Private Equity Eyes the East

With the announcement that the Carlyle Group, the Washington, D.C. based
private equity firm with strong ties to the Bush's, Saud's and the global
power-elite, announce its plans for a new yuan-denominated fund, everybody
took note. Foreign PE wants a slice and and sees yuan-denominated funds as
a way to gain competitive advantage in the Chinese markets which heavily
regulate foreign capital. Some view yuan-denominated fund raising as a
silver-bullet solution to both the myriad of regulations that govern the
use of foreign capital as well as the desire to gain exposure to the
break-neck pace of growth in the Chinese economy which grew 8.7% last year.

Carlyle isn't the only one who wants a piece of the pie, Kohlberg Kravis
Roberts & Co (KKR) and Texas Pacific Group (TPG) announced yesterday that
they are in talks to jointly acquire China International Capital
Corporation (CICC) from Morgan Stanley. Whether or not they will
successful against the heavily favored by regulation and well-connected
local competition remains to be seen. However, one thing is for sure,
there is no shortage in demand for gaining access to the Chinese economy,
which has continued to rapidly develop while the developed word has
stagnated in the aftermath of the financial crisis.

Authored by Stephen Balaban

Greece Update

Greece has just delayed its bond sale, as it negotiates with the EU on budget targets a Bloomberg report stated. The nation is likely holding out to garner some concessions regarding the proposed spending cuts its neighbors are trying to enforce. Greece intends to reduce its budget deficit by 4 percentage points this year, and return it to the 3 percent limit set by the EU sometime in 2012. It is anticipated the nation will sell $6.8 Billion in bonds as early as next month.


Greece is struggling under its current debt, and is making every attempt to borrow at reasonable levels to meet its current needs. 20 Billion of redemptions are anticipated by the end of May, and the country is estimated to need at least 53 Billion more Euros through the course of the year. If no progress is made, Greece may have to seek funding from the IMF in mid-March. Without a guarantee from the EU, it is estimated that Greece will have to offer a premium of over 400 basis points to German bunds.



http://www.bloomberg.com/apps/news?pid=20601087&sid=aEyJBXEF0zjw


Group 6

What Should We Learn from Wal-Mart’s Numbers?

According to Yahoo! Finance, the largest retailer in the world reported a 22% increase in its fourth quarter profit, citing cost cutting and inventory reduction as the main drivers in bottom-line success. However, this only paints a portion of the picture. Although total sales rose nearly 5% to 113.6 billion, same-store sales, which is often a more important measure of customer sentiment, fell 1.6%.

Current CEO, Mike Duke, who’s now entering his second year at the helm, said in a statement that he expects continued strong growth in international markets, but struggles at home in the United States. Unfortunately, many business leaders are echoing similar beliefs: Emerging markets continue to emerge while the United States remains tempered by sluggish economic prospects.

Looking deeper into the results, it becomes clear that top-line declines can be attributed to lower prices across the board, specifically in groceries and electronics. Industry experts are saying that this deflation has had to occur because people who typically shop at Wal-Mart may still be facing dire economic conditions and won’t shop if they believe they are paying more for goods than in previous years.

Although Wal-Mart is trading down today, this may be a good sign for the broader economy. It may be true that people who were shopping at Wal-Mart throughout 2008 and 2009 have decided to shop at higher end retailers and smaller grocery stores. After listening to CNBC this morning (February 18, 2010), Darden Restaurant CEO seemed positive about the prospects of his restaurant’s target customer, who according to his beliefs, make anywhere from 50,000 to 80,000 dollars per year. So, while Wal-Mart may be suffering slightly, there is potential for a broader economic recovery as well.

BY GROUP 8: Alex Harris, Brandon Lebowitz, Kevin Ondyak

The S.E.C.'s At it Again

The destructive force of the 2008 financial recession was nothing to be trifled with. After sifting through the flotsam and jetsam of various companies' and funds' remains, both businessmen and lawmakers are desperately searching for ways to mitigate such disasters in the future. While the primary concern for many on Wall Street has been getting the firm they work for back in the black or clambering out of their fund's BBB rating, the government has decided this is the opportune time to reach it's hand into America's financial affairs. One may ask, "How can the government prevent such recessions from happening again? Hasn't the Fed been taking care of this problem with interest rate cuts, bailouts, and executive compensation cuts?" Yes, but the extent of success has been limited, at least in the short term. However, hen looking around the table of government entities, it is clear that one body has been stepping up their game recently.

