of rules and regulations for publicly traded corporations. In addition to the existing focus on short term earnings rather than long term value creation, many public company executives lamented the extra cost and bureaucracy associated with Sarbanes-Oxley compliance. For the first time, many large corporations saw private equity ownership as potentially more attractive than remaining public. Sarbanes-Oxley would have the opposite effect on the venture capital industry. The increased compliance costs would make it nearly impossible for venture capitalists to bring young companies to the public markets and dramatically reduced the opportunities for exits via IPO. Instead, venture capitalists have been forced increasingly to rely on sales to strategic buyers for an exit of their investment.
Interest rates, which began a major series of decreases in 2002 would reduce the cost of borrowing and increase the ability of private equity firms to finance large acquisitions. Lower interest rates would encourage investors to return to relatively dormant high-yield debt and leveraged loan markets, making debt more readily available to finance buyouts. Additionally, alternative investments also became increasingly important as investors sough yield despite increases in risk. This search for higher yielding investments would fuel larger funds and in turn larger deals, never thought possible, became reality.
Certain buyouts were completed in 2001 and early 2002, particularly in Europe where financing was more readily available. In 2001, for example, BT Group agreed to sell its international yellow pages directories business (Yell Group) to Apax Partners and Hicks, Muse, Tate & Furst for £2.14 billion (approximately $3.5 billion at the time),[19] making it then the largest non-corporate LBO in European history. Yell later bought US directories publisher McLeodUSA for about $600 million, and floated on London's FTSE in 2003.
Resurgence of the large buyout
Marked by the two-stage buyout of Dex Media at the end of 2002 and 2003, large multi-billion dollar U.S. buyouts could once again obtain significant high yield debt financing and larger transactions could be completed. The Carlyle Group, Welsh, Carson, Anderson & Stowe, along with other private investors, led a $7.5 billion buyout of QwestDex. The buyout was the third largest corporate buyout since 1989. QwestDex's purchase occurred in two stages: a $2.75 billion acquisition of assets known as Dex Media East in November 2002 and a $4.30 billion acquisition of assets known as Dex Media West in 2003. R. H. Donnelley Corporation acquired Dex Media in 2006. Shortly after Dex Media, other larger buyouts would be completed signaling the resurgence in private equity was underway. The acquisitions included Burger King (by Bain Capital), Jefferson Smurfit (by Madison Dearborn), Houghton Mifflin[20][21] (by Bain Capital, the Blackstone Group and Thomas H. Lee Partners) and TRW Automotive by the Blackstone Group.
LBOs are back, only they've rebranded themselves private equity and vow a happier ending. The firms say this time it's completely different. Instead of buying companies and dismantling them, as was their rap in the '80s, private equity firms… squeeze more profit out of underperforming companies.
But whether today's private equity firms are simply a regurgitation of their counterparts in the 1980s… or a kinder, gentler version, one thing remains clear: private equity is now enjoying a "Golden Age." And with returns that triple the S&P 500, it's no wonder they are challenging the public markets for supremacy.
By 2004 and 2005, major buyouts were once again becoming common and market observers were stunned by the leverage levels and financing terms obtained by financial sponsors in their buyouts. Some of the notable buyouts of this period include:
* Dollarama, 2004
The U.S. chain of "dollar stores" was sold for $850 million to Bain Capital.[23]
* Toys "R" Us, 2004
A consortium of Bain Capital, Kohlberg Kravis Roberts and real estate development company Vornado Realty Trust announced the $6.6 billion acquisition of the toy retailer. A month earlier, Cerberus Capital Management, made a $5.5 billion offer for both the toy and baby supplies businesses.[24]
* The Hertz Corporation, 2005
Carlyle Group, Clayton Dubilier & Rice and Merrill Lynch completed the $15.0 billion leveraged buyout of the largest car rental agency from Ford.[25][26]
* Metro-Goldwyn-Mayer, 2005
A consortium led by Sony and TPG Capital completed the $4.81 billion buyout of the film studio. The consortium also included media-focused firms Providence Equity Partners and Quadrangle Group as well as DLJ Merchant Banking Partners.[27]
* SunGard, 2005
SunGard was acquired by a consortium of seven private equity investment firms in a transaction valued at $11.3 billion. The partners in the acquisition were Silver Lake Partners, which led the deal as well as Bain Capital, the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners, and Texas Pacific Group. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco at the end of the 1980s leveraged buyout boom. Also, at the time of its announcement, SunGard would be the largest buyout of a technology company in history, a distinction it would cede to the buyout of Freescale Semiconductor. The SunGard transaction is also notable in the number of firms involved in the transaction. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally
As 2005 ended and 2006 began, new "largest buyout" records were set and surpassed several times with nine of the top ten buyouts at the end of 2007 having been announced in an 18-month window from the beginning of 2006 through the middle of 2007. Additionally, the buyout boom was not limited to the United States as industrialized countries in Europe and the Asia-Pacific region also saw new records set. In 2006, private equity firms bought 654 U.S. companies for $375 billion, representing 18 times the level of transactions closed in 2003.[30] Additionally, U.S. based private equity firms raised $215.4 billion in investor commitments to 322 funds, surpassing the previous record set in 2000 by 22% and 33% higher than the 2005 fundraising total.[31] However, venture capital funds, which were responsible for much of the fundraising volume in 2000 (the height of the dot-com bubble), raised only $25.1 billion in 2006, a 2% percent decline from 2005 and a significant decline from its peak.[32] The following year, despite the onset of turmoil in the credit markets in the summer, saw yet another record year of fundraising with $302 billion of investor commitments to 415 funds.[33]
* Georgia-Pacific Corp, 2005
In December 2005, Koch Industries, a privately-owned company controlled by Charles G. Koch and David H. Koch, acquired pulp and paper producer Georgia-Pacific for $21 billion.[34] The acquisition marked the first buyout in excess of $20 billion and largest buyout overall since RJR Nabisco and pushed Koch Industries ahead of Cargill as the largest privately-held company in the US, based on revenue.[35]
* Albertson's, 2006
Albertson's accepted a $15.9 billion takeover offer ($9.8 billion in cash and stock and the assumption of $6.1 billion in debt) from SuperValu to buy most Albertson's grocery operations. The drugstore chain CVS acquired 700 stand-alone Sav-On and Osco pharmacies and a distribution center, and a group including Cerberus Capital Management and the Kimco Realty Corporation acquired some 655 underperforming grocery stores and a number of distribution centers.[36]
* Equity Office Properties, 2006 – Blackstone Group completes the $37.7 billion[37] acquisition of one of the largest owners of commercial office properties in the US. At the time of its announcement, the Equity Office buyout became the largest in history, surpassing the buyout of HCA. It would later be surpassed by the buyouts of TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).
