Tuesday, March 29, 2011

Moody's Not Crazy Bout JP Morgan's $20 Billion Bridge Loan

Amidst all the cheering and hullabaloo over AT&T's proposed $39 billion bid to acquire Deutsche Telecom, a few sober credit folks over at Moody's would like to point out something in passing. Nothing major really, just the fact that JP Morgan is giving AT&T a $20 billion bridge loan to finance the acquisition. Certainly $20 billion is chump change, but despite the Fed's proclivity for spending trillions on mortgage and treasuries, it still hasn't stooped to buying bridge loans for large Telecom mergers in the event that no buyers turn up to buy the debt. Then again, earthquakes, tsunami's, nuclear reactor meltdowns, middle east unrest, nor the implosion of parts of the EU is going to stop this market from loving debt issued by anybody to finance anything. In any event, it's really great to see AT&T turning itself into an enormous crappy monopoly again. After all, the government is going to need something to break up in a couple of years. As long as the investment bankers keep getting paid, everybody's happy.

Friday, March 18, 2011

Yay Dividends!

After the latest round of stress tests, the Fed has decided to play nice and allow some of the 19 largest US banks to do the fun stuff they used to love to do before they all fell into the big black hole of 2008. Banks have the Fed's permission to pay dividends and buy back stocks again! Yippee!!

Everybody seems to have forgotten just how much $40 stock Citigroup bought right before it went straight to $3. Or Wa Mu. Yes, the same Wa Mu whose former executives (and their no-good, asset-shuffling wives!) are getting sued by the FDIC, used to spend all day paying $45 for its own stock, months before it was seized by the FDIC. These firms spent billions upon billions of capital, capital that would've really come in handy when all their fraudulent mortgage underwriting was finally unveiled, to help boost their stocks so that executives (and their money-sucking gold-digging wives!) could sell stock and collect north of $900 million in comp. The FDIC is looking for $900 million dollars, so you know the wives have run off with way more than that.

See, everybody just has way too much capital sitting around and it's just so wasteful. It's not like we're ever going to need that capital for any reason. Because if you can just go crying to the Treasury and Fed for more capital and cheap financing every time your own balance sheet throws up on itself after looking at its asset, then why would you need any excess capital? We've already rewarded employees, time to get back to our second favorite thing to do, rewarding our shareholders.

So if you're reading the news, and you're wondering why on earth the market is staging a comeback today given all the turmoil in the Middle East, possibility of nuclear armageddon in Japan, and the Fed's determination to continue to ease in the face of recent inflationary data, you have your answer: bank dividends. Whoopdy Doo.

Monday, March 14, 2011

Japanese Tsunami Wrecks Markets

US equities rallied marginally on Friday despite the devastating 8.9 earthquake/tsunami combo that struck Japan. After having the weekend to think it over, and watching the Nikkei plunge 6%, investors have reconsidered. Lately, it seems like equities can seem to talk themselves into rallying no matter what the headlines. It's like they read the news in their sleep and bought stocks out of habit. Hmmm.... Yawn, a natural disaster that cripples one of our largest economies and brings the Japanese to the brink of a nuclear disaster? No biggie. Price of oil is down, that's great for us, keeps inflation in check. Right? Goldilocks economy. Give some money to the Red Cross. Buy more stocks. A couple of nuclear power plant explosions, a few fuel rod fusions later and the news seems, well, maybe not so bullish anymore. Suddenly, things like the announcement of Berkshire Hathaway's intent to buy Lubrizol for $10 billion, which would've sent stocks into a euphoric lather a few weeks ago, seem pretty insignificant when compared to the aftermath of the Japanese tragedy. Is logic and reason returning to the markets?

Thursday, March 10, 2011

China Posts a Trade Deficit

China posted a $7.3 billion trade deficit in February, surprising those who expected them to continue their usual habit of flooding the world with their manufactured goods without reciprocity. Analysts are blaming this anomaly on the Lunar New Year holidays, when apparently even the Chinese get lazy and party too hard to make stuff to export. Better to believe that, of course, then the alternative; that world economic growth might actually be slowing. If this continued, it would be extremely inconvenient for the Fed, who was probably hoping that somebody else would step in to buy a few Treasuries after it is done with QE2. I mean, somebody has to help keep US interest rates in check so our debt fueled recovery won't be crushed by the slightest uptick in rates. If it's not going to be the Chinese, who's it gonna be? Maybe everybody who is puking Spainish government bonds on Moody's downgrade this morning? All of those investors who are surprised, yes SHOCKED, that it's gonna cost Spain more to recapitalize its banks than the government's previous official estimates? They actually needed Moody's to tell them to sell. Anyway, the more havoc elsewhere in the world, the better the US looks in comparison.

Tuesday, February 22, 2011

What Kind of Sell-Off is This?

So is this the Middle-East-is-having-trouble-working-out-some-democracy-issues sell-off? Or the NAR-has-been-overestimating-home-sales + home-prices-are-still-falling + interest-rates-going-higher sell-off? Or OMG-the-Fed-is-going-to-stop-buying-the-market-in-June sell-off? Perhaps the-market-has-gone-straight-up-for-2000-points, maybe-wise-to-take-a-breather sell-off? In any event, if you were starting to wonder when on earth would've been a good day to finally initiate your short in Netflix? You should've done it on Friday.

Monday, February 14, 2011

The Budget and Zynga

The White House put out its budgetary needs for the 2011 fiscal year. Projections call for a $1.65 trillion deficit, which doesn't surprise me much. This is what happens when you spend like crazy, don't raise taxes, and finance it all buy selling yourself debt. The good news is that the White House is terrible at projections, so maybe, just maybe, it's overestimated the big black hole we're in and we still have some shot of getting out before the rioting begins.

Speaking of crazy amounts of money, the valuation explosion in social networking sites continues unabated. Zynga is wooing potential investors in an attempt to raise $250 million in new funding, which would value the three-year-old start-up at between $7 to $9 billion. Way back in April, the company was only valued at around $4 billion. But then, Facebook was a puny start-up with a mere $20 billion valuation. Whether any of these valuations fulfill investor's expectations is anybody's guess, at least until somebody goes public and we get some financials and see some real trading Gotta take advantage of the ability to raise gobs of money without having to reveal financials. But venture capitalists are certainly itching to cash out after many years of lackluster returns in the industry. Employees too want their cars, jewels, and houses. It's hard to keep a lid on that so we're gonna see some awesome IPO action.

Friday, February 11, 2011

Fannie, Freddie and Facebook

The administration has unveiled its proposal to wind down the mortgage market, I mean Fannie and Freddie, over the course of some very long and ambiguous time frame. I haven't read the white paper myself, but having read the WSJ's summary, it's abundantly clear that a few pesky details have not been addressed. Such as, who's going to buy the trillions of dollars worth of mortgages that will need to be originated in order to keep the housing market from collapsing? Or, how will the average American be able to afford to buy a house at current prices, when interest rates sky-rocket on mortgages because there is no federal subsidy anymore? Stuff like that. All minor.

Moving on to way more interesting and exciting news. According to Reuters, Facebook is mulling a $1 billion employee share sale that would value the company at $60 billion. This is not to be confused with the $1.5 billion share sale it did a month ago that valued the company at $50 billion. I'm not blaming the folks at Facebook for wanting to cash out a bit. Most 25 year old geeky programmers could really use a porsche and a 10,000 sq ft bachelor pad to get chicks at 25. But if the company is really going to tack on $10 billion in market cap per month, you might as well wait for the IPO, which is only a year away. Otherwise, you're gonna make it look like you really think your company's stock is overvalued and you've got to get out RIGHT NOW before it craters.