Hedge-fund assets increased by $7.8 billion in October, according to Bloomberg News. This marks a sixth straight month of increases. With inflows of $10.2 billion in inflows and now around $1.45 trillion under management the hedge fund industry seems to be recovering from its disastrous 2008 year which saw around 150 funds closing shop. The industry has seen 140 new funds open up this year.
Europe and Asia (with the exception of Japan) posted the increases as foreign investors have been piling back into the hedge-funds. Europe in particular has seen close to $4 billion of increases for the past three months with around $340 billion now under management.
What might these trends indicate for the future of the industry?
For now the answer seems to be clear, investors will continue to pay for performance. With hedge funds significantly outpacing the broader markets this year it makes sense many investors are shifting their assets out of equities and into hedge funds. While the 140 new funds this year is partially due to replacing the funds that went belly-up a year ago the environment still seems considerably strong for new fund openings as the cash continues to flow in. The relatively large increases in European fund assets could also indicate a recovering European economy as well as a greater interest in hedge funds in Europe. Overall, the past six months have shown that the industry is alive and well and that as long as funds continue to outpace the markets, they can expect more inflows to come their way.
Sunday, November 22, 2009
Thursday, November 19, 2009
Group 6: Warren Doubles Down
Mr.Buffet's Move-
In the third quarter, which ended September 30th, Warren Buffett nearly doubled his holdings on Wal-Mart Stores Inc. At the end of June, he held 19.9 million shares, but that number rose to 37.8 million shares by the end of the third quarter. Buffett has raised his annual earnings growth projections from 9% to 15%; which would make his purchase price cheap. Although this will be difficult, his reasons include smaller stores with lower prices, and from the anticipated growth in international markets such as China and Brazil.
In addition, Wal-Mart expects to get higher returns on Supercenters in 2010 and going forward, and in turn opened 15 new Sam’s club locations in the last fiscal year. Shares are trading approximately 23% below their all-time high in 2000, however not cheap by many standards. This brings into question Buffet’s reasons, as he is typically seen as a value investor. Given his extremely high earnings projections, it appears he must have a different idea than most of the street. WMT’s CEO, Michael Duke, said “The economy remains challenging for customers and Wal-Mart sales, but we are encouraged by increased traffic and our market share gains".
What to expect this holiday season-
This space is filled with other wholesalers like BJ's( which has a large presence of the northeast) which saw a weaker 3Q with their consumers' focus on basics. The trend of late has been saving money on staple items. The recession has worked in BJ's favor with membership growing and shoppers continuing to flock to its stores. BJ's management said they are starting to see shoppers slowly begin to buy more general merchandise, but said sales of items like electronics, tires and video games remain weak. However, the company said the coming quarter — its holiday period — will have shoppers buying more food than other items, and falling food prices will continue to be a challenge in the fourth quarter. Standard & Poor's Equity Research downgraded its opinion on shares of BJ's to "Hold" from "Buy," saying it sees pricing competition for food retailers to remain intense as food deflation weighs on them. According to these trends Wal-mart it would seem is in a very good position to benefit consumers trading down, due to the fact they offer much of the cost savingings that BJ's and Costco do, yet require no membership.
Anaylsts at Goldman have raised its price target for Costco to $61 from $57, citing “improving trends in higher end discretionary items.” Goldman also raised its full-year 2010 sales and profit estimates through 2012 for the membership warehouse operator. The analyst currently rates COST as “Neutral.”
This Holiday season will be very important for these companies and their 4Q, hoping to see the gap narrow between staple good spending over discretionary. With US Unemployment crossing double digits, this next month will certianly be interesting.
In the third quarter, which ended September 30th, Warren Buffett nearly doubled his holdings on Wal-Mart Stores Inc. At the end of June, he held 19.9 million shares, but that number rose to 37.8 million shares by the end of the third quarter. Buffett has raised his annual earnings growth projections from 9% to 15%; which would make his purchase price cheap. Although this will be difficult, his reasons include smaller stores with lower prices, and from the anticipated growth in international markets such as China and Brazil.
In addition, Wal-Mart expects to get higher returns on Supercenters in 2010 and going forward, and in turn opened 15 new Sam’s club locations in the last fiscal year. Shares are trading approximately 23% below their all-time high in 2000, however not cheap by many standards. This brings into question Buffet’s reasons, as he is typically seen as a value investor. Given his extremely high earnings projections, it appears he must have a different idea than most of the street. WMT’s CEO, Michael Duke, said “The economy remains challenging for customers and Wal-Mart sales, but we are encouraged by increased traffic and our market share gains".
What to expect this holiday season-
This space is filled with other wholesalers like BJ's( which has a large presence of the northeast) which saw a weaker 3Q with their consumers' focus on basics. The trend of late has been saving money on staple items. The recession has worked in BJ's favor with membership growing and shoppers continuing to flock to its stores. BJ's management said they are starting to see shoppers slowly begin to buy more general merchandise, but said sales of items like electronics, tires and video games remain weak. However, the company said the coming quarter — its holiday period — will have shoppers buying more food than other items, and falling food prices will continue to be a challenge in the fourth quarter. Standard & Poor's Equity Research downgraded its opinion on shares of BJ's to "Hold" from "Buy," saying it sees pricing competition for food retailers to remain intense as food deflation weighs on them. According to these trends Wal-mart it would seem is in a very good position to benefit consumers trading down, due to the fact they offer much of the cost savingings that BJ's and Costco do, yet require no membership.