* Freescale Semiconductor, 2006
A consortium led by the Blackstone Group and including the Carlyle Group, Permira and the TPG Capital completed the $17.6 billion takeover of the semiconductor company. At the time of its announcement, Freescale would be the largest leveraged buyout of a technology company ever, surpassing the 2005 buyout of SunGard.[38]
* GMAC, 2006
General Motors sold a 51% majority stake in its financing arm, GMAC Financial Services to a consortium led by Cerberus Capital Management, valuing the company at $16.8 billion.[39] Separately, General Motors sold a 78% stake in GMAC Commercial Holding Corporation, renamed Capmark Financial Group, its real estate venture, to a group of investors headed by Kohlberg Kravis Roberts and Goldman Sachs Capital Partners in a $1.5 billion deal. In June 2008, GMAC completed a $60 billion refinancing aimed at improving the liquidity of its struggling mortgage subsidiary, Residential Capital (ResCap) including $1.4 billion of additional equity contributions from the parent and Cerberus.[40][41]
* HCA, 2006
Kohlberg Kravis Roberts and Bain Capital, together with Merrill Lynch and the Frist family (which had founded the company) completed a $31.6 billion acquisition of the hospital company, 17 years after it was taken private for the first time in a management buyout. At the time of its announcement, the HCA buyout would be the first of several to set new records for the largest buyout, eclipsing the 1989 buyout of RJR Nabisco. It would later be surpassed by the buyouts of Equity Office Properties, TXU and BCE (announced but as of the end of the first quarter of 2008 not yet completed).[42]
* Kinder Morgan, 2006
A consortium of private equity firms including Goldman Sachs Capital Partners , Carlyle Group and Riverstone Holdings completed a $27.5 billion (including assumed debt) acquisition of one of the largest pipeline operators in the US. The buyout was backed by Richard Kinder, the company's co-founder and a former president of Enron who was ousted after a dispute with Enron’s founder, Kenneth L. Lay.[43]
* Harrah's Entertainment, 2006
Apollo Management and TPG Capital completed the $27.39 billion[37] (including purchase of the outstanding equity for $16.7 billion and assumption of $10.7 billion of outstanding debt) acquisition of the gaming company.[44]
* TDC A/S, 2006
The Danish phone company was acquired by Kohlberg Kravis Roberts, Apax Partners, Providence Equity Partners and Permira for €12.2 billion ($15.3 billion), which at the time made it the second largest European buyout in history.[45][46]
* Sabre Holdings, 2006
TPG Capital and Silver Lake Partners announced a deal to buy Sabre Holdings, which operates Travelocity, Sabre Travel Network and Sabre Airline Solutions, for approximately $4.3 billion in cash, plus the assumption of $550 million in debt.[47] Earlier in the year, Blackstone acquired Sabre's chief competitor Travelport.
* Travelport, 2006
Travelport, which owns Worldspan and Galileo as well as approximately 48% of Orbitz Worldwide was acquired from Cendant by The Blackstone Group, One Equity Partners and Technology Crossover Ventures in a deal valued at $4.3 billion. The sale of Travelport followed the spin-offs of Cendant's real estate and hospitality businesses, Realogy Corporation and Wyndham Worldwide Corporation, respectively, in July 2006.[48][49] Later in the year, TPG and Silver Lake would acquire
Travelport's chief competitor Sabre Holdings.
* Alliance Boots, 2007
Kohlberg Kravis Roberts and Stefano Pessina, the company’s deputy chairman and largest shareholder, acquired the UK drug store retailer for £12.4 billion ($24.8 billion) including assumed debt, after increasing their bid more than 40% amidst intense competition from Terra Firma Capital Partners and Wellcome Trust. The buyout came only a year after the merger of Boots Group plc (Boots the Chemist), and Alliance UniChem plc.[50]
* Biomet, 2007
The Blackstone Group, Kohlberg Kravis Roberts, TPG Capital and Goldman Sachs Capital Partners acquired the medical devices company for $11.6 billion.[51]
* Chrysler, 2007
Cerberus Capital Management completed the $7.5 billion acquisition of 80.1% of the U.S. car manufacturer. Only $1.45 billion of proceeds were expected to be paid to Daimler and does not include nearly $600 million of cash Daimler agreed to invest in Chrysler.[52] With the company struggling, Cerberus brought in former Home Depot CEO, Robert Nardelli as the new chief executive of Chrysler to execute a turnaround of the company.[53]
* First Data, 2007
Kohlberg Kravis Roberts and TPG Capital completed the $29 billion buyout of the credit and debit card payment processor and former parent of Western Union[54] Michael Capellas, previously the CEO of MCI Communications and Compaq was named CEO of the privately held company.
* TXU, 2007
An investor group led by KKR and TPG Capital and together with Goldman Sachs Capital Partners completed the $44.37 billion[37] buyout of the regulated utility and power producer. The investor group had to work closely with ERCOT regulators to gain approval of the transaction but had significant experience with the regulators from their earlier buyout of Texas Genco.[55]
* BCE
On July 4, 2008, BCE announced that a final agreement had been reached on the terms of the purchase, with all financing in place, and Michael Sabia left BCE, with George Cope assuming the position of CEO on July 11. The deal's final closing date is scheduled for December 11, 2008. With a value of $51.7 billion (Canadian), this is now the largest buyout in Canadian and worldwide history.
Snickers, Doritos or Gold: Gold Vending Machines
This just in: gold is currency. In other news, the sky is blue.
Looking to Buy Gold? Grab a Sack of Quarters First
By CARTER DOUGHERTY
Published: June 17, 2009
FRANKFURT — If gold is the ultimate sanctuary for small investors who have taken furious flight to quality, then Thomas Geissler may have invented the ultimate vending machine.
After creating an online platform for trading precious metals this year, his small company has hit on a frontier beyond the Internet: the seemingly endless line of devices at airports and train stations that spit out cigarettes, condoms, toothpaste and candy bars in exchange for a little cash. But his machines will allow customers to buy small chunks of gold.
Mr. Geissler’s argument centers on gold’s role as the investor’s last bulwark against inflation. As the Federal Reserve, the European Central Bank and the Bank of England print vast amounts of money to combat the worst economic downturn in a generation, prices are likely to rise.
Read More Here: http://www.nytimes.com/2009/06/18/business/global/18gold.html?hp
Looking to Buy Gold? Grab a Sack of Quarters First
By CARTER DOUGHERTY
Published: June 17, 2009
FRANKFURT — If gold is the ultimate sanctuary for small investors who have taken furious flight to quality, then Thomas Geissler may have invented the ultimate vending machine.
After creating an online platform for trading precious metals this year, his small company has hit on a frontier beyond the Internet: the seemingly endless line of devices at airports and train stations that spit out cigarettes, condoms, toothpaste and candy bars in exchange for a little cash. But his machines will allow customers to buy small chunks of gold.
Mr. Geissler’s argument centers on gold’s role as the investor’s last bulwark against inflation. As the Federal Reserve, the European Central Bank and the Bank of England print vast amounts of money to combat the worst economic downturn in a generation, prices are likely to rise.
Read More Here: http://www.nytimes.com/2009/06/18/business/global/18gold.html?hp
Detroit Retail Vaccum
A lack of outlets that sell fresh produce and meat has led the United Food and Commercial Workers union and a community group to think about building a grocery store of its own.
Too bad you can't eat the green shoots!
Retailers Head for Exits in Detroit
Shopping Becomes a Challenge as Auto-Industry Collapse Adds to City's Woes
By ANDREW GROSSMAN
DETROIT -- They call this the Motor City, but you have to leave town to buy a Chrysler or a Jeep.
Borders Inc. was founded 40 miles away, but the only one of the chain's bookstores here closed this month. And Starbucks Corp., famous for saturating U.S. cities with its storefronts, has only four left in this city of 900,000 after closures last summer.
Detroit's Retail Exodus
Lochmoor Chrysler Jeep on Detroit's East Side has stopped selling Chrysler products, one of the 789 franchises Chrysler is dropping from its retail network.
There was a time early in the decade when downtown Detroit was sprouting new cafes and shops, and residents began to nurture hopes of a rebound. But lately, they are finding it increasingly tough to buy groceries or get a cup of fresh-roast coffee as the 11th largest U.S. city struggles with the recession and the auto-industry crisis.
No national grocery chain operates a store here. A lack of outlets that sell fresh produce and meat has led the United Food and Commercial Workers union and a community group to think about building a grocery store of its own.
Read More Here: http://online.wsj.com/article/SB124510185111216455.html#printMode
Too bad you can't eat the green shoots!
Retailers Head for Exits in Detroit
Shopping Becomes a Challenge as Auto-Industry Collapse Adds to City's Woes
By ANDREW GROSSMAN
DETROIT -- They call this the Motor City, but you have to leave town to buy a Chrysler or a Jeep.
Borders Inc. was founded 40 miles away, but the only one of the chain's bookstores here closed this month. And Starbucks Corp., famous for saturating U.S. cities with its storefronts, has only four left in this city of 900,000 after closures last summer.
Detroit's Retail Exodus
Lochmoor Chrysler Jeep on Detroit's East Side has stopped selling Chrysler products, one of the 789 franchises Chrysler is dropping from its retail network.
