Tuesday, August 18, 2009

Financial Headlines 8/18/2009

  • Housing starts declined 1% to an annual rate of 581,000, the first drop in three months. While single family starts actually rose slightly, a 13% plunge in multifamily homes weighed on starts. Building permits also fell 1.8% in July to a 560,000 annual pace from 570,000. Hardly the upbeat economic report economists were hoping for.
  • Wholesale prices in the US fell 0.9%, following the 1.8% gain in June. Excluding food and energy, core prices unexpectedly fell 0.1%. Score another point for the Deflationists out there.
  • Reader's Digest filed for Chapter 11 bankruptcy protection. Another day, another bankrupt publication. What makes this one so special is that it didn't have to happen. Two years ago, the geniuses at Ripplewood Holdings, a private equity concern, thought it would be a brilliant idea to pay too much for Reader's Digest and pile a bunch of debt onto a company that had steadily declining revenues. I'm sure Ripplewood spoke proudly of all the "operational efficiencies" they would wring out of the deal, but a leveraged deal is still just a leveraged deal. When revenues fell off a cliff, the company defaulted on its debt. Ripplewood's equity stake has been wiped out and JP Morgan, the lender to the deal is the new owner. I'm happy to see that Capitalism is still alive and well in this country but wonder what on earth I'm going to read next time I'm sitting in the dentist's waiting room.
  • Home Depot reported better than expected earnings of 66 cents a share, down from 71 cents a share a year ago. Revenues decreased 9.1% to $19.07 billion on a 8.5% decline in same store sales. The company reaffirmed its forecast for sales to fall 9% but raised its guidance for earnings.
  • Researchers at the University of Houston's C.T. Bauer College of Business have identified at least 141 companies that appear to have awarded options to their executives at particularly advantageous prices. I smell another options backdating witch hunt in the works. As an avid options trader, I too would love to retroactively purchase call options at the absolute lowest stock price of the year. Unfortunately, my patented method of throwing darts at the dart board is not nearly as lucrative as looking at a chart one year later and picking the lows. If options backdating is indeed widespread, I expect many heads to roll as I consider this practice corporate looting.


Jamey said...

The Readers Digest BK is classic. When I saw the headline I wondered how they managed to have $1.6B in debt... ah the LBO! Then I realized I had completely forgotten about the private equity bubble as all the focus the past year has been on housing and financial companies.

K10 said...

Yeah, so many bubbles, it was hard to keep track. Fortunately, the Fed will be the new systemic regulator and will be able to stop all of them from happening again...