Anaylsts at Goldman have raised its price target for Costco to $61 from $57, citing “improving trends in higher end discretionary items.” Goldman also raised its full-year 2010 sales and profit estimates through 2012 for the membership warehouse operator. The analyst currently rates COST as “Neutral.”
This Holiday season will be very important for these companies and their 4Q, hoping to see the gap narrow between staple good spending over discretionary. With US Unemployment crossing double digits, this next month will certianly be interesting.
Goldman
Goldman Sachs seems to be in another jam, at least in the eyes of the public. They have decided to establish a program to inject $500 million in the small business sector. This was said to be an attempt at providing capital to the small businesses that play a "vital role" in creating wealth, fostering innovation, and adding jobs. $300 million of the injection has been earmarked for community development financial institutions which then go ahead and finance small companies. The other $200 million has been tagged for education.
The public obviously has not necessarily reacted as GS hoped. This was an attempt to soften Goldman's image, they even brought in Buffett to serve on the advisory board. However, it is being looked upon as an abuse of shareholder's money and it seems as though Goldman's plan to improve its image has backfired a bit.
Article
-Group 3
The Waning Dollar
The value of the dollar continues to be a concern. However, on Monday, Bernanke reassured the Economic Club of New York that the decline in the value of the dollar is natural; thus, no further fed action is necessary. He pointed to high long-term unemployment as a major factor that will keep GDP growth and inflation low for at least a year. Other countries certainly seem to be acting on Bernake's statements, even though they continue to publicly denounce the use of the dollar as the global reserve currency. For example, possession of treasuries increased $7 billion by BRIC countries and $20.4 billion by Japan during the month of September.
The Federal reserve is actually beginning to reduce its emergency lending facilities implemented in late 2007 through early 2009. The maturity of discount window loans to banks will soon be cut from an extended period of 90 days to 28 days, because liquidity has returned to acceptable levels. The Libor-OIS spread, gauge of the bank's willingness to loan, is at 13 basis points, down from a record of 364 bps in October 2008.
While inflation seems to be at bay and liquidity has increased, many investors are still concerned with weak economic data, such as the University of Michigan Consumer Sentiment Survey of 66.0 for the current period compared with a value of 70.6 for the previous period and an unexpected fall in housing starts earlier today. Moreover, many investors have turned to gold, which reached near-record levels of $1150 per ounce earlier today, rather than the securities market, indicating a lack of confidence in the U.S. economy.
Group 5
Links:
http://online.wsj.com/article/SB10001424052748704782304574542040005455698.html
http://online.wsj.com/article/SB10001424052748704431804574541161588915066.html
http://online.wsj.com/article/SB10001424052748704431804574539160726487446.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=akC02cF4YHC4&pos=2
http://www.nytimes.com/2009/11/17/business/economy/17fed.html?_r=1&ref=business
The Federal reserve is actually beginning to reduce its emergency lending facilities implemented in late 2007 through early 2009. The maturity of discount window loans to banks will soon be cut from an extended period of 90 days to 28 days, because liquidity has returned to acceptable levels. The Libor-OIS spread, gauge of the bank's willingness to loan, is at 13 basis points, down from a record of 364 bps in October 2008.
While inflation seems to be at bay and liquidity has increased, many investors are still concerned with weak economic data, such as the University of Michigan Consumer Sentiment Survey of 66.0 for the current period compared with a value of 70.6 for the previous period and an unexpected fall in housing starts earlier today. Moreover, many investors have turned to gold, which reached near-record levels of $1150 per ounce earlier today, rather than the securities market, indicating a lack of confidence in the U.S. economy.
Group 5
Links:
http://online.wsj.com/article/SB10001424052748704782304574542040005455698.html
http://online.wsj.com/article/SB10001424052748704431804574541161588915066.html
http://online.wsj.com/article/SB10001424052748704431804574539160726487446.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=akC02cF4YHC4&pos=2
http://www.nytimes.com/2009/11/17/business/economy/17fed.html?_r=1&ref=business
Flashback to the '80s: Insider Trading
So the topic of choice for this week is the current buzz about the recent M&A deal between Hewlett Packard and 3Comm - two very large IT infrastructure corporations. After announcing a $2.7 billion deal for Hewlett's acquisition of 3Com, there has been a suspect and unexpected jump in behind-the-scenes options trading regarding the two firms, as the options contracts on 3Com jumped just hours before the deal was made public.
As such, there is a large SEC (Securities and Exchange Commission) investigation into the matter, and rightfully so. Many corporate officers', boardmembers', and priveleged stockholders' portfolios flourished throughout the 1980's and 1990's amid the slurry of insider trading scandals, which drew a large amount of attention to Wall Street and from then on has given it a tainted reputation. To the majority of the American people, as well as foreign investors, insider trading is just another reason not to trust in the ability of large corporations to "protect" their interests and have become the subject of many otherwise accepting, naysayers.
Recently, however, after several years of relative tranquility, the need for easy cash has arisen once again, and Wall Street (along with many other international trading institutions), has been plagued by scandal. A little over a month ago, the Galleon Group hedge fund scandal arose, shedding light on Mr. Rajaratnam's insider trading scheme that has trumped all prior incidents. From the S.E.C's point of view, this is a call to arm the troops and to get ready to buckle down for a long, drawn out war against corporate greed, especially as the down economy threatens investors' senses of security and their ability to milk legitimate profits from otherwise legal and moral sources.