There was a time early in the decade when downtown Detroit was sprouting new cafes and shops, and residents began to nurture hopes of a rebound. But lately, they are finding it increasingly tough to buy groceries or get a cup of fresh-roast coffee as the 11th largest U.S. city struggles with the recession and the auto-industry crisis.
No national grocery chain operates a store here. A lack of outlets that sell fresh produce and meat has led the United Food and Commercial Workers union and a community group to think about building a grocery store of its own.
Read More Here: http://online.wsj.com/article/SB124510185111216455.html#printMode
Wednesday, June 17, 2009
Chinese: Buy Local
This same policy is impossible to implement in the United States simply because we import just about everything - including labor. It's so skewed that Deutsche Bank is one of the major benefactors of the bailout programs.
Beijing orders 'Buy China' for stimulus projects
By JOE McDONALD – 3 hours ago
BEIJING (AP) — China has imposed a requirement for its stimulus projects to use domestically made goods — a move that could strain ties with trading partners after Beijing criticized Washington's "Buy American" stimulus provisions.
Projects must obtain official permission to use imported goods, said an order issued by China's main planning agency and eight other government bodies.
Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing's 4 trillion yuan ($586 billion) stimulus. Foreign makers of wind turbines complain they have been shut out of bidding on a $5 billion stimulus-financed power project.
"Government investment projects should buy domestically made products unless products or services cannot be obtained in reasonable commercial conditions in China," says the order, dated June 1 and reported this week by state media. "Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts."
Read More Here: http://www.google.com/hostednews/ap/article/ALeqM5j1FZRNA_nf7XY7YePH-Od-tdunFAD98SD52G0
Beijing orders 'Buy China' for stimulus projects
By JOE McDONALD – 3 hours ago
BEIJING (AP) — China has imposed a requirement for its stimulus projects to use domestically made goods — a move that could strain ties with trading partners after Beijing criticized Washington's "Buy American" stimulus provisions.
Projects must obtain official permission to use imported goods, said an order issued by China's main planning agency and eight other government bodies.
Even before the order, business groups worried that foreign companies might be excluded from construction and other projects financed by Beijing's 4 trillion yuan ($586 billion) stimulus. Foreign makers of wind turbines complain they have been shut out of bidding on a $5 billion stimulus-financed power project.
"Government investment projects should buy domestically made products unless products or services cannot be obtained in reasonable commercial conditions in China," says the order, dated June 1 and reported this week by state media. "Projects that really need to buy imports should be approved by the relevant government departments before purchasing activity starts."
Read More Here: http://www.google.com/hostednews/ap/article/ALeqM5j1FZRNA_nf7XY7YePH-Od-tdunFAD98SD52G0
Tuesday, June 16, 2009
Credit Card Defaults at an All Time High
U.S. credit card defaults rise to record in May
Mon Jun 15, 2009 4:17pm EDT
By Juan Lagorio
NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's lending portfolio, in another sign that consumers remain under severe stress.
Delinquency rates -- an indicator of future credit losses -- fell across the industry, but analysts said the decline was due to a seasonal trend, as consumers used tax refunds to pay back debts, and they expect delinquencies to go up again in coming months.
"I find it hard to believe that it is really a trend. You need to see stabilization in unemployment before you see anything else," said Chris Brendler, an analyst at Stifel Nicolaus. "It is too early to see some kind of improvement."
Bank of America Corp -- the largest U.S. bank -- said its default rate, those loans the company does not expect to be paid back, soared to 12.50 percent in May from 10.47 percent in April.
Read More Here: http://www.reuters.com/article/businessNews/idUSTRE55E5GQ20090615?feedType=RSS&feedName=businessNews
Mon Jun 15, 2009 4:17pm EDT
By Juan Lagorio
NEW YORK (Reuters) - U.S. credit card defaults rose to record highs in May, with a steep deterioration of Bank of America Corp's lending portfolio, in another sign that consumers remain under severe stress.
Delinquency rates -- an indicator of future credit losses -- fell across the industry, but analysts said the decline was due to a seasonal trend, as consumers used tax refunds to pay back debts, and they expect delinquencies to go up again in coming months.
"I find it hard to believe that it is really a trend. You need to see stabilization in unemployment before you see anything else," said Chris Brendler, an analyst at Stifel Nicolaus. "It is too early to see some kind of improvement."
Bank of America Corp -- the largest U.S. bank -- said its default rate, those loans the company does not expect to be paid back, soared to 12.50 percent in May from 10.47 percent in April.
Read More Here: http://www.reuters.com/article/businessNews/idUSTRE55E5GQ20090615?feedType=RSS&feedName=businessNews
US Rating Downgrade Imminent
Whether it is due to naivete or arrogance, some people just don't get it yet. The U.S. Dollar is on life support and any downgrade will trigger a full out stampede into hard assets/other currencies. The debt is not going to be paid back.
U.S. likely to lose AAA rating: Prechter
Mon Jun 15, 2009 5:17pm EDT
By John Parry
NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.
Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.
Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.
Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.
"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.
Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.
Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.
Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.
The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.
Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.
"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.
U.S. likely to lose AAA rating: Prechter
Mon Jun 15, 2009 5:17pm EDT
By John Parry
NEW YORK (Reuters) - Technical analyst Robert Prechter on Monday said he sees the United States losing its top AAA credit rating by the end of 2010, as he stuck by a deeply bearish outlook on the U.S. economy and stock market.
Prechter, known for predicting the 1987 stock market crash, joins a growing coterie of market heavyweights in forecasting the United States will lose its top credit rating as the government issues trillions of dollars in debt to fund efforts to bail out the economy.
Fears about the long-term vulnerability of the prized U.S. credit rating came to the fore after Standard & Poor's in May lowered its outlook on Britain, threatening the UK's top AAA rating. That move raised fears that the United States could face a similar risk, with the hefty amounts of government debt issued in both countries to pay for financial rescues causing budget deficits to swell.
Prechter, speaking at the Reuters Investment Outlook Summit in New York, said he sees investors' confidence in an economic rebound fading, a trend that will drag the S&P 500 stock index .SPX well below the March 6 intraday low of 666.79 by the end of this year or early next.
"There will be a leg down in stock prices, and it will affect all other areas," including corporate bonds and commodities, said Prechter, who is executive officer at research company Elliott Wave International, based in Gainesville, Georgia.
Prechter, who is known for his bearish views, has repeatedly forecast a steep decline in stocks this year, even as the stock market has rebounded from 12-year lows set in March as optimism about an economic recovery has risen.
Despite the government and Federal Reserve's massive rescues for financial companies and securities markets, Prechter expects credit markets to clam up again as they did in the first phase of the global financial crisis and for the U.S. economy to sink into a depression.
Although U.S. banks' recently passed government "stress tests" that assessed the adequacy of their capital levels to absorb losses and have been able to raise some capital in debt and equity markets, "the banking sector is in severe trouble," as more loans turn bad, he said.
The economy "is obviously heading toward a depression," despite the government's efforts to dodge one, said Prechter.
Federal Reserve Chairman Ben Bernanke has not averted a re-run of the 1930s Great Depression, even though investors are becoming firmly convinced that the Fed has avoided disaster and that the economy has hit bottom.
"It's the next leg down (in stocks) that will make it clear that these things are not true," Prechter said.
Monday, June 15, 2009
Anatomy of a Coverup
Over the past 18 months the brouhaha of the market collapse has been focused on sub-prime loans like a magnifying glass focusing sunlight on worker ants. It's becoming more clear that the real offenders were the leveraged buyout firms who got drunk on derivatives and are now taking in the tarp funds through their corporate facades and hurrying them right out the back door and out of the country.
Take Cerberus for example, the group which controlled the majority shares of GMAC and Chrysler and ran both companies into the ground has serendipitously been made whole on a corporate level. Who runs the company? John Snow, former treasury secretary under Bush and Dan Quayle, former Vice President. For those that don't know, Cerberus is named after the multi-headed beast which guards the gates of hell from ancient Greek mythology.
Take Cerberus for example, the group which controlled the majority shares of GMAC and Chrysler and ran both companies into the ground has serendipitously been made whole on a corporate level. Who runs the company? John Snow, former treasury secretary under Bush and Dan Quayle, former Vice President. For those that don't know, Cerberus is named after the multi-headed beast which guards the gates of hell from ancient Greek mythology.