That's right, the S.E.C. has become a legitimate force to be reckoned with. Not only have they been making headlines with their massive Galleon Group bust and sizzling snapshots of their ringleader, Mr. Raj Rajaratnam (so affectionately dubbed "RajRaj") doing the perp walk with some blue-coated, Federal agent badasses, but they have also been revamping their internal policies for future crisis control. As an emergency precaution during the later months of 2008, the S.E.C. placed a ban on financial transactions resulting in what is known as "shorting" or "short-selling" in an attempt to control traders' ability to profit on the loss in value of equities and securities.

After the tornado siren had been turned off and the recession was considered "over," it would be safe to assume that financial activity should have resumed a somewhat normal modus operandi. Not quite. The S.E.C. has begun discussing permanent policies to be enacted that would severely limit short-selling on a hush-hush basis, meaning that more transactions will have to be disclosed to the public in order to diminish the sudden and uncontrolled tank in stock prices that often result from large transactions.

This proposed action has many investors in an uproar, including Richard Baker, president of Managed Funds Association. When discussing the negative implications of such action, the president stated, "This independent study demonstrates that recently adopted public disclosure rules in the U.K. have impeded equity market liquidity, decreased trading volumes and interfered with efficient price discovery in affected stocks, driving up transaction costs for mainstream investors and burdening businesses with a higher cost of capital."

Regulators within the S.E.C. are keen on coming to an agreement whether to pursue such action, but at this time one can only speculate how far the government will go to ensure "financial stability" in America.

Gabriel C. Suprise, Group 2

The Market Sell-off

The market has been noticeably more volatile during the last two weeks during a sharp downward trend. But how much of this is reflecting the strength of the economy? The ISM Manufacturing Index, new jobless claims, and UM's Consumer Sentiment are as strong as they have been since 2008, and the fact that the Federal Reserve is becoming relatively more hawkish suggests the economy is strong enough to withstand less monetary stimulus. So where is this volatility coming from? Some possible reasons include uncertainty over how and when the Federal Reserve will tighten monetary policy, the discussion of a international bank tax, and the potential bailout of Greece. Most of these issues will probably take several months, if not years, to resolve.

Group 5

Fed Looking to Withdraw Liquidity

Chairman Bernanke came out today to discuss the possibility to increasing the Fed's discount rate in the near future. The Fed's discount rate, cousin to the more famous Fed fund's rate, is essentially the interest rate at which banks can borrow directly from the Fed.

His raising of the rate would signal that the financial sector is stable enough to operate without any more aid from the Fed, and that upward revision to the Funds rate is on the horizon as well.

In addition, he talked about raising the rate at which the Fed pays interest on bank's required reserves, another measure to withdraw liquidity from the financial system. Taking both actions together, it would seem that Bernanke is bullish on the state of the US economy, and that he is beginning to anticipate, if not take a tougher stance, on inflation.

Group 2

Greece

Talks have begun to develop regarding the idea of other European governments agreeing "in principle" to help Greece. This will most likely come through loan guarantees. It really is the last option as the, "European Investment Bank has ruled out its involvement in a bailout, direct EU aid has been eliminated as a possibility and the European Commission vetoed suggestions of IMF involvement. If Greece is indeed bailed out, it will mark the first rescue of a eurozone member since the currency was launched 11 years ago." Will they follow in the footsteps of the U.S.?

Group 3

WSJ Article

Profiting from Bailouts

Henry Paulson, former Treasury chief, and Warren Buffett believe that the bank bailout was a success and could even turn profitable for the U.S. government and taxpayers. Paulson recently published a book, "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System," defending the government's reaction to the economic crisis. At the Greater Omaha Chamber of Commerce's annual meeting, Paulson, supported by Buffett says, "As bad as this is, when we look back it's not as bad as it could have been." (considering Buffett contributed to helping out some banks). Paulson supports many actions taken by the government in the bank bailout, and believes that Wall Street is corrupt and executive pay packages are too high. Buffett supported Paulson throughout the speech, adding his praise for Paulson, the Bush administration, the new Obama administration, Ben Bernancke, and Timothy Geithner for their actions during the crisis.

Group 3

Yahoo Article

A Sweet Ending?