As the share price of 3Com's stock rose over 5% on the day the deal was announced and the November call options skyrocketed to over SEVENTEEN TIMES the 4-week average, one must look at this situation with some dismay: Are we really reverting back to this? Is America going to repeat the atrocities that the government has sought to rectify for years? Can the world continue with this barrage of immoral action? The answer is that no one knows. One can only trust in the governing bodies which have sworn to uphold legal trade and believe in their ability to keep America's head above the waters of recession, unemployment, and corruption as they continue to rise.
http://dealbook.blogs.nytimes.com/2009/11/18/3coms-dealmaker-of-the-week/
http://dealbook.blogs.nytimes.com/2009/11/16/sec-is-said-to-examine-3com-options-trading/
Gabriel Suprise
Group 2
As such, there is a large SEC (Securities and Exchange Commission) investigation into the matter, and rightfully so. Many corporate officers', boardmembers', and priveleged stockholders' portfolios flourished throughout the 1980's and 1990's amid the slurry of insider trading scandals, which drew a large amount of attention to Wall Street and from then on has given it a tainted reputation. To the majority of the American people, as well as foreign investors, insider trading is just another reason not to trust in the ability of large corporations to "protect" their interests and have become the subject of many otherwise accepting, naysayers.
Recently, however, after several years of relative tranquility, the need for easy cash has arisen once again, and Wall Street (along with many other international trading institutions), has been plagued by scandal. A little over a month ago, the Galleon Group hedge fund scandal arose, shedding light on Mr. Rajaratnam's insider trading scheme that has trumped all prior incidents. From the S.E.C's point of view, this is a call to arm the troops and to get ready to buckle down for a long, drawn out war against corporate greed, especially as the down economy threatens investors' senses of security and their ability to milk legitimate profits from otherwise legal and moral sources.
As the share price of 3Com's stock rose over 5% on the day the deal was announced and the November call options skyrocketed to over SEVENTEEN TIMES the 4-week average, one must look at this situation with some dismay: Are we really reverting back to this? Is America going to repeat the atrocities that the government has sought to rectify for years? Can the world continue with this barrage of immoral action? The answer is that no one knows. One can only trust in the governing bodies which have sworn to uphold legal trade and believe in their ability to keep America's head above the waters of recession, unemployment, and corruption as they continue to rise.
http://dealbook.blogs.nytimes.com/2009/11/18/3coms-dealmaker-of-the-week/
http://dealbook.blogs.nytimes.com/2009/11/16/sec-is-said-to-examine-3com-options-trading/
Gabriel Suprise
Group 2
Wednesday, November 18, 2009
Is The VIX Providing Us An Accurate Forecast of Market Volatility?
The CBOE Volatility index, known by its ticker symbol, VIX, is a popular metric used to estimate the level of implied volatility for S&P 500 index options. The value derived in this asset exists through an estimation of this implied volatility over the next 30 days. When the value of the VIX is raised, this translates to a more volatile underlying market (S&P 500), and vice versa. In October and November of last year, the VIX peaked above 80, which the VIX is currently trading at 22.41. This value is nearly equivalent to pre-2008 market crash levels.
Relating to this, there is a well written article in Barron’s that claims that current implied volatility levels do not accurately reflect the fundamentals of current market conditions. (http://online.barrons.com/article/SB125846366940352017.html) I would have to agree with the author for the following reasons. Times have been cheery for investors over the last six months, and the S&P 500 alone has gained a solid 25.76% over this time period. Although economic indicators such as unemployment, consumer confidence, housing data, and GDP growth remain less than encouraging, the equity markets have in many ways over-extended itself in terms of anticipating recovery. However, the VIX itself hardly provides any pessimism through its underlying value.
One last interesting area of activity regarding the VIX can be seen through VIX options. Calls have become increasingly more expensive as of late, and trade volume of this derivative has been steadily increasing. This portrays that many traders are anticipating that volatile times lie ahead.
Relating to this, there is a well written article in Barron’s that claims that current implied volatility levels do not accurately reflect the fundamentals of current market conditions. (http://online.barrons.com/article/SB125846366940352017.html) I would have to agree with the author for the following reasons. Times have been cheery for investors over the last six months, and the S&P 500 alone has gained a solid 25.76% over this time period. Although economic indicators such as unemployment, consumer confidence, housing data, and GDP growth remain less than encouraging, the equity markets have in many ways over-extended itself in terms of anticipating recovery. However, the VIX itself hardly provides any pessimism through its underlying value.
One last interesting area of activity regarding the VIX can be seen through VIX options. Calls have become increasingly more expensive as of late, and trade volume of this derivative has been steadily increasing. This portrays that many traders are anticipating that volatile times lie ahead.
Monday, November 16, 2009
High-yield sowing the seeds of underperformance?
For the year to October 31st, the Merrill Lynch High Yield Master II index had returned a total of 51.2%. By comparison, the Russell 2000 index (a small-cap index) had returned a mere 14.1%.
Leverage World , a reputable publication on high-yield, compiles a crude benchmark of relative performance between junk bonds and small-cap equities. This index simply divides the performance of the Russell by that of the ML index starting in the year 2000. Since then, the two indices have tracked fairly closely. For the aforementioned period in 2009, the index shows a stark underperformance of the Russell 2000 by a 2.2x standard deviation. Historically, as noted by Leverage World, such a deviation of performance has not persisted for long.
According to the ICI, for first three quarters of 2009, U.S. long-term bond mutual funds have experienced net inflows of some $267 billion in comparison to U.S. long-term equity mutual fund net inflows of just $4.3 billion. Meanwhile, globally, investors have bought into a record $2.7 trillion of corporate bonds (WSJ). (Interestingly, of the new domestic issuance in the U.S., 75% has been used to refinance old debt.)