Sunday, June 14, 2009
The Mugabe School of Economics
The United States, running a $2 trillion deficit of its ownn, has pledged $73 million in aid to Zimbabwe and has ironically called for fiscal responsibility in the East African nation. Think about this for a moment, deficit means the United States is spending more than it takes in. The only funds that can be provided to Zimbabwe are borrowed - at interest. There may be a time when these funds approach the value of the Zimbabwe currency: toilet paper.
Obama Pledges $73 Million to Zimbabwe
By Michael A. Fletcher
President Obama announced today that the United States will provide $73 million in aid to Zimbabwe, saying the economically-wracked nation has made progress since Prime Minister Morgan Tsvangirai entered a power-sharing arrangement with longtime President Robert Mugabe four months ago.
"We've seen progress from the prime minister," Obama said, after meeting with Tsvangirai in the Oval Office.
The $73 million in assistance will not be going to the government but directly to services for citizens, Obama said, because "we continue to be concerned about consolidating democracy, human rights and rule of law."
Read More Here: http://voices.washingtonpost.com/44/2009/06/12/obama_pledges_73_million_to_zi.html?hpid=sec-politics
In a country where more than 3.5 million people are homeless each year (more than on quarter the total population of Zimbabwe) and more than 1 in 10 live below the poverty line it is clear that the United States needs assistance of its own.
Nobel laureate Mugabe and Nobel Laureate Krugman's lust for currency manipulation are as explosive as Alfred Nobel's dynamite.
Obama Pledges $73 Million to Zimbabwe
By Michael A. Fletcher
President Obama announced today that the United States will provide $73 million in aid to Zimbabwe, saying the economically-wracked nation has made progress since Prime Minister Morgan Tsvangirai entered a power-sharing arrangement with longtime President Robert Mugabe four months ago.
"We've seen progress from the prime minister," Obama said, after meeting with Tsvangirai in the Oval Office.
The $73 million in assistance will not be going to the government but directly to services for citizens, Obama said, because "we continue to be concerned about consolidating democracy, human rights and rule of law."
Read More Here: http://voices.washingtonpost.com/44/2009/06/12/obama_pledges_73_million_to_zi.html?hpid=sec-politics
In a country where more than 3.5 million people are homeless each year (more than on quarter the total population of Zimbabwe) and more than 1 in 10 live below the poverty line it is clear that the United States needs assistance of its own.
Nobel laureate Mugabe and Nobel Laureate Krugman's lust for currency manipulation are as explosive as Alfred Nobel's dynamite.
Warm Up the Bulldozers
At least the folks at Caterpillar will be busy. Some of these cities are starting to look like Chernobyl.
US cities may have to be bulldozed in order to survive
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.
By Tom Leonard in Flint, Michigan
Published: 6:30PM BST 12 Jun 2009
The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.
Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.
Read More Here: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html
US cities may have to be bulldozed in order to survive
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline.
By Tom Leonard in Flint, Michigan
Published: 6:30PM BST 12 Jun 2009
The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.
Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.
Read More Here: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5516536/US-cities-may-have-to-be-bulldozed-in-order-to-survive.html
Saturday, June 13, 2009
Six Flags Done In By Debt
Six Flags Files for Bankruptcy
June 13, 2009, 11:26 am
Six Flags, the big theme park operator, filed for bankruptcy in early Saturday morning in Delaware after failing to reach an agreement with lenders over a plan to reorganize its debt outside of court.
Six Flags became only the latest company to prove unable to cope with its debt load at a time when previous solutions like refinancings are largely unavailable. The theme park operator, which had $2.4 billion in debt, faced nearly $300 million in payments to preferred stockholders due in August.
But the company is hoping to make its ride through bankruptcy a short one. In a statement, Six Flags said that it is seeking court approval for a pre-negotiated restructuring plan, one that has the unanimous approval of its lenders. That proposal would eliminate $1.8 billion in debt and slice off the $300 million in preferred stock payments.
“The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets,” Mark Shapiro, Six Flags’s chief executive, said in a statement. “As a result, we are cleaning up the past and positioning the Company for future growth.”
In its bankruptcy filing, Six Flags said that 37 of its subsidiaries, including parks like Great Adventure and Hurricane Harbor, had also sought court protection. The parks will continue to operate normally, but analysts have questioned whether attendance would fall off as some consumers shun waiting in line for roller coasters at a bankrupt theme park operator.
The filing is a blow to Dan Snyder, the owner of the Washington Redskins, who took control of Six Flags in 2005 after waging a proxy fight and holds about a 6 percent stake in the company. Mr. Snyder sought to turn around the company, installing a new management team led by Mr. Shapiro, and selling off underperforming parks.
He sought to clean up the remaining parks by banning smoking, increasing security and having more costumed characters like Tweety to roam around.
Other major investors in Six Flags include Bill Gates’s Cascade Investment, which held an 11.1 percent stake, and the hedge fund Renaissance Technologies, with a 5.5 percent stake.
Six Flags said in its statement that the filing comes despite a good 2008, in which the company cut its net loss to $135 million from $275 million a year ago. Its net loss for the first three months of 2009 narrowed nearly 7 percent from the same time in 2008, to $146.3 million.
But the company saw a 24 percent drop in revenue over the same period, as it suffered from lower attendance and spending at its parks.
Because the credit markets remain largely frozen for troubled companies, Six Flags was unable to refinance its massive debt load. The moribund real estate market also precluded the company from selling off property, like unused land in Maryland and New Jersey, to raise additional cash.
Six Flags’s primary advisers are the investment bank Houlihan Lokey Howard & Zukin and the law firm Paul Hastings Janofsky and Walker.
– Michael J. de la Merced
June 13, 2009, 11:26 am
Six Flags, the big theme park operator, filed for bankruptcy in early Saturday morning in Delaware after failing to reach an agreement with lenders over a plan to reorganize its debt outside of court.
Six Flags became only the latest company to prove unable to cope with its debt load at a time when previous solutions like refinancings are largely unavailable. The theme park operator, which had $2.4 billion in debt, faced nearly $300 million in payments to preferred stockholders due in August.
But the company is hoping to make its ride through bankruptcy a short one. In a statement, Six Flags said that it is seeking court approval for a pre-negotiated restructuring plan, one that has the unanimous approval of its lenders. That proposal would eliminate $1.8 billion in debt and slice off the $300 million in preferred stock payments.
“The current management team inherited a $2.4 billion debt load that cannot be sustained, particularly in these challenging financial markets,” Mark Shapiro, Six Flags’s chief executive, said in a statement. “As a result, we are cleaning up the past and positioning the Company for future growth.”
In its bankruptcy filing, Six Flags said that 37 of its subsidiaries, including parks like Great Adventure and Hurricane Harbor, had also sought court protection. The parks will continue to operate normally, but analysts have questioned whether attendance would fall off as some consumers shun waiting in line for roller coasters at a bankrupt theme park operator.
The filing is a blow to Dan Snyder, the owner of the Washington Redskins, who took control of Six Flags in 2005 after waging a proxy fight and holds about a 6 percent stake in the company. Mr. Snyder sought to turn around the company, installing a new management team led by Mr. Shapiro, and selling off underperforming parks.
He sought to clean up the remaining parks by banning smoking, increasing security and having more costumed characters like Tweety to roam around.
Other major investors in Six Flags include Bill Gates’s Cascade Investment, which held an 11.1 percent stake, and the hedge fund Renaissance Technologies, with a 5.5 percent stake.
Six Flags said in its statement that the filing comes despite a good 2008, in which the company cut its net loss to $135 million from $275 million a year ago. Its net loss for the first three months of 2009 narrowed nearly 7 percent from the same time in 2008, to $146.3 million.
But the company saw a 24 percent drop in revenue over the same period, as it suffered from lower attendance and spending at its parks.
Because the credit markets remain largely frozen for troubled companies, Six Flags was unable to refinance its massive debt load. The moribund real estate market also precluded the company from selling off property, like unused land in Maryland and New Jersey, to raise additional cash.