Amidst much of last year’s gloom, unstable markets, dire economies, corporate bankruptcy and scandal there was one light which managed to get us all to that glorious light at the end of the cold, dark tunnel; witty euphemisms regarding the potential merger between Kraft & Cadbury. It scintillated many market watchers with its drama, the give and take of the first offers, the noble spurning of Kraft’s love by Cadbury CEO Todd Stitzer, even in lieu of a 30% market premium. Though he stood to gain handsomely from the offer he knew Cadbury was a classy girl, it took more than a few pretty pence to win her over. Then in November Kraft formally began its attempts at a hostile takeover. As the tenuous courtship wore on a new suitor was found in Hershey’s. Yea the plot thickened as the two competed for the love of her chocolatey goodness, oh how they coveted her emerging market penetration, just thinking of those growth prospects… But it was not to be between Hershey’s and Cadbury’s, how could it? They were both confectioners, cousins of the first degree; if the authorities cried monopoly their young courtship would be shattered. It soon became apparent that in the end Hershey’s sugary appeal was no match for Kraft’s girthy, gargantuan pocketbook. Many thought Kraft would have her hand when CEO Irene Rosenfeld opted to offer her loads of sweet, sweet equity when, out of nowhere, a cameo appearance by the notorious old man Buffett seemed to throw the whole affair back in limbo. Buffett felt that Kraft was too good for her stating, “I think Kraft is undervalued, I just don’t think it is as undervalued as it was three weeks ago” (The Daily Telegraph). As the bell tolled midnight Kraft made a delicious offer directly to Cadbury’s shareholders, increasing the dowry by 10%, 60% of which was cash, one they simply could not refuse. With the culmination of this tenuous courtship begins a new marriage, the British damsel and the American goliath, hand in hand. When asked as to his feelings towards this unholy and unwanted union Papa Buffett bluntly voiced his disapproval, “If I had a chance to vote on this, I’d vote no”, when asked of his feelings towards the deal’s orchestrator he said, coldly. “I like Irene… She has been straightforward with me, we just disagree.” As this drama concludes there are sure to be postcoital rumblings from both sides, perhaps a headline here or there, maybe tales of the angry love affair between Rosenfeld and Buffett. However, it seems likely that without journalists using witty wordplay to relate aspects of candy to these two companies’ relations, business publications everywhere will revert to their cold, lifeless state, preaching economic doldrums and doom.
Readers at many of the streets firms will manage to get through these hard times, reportedly Goldman Sachs executives are using excessive profits to wallpaper their offices in $100 bills and avoid paying their inevitable exorbitant income taxes. Unfortunately, for some firms the only thing left were those witty turns of phrase. An anonymous employee at Citigroup said, “I don’t know if I can take it anymore. I didn’t mind when we were in the red in 08’, I mean everyone was, right? But in 09, I mean some of those guys are having record years and all I had were those awesome articles where someone would talk about Kraft’s ‘sweet’ offer. I mean honestly, knowing that there were brilliant people out there who had the stones to week in and week employ candy based double entendre, it gave me hope man. The thing with Buffett, had me on pins and needles, he is easily ten times more unpredictable than Tom Cruise, now it’s done, I knew it couldn’t last forever, but I could dream. Now they are saying we might not make money in 2010…” He was silent thereafter, but the listless look in his eyes and the conspicuously placed noose said it all. Yet hope remains, the uptick in Hershey’s stock was dubbed ‘sweet’ by the journal; perhaps if U.S. steel continues to rise some savvy correspondent might title an article ‘Hard not into Buy Steel’ and start the cycle anew, but we can only hope such wit is still out there.

Joey Kryza
Group 2

Not Just Your Average Search Engine

In a rare strategic move, Google has taken the step of applying for approval to become an electricity marketer. This will allow the Internet behemoth to buy and sell bulk power at market prices, similar to major energy traders.

With the formation of Google Energy LLC, Google’s management is utilizing its right to act as a power marketer, purchasing electricity and reselling it to wholesale customers and trading in the bulk power markets. Some believe this could be an attempt to vertically integrate their energy usage, considering the great extent of power they use to keep their servers functioning properly.

From our perspective, this could also be early indication of Google moving into the realm of finance. Could they potentially utilize their unparalleled group of programmers to create high frequency trading algorithms? We don’t see why not.

http://online.wsj.com/article/SB10001424052748704854904574644721659940760.html

Posted by Group 8