Where does this leave us? It seems that the relative outperformance of high-yield debt combined with a glut of debt issuance bodes poorly for these securities. In terms of relative performance for the foreseeable future, it seems equities are the way to go.
Group 12
Sunday, November 15, 2009
Wal-Mart Exceeds Estimates, Sees Sluggish Holiday Season
On November 12, Wal-Mart reported earnings for the third quarter ending October 31 of $3.24 billion or 84 cents a share, up 3.2% from last quarter’s results. Analysts expect earnings of approximately $1.12 per share for Wal-Mart’s fiscal year fourth quarter, while the world’s largest retailers expect $1.08 per share.
Eduardo Castro-Wright, Wal-Mart’s U.S. chief offered tempered guidance in last Thursday’s conference call, warning about customers being cautious in their holiday spending. Other prominent retailers, such as Macy’s and Kohl’s provided similar guidance, expecting sales to be slightly below analyst estimates.
While we’ve seen the equity markets skyrocket over the last six months, it doesn’t seem as if their gains are instilling any life into consumer confidence. Investors are most likely asking whether or not aggressive pricing strategies can do anything to bolster the bottom lines of these big-box stores, and if any higher-end retailers can compete.
With unemployment hovering above 10%, and real unemployment right around 18%, this holiday season should certainly be sluggish, which makes Wal-Mart, TJX Companies, and Family Dollar very enticing to investors.
http://online.wsj.com/article/BT-CO-20091112-713379.html
~Group 8
Saturday, November 14, 2009
Mutual Funds Time Market
To address the concerns of investors that mutual funds are not adaptable enough to hold their own in a down market, a number of funds have taken a more dynamic approach to portfolio allocation and have begun to time the market by shifting in between cash and regular investments on a frequent basis. The managers of these funds claim to outsmart the volatility of the market.
This strategy has worked for some funds, such as Ivy Asset Strategy, which has made 14.9% annually for the five years ended this November (about 14% above the S&P 500). For other funds, attempts to time the market have led to increased volatility. For example, the Encompass Fund used the strategy of jumping in between allocation to cash and allocation to investments. It fell 62% last year and gained 110% this year.
Additional problems with the timing the market as a mutual fund are higher transaction costs due to the increase in trading and the possibility that the fund goes to cash before a market rally.
Regardless, these types of funds add some much-needed variety to the predominately buy-and-hold mutual fund market and should be considered in a down market for investors that don’t actively manage their portfolio.
-Erik Ringo – Group 11
Friday, November 13, 2009
Hedge Fund Watch – Watching the Smart Money – Kraft Acquiring Cadbury
Background Information
Watching the smart money is very important. John Paulson, hedge fund manger specializing in risk arbitrage (betting on mergers) has doubled his stake on Cadbury and betting this deal will close. Eton Park , run by Eric Mindrich, also has a sizable investment of about 2.5%. A recent SEC filing has showed that Paulson owns about 2% by buying 14.8 million shares.
The bet came after Kraft took its $16.7 billion bid for Cadbury directly to shareholders on Monday, after the board of Cadbury, a chocolate company based in Britain, rejected the offer as too low.
Why the deal will go through
The reason this deal will go through is due to the rules of the deal. The differences between British rules and US rules are likely to bring a quicker close to the takeover battle and force Cadbury to fight this hostile offer on issues of price instead of resorting to the takeover defenses commonly employed in the United States.
The main difference between Britain and the United States in rules is that Britain requires that any bidder that have committed financing at the time of the making of its offer. Because of this, Kraft has been forced to drop its financing condition and replace it with a committed debt facility. In addition, because Britain does not allow due diligence conditions, Kraft has now dropped this condition as well (i.e deal goes a lot faster and costs less).
These regulatory differences, seem really weird, but exist for good reasons. For example, they need these rules because the US needs a special mechanism for a board to protect the corporate enterprise by adopting takeover defenses. In Britain there are substitutes for takeover defenses such as different labor laws so they don’t need one. Thus, again faster and cheaper cost of the deals.
By Group 1
Watching the smart money is very important. John Paulson, hedge fund manger specializing in risk arbitrage (betting on mergers) has doubled his stake on Cadbury and betting this deal will close. Eton Park , run by Eric Mindrich, also has a sizable investment of about 2.5%. A recent SEC filing has showed that Paulson owns about 2% by buying 14.8 million shares.
The bet came after Kraft took its $16.7 billion bid for Cadbury directly to shareholders on Monday, after the board of Cadbury, a chocolate company based in Britain, rejected the offer as too low.
Why the deal will go through
The reason this deal will go through is due to the rules of the deal. The differences between British rules and US rules are likely to bring a quicker close to the takeover battle and force Cadbury to fight this hostile offer on issues of price instead of resorting to the takeover defenses commonly employed in the United States.
The main difference between Britain and the United States in rules is that Britain requires that any bidder that have committed financing at the time of the making of its offer. Because of this, Kraft has been forced to drop its financing condition and replace it with a committed debt facility. In addition, because Britain does not allow due diligence conditions, Kraft has now dropped this condition as well (i.e deal goes a lot faster and costs less).
These regulatory differences, seem really weird, but exist for good reasons. For example, they need these rules because the US needs a special mechanism for a board to protect the corporate enterprise by adopting takeover defenses. In Britain there are substitutes for takeover defenses such as different labor laws so they don’t need one. Thus, again faster and cheaper cost of the deals.