Six Flags’s primary advisers are the investment bank Houlihan Lokey Howard & Zukin and the law firm Paul Hastings Janofsky and Walker.
– Michael J. de la Merced
Friday, June 12, 2009
Peter Schiff: US Will Default
Peter Schiff is back this time debating the venerable Michael Mussa of the Peterson Institute for International Economics. Board members of the prestigious group include David Rockefeller, Lynn Forester de Rothschild, Paul A. Volcker and the honorary director Alan Greenspan.
Thursday, June 11, 2009
MetLife: "The worst is to come"
MetLife Says Commercial Mortgage Defaults Will Rise (Update3)
By Andrew Frye, Carol Massar and Hugh Son
June 10 (Bloomberg) -- MetLife Inc. Chief Investment Officer Steven Kandarian said commercial mortgage defaults will rise in the next two to three years after the economic slump subsides.
“The worst is to come,” Kandarian said in an interview today with Bloomberg Television in New York, where the biggest U.S. life insurer is based. “Typically there’s a lag between when the economy softens and when the defaults actually occur.”
The default rate on commercial mortgages held by U.S. banks may rise to 4.1 percent, the highest in 17 years, by yearend as debt for refinancing remains scarce and the recession drags down rents, research firm Real Estate Econometrics LLC. said yesterday in a report. Kandarian, whose portfolio contains about $36 billion in loans on commercial property, said he expects delinquencies for MetLife will be “relatively small.”
Read More Here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aoyMd8TReXo8
By Andrew Frye, Carol Massar and Hugh Son
June 10 (Bloomberg) -- MetLife Inc. Chief Investment Officer Steven Kandarian said commercial mortgage defaults will rise in the next two to three years after the economic slump subsides.
“The worst is to come,” Kandarian said in an interview today with Bloomberg Television in New York, where the biggest U.S. life insurer is based. “Typically there’s a lag between when the economy softens and when the defaults actually occur.”
The default rate on commercial mortgages held by U.S. banks may rise to 4.1 percent, the highest in 17 years, by yearend as debt for refinancing remains scarce and the recession drags down rents, research firm Real Estate Econometrics LLC. said yesterday in a report. Kandarian, whose portfolio contains about $36 billion in loans on commercial property, said he expects delinquencies for MetLife will be “relatively small.”
Read More Here: http://www.bloomberg.com/apps/news?pid=20601087&sid=aoyMd8TReXo8
Eddie Bauer Bankrupt
I think we all saw this coming...
Eddie Bauer set to file for bankruptcy
Posted Jun 10th 2009 2:45PM by Zac Bissonnette
Back in March, I wrote with some skepticism about Eddie Bauer's (NASDAQ: EBHI) efforts at reinvention as a higher-end outdoor apparel company: "The problem for Eddie Bauer may be that it's too late: Years of eight- and nine-digit losses have hurt the company's balance sheet and the company currently has a negative tangible book value. With better-financed competitors like EMS, Eddie Bauer may have a hard time breaking through."
The continued weakening of the economy may have finally done Eddie Bauer in. Bloomberg reports that "The outdoor clothing retailer may seek bankruptcy protection as soon as this week, according to five people with knowledge of the discussions."
Eddie Bauer lost $44.5 million in the first quarter on sales of $180 million and, given the sales volume and iconic brand, Eddie Bauer will likely attract tremendous interest in a bankruptcy sale. Free of its crippling debt load, Eddiie Bauer just might have a shot at turning it around and returning to a lower-key version of its former glory.
Hilco Consumer Capital has been a player in nearly all of the major retail bankruptcies of the past year or so, and is expected to make a bid for the company's assets. It also wouldn't be surprising to see a more strategic buyer with a strong retail footprint enter the fray. Eddie Bauer looks like one of the best prizes to be hitting the bankruptcy block during this mess.
Eddie Bauer set to file for bankruptcy
Posted Jun 10th 2009 2:45PM by Zac Bissonnette
Back in March, I wrote with some skepticism about Eddie Bauer's (NASDAQ: EBHI) efforts at reinvention as a higher-end outdoor apparel company: "The problem for Eddie Bauer may be that it's too late: Years of eight- and nine-digit losses have hurt the company's balance sheet and the company currently has a negative tangible book value. With better-financed competitors like EMS, Eddie Bauer may have a hard time breaking through."
The continued weakening of the economy may have finally done Eddie Bauer in. Bloomberg reports that "The outdoor clothing retailer may seek bankruptcy protection as soon as this week, according to five people with knowledge of the discussions."
Eddie Bauer lost $44.5 million in the first quarter on sales of $180 million and, given the sales volume and iconic brand, Eddie Bauer will likely attract tremendous interest in a bankruptcy sale. Free of its crippling debt load, Eddiie Bauer just might have a shot at turning it around and returning to a lower-key version of its former glory.
Hilco Consumer Capital has been a player in nearly all of the major retail bankruptcies of the past year or so, and is expected to make a bid for the company's assets. It also wouldn't be surprising to see a more strategic buyer with a strong retail footprint enter the fray. Eddie Bauer looks like one of the best prizes to be hitting the bankruptcy block during this mess.
The Fed Bankrupt
"If the Fed examiners were set upon the Fed's own documents—unlabeled documents—to pass judgment on the Fed's capacity to survive the difficulties it faces in credit, it would shut this institution down," he said. "The Fed is undercapitalized in a way that Citicorp is undercapitalized." - Jim Grant
Tuesday, June 9, 2009
Chinese Racking Up More Mining Purchases
Chinalco Mess May Boost Chinese Deals in Australia
By Jodi Xu
Is there a bright side of the collapse of the $19.5 billion Rio Tinto-Chinalco deal? Well, it may actually help foster more deal making from China.
That is because the deal, would have given state-owned Aluminum Corp. of China an 18% stake in Rio Tinto and direct stakes in some mining assets, was so complicated and politically fraught that it was detrimental to other deals.
“Now that the Chinalco proposal is no longer on the table, each investment proposal from China can be judged on its particular merits,” said Ian McCubbin, head of the China practice at Australian law firm Deacons. The deal “appears to have delayed decisions on other proposals,” said McCubbin, the leader of China business for Australian law firm Deacons.
Other China deals certainly have experienced Australian headwinds. In March, Australia’s Foreign Investment Review Board rejected a proposal by China Minmetals Corp. to buy OZ Minerals Ltd. for $1.8 billion on the grounds that OZ Minerals’ Prominent Hill mines are in a military zone. Minmetals, which is backed by the Chinese government, ultimately won approval for a smaller, $1.2 billion purchase that excluded Prominent Hill and no longer was structured as a takeover. Instead, it was a purchase of assets that allows OZ Minerals to remain a listed company.
The $1.8 billion Ansteel-Gindalbie ‘Karara’ project was approved by the Australian government in May, but that was only after FIRB in March asked Ansteel to resubmit its application.
“The [Australian] Government will no doubt be pleased that the market relieved it of the responsibility of making a ruling [on the Chinalco deal],” McCubbin said, referring to the rise in Rio Tinto’s stock price that made the Chinalco offer less attractive to Rio Tinto’s shareholders.
This, in turn, might ease Australia’s nerves when it considers individual deals in light of Australia’s national interest.
In a long run, the tide of trade between the two countries is bound to rise. Australian law firms say they already are seeing evidence of broader interest from China in other sectors such as energy, infrastructure, and even areas like telecommunications, real estate and agribusiness, McCubbin said.
Australia-China two-way trade was 53 billion Australian dollars ($37.25 billion) in 2007, according to official Australian data. Greater trade and investment liberalization with China would deliver a consistent 0.7% increase in consumption in Australia, said Australia China Business Council.
By Jodi Xu
Is there a bright side of the collapse of the $19.5 billion Rio Tinto-Chinalco deal? Well, it may actually help foster more deal making from China.
That is because the deal, would have given state-owned Aluminum Corp. of China an 18% stake in Rio Tinto and direct stakes in some mining assets, was so complicated and politically fraught that it was detrimental to other deals.