By Group 1
Thursday, November 12, 2009
Benmosche
AIG's CEO, Benmosche is threatening to leave because his salary is being too closely regulated by the government. Benmosche has already threatened to step down as AIG's CEO multiple times, and is adding to the unstable atmosphere at AIG. If he's going to step down, he should just stop talking about it and do it. However, if Benmosche does step down, it is possible that AIG's recent recovery efforts will be disrupted. The $10.5 million pay package offered to this already wealthy individual does not seem like that bad of an offer.
He is more complaining about the salary restrictions on his employees. His salary since being finalized, is the largest compensation package approved by the Treasury department. However, he "told AIG’s board last week he may quit because caps on compensation hurt his ability to retain staff", which is more understandable. This is an interesting example of how separate and distinct the businesses and public policy makers are. Whether or not you believe Benmosche is correct in his frustration, it brings up an interesting disconnect.
He is more complaining about the salary restrictions on his employees. His salary since being finalized, is the largest compensation package approved by the Treasury department. However, he "told AIG’s board last week he may quit because caps on compensation hurt his ability to retain staff", which is more understandable. This is an interesting example of how separate and distinct the businesses and public policy makers are. Whether or not you believe Benmosche is correct in his frustration, it brings up an interesting disconnect.
-Group 3
WSJ Article
HP buys 3COM for 2.7B
On Wednesday, HP announced that it will be acquiring 3COM for 2.7B. In addition to the announcement of the deal, HP raised its guidance as well as pre-releasing earnings, beating forecasts. However, the revisions lacked significant substance, with only a comment from the CEO regarding growth in China.
This deal is also seen as a move to compete directly with Cisco, the leader in networking systems. This supports the CEO's statement on the outlook revisions, as 3COM obtains nearly half of its revenue from the Chinese Market. The trend in the industry seems to be heading toward consolidation creating companies which can provide for all technology needs in one place.
HP will pay $7.90 per share, and 3COM has already traded up to 7.67 after hours, nearly closing the spread with a 35% move. HP in effect is attempting to expand from the hardware business into more profitable service areas of business. The company plans to fold 3COM services into its existing networking equipment line.
This deal follows Dell's recent acquisition of Perot Systems Corp,as well as Xerox Corporation's takeover of Affiliated Computer Services.
Group 6
This deal is also seen as a move to compete directly with Cisco, the leader in networking systems. This supports the CEO's statement on the outlook revisions, as 3COM obtains nearly half of its revenue from the Chinese Market. The trend in the industry seems to be heading toward consolidation creating companies which can provide for all technology needs in one place.
HP will pay $7.90 per share, and 3COM has already traded up to 7.67 after hours, nearly closing the spread with a 35% move. HP in effect is attempting to expand from the hardware business into more profitable service areas of business. The company plans to fold 3COM services into its existing networking equipment line.
This deal follows Dell's recent acquisition of Perot Systems Corp,as well as Xerox Corporation's takeover of Affiliated Computer Services.
Group 6
Wednesday, November 11, 2009
2 big m&a deals this week
Northrop Grumman sells TASC unit to private equity funds KKR and General Atlantic. From a government contracting perspective this is interesting because it is the first deal that is an indication of large defense companies actually selling assets to comply with new regulation not allowing contractors to provide consulting services to the government while also trying to sell it products.
From a private equity standpoint, even though it is only a billion dollar deal it took three banks to provide the leverage. The good thing is that financial sponsors are once again starting to make large investments.Thoma Bravo sold Datatel to Hellman and Friedman for approximately $570 million yielding a 4x return. Even in this down market strategic investments from financial sponsors can continue to yield impressive returns.
Another thing to note is the sponsor to sponsor activity--generally a positive meaning that even at a relatively high valuation pe funds are willing to pay up for a quality business.
Nick Deflorian, Group 2
From a private equity standpoint, even though it is only a billion dollar deal it took three banks to provide the leverage. The good thing is that financial sponsors are once again starting to make large investments.Thoma Bravo sold Datatel to Hellman and Friedman for approximately $570 million yielding a 4x return. Even in this down market strategic investments from financial sponsors can continue to yield impressive returns.
Another thing to note is the sponsor to sponsor activity--generally a positive meaning that even at a relatively high valuation pe funds are willing to pay up for a quality business.
Nick Deflorian, Group 2
Buffet's Burlington Bet
Link:
http://online.barrons.com/article/SB125731575786627535.html
Last week, Warren Buffett made one of the biggest bets on the US economy since the start of the recession. He put up $34 billion in cash and stock to buy the remaining 78% of Burlington Northern Railroad that Berkshire Hathaway didn’t already own. It seems like Buffett is making a huge gamble on the economic state of our country, but when one looks closer, it looks like Buffett is gambling on greater foreign growth.
With an extensive web of track across the United States, Burlington Northern looks like an indicator of the US economy. With Union Pacific as the only larger railroad in America, Burlington is the biggest transporter of food products and coal (it has enough of the energizing rock to generate 10% of the nation’s electricity).
But when Burlington Northern is looked at closer, it appears to be a better indicator of the global economy. With major ports on the west coast in both the US and Mexico, the railroad can transport goods to the west to be shipped to Asia. It is also convenient in bringing imported goods from China and other eastern countries to the central and eastern American territories.
In addition to this, the current of the US must be considered. With bankruptcies, foreclosures, and credit-card defaults at record highs, consumer spending has obviously plummeted. Why is Buffett supposedly making a move on these conditions at this specific time? As he gets even older, Buffett is going to look to put his billions to work. And one of the best places to start right now is with emerging global markets.
http://online.barrons.com/article/SB125731575786627535.html
Last week, Warren Buffett made one of the biggest bets on the US economy since the start of the recession. He put up $34 billion in cash and stock to buy the remaining 78% of Burlington Northern Railroad that Berkshire Hathaway didn’t already own. It seems like Buffett is making a huge gamble on the economic state of our country, but when one looks closer, it looks like Buffett is gambling on greater foreign growth.