“Now that the Chinalco proposal is no longer on the table, each investment proposal from China can be judged on its particular merits,” said Ian McCubbin, head of the China practice at Australian law firm Deacons. The deal “appears to have delayed decisions on other proposals,” said McCubbin, the leader of China business for Australian law firm Deacons.
Other China deals certainly have experienced Australian headwinds. In March, Australia’s Foreign Investment Review Board rejected a proposal by China Minmetals Corp. to buy OZ Minerals Ltd. for $1.8 billion on the grounds that OZ Minerals’ Prominent Hill mines are in a military zone. Minmetals, which is backed by the Chinese government, ultimately won approval for a smaller, $1.2 billion purchase that excluded Prominent Hill and no longer was structured as a takeover. Instead, it was a purchase of assets that allows OZ Minerals to remain a listed company.
The $1.8 billion Ansteel-Gindalbie ‘Karara’ project was approved by the Australian government in May, but that was only after FIRB in March asked Ansteel to resubmit its application.
“The [Australian] Government will no doubt be pleased that the market relieved it of the responsibility of making a ruling [on the Chinalco deal],” McCubbin said, referring to the rise in Rio Tinto’s stock price that made the Chinalco offer less attractive to Rio Tinto’s shareholders.
This, in turn, might ease Australia’s nerves when it considers individual deals in light of Australia’s national interest.
In a long run, the tide of trade between the two countries is bound to rise. Australian law firms say they already are seeing evidence of broader interest from China in other sectors such as energy, infrastructure, and even areas like telecommunications, real estate and agribusiness, McCubbin said.
Australia-China two-way trade was 53 billion Australian dollars ($37.25 billion) in 2007, according to official Australian data. Greater trade and investment liberalization with China would deliver a consistent 0.7% increase in consumption in Australia, said Australia China Business Council.
600,000 Seniors About to Lose Their Homes
This is like a slowly unfolding Katrina on a national scale. The only difference - the help will never come. Protect yourselves.
600,000 Seniors About To Lose Their Homes
Monday, June 8, 2009 11:32 AM
By: Julie Crawshaw
More than 600,000 seniors are delinquent in their mortgage payments or already in foreclosure, USA Today reports.
Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.
"I've got a lot of seniors who have just been nailed," mortgage specialist Dean Wegner told the newspaper.
"They're upside down (owing more on their mortgage than their homes are worth), they can't refinance and they're on a fixed income."
Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes. But the reality is, hundreds of thousands of older homeowners are suffering in the housing crisis.
A recent report from AARP showed that 25.5 million seniors ages 50 and older have a mortgage — and that older Americans with subprime first mortgages are nearly 17 times more likely to be in foreclosure than Americans of the same age with prime loans.
Senior mortgage woes are creating challenges for retirement communities and assisted-living centers, which are finding that new members can't move in because they are saddled with homes they can't sell because people usually sell their homes to finance the entry fees.
Worse yet, a study done by the Employee Benefit Research Institute found that 36 percent of workers ages 55 and over have less that $25,000 in savings and investments aside from the values of their homes.
The National Delinquency Survey from the Mortgage Bankers Association found foreclosure activity was at an all time high in the first quarter of 2009, when the delinquency rate — which excludes homes already in the foreclosure process — hit 9.12 percent.
© 2009 Newsmax. All rights reserved.
600,000 Seniors About To Lose Their Homes
Monday, June 8, 2009 11:32 AM
By: Julie Crawshaw
More than 600,000 seniors are delinquent in their mortgage payments or already in foreclosure, USA Today reports.
Unlike younger people, many are on fixed incomes and lack the money or job opportunities to catch up on payments when they fall behind.
"I've got a lot of seniors who have just been nailed," mortgage specialist Dean Wegner told the newspaper.
"They're upside down (owing more on their mortgage than their homes are worth), they can't refinance and they're on a fixed income."
Conventional wisdom holds that most seniors have paid off their mortgages or have significant equity in their homes. But the reality is, hundreds of thousands of older homeowners are suffering in the housing crisis.
A recent report from AARP showed that 25.5 million seniors ages 50 and older have a mortgage — and that older Americans with subprime first mortgages are nearly 17 times more likely to be in foreclosure than Americans of the same age with prime loans.
Senior mortgage woes are creating challenges for retirement communities and assisted-living centers, which are finding that new members can't move in because they are saddled with homes they can't sell because people usually sell their homes to finance the entry fees.
Worse yet, a study done by the Employee Benefit Research Institute found that 36 percent of workers ages 55 and over have less that $25,000 in savings and investments aside from the values of their homes.
The National Delinquency Survey from the Mortgage Bankers Association found foreclosure activity was at an all time high in the first quarter of 2009, when the delinquency rate — which excludes homes already in the foreclosure process — hit 9.12 percent.
© 2009 Newsmax. All rights reserved.
Monday, June 8, 2009
It is Nowhere Written That The American Empire Goes On Forever
Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. This is not a way of life at all in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron. - Dwight D. Eisenhower
If you have not yet seen the documentary, "Why We Fight," please watch the trailer below. If you have, it's worth rehashing.
The industry, infrastructure, and American way of life have been mortgaged to sustain exploding debt to fund never ending war. The $1 trillion spent on defense each year (that is publicly known) has been directed away from the interests of the citizens of the United States and towards private military contracts.
Gerald Celente pointed out recently: “The US is becoming a shadow of what it used to be. Take education for example. The OECD group of developed countries ranks quality of life, education, health care of its member nations. The US is now falling down the table as one piece of data after another shows America is in decline. We’re no longer Win, Place or Show in quality of life, education, longevity… all the essentials where we used to be #1. And our economic underpinnings are failing.”
When wondering how we have fallen so far, look no further than the national debt and unsustainable military industrial complex.
The fact that the US spends more on "defense" than every other country combined is alarming in itself.
China is now world No. 2 arms spender, report says
By MALIN RISING – 11 hours ago
STOCKHOLM (AP) — China has become the world's second biggest military spender behind the United States, a Swedish peace research group said Monday.
Global arms spending rose 4 percent last year, but China increased its spending by 10 percent to an estimated $84.9 billion last year, the Stockholm International Peace Research Institute said in its annual report on world arms transfers.
"China is continuing to acquire both domestic and foreign arms as it seeks to equip its armed forces for conditions of modern 'informationalized' warfare," it said. Such warfare involves the use of precision weapons and high-tech information and communications technology.
Sam Perlo-Freeman, a researcher for the peace institute, said China had previously spent relatively little on its military.
"They are the second biggest military spender now, that does not mean they are the second strongest military power, because a lot of other countries have been at this game for a lot longer than China," Perlo-Freeman said.
"While they are certainly seeking to increase their regional and global influence ... there is very little evidence of any hostile intent in terms of the region," he said.
The United States continued to top the rankings by a wide margin, with its military expenditure rising 9.7 percent last year to $607 billion, the institute said. It said the U.S. accounted for nearly 42 percent of the total global arms spending of $1.46 trillion.
France narrowly overtook Britain — last year's No. 2 — for third place. Russia climbed to fifth place from seventh in 2007.
The report said the security situation in Afghanistan is likely to worsen and warned that expectations for President Barack Obama's strategy for the region may be too high.
"Regrettably, Afghanistan's fate over the next few years still looks to be finely balanced. Progress will continue to be slow, flawed and fragile," the report said. It warned that a hasty international exit would risk leaving the political and security situation dangerously unstable.
The report also said Obama's goal of putting less emphasis on military solutions and more on political development seemed at odds with the U.S.' decision to deploy new combat troops to Afghanistan over the next two years.
The research institute said Obama will face difficult challenges in withdrawing troops from Iraq, as well as in changing the way the U.S. deals with the international community and in pursuing nuclear disarmament.
"These and other challenges may be exacerbated by the effects of the world financial crisis as key countries find it difficult to muster the necessary political and economic will to collectively address global and regional security problems," the report said.
On the Net:
Copyright © 2009 The Associated Press. All rights reserved.