With an extensive web of track across the United States, Burlington Northern looks like an indicator of the US economy. With Union Pacific as the only larger railroad in America, Burlington is the biggest transporter of food products and coal (it has enough of the energizing rock to generate 10% of the nation’s electricity).
But when Burlington Northern is looked at closer, it appears to be a better indicator of the global economy. With major ports on the west coast in both the US and Mexico, the railroad can transport goods to the west to be shipped to Asia. It is also convenient in bringing imported goods from China and other eastern countries to the central and eastern American territories.
In addition to this, the current of the US must be considered. With bankruptcies, foreclosures, and credit-card defaults at record highs, consumer spending has obviously plummeted. Why is Buffett supposedly making a move on these conditions at this specific time? As he gets even older, Buffett is going to look to put his billions to work. And one of the best places to start right now is with emerging global markets.
Tuesday, November 10, 2009
Spin-Offs, Stubs and Liquidations
Below is a VERY simple and interesting look at spin-offs, stubs and liquidations, prsented by Mario Gabelli's GAMCO:
Gabelli Stubs, Spin-Offs and Liquidations
Gabelli Stubs, Spin-Offs and Liquidations
Sunday, November 8, 2009
Time to Short Gold?
Gold has recently hit new highs. It’s time to ask, “Is it time to short gold?”
Historically, gold has been a commodity that investors flock to when the dollar loses value, often during times of inflation. Gold prices have shot up since the recession due to low fed rates and the stimulus package, which flooded the market with liquidity, devaluing the US dollar.
Now that gold has hit these peaks, we must consider whether it’s time to become bearish. As Evan said in last week’s meeting, the recession is technically “over.” The DOW is back over 10,000, and consumer confidence is way up from February (it was in the 20’s then and is up around 50 now), signaling that we are in the midst of significant economic recovery.
Fed rate futures indicate that investors believe the Fed to begin raising rates in April or May, which will reduce liquidity and help to raise the value of the dollar. The dollar is also sure to increase in value with the recovery of the American economy because foreign investors will need dollars in order to invest in American companies. Finally, the Fed does not believe that inflation is a worry in the current economic climate.
These indicators seem to show that gold will not be as juicy of an investment for long. And, having just hit new highs, it has a far way down to go.
Historically, gold has been a commodity that investors flock to when the dollar loses value, often during times of inflation. Gold prices have shot up since the recession due to low fed rates and the stimulus package, which flooded the market with liquidity, devaluing the US dollar.
Now that gold has hit these peaks, we must consider whether it’s time to become bearish. As Evan said in last week’s meeting, the recession is technically “over.” The DOW is back over 10,000, and consumer confidence is way up from February (it was in the 20’s then and is up around 50 now), signaling that we are in the midst of significant economic recovery.
Fed rate futures indicate that investors believe the Fed to begin raising rates in April or May, which will reduce liquidity and help to raise the value of the dollar. The dollar is also sure to increase in value with the recovery of the American economy because foreign investors will need dollars in order to invest in American companies. Finally, the Fed does not believe that inflation is a worry in the current economic climate.
These indicators seem to show that gold will not be as juicy of an investment for long. And, having just hit new highs, it has a far way down to go.
By Alex Green
Saturday, November 7, 2009
Treasuries Prices Remain High
Treasury yields have fallen since the summer, despite a rising risk appetite and strong global capital markets. This is certainly beneficial for the U.S. since the government can borrow at relatively cheaper rates, decreasing the overall cost of the U.S. government’s fiscal agenda.
Why are treasuries holding onto their high dollar price? Most important, the Fed is not expected to raise interest rates until well into next year. While the Fed has much more control over short term rates, they can influence longer term interest rates by purchasing treasury issues along the entire yield curve. Also, financial markets are still riskier relative to 2003-2007 levels. However, the S&P is up from around 900 in July and the 10-year treasury yield is down to roughly 3.5% from a high of over 4% over the summer, which seems to break the growing risk appetite trend that had investors shifting from treasuries to corporate debt and equities earlier in the year.
Unfortunately, treasury yields can not stay low forever, especially when the government often auctions over $60 billion in one week; for example, the treasury is offering $81 billion in 3-, 10-, and 30-year issues next week. With the largest budget deficit in history, a falling dollar, and the imminent decision by the Fed to raise rates next year could mean trouble for treasury bonds. If treasury yields rise significantly next year while the government continues to borrow at record pace, the cost of our fiscal deficit will increase significantly, even if spending stays constant.
http://online.wsj.com/article/SB125743276994630887.html
http://www.marketwatch.com/story/bonds-give-up-gains-after-jobless-claims-fall-2009-11-05?siteid=rss
Group 5
Why are treasuries holding onto their high dollar price? Most important, the Fed is not expected to raise interest rates until well into next year. While the Fed has much more control over short term rates, they can influence longer term interest rates by purchasing treasury issues along the entire yield curve. Also, financial markets are still riskier relative to 2003-2007 levels. However, the S&P is up from around 900 in July and the 10-year treasury yield is down to roughly 3.5% from a high of over 4% over the summer, which seems to break the growing risk appetite trend that had investors shifting from treasuries to corporate debt and equities earlier in the year.