Related articles
If you have not yet seen the documentary, "Why We Fight," please watch the trailer below. If you have, it's worth rehashing.
The industry, infrastructure, and American way of life have been mortgaged to sustain exploding debt to fund never ending war. The $1 trillion spent on defense each year (that is publicly known) has been directed away from the interests of the citizens of the United States and towards private military contracts.
Gerald Celente pointed out recently: “The US is becoming a shadow of what it used to be. Take education for example. The OECD group of developed countries ranks quality of life, education, health care of its member nations. The US is now falling down the table as one piece of data after another shows America is in decline. We’re no longer Win, Place or Show in quality of life, education, longevity… all the essentials where we used to be #1. And our economic underpinnings are failing.”
When wondering how we have fallen so far, look no further than the national debt and unsustainable military industrial complex.
The fact that the US spends more on "defense" than every other country combined is alarming in itself.
China is now world No. 2 arms spender, report says
By MALIN RISING – 11 hours ago
STOCKHOLM (AP) — China has become the world's second biggest military spender behind the United States, a Swedish peace research group said Monday.
Global arms spending rose 4 percent last year, but China increased its spending by 10 percent to an estimated $84.9 billion last year, the Stockholm International Peace Research Institute said in its annual report on world arms transfers.
"China is continuing to acquire both domestic and foreign arms as it seeks to equip its armed forces for conditions of modern 'informationalized' warfare," it said. Such warfare involves the use of precision weapons and high-tech information and communications technology.
Sam Perlo-Freeman, a researcher for the peace institute, said China had previously spent relatively little on its military.
"They are the second biggest military spender now, that does not mean they are the second strongest military power, because a lot of other countries have been at this game for a lot longer than China," Perlo-Freeman said.
"While they are certainly seeking to increase their regional and global influence ... there is very little evidence of any hostile intent in terms of the region," he said.
The United States continued to top the rankings by a wide margin, with its military expenditure rising 9.7 percent last year to $607 billion, the institute said. It said the U.S. accounted for nearly 42 percent of the total global arms spending of $1.46 trillion.
France narrowly overtook Britain — last year's No. 2 — for third place. Russia climbed to fifth place from seventh in 2007.
The report said the security situation in Afghanistan is likely to worsen and warned that expectations for President Barack Obama's strategy for the region may be too high.
"Regrettably, Afghanistan's fate over the next few years still looks to be finely balanced. Progress will continue to be slow, flawed and fragile," the report said. It warned that a hasty international exit would risk leaving the political and security situation dangerously unstable.
The report also said Obama's goal of putting less emphasis on military solutions and more on political development seemed at odds with the U.S.' decision to deploy new combat troops to Afghanistan over the next two years.
The research institute said Obama will face difficult challenges in withdrawing troops from Iraq, as well as in changing the way the U.S. deals with the international community and in pursuing nuclear disarmament.
"These and other challenges may be exacerbated by the effects of the world financial crisis as key countries find it difficult to muster the necessary political and economic will to collectively address global and regional security problems," the report said.
On the Net:
Copyright © 2009 The Associated Press. All rights reserved.
Related articles
Retail Fire Sale
This shoe hasn't even dropped yet. Remember the impacts of cotenancy clauses - most of these retail properties will be garbage in 6-12 months from a cash flow perspective. Only the stabilized assets in the best markets (top 10 submarkets of the the top 10 markets in the country) will be investment grade.
Benderson buys back local plazas at a discount
Firm pays 30% less for properties it sold five years ago
By Jonathan D. Epstein NEWS BUSINESS REPORTER
Charles Lewis/Buffalo News
The Boulevard Consumer Square shopping center in Amherst is among eight local plazas that Benderson Development Co. is buying back from Developers Diversified Realty Corp.
Benderson Development Co., Buffalo’s biggest homegrown retail landlord, is pulling off a major financial coup, buying back 11 shopping mall properties in upstate New York for significantly less than it sold them for just five years ago.
The commercial developer has signed contracts to buy eight malls or shopping plazas in Western New York, and three in other parts of the state, from Developers Diversified Realty Corp., a publicly traded real estate investment trust based outside Cleveland, according to sources familiar with the deal.
That will return more than 3 million square feet to Benderson’s local portfolio. Sources said the purchase price was between $160 and $175 million.
Read More Here: www.buffalonews.com/145/story/695399.html
Benderson buys back local plazas at a discount
Firm pays 30% less for properties it sold five years ago
By Jonathan D. Epstein NEWS BUSINESS REPORTER
Charles Lewis/Buffalo News
The Boulevard Consumer Square shopping center in Amherst is among eight local plazas that Benderson Development Co. is buying back from Developers Diversified Realty Corp.
Benderson Development Co., Buffalo’s biggest homegrown retail landlord, is pulling off a major financial coup, buying back 11 shopping mall properties in upstate New York for significantly less than it sold them for just five years ago.
The commercial developer has signed contracts to buy eight malls or shopping plazas in Western New York, and three in other parts of the state, from Developers Diversified Realty Corp., a publicly traded real estate investment trust based outside Cleveland, according to sources familiar with the deal.
That will return more than 3 million square feet to Benderson’s local portfolio. Sources said the purchase price was between $160 and $175 million.
Read More Here: www.buffalonews.com/145/story/695399.html
Saturday, June 6, 2009
Look Out for Falling Retail Sales
Remember those Wal-Mart commercials that warned, "beware of falling prices? :)" Consumers should now beware of falling retail sales, retailers and executives on the ledge after the reported same store sales this week - an important measure of the health of retailers open for at least one year.
Target: -6.1%
Limited: -7%
JC Penney: -8.2%
Macy's: -9.1%
Dillards: -12% (predicted -7%)
Nordstrom: -13%
Saks Fifth Avenue: -26.6% (predicted -14.5%)
Abercrombie and Fitch: -28%
Tiffany & Co: -64% (1Q profit drop)
Add this in to the recent numbers of US comprable retail sales dropping THIRTY-FOUR PERCENT (34%) and we start to see the big picture.
Wal-Mart's same store sales are up 3.4% this year with a parabolic up trend as they continue to eliminate not just local competition but regional and national retailers as well. Americans will no longer be buying only useless shit from Wal-Mart but also all the cheap genetically engineered foods and basics made abroad they need to survive.
As goes Wal-Mart goes the US - maybe they can start selling GM cars now for $999.99? Just a thought...
To get you in the mood this morning here is a little Tom Petty and no, he isn't singing about the US Economy...
Target: -6.1%
Limited: -7%
JC Penney: -8.2%
Macy's: -9.1%
Dillards: -12% (predicted -7%)
Nordstrom: -13%
Saks Fifth Avenue: -26.6% (predicted -14.5%)
Abercrombie and Fitch: -28%
Tiffany & Co: -64% (1Q profit drop)
Add this in to the recent numbers of US comprable retail sales dropping THIRTY-FOUR PERCENT (34%) and we start to see the big picture.
Wal-Mart's same store sales are up 3.4% this year with a parabolic up trend as they continue to eliminate not just local competition but regional and national retailers as well. Americans will no longer be buying only useless shit from Wal-Mart but also all the cheap genetically engineered foods and basics made abroad they need to survive.
As goes Wal-Mart goes the US - maybe they can start selling GM cars now for $999.99? Just a thought...
To get you in the mood this morning here is a little Tom Petty and no, he isn't singing about the US Economy...
Friday, June 5, 2009
DJIA Weighted In Gold: Overpriced Historicaly
Stocks Will Fall 37% or Gold Will Rally 60%
By Graham Summers
How’s this for a bubble?
In 1965 one in ten Americans owned stocks. In 1990, one in five Americans owned stocks. Put another way, it took 25 years for stock ownership to double in the US. And most of that growth came between 1983 and 1990 with the introduction of 401(k)s, IRAs and other stock-based retirement plans: suddenly anyone with a large scale employer could invest in stocks without having to open a brokerage account.
Thanks to the Internet and low fee online brokerage accounts, it only took seven more years for stock ownership to double AGAIN. Put another way, the rate at which new participants entered the stock market accelerated four fold between 1990 and 1999. By the end of the 20th century, 48% of US households owned stocks.
This is the one bubble no one talks about.
I’m talking about the bubble in “investing in stocks.” Never before have so many Americans done this. It gave us one of the biggest bull markets in stock history: a mega-18 years run from 1982 to 2000. But it also means that stocks have got a long ways to fall to get back in line with their historic relationships to other asset classes.
Particularly gold.
A lot of commentators talk about how gold is near an all-time high and that stocks have fallen 50%, making them cheap again. However from a long-term perspective, gold and stocks are nowhere near their normal relationship.
According to Dr Marc Faber, editor of the Gloom Boom Doom Report, gold and stocks move in distinctive long-term trends. Over the last 110 years, these trends has staged six major phases:
* 1900-1929: stocks outperform gold
* 1929-1932: gold outperforms stocks
* 1932-1966: stocks outperform gold
* 1966-1980: gold outperforms stocks
* 1980-2000: stocks outperform gold
* 2000-???: gold outperforms stocks
Overall, the median stock to gold ratio for the last 106 years is 5.4. In other words, throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.
Today, gold trades at $980. The DJIA trades at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks again.
When exactly this will happen is anyone’s guess. The gold vs. stocks trends over the last 106 years have ranged in length from three years to 29 years. However, judging from the Fed’s money printing and the recent action in gold, it’s quite possible we’ll see a mammoth run in the precious metal sometime in the next 18 months.
During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50%.
From mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction. Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 14 months before the writing of this report). If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).
In fact, it’s already happening…
According to Capital Gold, a precious metals dealer, the demand for gold from self-directed IRAs has more than doubled since January 1, 2009. The World Gold Council notices similar spikes in demand for the gold ETF, writing “Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year.”
Globally, entire gold markets that didn’t exist in 1980 are now beginning to buy the precious metal. Vietnam started trading gold futures in June 2007. Already the exchange trades around $100 million in gold futures a day. China’s Shanghai Futures Index started trading gold futures just a few months ago. The latter country has already surpassed the U.S. as the second largest consumer of gold behind India.
Bottom line: don’t let the talking heads fool you. Stocks are not cheap, especially compared to gold. And the bull market in gold is nowhere near over. Over the last 35 years, more Americans began investing than at ANY other period in history. As stocks collapse later this year, they’ll either pull out their money pushing the DJIA lower OR they’ll shift their money into alternate investment classes like gold. When they do, the DJIA will fall further and gold will erupt higher.
By Graham Summers
How’s this for a bubble?
In 1965 one in ten Americans owned stocks. In 1990, one in five Americans owned stocks. Put another way, it took 25 years for stock ownership to double in the US. And most of that growth came between 1983 and 1990 with the introduction of 401(k)s, IRAs and other stock-based retirement plans: suddenly anyone with a large scale employer could invest in stocks without having to open a brokerage account.
Thanks to the Internet and low fee online brokerage accounts, it only took seven more years for stock ownership to double AGAIN. Put another way, the rate at which new participants entered the stock market accelerated four fold between 1990 and 1999. By the end of the 20th century, 48% of US households owned stocks.
This is the one bubble no one talks about.
I’m talking about the bubble in “investing in stocks.” Never before have so many Americans done this. It gave us one of the biggest bull markets in stock history: a mega-18 years run from 1982 to 2000. But it also means that stocks have got a long ways to fall to get back in line with their historic relationships to other asset classes.
Particularly gold.
A lot of commentators talk about how gold is near an all-time high and that stocks have fallen 50%, making them cheap again. However from a long-term perspective, gold and stocks are nowhere near their normal relationship.
According to Dr Marc Faber, editor of the Gloom Boom Doom Report, gold and stocks move in distinctive long-term trends. Over the last 110 years, these trends has staged six major phases:
* 1900-1929: stocks outperform gold
* 1929-1932: gold outperforms stocks
* 1932-1966: stocks outperform gold
* 1966-1980: gold outperforms stocks
* 1980-2000: stocks outperform gold
* 2000-???: gold outperforms stocks
Overall, the median stock to gold ratio for the last 106 years is 5.4. In other words, throughout the 20th century, on average 5.4 ounces of gold would buy one unit of the DJIA.
Today, gold trades at $980. The DJIA trades at 8,500. This puts the ratio of gold to stocks at 8.6. Thus, the DJIA needs to fall to 5,292 (a 37% drop from today’s level), gold needs to rally to $1,574 (a 60% rally from today’s level), or some combination of the two, in order for gold to be appropriately priced relative to stocks again.
When exactly this will happen is anyone’s guess. The gold vs. stocks trends over the last 106 years have ranged in length from three years to 29 years. However, judging from the Fed’s money printing and the recent action in gold, it’s quite possible we’ll see a mammoth run in the precious metal sometime in the next 18 months.
During the last bull market in gold, the precious metal rose 2,329% from a low of $35 in 1970 to a high of $850 in 1980. However, during that time, there was a period of 18 months in which gold fell nearly 50%.
From mid-1971 to December 1974, gold rose 471%. It then fell 50%, from December ’74 to August ’76. After that, it began its next leg up, exploding 750% higher from August ’76 to January 1980.
Now, in its current bull market (2001 to March 2008), gold rose over 300% from $250 to a little over $1,000. And just like in the mid-70s, it began showing signs of weakness after its first big rally up to $1,014 in March ’08. At one point, it even fell to $700, a 30% retraction. Granted, it wasn’t a full 50% retraction like the one that occurred from 1974-76. But we are experiencing a financial crisis. And gold is the most common catastrophe insurance.
If we were to go by the historic pattern of the gold market in the ‘70s, gold should experience upwards resistance for 19 months after its first peak today. Gold’s recent peak was $1,014 in March ’08 (roughly 14 months before the writing of this report). If this bull market parallels the last one, then gold should renew its upward momentum in a very serious way starting in October 2009. And this next leg up should be a major one (the biggest gains came during the second rally in gold’s bull market in the ‘70s).
In fact, it’s already happening…
According to Capital Gold, a precious metals dealer, the demand for gold from self-directed IRAs has more than doubled since January 1, 2009. The World Gold Council notices similar spikes in demand for the gold ETF, writing “Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year.”
Globally, entire gold markets that didn’t exist in 1980 are now beginning to buy the precious metal. Vietnam started trading gold futures in June 2007. Already the exchange trades around $100 million in gold futures a day. China’s Shanghai Futures Index started trading gold futures just a few months ago. The latter country has already surpassed the U.S. as the second largest consumer of gold behind India.
Bottom line: don’t let the talking heads fool you. Stocks are not cheap, especially compared to gold. And the bull market in gold is nowhere near over. Over the last 35 years, more Americans began investing than at ANY other period in history. As stocks collapse later this year, they’ll either pull out their money pushing the DJIA lower OR they’ll shift their money into alternate investment classes like gold. When they do, the DJIA will fall further and gold will erupt higher.
Subscribe to:
Posts (Atom)
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_u6aZI1tyHh1msLgcF8VQYoAyN1_7J4O5PMWjhhC4J99dnarTuUe04FtIxleJgi9H7MhSYgIRrLQcwKapEGsHiXKEDDR1kGSTHIzmd_i2KPy5AmflZK4jm7AaQ8VEccv5gLBR4U=s0-d)
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_sQEOyY_jZ80OyxX7RClvqol9zaxQ-ca7ys2jaTyZKinYrHWW968NXjVO1SGTldePPsteI3a4oGKUhB6Qy1ShfvmzcCThj5eAK0GHsfbEZBadq8UETgH--BEFnp1iYC7it_wffbXp0=s0-d)
![[Most Recent Quotes from www.kitco.com]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_v3ON-I1AE1cCm5U0bLK2UDYPj_OYgJNlXmO2lnen1x06H3UVrJ6zVxnD4-gGDnx7F_Oa8YR8VJ_g4Rg5zY_nETKAQAqaCv9oLd_w-ZrWerSDl9nZ4G57PW5v1cEo0rSVC_I5ctWduI=s0-d)