Unfortunately, treasury yields can not stay low forever, especially when the government often auctions over $60 billion in one week; for example, the treasury is offering $81 billion in 3-, 10-, and 30-year issues next week. With the largest budget deficit in history, a falling dollar, and the imminent decision by the Fed to raise rates next year could mean trouble for treasury bonds. If treasury yields rise significantly next year while the government continues to borrow at record pace, the cost of our fiscal deficit will increase significantly, even if spending stays constant.
http://online.wsj.com/article/SB125743276994630887.html
http://www.marketwatch.com/story/bonds-give-up-gains-after-jobless-claims-fall-2009-11-05?siteid=rss
Group 5
Wednesday, November 4, 2009
Good news for Ford?
This is Ford's first operating profit in over 4 years and was primarily brought on through higher prices and a larger market share. Ford lost $357 million in the same quarter last year. Ford now expects to be "solidly profitable" by 2011. All this good news should not muddle important issues facing the company. Massive incentive programs around the world including the US and Germany are now all but over. The company feels that even if the US does well over the next couple of years, they are very worried about Europe. Declines in sales there might more than offset gains in sales over here. The company is also in the midst of several crucial negotiations with the UAW that could prove to be a tipping point for the company. All said and done, the $1 billion dollar profit is great news but much more of that needs to come from Dearborn to consider Ford a healthy company.
Group 3
Group 3
Buffet's Buy
Warren Buffett, 79 years old, is acquiring a railroad company he expects will grow with American trade in the next few decades. As the economy starts to pick up and consumption volume increases, he believes Burlington-Northern will also build up. This bet for Buffett is an investment in a "high quality, cash generating company [that has] been left in the dust during the 'junk' stock rally". The only competition he is considering are other railroads that will have a difficult time coming into the market due to the high costs of laying down a track. Some thoughts of possible competitors will be highspeed railroads or who knows, even some kind of efficient air transportation for goods 30 years from now. And looking forward, where will Buffet be? 109 years old? He seems to be thinking about the future of his company and those he's leaving in charge. Let's hope they are just as excited about this acquisition as he is.
Group 3
WSJ article
Group 3
WSJ article
Companies Hoard Cash
Links:
WSJ Article: http://online.wsj.com/article/SB125712303877521763.html
Bloomberg Article: http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=C%3AUS&sid=aoegJmRxtzQA
Companies are hoarding cash at levels not seen since the 1960s. According to an article titled Jittery Companies Stash Cash in the November 2nd Wall Street Journal “500 of the largest nonfinancial companies…held about $994 billion in cash, or 9.8% of their assets”. That is 2% more than last year. Now, we all remember the 3.5% growth in GDP last week, so why are companies saving cash?
Some explain this phenomenon as a “hangover” from the recession, while others claim that firms are inherently “riskier” these days. Among the 500 largest nonfinancial groups, information technology groups carry the most cash. The Wall Street Journal explains that “the 54 biggest information-technology firms held $280 billion – or 27% of their assets – in cash” citing Google as an example; “The search giant’s cash and short-term investments rose 53% to $22 billion in the third quarter from a year earlier, accounting for 58% of its total assets”
Although holding cash provides a safety net and “operating and strategic flexibility,” it begs the question of whether that cash could be put to better use in a possible future bull market. Now making market predictions could be dangerous business, but holding cash could stifle a company’s growth in a globalized market. On the other hand, holding cash could provide companies a quick source of liquidity in unsure financial times. Also, without ready access to credit, “cash can become very strategic”.
In a recent Bloomberg article, the author claimed that Citigroup and JP Morgan were “hoarding cash as if another crisis were on the way”. The article explains how Citigroup has nearly doubled its holdings in cash. Although hoarding cash may be the safe move, “it will take down the rates of returns these companies can generate” said Eric Hovde in the Bloomberg article.
This action brings into question whether banks should value rate of return over a safety net. On one hand, a safety net would ensure Citigroup’s existence and financial safety while recovering from a financial crisis. While on the other hand, investors responded to Citigroup’s diminishing rate of return through a massive sell-off on Monday. Is a bank without a decent rate of return worth investing in? Is a bank without ability to secure cash worth investing in? How much of Citigroup’s rate of return must be sacrificed for adequate financial security? We believe these questions are at the heart of Citigroup’s decision to hold more cash.
WSJ Article: http://online.wsj.com/article/SB125712303877521763.html
Bloomberg Article: http://www.bloomberg.com/apps/news?pid=conewsstory&tkr=C%3AUS&sid=aoegJmRxtzQA
Companies are hoarding cash at levels not seen since the 1960s. According to an article titled Jittery Companies Stash Cash in the November 2nd Wall Street Journal “500 of the largest nonfinancial companies…held about $994 billion in cash, or 9.8% of their assets”. That is 2% more than last year. Now, we all remember the 3.5% growth in GDP last week, so why are companies saving cash?
Some explain this phenomenon as a “hangover” from the recession, while others claim that firms are inherently “riskier” these days. Among the 500 largest nonfinancial groups, information technology groups carry the most cash. The Wall Street Journal explains that “the 54 biggest information-technology firms held $280 billion – or 27% of their assets – in cash” citing Google as an example; “The search giant’s cash and short-term investments rose 53% to $22 billion in the third quarter from a year earlier, accounting for 58% of its total assets”
Although holding cash provides a safety net and “operating and strategic flexibility,” it begs the question of whether that cash could be put to better use in a possible future bull market. Now making market predictions could be dangerous business, but holding cash could stifle a company’s growth in a globalized market. On the other hand, holding cash could provide companies a quick source of liquidity in unsure financial times. Also, without ready access to credit, “cash can become very strategic”.
In a recent Bloomberg article, the author claimed that Citigroup and JP Morgan were “hoarding cash as if another crisis were on the way”. The article explains how Citigroup has nearly doubled its holdings in cash. Although hoarding cash may be the safe move, “it will take down the rates of returns these companies can generate” said Eric Hovde in the Bloomberg article.
This action brings into question whether banks should value rate of return over a safety net. On one hand, a safety net would ensure Citigroup’s existence and financial safety while recovering from a financial crisis. While on the other hand, investors responded to Citigroup’s diminishing rate of return through a massive sell-off on Monday. Is a bank without a decent rate of return worth investing in? Is a bank without ability to secure cash worth investing in? How much of Citigroup’s rate of return must be sacrificed for adequate financial security? We believe these questions are at the heart of Citigroup’s decision to hold more cash.
Who is Paolo Pellegrini?
Group 1:
Who he is?
Who is this relatively unknown man? If you don’t know him you should. He played an integral part in the research and investment ideas that lead to Paulson’s 570% return in 2007 due to the mortgage mess. In 2008, he left hedge fund Paulson & co to start his own called PSQR Management LLC, a global macro fund.
Portfolio Performance
In 2008 he was up over 50% this year. In 2009 he is up over 80%. He made money in 2008 by shorting a lot of financial ETFS and he started shorting long term treasuries (or betting on rising yields). Pellegrini is also bullish on commodities, especially those that are scarce or of daily necessity. In particular, he likes oil and has been buying oil futures. He likes commodities since he sees global competition for them elevating. Given this commodity thesis, he also likes the Australian Dollar as the country benefits from their natural resources.
Future thoughts on the Market
Pellegrini still has a gloomy outlook for the economy. He sees the market essentially trading sideways and could even generate negative returns once you adjust it for inflation as he calls for "anemic real returns." He cites budget deficits, household debt, and increased regulation amongst other things. He has also been shorting long-term Treasuries and still going long crude oil in a wager that was formulated on the basis of dollar devaluation. He cites massive stimulus programs, huge corresponding deficits, and the fact that the US is now a debtor nation. This is also the reason for the currency's value dropping.
More in depth article
http://www.bloomberg.com/apps/news?pid=20601109&sid=akryRHYHS0Sg
Look for Paolo Pellegrin’s Bloomberg Interview on October 2nd.
Who he is?
Who is this relatively unknown man? If you don’t know him you should. He played an integral part in the research and investment ideas that lead to Paulson’s 570% return in 2007 due to the mortgage mess. In 2008, he left hedge fund Paulson & co to start his own called PSQR Management LLC, a global macro fund.
Portfolio Performance
In 2008 he was up over 50% this year. In 2009 he is up over 80%. He made money in 2008 by shorting a lot of financial ETFS and he started shorting long term treasuries (or betting on rising yields). Pellegrini is also bullish on commodities, especially those that are scarce or of daily necessity. In particular, he likes oil and has been buying oil futures. He likes commodities since he sees global competition for them elevating. Given this commodity thesis, he also likes the Australian Dollar as the country benefits from their natural resources.
Future thoughts on the Market
Pellegrini still has a gloomy outlook for the economy. He sees the market essentially trading sideways and could even generate negative returns once you adjust it for inflation as he calls for "anemic real returns." He cites budget deficits, household debt, and increased regulation amongst other things. He has also been shorting long-term Treasuries and still going long crude oil in a wager that was formulated on the basis of dollar devaluation. He cites massive stimulus programs, huge corresponding deficits, and the fact that the US is now a debtor nation. This is also the reason for the currency's value dropping.
More in depth article
http://www.bloomberg.com/apps/news?pid=20601109&sid=akryRHYHS0Sg
Look for Paolo Pellegrin’s Bloomberg Interview on October 2nd.
Gold Extends Run to Record Highs
Group 12:
The price of December gold futures continued to go up in Wednesdays’ early trading reaching record highs of $1,096.5an ounce, up $7.90 from its previous close, mainly due to Tuesday’s 200 tons purchase of gold by India’s central bank. This push in price has also come due to a long-term bull market and fears of inflation and a weaker dollar.
http://online.wsj.com/article/SB125734377038028007.html
The price of December gold futures continued to go up in Wednesdays’ early trading reaching record highs of $1,096.5an ounce, up $7.90 from its previous close, mainly due to Tuesday’s 200 tons purchase of gold by India’s central bank. This push in price has also come due to a long-term bull market and fears of inflation and a weaker dollar.
http://online.wsj.com/article/SB125734377038028007.html
Tuesday, November 3, 2009
Ford is Revving...
Ford Motor Company reported their first North American Profit since 2005. Not only is this a positive step for the entire automobile industry, but it also signifies a positive change in Detroit's suffering economic situation. In addition to announcing a $997 million profit, the company also revised their forecast for 2011.
"All domestic automakers reported positive numbers last month, but Ford Motor became King of the Hill by producing the best-a one billion dollar profit.
The company saw sales of its Ford, Lincoln and Mercury vehicles shoot up 21% versus the month before and increased 3% versus a year ago. October is the third time in the last four months that Ford sales have increased.
The company reported that sales of the Ford Taurus up 141% versus a year ago and Ford Fusion were up 24%. Sales of Ford Mustang were up 2%, Lincoln MKZ sales were up 27%, and Ford Escape sales jumped 26%. The crossovers Ford Edge and Flex saw 38% and 8% sales increases, respectively."
Ford also gained market share for the third straight month, and now has 21% of the total light-vehicle market. Comparatively, Toyota Motor Sales reported a 3.5% decrease in sales versus last October. "
Looking ahead, 2011 is going to be a pivotal year for Ford.
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